Gambling on Stock Prices, Kenny Rogers Helps to Explain Price Formation

1/14/2011 Portland, Oregon – Pop in your mints…

"You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done."

The Gambler by Kenny Rogers

Despite our warning yesterday, there is no sign on the Oregon coast that the Yuan invasion has begun to move north.  What a relief.  We are still trying to deprogram ourselves from converting everyday prices from Bolivianos into US Dollars.  Creating yet another everyday conversion mechanism for our mind to follow may be more than our system can handle.

A peek at the news today reveals that "Higher food and Energy Costs Lift Wholesale Inflation."  This "Wholesale inflation" is the type of inflation that rolls downhill to the consumer.  High rates of consumer inflation are on the horizon.  As night follows day, so do rising wholesale prices find their way downstream.  Even the ECB seems to think so, though it continues to buy bonds with printed Euros and leaves its special friends and family (read banking cartel) interest rate at 1%.  Worried about inflation?  You must be kidding.  Fellow taxpayers are advised to plan accordingly and get at least some physical silver and/or gold.

Peering further, We see continued evidence of Government mismanagement, this time in their handling of investments.

The Yuan Invades US Shores and Portugal “Clears a Major Hurdle”

1/13/2011 Portland, Oregon – Pop in your mints…

The world turns.  Things must move forward.  What must happen will happen, all on its own perfect schedule.  The schedule for certain large events, which is what most humans in the modern world observe closely, is more often than not an absolute mystery.  This frustrates many.  Jesus did not tell us exactly when He will return so that we could schedule an alert on our iPhone, He simply told us that His return is certain and that we must watch for signs and prepare ourselves accordingly. 

In the same way the Market is telling us that the days of the US Dollar's worldwide dominance in commerce will come to a close.  When will it occur?  If we knew, we would be rich.  The truth of the matter is that nobody, not even the authorities who pretend to have supreme control over the world's currencies, knows when the tipping point will occur.  But we are beginning to see many signs.

Auburn “Pushes” Oregon, Portuguese in Denial of Debt Flash Floods, and real Floods in Australia

1/12/2011 Portland, Oregon – Pop in your mints…

We are back in Oregon mourning, along with the rest of the State, the Duck's loss to Auburn last night in the College Football championship, otherwise known as the BCS (Bowl Championship Series).  The game was not a total loss, however, as the University of Oregon will line its pockets with a portion of the PAC 10 conference's share of the $180 Million worth of revenue.  Yes, fellow taxpayer, if you were not aware of the fact already, College Football is big business.  The fact that the final spread of 3 points was covered by Auburn made any bets on either Auburn or Oregon that took the 3 points a "push", meaning that nobody wins, nobody loses, and everyone keeps their money.

Down? Ducks Uniforms the envy of the Nation.  What can Betting on Football Teach us about Price Formation? (Photo Courtesy of AP)

Gambling spreads are simply another form of price formation.  When a great number of people bet on Auburn, for example, the spread offered by the bookie has to rise in order to entice enough people to take the Oregon side of the bet.  In this sense, the price (the final point spread) is set by the betting public's collective belief about the outcome of the sporting event.  The betting public is wrong as often as they are right, just as they are in the real world about the price of stocks, bonds, goods, and services.  This is a fascinating subject, price formation as expressed through betting on sporting events, that we will likely return to in the future.  Suffice it to say that the exact same forces that set prices in the market place, right or wrong, also set the final line for a sporting event at a sports book.  What does this tell us about the level of speculation occurring in everyday life?  It boggles the mind.

The Problem with Socialism, A Bank Run, and Bolivia Retains its Cheap Gas

1/11/2011 Portland, Oregon – Pop in your mints…

The final week of our stay in Bolivia was marked by the government doing an about face in their attempt to raise gas prices and a good old fashioned bank run.  Not exactly the relaxing vacation we had expected but in Bolivia, things are nothing if not interesting.

First, the about face in gas prices.  As you will recall, the government surprised nearly everybody by announcing that they were no longer going to subsidize the domestic fuel market, a move which meant an immediate 80% increase in the price of gasoline and diesel fuel.  Even the spineless neo-liberal governments that Evo Morales, the current President, had marched to overthrow did not have the chutzpah to try such a feat.  This was truly rare.

What was not rare was the typically Bolivian response to such government insanity.  While Evo's supporters attempted to downplay the move as "bueno para el Pais" (good for the country), the rest of the country did the sensible thing and went on strike.  All transport Bolivian transport workers, who make up for what they lack in equipment by their ability to organize and party, set a 24 hour strike for Tuesday, December 28th.  To boot they increased fares for all types transit in the country.  The bakers, then, set a strike of their own, we were to go three days without and on the fourth day we would pay 40% more than before for our daily bread.