-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Today's Lesson From Faster Than Light: Superluminal Loopholes in Physics by Nick Herbert An elementary consequence of Maxwell's laws is that the speed of light is a constant, c, whose numerical value is fixed by the ratio of electric to magnetic forces. In 1861 Maxwell actually calculated the speed of light from the measured force between two standard magnets and the electric force between two charges. These forces do not change when an observer moves past the charges and magnets, so the speed of light, as calculated from Maxwell's theory, always has the same numerical value--186,000 mps--no matter what the observer's state of motion might be. Newton's laws, on the other hands, predict that a light beam should travel at different speeds for observers who themselves are travelling at different speeds. Newtonian physics asserts that light travels at speed c only for an observer who is absolutely at rest. For the numerical value of the speed of light, these two laws--the Mosaic tablets of classical physics--gave two different results; they could not both be right. Einstein believed more in Maxwell's laws than Newton's and claimed as his second relativity postulate that the speed of light is constant for all observers. Einstein's choice meant however that Newton's laws are wrong. Einstein therefore replaced Newton's laws with new laws of motion--according to which the speed of light is constant for all observers. Since Newton's laws embody many common sense ideas concerning motion, Einstein's new mechanics had revolutionary consequences for our ordinary notions of space and time. ===== Today's News Financial Markets Here Come the Troubles of August Widening swap spreads portend problems For the third year in succession August is proving to be a month of extreme financial turbulence. The US equity and bond markets have been nervous. The dollar looks distinctly tired after its long bull run. Meanwhile, rumours are rife that at least one investment bank has incurred big losses on its proprietary trading activities. The trouble is thought to have arisen in the interest rate swaps market, which is going through unprecedented and stressful contortions. Such swaps are the derivative instruments that allow companies and banks to exchange their fixed interest income flows for floating ones, and vice versa. Last weekend William McDonough, the head of the New York Federal Reserve, felt the need to tell Dow Jones Newswires that he knew of no situation that posed a systemic risk. It was the kind of central banker's denial that offers mixed comfort to nervous investors and traders. By the middle of this week, conditions in the markets had started to stabilise. Does that mean the scare is already at an end? Probably not, because the behaviour of markets still points to considerable aversion on the part of investors and borrowers to taking on financial risks. Even after Mr McDonough's statement, spreads on 10-year swaps were higher than at the time of the financial crisis in August 1998. The spread reflects the difference between the fixed rate being swapped and the yield on a benchmark Treasury bond of comparable maturity. Any widening of the spread points to increased concern about the risk of lending money to companies relative to lending it to the US government - regarded as the most creditworthy of borrowers. This is noteworthy because it was the extreme gyration in swap spreads that helped to inflict such heavy damage on John Meriwether's Long-Term Capital Management, the hedge fund that was rescued by its bank creditors a year ago. To the extent that LTCM and others have stuck to their original strategies in the hope that they would become profitable again in less volatile markets, there is obvious scope for more trouble. That trouble could affect both hedge funds and the proprietary trading desks of investment banks. Sticking to the original trading strategies would have seemed amply justified as late as June this year. But the market gyrations of the past six weeks could have reversed many of the gains. Indeed, all financial institutions that have based their trading strategies on the assumption that historical relationships in the markets would hold firm are now likely to be facing losses. What is causing the trouble? The immediate financial pressure reflects concern that the Federal Reserve will shortly raise US interest rates again. Companies are refinancing bank borrowings in the corporate bond market in order to lock in today's low interest rates. Many are worried that the corporate bond market will become illiquid because of the Y2K millennium computer problem. They have brought forward their borrowing plans. The pressure that arises from such heavy issuance is part of the reason why spreads have widened in relation to the US Treasury market, where the government is now buying back