Monday, March 05, 2007

Here We Go Again

Barry Ritholtz again - this time remarking on the fact that India broke a month ago and nobody blinked (i.e. there wasn't an avalanche). But what he and the astute reader who sent the chart to him fail to note is that India wasn't lending Rupee at .25 bp to all comers (Chinese included) to invest in overly generous margin accounts to buy stocks that were going up exponentially. And then the guy who loaned you the money suddenly doubles his interest rate and makes the pay back that much more expensive. At the same time - the margin rates in the market where you are invested balls deep are made less generous. Can you see this - can you understand what I'm talking about?

You have borrowed money - maybe a LOT of money and you have converted it to your money and you have invested it in a market and maybe for every x of money you borrowed you have invested 5 or 10x in that market. Now all of a sudden the guy who lent you that money changes the value of that money relative to your money - i.e. he made it more expensive and at the exact same time the guy who let you invest at 5 or 10x wants to cut that to 2 or 3x and is calling on you to make it good. Guess what happens next - you start selling and selling a lot because first you need to service your loan and second you need to service your margin or maybe the other way around but both these things have to happen because the payment is due on the first of the month just like always and you are all in....

Just what part of "global" in "global economy" do you think Barry and his readers are missing? It is so simple - I just don't know why these perma-bears refuse to see it.

And you know just because the Shanghai market is closed to all foreigners doesn't mean that Mr. Smith's XYZ Offshore Makeamillionabillionandyou'renotallowedin Fund can't have Chinese agents who can invest for him as an adjunct to his fund - after all Mr. Smith probably can borrow Yen until he floats in it and the Chinese don't really pay attention to laws they don't like - especially when it comes to profit. They're like the Ferengi on Deep Space 9.

Anyway that's my take on it and at least I have a plot and character development - and not just a list of I told ya so's.

1 comment:


Outstanding material like what I see.