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Inverse Crash 1/21/20

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The market kept accelerating out of trend channels yesterday. That's crash behavior. In this case, it's a crash-up. By the end of the day, the ES fucutures hit a thrice revised upward 5 day cycle projection of 3850-55. Now we have a resting phase. Not clear how it will play out. 

Trend support clusters around 3845-40. If it holds, then higher and higher later today. If it breaks, we'll get a little correction. Targets would be either 3830-35, and if that doesn't hold, 3820-25. 

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Missed this at the end of a thread. Good stuff!

  

23 hours ago, Jimbo said:

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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13 minutes ago, sandy beach said:

Is it? Or is the market just discounting the lower purchasing power of the dollar that is to come and adjusting stock prices as measured in future dollars.

The market doesn't discount the future. 

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The change in price level is a response to changes in liquidity that drives demand, and the supply of paper that absorbs it. If there's more money than there is absorbent paper, prices rise. 

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Just now, BurntOnce said:

PE is quite above average, a technical indicator unaffected by dollar devaluation.

Right. PE is a pure price measure. It is the theoretical price of $1 of theoretical earnings. It's really a sentiment measure, because the buyer of that dollar of earnings has no claim on it whatsoever. Stocks have no more value than bitcoin. Their worth to the owner is what someone will pay them for it when they want to sell it. 

Stock prices are figments of traders' imaginations based on how much cash they have in their pockets. And over the past dozen years that's been most heavily determined by how much cash the Fed wanted to give them. 

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