The Stock Market

[Parvis]

My choice would never be "hiding money under your mattress" - for Economic growth money needs to circulate. But yes by "speculation" I also include business.

There is a rather gross misspelling in my previous post - I meant to say "Debt finances growth". - quite a different meaning.

I think you meant to say 'debt finances growth.....until it doesnt'

Correct - from a Government view point - then we start the printing presses.

[Abrak]

Correct - from a Government view point - then we start the printing presses.

Absolutely correct. Once you have created too much debt you inflate it away. It is the way things are done as the most efficient least cost option.

The problem is too high debt/PY which is solved by increasing P. Anyone who tries to deleverage is simply likely to reduce Y and P as much as debt (and destroy their banking system.) Deflating your way out of a debt problem hasnt been tried for about 70 years. It will be interesting to see how some of the Euro countries get on.

[midas]

Well one thing I will promise you Midas is that rightly or wrongly from an investment perspective I will never lend money to the US Government at less than 3% per annum over ten years. If I fail to do better so be it. It is not an investment in my view. It is merely totally irresponsible and ridiculous. You can claim anything you like about stocks and investments but dont try and persuade me to lend to the US Government at those sort of rates because quite frankly I would rather keep the money under the bed and receive nothing.

Abrak I would never trust the US Government or any government to tell me the right time and I certainly wouldn’t trust them with my money ! ha

But that doesn’t mean I have to trust stocks right now either ! When you said “ I know you lack faith in equities “ that is because I have read the comments of so many professional traders who have far more experience of the stockmarketthan I do and they certainly also lack faith.

That is why I only believe in the rice I grow and store in Isaan now which I can eat or sell Because I regard the incident at East Point the other day as glimpse into USA’s and the future in general.

I know you lack faith in equities but I am happy to lose money in something that I believe in rather than buy 10 year USTs. I have no idea whether they will go up or down, it is a question of principle. And to be honest if you cant make 3% p.a. over 10 years, you shouldnt even bother investing in the first place.

BTW how you get the Dow to 7000 based on 2.25% 10 year UST yields is totally beyond me. As far as I see things, the Dow is overvalued because bonds have such a ridiculously low yield. From an investment perspective 2.25% or 0% is simply a margin of error rather than a return.

Look Midas, I think you might be right on rates but quite frankly I see it as punting on internet stocks - 2% yield going to 1%. I dont usually buy stocks with an earnings yield of less than 10%. I can buy stocks with 25 year fixed priced (inflation adjusted) contracts and a yield of 6%. Just remember who you are lending to.

Apologies Midas, I thought these were your thoughts rather than a bond traders.

Anyway I believe buying USTs at these rates is inherently immoral and my moral standards have an incredibly low bar.

Now another question to you relating to establishing whether a “ PPT “ type of organization exists or not.

If professional traders rely mainly on either technical analysis or fundamentals, doesn’t it seem somewhat strange that the “ market “ seems to be defying what some people previously regarded as significant technical warnings ?

For example in June we had the “ inverted death cross “ . I could imagine a situation where technical analysis may be relied on less if fundamentals were extraordinarily strong - but we certainly don’t have that scenario ? So it seems to me we have poor fundamentals and a rapidly dwindling level of retail participation in the “ market ” and yet it seems that some technical analysis warnings that would otherwise during more normal market conditions have caused concern are no longer materializing ?

Today we have The Hindenburg Omen . You probably know already this is a technical analysis that attempts to predict a forthcoming stock market crash

and today, all five conditions were satisfied

The 5 criteria of the Omen are as follows:

1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2.That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

So my question is wouldn't it seem strange to you if this movement also fails ?

Edited August 13, 2010 by midas

[BlackJack]

are we back on track

have they finished the pissing contest

yet

QE will start again

the more you print the less the dollars worth

when zimbabwa did it they were printing trillion dollar bills and the only thing that saved them was that there was an underground US dollar market - read that there was something of value in their market - US dollars have nothing - nothing of value to give it value - housing employment down taxes up - the only value is m____ - go on say it - metals and yellow ones and silver ones

china is buying more Japan bonds now than US bonds

India and China both getting increasing class of people that can buy gold, silver and surprise surprise diamonds

China encouraging its people to buy gold

what does this mean?

