The Fed vs Fundamentals: Who Wins? Submitted by The Chicago Economist The thing about market fundamentals is that they’re like gravity. They never relent. And that means if you’re not lighter than gravity it requires continuous energy to overcome it or succumb to it. In markets, productivity is the equivalent of being lighter than gravity, that is, productivity makes markets rise naturally in line with the laws of economics. Without productivity markets require energy (liquidity) to counter the fundamentals. In order to move markets higher naturally it is important then to understand the laws of fundamentals so we know how much productivity we need or alternatively how much energy we need to counter them. The foundation of market fundamentals are cash flows. Cash flows are ultimately driven through sales. Sales are the only common tenet of all businesses without which it is not a business. So all business must have a customer that will exchange money for some value a business is offering. However, that means customers must have an ability to pay. There are three means from which customers can pay and it is incredibly important to understand them - Money on hand, Credit, and Transfers (gov subsidy such as EBT, SNAP, etc.) So as a CEO it is required that I predict my customer’s ability to pay as much as my customer’s desire to pay in order to accurately predict cash flows. And as a market analyst I must do the same. This is where things have gotten interesting over the past 4 decades and in particular over the last decade. While personal expenditures (PCE) have continued to climb… ...the following chart shows that since the early 1960s we’ve had a steady decline of Money on Hand (i.e. wages and salaries) as a percent of consumer expenditures and a steady increase of Credit and Transfers as percentages of consumer expenditures. Note the summation of the three always equates to 1. This indicates that corporate revenue growth for the past six decades has been increasingly subsidized by Credit and Transfers. The problem is that Credit and Transfers are forms of private and public debt and their limits are a function of the ability to pay them back. Some may argue that public debt can be rolled over forever and that may be true while we hold “world reserve” status, although that status will be tested within the next 12 months. And so perhaps Universal Basic Income such as the $1,200 “stimulus check” can subsidize corporate cash flows forever but this too will be tested. Credit is rigidly a function of our ability to pay it back and so rigidly a function of wages and salaries. This latest event has decimated wages and salaries with tens of millions of workers displaced and that figure is only going to grow. A historically large percentage will never find their way back to work at least not for many years. This means that both Money on Hand and Credit will decline materially placing a huge weight onto Transfers. Overall it means the customer’s ability to pay has just gapped down quasi-permanently. And so cash flows, the foundation of market fundamentals, too has gapped down quasi-permanently. I explained this on March 4 as Chinese factories were shutting down. Now in addition to the collapsing consumer, the virus has acted like Luminol in that it has exposed the dirty secrets of financial engineering. Things like the US shale industry that was being artificially kept alive by inflated oil prices above competitive global supply/demand functions. That is, global producers can produce and profit at half the market price that was inflated to allow American producers to participate in the market. Chinese macroeconomics (due to the virus) and Russian policy put a very abrupt end to that game. Also, corporations artificially inflating market cap via borrowed funds being allocated to dividends and stock buybacks are now facing bankruptcy. NEVER MISS THE NEWS THAT MATTERS MOST ZEROHEDGE DIRECTLY TO YOUR INBOX Receive a daily recap featuring a curated list of must-read stories. All of sudden gravity just got heavier. And that means the energy to counter it must increase. Enter the Fed. Between February 11 and March 12, the Fed decided it would need to inject $5.4 trillion to keep the repo market from imploding. That opened the spigot of easy money, which has already led to trillions more, and it will never close again. For some perspective, and remember this is just the beginning, let’s have a look at the easy money train… We bent the laws of economics for a long time and got away with it. But something finally snapped. Production differentials have never seen a move quite like what is taking place now on a global scale. The amount of leverage and engineering that was maintaining the house of cards meant that any significant hiccup was going to require exponentially more energy (liquidity) than in the past. What we didn’t count on was a historically epic disruption to production. And so the battle between the Fed and the Fundamentals is just beginning and it’s going to get bloody. Who wins is truly anyone’s guess because nowhere have we designed models that apply to this scenario. My bet is on gravity and it will be a helluva a fall when the (value of ) money runs out.
Perhaps any consolidation of several related countries into one bigger economy, using a new currency of course, would be useful. Q https://en.wikipedia.org/wiki/Bankruptcy Effective sovereign bankruptcy Technically, states do not collapse directly due to a sovereign default event itself. However, the tumultuous events that follow may bring down the state, so in common language we do describe states as being bankrupted. Some examples of this are when a Korean state bankrupted Imperial China causing its destruction, or more specifically, when Chang'an's (Sui Dynasty) war with Pyongyang (Goguryeo) in 614 A.D. ended in the former's disintegration within 4 years, although the latter also seemingly entered into decline and fell some 56 years later.[59] Another example is when the United States, with heavy financial backing from its allies (creditors), bankrupted the Soviet Union which led to the latter's demise. UQ
回复 1楼zerohedgeNY的帖子 The existence of the FED is part of the reality, which is again part of the fundamental. The dichotomy of Fed v.s. Fundamental doesn't really exist except in your mind. And it's amazing smart people like you folks will take your theory, calling it "gravity" and bet against the reality. That's not what Isaac Newton did. He started from reality and create a theory to explain it...not to explain the futility of the reality.
