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The top of this cycle for ASX200, cash is king ?


kahuna1

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Hi,

 

No one is king ...

 

Older I get the less I realise that I actually thought I knew.

 

If anyone has an idea of how to navigate this minefield please feel free to suggest it.

 

For me asset prices only have one way to go and thats down. Bond prices especially for the USA only go up .... they cant go below zero.

 

Puts pressure on stocks short term ... but low leveraged companies able to charge what they like adjusted for inflation over time will fare well. Just not here. if the US has a cow at some stage and it may be 3 years may be 5 years ... but its going to have a cow and not just play with deficit reduction but slash spending and raise taxes ... this is without the bond market being hit things will be sad for some time.

 

The debt and mountain of debt is astounding ... Just US federal govt debt mind you.

 

Demographics and simple logic spell it out .... with a 70% increase in older population pressure on healthcare system in USA over next 20 years means its broken beyond any hope of help. They need to change litigation laws where a doctor has to pay 200k for insurance. With so many lobby groups run by lawyers and others funded by drug compaines unlikely.

 

Social security over there ... last year the amount paid OUT exceeded the amount coming in a first ... and in 20 years time with a 70% increase in outflows the thing needs to change. Clinton actually had it fixed 911 and bush not paying a cent into it .... time has passed to fix it. So payments need to not start till your 72 for someone under 50 !! What a political nightmare this will be again.

 

Australia Howard and Telstra sale fixed all this and the Keating inspired super fixed the rest.

 

But if the US EU and UK and Japan with similar problems catch a cold ... so do we. The large creditor nations China ect ect eventually will get sick of haircuts and demand as is their right a correct return vs risk in lending ... will likely see them as the 21st century superpowers.

 

I don't know much the older I get but what is happening now reminds me of an Einstein thing with them throwing more and more fuel onto the fire.

 

Much like my old pre GFC fav about the 400 lb fat man eating twinkies and refusing to admit he has a weight problem.

 

This ... as Einstein said

 

Insanity: doing the same thing over and over again and expecting different results.

 

or this gem

We can't solve problems by using the same kind of thinking we used when we created them.

 

Same old same old the solutions and causes.

 

Cheers

 

Mark

 

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For me asset prices only have one way to go and thats down. Bond prices especially for the USA only go up .... they cant go below zero

================================ :unsure:

 

you meant asset price that include stock market all gonna going down?

and bond price or bond yield for USA only go up?

sorry K

i'm bit confused here!

i thought if there is big inflation down the road, then all assets gonna go up, and bond price gonna dive and sent yield to the moon.

if there is deflation then .....

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Hi,

 

US bond yields up ... sends US stocks down intially at least.

 

Yes inflation for the US as it looses more purchasing power.

 

Eventually of course stocks reverse this if they are not too leveraged and hit via cost of borrowing.

 

If US rates go up ... only one way when they are zero short term and an idiotic 2.36 % on a 10 year bond.

 

Yield on a 5 year bond insane at 1.18%.

 

Current CPI official in the US just a shade under 4% ... unoffical and likely closer to the mark is over 10%.

 

http://www.shadowstats.com/alternate_data/inflation-charts

 

Not going to suggest its over 10% as this guy is ... but its close to it with fuel prices alone up 25% in 12 months yet as per normal never seem to hit the offical CPI.

 

If your understating the CPI ... your overstating the real GPD by that amount and I agree the real picture that the USA has in reality had negative GPD growth for the last 10 years.

 

When I estimate they need to raise taxes by 20% on the govt side and slash spending by 30% just to balance things ... and they have moved about 2% of this 50% needed its not hard to see things not going too well for some time ... 5-10 years. Even longer without a massive haircut on US debt holders. What happens to bond prices even at the mention of this will send things places not seen before.

 

This is the only possible and logical conclusion to this overhang. Same old tune from me but its 5 years on and we had GFC 1 ... the rest has to happen. Apple has fallen from the tree and expecting it not to hit the ground is what the market is doing right now.

 

Have fun

 

Mark

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Good to hear from you Mark,

Your right, but the money printing will continue, in turn putting more pressure on inflation and interest rates above what most folks expect. This is the problem with the Centrally Planned economic model, free markets do a far better job of ironing out the miss allocation of capital than any officially appointed set of representatives.

 

Regards

 

Mungo

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On one hand China and emerging nations keep going despite the doomsdayers predicting a crash and since 1990 I have heard at least two predictions about China each and every year. During the GFC what happen to them ? Nothing. Second tier ones like Indonesia enjoyed a 5.5% GPD growth during the worst of it.

 

Welcome back Mark--as you say where to from here---those of us who saw the US subprime property crash coming were labelled "idiots" at best, those of us who saw the gold rise coming a decade or more ago were derided, those of us who see China as you appear to do now are labelled as "don't know what youre talking about"--but one thing is for sure the world is in financial trouble bought about by nearly 30 years of US financial ineptitude--and how in the name of all that's holy can the world's biggest economy hope to prosper long term on an EFFECTIVE interest rate structure of MINUS 2.5%.

 

Only way out of it for the US is higher interest rates and a severe dose of medicine, chance of that happening is nil in the forseeable future so all one can do as investors/traders is to make very short term profits, however I do fear for the average superannuant when he realises what is happening, and how that superannuant will react.

 

There will be winners out of all this--which countries/economies do you pick as victors?

 

Yours,

Perplexed, West Australia.

 

Current CPI official in the US just a shade under 4% ... unoffical and likely closer to the mark is over 10%.

PS: That is what many suspect which then makes the US EFFECTIVE interest rate MINUS :icon14:

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For me asset prices only have one way to go and thats down. Bond prices especially for the USA only go up .... they cant go below zero.

 

I'm all for the cash is king theory for the reasons you've outlined.

 

Not sure how AUD will fair though if asset prices plummet ?

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thanks K. for the explian.

 

only thing i disagree with you is

=============

US bond yields up ... sends US stocks down intially at least

=================

 

bond price up---sent yield down-------- sent stock down

bond price down --sent yield up--sent stock up

that always is initial market reaction.

check out yield of 10year and SPX chart you will know i'm right! :P

 

put that aside

you seems think that US already hit that iceberg and sinking........

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How much additional money can we extract from the 1% that the Occupiers are complaining about? Could we round these people up and put them on a farm and milk their earnings each morning?

 

As for raising the retirement age, I dont want an 80 yr old driving my bus or flying my plane thank you very much.

 

 

 

 

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How about we round up the Occupiers?

Round them up, give them a job: say, pick fruit or maintain fire breaks, and make them pay taxes instead of queueing for welfare.

I wouldn't want an 80yo pilot either; but I know many aged people, who could instruct, supervise, or even sit on either side of a road plant and turn the lollipop sign as required. That would free up younger ones to drive a bus or forklift...

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