[badge]

are we back on track

have they finished the pissing contest

yet

QE will start again

the more you print the less the dollars worth

when zimbabwa did it they were printing trillion dollar bills and the only thing that saved them was that there was an underground US dollar market - read that there was something of value in their market - US dollars have nothing - nothing of value to give it value - housing employment down taxes up - the only value is m____ - go on say it - metals and yellow ones and silver ones

china is buying more Japan bonds now than US bonds

India and China both getting increasing class of people that can buy gold, silver and surprise surprise diamonds

China encouraging its people to buy gold

what does this mean?

...It means you want the Gold thread?

Personally have no inclination to address any of the above fallacies.

[badge]

Now another question to you relating to establishing whether a “ PPT “ type of organization exists or not.

If professional traders rely mainly on either technical analysis or fundamentals, doesn’t it seem somewhat strange that the “ market “ seems to be defying what some people previously regarded as significant technical warnings ?

For example in June we had the “ inverted death cross “ . I could imagine a situation where technical analysis may be relied on less if fundamentals were extraordinarily strong - but we certainly don’t have that scenario ? So it seems to me we have poor fundamentals and a rapidly dwindling level of retail participation in the “ market ” and yet it seems that some technical analysis warnings that would otherwise during more normal market conditions have caused concern are no longer materializing ?

Today we have The Hindenburg Omen . You probably know already this is a technical analysis that attempts to predict a forthcoming stock market crash

and today, all five conditions were satisfied

The 5 criteria of the Omen are as follows:

1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2.That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

So my question is wouldn't it seem strange to you if this movement also fails ?

Nope. Far, far too tenuous to be considered anymore significant than one of Zorros Colin Twiggs' graphs.

Do yourself a favor and forget about the Hindenburg Omen, its useless. Theres a woefully inaccurate and thus impractical, oscillator-wielding chap from your neck of the woods, whos lack of value is only rivaled by our own resident oscillator-wielding intern, called Robert McHugh, who one assumes brought this latest 'tip' to your attention?

Infact, as you only watch financial markets, and dont have a background or day-to-day interaction with them, you'll likely never fuly understand them. So you'll likely be swayed by certain apparently accurate technical analysis or fundamental viewpoints, as they temporarily appear to work. This is why 90% of participants lose.

If I were you, Id forget all about financial markets; why waste your life bemoaning something you dont have the need to fully understand or get involved with?

[BlackJack]

are we back on track

have they finished the pissing contest

yet

QE will start again

the more you print the less the dollars worth

when zimbabwa did it they were printing trillion dollar bills and the only thing that saved them was that there was an underground US dollar market - read that there was something of value in their market - US dollars have nothing - nothing of value to give it value - housing employment down taxes up - the only value is m____ - go on say it - metals and yellow ones and silver ones

china is buying more Japan bonds now than US bonds

India and China both getting increasing class of people that can buy gold, silver and surprise surprise diamonds

China encouraging its people to buy gold

what does this mean?

...It means you want the Gold thread?

Personally have no inclination to address any of the above fallacies.

probably the dumbest reply in this forum! :jerk:

[midas]

Now another question to you relating to establishing whether a “ PPT “ type of organization exists or not.

If professional traders rely mainly on either technical analysis or fundamentals, doesn’t it seem somewhat strange that the “ market “ seems to be defying what some people previously regarded as significant technical warnings ?

For example in June we had the “ inverted death cross “ . I could imagine a situation where technical analysis may be relied on less if fundamentals were extraordinarily strong - but we certainly don’t have that scenario ? So it seems to me we have poor fundamentals and a rapidly dwindling level of retail participation in the “ market ” and yet it seems that some technical analysis warnings that would otherwise during more normal market conditions have caused concern are no longer materializing ?

Today we have The Hindenburg Omen . You probably know already this is a technical analysis that attempts to predict a forthcoming stock market crash

and today, all five conditions were satisfied

The 5 criteria of the Omen are as follows:

1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2.That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

So my question is wouldn't it seem strange to you if this movement also fails ?