The existence of the FED is part of the reality, which is again part of the fundamental. The dichotomy of Fed v.s. Fundamental doesn't really exist except in your mind. And it's amazing smart people like you folks will take your theory, calling it "gravity" and bet against the reality. That's not what Isaac Newton did. He started from reality and create a theory to explain it...not to explain the futility of the reality. heartinny 发表于 4/24/2020 3:38:12 PM
The Fed vs Fundamentals: Who Wins? Submitted by The Chicago Economist The thing about market fundamentals is that they’re like gravity. They never relent. And that means if you’re not lighter than gravity it requires continuous energy to overcome it or succumb to it. In markets, productivity is the equivalent of being lighter than gravity, that is, productivity makes markets rise naturally in line with the laws of economics. Without productivity markets require energy (liquidity) to counter the fundamentals. In order to move markets higher naturally it is important then to understand the laws of fundamentals so we know how much productivity we need or alternatively how much energy we need to counter them. The foundation of market fundamentals are cash flows. Cash flows are ultimately driven through sales. Sales are the only common tenet of all businesses without which it is not a business. So all business must have a customer that will exchange money for some value a business is offering. However, that means customers must have an ability to pay. There are three means from which customers can pay and it is incredibly important to understand them - Money on hand, Credit, and Transfers (gov subsidy such as EBT, SNAP, etc.) So as a CEO it is required that I predict my customer’s ability to pay as much as my customer’s desire to pay in order to accurately predict cash flows. And as a market analyst I must do the same. This is where things have gotten interesting over the past 4 decades and in particular over the last decade. While personal expenditures (PCE) have continued to climb… ...the following chart shows that since the early 1960s we’ve had a steady decline of Money on Hand (i.e. wages and salaries) as a percent of consumer expenditures and a steady increase of Credit and Transfers as percentages of consumer expenditures. Note the summation of the three always equates to 1. This indicates that corporate revenue growth for the past six decades has been increasingly subsidized by Credit and Transfers. The problem is that Credit and Transfers are forms of private and public debt and their limits are a function of the ability to pay them back. Some may argue that public debt can be rolled over forever and that may be true while we hold “world reserve” status, although that status will be tested within the next 12 months. And so perhaps Universal Basic Income such as the $1,200 “stimulus check” can subsidize corporate cash flows forever but this too will be tested. Credit is rigidly a function of our ability to pay it back and so rigidly a function of wages and salaries. This latest event has decimated wages and salaries with tens of millions of workers displaced and that figure is only going to grow. A historically large percentage will never find their way back to work at least not for many years. This means that both Money on Hand and Credit will decline materially placing a huge weight onto Transfers. Overall it means the customer’s ability to pay has just gapped down quasi-permanently. And so cash flows, the foundation of market fundamentals, too has gapped down quasi-permanently. I explained this on March 4 as Chinese factories were shutting down. Now in addition to the collapsing consumer, the virus has acted like Luminol in that it has exposed the dirty secrets of financial engineering. Things like the US shale industry that was being artificially kept alive by inflated oil prices above competitive global supply/demand functions. That is, global producers can produce and profit at half the market price that was inflated to allow American producers to participate in the market. Chinese macroeconomics (due to the virus) and Russian policy put a very abrupt end to that game. Also, corporations artificially inflating market cap via borrowed funds being allocated to dividends and stock buybacks are now facing bankruptcy. NEVER MISS THE NEWS THAT MATTERS MOST ZEROHEDGE DIRECTLY TO YOUR INBOX Receive a daily recap featuring a curated list of must-read stories. All of sudden gravity just got heavier. And that means the energy to counter it must increase. Enter the Fed. Between February 11 and March 12, the Fed decided it would need to inject $5.4 trillion to keep the repo market from imploding. That opened the spigot of easy money, which has already led to trillions more, and it will never close again. For some perspective, and remember this is just the beginning, let’s have a look at the easy money train… We bent the laws of economics for a long time and got away with it. But something finally snapped. Production differentials have never seen a move quite like what is taking place now on a global scale. The amount of leverage and engineering that was maintaining the house of cards meant that any significant hiccup was going to require exponentially more energy (liquidity) than in the past. What we didn’t count on was a historically epic disruption to production. And so the battle between the Fed and the Fundamentals is just beginning and it’s going to get bloody. Who wins is truly anyone’s guess because nowhere have we designed models that apply to this scenario. My bet is on gravity and it will be a helluva a fall when the (value of ) money runs out. zerohedgeNY 发表于 2020-04-24 07:20
Submitted by The Chicago Economist The thing about market fundamentals is that they’re like gravity. They never relent. And that means if you’re not lighter than gravity it requires continuous energy to overcome it or succumb to it. In markets, productivity is the equivalent of being lighter than gravity, that is, productivity makes markets rise naturally in line with the laws of economics. Without productivity markets require energy (liquidity) to counter the fundamentals. In order to move markets higher naturally it is important then to understand the laws of fundamentals so we know how much productivity we need or alternatively how much energy we need to counter them. The foundation of market fundamentals are cash flows. Cash flows are ultimately driven through sales. Sales are the only common tenet of all businesses without which it is not a business. So all business must have a customer that will exchange money for some value a business is offering. However, that means customers must have an ability to pay. There are three means from which customers can pay and it is incredibly important to understand them - Money on hand, Credit, and Transfers (gov subsidy such as EBT, SNAP, etc.) So as a CEO it is required that I predict my customer’s ability to pay as much as my customer’s desire to pay in order to accurately predict cash flows. And as a market analyst I must do the same. This is where things have gotten interesting over the past 4 decades and in particular over the last decade. While personal expenditures (PCE) have continued to climb…
...the following chart shows that since the early 1960s we’ve had a steady decline of Money on Hand (i.e. wages and salaries) as a percent of consumer expenditures and a steady increase of Credit and Transfers as percentages of consumer expenditures. Note the summation of the three always equates to 1.
