Financial topics

[Higgenbotham]

PS Higgie, I am glad you are not still shorting silver. It is up 2% this morning.

Just shorted silver again on this morning's runup.

Covered my silver short for a 15 cent loss as silver has showed strength all day. I may get short again if there is a short covering panic into the close.

[vincecate]

Dear Richard,

> PE ratios are correlated much more to inflation / deflation than
> they are to economic growth or decline.

Is that really true? As I recall, U.S. inflation was sky high in the
1970s, while P/E ratios plummeted.

It is really true that inverse, the E/P ratio, is very correlated to interest rates, which are very correlated to inflation most of the time. I try to explain why here:

http://pair.offshore.ai/38yearcycle/#stocks

[John]

Dear Vince.

> It is really true that inverse, the E/P ratio, is very correlated
> to interest rates, which are very correlated to inflation most of
> the time. I try to explain why here:

> http://pair.offshore.ai/38yearcycle/#stocks

Is that really true? The CPI fell 25% from 1929 to 1933, while the
P/E ratio plummeted.

It seems to me that since the CPI affects both the numerator
and the denominator of the P/E ratio, it would be hard to
find any correlation.

From the point of view of generational theory, you should have
deflation and falling stock prices during a generational financial
crisis, and you should have inflation about 40 years or so after the
end of the financial crisis, as all the businesses created during the
crisis reach maturity. On the other hand, I don't know why stock
prices fell for such a long period from 1965 to 1982. There may have
been something non-generational going on, or perhaps research will
show that there's a generational reason that I'm not aware of.

I read the section you reference -- Why Stock E/P ratio tracks bond
Earnings -- and I don't see anything in there that explains why,
despite the title of the section.

John

[Higgenbotham]

This afternoon my broker forwarded some info from a cycle analyst who used to work in the trading department of an oil company and is now an independent consultant. His stuff is sometimes pretty useful (I can't reproduce any of it). He's long term bullish on gold, but expects an intermediate top to form this year somewhere in this vicinity. He said there's no confirmation of a top, but once the top is in, it may not be exceeded for 1-3 years. He's also expecting the dollar to rally for about a year. In the inflation thread, I posted some long term cycles for silver that have me looking for a top in silver this year. This analyst used similar methods in the gold market (which I hadn't noticed) and came up with a similar result. Having said all that, the action in the metals has looked strong since April, and silver has held up pretty well since I started probing for a reversal last week. Last week, it didn't quite hit my upside target around $45 and it looks like it might still be going there, or higher.

[Higgenbotham]

I believe it was Higgie who said that the country is moving
back to "engineering," and people who can get things done. What
I'm saying is that I've already seen a dramatic change, in just
the last three years.

This is good for me, but this means that people without the kind
of experience that I've had are going to find it very difficult
to find a job.

Which brings us back to today's disastrous jobs report. This
is very ominous and continues a trend that's far from over.
People will increasingly have to accept lower salaries, which
will push the deflation trend enormously. A lot of people
won't be able to get jobs at all.

John

Thanks for the interesting and useful update and congratulations on finding the job.

Your update seems to corroborate the idea that the US is slowly relearning how to value productive individuals. There's a long way to go but what you've written is very encouraging.

[vincecate]

I read the section you reference -- Why Stock E/P ratio tracks bond
Earnings -- and I don't see anything in there that explains why,
despite the title of the section.

It makes sense to me but maybe looking at this page is more useful:

http://www.financialwebring.org/gummy-s ... dRates.htm

Congratulations on the job!

PE10-T-CPI.gif (5.24 KiB) Viewed 3859 times

[John]

Dear Vince,

> It makes sense to me but maybe looking at this page is more
> useful:

> http://www.financialwebring.org/gummy-s ... dRates.htm

> Congratulations on the job!

1. This doesn't show that E/P is correlated to inflation, which is
what you were claiming.

2. I'm not sure what "CPI adjusted E10/P" means, since CPI is
factored into both the numerator and the denominator.

3. This is the nutty "Fed Model" investment strategy, which
I wrote about several times. It's based on a single paragraph
in a 1997 Fed report.



From 2005:

** A new mystery: Why is the P/E ratio remaining constant?
** http://www.generationaldynamics.com/cgi ... 11#e050811

John

[jdcpapa]

I was missing you, John. Congratulations on your job. Thanks again so much. May the wind always be at your back! Regards,

[jdcpapa]

I don't know why stock
prices fell for such a long period from 1965 to 1982.

John

John, do really think stock prices fell during that period?

[OLD1953]

Just MHO, derivative markets don't correlate to the state of the economy very well. Commodity markets that aren't speculative, do so much better. But also, markets are affected by actions of other countries, and everyone isn't on the same cycle.

Grats on the job John, IT seems to be easier for people with proven knowledge to get a job now. Was nearly impossible a while back, because know nothings were so much cheaper!

Typical problem I get nowadays - everyone's outlook in my site suddenly starts giving an autodiscover popup error. I check the services that run autodiscover, all up and fine. Restart them all, no help. Go to server, walk down the entire IIS tree the autodiscover service uses, it's fine. Try to open the xml file, says "no access". Check, it's security marked for any user to read and for me to do anything. Hmm. It's accessed through a web server, so check web certificate, it's good. Hmm. Check certificate for exchange to look at domain controller, given it apparently doesn't "know" my access token. Ah, ha, damn thing expired. Send irritated note to guy who is in charge of certificate authority and who should have replaced it last week. Done. My life in a nutshell.