Hi Maurice,
<<Share prices are driven by returns compared with interest rates for cash. If interest rates are worse than what people expect to get from shares, up go share prices.>>
I think not entirely, and not so simply. In fact, if played wisely, I believe then true only a little bit, if at all.
1. Share prices ought to be driven by fundamentals of the company (is it going to live?), its free cash flow generating ability, capacity, and capability (what is it doing now, and what can it do later?), compared to other economic ventures. Interest rate affect what the company can do now vs. later, and so ought to indirectly affect the share prices. This then creates a boring, never receptive to the seemingly impossible, market place;
2. Share prices ought also to be driven by psychology and expectation of change in psychology; and
3. Share price, at times, tends to suffer from inflation of worth due to absolutely high (as in beyond necessity, into the realm of waste) liquidity level in the market, and the concentration of same liquidity in the market place on a few asset classes (stocks, real estate, Sun Flower painting, BMW Z8s).
Our dance between cash, BMW Z8s, bonds, stocks, real estate, commodities and Sun Flower paintings is made necessary as others are dancing between commodities, bonds, cash, stocks, Bimmer Z8s, Sun Flower paintings and real estate.
The ebb and flow of liquidity, the rise and fall of psychological expectations, the improvement and deterioration of fundamentals, all are frequency components in the music of the market place.
Where are we now?
The dam has burst and liquidity is washing the wounds of the market place;
The expectations are once again high, without worries, with the mind having been numbed by the soothing wash of liquidity;
against a background of still, and rapidly deteriorating fundamentals.
What can change?
Liquidity dries up, expectations temper, or corporate prospects looking up.
Which is going to happen first?
Each of our personal determination of the answer dictates our cash level.
The thundering herd is going one way. I see Pezz and Maurice in its midst, euphoric, like in the days of old.
Again, as in March, be careful, because you are dancing with Maria, Abby, and Mary, and we are sipping drinks with Grossman, Buffet, and, oh, all them insiders, amused.
Cash can make all the difference that freedom of timing selection can bring. The absolute downside to cash is more knowable over any period time than equity. Some choose to risk the certain so as to take advantage of the uncertain. Zygotes never had a choice. You do.
Chugs, Jay |
