01-25-2017, 11:20 PM
*** 26-Jan-17 World View -- Dow surges past 20,000, further expanding dangerous Wall Street bubble
This morning's key headlines from GenerationalDynamics.com
****
**** Dow surges past 20,000, further expanding dangerous Wall Street bubble
****
![[Image: g170125c.gif]](http://www.GenerationalDynamics.com/ww2010/g170125c.gif)
S&P 500 Price/Earnings ratio at 24.71 on Jan 20, indicating a huge and growing stock market bubble (WSJ)
President Donald Trump and the "Trump effect" are being given credit
for pushing the Dow Jones Industrial Average past 20,000 on Wednesday,
for the first time in history. The credit is being given to Trump
because of the excitement generated by his election victory and his
divisive moves in the direction of rolling back regulations that have
hampered businesses and job creation.
The operative word is "excitement." There's little or nothing
of real economic fundamentals that justify this continually
growing stock market bubble. Central banks around the world have
been printing money and pumping it into the banking system.
Investors borrow that money and use it to buy stocks and sell
them to each other, pushing up stock prices and stock market
indexes.
Furthermore, this was going on in the Barack Obama administration
as well as the Trump administration. Stock market bubbles have
no connection to politicians, either conservative or liberal.
According to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock
valuations index) on Friday morning (Jan 20) was at an astronomically
high 24.71. This is far above the historical average of 14,
indicating that the stock market bubble is still growing, and could
burst at any time. Generational Dynamics predicts that the P/E ratio
will fall to the 5-6 range or lower, which is where it was as recently
as 1982, resulting in a Dow Jones Industrial Average of 3000 or lower.
There's a lot of Schadenfreude going around about the election
night New York Times blog entry by Paul Krugman, who was awarded
the Nobel Prize in Economics because of his hatred of President
George Bush. After Donald Trump's election victory,
Krugman wrote:
> [indent]<QUOTE>"It really does now look like President Donald
> J. Trump, and markets are plunging. When might we expect them to
> recover?
>
> Frankly, I find it hard to care much, even though this is my
> specialty. The disaster for America and the world has so many
> aspects that the economic ramifications are way down my list of
> things to fear.
>
> Still, I guess people want an answer: If the question is when
> markets will recover, a first-pass answer is never.
>
> Under any circumstances, putting an irresponsible, ignorant man
> who takes his advice from all the wrong people in charge of the
> nation with the world’s most important economy would be very bad
> news. What makes it especially bad right now, however, is the
> fundamentally fragile state much of the world is still in, eight
> years after the great financial crisis."<END QUOTE>[/indent]
What this goes to show is what an idiot Krugman is, but not because
he's wrong about "fundamentally fragile state" of the world. He's
actually right about that, and that's consistent with the Generational
Dynamics view of the world.
And that's particularly ironic, because Krugman is agreeing the thrust
of Trump's inauguration speech, which linked America today to the
economic hardships of the 1930s.
What makes Krugman a total idiot is that he thinks that he can time
the market. You'd think that the Nobel prize winner in economics
would know that he can't write a column late at night predicting stock
prices the next day and expect to get them right. But then again,
Krugman didn't get his Nobel prize in economics because he's a good
economist. The loons in Sweden gave it to him because they hated Bush
and they wanted to give it to someone else who hated Bush as much as
they did. So Krugman and the loons in Sweden deserve each other.
An economist would /should know that you can't predict the timing of a
stock market panic and crash. I always like to point out that even
today, 87 years after the stock market panic of October 1929, nobody
knows why it happened at exactly that time, and not three months
earlier or five months later, and what triggered the 1929 panic. It's
still a mystery.
A P/E ratio of 24.71 is astronomically high. And since stock prices
have surged since Friday morning, the P/E ratio after Wednesday's
close is probably now above 25.
We can't predict exactly when a stock market panic will occur, or what
will trigger it, but we can predict with 100% mathematical certainty
that a panic and crash will occur, and by the Law of Mean Reversion,
the Dow Jones Industrial Average will fall from its current level of
20,000 to a low below 3,000, wiping out millions of people's savings.
