Federal Fiscal and Monetary policy

[mrmarket]

Bernanke, a student of the great depression of the '30's when prices dropped 10% per year, is pulling out all the stops to avoid deflation.

What he is doing is no different from this scenario. Did you ever go tailgating at a football game? You light the coals, drink 20 beers and come back and the coals are smoking but there is no fire....so you throw some more lighter fluid and walk away. 10 minutes later, still nothing, so you put a lot more lighter fliud on...repeat 5 more times...

Then you light your cigar and throw it into the BBQ and boom.

That's what's going to happen to the stock market. The effects of all of these actions takes a long time to actually recognize. The data we are viewing now isn't what is actually happening today...it's stuff from a month ago. The lag effect will cause us to overstimulate....boom.

[Karel]

Can I have the BOOM now, please?

Regards,

Karel

[New-born baby]

Bernanke, a student of the great depression of the '30's when prices dropped 10% per year, is pulling out all the stops to avoid deflation.

What he is doing is no different from this scenario. Did you ever go tailgating at a football game? You light the coals, drink 20 beers and come back and the coals are smoking but there is no fire....so you throw some more lighter fluid and walk away. 10 minutes later, still nothing, so you put a lot more lighter fliud on...repeat 5 more times...

Then you light your cigar and throw it into the BBQ and boom.

That's what's going to happen to the stock market. The effects of all of these actions takes a long time to actually recognize. The data we are viewing now isn't what is actually happening today...it's stuff from a month ago. The lag effect will cause us to overstimulate....boom.

You think inflation will cause the market to rise?

[mrmarket]

You think inflation will cause the market to rise?

of course not..but inflation will be a result of the stimulus.

[peanuts]

You think inflation will cause the market to rise?

of course not..but inflation will be a result of the stimulus.

Yes, printing a trillion or so of new money with no gains in real wealth or productivity will certainly have an inflationary effect. At the rate of "new money" generation, we are going to be faced with hyperinflation, not just the regular inflation that has occurred over the last 10 years.

Why hyperinflation?

• If business activity increases, then we need more "stuff" to produce the final products. This "stuff" comes from the ground ultimately. Currently, for example, you can't open a zinc mine because there are no loans available (LINK - 9th paragraph). If you need more "stuff" and the supply is limited, then what happens to price?
• Now, if demand goes much higher, and there is more money floating around, and productivity of the workforce does not increase with the increase of money creation, and supply of goods are limited, then the prices will find a point of equilibrium to meet these conditions.
• The banking system will be coming to a point where loans will become extremely hard to get. The terms will be difficult. I'm referring to big loans- the kind that industry requires to grow.
• The growth in new bond issues will be staggering, and the rates will seem to be attractive - but one must consider interest rates as well. Hyperinflation will make nearly every investment flat to negative in real dollar terms.

Regarding all this stimulation to the US... well, I would invest only in the stocks that can leverage commodity prices, have free cash flow, and a strong balance sheet.

Will inflation cause the market to rise? It depends on the P/E ratios of the S&P companies, and whether these ratios also rise with inflation. If earnings are reported in inflationary dollar terms, then stock price will need to rise in order to meet the historical average p/e, as inflation will affect these numbers.

[jiesen]

Yes, printing a trillion or so of new money with no gains in real wealth or productivity will certainly have an inflationary effect. At the rate of "new money" generation, we are going to be faced with hyperinflation, not just the regular inflation that has occurred over the last 10 years.

Why hyperinflation?

• If business activity increases, then we need more "stuff" to produce the final products. This "stuff" comes from the ground ultimately. Currently, for example, you can't open a zinc mine because there are no loans available (LINK - 9th paragraph). If you need more "stuff" and the supply is limited, then what happens to price?
• Now, if demand goes much higher, and there is more money floating around, and productivity of the workforce does not increase with the increase of money creation, and supply of goods are limited, then the prices will find a point of equilibrium to meet these conditions.
• The banking system will be coming to a point where loans will become extremely hard to get. The terms will be difficult. I'm referring to big loans- the kind that industry requires to grow.
• The growth in new bond issues will be staggering, and the rates will seem to be attractive - but one must consider interest rates as well. Hyperinflation will make nearly every investment flat to negative in real dollar terms.

Regarding all this stimulation to the US... well, I would invest only in the stocks that can leverage commodity prices, have free cash flow, and a strong balance sheet.

Will inflation cause the market to rise? It depends on the P/E ratios of the S&P companies, and whether these ratios also rise with inflation. If earnings are reported in inflationary dollar terms, then stock price will need to rise in order to meet the historical average p/e, as inflation will affect these numbers.

yes, then in this envionment, it would pay to be in a business that actually makes the 'stuff'