its own debt. The same pressure is reflected in spreads in the swaps market where corporate treasurers simultaneously hedge interest rate risk in deals related to the bond issue. While corporate demand for bond finance is exceptionally strong, the supply of capital is now affected by a shift in the global economic background, and possibly also in the way the US economy works. The US economy's ability to grow faster than its underlying potential for long-term growth has depended recently on the continuation of a virtuous circle. The existence of surplus capacity in the much weaker Asian and European economies has imposed benign disinflationary pressure on the US. Surplus liquidity from the weaker economies has also been sucked into the US capital markets, thereby contributing to dollar strength. That has in turn kept import prices in check. These strong capital inflows have helped finance a stock market and corporate investment boom at a time when US households are spending in excess of their income. So the economy has continued to grow despite a growing current account deficit that reflects the shortfall of domestic savings against investment. Economists such as Tim Congdon of Lombard Street Research and Bill Martin of Phillips & Drew have long argued that these imbalances in the US economy are unsustainable. The difficulty has been to predict precisely when international investors will shy away from financing a current account deficit that is running at $30bn a month. With the European economies and much of Asia now recovering, the growth of global liquidity is slowing. Moreover, the change in sentiment towards the dollar since mid-July carries a strong hint that global capital flows may be changing direction. Certainly US and European institutional investors have been pouring large sums into the Tokyo market this year. The weakness of the US bond market points to a similar conclusion. So the widening of credit and swap spreads is a direct reflection of tighter supply and demand conditions in the capital markets. The question is whether a repeat of the financial crisis that followed last year's Russian default is under way. The present credit crunch is clearly less severe. Big companies are still able to raise funds in the bond market - at a price. Nor are spreads in the US Treasury market widening as they did in 1998 to reflect fractional differences in liquidity between bonds. Yet the markets have a very fragile feel. And if a shift in the pattern of global capital flows is indeed under way, the scope for shocks will increase. One potential horror story concerns the currency markets. As Paul Krugman, the US economist, has pointed out, a weak dollar would lead to economic contraction almost everywhere. This is because currency depreciation prompts a positive demand shock in the US and a negative supply shock for the country concerned. That is to say, US goods would become more competitive around the world, thereby increasing demand in an economy where demand already outstrips supply. At the same time a devaluation-induced increase in import prices would further constrain supply that already falls short of demand. With the US economy operating with no slack at all, a sudden dollar decline would lead to a wage-price spiral, which would probably force the Fed to raise interest rates. For the rest of the world, which still suffers from weak demand and is only now beginning to recover from an economic setback, currency appreciation would have an equal and opposite effect. It would no longer be possible to rely on the US as the global spender of last resort. Yet the ability to respond to a falling dollar by reducing interest rates is limited in Europe and more especially Japan, where short-term interest rates are close to zero. A changing pattern of capital flows also poses a threat to heady valuations in US equities. For as Brian Reading, the economist, argues, there are intriguing parallels with 1987. The crash of October that year, the worst since 1929, is thought to have been partly caused by rising interest rates around the world, and a row between James Baker, the then Treasury secretary, and the Germans after a Bundesbank rate increase. Mr Baker was worried that the Germans were reneging on their obligation under the 1987 Louvre Accord to support the dollar when the current account deficit on the US balance of payments was approaching 4 per cent of gross domestic product. Mr Reading says the role of the Japanese, though largely ignored at the time, was important. On the eve of the crash, the Japanese Ministry of Finance was arm-twisting domestic financial institutions into buying $40bn-worth of privatisation shares in Nippon Telephone and Telegraph at an astonishing multiple of 300 times earnings. As a result, the flow of portfolio capital to the US from the world's biggest creditor country dried up. The recent intervention to