BROUGHT TO THE FRONT
Notice that this was written in July of last year. When no-one knew that treasury was going to go wildly into deficit like the incompetent idiots that they are:
The May monetary aggregates are out. And the monetary aggregates are basically unchanged. IN FACT M1 HAS DROPPED A BIT.
M1 has dropped another billion dollars. Its just unbelievable.
So what does this mean? If you know an individual stock very well then it may be a good time to buy it. But otherwise keep right away from the market. Yet be prepared to jump in if this craziness is reversed.
Just to recap M1 has fallen from its high of 231 billion and is now down to 216 billion. At first, since spending plans are already in place, the velocity of circulation of M1 (with regards to Gross Domestic Revenue, not Gross Domestic Product) will improve simply because people are in the middle of spending decisions. But thereafter the velocity will drop. And so the destruction of money will be exacerbated.
HISTORICALLY LOW PRICE OF SHARES.
Last time I warned about the further drop in share prices the price-earnings ratio of the market was about 12. Now its about 11.5. It will go lower still. But it cannot go all that much lower.
When new money comes in to the system the trick to making money is to figure out where it will go first. Here we can be in no doubt about it. Since real estate is historically high and stocks are historically low the new money must go into the stock market if there is a sufficiently powerful burst of it.
It is very strange to be telling people that their Superannuation money ought to be in capital maintenance (ie the least risky type of portfolio with no shares) when the price-earnings ratio is only 11.5. But thats the only conclusion I can come to. Since these guys at the bank appear determined to bludgeon us into the ground.
When the share market rally comes however the market stands to almost double. This goes to show that our socialist monetary system is such a gyp since it amounts to a situation where the already rich have a free ride.
Its still a good time to short the major banks. Our major banks will soon be making serious losses if they are not able to get back into the counterfeiting racket. And if M1 is not growing it means they are creating no new money. Hence they will start making big losses.
I can feel the cognitive dissonance out there. This news will not compute for a lot of you. For a generation the banks have been able to make billions of dollars every year. But they will be in loss-making territory very soon.
Another prediction we can make is that the Federal budget will be thrown into deficit. I should check to see how much of their revenues comes from mining royalties before making that prediction. So with that one disclaimer only we can say that the Federal budget for 2008/2009 will surge outrageously into deficit.
If anyone figures out how I might be able to compile Gross Domestic Revenue figures let me know. Since my market commentaries can be greatly enhanced with that information.