Monday, November 23, 2009

Bloomberg Gets it Right


“We cannot spin a positive story from the fact that a third-of-a-trillion dollars a week is trying to lock down Treasury bill yields of less that 0.05 percent,” Bianco said. “There is still tremendous demand for the front end of the curve despite the fact that people are saying things like there is no yield there and that cash is trash.” -Bloomberg, Nov 23

Add a record shattering S&P 500 P/E ratio of 145 and you get the picture. We sit at the cusp of a massive continuation of the greatest market crash in human history. If P/Es land in their historic recovery range of 6 to 8, the S&P will dip below 50 in the coming decades (assuming companies' earnings stay inflated).

5 comments:

  1. Hey FDR,

    Did you see the 2-YR auction results today? $45B at 0.802% high yield -- lowest yield on record (or so I've read) and impressive demand for USD that seems to contradict the whole gold $1,100 we're seeing right now.

    ReplyDelete
  2. Short term treasuries do not contradict the price of gold.

    There is extreme fear of government and/or financial collapse.

    ReplyDelete
  3. "Short term treasuries do not contradict the price of gold.

    There is extreme fear of government and/or financial collapse."

    That's a common misconception. Historically, gold prices are nothing but a reflection of liquidity, or the amount of paper cash sloshing around in the system.

    That is why stock prices and gold prices follow one another almost tick for tick, minute to minute. Stocks are a much better inflation hedge than gold, since they move more:

    1932 Dow = 40
    2007 DOw = 14,000

    1932 gold = 21
    2009 gold = 1150

    Gold does track inflation, but without the leverage provided by stock prices.

    Of course, that is no longer going to be the case now that ETFs allow one to actually own the Dow. It will be far mar difficult to actually DELIVER that liquidity increase; in the past, the Dow simply changed as the companies went bankrupt. No one could own it in the way it really operated. It was nothing but a lie to lure dumb public money into a perpetually-losing stock market

    ReplyDelete
  4. 1932 was govt enforced price, today we have a different market in gold.

    ReplyDelete
  5. "1932 was govt enforced price, today we have a different market in gold."

    In 1932 gold price was enforced by Fed policy, not the government, and just like today the Fed crashed the market through a combination of desire to do so and incompetence to halt their own private destruction.

    Today's "investors" (= capital gains gamblers who erroneously think they are investing) are about to figure out how little has changed.

    ReplyDelete

The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

 
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