curb the appreciation of the yen carries an interesting echo of the Louvre interventions. There are equally suggestive parallels in today's weakening bond markets and rising interest rates, accompanied by a deteriorating US current account. Of course, when the US equity market finally collapsed in October 1987, it was none other than Alan Greenspan, the Fed chairman, who came to the rescue. Confronted with a shock that threatened the financial system, he opened the monetary sluice gates, as he did in the crisis last autumn. Can the markets rely on Greenspan coming to the rescue yet again if the collapse of a big institution poses a systemic threat or the markets take a severe tumble? It would certainly be harder for him to do so. Last year, the threat of deflation was sufficiently real to justify a significant loosening of policy. This year, the economy is still growing strongly, labour market conditions have tightened and the dollar has weakened. The threat of inflation is more potent, which means that the central bank faces a larger dilemma. The economy is no doubt sufficiently robust to survive a fair measure of financial turbulence. Mr Greenspan must also be concerned that moral hazard - the belief that the Fed is putting a safety net under the market following last year's 0.75 per cent crisis cut in interest rates - is contributing to high valuations on Wall Street. But much will depend on the scale of any problem. Stephen Lewis, chief economist of London-based Monument Derivatives, argues powerfully that the Fed cannot allow historically high swap rates to deter it from tightening credit. Otherwise it would undermine confidence in the anti-inflationary thrust of Fed policy. Yet a full-blown stock market collapse might be another matter. Mr Lewis also forecasts a very interesting month. He could well be right. The Financial Times, August 13, 1999 Land of Mochtar Riady Rupiah Plunges in Wake of Banking, Political Troubles Just who is bankrolling Habibie's campaign anyway? JAKARTA - Just as Indonesia's economy was beginning to show signs of recovery, the long-battered currency, the rupiah, has started a surprising new plunge, reviving the specter of last year's dramatic currency collapse and showing how political uncertainty continues to control the direction of shaky Asian financial markets. A burgeoning new corruption scandal at the heart of the country's banking system and fresh violence in the outlying provinces - including reports that troops may have killed as many as two dozen people on the troubled island of Ambon - have combined to drive the rupiah down about 10 percent this week. After the country's successful and largely peaceful democratic elections in June, the rupiah had rallied to a high of 6,550 to the dollar, leading some government economists to boast confidently that the 18-month-long economic crisis might finally be over. Economic ministers then were confidently predicting that the rupiah would stabilize at 5,000 to the dollar in a few weeks. On Thursday, the rupiah was trading at 7,860 to the dollar. The euphoria of election day was soon dissipated by an excruciatingly slow vote count - raising fears of cheating - and by the awareness that the victory of the reform-minded opposition parties at the ballot box might not translate into the removal of the unpopular president, B.J. Habibie. Megawati Sukarnoputri's Indonesian Democratic Party of Struggle handily won the elections with 34 percent of the vote, but she is not guaranteed the presidency. In Indonesia's complex, indirect election system, the president will be chosen in November by a 700-member electoral college. Also, the last week has seen an escalation of violence in troubled Aceh Province in the far west, where a military crackdown on Islamic separatists has left scores dead, and by a renewal this week of ethnic and religious clashes in Ambon in the east between Muslims and Christian traders. Some 20 people were killed in the Ambon fighting this week, prompting the armed forces Thursday to send in two new battalions, numbering around 900 troops, to try to quell the unrest. Reuters news agency reported that troops from the elite Kostrad unit were responsible for a church massacre outside Ambon city Wednesday that left 24 people dead. But investors and economic analysts agreed that one of the main causes for the currency plunge has been Jakarta's latest corruption scandal, with the allegation that some $80 million from one of the country's bankrupt banks may have ended up in the coffers of Mr. Habibie's ruling Golkar party. The troubled bank, Bank Bali, was reported to have paid the sum as a ''commission'' to a finance company controlled by the Golkar party's vice-treasurer. The huge fee was supposed to be in exchange for helping the bank recoup money lost on interbank loans. But banking experts and opposition politicians have called the payment highly