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DrStool

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THE GREAT INLATION/PRICE/VALUE DEBATE

 

 

There are "at least" three different types of inflation.

 

1/ Base line inflation - the monetary base (the measuring stick) is inflated - this is money printing.

 

2/ Real demand inflation - demand for a commodity increases in real terms - eg real estate, oil, food in a growing population context - the rent of land will increase in real monetary terms. Gold/metals - the demand for these has increased while the cost of getting it out of the ground has gone up.

(this is where technological progress has a direct deflationary effect)

 

3/ Speculative demand inflation - this is the mainly inflation that we saw in stocks in 2000 and real estate in 2006 - you could call it minsky inflation - this is most effected by leverage and interest and savings rates.

 

At any one time all three are operating at different strengths and going in diffferent directions.

 

So any inflation rate is a hybrid of these forces - which could be going in opposite directions.

 

Thats what makes prediction of inflation so tricky - as 1/ depends on government monetary policy - hard or loose

2/ depends on the strength of the real economy and technological change and

3/ depends on the desires and phsycology of speculators, who are in turn influenced by prices, interest rates (again influenced by governments) and the amount of credit capacity/leveraging they can undertake (in turn influenced by bank and government credit policies, bank capitalisation rules etc).

 

As you can see the "inflation rate" is riddled with feedback loops and potential for conflicts or cooperation or collusion between governments and investors.

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I'm trying to thmink when eConomics made any money for anybody....

 

Seems like the typical trigger happy d-bag on a dealing desk does better that a Nobel prize winning economist.

 

Also, when in the last 15 years has anything moved toward equilibrium?

 

Winners have donged the imbalance.

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Peple buy stocks because they are going up. Therefore the higher a stock's price goes, the more "valuable" it is to more people, until liquidity dries up. The stock market is therefore no more than a big Ponzi scheme. The idea of "value" in stocks in the conventional sense is a logical fallacy, an oxymoron. In fact, a thing over which the "owner" has no control, produces no income, and has no utility other than as collateral for a loan based on its price that day, has no intrinsic value. It is worth what it can be sold for.

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Peple buy stocks because they are going up. Therefore the higher a stock's price goes, the more "valuable" it is to more people, until liquidity dries up. The stock market is therefore no more than a big Ponzi scheme. The idea of "value" in stocks in the conventional sense is a logical fallacy, an oxymoron. In fact, a thing over which the "owner" has no control, produces no income, and has no utility other than as collateral for a loan based on its price that day, has no intrinsic value. It is worth what it can be sold for.

Book value?

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Below -- The impact of commissions on high frequency trading.

 

Top equity curve = $0 per round trip.

 

Bottom equity curve = $7.00 per round trip.

 

Same trades. Entirely different result reamsult.

post-2117-1253371485_thumb.png

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Book value?

 

Net tangible book value also know as Liquidation Value

 

But that would only be after the bond holders are made whole, which in most cases they are not (at least not at 100%)

 

So the "equity" value is comprised of goodwill and the "value" (as measured by cash flows, after interest pmts, taxes, etc) produced by the combination of assets in a certain configuration and management of those assets to produce goods, services, or novelty plastic dog poop by the employees of the firm.

 

Hence the phrase, "a company is only as valuable as it's people"

 

What does this all mean? Well, nothing really.

 

Oh, and by the way....

 

 

BUY STOCKS !!!

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Complexion of Fed Support To Change- Professional Edition

by Lee Adler, Saturday, September 19, 2009, in Money and The Fed, Professional Edition | Permalink |Comments (0) Edit Fed credit rose last week, as the Fed bought GSEs, Treasuries and MBS. They helped to stabilize the Treasury market and drive rates down at the short end by settling nearly $60 billion in forward MBS purchase commitments. These purchases were more than enough to offset declining Alphabet Soup. Total Fed credit has been rising rapidly over the past 6 weeks but is still below the high set in December and April’s secondary peak. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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Book value?

 

Another made up number.

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Another made up number.

 

Yeh, just look at the destruction of IBM's balance sheet for one example

 

The have "profits" every year, but somehow shareholder equity keeps dropping. Amazing what borrowing to buy overpriced stock, and other accounting games will do over time.

 

And now it has reached the point that if you back out worthless will, the "book" value is a big negative number.

 

Also take a gander at what they are doing with retirement liabilities.

 

see page 97-98 in the notes to the annual report

 

ftp://ftp.software.ibm.com/annualreport/2..._ibm_annual.pdf

 

Wonder what would happen to the P&L if they put those where they belong?

 

Same kind of "other equity" shit that showed up on Fannie's Balance Sheet a few years before they bit the dust.

 

If you are counting on IBM retirement benefits to see you through your old age, good luck with that....

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Looking at the longer term pic this weekend, we are right in the sweet spot for this rally to stall out, and then we see what the bears have left, on the ensuing downwave.

 

Form a shorter term perspective, some historical fractals suggest, that a steep drop may be imminent, which is quickly recovered, and then one more test of the highs. Something along the lines of the pic below.

 

In any event, I pretty strongly believe that once we get a solid breach the 5 min 900, this 6+ month rally is over, and a corrective wave of some sort begins.

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Yeh, just look at the destruction of IBM's balance sheet for one example

 

The have "profits" every year, but somehow shareholder equity keeps dropping. Amazing what borrowing to buy overpriced stock, and other accounting games will do over time.

 

And now it has reached the point that if you back out worthless will, the "book" value is a big negative number.

 

Also take a gander at what they are doing with retirement liabilities.

 

see page 97-98 in the notes to the annual report

 

ftp://ftp.software.ibm.com/annualreport/2..._ibm_annual.pdf

 

Wonder what would happen to the P&L if they put those where they belong?

 

Same kind of "other equity" shit that showed up on Fannie's Balance Sheet a few years before they bit the dust.

 

If you are counting on IBM retirement benefits to see you through your old age, good luck with that....

 

10 year comparison of IBM stock to S&Pee

 

Absolutely stunning returns : $100 invested in 1998 was worth $99.92 in 2008...

Of course, we have now levitated back to $122 (for the moment).

 

jshott.jpg

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17/09/09 was a QDP.

 

Very interesting to see Kwave post a similar "pivot" turn on this date too...

 

But is the momo/trend too strong, and are the magnetic forces of the SPY gap @ 110 too tempting for the bulls?

 

BUY STOCKS !!! ???

 

big.chart?symb=spy&compidx=aaaaa:0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=4&size=2&state=8&sid=9864&style=330&time=8&freq=2&comp=NO_SYMBOL_CHOSEN&nosettings=1&rand=5150&mocktick=1

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