Financial topics

[Higgenbotham]

One of the best ways to learn about the stock market is to study the long term charts and see what the market did from significant points...

I stopped using that years ago, but I started agin on your precise idea (but it takes weeks, so i'll not be active on the subject, sorry), may be it hides a human logic that could be interesting.

You are very correct to indicate that this is not a simple matter to undertake. Just two examples. One, I am making projections from the 1966 high. Going back to 1935, if I had taken the same projections from the 1890 high, they did not work; it worked only from the second high in 1893. Therefore, the projection from 1966 may not work and may only work for the 1973 high out to 2018. Two, there were very regular 25, 50, and 75 year cycles that indicated 2007 would be a low. Instead, those cycles inverted into a high. The same thing may happen in June 2011, or nothing at all.

[John]

Dear Vince,

> So John, is it your prediction that the dollar will continue to be
> the dominant world reserve currency for at least the next 25 years
> then? No major change in the world monetary system?

For the first question, yes, and I've said that many, many times, as
you must know, at least for 10 years.

As for the second question, absolutely not. There will be huge
changes to the world monetary system, as a result of the financial
crisis and the world war, just as happened after WW II. Every
currency will be severely damaged, but my expectation is that the US
dollar will be the least damaged -- the tallest midget, if you will.

I can even imagine a scenario where the US dollar becomes an
international currency, controlled by an international organization --
if the US is sufficiently destroyed by the WW.

As bad off as the US and the US dollar are, there is no competitor.
The yuan will be destroyed by China's civil war, and the euro will be
destroyed by war.

In my opinion, the only currency that has even a remote chance of
replacing the dollar is the yen.

John

[John]

Dear Higgie,

> This quote is from a newsletter called Stock Market Cycles
> published by Peter Eliades. It complements the information I
> posted above by noting the repetitive time relationships from
> major lows in the stock market.

>

This pattern begins in October 1957 at that very important
> bottom. The main thesis of the pattern is that three of the more
> important market bottoms recorded in United States securities
> history led to tops of major importance around 33 years later. The
> bottom registered in October 1857 led to a top 32 years and seven
> months later in May of 1890. The important bottom in August 1896
> led to the major top in September 1929 33 years and one month
> later. The major bottom in July 1932 led to the top registered in
> February 1966. Those prior patterns suggested to the person who
> sent us the fax in early February 2008 that the October 2007 top
> which came 32 years and 10 months after the major December 1974
> bottom could well turn out to be a top of great
> importance.

>
The following graph also shows roughly the same cycle:



John

[John]

> Krugman on inflation.
> http://krugman.blogs.nytimes.com/2011/0 ... ing-place/
> Looks like it's not just housing.

I'm always amused by anything the Krugman writes, since he's no longer
an economist, but an ideologue. He's a "deflationist" because it
supports his ideology of issuing $10-15 trillion more in quantitative
easing.

However, his graphs are quite interesting:



The data is obtained from the Atlanta Fed site:

http://www.frbatlanta.org/research/infl ... t/data.cfm

The commentary from the Cleveland fed is also very interesting,
and has graphs going back to 1965:

http://www.clevelandfed.org/Research/co ... 2010-2.cfm

The conclude that forecasts of the headline CPI that are based on the
sticky-price data tend to be more accurate than the forecasts based on
headline inflation, and that "inflation is likely to be subdued for
some time."

John

[OLD1953]

True enough, but the charts are interesting. Really though, nobody in the mainstream is not an ideologue now. Anyone that's in the center is hated, because everyone is on the fringes and they detest anyone who doesn't agree with them. Tis the time and season.

I just see the whole QE money dispensary as an inevitable phenomena, the money won't go to loans, because it can't, as nobody that qualifies wants a loan. So it winds up in the investment markets, which is a terrible deal for the taxpayers that are funding the whole mess. Whether the markets undergo a gradual decline or a sharp drop, they are going to drop, because without employment vs population rising to at least 2001 levels, you aren't going to have spending and borrowing, which means you aren't going to have the employment until there is something that HAS to be bought. Like a war. Doesn't have to be a war the US is involved in directly, but selling arms is quite lucrative. (Though I certainly think we'll get dragged into it.)

I'm not sure what to make of this:

http://www.latimes.com/business/la-fi-l ... 051.column

First reaction was that CapOne was simply trying to gain some money from suckers. Second reaction was to "Card issuers are now required to send out statements for charged-off accounts if the issuer is still charging interest or fees for the account", and was WHAT? Apparently it's practice at CapOne to keep carrying bad loans on the books after the statute of limitations has expired. That surely would make the old balance sheet look better, and change a lot of capital requirements and so forth too.

I don't have any money in any banking or credit investments, and this certainly does not make me have a warm fuzzy about CapOne or any other banking endeavor.

[Higgenbotham]

>
The following graph also shows roughly the same cycle:



John

John,

The cycles I mentioned are interesting because they encompass 4 generations and have almost 3 repetitions on an approximately 80 year time scale.

The graph you showed is interesting because it indicates we should see an approximately 30 year trend toward lower PE ratios from here, so it's going to be a very long time before stocks are cheap. Seems like it won't be until this crop of Prophets and Nomads are completely out of the picture.

[OLD1953]

Only fifteen years from crossing the axis to the bottom. We are in what I'd term an extended peak right now, shoudl have crossed the line some time ago.

[burt]

What about another scenario?
Too many people using Technical Analysis see the "M. God Market" should step down for while. What we can see is that "M. God Market" doesn't want to.
It's driven by computer and as Higgenbotham noted: It is rare that "M. God Market" gives right to a majority.

So why not up to 1400, just to kill the Bears and give anyone a thought that the criss is over, and then a beautiful crash, let's say in March to follow Higgenbotham's observation?

Remarks? It is a poker game, so at some time don't think too much about what is logic or not.

[burt]

The graph you showed is interesting because it indicates we should see an approximately 30 year trend toward lower PE ratios from here, so it's going to be a very long time before stocks are cheap. Seems like it won't be until this crop of Prophets and Nomads are completely out of the picture.

An so perhaps a long time before a real crash?

World is really complex and short-term (1 year) prevision are difficult to make.

[vincecate]

An so perhaps a long time before a real crash?

World is really complex and short-term (1 year) prevision are difficult to make.

Predictions are very difficult, especially about the future.

I think we will get a crash when 30 year bond yields go above 5%. They were at 4.61% yesterday up from 4.33% a month ago. At this rate it will not be long till we cross 5%.

The reason is that all the investment computers understand the link between bond interest rates and P/E ratios, even if most investors do not. If it were an E/P ratio it would be directly comparable to a bond yield. But most people don't see that a 5% yield and a P/E of 20 are comparable. Anyway, as interest rates go up the P/E ratios go down. Once people/computers decide that interest rates will be going up for awhile the stock prices will rush down to get ahead of this trend.

http://finance.yahoo.com/bonds/composite_bond_rates
http://www.fxstreet.com/rates-charts/bond-yield/