Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

[Jay]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

There is another, even more recent , Armstrong that I linked to from The Dow & The Future (Martin A. Armstrong)

Straight from the savant hermit's pen:

"Today, the creditor is China and the US is hopelessly in debt. With the variables lined up in this direction, the dollar cannot rise as a safe haven against the collapse in debt without war."

I wonder where a foreign sovereign debt crisis fits in. Because the prospect of Greece defaulting has 'em running a bit too. You will bow to the dollar!

[ThePythonicCow]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Straight from the savant hermit's pen:

"Today, the creditor is China and the US is hopelessly in debt. With the variables lined up in this direction, the dollar cannot rise as a safe haven against the collapse in debt without war."

I wonder where a foreign sovereign debt crisis fits in. Because the prospect of Greece defaulting has 'em running a bit too. You will bow to the dollar!

I figure that an up in the dollar due to something like Dubai or Greece is shorter term, while the longer term destiny of the dollar (and many another fiat currency) is down.

If there is one thing that Armstrong tells us, it is that we cannot model economies with simple linear equations.

[Jay]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

I figure that an up in the dollar due to something like Dubai or Greece is shorter term, while the longer term destiny of the dollar (and many another fiat currency) is down.

If there is one thing that Armstrong tells us, it is that we cannot model economies with simple linear equations.

Central bank equation: secret levers + pleb gullability = permanent profit.
Real life: what comes around goes around. And thank god for that.

[oddlots]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Wow. Still taking the whole thing in but there's some great, mind-warping stuff here...

Maybe this is obvious, but his hammering on capital flows makes me realise how one-dimensional my viewpoint is. I get that asset prices in a given market can be "distorted" by capital flows back into it (e.g., mercantalist / petro-dollar buying of US MBS for example) but never really saw that this logic could be shot through all economic decisions and so become as fundamental as anything else (in other words, distorted isn't the right word quite.) How do you model that? The currency markets are the biggest in the world for a reason I suppose.

The two passages that struck me as important are attached.

[raja]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

1) Dollar will continue falling
2) Stock markets around the world will continue to climb

A lot of this is beyond me . . . but I'll throw this out in the slim chance that there is a shred of value in it . . . .

Stocks have some relation to the value of the underlying company.
As Obama's stimulus effect wears off, can we not expect a continuation of the downward spiral -- consumer spending down, business sales down (some businesses fail), unemployment rises, consumer spending down . . . and so on cycling downward.

Granted that inflation is a counter-balancing force. But if it plays out like the above scenario, could stocks really go up?

[Fiat Currency]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Originally posted by c1uester ...

Hey GRG55 ... I'm thinking that was no Freudian slip ...

[c1ue]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

No problem. I'm rather clueless when it comes to choosing in which forum to post.

But I'm c1ue! I can't be c1ueless! ;)

Next time I'll use the power of Google site:itulip.com armstrong dow.

iTulip search just doesn't work well for me.

Stocks have some relation to the value of the underlying company.
As Obama's stimulus effect wears off, can we not expect a continuation of the downward spiral -- consumer spending down, business sales down (some businesses fail), unemployment rises, consumer spending down . . . and so on cycling downward.

I've been looking at how to reconcile the iTulip and Armstrong views - and I think this may be one path:

While the iTulip view is that the US is not on the path to self-sustaining recovery, this itself is not a barrier to the stock market going up.

As we know - the multinationals derive much if not most of their actual profit from overseas. Even a failing US economy and concomitant fall in domestic multinationals' earnings might be more than offset by a rising earnings offshore boosted both by a falling dollar (currency ratio impact) and relative competitiveness (sales rising vs. foreign competitors).

The analogy would be the nifty 50 in the 1970s; the large cap companies largely of the Dow which performed very well despite an otherwise generally crappy overall stock market.

The problem I have with Armstrong's view again is that a falling dollar and dollar carry trade accelerates domestic inflation as well as pisses off the US' creditors. He does not address this at all in this missive, and it is an important point - the former has political consequences (assuming a RepubliCrat behavior change or some successor tyrant/populist arises) while the latter has debt crisis written all over it.

The Japan yen carry trade is a precedent but a poorly fitting one due exactly to both the political/inflation and creditor issues.

