1. Further dark clouds overhang the world's capital markets for the second day's openings in the Far East. I cannot help but be reminded of the same speculative fever which began unwinding in New York at the end of October 1929. Reports about speculation in Shanghai's capital markets with high leverage are eerily similar fuelled by Chin's phenomenal economic growth although I haven't heard of anyone leaping out of buildings yet. The leverage appears to be originating from personal borrowings (mortgages) and swapping personal assets (precious metals and jewelry) for capital market investments. If this is double leverage with market margin credit, the problems from falling market prices could feed on itself.
The great problem with the New York Stock Exchange in 1929 was that only 10% cash was required to buy equities with the other 90% coming from margin account credit. When prices fell dramatically, investors who couldn't meet their margin account calls for more cash to maintain the necessry cash in the margin account were sold out automatically. This was exacerbated by short selling creating a continuing depressing factor overhanging the capital markets which led to further declines, loss of confidence and wealth which ultimately depressed economic activity.
The wealth existed in inflated capital market prices based upon credit. When that bubble burst, the crowd ran or was pushed in the other direction. Since that time in the US, for example, margin cash amounts have increased, and the short selling on the uptick rule has been adopted. Short selling can only occur when the previous transaction was on a uptick in price thus preventing continuous selling of stock into a declining price that was not actually there against a future prospect of buying that stock at a lower price to "cover" the short position. Other safeguards were instituted which have since been undone such as the separation of brokerage activity from investment banking.
Capital market prices are set at the margin by current transactions for all the underlying investments. That's why it is a risky environment. Those who do not recognise this element get caught in the stampede for the door when there are no buyers. The so-called professional investor is as mindless as the man in the street when it comes to delusions and rationalisations about investment strategy and tactics driven by greed.
This could not have been more clearly demonstrated by the growth stock investing which led to the capital markets debacle of 1973 and 1974 when the institutional investors in the US and elsewhere concentrated their pension fund and other portfolios in the "Nifty Fifty" growth stocks. As long as they kept buying these stocks with inflow of funds from such sources as pension funds, they kept the prices up. After accumulating extraordinary large holdings, these banks and insurance companies could only sit by and watch as prices fell because there were no buyers. The losses were massive. So much so that the US Congress enacted the Employee Retirement Income Security Act (ERISA) to ensure that risk management was carried out by the institutional investor holding those with fiduciary responsibility personally liable.
There are always other factors which come into play to change sentiment, outlook and investor confidence. Many other financial and economic factors were at play in the 1973/4 period, but the key to investment failure and loss was the fact that these institutions lost sight of risk management and diversification. They didn't give a thought to what was happening or could happen. This was tunnel vision and the herd instinct at its worst by those who were supposed to know better. They all fed on their own delusions which were kicked back and forth between all Wall Street "players" who would not listen to anyone else. Anyone who took an independent view was ignored or suffered worse professionally. I know. I was there and saw it all first hand in various capacities before during and after. I accurately predicted in mid-1972 what would occur in the capital markets over the following five years. I did this in writing and received a negative evaluation, yet I was precisely correct as it turned out.
I've done this repeatedly throughout my life based upon accurate analysis and evaluation of the factors which were present at any given time. I've been right for the right reasons in avoiding problems and right for the right reasons in taking advantage of positive opportunities. For years now I have been documenting and reporting the abuse of the most sophisticated surveillance technology ever known to human civilisation. No one wants to believe it. Fine. That isn't my problem. This clinging to group think has always been the case. By the time everyone realises the truth about what I am documenting and reporting, I will be on to something else because the rest will be history. The famous comment that I especially recall from a former client was "We really wish we had listened to you." By then it was too late for them to do anything, and they had to live with their serious mistake.
The great issue which evolves around this surveillance technology is its totally invasive capacity and the ability to use a human being as a surveillance device. This means that there will be no privacy or confidentiality in human activity in the future. It's another risk which the capital markets have not incorporated into market prices. Human economic and political activity will be subject to complete surveillance by those who have this technology which will cast a dark cloud over everyone. This will have a depressing impact on human activity which is currently incalculable. The world as we know it will change completely.
My position is that the knowledge of this surveillance needs to get out into public awareness as quickly as possible to lessen its impact. Most especially the knowledge and awareness of this surveillance technology needs to be taken into account by the law makers in democratic societies so that it can be properly controlled to prevent a catastrophic reaction in human activity. People will be running for the hills figuratively speaking to protect themselves. The longer this remains a secret the worse will be its impact when it is generally understood to exist because there will be greater uncertainty about how it has been used up to that point. Uncertainty means risk. The more risk the more volatility and the greater potential for a downside plunge. People do not pay attention to what I say. I'm used to it. I have a track record of many decades where the proof has eventually been found in tasting the pudding itself. I've spent my life concentrating on those things which I believe are most important.
Capital markets do not exist in totalitarian states, e.g., USSR. They only exist as part of democracy and freedom. To the degree that this is removed by removing privacy and its freedom of choice, thought and expression (speaking and acting) will be the degree to which the capital market prices will change. The possibility for completely eliminating freedom as we know it in democratic societies based upon the loss of confidentiality and privacy exists from the abuse of this surveillance technology. Therefore, a complete change in the world as we know it will occur unless this information is brought into the consciousness of the markets which fundamentally reflect the society at large in many ways, and those in positions of responsibility take steps to ensure that it is not abused in the manner I've experienced 24/7 for the past eight and one-half years. The current market reactions from whatever source yesterday and today so far are only a small bit of volatility to be anticipated by hiding this truth while carrying out extensive abuse of democracy itself.
BBC News Wednesday, 28 February 2007, 09:45 GMT
World stock slump hits second day
 Sydney's ASX index was not immune to the global bad news |
A global stock sell-off has moved into a second day, after a wobble in China sparked fears of a big price correction and hit UK, Asian and European indexes.
The UK's FTSE 100 index shed 1.9% in early trading. That took declines in the past two sessions to 4% and knocked £65bn off the market's total value.
France's Cac 40 shed 1.5% and Germany's Dax lost 1.9%. Earlier, markets had dropped in Asia, Australia and India.
Investors are questioning the outlook for economic and earnings growth.
The falls come after stock prices and indexes have climbed to record levels in a number of key world markets.
After a flurry of activity at the start of trade, the FTSE 100 was trading 116.10 points lower at 6,170.
In Japan, the Nikkei 225 share index closed down 515.8, or 2.9%, lower at 17,604.1, while in Hong Kong the Hang Seng index fell 496.36, or 2.5%, to 19,716.5.