Skip to main content

The end of the word is nigh! Not really but it makes a fun title...

Although corporate world is not doing so great with numerous earnings recasting... the world's stock market continue to operate near "all times high".  The question is why?  My guess is liquidity; there's a perception that markets will correct but that "They" (the investors) will be able to get out before the solids hit the fan.

I really have no opinion on the market, but there remains a global weakness (ok China's PMI was just above 50 a few days ago -- which means expansion), but still it remains that Europe is a trouble, Japan just had its 5th or 6th failed bond auction (BoJ monetised the debt instead -- printing more Yen), and America's 4th quarter of 2014 and the first of 2015 are looking weak.

Oil prices that should be a massive stimulus for the global economy -- down from $105 to $51 should have acted as a massive stimulus engine, in fact it did help the US a bit, but the rest of the world saw virtually nothing in terms of GDP growth stimulation -- it may have delayed a recession in Europe, but no one knows the full impact.

So what about this end of the world thing?  The market is not cheap by any measure, using the p/e or p/e10 or other measures it shows that the market is in the expensive range of things (some would say that the market is near its 95 percentile range (the high point in 2007 after the market crashed!), so when you hear that Mohamen El-Erian and Julian Robertson (not exactly lightweight guys) are both saying we are near a massive correction is on the cards, its time to pay attention.  These guys did a very good an compelling study of the p/e numbers.  I really have nothing to add here!

In reality what is important for investors is less where the market is going, but the probability of the market going up or down.  For institutional investors the problem is different, they have no choice than to be in the market -- they can increase the cash portion to reduce the impact of a massive correction -- providing ammunitions for when the market bottoms, but they cannot be "out of the market", so they change the weighting towards non-cyclicals (if such things exist), it would seem to be a good idea to get out of the auto sector (its been on fire recently) consumer discretionary too, since income continue to lag economic growth.

Anyway, the end of the world is not around the corner, but after an 8 year growth its time for the markets to correct.


P.S.  State of my Bet:  Well I am looking increasingly "right" in my analysis -- I mentioned many weeks ago that if the Greek Prime Minister didn't get the attention/solution he wanted from Europe he would call new election to get a "get out of jail mandate" -- a mandate to exit the Euro.  There are now rumours of such call to elections

Comments

Post a Comment

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b) ground beef requires process
Post a Comment
Read more

21st century milk parlour

When we first looked at building our farm in 2018, we made a few money-saving decisions, the most important is that we purchased our milk herd from a retiring farmer and we also purchased his milking parlour equipment.  It was the right decision at the time.  The equipment dates from around 2004/05 and was perfectly serviceable, our installers replaced some tubing but otherwise, the milking parlour was in good shape.  It is a mature technology. Now, we are building a brand new milk parlour because our milking cows are moving from the old farm to the new farm.  So we are looking at brand new equipment this time because, after 20 years of daily service, the old cattle parlour's systems need to be replaced.  Fear not it will not be destroyed instead good chunks will end up on Facebook's marketplace and be sold to other farmers for spare parts or expansion of their current systems. All our cattle are chipped, nothing unusual there, we have sensors throughout the farm, and our milki
Post a Comment
Read more

So we sold surplus electricity one time last summer...(Update)

I guess that we will be buying an additional tank for our methane after all.   Over the past few months, we've had several electricity utilities/distributors which operate in our region come to the farm to "inspect our power plant facilities, to ensure they conform to their requirements".  This is entirely my fault.  Last summer we were accumulating too much methane for our tankage capacity, and so instead of selling the excess gas, that would have cost us some money, we (and I mean me) decided to produce excess electricity and sell it to the grid.  Because of all the rules and regulations, we had to specify our overall capacity and timing for the sale of electricity (our capacity is almost 200 Kw) which is a lot but more importantly, it's available 24/7, because it's gas powered.  It should be noted that the two generators are large because we burn methane and smaller generators are difficult to adapt to burn unconventional gas, plus they are advanced and can &qu
Post a Comment
Read more