Some thoughts before the opening bell

Nobody knows the extent to which the recent stock-markets "correction," which began with the Chinese bourses, was due to anyone from the so many objective factors, such as Chinese overheating, American economical slowdown, or global excess liquidity.

Of significant relevance I find a subjective potential factor and an anecdote. Just before the Chinese sell-off, Greenspan said via satellite link to a business conference in Hong Kong the following: "When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign. For example, in the US, profit margins have begun to stabilize, which is an early sign we are in the later stages of a cycle." The, otherwise widely circulated, anecdote has it that a certain Li Ruichang, a 63-year-old Chinese engineer and speculator, stated the day after the fall of the Chinese bourses that: “Things like that happen. But I’m not worried about a crash. After a five-year-long bear market, the bull market shouldn’t end that fast.” I should add that Mr. Li's statement came a day after the sell-off, as the Asian and European bourses were still falling while some in China regained some of the losses. Before the sell-off, the Chinese major indexes were twice as high as 12 months before. In any case, for some, the strength of the Chinese stock market consists of its number and determination (not to lose) of investors.

As if encouraged by the second day gains in the Chinese and US stock-markets, officials put out several soothing messages. The Chinese regulators gave up on plans to curb speculation and were ready to consider opening their stock markets to foreign investors--it would be interesting to see if foreign speculators get any special treatment. In the US, Ben Bernake, chairman of the Federal Reserve, said that one could reasonably hope for a stronger economy by mid-year IF housing stabilized, and IF manufacturing improved. So far, his twice-conditional message has been taken as support for the rally.

But then again, what's a stock market if not a conspiracy of hopefuls? One would only have to distinguish among the types and motives of hope, and then check for alignment between their own and the economic realities.

On a final note, it's ironic how globalization has been considered to transcend stock-market rules, just as increased productivity driven by technology had been until (twice in) 2000.

Market failure vs. Regulatory failure

The long journey of the New York Stock Exchange (NYSE) from demutualization to a reverse-merger IPO, and on to the merger with Euronext, and to the alliance with Tokyo Stock Exchange (TSE), will make for a fascinating subject of many a business history book. Deutsche Börse and London Stock Exchange (LSE) will make for interesting collateral damage and props, respectively. It should be noted that NYSE has had a regulatory role in addition to its being a market for securities.

Equally interesting is the trajectory of the big i-banks relative to NYSE. Exemplar is Goldman Sachs (GS), which has placed its people and made money on ALL sides of the NYSE-related transactions, ALL the time from demutualization until last Friday when one of its analysts, by downgrading NYSE, sent its stock price (NYX) down. To return to the i-banks, they are forming what seems to be an exchange, separate from NYSE, to make sure they get the best service at the lowest cost. Thus, a question arises: Do we face a failure of the market, or a regulatory one?

Indeed, while the banks had been the NYSE patrons, the Exchange could do no wrong. Then the banks got out of NYSE, making lots of money, so that NYSE could do its job better--faster and cheaper trades. However, since the banks want to set up a separate exchange, inscrutable to you and I, is it that they don't trust either the open markets or the regulation that comes with open markets?

21st Century

Our communication - Wireless
Our dress - Topless
Our telephone - Cordless
Our cooking - Fireless
Our youth - Jobless
Our food - Tasteless
Our labor - Effortless
Our conduct - Worthless
Our relation - Loveless
Our attitude - Careless
Our feelings - Heartless
Our politics - Shameless
Our education - Valueless
Our follies - Countless
Our arguments - Baseless
Our boss - Brainless
Our Job - Thankless
Our Salary - Very less
Our Future - Hopeless!

Have a good day, with LESS problems!

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