Sep

5

If one presumes that a ZIRP is a form of command economy, without complicating the question with other similar restraints, haven't the current structure of global markets just become state sponsored speculation? That would certainly explain the increase in correlations.

I've been thinking about the line that divides investment from speculation. Prior to this administration, I considered the difference to be based on time window and interest/dividend cash flow differences.

Anyone's thoughts?

Stefan Jovanovich writes: 

To avoid real work I have been reading Sumner's History of American Currency; it is a delightful reassurance that "state sponsored speculation" began as soon as Washington left office. The present may be dreadful, but it is hardly unusual. I would argue that the present "command economy" is, in fact, far less under the thumb of the government than it was before ZIRP. Is there anyone on the List who thinks that, freed from the shackles of the Federal Reserve and the Treasury and the alphabet agencies now guaranteeing home loans, the U.S. single-family housing industry would boom and passbook savings rates would go back to 5%? Roosevelt's legalized theft of American's specie savings had terrible consequences for the American economy because it represented the complete triumph of state sponsored mercantilism. World trade literally evaporated. That is hardly the situation now. The Federal Reserve, ECB, and Banks of England, Japan and China can tinker with the maturities of their IOUs all they want and the national Treasurers can hint broadly at the need for a strong (weak) national currency; but the markets call the tune.

Gary Rogan writes:

Let's say you discover that on a particular day the stock market is likely to sell of based on historical patterns, so you short the market. In a different situation you find a promising young company that you believe will create a product that will sell in the billions several years from now so you buy the stock of that company. Wouldn't the first example be more of a speculation and the second one more of an investment? To generalize, could speculation be betting on the market participants' behavior, generally in the short term, and investment betting on the underlying fundamentals, generally longer term? 


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