Economics

DV52 · Jan 10, 2017

Jack@European_Parts said:
I am for free trade that is legitimate, not a creative math problem to bilk or make fees based on volatility or speculation to upset an infrastructure.

All CDO and derivatives really have no value to maintaining a fair and balanced market.
This is especially if they can be so corrupt that they can't be policed, no one understands them or is accountable and fuck man...... the tax payer must bail out mass financial institutions or companies & what because it was creative?......................

Jack: Let me pose a scenario and allow me to ask for your opinion -please

Suppose that an entrepreneur wants to invest in a new gas-fired generator on the west coast of America. It doesn't matter where the generator is sited, but for the sake of this scenario let's say that this investor has approval to site the power station in the great State of Nevada to capture the growing demand in California.

To build this power station (which is a stonking huge CAPEX expenditure), the investment must be financially geared, which means that the investor will supply some of her own equity (the best investors in my experience have always been women!) and the rest of the money will be provided by another party (let's say for simplicity, that this is a Bank).

So here's how the conversation with the Bank likely will proceed:

Investor - I would like you to loan me X Million dollars for Y years to build my power station

Bank - hmm............. that's a lot of money, what collateral will you provide?

Investor - well I will put in Z million dollars of my own money

Bank - hmmm....... good and how can you guarantee that the business will be viable over the Y years and that you won't go into chapter 13?

Investor - Well, I have made a forward projection of electricity prices on the Californian Spot marker over the period of the loan and I think that the power station will make sufficient income to pay the loan

Bank - hmmm............No deal! Electricity spot prices are the most volatile of any commodity in any market, we need a far better assurance than your forward price projection for a loan of this timeframe and size. We want to be sure that you can make regular loan repayments - we don't like businesses with volatile income streams and high market risk exposures!!

Investor - OK how about this as a water-tight, rock-solid assurance that the new power station will make a known and constant revenue of the Y years period of the loan - I have signed a deal with a buyer (counterparty) to pay me $XX for every megawatt that the plant generates over the entire Y years?

Bank - hmmm............ well $XX/ mwhr over Y years is more than enough to pay back our loan - but how are you going to insulate the power station from price volatility in the spot market?

Investor - The counterparty and I will sign a swap-deal where the contract price will be $XX/mwhr and the term will be Y years

Bank - OK we can see how the risks in the market will be managed, we are confortable that the power station will have a regular income stream that aligns with the loan repayment conditions - the loan is approved!

This is the value of CFDs - they provide surety of price for a known period. They therefore mitigate price risk for those participants that have off-market risk investment profiles that are not suited to price volatility. Of course for those market participants that view market risk as a positive (ain't nothing wrong with that) , outright price risk exposure is always an option!!

Don

vreihen · Jan 10, 2017

PetrolDave said:
(and in the UK this year current issue £1 coins will become worthless after October)

Did I miss something? Are they changing to paper currency for the Pound coin????? :confused:

DV52 · Jan 10, 2017

PetrolDave said:
"Money" is nothing more than a promise to pay by the bank issuing the money (notes, coins, WHY). UK bank notes have written on them "I promise to pay the bearer on demand the sum of nnn pounds", which IMHO says that the note is nothing more nor less than an IOU.

That's fine if the bank is solvent and able to meet the promise on the IOU, but if there is any doubt about that (as there has been with several banks worldwide over recent years) or as has happened in India recently a decision by the bank that it will no longer honour its IOUs (and in the UK this year current issue £1 coins will become worthless after October) then possession of the actual commodity becomes the safer position.

Dave: True, but you are referring to the "Value" of money - not the notion that money has no "intrinsic utility" (if my understanding of Uwe's term is correct).

But as to the issue of "value", the scenario that you pose works in exactly the same way for any traded commodity - the "value" of the commodity is only applicable at the time that it is traded and the buyer's and the seller's risk is exactly the same as your scenario if the Banks go bankrupt because the entire economy will tank and the worth of the commodity (like the value of cash) will fall dramatically!!. Money and commodities suffer similarly when the underlying economic circumstances are no longer viable. I guess that commodities may have a different value in another country's markets, but I'm not sure that this is guaranteed in today's global markets!
Don

don

PetrolDave · Jan 10, 2017

vreihen said:
Did I miss something? Are they changing to paper currency for the Pound coin?????

