WOW 14000 DOW

Started by Vern, February 01, 2013, 05:20:37 PM

Previous topic - Next topic

TowardLiberty

#30
Quote from: Vern on February 02, 2013, 05:53:12 AM
mmmm, I'm not sure I'm buying the comments about the DOW being 'disconnected' from the economy.   It seems all rather too convenient.  And you guys all agreeing with each other isn't what I would call "making a strong case".  I posted this in another thread but it kinda shows a connection. At least a connection when it pulled the economy down.

Would you like to make the strong case?

(I'll do it anway!)
Quote

"Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time"

And the economy and stock market were pretty in synch, then.

The world has changed since then, in very ugly ways.

In short, ZIRP and QE have caused a disconnection from reality.

Quote
http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp#axzz1Yy6SIL3c

this is a few years old but it pretty much sums up my opinion

http://www.businessweek.com/magazine/content/10_16/b4174028669540.htm

"
We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."
"

My 401k votes in favor of the President.

I thought you said you understood the situation?

If you understand what QE does to stock prices, through the magic of monetary debasement, then a nominal gain in your 401k or the stock market, is rather meaningless.

If I told you that you grew by six inches, but kept secret the fact that no inch on the ruler was the same length as another, the measurement would deceive you.

TowardLiberty

How to know the stock market is disconnected from reality?

First, I will show some charts related to monetary expansion, interest rates and money velocity.







So we see the form of money expansion- a surge in base money and a near 0 Fed Funds Rate.

The plunge in money velocity is the best sign of a stagnating or contracting economy. When money velocity is low, money changes hands slowly, meaning that fewer exchanges are occurring. More exchanges means a faster velocity.

Today money velocity is at Great Depression levels.

Now for some analysis of real economic activity.







The Baltic Dry is an index of prices for moving goods around the world. When it is low it means the demand for this service is diminished.

The next chart shows weak final sales, year over year.

And the 3rd chart shows the relationship between year over year change in Fed ex shipments vs real GDP. Shipments have contracted while GDP keeps growing.

Now there are good reasons for that, but none of them have to do with an expanding economy.

So now for some explanation..

The stock market is a measure of corporate profitability. Monetary debasement and credit expansion artificially boost the appearance of profitability- and the stock market soars on the deception.

Here is how it works:

Quote50%-60%+ of global corporate earnings and profits are non-U.S., i.e. booked overseas in a currency other than the U.S. dollar (USD). As the dollar weakened, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.

In other words, overseas profits expand as if by magic when stated in dollars.

When the euro and the dollar were 1-to-1 back in the early 2000s, then 100 euros of profit converted to $100 when stated in dollars. When the euro rose to $1.60, then the same 100 euros of profit earned by the U.S. corporation in Europe converted to a stupendous $160 in profit when stated in dollars.

This explains why the Fed has been so keen to trash the dollar: it magically increases corporate profits and thus drives stocks higher. The mainstream financial media's explanation for the weak-dollar policy is that the Fed is anxious to increase exports, but this is a sideshow; exports make up less than 9% of the U.S. GDP. The real action is in corporate profits, which thanks to the weak dollar are near all-time highs of $2 trillion, about 14% of the nation's entire GDP.
http://www.zerohedge.com/news/2013-01-09/guest-post-rising-us-dollar-will-be-corporate-earningsmarket-negative

So we have a soaring stock market, while labor participation rates plummet, consumer confidence falls, money velocity is in the toilet, cap ex and durable goods orders are flat...

So I would argue that the stock market is indeed disconnected from reality.

And the relationship between the rise in the stock market and those inflated corporate profits, is where the story lies.

kramarat

Quote from: TowardLiberty on February 02, 2013, 07:33:01 AM
Would you like to make the strong case?

(I'll do it anway!)
And the economy and stock market were pretty in synch, then.

The world has changed since then, in very ugly ways.

In short, ZIRP and QE have caused a disconnection from reality.

I thought you said you understood the situation?

If you understand what QE does to stock prices, through the magic of monetary debasement, then a nominal gain in your 401k or the stock market, is rather meaningless.

If I told you that you grew by six inches, but kept secret the fact that no inch on the ruler was the same length as another, the measurement would deceive you.

Anybody that looks at the numbers on their 401k to gauge the performance of the president, is a hopelessly lost case. :sad:

http://www.nationalseniorscouncil.org/index.php?option=com_content&view=article&id=89%3Aobama-begins-push-for-new-national-retirement-system&catid=34%3Asocial-security&Itemid=62

I hope Vern enjoys it while he can. The government is running out of funding sources.

Solar

Well done TL, concise and on point. :thumbup:
Official Trump Cult Member

#WWG1WGA

Q PATRIOT!!!

TowardLiberty

Quote from: Solar on February 02, 2013, 08:13:58 AM
Well done TL, concise and on point. :thumbup:
Thanks, Solar.

I know on these issues there is much common ground here.

TowardLiberty

Quote from: Vern on February 02, 2013, 07:00:43 AM
kram, I dont think you understand what an editorial is.  and you attempting to prove that "business week " is liberal has zero to do with my point.  My point is and will continue to be

If Obama was republican, the DOW would the source of never ending drumbeat of stories that prove his policies work.

Since he's not, the DOW is magically not connected to the economy.   I guess you find it easy to deflect about business week than discuss my point.

You are right about the politics of it.

If Obama were a Republican, many rank and file GOP would be trumpeting the rise in the stock market as a clear vindication of the President's plan.

And they would be wrong for the reasons I have argued.

Solar

Quote from: TowardLiberty on February 02, 2013, 08:17:57 AM
Thanks, Solar.

