it may be better to be poor

I been thinkin' 'bout this silly "World Economic Forum" in NYC today.


Wealth creates an alternate heirarchy in choosing mates, counterbalancing obvious physical attributes, which are traditional markers either of the ability to produce wealth, or to carry childrend and, in either case, to produce offspring who will reproduce.


Wealth certainly enhances survival BUT, once you have reached the age at which you can participate in politics, everyone has an equal opportunity to reproduce. Meaning, if you take everyone who has reached the age where they are physically capable of participating in a protest, wealth is a zero-sum game, it simply reallocates mates.


At any given moment, there are a fixed number of mates of bredding age in the community. We can either divide them up based on who has wide shoulders, or based on who has big houses. In the short term, whom we choose is completely arbitrary, it doesn't have a chance to feed back into the resultant mix of survivors.


So, suppose by modernizing a society, you allow a million dirtbags who would otherwise die during childbirth to grow up to be jealous of the people who are richer than them. In other words, instead of everybody having X, you create a situation where some have 2X, some have 3X, and the people with only 2X are mad as heck - a lot more unhappy than if everybody had 1X.


Is it at all possible that it is better to have only 1X - or even to be dead - than to suffer through life in bitter envy of your neighbors? Is it better to have no offspring at all than to live as something other than chief of the tribe?


And where does Ted Kennedy come into all this? I mean, he got laid a lot growing up, right? So what is it, some kind of protection racket for the 10X crowd wherein they buy off the mob with reproduction-right scraps?


I think, rather than The 10 Commandments, maybe people just need blinders like street horses, so they can't see how pretty their neighbors' wives are.


lEROY

Hi eLROY,


I'm glad I started reading this board.


Your posts alone make my day.


There may not be another person alive that could work Ted Kennedy in the way you did...lol.


If you find the time, what markets do you actively trade? Just wondering.


As for me, most of the time is spent on the commodity side.


Keep on writing, I really enjoy reading your work.


Steve B

Lately, I have been trying to gain confidence in longer-term bond stuff, towards managing a large amount of money.


I presume you to mean you do the grains, or at least the energies. But do you do the meats?


leroy

You have a good sense of economics Leroy, you should what I do and play mostly currencies. That is where the econ inclined can beat the market of business that doesn't really care much about the rates, they just care about the fact that they need X currency and currently have Y in their accounts.


As for your post, I think an important thing to remember is that one of the key not so publicized benefits of globalization is that as people (especially women) gain in earnings power and financial condition, their propensity to have children drastically falls. Now obviously the poorest people are in farming and they need the children more, but even for city families it has proven itself true. This is hugely important because the western world is trying to reduce the population growth which taxes world resources for one, but also to turn back the tide of incessant economic immigration (while of course conveniently ignoring its positive benefits to a society). The best example is of Mexico where despite all its troubles, economically it has made great strides and what used to be alarming growth of immigrants each year has fallen off. Further the birth rate of mothers has gone down quite a bit in just a 15 year span. This last factor is most important of all, the problems most developing countries have is not in their lack of growth, its in their lack of growing enough to provide opportunities for their booming populations that keep producing unsustainable levels of children each year. You can send all the family planning experts in the world to a country, warn its governments and people the dangers of high birth rates, etc...but in the end the only thing that ever seems to work is simply making the people wealthier. These benefits don't materialize in 5 years though, they are generational changes. When Vicente Fox claims he wants an open border in a generation most Americans scoff, but I think if Mexico continues on its current path and the US maintains policies that allow for it, this is a reasonable goal and its quite likely that Mexico will be a G-7 caliber country within that generation...solely because of trade and its wealth creation.

That was the name of a book of poetry by Jim Morrison (The Doors).


Yes, people in industrialized societies have lower fertility rates. But, as you have described, it is a lower rate of increase from a higher baseline, made possible by abundant, affordable products. (Meaning, the child/slave labor wouldn't even reach age 2 if they didn't have a factory to work in...)


But consider the vast demographic changes in the United States at the Turn of The Century, and consider that this population could just as well have come from birth as migration. While the total number and percentage of people living in cities rose, I doubt the population in rural areas declined, it probably rose too.


