Monday, Dec 22, 2008
So specultaing on currencies isn't a problem??
bloomberg: Bonuses of Currency Traders Fall Least on Wall Street
To everyone who has had a go at me whenever I have even hinted that the problems with sterling (and others) are due, in part, to traders driving it into the ground for personal gain, please explain these huge bonuses and why it is OK for these guys/ gals to make huge gains while the populations of the countries whose currencies is attacked should lose 30% of their purchasing power?? Happy Christmas everyone.
Posted by bystander @ 02:16 PM (903 views) Add Comment
17 Comments
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1. Jake said...
Nothing wrong with selling pounds and buying something else instead. I wish I'd done it a few months ago!
The reason the pound has tanked is because the UK economy is in a total mess - moreso than every other country apart from the USA. The USD is still considered a "reserve currency" unlike the Pound. It's no wonder Sterling has fallen so sharply - it deserved it. Another effect of the mighty house price bubble and another reason we should sack Gordon Brown and Labour.
2. mark wadsworth said...
It's not speculators who 'drive currencies into the ground', it's incompetent governments. And for every speculator who wins, another one loses. Taken collectively, they don't make any money at all.
Sterling has been sliding for two years now with no end in sight, anybody with spare cash was free to swap into FX, if you didn't, well that's life.
3. mrmickey said...
Nothing to do with El Gordo bankrupting the country then.
4. plato said...
Agree with the above comments. Speculators predict,they don't cause. They see an outcome and then win or lose on their decsion. This is wholly to do with with the way economies are run.
5. mrmickey said...
Exactly traders look at the UK and see Soviet Union MK2, what nut job would want to buy Sterling, mind you you could extend that argument to the USA & EURO both fighting over who can build the biggest fattest welfare state.
6. 51ck-6-51x said...
The large bonuses (or less fall in them) talked about here are mostly for those making markets, not speculating. The increased revenue is coming from the increased volume of trading which in turn is coming from both sides of the market - supply & demand, both of which are currently being driven by fear, whether a company fears the Eur will be worth less against their Sterling base or fears that one has too much foreign exposure.
Simplifying things to "speculators" vs "investors" is nonsense.
Any non-consumption trade is a speculation at heart - for example:
1) I buy my offspring 100 Shares in ABC Corp at birth for their 18th birthday. Most would consider this an investment, but it is still speculating about the future price of ABC Corp.
2) I have been given out of the money call options in my employers company as part of my compensation and decide to hedge away some risk by performing a static delta hedge. Most would consider this a hedge, but the hedge itself is speculating that the call will not go into the money - I am locking in a risk free gain as of now (not once the underlying moves of course).
3) I go to the ATM, it asks if I would like Ģ10, 20, 50, 100, or Other? I take Ģ100, even though I am not spending it straight away. Most people would not call this speculation, let alone investing or hedging, however it is all three, and by taking Ģ100 rather than the amount I need immediately I am speculating over the future to a small degree - I am putting a value on having cash in my wallet over cash in my bank account (or maybe even over being less overdrawn!!)
7. mdmick said...
But isnīt herd mentality part of how the stock market works and is to some extent predicted?
If a trader can start an avalanche then he can shift faith in an investmentīs value.
I understand that a good stock would be unlikely to fall if it is intrinsically strong.
But there is a herd mentality to borderline cases, surely.Besides that, if a knock-on effect of
a new exchange rate is tougher business conditions then a downwards spiral can happen.
I think Bystander should not be dismissed lightly.
8. shipbuilder said...
Can we really say that speculation has no magnifying negative effect after what we all saw in the housing market? Are we saying that one form of speculation is OK, whilst another isn't? Yes, the market is correcting the housing bubble, but couldn't we have done without the speculation-led bubble in the first place and the pain that it brought?
I suspect that there is a certain amount of trying to justify one's own actions here. Would we or would we not be better off now if the minds employed in speculation, investing, whatever had chosen the productive economy instead?
9. crunchy said...
2. mark wadsworth said...It's not speculators who 'drive currencies into the ground', it's incompetent governments. And for every speculator who wins, another one loses. Taken collectively, they don't make any money at all.
crunchy; Partly true.
"And for every speculator who wins, another one loses."