No, they're issuing a new style 12 sided dual metal £1 coin in March
http://www.royalmint.com/newonepoundcoin

PetrolDave · Jan 10, 2017

DV52 said:
Dave: True, but you are referring to the "Value" of money - not the notion that money has no "intrinsic utility" (if my understanding of Uwe's term is correct).

But as to the issue of "value", the scenario that you pose works in exactly the same way for any traded commodity - the "value" of the commodity is only applicable at the time that it is traded and the buyer's and the seller's risk is exactly the same as your scenario if the Banks go bankrupt because the entire economy will tank and the worth of the commodity (like the value of cash) will fall dramatically!!. Money and commodities suffer similarly when the underlying economic circumstances are no longer viable. I guess that commodities may have a different value in another country's markets, but I'm not sure that this is guaranteed in today's global markets!

But unlike the scenarios I quoted of worthless money the commodity will almost certainly have some value to the holder, as there is likely still to be need for the commodity even in the event of a total financial collapse and a return to a barter based system.

vreihen · Jan 10, 2017

PetrolDave said:
No, they're issuing a new style 12 sided dual metal £1 coin in March
http://www.royalmint.com/newonepoundcoin

That coin is sooooooooooo ugly that it must have been designed by bureaucrats.....

DV52 · Jan 10, 2017

vreihen said:
That coin is sooooooooooo ugly that it must have been designed by bureaucrats.....

vreihen: I'm not sure that I agree!

The new UK £1 coin looks far better than our dodecahedron-like coin - notwithstanding that ours is only worth a fraction of the UK coin and ours has the same monarch's head on one side (Mrs Windsor looks somewhat younger on our coins)!! No offense Dave, but I'm a fervent believer that an Australian republic is long overdue!

Don

vreihen · Jan 10, 2017

DV52 said:
vreihen: I'm not sure that I agree!

To each his own. Reading the description of the reverse's image, it sounds like it was designed by committee even though it apparently was not.

The only "ugly" coin that I would put up with is a few of these if someone is handing them out:

No offense Dave, but I'm a fervent believer that an Australian republic is long overdue!

I think that the USA provided a pretty good instruction manual for other British territories to break free of the crown. All that you need to do is pick up those guns that you forfeited to your government..... :facepalm:

NZDubNurd · Jan 10, 2017

Who remembers when "Money" was backed up by gold in the Reserve???

Actually, I don't, but that was the last time that "Money" had any real value assigned to it.

Now it's just a number on a computer somewhere (or possibly more than one place

) and relies entirely on peoples faith that the system isn't corrupt.

GOOD LUCK WITH THAT!

vreihen · Jan 10, 2017

NZDubNurd said:
Who remembers when "Money" was backed up by gold in the Reserve???

http://www.theonion.com/audio/fort-knox-receives-85-from-cash4gold-13750

Uwe · Jan 10, 2017

NZDubNurd said:
Who remembers when "Money" was backed up by gold in the Reserve???

The old farts among us still do.

US coinage, specifically the 10-cent dime and the 25-cent quarter were 90% silver until 1964. There were still quite a few of those still in circulation in 1967 and I remember learning how to easily spot the difference between them and the new clad copper ones.

The US Dollar fixed to gold at $35/ounce for FX purposes until 1971, when Nixon pulled the plug on convertibility.

Jack@European_Parts · Jan 10, 2017

Increasing market prices when demand outstrips supply is a form of withholding strategy - perfectly acceptable thing to do!! The diamond market has done this for years!!

No Don it is only acceptable to the few............ not for the good of the collective!

Dave: True, but you are referring to the "Value" of money - not the notion that money has no "intrinsic utility" (if my understanding of Uwe's term is correct).

But as to the issue of "value", the scenario that you pose works in exactly the same way for any traded commodity - the "value" of the commodity is only applicable at the time that it is traded and the buyer's and the seller's risk is exactly the same as your scenario if the Banks go bankrupt because the entire economy will tank and the worth of the commodity (like the value of cash) will fall dramatically!!. Money and commodities suffer similarly when the underlying economic circumstances are no longer viable. I guess that commodities may have a different value in another country's markets, but I'm not sure that this is guaranteed in today's global markets!
Don

don

All bets are off ............