Nope. Far, far too tenuous to be considered anymore significant than one of Zorros Colin Twiggs' graphs.

Do yourself a favor and forget about the Hindenburg Omen, its useless. Theres a woefully inaccurate and thus impractical, oscillator-wielding chap from your neck of the woods, whos lack of value is only rivaled by our own resident oscillator-wielding intern, called Robert McHugh, who one assumes brought this latest 'tip' to your attention?

Infact, as you only watch financial markets, and dont have a background or day-to-day interaction with them, you'll likely never fuly understand them. So you'll likely be swayed by certain apparently accurate technical analysis or fundamental viewpoints, as they temporarily appear to work. This is why 90% of participants lose.

If I were you, Id forget all about financial markets; why waste your life bemoaning something you dont have the need to fully understand or get involved with?

Ok badge, point taken about the The Hindenburg Omen.

But when you say to me “, Id forget all about financial markets; why waste your life bemoaning something you dont have the need to fully understand or get involved with “ - for me to do that be would like walking out of the cinema 15 minutes before the end of a movie.

I would not even be here in this thread if I could escape the propaganda. But the way TPTB are pushing the performance and behaviour of the stock market through the MSM daily as being some measure of how well our society will be able to absorb the coming shocks is far too compelling not to monitor.

Edited August 14, 2010 by midas

[Abrak]

To be honest Midas things I dont understand fascinate me (at least for a while), I just dont get why you are so stubborn. I mean if everything comes down to the market going down because of death crosses (also pretty useless imho) and if it doesnt it is being supported by the PPT what does it really matter. (P.S. Badge no real idea about death crosses, I have learnt that a little bit of technical knowledge is far worse than useless.)

Anyway here is quite a nice fundamental chart for all you chartists.

I know it is fairly self-explanatory but it is slightly different.

P/E10 is the PE based on the 10 year MVA of earnings. The inflation rate is the current CPI. There is something known as the Rule of 20 which is that the market trades around 20x PE +/- inflation. The market bottomed on about a P/E10 of 15x which is its long term average rather than a typical bear market PE but given that inflation was say 1% it was pretty cheap.

The big worry here would be deflation. Although the E10 wouldnt change much current E would be terrible and forecasts are for 30% EPS growth next year. Of course Ben promises that isnt going to happen. I doubt it will but perception might move that way. So as deflation moves to inflation there is a possibility of a big buying opportunity.

I also have a theory that Ben is going to get inflation expectations wrong. You see if you wish to control peoples expectations you shouldnt tell them what to expect. If he wants us to expect 2% inflation and we see things deflating, we know exactly what he will do, so he has to do one hel_l of a lot of it to actually change our expectations. That by the way is why Bernanke doesnt want transparency because known and explained policies have no impact on the market.

Anyway, the real problem with the market is that the inflation rate is too expensive.

[midas]

To be honest Midas things I dont understand fascinate me (at least for a while), I just dont get why you are so stubborn. I mean if everything comes down to the market going down because of death crosses (also pretty useless imho) and if it doesnt it is being supported by the PPT what does it really matter. (P.S. Badge no real idea about death crosses, I have learnt that a little bit of technical knowledge is far worse than useless.)

And Abrak , I simply don’t know why you consider I am being stubborn ?

I don’t need to know the criminal law of California in detail just to be able to

sit back and watch a gripping murder mystery that is set in Los Angeles.

In the same way I don’t have to understand the stockmarket itself in detail

to be fascinated by how the purported performance of the stockmarket has been

used by the politicians to hoodwink the public. As one trader said - its no longer a market

- its a crime scene

This has been a perfect study in cognitive dissonance watching TPTB trying so

strenuously to emphasise through M.S.M. the illusion the stockmarket was recovering nicely,

even though at the same time so many other conditions were deteriorating rapidly – e.g.

a million walking away from mortgages , increasing youth unemployment,

40 million + on food stamps etc .etc. .

But now its even more interesting to watch the subsequent metamorphisis

of a huge crowd on the internent as more and more people gradually become

aware of this engineered illusion and to read their verbal reaction to this.