irregular since outstanding loans from bad banks were already covered by a blanket government guarantee. Opposition parties said the bank may have been pressured to make the payment, with the money possibly earmarked to help finance Mr. Habibie's campaign to win a new term as president. ''The Bank Bali scandal is just the tip of the iceberg,'' said the opposition leader Amien Rais, who called on the country's top economic officials to be suspended from their posts. Analysts said that the scandal, and the alleged involvement of a top ruling party official, had undermined confidence in the entire process of bailing out local banks while revising the old image of Golkar as the same corrupt party that ran the country to economic ruin under the now discredited Suharto regime. That sentiment, they said, had led to the new plunge of the rupiah. Arian Ardie, a business consultant with The Columbus Group, agreed that the rupiah could be in for a lengthy new slide. ''I don't think it's one particular factor. It's 10,000 straws, and which one breaks the camel's back you can't identify,'' he said. This reversal in the rupiah's fortunes comes after a spate of good news statistics that economic officials here had used to show that the economy had not only bottomed out but also was turning a corner. The stock market had returned to its post-crisis levels, thanks to new infusions of foreign cash. And new figures for July showed that inflation had dropped to minus 1.05 percent, marking the fifth consecutive month of deflation following last year's hyper-inflation of 77 percent. ''The economy is actually coming back much stronger and faster than anticipated,'' Mr. Ardie said. ''But the financial sector is still a mess. Until that's resolved, there's still a lack of confidence.'' International Herald Tribune, August 13, 1999 Coca Cola Coke Stumbles from One Disaster to Another Italian charges follow European raids Italy's competition authorities have accused Coca-Cola of abusing its dominant position in the country, delivering a further blow to the image of the world's largest soft drinks maker. The findings, in a preliminary statement of objections sent to Coca- Cola, come weeks after the European Commission's dawn raids on Coke's offices in an inquiry into whether it was abusing its position in three other European Union countries. The US multinational is still recovering from a health scare that saw its products forced off the shelves in four European countries in June. It recently announced a 21 per cent fall in second-quarter net profits to $942m, largely because of the problems in Europe. Italy's Antitrust Authority yesterday confirmed that it had filed its preliminary findings at the end of last month. The antitrust case was opened against Coca-Cola in June 1998 after a complaint in November 1997 from PepsiCo, the Atlanta-based company's biggest rival. The Italian authorities received a second complaint last November over Coca-Cola's practices in Italy from Esselunga, an Italian supermarket chain. The findings accuse Coca-Cola of distorting competition rules through its discounts and bonus system to wholesalers and efforts to claim display space in supermarkets. The Antitrust Authority said Coca-Cola now had the opportunity to respond to, and clarify, the findings in the preliminary report. A final ruling on the case would be made on December 15. A Coca-Cola official in Italy said the company had always complied with and respected market rules in Italy and elsewhere. Coca-Cola was due to hold talks with the antitrust regulator at the end of next month, the official added, and would continue to co-operate fully. He emphasised that no sanctions had been enforced by the Italian authorities. Under Italian competition rules, the company risks fines of between 1 and 10 per cent of its roughly L1,800bn ($1bn) annual sales in Italy if the final ruling finds it has engaged in unlawful anti-competitive practices. The EU conducted an earlier investigation of Coca-Cola's alleged abuse of its dominant position in Italy and extracted in 1989 a number of undertakings from it. Commission officials raided offices in Germany, Denmark, Austria and the UK last month in a probe into whether the company was offering retailers in the first three countries incentives to increase sales volumes, carry Coca-Cola's full range, or stop selling competitors' drinks. The Financial Times, August 13, 1999 Currency Markets Day Trading Foreign Exchange Fun with fiat currencies WASHINGTON - A Seattle housewife, Cynthia Bartlett, put her handicapped daughter on the bus, fired up the computer next to her kitchen and began watching the Japanese yen descend against the dollar. She highlighted ''quote'' and typed in ''yen'' to place a $100,000 order with just $1,000 down - and then waited for a currency trader somewhere in the world to accept her offer. ''I thought about trading