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What If you Called 411 and The Crash Answered? 1 comment
E Pluribus Unum
Annuit Cœptis.
Sir Ben Shalom Bernanke & Sir Alan Greenspan Dialed 411,
Hold on, we will be shortly answering your call!
The Age of Turbulence.
In fluid dynamics, turbulence or turbulent flow is a fluid regime characterized by chaotic, stochastic property changes. This includes low momentum diffusion, high momentum convection, and rapid variation of and velocity in space and time.It owns most of the discontinuous and chaotic properties of a Market Crash and of a Keynes' Liquidity Trap.
What If you Called 411 and The Crash Answered?It takes a touch of genius -- and a lot of courage -
March 14tn, 1879 – April 18tn, 1955
Abstract:
This Article is based on researches presented in The Tract Pro Bono.
The Tract Pro Bono explains the nature and
causes of economic depressions.
It describes what are the necessary conditions for the occurrence of a crash and an economic depression.
It proposes a plausible alternative solution.
Because of the immediate necessity to inform The People about immediate dangers that face him, I have decided to give it for free.
I am sacrificing its potential revenues for good.
The People are all those who will have subcribe the free insurance.
The Tract Pro Bono has been written for the general public. To a certain extent reading it doesn't require any prior knowledge in economy.
Using a novel model of the shape of the yield curve It solves most of the puzzles of macro economy: among which, Growth, Unemployment, Under Development, International Division of Labour, Business Cycles, Stagflation, Greenspan Conundrum, The Price of Oil and Gold, Deflation, Keynes' Liquidity Trap, Asset Price Bubbles, Irrational Exuberance,
Market Crashes & Economic Depression.
It proves that, accelerated by the previous period of Quantitative Easing, after a short period of exceptionally good economic conditions and Irrational Exhuberance, which will inflate the Mother of All Asset Price Bubbles, we will have a Keynes' Liquidity Trap, The Crash and The Deep Depression.
It shows that no fiscal or monetary policy,
will get the word out of The Deep Depression.
My Yield Curve determined that
The Crash will take place on Friday, 18tn September 2009:
04:11 PM New York Time.
09:11 PM London Time.
11:11 PM Jerusalem Times.
Reminder: Friday September 18tn, 2009 is quadruple witching on the US financial Markets!
As they say on Wall Street sell at Roch Hashana buy at Kippur!
Friday, 18tn September 2009 is also Eid ul-Fitr.
411 is 4th of November (Europeans write the day and then the month) t
The Market in Tel Aviv and Muslim Countries being closed on Fridayshe 14th anniversary of the death of Yitzhak Rabin Z"L.
The Crash there would be on October 19th, the 22nd anniversary of the Crash of 1987.
What Does Quadruple Witching Mean?
A day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. This is similar to the triple witching hour, except that the quadruple witching hour sees also the expiry of SSFs. Quadruple witching days occur on the third Friday of March, June, September and December.
Although index futures and options generally share simultaneous expirations on the third Friday of every month, quadruple witching days only occur on the third Friday of every March, June, September, and December. The last hour of these trading days, from 3:00 to 4:00 PM EST, is referred to as the quadruple witching hour.
On quadruple witching days, and especially during quadruple witching hours, many investors attempt to unwind their positions in their futures and options contracts before the contracts expire. This activity frequently includes repurchasing contracts and closing out other positions meant to hedge against these contracts.
Why It Matters:
Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume. As a result, investors can anticipate and plan for the potential effects of these relatively turbulent trading days. because of the slope of the yield curve a small random shock will cause it to normalize discontinuously and a The Crash will develop.
Attention: The Crash will come after the witching hour when financial Markets will have behaved in an irrationally exuberant way and will have raised considerably: The Mother of All Asset Price Bubbles.
To be sure, this is a definitive version. Not a word will be changed from Monday 24th, August 2009 5:30 AM Jerusalem Time till The Crash: I swear, so to speak.