[raja]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

I've been looking at how to reconcile the iTulip and Armstrong views - and I think this may be one path:

While the iTulip view is that the US is not on the path to self-sustaining recovery, this itself is not a barrier to the stock market going up.

As we know - the multinationals derive much if not most of their actual profit from overseas. Even a failing US economy and concomitant fall in domestic multinationals' earnings might be more than offset by a rising earnings offshore boosted both by a falling dollar (currency ratio impact) and relative competitiveness (sales rising vs. foreign competitors).

The analogy would be the nifty 50 in the 1970s; the large cap companies largely of the Dow which performed very well despite an otherwise generally crappy overall stock market.

Yeah . . . but . . . .

For multinationals to do well by continuing to "derive much if not most of their actual profit from overseas", that would imply that overseas economies were doing O.K. If they weren't, then these US multinationals' sales would not do well . . . and all stocks would be down.

My knowledge of foreign economies is meager, but I've been reading about European countries with bad investments in Eastern Europe, Greece and Spain in trouble, and problems in China and Japan. If there's a widespread downturn, it seems to me that all stocks would have to go down.

[ThePythonicCow]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

If there's a widespread downturn, it seems to me that all stocks would have to go down.

Here I would disagree.

I think you are presuming the usefulness of fundamental analysis here, assuming that sooner or later, stocks rise and fall with the general economy.

In the late stages of this rather awesome fiat money, fiat debt and fiat^2 derivatives bubble, the nominal prices on the stock exchange can become divorced from economic reality. They may reflect just the ebb and flow of the hot money and insane financial institution games, particularly in the Forex and Treasury markets and dark pool derivative markets.

[iyamwutiam]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Yeah . . . but . . . .

For multinationals to do well by continuing to "derive much if not most of their actual profit from overseas", that would imply that overseas economies were doing O.K. If they weren't, then these US multinationals' sales would not do well . . . and all stocks would be down.

My knowledge of foreign economies is meager, but I've been reading about European countries with bad investments in Eastern Europe, Greece and Spain in trouble, and problems in China and Japan. If there's a widespread downturn, it seems to me that all stocks would have to go down.

Did the stocks go down when internet companies were trading at 60X P/E before the crash/ Did Accenture suffer when they changed their named from Arthur Andersen -and was a known incompetent and corrupt firm? You give to much credence to rationality , remembrance and critical thinking being dominant forces instead of hype, out right lying (now called marketing) and the smugness in corporate circles -who literally bank on the fact that information overload will prevent you from seeing the obvious.

[hayekvindicated]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

What happens when the Fed signals tightening? You guys are going to get blindsided here.

"Tighten"? The financial system will collapse if it did. They are in no position to tighten anything.

[cjppjc]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Anybody still think S&P500 below 700 before 2010?

[goadam1]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Anybody still think S&P500 below 700 before 2010?

i seriously doubt it.

[raja]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

Did the stocks go down when internet companies were trading at 60X P/E before the crash/ Did Accenture suffer when they changed their named from Arthur Andersen -and was a known incompetent and corrupt firm? You give to much credence to rationality , remembrance and critical thinking being dominant forces instead of hype, out right lying (now called marketing) and the smugness in corporate circles -who literally bank on the fact that information overload will prevent you from seeing the obvious.

The internet bubble was a recession.
I'm thinking more in terms of a global economic meltdown . . . .
It won't be a question of hype vs. rational thinking . . . it will be food lines and social unrest.
This time, the obvious will be obvious to everyone.

PC --In the late stages of this rather awesome fiat money, fiat debt and fiat^2 derivatives bubble, the nominal prices on the stock exchange can become divorced from economic reality. They may reflect just the ebb and flow of the hot money and insane financial institution games, particularly in the Forex and Treasury markets and dark pool derivative markets.

PC -- Your perspective is more sophisticated than mine, yet I think we are talking a difference in degree here. At some point, reality WILL hit, despite the "divorce" that exists at this time.

[ThePythonicCow]

Re: Latest Martin Armstrong (12/6/09): divergece vs. Ka-Poom (discussion thread)

At some point, reality WILL hit, despite the "divorce" that exists at this time.

Oh yes, for sure. However by that point there may have been so much dollar inflation and/or deflation turmoil that market fundamentals are not the primary determining factor explaining changes in nominal dollar pricing on the stock markets between now and then.