CNBC and
Bloomberg and NY Times (9-Nov-2016)
Related Articles
****
**** China desperately imposes controls on capital outflows
****
With the world's economies interlocked, the trigger for a Wall Street
panic and crash needn't necessarily come from the United States. A
financial panic in any major world economy could create a chain
reaction that would affect all world economies.
In China, there's already a panic of sorts going on, as wealthy
Chinese have been converting their fortunes from China's yuan currency
into dollars or other foreign currencies, and then using those dollars
to purchase assets outside China. In that way, Chinese investors
protect themselves from a currency or stock market crash within China.
This has resulted in huge outflows of China's yuan currency, as much
as $1.3 trillion in the last four months of 2016. As more and more
investors sell their yuan currency, the yuan weakens and its exchange
rate becomes less and less favorable against the dollar. The value of
the yuan lost 7% against the dollar in 2016. In the last few months,
the yuan fell at its fastest rate since 1994.
Chinese investors, seeing the yuan weaken, then become anxious and
convert more yuan into dollars in order to preserve value. This can
create a vicious cycle that leads to a full-scale currency panic that
would affect China's entire economy.
As a result, China at the beginning of January issued regulations
designed to clamp down on currency outflows. Chinese investors will
be strictly limited in the amount of money that they can convert to
dollars, and even then they must sign a pledge that the funds "will
not be used for overseas purchases of property, securities, life
insurance or any other insurance of an investment nature."
China's government says that these are not really capital controls,
but are meant to prevent investment in terrorist activities abroad.
However, these new regulations are having a chilling effect on
international investors considering investments in China. A person is
not going to be willing to send dollars into China to invest in a
business if they're concerned that they'll lose all their money
because Chinese regulators won't let them take it out of China later.
China's new capital outflow limitations are a move of desperation that
will not work forever. China Daily (5-Jan) and Radio Free Asia and Business Insider and Reuters
Related Articles
KEYS: Generational Dynamics, Price/earnings ratio, Trump Effect,
Paul Krugman, Law of mean reversion, China, currency controls
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Dow surges past 20,000, further expanding dangerous Wall Street bubble
- China desperately imposes controls on capital outflows
****
**** Dow surges past 20,000, further expanding dangerous Wall Street bubble
****
S&P 500 Price/Earnings ratio at 24.71 on Jan 20, indicating a huge and growing stock market bubble (WSJ)
President Donald Trump and the "Trump effect" are being given credit
for pushing the Dow Jones Industrial Average past 20,000 on Wednesday,
for the first time in history. The credit is being given to Trump
because of the excitement generated by his election victory and his
divisive moves in the direction of rolling back regulations that have
hampered businesses and job creation.
The operative word is "excitement." There's little or nothing
of real economic fundamentals that justify this continually
growing stock market bubble. Central banks around the world have
been printing money and pumping it into the banking system.
Investors borrow that money and use it to buy stocks and sell
them to each other, pushing up stock prices and stock market
indexes.
Furthermore, this was going on in the Barack Obama administration
as well as the Trump administration. Stock market bubbles have
no connection to politicians, either conservative or liberal.
According to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock
valuations index) on Friday morning (Jan 20) was at an astronomically
high 24.71. This is far above the historical average of 14,
indicating that the stock market bubble is still growing, and could
burst at any time. Generational Dynamics predicts that the P/E ratio
will fall to the 5-6 range or lower, which is where it was as recently
as 1982, resulting in a Dow Jones Industrial Average of 3000 or lower.
There's a lot of Schadenfreude going around about the election
night New York Times blog entry by Paul Krugman, who was awarded
the Nobel Prize in Economics because of his hatred of President
George Bush. After Donald Trump's election victory,
Krugman wrote:
> [indent]<QUOTE>"It really does now look like President Donald
> J. Trump, and markets are plunging. When might we expect them to
> recover?
>
> Frankly, I find it hard to care much, even though this is my
> specialty. The disaster for America and the world has so many
> aspects that the economic ramifications are way down my list of
> things to fear.
>
> Still, I guess people want an answer: If the question is when
> markets will recover, a first-pass answer is never.
