Tuesday, 11 December 2007

So Much More Of The Same

The Fed cut rates a quarter point. Some people lauded it, some people are upset. I think the majority of those who move markets are upset, as the Dow went down nearly 300 today, and the other indices moved similarly. The story is becoming very small and rock hard, though. The people who manage capitalism screwed up. In a worldwide bid to pick up a penny off the street, shine it up and sell it for a nickel, the game is up. A lot of people and companies have shiny pennies for which they paid the low low one time rock bottom only on tv price of 3 cents, which they of course had valued on their books at 5 cents. Now the world is gradually coming back to the fact that even the shiniest penny is worth only a penny. The people who sold the pennies for more than a cent are off in Aruba somewhere. The people who bought the pennies for 3 cents and made a killing selling them at 5 cents are now wishing that they hadn't stayed in the game so long. The people who bought pennies for 3 cents and valued them on the books for 5, then used the equity of all that booked value to buy a whole shedload of pennies for 3 cents to sell them at 5 cents are hosed. They owe against equity that is no longer there which truthfully wasn't ever there in the first place. When leverage goes wrong, it goes really wrong.

A lot of the major sound bites today were all about how we are now going to head into a recession. I don't necessarily think that this is all that bad. Recessions weed out bad businesses and shady plans. Look at houses built during housing booms and contrast them to houses built during slower times. The slow times keep the quality players around and the slackers go packing. The slap job pieces of crap that sprout up during boom times are hard to get away with during a recession.

Compare this with riding. You need a rest week every now and again. A rest week is like a recession a little bit. It flushes out the crap from all the furious activity that preceded the rest, and allows the strengths to consolidate and prepare for future activity. Next week, I have a bit of a training recession, which I will welcome with open arms.

What the market really needs is a Powertap. In this corner, you have some chuckleheads saying "my average speed is really high, I am going to win all the races." In that corner, you have guys using hr monitors, which are certainly more indicative than speed, but are the work reporting equivalent of derivatives - they track work that you've done, but are affected by many other things that can skew their reporting, so they are really a proxy for how hard you've worked. Then in the other corner you have people using power. These are not better people, just better informed. Until recently, I was an hr guy. I did not want to spend the dough for the power tap, and was a little wary of kind of what it meant to have one. Then I decided that if I want to perform at a level that justifies my inputs of time, effort and money into cycling, then I was going to have to 'tap into it. I choked it down and bought one. And in less than two months it has become absolutely indispensible.

If there were an equivalent device for the markets, all of the shenanigans would just go away, and all of these sub prime messes would be much easier to avoid.


Jim said...

"if there was an equivalent device."

Thing is, there's not. Economics is sometimes called "The Dismal Science," partly for that reason; Economists often can't even agree on the facts, much less how various market mechanisms work.

Sorelegs said...

I liked the whole penny analogy, it reminded me of that enron cow analogy that was going around back then.
Didn't know you were a sailer. I used to race on the west coast as a kid... 20 years ago. Fun times.