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When Bernanke speaks he reminds me
- Thread starter Optionpro007
- Start date
Quote from Longhorns:
1) Better to raise now and say "we're done" than to pause and leave uncertainty hanging over the markets for the next few months.
2) The tenor told me that another hike was imminent.
its better to stop raising in the near term and say "we're done"....then give it a while for things to take hold...and then raise again if necessary...there is no such thing as "we're done"
Some horrible fallacies contained in that article. For one, an investor gets paid on the profit of the share price not by earnings. Many severe declines have come during phases of earnings growth. During periods of inflation the following occurs: rates go higher, those high rates cause investors to "lock in" competitive ROI. Because of high fixed rates investors buy less stock or in some cases decrease stock holdings in favor of bonds. As share prices then fall P/E's decrease. For example if ABC is earning a buck a share and it's PE is 20 then the stock is trading at $20. If there's inflation, perhaps ABC's earnings go to $1.20. But now because I can buy bonds at a high yield I may say I'm only willing to pay 15x earnings for ABC which on $1.20 would be $18 a share. So the stocks earnings increased but the stock is off 10% in share value. The market went NO WHERE for the 16 years between 1966 and 1982. All during the highest period of inflation we've had. In fact that period is virtually the only multi year period the market has failed to rally. Ultimately, down the road, shares may become cheap because book values increase after inflation alters asset prices. However if anyone thinks this sell off the past month is the shallowest concession they're going to see they're on drugs.
Quote from Covertibility:
Is inflation really a threat?
According to historians, stocks have in the past been a good long-term inflation hedge. That means that stock prices, when measured over periods of many years, have tended to go up faster during periods of high inflation than when inflation has been low.
The investment lesson to draw: Knee-jerk investors who sell stocks because of the threat of higher inflation therefore set up good long-term buying opportunities.
The notion that stocks are a good long-term inflation hedge is not as counter-intuitive as you might otherwise think. When inflation is high, companies are able to raise prices and hence fatten their bottom line. By the same token, when inflation is low, firms' pricing power is correspondingly low.
In this regard, I note that - just as you would expect to be the case, given rising inflation in recent months - Standard & Poor's reported in Monday's edition of its newsletter, "The Outlook," that 71% of companies are planning to raise the prices of their products. This was the finding of a survey of 200 companies' chief financial officers conducted by Baruch College's Zicklin School of Business and an organization called Financial Executives International.
Investors who sell stocks when inflation rears its head are implicitly assuming that companies have no pricing power, and hence that their earnings growth rates don't change with inflation. But history shows that this is not the case, according to a study by Harvard economists John Campbell and Tuomo Vuolteenaho. They found that real (or inflation-adjusted) earnings growth, when measured over several-year periods, was relatively constant, and that nominal earnings growth fluctuated with inflation. Study
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The mistake that investors make, therefore, is extrapolating nominal earnings growth rather than real earnings growth, a species of something that economists call money illusion or inflation illusion. So when inflation starts to rise, they erroneously believe that nominal earnings will grow as slowly in a high-inflation period as when it was low. This leads in turn to the mistaken conclusion that stocks are worth less because of the higher inflation............
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Now time to look for companies who have the greatest pricing power.
Good observation. The behaviour of the 30-yr treasure bond was strange. It didn't do much, just shrugged it off and continued higher. Seems like long term interest rates is not rising anymore.
Could be a good thing (?).
Could be a good thing (?).
Quote from Covertibility:
Bond market is more sensitive to inflation chatter. If we're expecting the chairman to raise rates at the June 29 meeting, one would expect the long end to really sell off, right?
Quote from polpolik:
Good observation. The behaviour of the 30-yr treasure bond was strange. It didn't do much, just shrugged it off and continued higher. Seems like long term interest rates is not rising anymore.
Could be a good thing (?).
Greenspan spoke like a senile old man today. That fool should have been canned years ago.
John