Whither prices
Feb. 8th, 2009 05:34 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksThe markets are behaving strangely at the moment, and I suspect that the basic reason is that, although most people agree about what is going to happen (with a significant minority of dissenters), there is no consensus about when it is going to happen or what is the best thing to do about it.
So, the majority now seems to be in the Birks camp of "inflation is coming". This is despite masses of deflationary data being released in the past couple of months. Thus we have the perverse effect fof deflationary/depressionary data being released in the US, but the markets rise and gold goes up in price, because, the sagemeisters conclude, this will force the US to pump even more money into the economy, which will in the long run be inflationary.
However, there are two opposing camps to this.
The first says "sure, inflation is coming, but the markets are tanking now. On top of that, quantitative easing will keep up the demand for bonds. The Fed is not going to buy equities with all that fiat shit it is printing!" And so the price of bonds/gilts remains high and downward pressure still exists on equities.
The second group retain the "we are still heading for Japan in the 1990s" line. They are basically of the opinion that nothing that the Fed can do that is not political suicide will be sufficient to stop a deflationary spiral. The money that will be dropped from helicopters will be shoved under banks' mattresses, or my mattress. The time has come to repay the debts built up in the past 15 or so years. The result will not be pretty and could even include a large dose of political instability. This is the "prepare for worse than the 1930s, this is not even part of the macro-cycle, let alonge some piddling micro-cycle".
If the second group (the significant minority to which I refer above) is right then gold will be a blinding investment (rather than just a good investment along with equities). US treasuries will be a good investment in preference to Inflation-linked bonds or equities, and, to be frank, you might as well be stocking up the larder and your nuclear defence shelter with cans of pulses, because the entire economy might break down.
Of these three groups, the Birks camp of "it will be inflation, and it will be sooner rather than later" seems to be getting the upper hand -- equities are proving surprisingly resilient at a bottom which many observers (including me) thought that they would have seen breached by now. I still see mid-to-late April as the worst of the matter when it comes to company reporting. But if the psychology of the market has shifted to "this will mean even more money being pumped into the economy by governments" then the concomitant collapse in equity prices that one would expect from huge cuts in dividends, will not be forthcoming.
In the past week (in my field), the only large company that has maintained its dividend is Munich Re, and that's with a dividend cover of significantly less than two (the proportion of your earnings that you pay out to shareholders). Swiss Re slashed its dividend to a nominal amount and announced that it would still have to raise about 5bn Swiss Francs. Other insurers announced steep cuts -- and this is an industry that is performing well in the crisis!
My hunch is still on a final tanking of shares in the first half of the year -- another 15% to 20%. So I'm maintaining a short position, but I'm not betting the house on it (although betting the house would be a significantly smaller bet now than it would have been this time last year....)
And with the UK actually going to be hit by a Winter Storm tomorrow night .... well, that might be fun. Not. That's definitely one import from France and Germany that we don't need.
____________
So, the majority now seems to be in the Birks camp of "inflation is coming". This is despite masses of deflationary data being released in the past couple of months. Thus we have the perverse effect fof deflationary/depressionary data being released in the US, but the markets rise and gold goes up in price, because, the sagemeisters conclude, this will force the US to pump even more money into the economy, which will in the long run be inflationary.
However, there are two opposing camps to this.
The first says "sure, inflation is coming, but the markets are tanking now. On top of that, quantitative easing will keep up the demand for bonds. The Fed is not going to buy equities with all that fiat shit it is printing!" And so the price of bonds/gilts remains high and downward pressure still exists on equities.
The second group retain the "we are still heading for Japan in the 1990s" line. They are basically of the opinion that nothing that the Fed can do that is not political suicide will be sufficient to stop a deflationary spiral. The money that will be dropped from helicopters will be shoved under banks' mattresses, or my mattress. The time has come to repay the debts built up in the past 15 or so years. The result will not be pretty and could even include a large dose of political instability. This is the "prepare for worse than the 1930s, this is not even part of the macro-cycle, let alonge some piddling micro-cycle".
