15 June 2010

Logical Escapes

Those projections of where the Dow would be in the past decade made in the 1990s made sense if you projected the trendline from where the market was on the huge run from the early 1980s. The only thing which ended this was the tech bust.

The housing bubble made a good effort at restoring this trendline. But the problem, is a market surge like this is technically unsustainable. Why though. Because it is always a result of what has been termed exuberance, but is it exubrance.

In forex where you see this kind of thing on a daily basis, it is cold hard and computational. It is usually computer programs triggering huge cascading bids, if the market is going up.

But really it is not exuberance, there is not much room for exuberance in highly leveraged trading, it is usually the result of a technical level being breached after a number of runs.

In the tech boom, it was based on revenue projections based exactly on projections of revenue. It was logical, but it ended because projections get called by an oncoming future.

In the housing bubble it was based on a belief risk could be taken away from debt, via a kind of referencing away from the source, finally to back rooms of banks, where it was caught in a web of insurance. The Lehman collapse ended this by calling some of this insurance, it was not meant to be called.

There is a new bubble, it is based on the consequences of the cost of borrowing large sums of money by the highly creditworthy money being kept artificially low. This was pumped into equity markets.

This bluff is now being called, in the forex market which refuses to accept these valuations. When these valuations are reimposed (the market says $ should be higher), when Euro rises basically, shares surge up again.

But, but, but...the companies of the US are strong and a company led recovery will escape from all these logical traps, assuming the inflationary exercises end at some stage.

© 2010 Guy Barry - All Rights Reserved.