Debt crisis: US Federal Reserve saves Europe!

Just a couple of days ago I wrote about how gloomy and depressive the prospects for Europe were and how markets seemed to just be going downwards. Today there have been some huge developments in that the US Federal reserve, has allowed the European central bank and bank of England ‘cheaper access to the dollar’. Reading between the lines, the US have basically said that they are guaranteeing the money of Europe to an extent….

So happy days are back, or are they? Why on earth is the US stepping in to help Europe when they cannot even help themselves? I mean half their country is basically broke and almost living in poverty and yet they feel they can save the world. To me this feels like the second world was when the US ‘heroically’ stepped in to prevent Germany taking over Europe and in that instance everything worked out pretty well. However this time, I cant see the rosy future.

Surely Germany has missed a trick in all this. Germany could have stepped in and been the saviour of Europe by acting as the European central bank and accepting to guarantee any debt but no they have chickened out of this task. To me its strange that Germany did not accept the responsibility as if they did it would almost be like winning world war three as all the other countries have failed bar themselves.

This news comes on the back of the spending results of black Friday. For those of you who are aware of what this means, as it is American, I will explain it for you. Black Friday is the day that follows Thanks Giving in the US and it marks the start of the holiday spending for the run up to Christmas. Shops tend to open extremely early, at around 4am and have special offers to entice spending. Now this year the results were that more money than ever had been spent and the markets reacted to this in an extremely positive fashion. Most shares shot up around 4%-5% as they felt this consumption was a great thing. Now surely the mess the economic climate is in right now is due to the worlds over consumption and spending of money that they don’t have. Despite this people still think its amazing, which granted for the retailers it is, and the market sentiments reflect this with stock soaring. The people and the world have clearly not learnt their lessons from the past and by this logic I am sure that we will be heading towards a bigger and more catastrophic recession in 10 years time, that is of course if we ever exit this one!

Is the Euro Doomed?

So times are looking pretty bleak for Europe and the whole world in general.  Judging by the markets last week you can see how quickly the markets have reacted to a series of developments during the last week that has affected the markets extremely negatively.

Looking at the last week’s chart I agree it looks very bad but need I remind you how quickly markets can change. I don’t think it will but all that is needed is some good news for a change as opposed to the catalogue of negative news that has been released recently. The newest news to come out is that the International Monetary Fund is preparing to give Italy a €600 billion ‘loan’. This would give super Mario, I mean, Mario Monti some breathing space in order to sort out some policy so he doesn’t need to focus so much about the debt right now. However in my view if Italy gets this it will not take long before Spain comes pleading to ‘get a piece of that action’.

 I think the problem is, where will the IMF get this money? Unfortunately I think I know the answer, which isn’t pretty! Lets just print more! If America can then why cant we Europeans? The sad truth is that this is just a short term solution. With printing comes inflation which is ok to an extent but once that threshold of 10-20% is crossed things tend to go wrong pretty quickly. Need I remind you of the scenes during the war where Germans would print money three times a day in order to pay people. Obviously this is a worst case scenario, but I could see us Europeans heading towards inflation. The question is just how high will it be? I hope this is just my pessimist feeling and the reality is brighter than this.

Is Short selling bad?

Over the previous decades there have been much criticism in the media over the subject of short selling. In my view most of these criticisms have come from ill educated sources who don’t really understand the mechanisms of the stock market.

 (Arden Forester)

Firstly, what is short selling and additionally what is this concept of ‘naked short selling’ that you might have heard about?

Short selling is an easy concept to grasp. You borrow a stock from either your broker or another customer and you sell it someone else. You are doing this because you anticipate the price will decrease and when you want to get out the position you buy it back. If the stock increases in value you loose money and vice-versa if it goes down you make money – simple!

Now naked short selling is the same concept except you don’t need to borrow the stock before making the trade. In essence you can short as much as you want. This is where problems can arise with abusive short selling as you can crash companies or currencies if you have enough money behind you and just keep pumping money into shorting. Hence this kind of abusive shorting has been banned in the USA since 2008.

