Tag Archives: markets

A Cost of Inexperience

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What’s wrong with China’s stock market?

Just about everything, according to a statement from Xiao Gang [at the time, Chairman of the China Securities Regulatory Commission] delivered at a national meeting of Chinese securities officials….

In the statement, Mr Xiao defended his handling of successive market meltdowns, blaming the “abnormal volatility” on “an immature market, inexperienced investors, imperfect trading system, flawed market mechanisms and inappropriate supervision systems.”

He got that last part partially right—and only that much.

What’s wrong with the PRC’s stock market is inexperienced regulators and the idea that a functioning national economy can be managed—governed—from the center.

This Would Be Foolish

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Don’t chase the market, guys.

…financial markets are volatile and downward pressures on inflation are building. The employment picture gives officials an incentive to raise rates to prevent the US economy from overheating, but market instability and the inflation outlook provide reasons to hold off.

Market instability isn’t relevant to this. Further, rising interest rates are inherently inflationary—and the Fed has said for a long time that it wants a 2% inflation rate, which is substantially higher than what the current inflation rate has been for the last several years.

In addition to falling stock prices, yields on corporate bonds are rising relative to safe-haven Treasury bonds.

Well, yeah—this is rising interest rates in the private sector. Which are the ultimate interest rate targets of the Fed’s benchmark rates.

The Fed needs to stop chasing current events and set its benchmark interest rates at levels historically consistent with 2% inflation.

And then it needs to sit down and be quiet and let the markets sort through the inevitable interest rate/inflation transition volatility, while the underlying economy sorts through the same transition, but with much less volatility.

More Interference

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The Obama administration is proposing to spend nearly $4 billion in a decade to accelerate the acceptance of driverless cars on US roads and curb traffic fatalities and travel delays.

No. The Congress needs to refuse to provide the funding for this.

Leave aside whether we want driverless cars on our roads. There’s an arguably positive role for government to actively support, even help fund, basic research. However, once the theory from such basic research has been developed sufficiently (a private enterprise-defined criterion), bringing any related concepts to market is purely an engineering matter and so must be solely a free market/producer/consumer decision. The work, then, should be funded only by private enterprise.

Government has no business picking winning or losing technologies, and that’s what it does when it funds bring-it-to-market schemes. That’s unavoidable, no matter the intentions of the politicians pushing such an expense.

President Barack Obama’s proposal here is intended to facilitate the development of regulations to govern driverless cars. Leave aside here the Progressives’ idea that Americans and our businesses need a government rule for every aspect of what we do, or don’t do. This…regulation development…is nothing more than another bring-it-to-market scheme.

Oil, the Saudis, and Iran

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As global oil prices plunge to levels not seen in more than a decade—and Saudi Arabia and Iran threaten to further flood the market with cheap crude as part of their ongoing feud—the possibility of rock-bottom fuel prices appears to be a blessing for consumers.

What’s the downside of that? With our own restriction on exporting oil lifted, we’re also in a position to keep producing and keep selling. The low prices are good for American consumers; they’re an opportunity to expand our own market (the Saudis’ logic in maintaining production rates in the face of falling prices is sound), and thereby wean Europe off dependence on Russian oil exports; and low prices hurts…whom?

Low prices hurts our own oil producers, but an advantage of free market competition is that it leaves producers generally, including in particular oil producers, well positioned and well experienced in dealing with pricing vagaries. We’ll do fine in the price-competitive markets. The Saudis will survive the competition; their pricing needs against their population demands are rather small.

On the other hand, both Russia and Iran need $100+ oil (against last week’s close below $35, and a more stable $40-$50) to fund their adventures.

Keep the oil flooding. Throw us into that tar patch.

The Feds getting out of the way of natural gas exporting would pay similar, and similarly large, economic and political dividends.