09 July 2010

Market Values

There seems to be a mystery surrounding the valuation spike in the *stock* market recently. Let me suggest some reasons:

* Stocks are being valued by money flows only, based on an artificial conduit between EUR and USD.

* The internal states of companies are not determining share values, this makes the stock market like the forex market because:

* there is nothing solid to hold onto, this means:

* it is only surprising there are not more valuation shocks !

The stock market is constrained by regulations which seem to have the effect of removing effective valuations. The stock market traditionally works against this and finds values then gets pushed up by big money to unrealistic levels.

But in a way these are not unrealistic levels they are logical consequences of future valuations which is the way the market works to compute value. This is supposed to be accurate, it is the foundation of many investing theories. But it is so distorted by debt disguised as assets.

In fact the state of the market now ranging on money flows with valuation shocks is a logical conclusion to this. Why this is happening is because of the power of debt, the ability it gives many to get a loan and put it into the future, one way or another. That is the credit market which collapsed under the illogical strain of this in 2008.

This makes debt like an asset. The financial crisis was itself a logical conclusion to this (the assets of financial companies were logically liquidated to debt and share valuations changed to match this). The present carry trade which was supporting the market is the same thing. The point is the markets are inherently logical, it is the inputs into them which tend not to be.

© 2010 Guy Barry - All Rights Reserved.