The Rude Awakening
Edinburgh, Scotland
Monday, June 4, 2007 ------------------------- - Correlation vs. causation - the golden dollar game,
- The definition of "kakistocracy,"
- No stopping the Chinese, fishbowl perspectives and more…
------------------------- Joel Bowman, from Edinburgh, Scotland… Each and every morning, we totter out from our bedroom to our makeshift office in the front room of our Edinburgh flat. The room has large bay windows that look out over the bustling street, just one floor below, and we can hear the commotion of life as it marches on outside. We watch as the schoolchildren march discontentedly to their classes and office goers trudge to their desks with restraint. On the most overcast of days, the trip to their assigned post seems to render even the drunkards indignant as they loaf toward their barstools. We observe the goings on of the day until the time comes for everyone to return home of an afternoon. The schoolchildren gleefully skip from their classes, the office goers strut their pinstripes with a contented gait and the drunkards, well, the drunkards are still in the free houses…but from the singing and cheering pouring out of the front doors, we can only assume their day too has improved. From the large bay windows, we observe this routine almost everyday. It's like watching life in a fishbowl. Every so often, however, the perspective changes. Once every half hour, an open-top, double-decker bus drives by carrying dozens of curious, camera-wielding tourists. The height of the bus is such that the onlookers sit almost eye-to-eye with that silly fellow that taps away at his laptop all day. Recently we've embraced this new perspective and started waving from our window. Sometimes we get waves back, sometimes we get blank stares, sometimes people just point and snap. In any case, we enjoy a change of perspective. That's part of the reason we decided to include a letters-to-the-editor segment to compliment your weekly diet of all things Rude. Sometimes they will elicit a wave, sometimes a blank stare and, on rare occasions, you'll see a point where they snap. We hope you enjoy this week's installment… ------------------------- Dear Rude, If new accounts are being opened in China at the rate of 450,000 a day, that is around 15 million a month, what do you think will happen when every one is in the market? I don't think there are any shorts or stop loss rules so if the number of new accounts slows down then the market momentum should falter which should be a sign to abandon ship. Once the next sell off starts where will the bottom be? Shorts in a market lend some stability as they need to buy to take a profit on a falling market and then they have funds at the bottom to buy back in, which stops the fall and forms a base. In China, I only see a wipe out panic with a freefall plunge that will be very difficult to rise from. The only way to re-capitalize their market would be with foreign cash or for the Chinese government to buy their stocks. Any bets on either happening? My guess is that by around mid August, all the funds that will be sucked in to Chinese stocks will already be committed . Thus a peek followed by a plunge one to two months latter. October could be most interesting. I don`t expect other markets to come off un-effected either so be careful, watch momentum, take protective action, even consider shorting or just stand aside till the dust settles.
Dr. Roger Eichman --------------------------- Dear Rude, CORRELATION vs. CAUSATION can be interesting!?! In dollars, gold and the S&P may be aligning. However, in euros I suspect the inverse correlation still applies. Below are links for gold in euros and DJIA in euros. So, I suggest that a POSITIVE correlation in gold and S&P can continue for a long time and still be related by a fundamentally contra relationship (as evident via a 3rd standard or euros or better perhaps oil). The positive correlation really is showing they are both going up, with gold going in the same direction FASTER than S&P (or so I think). http://www.the-privateer.com/chart/g-multi.gif http://photos1.blogger.com/img/165/2326/1024/DOWperEURO5yearsWeekly.jpg Thanks,
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activity of the sun. Jack Phillips -------------------------------- Dear Rude, The history of yesterday's bank Holiday, as I understand it, is as follows: Bank Holidays were the first national public holidays given by statute after the commencement of the Industrial Revolution and were, surprise, days that the banks were authorized to close. Most other commerce stopped at the same time. They are still called Bank holidays even though, as on Good Friday, most banks now stay open. You figure! This Monday's holiday was originally Whit Monday, a religious holiday coming 6 weeks after Easter Monday. Yesterday coincidentally was celebrated on the Continent as Whit Monday in protestant countries, but not Catholic ones. Again, you figure! However, Whit Monday flopped around the calendar with Easter and often ended up in early May when the weather in England was even less predictable than usual, so was not ideal for commerce. The opportunity to change came with the entry of the UK into the EU (mega mistake!). As a bribe to the great unwashed, the Government promised the population May Day off as a Bank holiday if they voted to join. Surprise, they took the offer! The holiday was then moved to the first Monday in May and because Whit Monday could have come at the same time or a week apart then decided to junk that and give the population the last Monday in may as the Spring Bank Holiday. Fortuitously it coincides with memorial day in the US so both sides of the pond are off on the same day. Canadians, as loyal Empire loyalists, get the previous Monday off as Queen Victoria's birthday. Australia presumably gets Ned Kelly's birthday at some point! All the best Bill Thomson ---------------------------- Rude Endnote: If you wish to offer some insight from your own perspective, please address your thoughts to aussiejoel@the-rude-awakening.com . While we can't promise to include all emails in the mailbag, we do so enjoy the change of scenery. Cheers, Joel | 