>
> Under any circumstances, putting an irresponsible, ignorant man
> who takes his advice from all the wrong people in charge of the
> nation with the world’s most important economy would be very bad
> news. What makes it especially bad right now, however, is the
> fundamentally fragile state much of the world is still in, eight
> years after the great financial crisis."<END QUOTE>[/indent]
What this goes to show is what an idiot Krugman is, but not because
he's wrong about "fundamentally fragile state" of the world. He's
actually right about that, and that's consistent with the Generational
Dynamics view of the world.
And that's particularly ironic, because Krugman is agreeing the thrust
of Trump's inauguration speech, which linked America today to the
economic hardships of the 1930s.
What makes Krugman a total idiot is that he thinks that he can time
the market. You'd think that the Nobel prize winner in economics
would know that he can't write a column late at night predicting stock
prices the next day and expect to get them right. But then again,
Krugman didn't get his Nobel prize in economics because he's a good
economist. The loons in Sweden gave it to him because they hated Bush
and they wanted to give it to someone else who hated Bush as much as
they did. So Krugman and the loons in Sweden deserve each other.
An economist would /should know that you can't predict the timing of a
stock market panic and crash. I always like to point out that even
today, 87 years after the stock market panic of October 1929, nobody
knows why it happened at exactly that time, and not three months
earlier or five months later, and what triggered the 1929 panic. It's
still a mystery.
A P/E ratio of 24.71 is astronomically high. And since stock prices
have surged since Friday morning, the P/E ratio after Wednesday's
close is probably now above 25.
We can't predict exactly when a stock market panic will occur, or what
will trigger it, but we can predict with 100% mathematical certainty
that a panic and crash will occur, and by the Law of Mean Reversion,
the Dow Jones Industrial Average will fall from its current level of
20,000 to a low below 3,000, wiping out millions of people's savings.
CNBC and
Bloomberg and NY Times (9-Nov-2016)
Related Articles
- Earnings fall, but central bank liquidity floods markets, pushing up stocks (30-Jul-2016)
- President Trump's inauguration speech links today's America to the 1930s (21-Jan-2017)
- Explanation of Price/Earnings ratio and Stock Valuations (28-Aug-2015)
- Wharton School's Jeremy Siegel is lying about stock valuations (14-Apr-2012)
****
**** China desperately imposes controls on capital outflows
****
With the world's economies interlocked, the trigger for a Wall Street
panic and crash needn't necessarily come from the United States. A
financial panic in any major world economy could create a chain
reaction that would affect all world economies.
In China, there's already a panic of sorts going on, as wealthy
Chinese have been converting their fortunes from China's yuan currency
into dollars or other foreign currencies, and then using those dollars
to purchase assets outside China. In that way, Chinese investors
protect themselves from a currency or stock market crash within China.
This has resulted in huge outflows of China's yuan currency, as much
as $1.3 trillion in the last four months of 2016. As more and more
investors sell their yuan currency, the yuan weakens and its exchange
rate becomes less and less favorable against the dollar. The value of
the yuan lost 7% against the dollar in 2016. In the last few months,
the yuan fell at its fastest rate since 1994.
Chinese investors, seeing the yuan weaken, then become anxious and
convert more yuan into dollars in order to preserve value. This can
create a vicious cycle that leads to a full-scale currency panic that
would affect China's entire economy.
As a result, China at the beginning of January issued regulations
designed to clamp down on currency outflows. Chinese investors will
be strictly limited in the amount of money that they can convert to
dollars, and even then they must sign a pledge that the funds "will
not be used for overseas purchases of property, securities, life
insurance or any other insurance of an investment nature."
China's government says that these are not really capital controls,
but are meant to prevent investment in terrorist activities abroad.
However, these new regulations are having a chilling effect on
international investors considering investments in China. A person is
not going to be willing to send dollars into China to invest in a
business if they're concerned that they'll lose all their money
because Chinese regulators won't let them take it out of China later.
China's new capital outflow limitations are a move of desperation that
will not work forever. China Daily (5-Jan) and Radio Free Asia and Business Insider and Reuters
Related Articles
- China's Xi Jinping congratulates himself on stopping stock market crash (24-Sep-2015)
- Global trade plunges as China's economy becomes deflationary (11-Nov-2015)
KEYS: Generational Dynamics, Price/earnings ratio, Trump Effect,
Paul Krugman, Law of mean reversion, China, currency controls
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