Table of Contents:
Preface.
Introduction.
Strategy for The Crash.
The Prudent Strategy.
The Intrepid Strategy.
The Puzzle of the Dynamic of a Crash:
Yield Curve.
Irrational Exuberance.
Greenspan Conundrum.
Discontinuity.
Low Risk Premia.
Get Up and Dance, Twist... and Shout.
Take the On Line Insurance for Free: Type and Register.
Preface:
The writer of a article such as this, treading along unfamiliar paths, is extremely dependent on criticism and conversation if he is to avoid an undue proportion of mistakes. It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics (along with the other moral sciences), where it is often impossible to bring one's ideas to a conclusive test either formal or experimental. In this article, even more perhaps than in writing my Tract Pro Bono, I have depended on the constant advice and constructive criticism and the leads of, among others, Adam Smith and John Maynard Keynes. The index has been compiled by Sir Alan Greenspan.
The composition of this article has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author's assault upon them is to be successful,—a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.
Introduction:In The Tract Pro Bono I prove that, because of of the previous Quantitative Easing, after a short period of exceptionally good economic conditions and Irrational Exuberance, which will inflate the Mother of All Asset Price Bubbles, we will have a Keynes' Liquidity Trap, The Crash and The Deep Depression.
In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.
Of course, the stock market crash only worsened the economic situation,
hurting consumer and business confidence and
Governor Ben Shalom Bernanke
At the H. Parker Willis Lecture in Economic Policy,
Washington and Lee University, Lexington, Virginia.
March 2nd, 2004
No monetary or fiscal policy will pull the World out of The Deep Depression.
Alan Greenspan: "Probably not. Global forces can now override most anything that monetary and fiscal policy can do.
Long-term real interest rates have significantly more impact on
the core of economic activity than the individual actions of nations.
Central banks have increasingly lost
Two to three decades, ago central banks were dominant
Chairman Alan Greenspan
© ZEIT online, January 30tn, 2008
The use of that strategy is not straight forward and it can be risky to implement.
In order to cater to the needs of those who don't necessarily have the theoretical knowledge or some practical knowledge of financial Markets or are reasonable enough to be content with what they have, The Yield Curve designed a fool proof alternative.
The Prudent Strategy:Sell all your long-term assets at the Market as soon as possible and in any case before we call The Crash.
At the Market means the best price you can get at the moment you decide to sell.
I promise you will be able to recover them at a cheaper price after The Crash.
To be sure, My Yield Curve shall not recognize ownership of any assets purchased before The Crash.
Long-term assets include: real estate, businesses, stocks, debt (money you are own).
It does not include Treasury Bills.
Don't bother for tax credits. If you are lucky enough to be able to pay taxes.
They will be largely paid by the opportunity cost of not selling your assets.
Try to recover the money you are owned as soon as possible before The Crash.
Put your proceeds in Treasury Bills you will buy at TreasuryDirect!
Don't leave your money with a bank or a broker they will go broke.
Buy the bills at the Market price even if it is at a premium (negative interest rates).
It is better to pay for safekeeping your money rather than having it under a mattress and being robbed.
Don't buy gold, silver or any precious metal.
From the Friday 18th, 2009 at 4:11 PM EST, stop to work you won't be paid for it: your debtor will become insolvent.
You can work if you need it to eat but ask to be paid upfront.
The Intrepid Strategy:Apart from implementing the Prudent strategy you can play the intrepid strategy.
The strategy involves portfolios of Minerals, Bonds and Stocks.
However Alan Greenspan gives you a clear and stern warning:
has made numerous efforts in recent years to establish such oversight,
but none prevented or ameliorated the crisis that began last summer.
Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.
Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.
The clear evidence of underpricing of risk did not prod
private sector risk management to tighten the reins.
