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In general, all of this is a very optimistic given where the...

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gozinsa

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24/12/19

13:18

Post #: 42118690
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Originally posted by Dr.Who: ↑

Keep it simple is my opinion.

The interaction of global economies is incredibly complicated. Yes, have a basic understanding and learn every day but the moment one thinks they know better than people that drive economies then be warned - one's conclusions are more likely missing a whole lot of detail and understanding.

Keep it simple #1 - whatever Joe Public thinks then rest assured the powers that be have though of it plus any number of other factors. Debt is not introduced blindly with no idea of consequences.

Keep it simple #2 - to say money is injected into the economy without considering the mechanism that makes it happen is superficial. When the Fed buys an asset and increases its balance sheet yes cash is added to the reserves to be used in the economy but also as asset is removed from the economy (i.e. a security). A large portion of the debt is sitting on the Fed's balance sheet waiting to be extinguished when to matures. The Fed do not loan money out to the general public. Therefore the 'cash injection' often spoken about fails to acknowledge that cash once in the system bought an asset and now that asset (aka cash) is in the hands of the Fed.

Keep it simple #3 - don't try to figure out who is buying what and how are they buying. Employers do not employ (even casual part-time) unless people are buying their material/good/service. People cannot buy goods or services without disposable income. There is no large scale closurer of businesses reported across the globe. Only record low employment levels.

Keep it simple #4 - money entering the system in exchange for assets is not funneling straight into property and assets - it is helping businesses grow. Over the past 10 years only 0.5 of PE growth in the US is down to 'new money'. PE is fairly stable with just a minor recent increase and that is all down to earnings keeping pace with price.

Bookmark this: By next year thew Dow will be looking in the rear view mirror at 30,000 and the ASX will have be remembering the day it crossed 7000. And sentiment will be strong in business and consumer as the world gets on with business post trade talk and post Brexit.

As for gold, difficult to say. It is reasonably correlated (0.58) with SP500 so it might catch a little uplift periodically but overall it will meander between 1360 and 1500 (possibly 1550) - short period of dislocation likely to send it down sub 1400. I'll buy gold between 1360 and 1400.

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In general, all of this is a very optimistic given where the interest rates and world economic growth is at the moment. It does not match with reality. Japan stagnant, Europe stagnant, China who knows. It's very reckless to encourage folks to pile into risky assets like stocks at this stage. A reasonable investor would buy some Gold, go into cash and keep some stock exposure.

Last edited by gozinsa: 24/12/19
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1 Great analysis

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