Join the new world

Let's get this out of the way : yes, I hadn't slept for a couple of nights, I got annoyed with spending time behind my screen instead of resting. I had a theatrical moment when I announced I was leaving. It seemed like a good idea at the time. I want to hear about it now as much as I did earlier : none.

While we're not on any interesting subject, I'm going to talk about a few tl;dr things, namely the two stock exchanges we've seen popping up and their shortcomings, the effects of currency spreads shifting and the Sykes economic model©, which I believe I briefly exposed when I was off in Singapore.


Self doubt really don't suit me. Makes me look tough though.

While the two stock exchanges, erepx and ERX provide the average citizen the ability to have a bit of fun or to make money, they have one ultimate flaw. They don't allow traders to lose their entire investment. Let me explain. Both these structures have a policy preventing bankruptcy from causing the downfall of an investor. That's pretty cool I hear you say. It is. If you don't get the idea of a stock exchange.

A fundamental rule of any exchange is that the value of a trading vehicle is inversely proportional to its likelihood of disappearing. That's pretty obvious if you think about it. When a company goes bankrupt, its stock has the value of nothing. The lower the likelihood of bankruptcy, the more valuable the stock, right? That's the one and only law of financial valuation. Whether you're looking at the fundamentals of a company, the dividends it pays out or the stock chart, you're really looking at how likely it is the company will continue to generate profits and stay solvent.

What is fundamentally wrong with offering so called safe investment, is that it is akin to market manipulation and that it is unfair. I'll use an example to make this simple. Say five firms go bankrupt for a total market cap. of 1,000G. If the stock exchange, I use the term loosely because they seem to be wearing many caps, can only cover for 800G, how are they going to cover for all those losses? How do they decide who gets a treat and who doesn't? You can see where I'm going by now, right? God I hope so. I also mentioned how this safety net is very similar to market manipulation. That was a bit of a lie. What I really meant is that this sort of practice is likely to create inflated prices across the board, which, as time will prove, is a perfect setting for the formation of a bubble. Yet bubbles can be fun!

Very negative talk, don't you think? As the French say, les velos ne volents pas, which is absolutely irrelevant to this topic. Nevertheless, a much better option, and much more lucrative at that, is to set up an insurance company. Against a fee, this structure promises to cover part of the losses impacted by the contractor in case of a crash. Ha, pretty clever. And the financial analysts employed by both *Xes get to work in a more lucrative environment. Who doesn't like that?



Someone has to use logic around here.

The second matter I'm going to consider just for you is the effect of spread shifts on currency value. For those that have never read my paper, the spread is the difference between the selling price of a currency and its buying price. This theory is based on a simple fact : almost all offers on the monetary market are posted by spread traders. I can see why. It's easy, doesn't require too much skill and returns decent profits vs. lowish risk.

So here's the actual theory. The most capitalized traders on the market are going to have the top offers on both the gold and currency side. When someone goes and splashes a few bucks on gold, its value increases, the spread widens. There is an interesting side effect. The currency is going to go on to be added to the traders offers to sell. This effectively lowers the price of the currency. On the other hand, if the volume on currency spikes, a lot of the gold that changed hands is going to end up on the gold market, pushing the value down, and pushing the price of currency up. These are subtle changes that can make a trader rich if acted upon cleverly. That's why swing trading is pretty cool.

One last thing to consider is that when a trader's currency lot is nearing the top of the offer list, he'll get desperate to add leverage to his positions, usually by selling more gold, thus narrowing the spread and pushing the value of the currency up. So if you're planning to cover a short, take a look at who's selling currency and gold. By waiting a bit, you can get a better deal. What's cool about that is that you're making money off of this other bloke's work!


Now, onto to some seriously tl;dr stuff.

A while back I foolishly decided to move to Singapore. It was an opportunity to think about how to use the country's resources to improve the economy. To that extent, I devised the Sykes economic model©. This model revolves around two beliefs; trade balance is fundamental to a healthy economy and currency value is the best tool to alter the export to import ratio. I'm expecting Mr. Young to barge in at any moment with dubious theories. I actually hope he does, it's usually fun.

Let me explain. If exports outrank imports, more capital is retained, leading to higher wages, increased monetary liquidity and more company upgrades. This is good, as it increases aggregate demand and supply, taxes and investments. Currency rates impacts the export/import ratio because a lower value means lower production costs and enables entrepreneurs to sell at a profit on foreign markets. Tim, this is your cue. On the other hand, higher rates make foreign products comparatively cheaper, stimulating imports. There are a couple of technicalities and the theory is a touch more complicated but we can assume this is true.

The brilliant SEM relies on this concept : a country can always position itself so it imports less than it exports. In short, there is always be a country with lower wages providing cheap goods, and countries willing to buy commodities in the form of imports. By making the latter pay for the transformation process (adding value), the state benefits from improved tax income. To work out the optimal exchange rate, we simply take the currency value that makes domestic cheaper than on the international market.

Enough with the details. The counter-argument to this is that most other countries will and do protect their market. I say right, but have you ever heard of the black market? I'm going to break this one down. You wouldn't believe the amount of people that don't understand that sentence. Let's consider two cases : Jim and Jenny. Jim is looking for a new house and a few top notch guns. He looks up the cheapest prices world wide, gets two moving tickets, flies over and buys his stuff. Jenny, the manager of a gift company sees the price of diamonds dropping. She shifts her organization over to the cheapest market and buys a buck load.

In the first case, the government pockets the VAT. In the second, it doesn't directly receive any money, but as stock was purchased, the seller can operate profitably, generating tax revenue down the line.

Of course, the raw material sector benefits from a lower rate, but so do the housing sector, which why I was advocate its promotion its over diamonds. High quality weapons and, to a lesser extent, moving tickets are used by military groups or political take over organisations.

Bear with me for a minute as I end my article. To be compatible with the Sykes economic model©, the import tariffs must be low to ensure raw material is cheap enough to keep domestic companies competitive. I know you want to whine about this, so here's your chance. The income tax should be low so as to offset the drop in wages brought on by opening the marketplace. Finally, the VAT is where a large part of state revenue will come from as we aim to be attractive on the international market when it comes to the construction and manufacturing sectors.


Why the f- do I bother writing this stuff? It's not like anyone is going to listen to me, is it?