Comments on: Consumer Price Inflation has Spooked Investors Everywhere http://www.dailyreckoning.com.au/price-inflation-spooked-investors/2008/07/01/ An independent perspective on the Australian and global investment markets Sat, 21 Nov 2009 10:39:45 -0600 http://wordpress.org/?v=2.8 hourly 1 By: tom http://www.dailyreckoning.com.au/price-inflation-spooked-investors/2008/07/01/comment-page-1/#comment-28804 tom Wed, 02 Jul 2008 03:21:19 +0000 http://www.dailyreckoning.com.au/?p=2888#comment-28804 The USD is the world's reserve currency. China,Japan, the UAE, Russia and India are all long USD in their foreign reserve accounts. The implications of any one of these major entities undertaking a drastic short position on the USD would be immense. The value of the greenback would certainly be subject to free fall we've yet to experience. If such an unprecendented move occurs with even one of those major palyers then (1) the remaining holders of USD would be pretty vexed about their worthless pile of Benjamin Franklins and (2) a significantly depreciated USD would devastate exporters who, despite its recent lacklustre, still depend on the States for sustaining global demand given the lack of a befitting alternative. Furthermore, it would be pretty hard not to attract attention when you're trying to dispose many billions of USD in several large transactions (just imagine China with its aproximately USD 1.87 Trillion reserves). It will be utter pandemonium. The USD is the world's reserve currency. China,Japan, the UAE, Russia and India are all long USD in their foreign reserve accounts. The implications of any one of these major entities undertaking a drastic short position on the USD would be immense. The value of the greenback would certainly be subject to free fall we've yet to experience.

If such an unprecendented move occurs with even one of those major palyers then (1) the remaining holders of USD would be pretty vexed about their worthless pile of Benjamin Franklins and (2) a significantly depreciated USD would devastate exporters who, despite its recent lacklustre, still depend on the States for sustaining global demand given the lack of a befitting alternative.

Furthermore, it would be pretty hard not to attract attention when you're trying to dispose many billions of USD in several large transactions (just imagine China with its aproximately USD 1.87 Trillion reserves). It will be utter pandemonium.

]]> By: GaryB http://www.dailyreckoning.com.au/price-inflation-spooked-investors/2008/07/01/comment-page-1/#comment-28798 GaryB Wed, 02 Jul 2008 00:21:40 +0000 http://www.dailyreckoning.com.au/?p=2888#comment-28798 Bill: the mystery is why, this time round, your "Fed punishers" have chosen to use oil, but not US treasury bonds to fight the US Govt's rubbery inflation rate and phoney low cash rate. Why aren't the Chinese and Japanese, big holders of US bonds, playing the game and offloading their stash? There'd be a lot less collateral damage for the rest of the world if US bond prices nosedived instead of oil prices going through the roof. Bill: the mystery is why, this time round, your "Fed punishers" have chosen to use oil, but not US treasury bonds to fight the US Govt's rubbery inflation rate and phoney low cash rate. Why aren't the Chinese and Japanese, big holders of US bonds, playing the game and offloading their stash? There'd be a lot less collateral damage for the rest of the world if US bond prices nosedived instead of oil prices going through the roof.

]]> By: tom http://www.dailyreckoning.com.au/price-inflation-spooked-investors/2008/07/01/comment-page-1/#comment-28731 tom Tue, 01 Jul 2008 11:02:46 +0000 http://www.dailyreckoning.com.au/?p=2888#comment-28731 "Diversification no longer works," writes Tony Jackson in the Financial Times...Result: big drop in assets prices." Why are you quoting this idiot? Diversification is not about the return on investment because that component no one can ever be sure of ex-ante - it will affect returns but only as an indirect influence through the adjustment of portfolio volatility. Diversifying one's portfolio is about minimizing risk exposure so that your investment outperforms, on average, a designated index over time. When markets recede, and in the case of globalization everybody tumbles, your portfolio is also sure to take a hit. If your capital was focused towards an industry which weathered the collapse, then good for you. If however you threw all of your weight into a real stinker of a sector, like financials, then stiff cheddar. Diversification alleviates this extremity because it cushions the impact of a bearish trend by mitigating the underlying volatility, ie. removing unsystematic (specific) risk. Like hedging, the downside is a sacrifice of potentially stellar returns for relative peace of mind. It's the layman's choice and it certainly won't make you rich overnight. Alternatively, putting all your eggs in the one basket and watching it with unswerving viligance will magnify your upside but it could also leave you pantsless if you fail to identify and act before a critical turning point in the market. Those whom are daring enough to engage in these gambles are only confidence because, most of the time, they have some form of informational advantage over the market. This Jackson clown and his misleading commentary is just one why publications such as the FT and WSJ aren't worth the paper they're printed on. And to think they charge people to read their crap. "Diversification no longer works," writes Tony Jackson in the Financial Times...Result: big drop in assets prices."

Why are you quoting this idiot? Diversification is not about the return on investment because that component no one can ever be sure of ex-ante - it will affect returns but only as an indirect influence through the adjustment of portfolio volatility. Diversifying one's portfolio is about minimizing risk exposure so that your investment outperforms, on average, a designated index over time. When markets recede, and in the case of globalization everybody tumbles, your portfolio is also sure to take a hit.

If your capital was focused towards an industry which weathered the collapse, then good for you. If however you threw all of your weight into a real stinker of a sector, like financials, then stiff cheddar. Diversification alleviates this extremity because it cushions the impact of a bearish trend by mitigating the underlying volatility, ie. removing unsystematic (specific) risk.

Like hedging, the downside is a sacrifice of potentially stellar returns for relative peace of mind. It's the layman's choice and it certainly won't make you rich overnight. Alternatively, putting all your eggs in the one basket and watching it with unswerving viligance will magnify your upside but it could also leave you pantsless if you fail to identify and act before a critical turning point in the market. Those whom are daring enough to engage in these gambles are only confidence because, most of the time, they have some form of informational advantage over the market.

This Jackson clown and his misleading commentary is just one why publications such as the FT and WSJ aren't worth the paper they're printed on. And to think they charge people to read their crap.

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