More excitement in the markets: Three days ago we got quoted $0.60 per pound for stainless steel scrap. Today we dropped by with 10 thousand pounds. The manager was apologetic, but they were no longer buying at any price. Scrap metal prices collapsed about in half (at least here on the West Coast), probably due to a lack of buying in China.
And remember my post on the unusual activity at the Federal Reserve? “ For example, it must be noted that business cycles are world-wide” and therefore business cycles cannot be blamed on individuals, political parties, countries, or even continents. The bubbles always burst eventually, and when people in one country see the bubble burst in another, monkey see, monkey do. They act to avoid the consequences of a bubble bursting in their own country and that bursts their bubble. (Hence the famous stock trading advice: Avoid Panic. But, if you absolutely must panic, try to do it before everybody else does.)
Well, as expected, European financial companies are failing and for the same reason US financial companies have had trouble. They did the same thing that US financial companies did. And their equivalents to our Federal Reserve are doing equivalent things.
The human inclination to get over enthusiastic in markets, and to ignore risks, is universal. If you outlawed it one way, they’d find another way to do it. It’s like teenagers and sex. But even worse, humans imitate other humans so the European troubles are identical to our own. Too much debt, and, in this bubble, an inclination to create mortgage backed securities to theoretically decrease risks, part of which is due to physicists. The latest news from Europe:
The contagion from the Wall Street crisis spread throughout Europe yesterday with the governments of Iceland and Germany stepping in to rescue ailing banks, following the decision in Britain to nationalise Bradford & Bingley and the bail-out of the Belgian bank Fortis late on Sunday.
… rumours began to circulate that Franco-Belgian bank Dexia might be the next to face trouble.
Iceland’s economy expanded rapidly in recent years, making Icelanders among the richest people in Europe, but critics argue that the wealth has been built on too much debt. The country has been likened to a “toxic hedge fund”.
Getting back to physics,you can google “physicists” + “Wall Street” and get a million hits. For example, see this enthusiastic article, from which a single paragraph is enough:
Nigel Goldenfeld, professor of physics at the University of Illinois, Urbana-Champaign (UIUC), earned his Ph.D. from the University of Cambridge in England and specializes in statistical, theoretical, and computational physics. His first Ph.D. student at UIUC ended up working for Goldman Sachs, which sparked Goldenfeld’s interest in the physics of finance. Convinced he could improve on the calculation techniques used, he founded NumeriX in 1996 with fellow physicists Alexander Sokol and Mitchell Feigenbaum and entrepreneur Michael Goodkin. NumeriX is a New York-based venture that markets fast numerical software products for derivative-risk management.
So there you go. Yet another reason to support basic research in physics: Keep the arrogant, over-educated, morons out of the financial sector. But seriously folks, if the physicists weren’t screwing up the financials, you’d be doing it on your own. All humans are basically a bunch of beanie-baby buying bozos and will drive any market, free or government-controlled, into wild oscillations.
I’m not worried about the crisis. It doesn’t matter much whether Congress votes for a bail-out or not. If they refuse, the Federal Reserve will simply loan money to the idiot-run financial houses-of-cards, and then make sure that the loans are paid back by monetizing enough debt to make the underlying assets (read: “your house” ) go up in price enough to make the loans profitable again. They’ve been trying to avoid this because they don’t want inflation. (Inflation steals money from wealthy people, notably, the wealthy people who run the Federal Reserve.) But it’s time for the next cycle. Bring it on.
And, lest you think that the excitement has halted business in the US, I should add that while our scrap metal business blows chunks, our ethanol business seems to be digging its way out and we appear to be on our way to making the next important (and very expensive financial) milestone on building our ethanol plant in Moses Lake, WA.