This indicates that corporate revenue growth for the past six decades has been increasingly subsidized by Credit and Transfers. The problem is that Credit and Transfers are forms of private and public debt and their limits are a function of the ability to pay them back. Some may argue that public debt can be rolled over forever and that may be true while we hold “world reserve” status, although that status will be tested within the next 12 months. And so perhaps Universal Basic Income such as the $1,200 “stimulus check” can subsidize corporate cash flows forever but this too will be tested. Credit is rigidly a function of our ability to pay it back and so rigidly a function of wages and salaries. This latest event has decimated wages and salaries with tens of millions of workers displaced and that figure is only going to grow. A historically large percentage will never find their way back to work at least not for many years. This means that both Money on Hand and Credit will decline materially placing a huge weight onto Transfers. Overall it means the customer’s ability to pay has just gapped down quasi-permanently. And so cash flows, the foundation of market fundamentals, too has gapped down quasi-permanently. I explained this on March 4 as Chinese factories were shutting down.
Now in addition to the collapsing consumer, the virus has acted like Luminol in that it has exposed the dirty secrets of financial engineering. Things like the US shale industry that was being artificially kept alive by inflated oil prices above competitive global supply/demand functions. That is, global producers can produce and profit at half the market price that was inflated to allow American producers to participate in the market. Chinese macroeconomics (due to the virus) and Russian policy put a very abrupt end to that game. Also, corporations artificially inflating market cap via borrowed funds being allocated to dividends and stock buybacks are now facing bankruptcy. NEVER MISS THE NEWS THAT MATTERS MOST ZEROHEDGE DIRECTLY TO YOUR INBOX Receive a daily recap featuring a curated list of must-read stories. All of sudden gravity just got heavier. And that means the energy to counter it must increase. Enter the Fed. Between February 11 and March 12, the Fed decided it would need to inject $5.4 trillion to keep the repo market from imploding. That opened the spigot of easy money, which has already led to trillions more, and it will never close again. For some perspective, and remember this is just the beginning, let’s have a look at the easy money train…
We bent the laws of economics for a long time and got away with it. But something finally snapped. Production differentials have never seen a move quite like what is taking place now on a global scale. The amount of leverage and engineering that was maintaining the house of cards meant that any significant hiccup was going to require exponentially more energy (liquidity) than in the past. What we didn’t count on was a historically epic disruption to production. And so the battle between the Fed and the Fundamentals is just beginning and it’s going to get bloody.
Who wins is truly anyone’s guess because nowhere have we designed models that apply to this scenario. My bet is on gravity and it will be a helluva a fall when the (value of ) money runs out.
中国也好，美国也好， 人们不再关注实体经济，都热衷于豪赌。什么GROWTH STOCK， 把未来十年的利润都算进来了。有这么估值的吗？？？
不就是借了子孙后代的钱都花在今宵了吗？
我跟你们说没有第二腿了， 现在花街也好， 散户也好都已经无法克服毒瘾。但凡有点钱， 是退税也好， 是BOND借到的钱也好， 甚至是救命的钱，都会投到股市了。如果有第二腿，掉下来的不是腿， 是脑袋
属实，只好跟着赌博，这是为什么RAY DALIO 说不要投资FIXED INCOME 要投股票
感觉根本就不是对立关系
存在即合理？
居然错过了！
好吧 再等等
股市坚挺也不全是Fed的原因，市场预期也比较乐观。 疫情造成的经济衰退跟经济基本面出问题导致经济危机不一样。只要经济链条不崩溃，疫情影响是短期的，一旦出来疫苗或者特效药经济会恢复的很快； 经济基本面出问题就需要等解决经济问题后经济才能好转，甚至有可能蔓延很久，比如大萧条。另外，疫情导致的危机没有道德风险问题，Fed和treasury救起来毫无政治压力，砸钱不手软；比起来08年Fed救市就比较犹豫，一开始bear sterns就没救，lehman brothers出事以后担心整个金融体系出系统性问题，进而影响实体经济，才开始大手笔bail out。