The trick is to always back the right currency. Those people that do, always win.
The average Joe however cannot be so lucky.
10. crunchy said...
8. shipbuilder........I Agree
The average OTC over the counter electronic trader has no impact on forex to a degree. lol
It is the financial institions and goverment that moves this market.
Speculation/Control.
Intervention is not an unknown possibility. : )
11. Britishblue said...
What nobody seems to realise is that sterling has been in bubble territory for years. The sterling bubble has been deflating over the past two years, re-establishing the opportnity of rth Uk to become competitive again. Trying to push up sterling or critising its decline is the same as trying to boost hojuse prices that were horribley inflated.
12. stillthinking said...
Either one traders gain is anothers loss, or they facilitate trade, which seems OK. However, you could argue that holding enormous sums for trading diminishes the amount of capital available for the real economy, and is deflationary in the same way that central bank foreign reserve holdings are deflationary i.e. for a really volatile situation such as now, you might make the prediction that your return on currency trading will exceed anything you are likely to make by investment in industry.
13. crunchy said...
The money in circulation within the Foreign Exchange is increasing.annually. Speculation is a new industry and productive industries are
suffering as a result. Capital is finding the easiest route to short sighted, easy profits.
There is such a difference between speculation and investment now. IMHO
14. 51ck-6-51x said...
Speculating and investment are different, indeed, but not orthogonal, hence why I stated that Simplifying things to "speculators" vs "investors" is nonsense.
I agree with Shipbuilder - we would probably be better off if more of our collective efforts had gone into the search for productivity and efficiency than the search for alpha and a quick buck, however I also believe that within the capitalist framework that there is a necessity for free markets.
We may find that we win from the fallout, like so many times in our history - the pool of technical talent is vast and there may soon be more expected financial reward available for the advancement of society than for playing games (placing bets and doing deals).
15. mark wadsworth said...
@ Shipbuilder, agreed, superficially that's a fair point re speculation on house prices.
But don't forget Rule One - it is usually the government in full glare of the public eye that creates opportunities for speculators, over the last ten years, by a combination of:
1. Strict planning laws (to keep the NIMBYs happy)
2. Loose credit
3. Almost complete absence of banking supervision
4. General brainwashing that the bubble is actually 'bricks and mortar' (which it isn't - bricks and mortar made up less than half of property values at last year's peak)
5. Not replacing Council Tax, Business Rates, Stamp Duty & Inheritance Tax with a tax on property/land/bubble values.
6. Generally pandering to the notion that An Englishman's Home Is His Castle and Must Not Be Taxed and Must Go Up In Value Faster Than Anything Else
As a final thought, aren't the many 'sell-to-renters' on this site speculators as well - only we were speculating on prices going down?
16. crunchy said...
14. 51ck-6-51x I could not agree more.
"the pool of technical talent is vast and there may soon be more expected financial reward available for the advancement of society than for playing games (placing bets and doing deals)."
That I would like to see but I fear it will be used in a negative way, rather than for the betterment of society. I think things seem to be pointing that way looking back over recent times. I am not solely refering to speculation. Live in hope!
17. 51ck-6-51x said...
mark wadsworth
"As a final thought, aren't the many 'sell-to-renters' on this site speculators as well - only we were speculating on prices going down?"
Yes, indeed
- Speculation is just betting on the future - a pure hedge is also speculation; any transaction other than the direct and non-mediated purchase of a need through one's labour - such as doing a job in return for the provision of a meal that one needs in the immediate future, without any transfer of abstracted value such as cash) is speculative to some non-zero degree. (and even the example may be speculative - do you know for sure that the employer can feed you?).
- As a further point, although possibly delving slightly too far into the epistemological, even choosing whether to integrate oneself into an available capitalist system or not would be speculation, furthermore the existence of capitalism as a choice is not a necessary condition - there is even no need for any value abstraction, so long as the decision regards some future, unknown state, whether there is a known distribution, a known set of outcomes or even total uncertainty (unknown set of outcomes and/or distribution). The former is a generalisation any choice affecting the future interaction of yourself and the external world would be enough to constitute speculation - one must assign value (whether relative or absolute) on the available choices - there is, however, some interesting real-world work on this subject in the artificial intelligence community (particularly regarding fuzzy logic IMO).