If the second group (the significant minority to which I refer above) is right then gold will be a blinding investment (rather than just a good investment along with equities). US treasuries will be a good investment in preference to Inflation-linked bonds or equities, and, to be frank, you might as well be stocking up the larder and your nuclear defence shelter with cans of pulses, because the entire economy might break down.
Of these three groups, the Birks camp of "it will be inflation, and it will be sooner rather than later" seems to be getting the upper hand -- equities are proving surprisingly resilient at a bottom which many observers (including me) thought that they would have seen breached by now. I still see mid-to-late April as the worst of the matter when it comes to company reporting. But if the psychology of the market has shifted to "this will mean even more money being pumped into the economy by governments" then the concomitant collapse in equity prices that one would expect from huge cuts in dividends, will not be forthcoming.
In the past week (in my field), the only large company that has maintained its dividend is Munich Re, and that's with a dividend cover of significantly less than two (the proportion of your earnings that you pay out to shareholders). Swiss Re slashed its dividend to a nominal amount and announced that it would still have to raise about 5bn Swiss Francs. Other insurers announced steep cuts -- and this is an industry that is performing well in the crisis!
My hunch is still on a final tanking of shares in the first half of the year -- another 15% to 20%. So I'm maintaining a short position, but I'm not betting the house on it (although betting the house would be a significantly smaller bet now than it would have been this time last year....)
And with the UK actually going to be hit by a Winter Storm tomorrow night .... well, that might be fun. Not. That's definitely one import from France and Germany that we don't need.
____________
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Still?
Date: 2009-02-09 08:33 am (UTC)One thing the band were very explicit on was that they thought Unknown Pleasures was good but flawed, Closer was pretty good and the rest was just sweepings off the floor.
Re: Still?
Date: 2009-02-09 09:25 am (UTC)As for the sweepings off the floor line. Well, I still find some of the stuff magnificent in its own sweepings kind of way.
PJ
Re: Still?
Date: 2009-02-09 10:16 am (UTC)Re: Still?
Date: 2009-02-09 10:19 am (UTC)no subject
Date: 2009-02-09 06:46 pm (UTC)I just can't buy the inflationist argument because 40 percent of the world's "wealth" has been erased over the past few quarters. I'm thinking a prolonged Japan-style slump is in the future, but as long as governments refrain from artificially jacking up prices of food and other necessities I think we'll avoid most of the political instability and World War messes.
no subject
Date: 2009-02-09 09:55 pm (UTC)(1) The Market has collectively lost its mind
(2) Short-sellers have been badly burned and have gone into hibernation
Movement in equities appears to have lost all contact with day-to-day reality. I don't see yield; I don't see much in the way of fundamentals (EBITDA, cash flow, and reduction in gearing -- God knows how you'd manage that in the current climate); and I don't see confidence in any quarter apart from, possibly, Gulf-backed vultures picking at the rotten carcass of the commercial property market.
Banks suck out £200 million in bonuses -- £100 million of which is "legally obligated," although I'd dispute that in the current circumstances -- from what we can all agree are their badly depleted reserves, and nothing happens
Barclay's hasn't gone bust yet.
The euro is, bizarrely, balanced or even gaining against sterling. This, despite the BoE chopping another pointless quarter of a per cent off the base rate. My Lord, but Germany must be in worse nick than I thought.
Not being inside the loop, I'm just making an assumption that most of the FTSE 500 will be reporting the really awesome bad news in or around April, and that's when the shit will spectacularly hit the fan.
Oh yes,, Joy Division. What a mirthless bunch of Mancunian freaks. (For "mirthless," see Morrissey. For "freaks," see Oasis.) I was always more into the Pretenders, myself.
no subject
Date: 2009-02-09 10:36 pm (UTC)Statistically, bullion does well during periods of deflation and not so during periods of inflation.
I don't think gold will break $1000 any time soon. At the moment, silver is out-performing gold but not enough to whet my appetite.
I am looking to invest in other commodities for a recovery in prices during the coming year. Actually, I have made a lot more on non-bullion commodities than on bullion this year but won't say any more until I achieve my goals
no subject
Date: 2009-02-10 05:17 pm (UTC)PJ