(TheBigPicture.com)

I hear some criticism however which says, “you are short selling and driving the price of the stock down”. Another misconception in my view, first of all when you ‘short’ you affect the share price to an extent in a negative fashion downwards. But what most peope forget is that eventually you will have to get out of this position and buy it back, thus driving the price of the stock up when you exit! So the whole transaction has a zero sum effect. I agree ‘naked short’ selling is bad but normal ‘shorting’ has no negative impact upon the market. If anything it provides more liquidity – which is what all traders want. Thus shorting is ok!

7 Billion and counting!

So on the 31^st of October the world’s population reached a mighty 7 billion. How anyone could have predicted this number so accurately is beyond me but some say it could be out by as much as 56 million. The population of 7 billion is incredible and moreover by the fact that that the world’s population has doubled in the last 50 years. By going onto http://www.bbc.co.uk/news/world-15391515 and typing in your birth day you can see what number you are in todays population and which number in the human race you are. It turn out im the 5,182,595,763rd person alive and the 80,184,924,112 to have lived on this planet. Just shows the vast expansion of the human race!

(National Geographic)

The video above shows how a typical human being looks like and certain traits but it shows also how ‘typical’ depends on what you are measuring it against. Be it the world or your own country the statistics vary dramatically. Right now the most typical human being is Chinese but will be overtaken by the Indians in 2030. To me it feels like the Chinese and Indians are vastly outnumbering Europe but perhaps this is a good thing?

(sustainablescale.org)

In my view there is a limited amount of people that a society or country can support. Even with imports of food and other necessities surely the infrastructure can only hold so many. In England and especially London I think we can see how close to this capacity we are already reaching. Just look how difficult it is getting on to the tube every morning which in my case turns into a wrestling match just trying to squeeze myself in to avoid waiting for the nect one. Traffic jams and waiting lines/queues seem to increase by the day so I actually feel rather happy that there is only 60ish million people in England and not more. If population increases like the chart shows above, get ready for an extremely crowded planet!

Is trading gambling?

Being interested in trading I decided to write this article to discuss whether trading was gambling as so many uninformed critics spurt out? Firstly I think it’s important to have a definition of gambling,

The definition of ‘gamble’ in the Oxford Dictionary of English is: 
Verb [no obj.]
1. play games of chance for money; bet: he gambles on football.
[with obj.] bet (a sum of money): they gambled their money on cards.
2. take risky action in the hope of a desired result: he was gambling on the success of his satellite TV channel.
Noun [usu. in sing.]
1. an act of gambling.
2. a risky action undertaken with the hope of success: we decided to take a gamble and offer him a place on our staff.

By looking at this definition, speculating on the market would certainly be gambling but so would making a piece of toast as there is always the slight chance the toaster electrocutes you. By the definition ‘risky action in the hope of a desired result’, would mean that our whole lives are a gamble as we encounter many risky situations such as just crossing a road every day.

The dictionary does not aid the debate in my opinion. Let us take two examples to define what actual gambling is.  The first is the lottery, nearly all sane human beings will agree that this is 100% pure gambling as you have no idea what numbers will come up and there is no skill that can make you predict the numbers, it is pure luck.  Now what is something that is not 100% gambling, well it must be the opposite, something we can control and when we this it will always happen. This would be something as simple as kicking a ball, when we apply force to the ball it will always move. So where is trading? Well its clearly not 100% luck because traders can use skill in order to try and predict what  will happen in the market but of course its not 100% non gambling as the outcome is not guaranteed. All traders can do is increase their chance of winning, but by no means guarantee it, so trading is in a grey area!

Any form of gambling that relies solely on luck, (lottery, roulette, horse racing) will have a mathematical expectation of loosing in the long run. However if something is skill and you have an ‘edge’, it will mathematically mean that the person, such as a trader, who puts the hours in to minimize risk and leave little to luck, can expect a positive return over time. By this definition I think traders are not gamblers!