This is just the beginning and I just want to see what happens next .

Edited August 14, 2010 by midas

[AlexLah]

The Dow is getting ready for a crash. My computers are crunching the numbers but as it looks now, a downturn will happen around 2nd or 3rd week in September.

I will try and pinpoint the date in the coming days.

A wise trader will get into foods and stuff......

[AnnyLing]

are we back on track

have they finished the pissing contest

yet

QE will start again

the more you print the less the dollars worth

when zimbabwa did it they were printing trillion dollar bills and the only thing that saved them was that there was an underground US dollar market - read that there was something of value in their market - US dollars have nothing - nothing of value to give it value - housing employment down taxes up - the only value is m____ - go on say it - metals and yellow ones and silver ones

china is buying more Japan bonds now than US bonds

India and China both getting increasing class of people that can buy gold, silver and surprise surprise diamonds

China encouraging its people to buy gold

what does this mean?

...It means you want the Gold thread?

Personally have no inclination to address any of the above fallacies.

Why should you ? Black Jacks avatar speaks volumes.

[cardholder]

The Dow is getting ready for a crash. My computers are crunching the numbers but as it looks now, a downturn will happen around 2nd or 3rd week in September.

I will try and pinpoint the date in the coming days.

A wise trader will get into foods and stuff......

I would imagine that if you were that clever you wouldn't be tw4tting around on a forum like this.

[Abrak]

As Badge readily admits that some technical analysis is virtually made up by back testing random rules against historic data. I will also admit that fundamental analysis is totally fictional a lot of the time. These charts are by Hussman Funds, some of my conclusions are slightly different.

First take a look at this chart... (I havent seen this before)

It goes back 30 years and the correlation is highly impressive (0.75)

Then look at what the chart shows 'Historic' median 1 year earnings growth and 'forecast' 1 year median earnings growth. Now if you think about the correlation is so high that the 'forecast' is not actually a 'forecast' at all but analysts have simply transposed last years growth to next year.

Of course if earnings worked like that it would be fine. But the actual correlation between historic and prospective EPS growth is 0.28 which makes the forecasts inherently useless.

Does this matter much? Well not in the greater scheme of things of course it doesnt. But where it is relevent now is for two reasons. First of all - and this is Hussman's statistic which I think sounds a little too good to be true.

The stock market has risen 18 percent on an annualized basis when earnings expectations are below 5 percent. When expectations rise above 15 percent, annualized total returns fall to -12 percent.

Secondly earnings are expected to grow at their highest level for the past 30 years in the next 12 months (again on a median company basis.)

Incidentally dont blaim the analysts. They are really employed to tell people markets and stocks are cheap and people should buy some (with the odd sell for credibility.)

[Parvis]

The Dow is getting ready for a crash. My computers are crunching the numbers but as it looks now, a downturn will happen around 2nd or 3rd week in September.

I will try and pinpoint the date in the coming days.

A wise trader will get into foods and stuff......

I would imagine that if you were that clever you wouldn't be tw4tting around on a forum like this.

I wouldn't necessarily dispute "Alex" findings - but I believe it is based on reading technical chart patterns - which is an art rather than a science - despite claims of "number-crunching".

The chart pattern I make reference to is a rising wedge - IF completed will top at approx. 10 800 on the Dow in early September. This assumes - at the present time - that we are making a temporary bottom. I have SOME indications of this to occur - but not yet a definite short term buy.

Should this top to occur in early September - the "crash" will only be approx. 1200 points on the Dow. But it certainly will feel like a crash - since it very likely would be fast and furious.

Edited August 15, 2010 by Parvis

[BlackJack]

are we back on track

have they finished the pissing contest

yet

QE will start again

the more you print the less the dollars worth

when zimbabwa did it they were printing trillion dollar bills and the only thing that saved them was that there was an underground US dollar market - read that there was something of value in their market - US dollars have nothing - nothing of value to give it value - housing employment down taxes up - the only value is m____ - go on say it - metals and yellow ones and silver ones

china is buying more Japan bonds now than US bonds

India and China both getting increasing class of people that can buy gold, silver and surprise surprise diamonds

China encouraging its people to buy gold

what does this mean?