Jack@European_Parts · Jan 10, 2017

Jack: Let me pose a scenario and allow me to ask for your opinion -please

Suppose that an entrepreneur wants to invest in a new gas-fired generator on the west coast of America. It doesn't matter where the generator is sited, but for the sake of this scenario let's say that this investor has approval to site the power station in the great State of Nevada to capture the growing demand in California.

To build this power station (which is a stonking huge CAPEX expenditure), the investment must be financially geared, which means that the investor will supply some of her own equity (the best investors in my experience have always been women!) and the rest of the money will be provided by another party (let's say for simplicity, that this is a Bank).

So here's how the conversation with the Bank likely will proceed:

Investor - I would like you to loan me X Million dollars for Y years to build my power station

Bank - hmm............. that's a lot of money, what collateral will you provide?

Investor - well I will put in Z million dollars of my own money

Bank - hmmm....... good and how can you guarantee that the business will be viable over the Y years and that you won't go into chapter 13?

Investor - Well, I have made a forward projection of electricity prices on the Californian Spot marker over the period of the loan and I think that the power station will make sufficient income to pay the loan

Bank - hmmm............No deal! Electricity spot prices are the most volatile of any commodity in any market, we need a far better assurance than your forward price projection for a loan of this timeframe and size. We want to be sure that you can make regular loan repayments - we don't like businesses with volatile income streams and high market risk exposures!!

Investor - OK how about this as a water-tight, rock-solid assurance that the new power station will make a known and constant revenue of the Y years period of the loan - I have signed a deal with a buyer (counterparty) to pay me $XX for every megawatt that the plant generates over the entire Y years?

Bank - hmmm............ well $XX/ mwhr over Y years is more than enough to pay back our loan - but how are you going to insulate the power station from price volatility in the spot market?

Investor - The counterparty and I will sign a swap-deal where the contract price will be $XX/mwhr and the term will be Y years

Bank - OK we can see how the risks in the market will be managed, we are confortable that the power station will have a regular income stream that aligns with the loan repayment conditions - the loan is approved!

This is the value of CFDs - they provide surety of price for a known period. They therefore mitigate price risk for those participants that have off-market risk investment profiles that are not suited to price volatility. Of course for those market participants that view market risk as a positive (ain't nothing wrong with that) , outright price risk exposure is always an option!!

Don

Fantasy land ............I think this is a great compare and contrast!

I think a business proposal to bower money for a purpose such as this should not be compared to a derivative bet.

vreihen · Jan 11, 2017

C'mon, Dow 20K!!!!!

http://www.wsj.com/articles/global-stocks-steady-eyes-on-trump-tax-policy-1484125059

Dow Makes Another Run at 20000

Traders hope President-elect Donald Trump’s news conference will offer clarity on his fiscal policy

By RIVA GOLD
Updated Jan. 11, 2017 11:10 a.m. ET

U.S. stocks rose Wednesday, sending the Dow Jones Industrial Average back near the 20000 mark.

The blue-chip index has rallied to record highs several times since Election Day, as investors betting on business-friendly policies under President-elect Donald Trump flooded shares of banks and industrial companies while largely selling government...

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Jack@European_Parts · Jan 11, 2017

Art ......
Why you rooting for a 20K dow .........?

Do you want to see the slide afterward, upon retraction that bad for the needed correction?

Turtle head once launched is launched..........no retraction.

DV52 · Jan 11, 2017

^^^^ Jack: I might be wrong, but from a distant observer on the other side of the planet, you appear to be a conservative investor (glass half-empty), whereas Vrehein (Art) appears to the type of investor that values risk (glass half-full). Well functioning markets welcome both types of investors!

Don

PS: I'm a (failed) engineer, so for me it's a simple case of gross inefficiency -the glass is twice the size that it needs to be!

PPS: vrehein - thanks for the music -of-my-youth (brings back fond memories of lazy summer days spent laying on the freshly-cut and grass listening to Jim Morrison music blaring-out from the Uni dormitory)

PPPS: And yes, C'mon DOW 25K!

