I’ll discuss an interesting corollary of the fact that fiat currencies trade at discounts to par; namely, that any expansion in the balance sheet of (say) the Fed necessarily entails ‘dollar dilution’. That is, each dollar becomes ‘good for’ less stuff.


In case some people are thinking; ‘Duh! Money printing obviously dilutes the dollar!’, I should point out that there exists a large group of financial commentators that believe that QE is a (somewhat benign) asset swap. I have misgivings with this notion; my understanding of currencies flies in the face of this argument.

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This morning was rather volatile for the stock price of Sotheby’s (BID). It spiked up to 51 in the morning and is now trading at around 47. See the chart below.

Sotheby's Stock (past 5 days)


This reminded me of the ‘flash crash’, when the Sotheby’s stock was all over the place. I’m not saying there might be a flash crash again. Instead, I thought this would be a great time to write about my theories on auction house stocks. It is my contention that they could be good leading indicators for the general stock market.

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