...It means you want the Gold thread?

Personally have no inclination to address any of the above fallacies.

Why should you ? Black Jacks avatar speaks volumes.

oh not another newbie

[BlackJack]

are we back on track

have they finished the pissing contest

yet

QE will start again

the more you print the less the dollars worth

when zimbabwa did it they were printing trillion dollar bills and the only thing that saved them was that there was an underground US dollar market - read that there was something of value in their market - US dollars have nothing - nothing of value to give it value - housing employment down taxes up - the only value is m____ - go on say it - metals and yellow ones and silver ones

china is buying more Japan bonds now than US bonds

India and China both getting increasing class of people that can buy gold, silver and surprise surprise diamonds

China encouraging its people to buy gold

what does this mean?

...It means you want the Gold thread?

Personally have no inclination to address any of the above fallacies.

Why should you ? Black Jacks avatar speaks volumes.

your opinions are worthless

back up your replies with some facts

dont just fire from the hip and leave

do some more reading before you post

nuff said

[badge]

I wouldn't necessarily dispute "Alex" findings - but I believe it is based on reading technical chart patterns - which is an art rather than a science - despite claims of "number-crunching".

The chart pattern I make reference to is a rising wedge - IF completed will top at approx. 10 800 on the Dow in early September. This assumes - at the present time - that we are making a temporary bottom. I have SOME indications of this to occur - but not yet a definite short term buy.

Should this top to occur in early September - the "crash" will only be approx. 1200 points on the Dow. But it certainly will feel like a crash - since it very likely would be fast and furious.

Presumably you mean, if NOT completed will top at approx. 10 800 on the Dow in early September.

Do let us know when you have enough indications to trade a buy, upto your approx. 10 800.

Before it reverses would be good too. Case in point, your last 'call' of an equity advance, which did get the direction correct(1st time out of 5 calls on TV), was weeks after the trend had reversed, and thus decidedly less useful, in my humble, pragmatic opinion naturally.

[Parvis]

I wouldn't necessarily dispute "Alex" findings - but I believe it is based on reading technical chart patterns - which is an art rather than a science - despite claims of "number-crunching".

The chart pattern I make reference to is a rising wedge - IF completed will top at approx. 10 800 on the Dow in early September. This assumes - at the present time - that we are making a temporary bottom. I have SOME indications of this to occur - but not yet a definite short term buy.

Should this top to occur in early September - the "crash" will only be approx. 1200 points on the Dow. But it certainly will feel like a crash - since it very likely would be fast and furious.

Presumably you mean, if NOT completed will top at approx. 10 800 on the Dow in early September.

Do let us know when you have enough indications to trade a buy, upto your approx. 10 800.

Before it reverses would be good too. Case in point, your last 'call' of an equity advance, which did get the direction correct(1st time out of 5 calls on TV), was weeks after the trend had reversed, and thus decidedly less useful, in my humble, pragmatic opinion naturally.

I mean exactly what I said - IF "rising Wedge" completed will top at approx 10800.

Edited August 15, 2010 by Parvis

[lannarebirth]

I wouldn't necessarily dispute "Alex" findings - but I believe it is based on reading technical chart patterns - which is an art rather than a science - despite claims of "number-crunching".

The chart pattern I make reference to is a rising wedge - IF completed will top at approx. 10 800 on the Dow in early September. This assumes - at the present time - that we are making a temporary bottom. I have SOME indications of this to occur - but not yet a definite short term buy.

Should this top to occur in early September - the "crash" will only be approx. 1200 points on the Dow. But it certainly will feel like a crash - since it very likely would be fast and furious.

Presumably you mean, if NOT completed will top at approx. 10 800 on the Dow in early September.

Do let us know when you have enough indications to trade a buy, upto your approx. 10 800.

Before it reverses would be good too. Case in point, your last 'call' of an equity advance, which did get the direction correct(1st time out of 5 calls on TV), was weeks after the trend had reversed, and thus decidedly less useful, in my humble, pragmatic opinion naturally.

