Monday, February 8, 2016

The Tool Or The One That Follows?

We're in the phase now where stocks are sold indiscriminately by margin clerks. Whichever stock in an account is most liquid gets sold...

Most people don't understand the stock market - I'm referring to the dunces working on Wall Street, the Kardashian watchers are just following their lead. Contrary to ubiquitous belief, the price that some idiot paid for a stock yesterday has no bearing on how much it's worth today. Not surprisingly, Generation Madoff doesn't understand the difference between liquidity (the marginal buyer), and solvency, what an asset is worth.

Growth/value ratio:

Below we see the S&P with the Earnings Yield i.e. Earnings / Price. Despite the recent decline in the S&P, the earnings yield is not going up, because profits are falling faster than the market:

In the run-up to 2008, we see that the earnings yield increased, meaning investors were gaining a better return, albeit all due to stock buybacks. In this cycle, despite colossal stock buybacks, the earnings yield has fallen, in other words stocks rose not due to improving fundamentals, it was all based upon Fed QE, stock buybacks, and of course momentum i.e. the marginal dunce.

Earnings yields based upon stock buybacks funded with mass layoffs and debt, are a fucking illusion, something that should have been learned in 2008:

Here we see NYSE margin debt with the S&P. Margin is the amount that gamblers borrow to buy Netflix. When Netflix peaks and rolls over, then margin calls occur, and then ALL stocks fall, because any stock can get sold to meet the margin call...

Forced selling visualized:

We are now in the forced selling phase, and there are no marginal buyers for overpriced stocks being liquidated, there are no buyers for stocks reducing forward guidance, there are no buyers for stocks cutting dividends, and there are no buyers for stocks eliminating buybacks.