stocks, but with a child with Down's syndrome and the duties of running a household, I didn't want to watch 30 companies,'' the 48-year-old former video producer said. Instead, she set up an on-line currency-trading account in January and entered a risky and unregulated world once reserved for major banks, corporations and investors such as George Soros. She made $1,300 on that dollar-yen trade in half an hour. She claims to make money regularly now after some heavy losses at first. Fueled by the same technology and investment mania that landed the stock market in living rooms around the world, global currency is taking off as the latest rage in day trading. Thousands of ordinary people, assisted by new Internet-based businesses, are venturing into the $1.5 trillion-a-day world of trading foreign currency, invading yet another bastion of Wall Street through the World Wide Web. ''The Internet has made it possible for little investors to finally play in this big league,'' said Josh Levy, a former Goldman Sachs currency trader who is helping devise an electronic foreign-currency exchange due to make its debut in September. The system, called Matchbook FX, would be the first to link currency buyers and sellers without a broker. There is no central quoting system like the New York Stock Exchange to assure small investors of a fair deal. Securities firms are not bound by rules that limit loans, so investors can quickly find themselves deep in debt. If an investor has a problem, there's no regulator to cry to. ''Because there is so little oversight, there is vast potential for fraud,'' said David Bayless, a lawyer who until recently ran the San Francisco regional office of the Securities and Exchange Commission. In the past two years, an estimated 5 million people have cast aside their brokers and now trade stocks through on-line services. More than 200 day-tradingshops that rent high-speed computers and desks to an estimated 4,000 to 5,000 people have also opened across the United States. Until recently, there was a presumption in the currency market that ''the person on the other side of the trade was a consenting adult aware of the risks,'' said Laura Weir, who runs the foreign-exchange and investment desk at the New York Federal Reserve Bank. But now, thanks to the Internet, it could be a plumber or doctor at the other end of a dollar-yen trade. ''When I was on my honeymoon in Italy, I made one trade on the beach with my laptop and earned $5,000,'' said Glenn Cybulski, a former construction worker who not only trades currencies but also runs a business teaching other people how to do it. For $5,000, his Educational Trading Resources provides seminars, manuals and software that tells traders when to buy and sell. Dozens of World Wide Web sites offer news pages and training, touting currency trading as the ultimate small business. These support companies coordinate with small brokerages that extend the software to plug people into foreign-exchange markets around the globe. Brokers also provide loans of at least 100 times what an individual puts down, meaning someone with $1,000 can trade $100,000 of currencies. Some routinely extend leverage of 200 to 1. Currencies trade in lots of $100,000. Prices move in ''pips'' - a pip being the equivalent of a hundredth of a cent. Typically, customers are required to put up $5,000 to open an account. Trades cost around $16 One of the best-known promoters of Internet currency trading is the Money Garden, based next door to the New York Stock Exchange. It is among many that offer a month of free demonstrations in which customers learn how to trade yen, euros, British pounds and Swiss francs. Money Garden is a market-maker. It trades with customers, profiting on the spread between the bid and the ask price. It is allowed to switch the price after a customer puts in an order, as long as the investor is given the chance to reject or accept the new price. The volatile forex, or foreign-exchange, market is composed of hundreds of banks and businesses around the world that buy and sell about $1.5 trillion of currency daily, according to the Federal Reserve. By comparison, about $300 billion is traded daily on the U.S. Treasury bond market and less than $10 billion in the stock market. Mrs. Bartlett, the Seattle housewife, pays no attention to world news that might move markets. ''There will always be a trader in Russia who hears the news a few minutes before I do,'' she acknowledged. Instead, she watches the numbers fluctuate and attempts to jump in before they change direction, much like a stock day trader acting on momentum. ''I wanted something to do at home, like other housewives,'' she said. International Herald Tribune, August 13, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://home.ease.lsoft.com/archives/CTRL.html http:[EMAIL PROTECTED]/ ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