In retrospect, it appears that the most market-savvy managers, although conscious that they were taking extraordinary risks, succumbed to the concern that unless they continued to "get up and dance", as ex-Citigroup CEO Chuck Prince memorably put it, they would irretrievably lose market share.
Instead, they gambled that they could keep adding to their risky positions and
still sell them out before the deluge. Most were wrong."
The use of the word deluge by Alan Greenspan is a clear reference to the Liquidity Trap And / Or a reference to that famous quote of that other famous economist:
Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
John Maynard Keynes, 1st Baron Keynes of Tilton
A Tract on Monetary Reform.
Chapter 3, 1924
Now that you have read Alan Greenspan warning, this is the strategy:
As with any mission impossible, for those who watched that television series as did Alan Greenspan, it is possible for the Impossible Missions Force (IMF no kidding) to accomplish. We are going to use a special toolbox and use it in a smart way. As usual “Should you, or any member of your I.M. force, be caught, or killed, My Yield Curve will disavow all knowledge of your actions. This tape will self-destruct in five seconds.”.
Being long till September 18tn, 2009 4:11 PM EST in bonds, stocks and minerals:
It is advisable to be diversified with all the listed classes,
Within each class it is advisable also to be diversified.
You ca pick any assets of the said classes to diversify your portfolio.
Minerals are Crude Oil, Precious Metals, Base Metals.
Then before The Crash you should sell all of your assets. You should own none. Even the house you live in.
You go short the same portfolios this time you don't need to be diversified.
The fall will be brutal.
We have determined that the fall will take place at 4:11 but don't be too greedy.
The Market will go up strongly with high volumes till the Crash.
It is called a bear trap, but the fall will take place. I promise.
As the organisation of investment markets improves,
the risk of the predominance of speculation does, however, increase.
In one of the greatest investment markets in the world, namely,
New York, the influence of speculation (in the above sense) is enormous.
Even outside the field of finance, Americans are apt to be unduly interested
in discovering what average opinion believes average opinion to be;
and this national weakness finds its nemesis in the stock market.
It is rare, one is told, for an American to invest, as many Englishmen still do, 'for income'; and he will not readily purchase an investment except in the hope of capital appreciation.
This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator.
Speculators may do no harm as bubbles on a steady stream of enterprise.
But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.
When the capital development of a country becomes a by-product of
the activities of a casino, the job is likely to be ill-done.
The measure of success attained by Wall Street, regarded as an institution
of which the proper social purpose is to direct new investment into
the most profitable channels in terms of future yield, cannot be
claimed as one of the outstanding triumphs of laissez-faire capitalism
—which is not surprising, if I am right in thinking that the best
The General Theory of Employment, Interest, and Money.
Chapter 12: The State of Long-Term Expectation, VI.
December 13tn, 1935
Yield Curve:
In The Tract Pro Bono I develop a novel model of the yield curve.
The difference between long-term short-term rates are fonctions of the time value of options on shorter term rates.
A normal yield curve is the one for which the long-term yields are fairly priced compared to the short-term rates.
The normal yield curve depends on the short term interest rates and on the implied volatility of interest rates.
The term differerential of interest rates can be, thus, considered as an interest rate risk premium.
The closer short-term rates to 0%, the higher the volatility of interest rates the steeper the normal yield curve.
A steep yield curve is steeper than the normal yield curve.
An inverted yield curve is less steep than the normal yield curve.
Hence although a yield curve seems steep it can be, according to my definition, inverted.
This is especially true when the short-term risk free rate is 0%.
Otherwise obviously, there would ever be an inverted yield curve for short-term risk free rates = 0%.
I call the Yield Curve of Keynes' Liquidity Trap the normal yield curve that goes through (0, 0%).
I call The Crash Trigger the yield curve when The Crash Occurs.
In green the Yield Curve of Keynes Liquidity Trap. In orange The Crash Trigger.
For someone not using my model they both seem very steep, don't they?
