Financial topics

[richard5za]

Vincecate, while I do not have proper numbers to reference, I am positive we "world/USA" has already had a much greater than 2% deflation in this current recession. Take a look at the tens of tillions of dollars lost in RE, market, investments, companies and stocks vs the 1.4T created from QE

Inflation and deflation are monetary issues and thus are about the prices of economic goods and services. Inflation is not about changes in PE ratios and thus the value that investors place upon stocks, or about the values that investors place upon other investments. If I buy some stocks for $ 50 and two later they are worth $ 500 no money has been created unless I sell those stocks and put the money to economic use. Say I don't sell the stocks and a week later they are down to only $ 10 in value no money has been lost and there has been no deflation.

Hope this helps.

[OLD1953]

I suppose Armstrong would say that government influences the rate of creation of money, and can somewhat direct the flows and velocity of money as it moves through society. It isn't a direct relationship any longer, that's true.

[jdcpapa]

Inflation and deflation are monetary issues and thus are about the prices of economic goods and services. Inflation is not about changes in PE ratios and thus the value that investors place upon stocks, or about the values that investors place upon other investments. If I buy some stocks for $ 50 and two later they are worth $ 500 no money has been created unless I sell those stocks and put the money to economic use. Say I don't sell the stocks and a week later they are down to only $ 10 in value no money has been lost and there has been no deflation.

The view that the stock market is manipulated is in support this position. Earnings affect stock prices. Inflation or deflation affect the cost of goods and services. Hence, it could be argued that inflation or deflation is "about changes in PE ratios".

The US$ has been holding up fairly well in these turbulent times. In fact, I have established a new level of respect for it. In part, because I now realize the significance of its influence on the stability of the world's economy. Of course, nothing can be taken for granted. But, I am beginning to get the sense that the WRC (US$) may hold up against "gold fever". Any discussion of the US$, must have its status as WRC in the equation. In fact, the psychology of referring to it as a "virtual" WRC vs US$ puts a whole different spin on things.

I am a follower of: "prepare for the worst but hope for the best". Regards,

[Higgenbotham]

In 2007, there was a lot of talk about the exploding MZM money supply. People were counting beans but not paying attention to the deterioration of the commercial paper markets. Today's situation has similarities but the deterioration looks to be broader. There's been a lot of speculation as to why Bernanke stopped publishing M3 but none that gives what I believe to be the most logical reason, which is that M3 is really impossible to accurately (or honestly) count in this environment. The beans can be counted but the true effective M3 money supply can't be. The drop in real estate prices is deflationary because of the extreme amount of leverage used. This has impact on M3 money.

[OLD1953]

Whether or not there is a demand for US bonds, there is certainly a demand for USD$.

http://www.bloomberg.com/news/2011-09-1 ... ghten.html

The premium European banks pay to borrow in dollars through the swaps market is close to the highest level in almost three years. The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, was 99.1 basis points below the euro interbank offered rate, or Euribor, at 12:24 p.m. in Frankfurt, indicating a premium to buy the greenback. It widened to as much as 112.6 basis points earlier this week, the most since Dec. 2, 2008, according to data compiled by Bloomberg.
****
In short, the US lenders are assuming the EURO banks are going down, and not lending them dollars. Moody's cut Credit Agricole SA (ACA) and Societe Generale SA's credit rating - same article.

This is going to make it difficult for EURO nations to balance international accounts, and expensive. And that will cut trade as the cost of the transactions will eventually be borne by whoever buys imported/exported items.

Just MHO, but there's almost no chance for those EURO nation bonds to take off. Germans in particular aren't going to be fooled that somehow this will NOT translate into higher taxes or reduced services for Germany. If the market truly did average out all the net values, Germans will still be paying more to borrow. If the market remains skittish as it has been and demands a premium, EURO national bonds would be the death of the EURO, because Germany would be the first to retreat from the EURO.

Also, BOA is foreclosing at a very high rate, and very suddenly. Whether they think the time has come to move those properties, or they just want to clear the books, they are pouring it on. If this catches on with other banks, housing prices will take another drop.

http://www.calculatedriskblog.com/2011/ ... erica.html

And the income report came out, we've now dropped back to 1996 income levels.

[Higgenbotham]

A couple weeks ago, I posted a stock market correlation to the 1929 crash which would have brought in an initial low on September 1. I decided to wait and try to scale in short around that date instead. So far I only have 15% of a usual short position on.

Covered this 15% position for about 90 points. Next I will play for a rally over the September 1 high. If we don't get that, I will do nothing.

This last post was on Monday as the market was bottoming at about S&P 1145. Just went short the 15% position again this morning from about S&P 1195. This is the first place I think the S&P could top out but my guess is it's still going to go quite a bit higher.

[OLD1953]

Cignarella lays it on the line:

http://online.wsj.com/article/BT-CO-201 ... 12327.html

For Europe the facility would have to be a sovereign one. Call it TALF or a Brady-type bond but the way it would work would be something like this: Greece issues new debt backed by the explicit guarantee of the EFSF to absorb all losses. Greece uses the funds to buy back all existing Greek debt at a haircut, perhaps the much talked about 21%, and private investors are compelled to participate as per ECB mandate.

It sounds like a good plan, but here's the real risk: even after this restructuring, Greece ends up defaulting on those new EFSF-backed bonds. Remember, this is a solvency problem not a liquidity issue.

So the EFSF takes a loss, and maybe even its partner, the IMF. The debt is removed from bank balance sheets and put directly on the taxpayers of Europe and, via Washington's 17% stake in IMF loans, Americans.

[aedens]

http://www.zerohedge.com/news/david-ros ... e-play-out

So the EFSF takes a loss, and maybe even its partner, the IMF

Yes this taxpayer concurs with your macro view old. We already posted our view some time back.
Hope I am wrong as forwarded. We will see since consumers cannot delever and as the data flows we
will find out soon enough. IF the slide is under 10 percent and the U6 pegs steady I would say lucky if not sad.
http://www.bls.gov/news.release/empsit.t15.htm No I do not use this extensively either...
We do not live in a infinite world. We are consuming in aggregate 1.4 planets per year from data that is out there and
is rather compelling to regard. I put Dave as my mid bench mark to lucidity. I respect his candid thoughts.
I reviewed some older thought and of 12 points we are at step 8 which was not encouranging to me.

[richard5za]

Earnings affect stock prices. Inflation or deflation affect the cost of goods and services. Hence, it could be argued that inflation or deflation is "about changes in PE ratios".

The PE ratio is the value that investors place upon stocks; the price of the stocks is more influenced by the ratio than by th earings.

In a stock market boom the ratio can be 20 but at the bottom of the bear only 5 or 6. If you examine the history of S&P 500 PE ratios you will see what I mean. OK I have a stock with a PE ratio of 20 a price of 100 and earnings of 5. If the earnings fall by 20% and the ratio stays at 20 then the price drops by 20%. But if the ratio drops to 5 and the earnings remain unchanged the price becomes 25 or a drop of 75%.

If you do the math every which way you will see that the ratio is the more important component; it is the valuation that investors place upon the stocks.

Changes in valuations by themselves are neither inflationery nor deflaionery - there needs to be a monetary transaction involving goods or services for an effect to be created
Regards, Richard

[vincecate]

Foreign Treasury holdings are down for a second month. The level is now about what it was 5 months earlier. People who think the world has to keep buying Treasuries should think again.

http://www.treasury.gov/resource-center ... ts/mfh.txt
http://howfiatdies.blogspot.com/2011/09 ... ollar.html