Tuesday, July 24, 2007

Bill Bonner, Fall Like a U.S. Dollar, Sting Like a Bee

Fall Like a U.S. Dollar, Sting Like a Bee

By Bill Bonner "The typical American barely notices; but the overseas speculator feels every slight drop in the dollar like a bee sting. And the risk to the world financial bubble is that he might go into shock."

Today's Guest Essay:
Prices Benefit from Spooked Shorts

By The Mogambo Guru "This week, The Mogambo looks at the stock market, and upon hearing about margin debt, consequently chokes on his own tongue. Fortunately, he is able to compose himself, and give yet another rant on the insane creation of money and credit by the Fed. Read on…"

MG writes:

Why are the stock markets and bond markets rising? For the only reason that there is: Because there are more buyers than sellers! Hahahaha!

Okay, I am sorry about laughing, but if I may be so bold as to make a suggestion, perhaps your question would have been better phrased as, "Where are the buyers getting the money to buy all of this stock and bond madness and act like a bunch of morons?"

If that had been your question, I could have saved us both a lot of time by merely sending you to Online.wsj.com, which reports that, "'Margin Debt' Hits Record $353 Billion on NYSE", which means that, "Investors are borrowing record sums of money to finance trades on the New York Stock Exchange."

How much money? The Journal continues, "So-called margin debt, a broad measure of leverage, jumped 11% to $353 billion at the NYSE in May, up from nearly $318 billion in April."

The news that margin debt increased 11% in one month, to a new record, so surprised and alarmed me that I accidentally swallowed my tongue in horror! But, thankfully, it turned out to be okay, since it was soon forced back up by my reflexively puking up blood at the sheer horror of so much speculative debt.

And broker-dealers suddenly find themselves with more money, too, as from Jim Grant's Interest Rate Observer we learn that thanks to the new regulatory system for broker-dealers called Consolidated Supervised Entity, "the broker-dealers (in voluntary fashion) are implementing the risk-based capital rules known in the trade as Basel II.

If this is true, that debt is really financing stock market purchases, should we not agree with what MG says about the intelligence of the American investor?

Basel II: Revised international capital framework

Documents and latest news related to the Revised International Capital Framework, also known as Basel II.

FRB: Basel II Capital Accord, Basel I Initiatives, and Other Basel ...


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