When the Market receives a Random Shock, the yield curve twists discontinuously from The Crash Trigger to the Yield Curve of Keynes' Liquidity Trap.
Irrational Exuberance:The inverted yield curve is the result of investors buying overpriced long-term assets.
It is the result of what Alan Greenspan termed Irrational Exuberance.
and lower risk premiums imply higher prices of stocks and other earning assets.
We can see that in the inverse relationship exhibited by
price/earnings ratios and the rate of inflation in the past.
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
And how do we factor that assessment into monetary policy?
We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy.
But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts
in balance sheets generally, and in asset prices particularly,
must be an integral part of the development of monetary policy."
Chairman Alan Greenspan
At the Annual Dinner and Francis Boyer Lecture of
The American Enterprise Institute for Public Policy Research,
Washington, D.C. December 5th, 1996
The inversion of the yield curve tends to increase, even faster of late, it is the famous Greenspan Conundrum.
It is the cause and consequence of Irrational Exuberance:
Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings is being deployed in cross-border financing of investment.
The favourable inflation performance across a broad range of countries resulting from enlarged global goods, services and financial capacity has doubtless contributed to expectations of lower inflation in the years ahead and lower inflation risk premiums.
But none of this is new and hence it is difficult to attribute the long-term interest rate declines of the last nine months to glacially increasing globalization.
For the moment, the broadly unanticipated behaviour of world bond markets remains a conundrum.
Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience."
Monetary Policy Report to the Congress.
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate.
February 16tn, 2005
Discontinuity:
The inverted yield curve is an unstable equilibrium because the long-term rates are undervalued.
It runs against the optimisation of risk/return of portfolios and the self interest of financial institutions:.
specifically banks and others, were such as that they were best
capable of protecting their own shareholders and their equity in the firms."
Answering a Question from Representative Henry A. Waxman.
October 23rd, 2008.
A discontinuous twist of the yield curve changes in a chaotic way the Market value of long-term assets.
However, the penchant of humans for quirky, often irrational, behaviour gets in the way of this conclusion.
A discontinuity in valuation judgement, often the cause or consequence of a building and bursting of a bubble, can occasionally destabilize even the most liquid and flexible of markets.
I do not have much to add on this issue except
At the Conference on Bank Structure and Competition,
Sponsored by the Federal Reserve Bank of Chicago, Chicago, Illinois.
(via satellite)
May 6th, 2004
This inverted yield curve is due to a clear underpricing of the risk premia.
A "random shock" will cause an onset of investor caution, increasing these risk premia to they fair value.
It will normalize discontinuously the yield curve.
It will create a chaotic behaviour of credit Markets.
the indirect result of investors accepting lower compensation for risk.
Such an increase in market value is too often viewed by
market participants as structural and permanent.
To some extent, those higher values may be reflecting the increased
flexibility and resilience of our economy.
But what they perceive as newly abundant liquidity can readily disappear.
Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices.
This is the reason that history has not dealt kindly with
the aftermath of protracted periods of low risk premiums."
At a Symposium sponsored by the Federal Reserve Bank of Kansas City,
Jackson Hole, Wyoming,
August 26th, 2005
The Crash, a twist of the yield curve, is a more realistic assessment of the risk/return of long term assets.
The maximisation by investors, after a period of irrational exuberance, of the net present value of future cash flaws.
In game theory parlance, the Yield Curve of Keynes' Liquidity Trap is its Nash Equilibrium, so to speak.
To be sure, this is exactly what will happen on September 18tn, 2009 at 4:11 PM EST, so to speak.
"I do think the most relevant likely reason why we are dealing with what we are dealing with are new forces ... in the international market,... Their nature and their behaviour is not something we are going to fully understand, if ever; certainly except in retrospect."
Chairman Alan Greenspan
Central Bank Panel Discussion.
To the International Monetary Conference.
Beijing, People's Republic of China
(via satellite)
June 6th, 2005.
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