Hey folks,
So I am going over chapter 20 in HA and am on the trade cycle, specifically the part where Mises describes how certain industries bare the mark of the credit boom. Due to artificial rates the furthest away from the consumer get hit first, then going down the chain the pain becomes less and less as you reach contact with the consumer. This is because the further industry (iron, steel, mining, etc) are far more sensitive to long term planning and thus interest rates.
So I have constructed a stock graph of major ETFs that symbolize this chain and I am wondering if I am correct to assume, that based on the obvious price difference something is going on. However I am a bit at a loss as to how to explain the 2007 price patterns. In 2007 we were on the verge of a massive credit bust, but the prices just before the bust were completely reversed from today. Today's price structure suggests that Mises and other Austrians are spot on and that the Bernanke zero rate policy is starting to wear off...but before I put this on my blog, I would like some you smart folks to explain the 2007 prices. They should technically be the same...but they are opposite. Picture below:
anyone?
I love hitting "Post" after typing my reply and absolutely nothing happens.
Anyway, I don't have the answer but am bumping this thread hoping that someone who does know catches it and responds.
I dabbled in a little bit of stock trading in the past (wouldn't go into it now, though am considering commodities). I think I was following developments around 2007-2008 and I would agree with you, things were pretty weird and so hence my reluctance to enter. Some financials were doing well, which didn't match well with fundamentals.
In any case I'm sorry I don't have an answer about that period but I thought I'd share something I found strikingly interesting, especially after I came across Austrian Business Cycle Theory. I had actually taken a trading and investment course (dealing with both the fundamental and technical approach) prior to knowing anything about the Austrians, and something that struck me was that what they were teaching in the fundamentals part of the course, based on ordering of stock price growth in terms of stages during the boom and even the relationship to interest rates qualitatively was taught! These people knew nothing too about ABCT or the causality involved, their knowledge was based on observations of cycles in past data!
In short, I think this type of investigation you're doing is worthwhile, I might consider dabbling myself at some point in it. Perhaps some time series techniques could also be applied to illustrate the correlations or time differences in the cyclical movements...
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
Thanks for the insight guys, so regarding trading - I once read a book by a trader named John Murphy - his whole idea was that stock moved in a certain identified pattern. He namely said that when the metal/oil sector peaks that is when you know it is over. His idea was rather rudimentary, but he unwillingly touched upon ABCT. He noted that inflation got so high towards the end of the boom that the prices in raw commodities choked off all further investment.
Makes sense, right? However Mises purposely points out that rising commodities does not necessarily have to occur if the underlying production outpaces credit expansion/inflation.
Still, I think there is more to it and would love to publish a post about it, I am just afraid the 2008 price patterns are too odd to make sense of. Going to check previous busts and see what I can find.
I figured it out, it was just consumer credit financing that got curtailed due to the 2005-2007 hike. I finished the article and it can be found here:
http://www.rightcondition.com/2012/11/the-2009-credit-expansion-cycle.html