Weakening Earnings, Slowing Manufacturing, No Trade Deal = Record Equities

[SASKFARMER]

So if it all comes crashing down then what?

Trudeau will confiscate all our Cash. Except for whats in the Safe. USA dollars vs Canadian.

People with a high debt load?

Personal Debt load?

What will Millennials do? Cry?

Boomers will lose all their savings?

[TechAnalyst]

Same as what it has been. Spike in 2007 to 65

https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio

I hate to be a wet blanket (or take away the security blanket) but this is actually one of the warnings signs I mentioned.

The P/E ratio is price divided by earnings obviously. If you look at the monthly data table in the link above, the spikes were actually caused by a collapse in earnings estimates during the Great Recession of '08/'09 and the fallout from the dot com bubble burst in '02. The price did not collapse as fast as the earnings, thus the spike in the ratio.

The only time in recent history that the value has been meaningfully above the current estimate of 24.47 was in the final blow off top of the Dot Com bubble in 1999. All other higher readings were caused by declining earnings.

The Great Recession started following a reading of 22.35 in December of '07. Interestingly the price topped out in October of that year. The bottom of the 54% decline in equity values occurred in March of '09. Because earnings estimates collapsed more aggressively, the P/E ratio put in a top of 123.32 in June of that year.

As you can see, there should be nothing real reassuring about this analysis.

Sorry, that's a bit deep for a Sunday AM.

[biglentil]

Since the Fed started up the printing presses last September, the FANG tech stocks soared 60 percent of their annual 2019 gains. The Fed is flooding the market with liquidity.

Yet, U.S. unemployment claims have risen for the past 12 weeks. The consumer spending spree continues to hold up the ship, but consumer debt load continues to rock higher (record breaking). Meanwhile, manufacturing is in a serious slowdown from too high USD and tariff backdraft (IMO). And gov’t spending, good grief . . . .

Believe repo loan crisis initiated the liquidity flood, but it appears to be a desperate attempt by the Fed to stoke inflation. Deflation is a death wish for central bank policy. Central bankers have no answer for this.

Gold is attempting to rally on geo-political jitters, but in my view precious metals still remain in an overall longterm bear market. Realize this is contrary to internet chatter. But there is risk of heavy setbacks in this space (IMO). Deflation is alive and well, despite central bank desperation policy attempting to run ahead of the debt crisis and sweep this crisis under the rug . . . . This has failed miserably.

I am posting this information as a ‘real concern’ for business. Debt no longer generates growth. When debt is no longer an asset and becomes a liability, this is a serious problem. As a Morgan Stanley VP stated recently, “Everything in the financial system is broken”
An unstoppable changing of the guard ahead . . . .

Gold was 1170 few years ago when you called it a poor investment now its 1550 and near an all time high in Cad dollars. Yet you still think it is in a bear market? Errol we need to all be on the look out for confirmation bias.

[AlbertaFarmer5]

Believe repo loan crisis initiated the liquidity flood, but it appears to be a desperate attempt by the Fed to stoke inflation. Deflation is a death wish for central bank policy. Central bankers have no answer for this.

I keep hearing various versions of this, that central banks are helpless against deflation.
Can someone explain the logic behind that?

As far as I can tell, they have very few tools to stop runaway inflation, once confidence in the government and currency has been lost, as evidenced by the myriad examples of collapse due to hyperinflation throughout recorded history.

But flooding the market with stimulus of various sorts or devaluing currency to combat deflation has been the go to tool for as long as there have been currencies. The long term results are never good, but the dreaded debt deflation spiral just doesn't seem to materialize.

[TechAnalyst]

For what it's worth, I agree with Errol about the risks that lie ahead for equity markets but I disagree on the outcomes.

I believe the resulting increase in liquidity (printing money) will push commodity values higher, especially precious metals. Following the last recession, gold almost tripled in value within three years and silver went from under $9/oz in '08 to almost $50 by May '11.

Given their low values currently and their declining stocks (within the US), Ag commodities should benefit as well (IMO).

Interest rates would be stuck near zero under this scenario and real estate (Ag land in particular) would continue to be supported in a quest for return on investment.

Let's hope I'm right.

[AlbertaFarmer5]

The Fed can't tighten everyone knows it, their back is against the wall...

