they have no choice at the moment, because the globalized world is too connected, and as all in same boat, when it goes down, all goes down
the difference being only who floats back to top agter the spill
5-10 years from now, not all central banks would need to pee in the same outward direction
just in in-tray
player #1: Speaking of sales, someone noted that on a Price/Sales valuation, the S&P 500 is now at a 1.0 to 1 ratio, the "cheapest" this metric has been in nearly 15 years (1994 or so?). This might once again be one of those "false metrics" that entices value investors. On the other hand, perhaps we are near a bottom on that metric, especially if Central Banks succeed in pumping up inflation....
player #2: those sales are likely to decline. note also, there are some companies like e.g. airlines, where sales per share are ten times or more of the share price. this is what gives them such great earnings leverage in economic good times, but it doesn't keep them from going bankrupt with unwavering regularity during economic bad times.
if the central banks succeed in stopping the deflationary credit contraction and unleashing inflation on a grand scale, the stock market may of course well begin to rise strongly - but it will collapse in real terms at the same time.
so one has to keep an eye on the inflation ball. there is little doubt that the money supply is pumped up at a furious pace now, but the flip side is the demand for money, which is so far clearly exceeding the supply surge. i've been thinking of how we may potentially identify the 'tipping point', and my guess is it will be signaled by government bond yields. as long as those are declining, the market expects the reflation effort to fail. the other signaling device is the dollar, the currency in which most of the world's debt is denominated. a weakening dollar will signal 'reflation success', a strenghtening dollar does the opposite.
player #3: with libor and ted spreads out of sight ...... i wonder what day it will be when enough money can bubble into the system for the fed's desired inflation? cart horse, horse cart. any thoughts?
player #2: a lot will depend on how things look at the close of the NY markets today. if credit spreads come in and the stock market manages a strongly positive close, the TED spread is likely to come in tomorrow as well. the co-ordinated central bank easing may have the desired psychological effect (as i mentioned previously, it does not change reality one iota, as their effective rates are already below the new 'official' ones). it's really about breaking the crisis of confidence, at least temporarily. note that the ideal wave 3 target for the stock market decline, which is about SPX 940-960 depending on how one calculates it (using big wave 1 it is 960, using wave 1 of 3 it is 940) is very close, so the current phase of the bear move should soon conclude. there is also a limit (emotional exhaustion) to how many times in two weeks people can panic. |
