Andreas Grau Website: … Andreas Grau is a passionate financial engineer with the drive to improve the tools for complex economic or financial models. There will be some good stock buys down the road…but it will be several months of pain in the meantime. I’ve been telling people for 6 years that the metals would come back to hedge against a falling dollar and real estate prices. No one can predict what the market can do except for maybe some gurus who make stock pick selections either in magazines or on T.V. and the rest of us bloats follow their wisdom. My good laws of probability tells me that there is 50% chance of Stock Market Crash in 2008 and 50% chance of Bullish market. I think that media fueling the idea that our stock market has no chance is inadvertently making things worse.
With all the media, analyst and experts foretelling the doom that is going to become of the stock market, all confidence in our economy is going to be lost and the downward spiral that is our current stock market will only get worse. People quickely decided to sell their stocks because word spread that there was GOING to be a stock market crash, not because there necessarely was one. In March, the market didn’t crash hugely, mostly a big dip downward, but in October-November, it has a high chance of crashing.
Stock markets are now reflecting Human behaviors, they are heavily falling without a really very worse reason, but also they are over-performing without any very positive issue. LEXMX added to the composition for DBC; FEMKX added to the composition for VWO with updated R generated Quartz chart. Then come back to this post; graphs are still better for seeing the big picture. The rule of 72 says that if inflation is N%/year, prices will double in approximately 72/N years.
For example, at 3% inflation, prices will double in (72/3=) 24 years, and at 2% prices will double in (72/2=) 36 years. Why preserve the myth: I think it is much more comforting for developed market investors to think of low interest rates as an unmitigated good, pushing up stock and bond prices, rather than as a depressing signal of future growth and low inflation (perhaps even deflation) in much of the developed world.
One way to decompose the effects is to compute forward-looking expected returns on stocks, given stock prices today and expected cash flows from dividends and buybacks in the future to see how much of the stock price effect is fueled by interest rates and how much by cash flow changes. Myth: The biggest danger to the Fed is that, if it reverses its policy of zero interest rates and stops its bond buying, stock and bond markets will drop dramatically.