Jack@European_Parts · Jan 11, 2017

^^^^ Jack: I might be wrong, but from a distant observer on the other side of the planet, you appear to be a conservative investor (glass half-empty), whereas Vrehein (Art) appears to the type of investor that values risk (glass half-full). Well functioning markets welcome both types of investors!

Don

PS: I'm a (failed) engineer, so for me it's a simple case of gross inefficiency -the glass is twice the size that it needs to be!

PPS: vrehein - thanks for the music -of-my-youth (brings back fond memories of lazy summer days spent laying on the freshly-cut and grass listening to Jim Morrison music blaring-out from the Uni dormitory)

Back door man huh?

I have no idea how markets function or what a market maker is in the inverse..........not one bit.

vreihen · Jan 11, 2017

Jack@European_Parts said:
Art ......
Why you rooting for a 20K dow .........?

Do you want to see the slide afterward, upon retraction that bad for the needed correction?

Why you such a Debbie Downer? Why do I surround myself with people with positive attitudes? It seems like your stock market beliefs are based around your belief/fear that a big crash/correction is coming, and stay short because you don't want to get caught with your pants down when the collapse finally happens. Truth is that I think I read that the 2016's Dow increase was 24%...and that sure would've been a respectable profit on an index fund that tracks the Dow! Sadly, my retirement account only made a 8.7% last year...and my portfolio is very short on Dow components. If the Dow actually breaks the 20K ceiling, I may just have to at 5% to my equities mix.

DV52 said:
^^^^ Jack: I might be wrong, but from a distant observer on the other side of the planet, you appear to be a conservative investor (glass half-empty), whereas Vrehein (Art) appears to the type of investor that values risk (glass half-full). Well functioning markets welcome both types of investors!

Quite the opposite, Don. Jack is known for taking extreme risks on things like penny stocks, where as a friend of ours says, "pigs get slaughtered." My retirement account has 35% of all contributions going straight into a guaranteed 3% fund...that actually made 3.875% last year. The rationale for this is that I have to contribute 5% of my salary, and every dime of that is guaranteed to make me at least 3% per year and never go down or be lost. As a friend of mine who used to spend his free time in casinos used to say, keep your own money safe and play with the house's money (ie: my employer's 12% match). That's why the other 65% is in retirement-grade equities and other more-risky investment vehicles.

PPS: vrehein - thanks for the music -of-my-youth (brings back fond memories of lazy summer days spent laying on the freshly-cut and grass listening to Jim Morrison music blaring-out from the Uni dormitory)

I probably shouldn't mention this, but I heard two university students talking today about how a local bar is having a "dad music" night. What is dad music? Music that their fathers listen to, like AC/DC, The Who, and other classic rock artists..... :facepalm:

Jack@European_Parts · Jan 11, 2017

Quite the opposite, Don. Jack is known for taking extreme risks on things like penny stocks, where as a friend of ours says, "pigs get slaughtered." My retirement account has 35% of all contributions going straight into a guaranteed 3% fund...that actually made 3.875% last year. The rationale for this is that I have to contribute 5% of my salary, and every dime of that is guaranteed to make me at least 3% per year and never go down or be lost. As a friend of mine who used to spend his free time in casinos used to say, keep your own money safe and play with the house's money (ie: my employer's 12% match). That's why the other 65% is in retirement-grade equities and other more-risky investment vehicles.

This is grossly incorrect and I don't trade penny stocks or OTC BB crap......not a fair picture to paint.

I do take risks though as this is part of risk reward.
If the market wasn't being manipulated by money infusion or tarp + quantitative easing, you would not have a 20K Dow.

Not being a Debbie downer just being practical.

Statistics say I am correct & time has been pushed back by this Fed and administration.

Just look at the PE of all those stocks in mutual holdings or whatever index you are considered long & theoretically are leveraged!

We will see who is right and time will tell...........I could have it all wrong too!

Long is for fools short or not!

Personally I think just trading earrings 4 times a year is easier than all of it.

NostraJackAss Has Spoken!

vreihen · Jan 11, 2017

I gave up trying to figure out the market several years ago. Technical traders are making decisions based on the shape of a line on a graph, completely ignoring financial realities behind that line and its shape! My feeling now is to just go with the insanity, and be in a position to bail when things get stupid.....

Economics

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