As you know, population growth does not "tax world resources." If the opposite were true, the mostly sparsely-populated continent, Africa, would be the richest, and Japan would be the poorest. I agree with you about Mexixo, except for to the extent they have a cultural problem. Of course, the statistical sample of Mexicans I have actually met, whether in California or in Mexico, would suggest just the opposite, that like the overseas Asians, Mexicans are ready-made with a culture that is compatible with our society.


So, anyway, I think that people are making the wrong comparison when they say populations are too high in these third-world dung heaps. You are compatinrg how they live and die like flies to how we live. The real comparison should be between living like a fly, and never having been born - which would have been the case before modern production made their subsistence possible.


These are "The New Creatures" - the bourgeois and free peasants made possible in a post-feudal economy, spreading from Tuscany north across Europe, and beyond. They are not born into any social station. Could this be what Jim Morrison was thinking? I doubt it, but who knows.


So far as currencies, I have every intention of being big in them in a few years. But today, I really don't have that much to go on apart from trend theory - and currencies are still pretty trendy. The interest-rate products have been so chopped up by trend traders, simply because they are the only place you can deploy so much size, but fortunately 1) I have proprietary trend-related model which also works in currencies, and 2) I have, just in the course of my random musings over teh last few years, developed an economic model to back up my chart-based deductions.


So, I can use trends, plus my trend-related tool in currencies, but my developing a good economic/exchange-rate model maye be a year or two off. And also, I can get almost all of the inouts into my US bond model right here in the US, right on Main Street.


Of course, I agreee with you that currencies are the epitome of a tradeable commodity, based on the nature of participants, and the incentives and constraints facing them. This in contrast to your little S&P P/E debate below, where whomever is most popular in the short-term stands to be "right" in an evolutionary sense, whatever the underlying demand may be.


No, IBM doesn't so much read Barrons before deciding how much of their Euro revenues to convert to dollars, or something. Stocks are mostly trendy in the intraday and multi-year timeframes, over which periods popular ideas give way to demand conditions.


eLROY

At one time or another I have traded the following:


Grains, C; O; S; BO; W


Metals, HG


Currencies, CD


Energies, CL


Softs, CC, SB


Meats, LC, LH, PB


Never the Bonds, or the Indexes, although I have used options on the Indexes, mostly as a hedge for a stock position.


I started reading this board after seeing some of your posts on the hold em site re: commodities. FWIW I do not consider my self a card player, I prefer the table games when I visit the casinos.


Best wishes with the Bonds, those guys are the pros of the pros.


SteveB

It IS funny to hear people talk about wealth and income distribution, and the fact that the rich are so much richer than the poor.


What makes it funny is they think they are dealing with a fixed pool of people. If we could make these people richer, and those people poorer, incomes would all be more closely scattered.


But, as WildBill has pointed out, all that would really happen if you made "these people richer" is about 10 times as many new poor people would come in under them.


The only way to make the rich and poor closer - without bringing in a whole new wave of poor people behind the poor you lift up, every time you make society wealthier - is to fix the poor where they are or lower, and then move the rich down to them.


The number of poor people just waiting to be pulled into the world is infinite. The higher the top of the bell curve, the more of this bottomless base you expose.


leORY

I agree bonds are hell. A company can do everything that is good for their shareholders and be in excellent financial condition, yet if some influential analyst wakes up on the wrong side of the bed and thinks to himself...hmmm people will stop drinking coffee because they will decide cafeine is bad for them or some other stupid hypothesis, 20 companies can go down on the bond market. Its sheer madness. A company can be cashflowing up the ying yang and if an analyst thinks the company might try to buy back some stock to lower its WACC, he will say so and there goes the bond price...even if the analyst has no idea what the management really is going to do with its free cash flow. Its a sorry field and being a corporate finance worker I just shake my head at the power of the rating agencies and the top analysts. They do things that make no sense sometimes and yet they scoff at anyone questioning them.

I have been trading currencies for over 20 years.