I think it might rally in September. Back from wherever this move ends up. I think everyone sees the rising wedge.

[badge]

The American citizen naturalisation Dept. called Mr P, they want to double check your English language results again Incidentally, it would be an expanding, rising wedge now surely? Looking forward to your definite short term buy indication.

I agree Lanna, you cant have everyone focusing on the same thing, it rarely pays. There was alot of talk from the usual rank and file of H+S tops in shares several weeks ago, and the market rose quite markedly.

[Parvis]

The American citizen naturalisation Dept. called Mr P, they want to double check your English language results again Incidentally, it would be an expanding, rising wedge now surely? Looking forward to your definite short term buy indication.

I agree Lanna, you cant have everyone focusing on the same thing, it rarely pays. There was alot of talk from the usual rank and file of H+S tops in shares several weeks ago, and the market rose quite markedly.

Parece tu no sabes ninguna lengua mejor que yo - incluyendo tu propia - tan bien como yo se Ingles.

Para tu informacion yo no soy "ciudadano nuturalizado" - pero tal vez tu sabes mejor que yo.

Edited August 15, 2010 by Parvis

[Abrak]

By the way I was wondering if one of you tech guys can answer a question on volatility. I know some tech people look at it as an indicator.

A fairly solid fundamental theory is that valuation is tied to 'volatility of inflation'. The 3 big 'secular' bear markets in the US last century were all characterized by rising inflation volatility and were therefore fairly short at 15 years. Japan on the other hand has had little inflation volatility and still looks very overvalued after 20 years.

Inflation/deflation can be destructive but it is the volatility that reduces valuations while not inherently destroying value, hence shortening secular bear markets. If that doesnt quite make sense consider Tips are trading at 0% real yield or that QE is short of velocity. Ultimately Bernanke by targetting inflation at say 2% and criticizes Japan for not creating inflation is actually falling into the same trap. It can never have been part of Bernanke theory to actually make bonds at 0% attractive or to make the US$ attractive. Every bull market has been accompanied by falling inflation volatility and every bear market by rising volatility of inflation.

Most countries get out of their problems buy creating volatility of prices by depreciating their exchange rate say by 30%. Given that interest rates are zero, targeting inflation is part of the problem. I just wondered if people looked at volatility of CPI as a determinant of prices and/or whether volatility of prices was an indicator of a potential fall in price.

[ronz28]

The velocity of money has apparently fallen off a cliff because its all stuffed under our mattresses. Once velocity starts cranking up we are bound to see inflation but for now the reduction in velocity is a deflationary force. Just a matter of time I guess.

[Abrak]

The velocity of money has apparently fallen off a cliff because its all stuffed under our mattresses. Once velocity starts cranking up we are bound to see inflation but for now the reduction in velocity is a deflationary force. Just a matter of time I guess.

What I am trying to do is question the approach.

The formula is

MV = PQ

The basic monetary theory would be V is constant. It seems to me though that the underlying problem is 'P' targeting. Bernanke writes about this a lot in the targeting P is more effective than targeting M. So as I see it the monetary equation has been reversed whereby V becomes the major variable while Friedman convinced us it was basically fixed.

'Inflation is always and everywhere a monetary phenomenon.'

So I fully agree. The rate of change of velocity is acceleration or deceleration which equals P volatility.

[ronz28]

To me, its appropriate to target and stabilize P, price of money in terms of inflation and deflation to give everyone confidence in money as a store of wealth at least for a reasonable holding period.

Perhaps, the Fed could resume publishing M3 for money supply or some improved measure of M to increase their effectiveness with more valid data on the money supply but I suspect the real problem is with V.

To me, it appears the lack of focus and attention to the impact of their decisions on the volatility of V, the Velocity or turnover of money in the economy is causing the Fed, etc. to miss its targets. I could be wrong as I don’t have time to read as much as I would like about why the Fed does what they do. Assuming velocity is stable just doesn’t make economic sense to me. I wonder if the Fed’s current available tools are sufficient to effectively manage velocity even if they better timed the application of their tools.

I wouldn’t target Q or GDP because we might end up with empty cities or subdivisions as in China and elsewhere just to crank up current production/GDP.

