It's official: Deal reached on "fiscal cliff"

[GRG55]

Re: It's official: Deal reached on "fiscal cliff"

here's the argument, fwiw: the banks are replete with free cash and looking for things to do with it. thus, risk assets will be bought. that's it.

That, and the fact that the alternate asset class (fixed income) is bid to the stratosphere so "stocks are cheap"...

[ProdigyofZen]

Re: It's official: Deal reached on "fiscal cliff"

Does anyone know when the Q1 numbers come out for this year (unless they are already out)?

I expect Q1 GDP to be less than 1.5%. 90% of all the consumer loan generation is in Autos and Student Loans. We already know the Auto loans are the new subprime as stories are coming out that people are putting up their shotguns for collateral on autos.

Newly issued ABS on auto loans 2010 or later* vintage will be a great short once rates start to rise. They should be the first vintages to go under.

[verdo]

Re: It's official: Deal reached on "fiscal cliff"

here's the argument, fwiw: the banks are replete with free cash and looking for things to do with it. thus, risk assets will be bought. that's it.

This assumes that some of these banks actually get the trend right. Also, couldn't they just as easily take that cash and place it in short positions when the time is right?

I expect Q1 GDP to be less than 1.5%. 90% of all the consumer loan generation is in Autos and Student Loans. We already know the Auto loans are the new subprime as stories are coming out that people are putting up their shotguns for collateral on autos.

Newly issued ABS on auto loans 2010 or earlier vintage will be a great short once rates start to rise. They should be the first vintages to go under.

So not into negative territory but close. Well, if a recession doesn't come, I've got to find some place to put this extra cash, besides gold. I'm not 100% confident in buying into the U.S. stock market but perhaps I'm wrong about it

[jk]

Re: It's official: Deal reached on "fiscal cliff"

So not into negative territory but close. Well, if a recession doesn't come, I've got to find some place to put this extra cash, besides gold. I'm not 100% confident in buying into the U.S. stock market but perhaps I'm wrong about it

you just stated the argument for stocks: "i've got to find some place to put this extra cash." it's what dalio said earlier this year: people are tired of getting no return on cash, and are feeling a little less scared. thus they will buy risk assets.

[verdo]

Re: It's official: Deal reached on "fiscal cliff"

you just stated the argument for stocks: "i've got to find some place to put this extra cash." it's what dalio said earlier this year: people are tired of getting no return on cash, and are feeling a little less scared. thus they will buy risk assets.

well yeah but there are other markets that are giving similar returns (others have at least rolled over a bit), and aren't breaking through new all time highs. I mean, it can be an argument for stocks, but not necessarily U.S. stocks

[quigleydoor]

Re: It's official: Deal reached on "fiscal cliff"

here's the argument, fwiw: the banks are replete with free cash and looking for things to do with it. thus, risk assets will be bought. that's it.

Actually, the argument is that corporate profit margins are extremely high compared to history. This is why stocks appear to be priced for future appreciation.

However, this is misleading the herd. As John Hussman noted yesterday, "profit margins are the mirror image of extraordinary and unsustainable deficits in the government and household sector."

On the earnings front, my concern continues to be that investors don’t seem to recognize that profit margins are more than 70% above their historical norms, nor the extent to which this surplus is the direct result of a historic (and unsustainable) deficit in the sum of government and household savings (see Two Myths and A Legend for an analysis, including more than a half-century of data on this). As a result, investors seem oblivious to the likelihood of earnings disappointments not only in coming quarters, but in the next several years. We continue to expect this disappointment to amount to a contraction in earnings over the next 4 years at a rate of roughly 12% annually.

Despite the enormous weight of both accounting identity, historical data, and simple arithmetic, we continue to encounter persistent hostility to the idea that profit margins are the mirror image of extraordinary and unsustainable deficits in the government and household sector. The actual relationship was first detailed by the economist Michal Kalecki in the mid-1900’s. James Montier of GMO gives a nice derivation. The full relationship is:

Profits = Investment – Household Savings – Government Savings – Foreign Savings + Dividends