Looks like market rally this morning has lost steam.....may be we should summon Morgan Stanley to come and grab bargains here, if they see that way.
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Looks like market rally this morning has lost steam.....may be we should summon Morgan Stanley to come and grab bargains here, if they see that way.
KW: Thank you , that is interesting and a good perspective on the bigger picture. I am going to start making a note of these "side factors" that relate & interrelate with stock price action and think of just how to incorporate it into the ai-model im working on.
Bobcat: Yes gold price action and indeed all precious metals will be interesting to see what they do in the next few weeks.
So along with your summary below KW, you would then expect companies to significantly reduce their dividends ? As if they do not...and PE's are reduced significantly, won't it follow that if divies remain the same, the % return becomes "unusually" high ? Have I got this right ?
Hi KW, interesting theory. However just wondering - if you propose that stock yields will return back to normal, what happens with the interest rates? If interest rates stay low, than why would than anybody still hold bonds or leave money in the bank account to get 1 to 3%, if they can get 8% yield from their shares?
The reason for stock yields going that low (PE that high) in the first place have been the low interest rates. People just bought stocks because they promised higher interest rates, and the buying demand increased stock prices and dropped stock yields.
If you now propose that stock yields go up again, than either interest rates need to go up together with them, or otherwise the same thing will happen again (people moving into stocks and pushing prices up, yields down). Personally I am not sure which of the scenarios it will be, but I don't think that anybody would like the low PE / high interest rate scenario. Most industrialised countries (including US) would not be able to afford paying say 4 to 6 % interest on their debts - i.e. if interest rates would go that high, than we would look at some serious (and I mean SERIOUS) market crashes (and I am not even sure, whether the BEAR could help us in such a scenario).
IMHO - better hope everybody keeps interest rates low and PE's high. I am however sure that the FED's of the world are quite in agreement over this goal and happy to use their tools in sync.
Always an optimist, but I guess time will tell ....
Speaking of optimism, I have put my toe in the water for the first time in the Indian market & bought the index this morning.
I remember from my gold days how much the price of fuel impacted the average Indian as they use a lot of diesel for power generation and fuel for cooking etc. With such a low oil price you would think its putting more money back into the average Indian's pocket.
Its a real speccy punt, but it looks like a reasonable level on the chart as well.
So far so good, up 1% ;-)
Without wanting to go down the conspiracy theory path, I wonder how much the US and China will try and use this as an opportunity to gain financial superiority at the expense of the other, and what implications this will have for us as investors. Similar to OPEC not cutting production to hurt the 'frackers'.
If we can work out what one side might be up to, then there's obviously the potential for huge gains.
In the USA, it's illegal to export oil. There's moves afoot to change that. Fracking, etc has meant the USA is now self-sufficient (in fact with a surplus of oil, with 4.6mb of US inventory announced today against an expected 0.32mb), which is why the price per barrel for US crude is less than for Brent oil.
Much of the rise in US job numbers these past two years have been in the Energy industry, mainly due to fracking. There have been a lot of layoffs lately and so there's political pressure to begin exporting oil. That being the case, and with a Bear market, we could easily see it fall to under $40/b and stay there for quite a while. That together with low commodity prices should in theory help economies recover...but we haven't seen much recovery over the past twelve months of falling commodity prices, have we.
There is something seriously broken, and with very little room to further lower interest rates to stimulate growth, Central Banks may (for the first time ever?) no longer have all the monetary tools required to fix it...hence the currency wars. It's getting to be dog-eat-dog.
Deflationary? Inflationary? Either way, precious metals silver and gold will come into play again...especially once people realise that interest rate rises are off the table.
Who's your pick for the next devaluation? I'm picking Japan...again. The Yen has strengthened quite a bit lately (about 5% against most major currencies this past month) - no wonder their exporters are finding it tough.
I had thought that printing lots of money (QE) in USA etc ultimately led to high inflation, or at least some inflation, unless it was accompanied by corresponding increases in productivity / output.. And that that inevitably led to increasing interest rates. Yet we don't seem to be seeing much inflation at all in the USA.....maybe I just need to wait a bit longer and it will happen ???
Look up 'Competitive Currency Debasement'.