[Abrak]

To me, its appropriate to target and stabilize P, price of money in terms of inflation and deflation to give everyone confidence in money as a store of wealth at least for a reasonable holding period.

Perhaps, the Fed could resume publishing M3 for money supply or some improved measure of M to increase their effectiveness with more valid data on the money supply but I suspect the real problem is with V.

To me, it appears the lack of focus and attention to the impact of their decisions on the volatility of V, the Velocity or turnover of money in the economy is causing the Fed, etc. to miss its targets. I could be wrong as I don’t have time to read as much as I would like about why the Fed does what they do. Assuming velocity is stable just doesn’t make economic sense to me. I wonder if the Fed’s current available tools are sufficient to effectively manage velocity even if they better timed the application of their tools.

I wouldn’t target Q or GDP because we might end up with empty cities or subdivisions as in China and elsewhere just to crank up current production/GDP.

MV = PQ is an axiom rather than equation

So as I remember things Friedman and Schwartz showed that V was pretty constant because it is likely to be if PQ is establishing MV. Unfortunately when Reagan and Thatcher decided to target M to effect PQ the causality didnt reverse and either 'V' moved or whatever M was chosen was subject to 'disintermediation' )a long word which simply means that new M was created outside the targeted M. Which is why they stopped producing M3.

Still I 100% agree that targeting P engenders stability in the store of money as wealth. I actually think that is at the very heart of the problem. Bernanke wishes to create inflation so that money is not a store of wealth and is invested or spent - that it is very much at his heart of his thinking and his criticism of say Japan. As a store of wealth its velocity would tend to be low.

So the problem with some implicit P target at close to 0% interest rates is that all you do is create expensive assets based on known real rates. O% real yields at 1.5% inflation over 5 years for TIPs implies far too much faith in the value of money while Bernanke's theory of creating inflation is about making money less attractive.

Ultimately much of deflation is about hoarding cash rather than circulating it. Targeting P actually was the cause of the bubble. People had a very firm and increasingly firm view of the value of money which led to lower rates and higher asset prices while there was conviction they would outperform another fixed asset. People even had the confidence to know that if inflation rose so would interest rates until inflation fell.

Ultimately inflation targeting and other factors led to the highest historic valuations. You might think that dollars store of value is unhinged already by gold prices but then think of the velocity of gold. The whole point I am making is that deflation is destructive because currency is seen as such a good stable store of value. If you create enough inflation it wont be but productive assets will tend to devalue. Ultimately volatility allowing P to be volatile will reestablish velocity.

So please accept the dichotomy in your very argument. Which is that targeting P creates a stabilized store of value while Bernanke's central criticism of deflation is that cash becomes the ultimate store of value.

[ronz28]

To me, its appropriate to target and stabilize P, price of money in terms of inflation and deflation to give everyone confidence in money as a store of wealth at least for a reasonable holding period.

Perhaps, the Fed could resume publishing M3 for money supply or some improved measure of M to increase their effectiveness with more valid data on the money supply but I suspect the real problem is with V.

To me, it appears the lack of focus and attention to the impact of their decisions on the volatility of V, the Velocity or turnover of money in the economy is causing the Fed, etc. to miss its targets. I could be wrong as I don’t have time to read as much as I would like about why the Fed does what they do. Assuming velocity is stable just doesn’t make economic sense to me. I wonder if the Fed’s current available tools are sufficient to effectively manage velocity even if they better timed the application of their tools.

I wouldn’t target Q or GDP because we might end up with empty cities or subdivisions as in China and elsewhere just to crank up current production/GDP.

MV = PQ is an axiom rather than equation

So as I remember things Friedman and Schwartz showed that V was pretty constant because it is likely to be if PQ is establishing MV. Unfortunately when Reagan and Thatcher decided to target M to effect PQ the causality didnt reverse and either 'V' moved or whatever M was chosen was subject to 'disintermediation' )a long word which simply means that new M was created outside the targeted M. Which is why they stopped producing M3.