I know on these issues there is much common ground here.
Could it be our disdain of both party's? :laugh:
I agree, we both understand the problem, but pursue differing paths when dealing with it.
I used to be a Pub years ago, even saw it as the only path to follow, but when Nixon broke our link with gold, I pretty much severed my belief in an ideal party.
Though he did some good things, like trying to bring China into the 20 century, in hindsight, did more damage to our economy in the long run.

I digress, I don't know if we can ever extract ourselves from the fiat dollar, outside of revolution or or a total collapse of the dollar, or even worse both outcomes combined, but we cannot continue down the path we are on, something is going to give, and no matter what happens, it's going to be ugly.

I give it roughly 10 years if drastic changes aren't implemented, and socialism is not the answer.
Official Trump Cult Member

#WWG1WGA

Q PATRIOT!!!

kramarat

Quote from: TowardLiberty on February 02, 2013, 08:29:26 AM
You are right about the politics of it.

If Obama were a Republican, many rank and file GOP would be trumpeting the rise in the stock market as a clear vindication of the President's plan.

And they would be wrong for the reasons I have argued.

No argument here. Of course they would.

And whenever they start using the market as a gauge of success.............it's time to start digging deeper. :scared:

TowardLiberty

Quote from: Solar on February 02, 2013, 08:34:03 AM
Could it be our disdain of both party's? :laugh:
I agree, we both understand the problem, but pursue differing paths when dealing with it.
I used to be a Pub years ago, even saw it as the only path to follow, but when Nixon broke our link with gold, I pretty much severed my belief in an ideal party.
Though he did some good things, like trying to bring China into the 20 century, in hindsight, did more damage to our economy in the long run.

I digress, I don't know if we can ever extract ourselves from the fiat dollar, outside of revolution or or a total collapse of the dollar, or even worse both outcomes combined, but we cannot continue down the path we are on, something is going to give, and no matter what happens, it's going to be ugly.

I give it roughly 10 years if drastic changes aren't implemented, and socialism is not the answer.
I agree with basically everything you have said here.

But yes, we do see the path forward in radically different ways.

Have you read any Doug Casey?


TowardLiberty

Quote from: kramarat on February 02, 2013, 08:34:34 AM
No argument here. Of course they would.

And whenever they start using the market as a gauge of success.............it's time to start digging deeper. :scared:

Yep, and doing that is something that is difficult to do without the right tools.

I would be lost without zerohedge.com

kramarat

Quote from: TowardLiberty on February 02, 2013, 09:05:33 AM
Yep, and doing that is something that is difficult to do without the right tools.

I would be lost without zerohedge.com

That's an excellent site. Even I can understand it. :thumbup:

TowardLiberty

Quote from: kramarat on February 02, 2013, 09:11:39 AM
That's an excellent site. Even I can understand it. :thumbup:

I like it.

Though, I admit, some of their commentary is a couple notches above my understanding.

Solar

Quote from: TowardLiberty on February 02, 2013, 09:04:01 AM
I agree with basically everything you have said here.

But yes, we do see the path forward in radically different ways.

Have you read any Doug Casey?
Nope, believe it or not, I've probably only completed 3 books in my life, most of my reading is pure research, I like to form my own views without outward influence.
Research alone gives me far more information than any single book can, it's an ADHD thing, books move to slowly, I consume tons of research material.
Yes, I'm boring that way. :biggrin:

Those three books; Boxcar children in 1964, a scifi novel, and...., umm Ok, maybe only two that I can remember. :blush:
Official Trump Cult Member

#WWG1WGA

Q PATRIOT!!!

TowardLiberty

Quote from: Solar on February 02, 2013, 10:15:24 AM
Nope, believe it or not, I've probably only completed 3 books in my life, most of my reading is pure research, I like to form my own views without outward influence.
Research alone gives me far more information than any single book can, it's an ADHD thing, books move to slowly, I consume tons of research material.
Yes, I'm boring that way. :biggrin:

Those three books; Boxcar children in 1964, a scifi novel, and...., umm Ok, maybe only two that I can remember. :blush:

That is interesting..

I usually have two books going at once, and I like to do internet research as well..

Though, I can't say that my thoughts would be what they are without all of the reading. I doubt I would know anything about economics, ethics or history.

It would be such a shame to only know about these topics what was spoon fed to us in public school.

Doug Casey has online articles. ZeroHedge features him occasionally.

He is a billionaire investor who lives abroad.

Not to mention a fervent supporter of liberty, economic freedom, and yes, anarchism.

Solar

Quote from: TowardLiberty on February 02, 2013, 10:20:12 AM
That is interesting..

I usually have two books going at once, and I like to do internet research as well..

Though, I can't say that my thoughts would be what they are without all of the reading. I doubt I would know anything about economics, ethics or history.

It would be such a shame to only know about these topics what was spoon fed to us in public school.

Doug Casey has online articles. ZeroHedge features him occasionally.

He is a billionaire investor who lives abroad.

Not to mention a fervent supporter of liberty, economic freedom, and yes, anarchism.
Which is why I stick solely to facts, raw facts have no opinion to sway one with, like a hard science.
Many of today's ideas were formed by great communicators of the past, it is these opinions I try and avoid, so as to get a clearer picture of how we arrived at our current place.
Say for example, had Hitler never arrived on the scene, where would we be today?

I tend to stick to history as much as possible and current on science, while taking in the chess game of politics, a very complicated game, one the left plays several moves ahead of the right and is always dictating the outcome, sometimes to their own peril.
Official Trump Cult Member

#WWG1WGA

Q PATRIOT!!!