. This has been my position as well.
But, as you say, everyone already knows that. And conventional wisdom states that what everyone knows, isn't worth knowing. So if all the market participants are already positioned for this, doesn't that make it harder to actually do it?

[biglentil]

You would think that Errol would be a gold bug based on his predictions for the market.

[Oliver88]

Techanalyst, Errol, Biglentil

What stocks are you guys currently investing in or shorting? Land, real estate? Gold?

[TechAnalyst]

Techanalyst, Errol, Biglentil

What stocks are you guys currently investing in or shorting? Land, real estate? Gold?

That's probably more information than what I feel comfortable discussing on a public forum but to reassure everyone that I have no motivations here other than to try to be helpful - I am short nothing, I own farmland and I have no position in gold (so far).

[errolanderson]

I keep hearing various versions of this, that central banks are helpless against deflation.
Can someone explain the logic behind that?

As far as I can tell, they have very few tools to stop runaway inflation, once confidence in the government and currency has been lost, as evidenced by the myriad examples of collapse due to hyperinflation throughout recorded history.

But flooding the market with stimulus of various sorts or devaluing currency to combat deflation has been the go to tool for as long as there have been currencies. The long term results are never good, but the dreaded debt deflation spiral just doesn't seem to materialize.

Keynesian economics has always been the the foundation of central bank policy. Let inflation hide the impact of debt and wreck less debt and spending. But that all fell through-the-cracks. Inflation pressures evaporated as debt became unserviceable. But central bankers had faith. Start the printing presses, but with little or no response. Well, let’s cut interest rates, that will do ‘er. That didn’t really work either. Deflation, a word that wasn’t heard of in financial circles was taking hold, with no solution.

This is why I’m negative gold market as gold feeds off inflation. Central bankers are very lost puppies right now. To have the market enter negative rates just shows how Keynesian economics is failing now miserably . . .yet that was all I was taught in economics school is print your money to continue party time. Inflation will fix everything.

Now the value of U.S. equities value is now more than 150% of U.S. annual GDP. Money is simply being parked in stock markets at incredible valuations, at incredible risk and at incredible blind investor faith.

[SASKFARMER]

I do agree with the fact a lot of money is parked in the stock market. It has made wealthy people billionaires and average joe investor have a million.

Now property was an interesting thing the last crash of 08, but that market and those homes were filled and picked up by Canadians and American investors and individuals. Maricopa is a prime example. The ones who borrowed and have VRBO to pay for these could be in for a double-take if the Housing market crashes.

Similar large debt still on Farmland won't work either. IMHO.

Similar most homes in Cities are so highly leveraged not even funny. Toronto would be a wipeout similar to Vancouver.

I gave an example a few days ago about buying an apartment block. The banks want clear property equal to the amount you are borrowing and you cant sell any of it.

But the question is will we have a world reset and that's what the UN is doing to try to create one world Gov. Trudeau has helped by making Canada vulnerable.

The USA is not going to give up its place for the UN until the last American is dead.

Canada will fold like a cheap hooker.

[TechAnalyst]

The reason I feel it’s so important to consider a chart is there is no way possible for any individual or entity to know every fundamental factor impacting a given market let alone how or if it would move prices. On the other hand, a price chart shows the net effect of all the influences and opinions combined.

This is the monthly continuation gold chart (each bar is the high/low/close for the month). You can clearly see the impact of the Quantitative Easing programs designed to inject liquidity (money) following the financial crisis of ’08.

Following a correction that was long overdue, a large saucer has been developing as buyers become increasingly aggressive while sellers do the opposite. The net result is higher highs and higher lows again. A typical saucer formation begins to accelerate to the upside as the price action begins to attract more aggressive behaviour.

I expect that will be the case here as well given the strong gold buying by central banks over the last few years and the declining confidence in world currencies. Should the stock market end up in trouble over another debt crisis, increased liquidity would add to the acceleration as it did a decade ago (IMO).

[errolanderson]

The market doesn’t seem to believe in agreement purchase totals . . . . China (Xi translated speech) stated they will purchase U.S. agricultural products based on market conditions.

Soybeans tanked after Phase one deal signing . . . . Traders now appear selling-the-fact.

Algorithms continue to power stock markets to historic highs . . . .