Still I 100% agree that targeting P engenders stability in the store of money as wealth. I actually think that is at the very heart of the problem. Bernanke wishes to create inflation so that money is not a store of wealth and is invested or spent - that it is very much at his heart of his thinking and his criticism of say Japan. As a store of wealth its velocity would tend to be low.

So the problem with some implicit P target at close to 0% interest rates is that all you do is create expensive assets based on known real rates. O% real yields at 1.5% inflation over 5 years for TIPs implies far too much faith in the value of money while Bernanke's theory of creating inflation is about making money less attractive.

Ultimately much of deflation is about hoarding cash rather than circulating it. Targeting P actually was the cause of the bubble. People had a very firm and increasingly firm view of the value of money which led to lower rates and higher asset prices while there was conviction they would outperform another fixed asset. People even had the confidence to know that if inflation rose so would interest rates until inflation fell.

Ultimately inflation targeting and other factors led to the highest historic valuations. You might think that dollars store of value is unhinged already by gold prices but then think of the velocity of gold. The whole point I am making is that deflation is destructive because currency is seen as such a good stable store of value. If you create enough inflation it wont be but productive assets will tend to devalue. Ultimately volatility allowing P to be volatile will reestablish velocity.

So please accept the dichotomy in your very argument. Which is that targeting P creates a stabilized store of value while Bernanke's central criticism of deflation is that cash becomes the ultimate store of value.

From what I understand, Bernanke acted primarily to prevent deflation since liquidity in the banking system was freezing up, home prices were falling, stock markets were tanking, etc. indicating the velocity of money was slowing too much to support price stability and he is adjusting course a little now as liquidity in the banking system improves and his expectations for deflation changes. He says they will keep the adjustments up just enough to stop deflation and preclude inflation but they haven't proved it up so who knows. I think they could be more transparent about what they are specifically tracking to base their decisions on.

As a practical matter, I guess I will just continue to keep watching regression channels, moving averages, etc. of the S&P 500, home prices, same store retail sales, home resales, interest rate spreads, etc. to know what side of the market to be on as I currently don’t have a lot of faith in being in any investment position or currency for very long.

[midas]

He does have a mind of his own. I agree it is frustrating that he doesnt see or seem to understand other peoples investment philosophies and is prone to refering to everyone as 'sheeple'. But his views are simply that.

Perhaps not sheeple in the investment sphere.....maybe herd would be more appropriate ?

" Bill Bonner and Lila Rajiva ponder why people have always acted in a herd like manner in their outstanding book Mobs, Messiahs and Markets:

The American public thinks they are rugged individualists, who come to conclusions based upon sound reason and a rational thought process. The truth is that the vast majority of Americans act like a herd of cattle or a horde of lemmings. Throughout history there have been many instances of mass delusion. They include the South Sea Company bubble, Mississippi Company bubble, Dutch Tulip bubble, and Salem witch trials. It appears that mass delusion has replaced baseball as the national past-time in America. In the space of the last 15 years the American public have fallen for the three whopper delusions:

1. Buy stocks for the long run

2. Homes are always a great investment

3. Globalization will benefit all Americans

Of course, we doubt if many public prescriptions are really intended to solve problems. People certainly believe they are when they propose them. But, like so much of what goes on in a public spectacle, its favorite slogans, too, are delusional – more in the nature of placebos than propositions. People repeat them like Hail Marys because it makes them feel better. Most of our beliefs about the economy – and everything else – are of this nature. They are forms of self medication, superstitious lip service we pay to the powers of the dark, like touching wood….or throwing salt over your shoulder. “Stocks for the long run,” “Globalization is good.” We repeat slogans to ourselves, because everyone else does. It is not so much bad luck we want to avoid as being on our own. Why it is that losing your life savings should be less painful if you have lost it in the company of one million other losers, we don’t know. But mankind is first of all a herd animal and fears nothing more than not being part of the herd.”

Edited August 16, 2010 by midas

[Abrak]

Why I argue with you Midas I dont know when you argue against yourself. You make 5 posts about the herd selling and then a sixth about the herd being stupid.

When the herd starts to panic let us know.

Loss of faith is great. I have always wondered what you put faith in. But I suspect it is obvious 'faith'.