Thursday, August 24, 2006

Arbitrage and Bad Signs.

There is an excellent article in the NYTimes which outlines Milton Friedman's 1953 argument on Speculation. He basically states that Speculators could not continue to Buy High and Sell Low over the long-run. He thereby attests Speculators stabilize Prices. Dell asserts that Speculators can affect immediate Pricing, due to their inexperience and flush funds. Mr. Dell is correct to assert that Speculators can affect present Pricing, but wrong in his analysis. Speculators must be very experienced to profit immediately. Friedman ignored the fundamental principle that Speculation is Short-term in character, with the process of dredging Short-term profits from quick Rollovers. They buy quietly as the Market begins to slide off the Top Price, until they have a Hold position, then start to buy minor amounts at high Offers. They finish by selling their Hold position to the Herd stampede Buy which they generated. They do not lack experience!

Durable Goods were very disappointing in July, and not just in the area of Transportation. Manufactured Durable Goods seem good, but without Defense Goods, everything gets a little shakey. There is a definite softness in Managerial Scheduling.

India begins moving to control foreign investment. India has not had the security apparatus utilized by China, which the later has used effectively to control the flow of funds into and out of the Country. India starts to realize the danger of unhampered flow of Capital, with its sudden potential disappearance. India will commence with simple Security measures, but will quickly emplace Economic Fail-Safes. This, along with the Asean Agreements, will soon slow the rapid transmission of foreign investment. American Corporations may even have to pay their Tax burdens, as foreign Investment ventures disappear. lgl

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