Bryan_K

Hints of Risk Appetite Returning to the Stock Market?

Hi. At the peak of the market...and for this exercise I will use the DOW , it reached 14200 or there abouts, and PER (Price Earnings Ratio) was at 22/23 times covered, after the recent fall to around 8150, the PER dropped to around 14, these are only approximations.. Traditionally PER's drop to 5-7 times covered in a recession, not a depression, a recession. Therefore, if we take the higher figure of 7 (assuming that profit levels are maintained) the DOW should drop to 4,000 level, of course, profits will deteriorate dramatically, let's say 50%, I'm feeling very conservative, so the PER could conceivably drop to the 2000 level, if conditions deteriorate further than anticipated by economists and brokers then the 2000 figure could be over optimistic and the DOW could go much lower
However, before this happens, I believe that the market will bounce back to the 50% fib level due to the Obama honeymoon. After a time, the public will realize that the very costly packages that are being touted at the moment will Fail. And Fail miserably, this will encumber the American people with massive debts that will never be re-paid,
Enter China, with it’s own problems, will the Chinese continue to finance not only the US, but many other countries in similar financial strife? That remains to be seen.
This crisis has only just started, they have finished playing the national anthem and the match is about to start, there is the question of $600 trillion of derivatives. Fractional lending ratios, Banks are all violating the Basel 2 accord. Which agreed, that a lending ratio of 8-1 would be adhered to, some Banks are out as far as 80-1, this is being exacerbated by falling asset values, especially property values, Banks were always above the 8-1 level but even the moderate Banks have a ratio of 20-1, this is why banks cannot lend, and cannot reduce their rates as much at the official rates when the Reserve Banks reduce them, their priority is to lower their lending ratio’s.
This whole debt problem started back during the Reagan and Thatcher years, but recent administrations have discarded all caution by showing their disregard for the rules,
They believe that they can resolve the problem by increasing the very thing that caused the problem, DEBT. These policies will assure a bad outcome.
On a personal note, I have no interest in stocks or indices what so ever, I trade currencies only.
Cheers bryan