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Quantum Mechanics and Stock Prices 1/19/20

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According to quantum mechanics, a flushed turd can appear in two places simultaneously, based on the position of the observer. But the quantum philosopher asks, if there is no observer, does the turd exist? In the stock market, there are many observers, many turds, in many different places.

Most of them, like the stock proctologist, are staring at their screens all day.  

As always, stay alert. Beware of what's coming down! 

You never know.

Might be Arecibo. 

5 day cycle projection 3805. 

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IG Number Its a financial metric I invented. It quantifies the inflationary gift transfer of debt value in terms of a stocks value. Companies with high debt (long dated and fixed) have

THE FED's YEILD CURVE CONTROL The Fed has been exercising yeild curve control since September 2019 when it started the REPO flood to bail out the wall street banks which had lent too much to the

THE FED's YEILD CURVE CONTROL

The Fed has been exercising yeild curve control since September 2019 when it started the REPO flood to bail out the wall street banks which had lent too much to the hedge funds which were using the repo money to lever up and go long bonds.

The current calmness in the REPO market suggests that it worked for this purpose.

The hedge funds have delevered.

Of course it set of a stock market mania that is still in full swing. 

The party now requires a constant avalanche on money printing and bond buying to keep going.

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THE GREAT TRANSFER

Re my idea of an ETF with high IG number stocks.

Lets call it the Weimar ETF

Oxy common stock has a very high IG number.

Uncle Warren is getting 8% fixed for his prefs.

A great number IF there is no inflation.

The debt is also a great buy IF no inflation.

But IF there is significant inflation then the common is a great buy.

As the value of the debt and the preference shares is transfered to the common.

If I were Uncle Warren I would try and restructure the deal.

So he gets CPI plus 6% instead of the fixed 8%.

If he can of course.

Thats the flaw in great deals....the govenment can turn them (via money printing) into not so great deals.

Even better would be if the contract gave him the option of taking the interest in a fixed number of common shares instead of cash.

The common of course could rocket in value with inflation.

Smart financial engineering in a age of inflation.

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IG Number

Its a financial metric I invented.

It quantifies the inflationary gift transfer of debt value in terms of a stocks value.

Companies with high debt (long dated and fixed) have high IG numbers.

The value of the debt is inflated away and transferred as value to the shareholders.

This is currently 2% of debt per annum.

So for a ten year bond 20% of its value is going to be transferred to the shareholders.

But if inflation is 5% over the life of the bond 50% of its value gets transferred to shareholders.

So the IG number depends on four factors:

1/ The average duration and rate of the debt.

2/ The size of the debt.

3/ The inflation rate.

4/ The size of the market cap in relation to the debt.

Note banks and other lenders have negative IG numbers

As an example.

Say inflation goes to 10% over the next ten years.

You buy the stock of a company with equity value of 20 mill and debt of 100 mill - (Ten year bond)

Over the next ten years the value of the debt will be obliterated - say in real terms its 20 Mill in todays dollars in ten years time.

The total value EV of the company increases to $240 million merely  because of inflation after 10 years. The companies real value does not increase.

The equity is after 10 years then worth $140 million ($240 minus the $100 debt) a 700% increase.

Or about 21% per annum compound i.e. the equity value increases at a rate greater than inflation (10%) because of the inflationary gift of $80 million from the bond holders.

The annual IG number is 11 (21-10).

The annual percentage the stock will appreciate over the inflation rate because of the inflationary gift transfer.

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