Financial topics

[Higgenbotham]

I predict China will soon let the world buy their debt. And after that point, is there any reason people should not then all move from US dollars to yuan?

Yes, there is a reason. The Chinese don't want to sell their debt for US dollars. You may want to pass your trash to China, but they don't want it.

[vincecate]

I predict China will soon let the world buy their debt. And after that point, is there any reason people should not then all move from US dollars to yuan?

Yes, there is a reason. The Chinese don't want to sell their debt for US dollars. You may want to pass your trash to China, but they don't want it.

That just means that the value of US dollars will drop. Investors will still want to move out of the dollar. In fact, the faster it drops the more they will want to move out of the dollar. Panic conditions really.

[vincecate]

China has raised rates another 0.25% to 5.81% for 1 year.

http://www.couriermail.com.au/business/ ... 5976439753

[Higgenbotham]

I predict China will soon let the world buy their debt. And after that point, is there any reason people should not then all move from US dollars to yuan?

Yes, there is a reason. The Chinese don't want to sell their debt for US dollars. You may want to pass your trash to China, but they don't want it.

That just means that the value of US dollars will drop. Investors will still want to move out of the dollar. In fact, the faster it drops the more they will want to move out of the dollar. Panic conditions really.

It means the value of US dollars will rise. Investors will want to move out of the dollar but they won't be able to. It will be the "least worst" alternative. Only when the post Fourth Turning world is reordered will it be possible for the dollar to drop in earnest and that will only happen if another country (probably China) wins the Clash of Civilizations world war. Before the Chinese yuan can be the world reserve currency, the very survival of China will be in doubt during the Clash of Civilizations world war. You don't get to be the world reserve currency for free. You earn it through about 20 years of blood, sweat, and tears during a Fourth Turning. We're in like year 3 or 4 of that. Chinese t-bills don't even have a triple A rating yet.

[vincecate]

We talked a bit about this before but this chart with historic P/E ratio compared to interest rate is interesting. If you look there are many long term trends in interest rates. Much of the time when the interest rate trend changes, the stock P/E trend changes too. I think that the 1980 to 2010 trend of lowering interest rates is now over and we have started a rising interest rate trend. I think the move up in interest rates is enough that it looks like we have past the bottom in interest rates. If this is correct, then I think P/E ratios will start going down and stocks going down soon. Like Higgie I don't normally buy S&P puts, but things are not normal.

http://brian-krassenstein.blogspot.com/ ... erest.html
http://finance.yahoo.com/bonds/composite_bond_rates
http://www.fxstreet.com/rates-charts/bond-yield/

Another funny thing. For at least some months it seems like each month has a trend. The changes in trends seem to happen on the month end/start boundary. I suspect next month's trend is down and transition is just days away.

http://finance.yahoo.com/echarts?s=SPY+ ... =undefined

[Carl Lieberman]

I suspect that a a major decline in stock prices is coming soon. Followers of this site are chagrined that it has not already happened. The Fed policies that have carried prices for the last 2 years are about to be challenged and curtailed. Last week Charles Biderman again repeated on CNBC what should already be obvious. The Fed is the buyer of last resort for the American stock market (along with the Treasury Bond market). When Ben Bernanke announced that the purpose of QE II was to raise the price of stocks, create a wealth effect, and cause people to spend more, he was being absolutely literal. The Republicans in the House will limit the Fed's ability to continue what it has been doing. I agree with John's prior observation that Bernanke is a serious adult, honestly trying to hold back the tidal wave. But the scale of the monetary collapse is probably a couple of orders of magnitude greater than the Fed's ability to intervene. Generational analysis cannot predict the timing of events, but does accurately outline their shape. Once the dam breaks, panic and terror will be loosed in the land. Lucky us;--)

[Higgenbotham]

http://oi56.tinypic.com/9um8zm.jpg



This is a conceptual illustration of the stock market rally from the March 2009 low. The 2 sets of heavy black curves and lines represent the effects of QE1 and QE2 on the stock market. The heavy red curve represents the combined effects. Similarity can be noted in the patterns and is labeled ABCD for each of the 3 patterns.

The theory behind the construction of this chart is that QE creates an asymptotic price relationship, as the stock market has a theoretical limit that will not be exceeded as infinite liquidity is thrown at it. This is due to the fact that liquidity is not the fundamental problem or solution and cannot raise stock prices in the same way economic growth can.

The ratio of AD to AB in the first pattern is 1.145, which is close to a fibonacci 1.14589. If the overall pattern were to adhere to this relationship, the S&P would rise to:
666.79 + (1219.80 - 666.79)* 1.14589 = 1300.48 (approximately).
If the second black pattern were to adhere to this relationship, the theoretical high is 1258 or so, which was slightly exceeded this week and the market has closed at 1257.88 today.

[OLD1953]

I've expected a drop for so long now, I'll probably be surprised when it does happen.

Will Republicans actually vote to cause the market to drop? Seems unlikely to me. We'll know in a few months. But "high market = good economy" has been the Republican party religion for decades now, and actually taking an action that would predictably have, and would be stated in the press as causing the market to drop seems just about impossible. Don't care what they ran on, I can't see them doing it.

[vincecate]

Another anecdote that makes me think it is time for a stock market crash.

A 70-something year old woman was telling me how she moved money out of funds that had not been doing well into other funds that had been going up 1.5 months ago and that these new funds went up so much since then. This seemed to her to be evidence of her investing smarts. When I asked her if the other funds had also gone up in the last 1.5 months she did not know. Seemed like chasing momentum to me. This reminded me of the Hussman article below which talks about how momentum and not value is doing well now which is a good indication a crash is coming. When I tried to talk to her about gold and silver she told me to "be sure and put a stop loss as those look high". This shocked me for 2 reasons. First she is just chasing momentum and if you want to do that gold and silver are better than anything she has. But second, it shocked me that a 70-something women who does not really seem to know much about investing is telling me to get a stop loss. If all kinds of random joe investors have stop loss orders out there it really helps make a "flash crash" as all these get tripped on the way down and contribute to selling. Has anyone else noticed sort of novice investors talking about stop-loss orders?

http://www.hussmanfunds.com/wmc/wmc101227.htm

[OLD1953]

Yeah, I've noticed that too. Problem with stop loss is that it assumes there is a buyer at some price.