23-Jun-13 WV-The 'experts' scramble to explain stock prices

Discussion of Web Log and Analysis topics from the Generational Dynamics web site.
John
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23-Jun-13 WV-The 'experts' scramble to explain stock prices

Post by John »

23-Jun-13 World View -- The 'experts' scramble to explain the stock market plunge


Egypt's 'Tamarod' campaign heads for mass confrontation on June 30

** 23-Jun-13 World View -- The 'experts' scramble to explain the stock market plunge
** http://www.generationaldynamics.com/pg/ ... tm#e130623




Contents:
The 'experts' scramble to explain the stock market plunge
The largest bubble in history
Egypt's 'Tamarod' campaign heads for mass confrontation on June 30


Keys:
Generational Dynamics, Price/Earnings ratio,
real estate bubble, stock market bubble, Ben Bernanke,
quantitative easing, Law of Mean Reversion,
Egypt, Tamarod, Muslim Brotherhood, Mohamed Morsi,
Hosni Mubarak

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mannfm11
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Re: 23-Jun-13 WV-The 'experts' scramble to explain stock pri

Post by mannfm11 »

The reason the market is falling apart is not that Bernanke is going to stop QE. The banking system didn't need any more money before he started this latest round. Speculators need the buying pressure it creates, as more and more capital is trapped in cash.

In any event, various bubbles around the world are collapsing. China might be the biggest bubble in history, financed by loose credit in the USA and China. Bernanke will go down along side John Law and the late 1700's French inflationists as the author of one of the great monetary failures of all time. All Keynesian and monetarist economists deny the existence of bubbles until they break and they deny what causes them. I don't believe this is by mistake, but on purpose, as the primary theories come out of universities that were built and controlled by turn of the 20th century financiers. Financing the continual growth of debt provides bankers with growing income and a growing means to keep their loans solvent at the same time. That is until the bubble gets too big.

The past 5 years have been about hiding insolvency, not about economic growth. Bernanke can't influence the economy without destroying it. I don't believe we will enjoy the next 10 years or so, as this one will be worse than the last one. All the hidden trash will come out this time and maybe some of the culprits will go to jail.

There are 2 sides of owning stocks. One is dividends and the other is the theoretical growth in dividends. Capital gains, in general are not part of the equation, except as they relate to growing dividends. Thus a $1.50 dividend with a 3% growth in an 8% capitalization rate environment will bring $30 on the current market. The problems arise when excessive credit inflate the level of profits and the resulting debt begins to weigh on the system, ultimately destroying growth. It isn't that PE should be this or that. It is that without real growth, the market has to stand on its dividends. The risk free rate of return is 3% plus inflation, in normal times. In a 3% inflation environment, treasuries should return about 6%, meaning stocks, in order to take on the additional risk, should be priced to return about 9% or more. This requires a dividend in the range of roughly 5%.

But, we are at the current time, enjoying corporate profits roughly double normal. So, in order to duplicate the current price structure on a long term basis, time is going to have to pass to reorder the economy back to normal. On a real basis, it could take 50 to 70 years to return valuations to current levels. Sure, one can devalue the unit of trade and achieve numbers, but not value. It is not out of the realm of possibility that dividends could be split in half, as companies try to survive and the market could easily lose 80% or more. In fact, if you examine post bubble markets over history, you will find they have declined 80% or more. That is the norm, not the exception. The capacity to generate additional good credit, has reached and passed its limits

John
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Re: 23-Jun-13 WV-The 'experts' scramble to explain stock pri

Post by John »

mannfm11 wrote: > I don't believe this is by mistake, but on purpose, as the primary
> theories come out of universities that were built and controlled
> by turn of the 20th century financiers.
Barry, ten years ago I would have thought this was nonsense. But
today there's no other explanation except that all of these people --
financiers, politicians, journalists, analysts, college professors --
are lying to make money by defrauding other people. It's just one
sleazebag after another.

Southern Gentleman

Re: 23-Jun-13 WV-The 'experts' scramble to explain stock pri

Post by Southern Gentleman »

High frequency trading represents at least 50 percent of all trades. The algorithms may not allow the markets to decline as the selling starts other algorithms buy.

mannfm11
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Re: 23-Jun-13 WV-The 'experts' scramble to explain stock pri

Post by mannfm11 »

John, why else would all this fictional nonsense be repeated over and over again. The more I study, the more I understand oligarchs took control of the US education system roughly 100 years ago and made it self serving to them. We are now managed by economists whose only solution is to continually blow bigger and bigger bubbles. Banks have the government at their mercy, as they finance each other through the back door. The more assets produced, the larger the income and it becomes a growth industry to boot. The problem is it repeats a mistake made over and over again during the last 300 years that has repeatedly ruined economies and caused wars. Someone comes out of these messes in fine fashion and with more power than before. I believe it was Disraeli who said the world was run by hidden forces. Thus the sad state of affairs, where the only real power of the establishment is to propagandize fictions about the economy, hoping people believe, give them their savings and hock their home equity to consume. Problem is, home equity is about all hocked out.

mannfm11
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Re: 23-Jun-13 WV-The 'experts' scramble to explain stock pri

Post by mannfm11 »

Southern Gentleman, I don't buy that at all. They had HFT in 2008 and it did nothing, but lead to a collapse. HFT jumps in front of bids and asks, when the market allows them to sell or buy back at an immediate profit and little else. Most of the bids aren't even real. It produces stuff like the flash crash. If there is a liquidity problem due to the fact that the market must be liquidated, due to mainly borrowed capital involved, we will see another flash crash. Bids will widen, not narrow. I don't believe for a moment the market is run for anything other than those on the inside that accumulate to distribute at higher prices and on the other hand, create lower prices in order to buy back short exposure. The market makers are like poker players that can see your hand before they make their bets. If you don't know what you are buying, stocks aren't for the public. March 2009 was a buy, but only if you knew the government was going to rig the accounting rules for banks, fail to prosecute and Ben Bernanke was going to continually flood the market with more cash than the banks could possibly use. The truth of the matter is Bernanke has only succeeded in sowing the seeds of more deflation, as he has forced capital to be tied up in idle cash. The cash will exist until the Fed returns producing assets to the balance sheets of banks in return for it.

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