I know very little regarding the fundamentals.You mentioned supply and demand.I don't know how you would measure it and quite frankly how would you know if your measurement was accurate?Like many things currencies trade(at least short term)because of market psychology.The Swiss Franc is a

good example.When there is extreme unrest in the world people pile into the Swiss.It's like if Europe goes down the tubes somehow they will survive.Some currencies are basically just rate

sensitive vs.the dollar,but you need to pick your spots.

The bond futures and options are great markets.

Very liquid and lots of opportunities.Easy to scalp or do multi-way option plays.But I find the

best way to trade is to look at all the markets.

Recently the energies have been active as well as

the currencies.

Hi eLROY,


LOL...yes, I guess I am.


A market is a market. For me it's all in the charts. I do have a basic understanding of the markets I trade, but will never know enough to trade on the fundamentals, or the news. Every day I learn something new. That's why I enjoy reading the opinions here.


As for the copper market, I see it as a leading indictor for not only the metals in general, but the overall economy. The new contract started trading in 1988, and it's now testing the lows from 1999. A new low was put in at 60.50 (11/01 on the monthly chart). The bounce to the current price came on the news of the major producers closing mines, and cutting back production, mostly in S. America, but here as well. Came to fast for me and I missed the trade. (no open position here for me)


I'm told that they can operate at profit down to the 50.00 level, but have chosen not to. Well see.

FWIW I would not be surprised to see a test of the 60.00 level. Not a prediction, just an opinion.


Here's the chart: http://www.britefutures.com/BFCharts/BFChartMonthly.asp?symbol=HG


Here's an aside, the average mine produces 16 to 18 Million metric tons, at the rate the world uses copper we go through a mine a year. While there is a LOT of copper in the ground, it gets tougher and tougher to open new mines.


Have a great weekend,


SteveB

Hi wildbill,


The only Bonds I look at are the 30yr, ( for a while...lol) and 10yr. just to get an idea as to the direction of interest rates.


To tell you the truth, the thought of looking at the individual company's bonds never occurred to me /images/smile.gif

Thanks. I'll pay attention to some.


The Enron thing may bring some changes to the power of the rating agencies.


Have a great weekend,


SteveB

Hi Dr.Bill,


For some reason I'm just not comfortable with the Bonds, If I were to use this vehicle. I just know I'd go broke in a day and a half...lol... or less.


As for the options, I find them very complicated, when used correctly. Leg in, leg out, buy, sell, plus all that Greek.


Good wishes to you,


SteveB

If you are sure you would go broke can I use you as a contra-indicator? LOL...and best of luck

in your trades.I don't mind saying what I have traded recently.I didn't do a lot and I have

an exit strategy if I am wrong. I have been sellin the Feb 10 dollar puts on CPN stock.

(eLROY..thanks for the recomm..I am using interactivebrokers.com.) I have been selling them

for the last few days between (60 and 110)If the stock goes thru 10 bucks at expiration I will start selling the March or April 10 dollar calls.

I am NOT recommending this trade.I am just getting my toes wet as I typically trade options on futures.Good luck trading all!

Flows and positioning are quite important in the short term currency markets. They won't necessarily tell you where the market will go but they can give you a useful insight into the balance of risks. Your example about the Swiss franc is most interesting... the recent rally following Sep 11 was partly driven by psychology but market positioning was a major element. Many hedge funds and other money managers had short Swiss franc long dollar/Euro positions due to the interest rate differential. After Sep 11, the fear that the US dollar would sell off caused a lot of leveraged and speculative money to close out their short Swiss franc trades causing it to rise. Also, Switzerland is a very substantial net creditor and in times of crisis there is a trend to domestic currencies which adds to the effect.


I do think you can successfully trade currencies on fundamentals but only if you are willing to take a very long horizon(maybe 5-10 years). In the short term, they are driven much more by supply and demand which on the large investment banks really have access to.

Well, corporate bonds are very sensitive to any kind of information or rumour... more so recently following Enron. Also liquidity is often not that good in many names so jumps can be quite large. I think a lot of exciting innovation is happening in this sector though.. a lot of interest in option-style valuation. A corporate bond can be viewed as a short put on the company's assets. The KMV model which uses this approach has outperformed S&P and Moody's in accuracy. And also, the whole credit derivatives sector continues to expand and with it new products.