Posted on 04/04/2013 11:14:09 AM PDT by SeekAndFind
The stock market has hit record highs, causing surprise among many people. My friend Arthur noted two reasons why he could hardly believe the stock market is up. Here are comparisons between now and when the stock market was at its previous peak in October 2007:
* the federal deficit is over one trillion dollars, six times higher than in 2007
* federal debt is twice as high
How, he asked, can the stock market be reaching new highs in this environment?
Begin, I told him, with a simple model in which future cash flows are discounted to a present value. The analyst is concerned with the growth rate of cash flow (the numerator) and the interest rate by which those cash flows are discounted (the denominator).
What about cash flow? For a simple approximation, lets look at after-tax corporate earnings. They are 49 percent higher than at the previous stock market peak. What about the discount rate?
One popular benchmark is the yield on 10-year Treasury bonds, which is 2.7 percentage points lower now than when the stock market was at its peak. A larger numerator, a smaller denominator, its a wonder that the stock market hasnt been soaring for several years. Corporations as a group regained their peak profits back at end of 2009; at that time the 10-year bond was about one percentage point below its level from the stock market peak. That might have justified the stock market getting back to its peak three years ago.
What about all of that bad news? First lets talk about the deficit and debt and ask if that might influence future dividends and interest rates. Before beginning that discussion, note that the stock market is not a referendum on whether Congress and the President are doing a good job.
(Excerpt) Read more at forbes.com ...
Yet... those rates will be coming back. They are being held artificially low.
We’re going to have high interest rates, high inflation, and negative economic growth when our creditors say “enough”.
“The Federal Reserve is handing over $85 Billion a month to Wallstreet with bond purchases. The Market is being fed sugar. This is not going on the US Debt ledger, so its above and beyond the $16 Trillion in US debt. “
“More Americans than ever in prison, yet the crime continues to decline.”
Same people making the same error in logic.
A roof over your head is tangible goods, as long as the bank does not own the last 1% of it. Because they will be glad to repossess it if there is an economic collapse.
The Banks got a good gig set up, if it all goes down, all their worthless cash becomes land at cents on the dollar, and if it does not collapse they rake in the interest.
Run away, run away!
Bump
bump
bfl
But what earnings justify these sky high stock prices? Glen Beck is even musing that one day America will be China’s bitch; yet the stock market is telling us all is roses and honey in the world.
Buying stocks on margin has increased at a pretty clip since QE Eternity was announced. It was $366B at the end of February..
If it is a result of inflationary monetary policy over the last 9 months, why is it gold is lower than it was 9 months ago?
Much of the inflationary pressure on the gold market was due to sovereign nation stockpiling gold as a hedge against the deposing the U.S. Dollar as the international trade currency. Note how Germany called home its gold deposits in the New York depository. some of this sovereign nation purchasing as abated somewhat for the moment, allowing market valuations of gold to fall to more affordable levels for any future tranches of bulk purchases of gold for their depositories.
Don’t forget there was a mass exit from stocks into bonds and other securities in the last few years, so it is to be expected that margin volumes should increase as investors and traders return to stocks, stock options, and short premiums.
20% down? What were those draconian banks thinking? My God! Didn't they know that every one has a right to own a house? /s
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.