Comments on: Markets revert to common sense http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: nixonfan http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/comment-page-1/#comment-47442 Fri, 21 Jun 2013 18:35:33 +0000 https://blogs.reuters.com/felix-salmon/?p=22132#comment-47442 QE has had no impact on money growth; all of it is sitting at the Fed in the form of sterile excess reserves. Money growth, especially the broader aggregates, has been abysmal since 2008. This is due to credit contraction following the Minsky Moment. Money growth should pick up later this year if household credit starts to grow. QE is irrelevant to money growth and to economic growth.

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By: TFF http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/comment-page-1/#comment-47434 Fri, 21 Jun 2013 10:24:14 +0000 https://blogs.reuters.com/felix-salmon/?p=22132#comment-47434 @realist, there have been few sensible alternatives these days. People who would normally buy bonds have been buying blue-chip stocks because the yields are comparable. I pushed that very idea myself on this forum three years ago. Yet that only makes sense if the principal is similarly secure (at least over the long term). When those blue-chip stocks are trading at a PE of 20, there is a likelihood of eventual revaluation to a much lower level. That stock is in some sense a permanent bond, with a correspondingly long time horizon.

The market really hasn’t corrected yet. Valuations are still very high. It simply retraced the nonsensical rise from May.

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By: realist50 http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/comment-page-1/#comment-47431 Fri, 21 Jun 2013 04:32:38 +0000 https://blogs.reuters.com/felix-salmon/?p=22132#comment-47431 dedalus – the future is obviously, by its very nature, uncertain.

There is, however, a difference between buying an asset based on a view that one wants to ride an irrational market and flip that asset to a greater fool in the near-term versus buying based on a longer-term view of economic prospects and resulting cash flows.

I would argue that buying based on central bank asset purchases and near-zero interest rates is far more similar to the former than the latter.

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By: TFF http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/comment-page-1/#comment-47426 Fri, 21 Jun 2013 02:13:27 +0000 https://blogs.reuters.com/felix-salmon/?p=22132#comment-47426 Bull market in cash today. Everything else fell.

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By: dedalus http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/comment-page-1/#comment-47423 Fri, 21 Jun 2013 01:19:25 +0000 https://blogs.reuters.com/felix-salmon/?p=22132#comment-47423 “‘Normal’, here, just means … a world, most broadly, where assets are valued based on fundamentals, rather than being based on capital flows.”

That’s pretty to think so.

But since there is no timeless, unarguable, god’s-eye-view of the “fundamentals” upon which you posit asset values are based, Platonist thinking like yours compares poorly with Oliver Wendell Holmes’ pragmatism, circa 1905:

“People will endeavor to forecast the future, and to make agreements according to their prophecy. Speculation of this kind by competent men is the self-adjustment of society to the probable. Its value is well known as a means of avoiding or mitigating catastrophes, equalizing prices and providing for periods of want.”

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By: realist50 http://blogs.reuters.com/felix-salmon/2013/06/20/markets-revert-to-common-sense/comment-page-1/#comment-47422 Thu, 20 Jun 2013 23:59:23 +0000 https://blogs.reuters.com/felix-salmon/?p=22132#comment-47422 Very good post.

Have to say that I find Bernanke’s view odd. A focus on the Fed’s stock rather than flow seems to presume a fixed quantity of Treasuries (or, more precisely, Treasuries plus agency MBS). That stock isn’t fixed, however, – the amount of Treasuries are growing both in total and as a percent of GDP. (I’m not as certain that’s true for Treasuries plus agency MBS as a percent of GDP, but fairly certain it’s also happening there in absolute terms.) It therefore follows that the supply available to other buyers expands unless the Fed keeps buying.

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