Those calculations of share values on estimated income streams are a fading persistence projected into time. That is their inherent structure (as computations) they resonate with the way the market is computing value now. They may not truly capture this, but they do resonate with it.
The problem is the market is so distorted by asset inflation/deflation, rescue conduits etc. one can question whether it does function, even if one had the chutzpah to start projecting future income streams right now.
But some things I have seen suggests the distortions are not causing malfunctions they are causing mis-functions. The fabric of the market may not be damaged if I can put it like that. I should note though this is a bit like looking at the surface of the Sun from the earth and deducing activity therein.
Those wild days in the crisis when trillions disappeared in front of one's eyes, well you know what it wasn't internally panic. It was the process we saw with CROX on a massive scale, the collapse of future valuations into the cold hard light of reality. It was seen that those asset valuations were built on the end of 'Raiders of the Lost Arc' - put the backstops on those insurances where they won't see the light of day - well they did when Lehman collapsed.
But it has *already* happened, it was decades worth of re-computation at high speed boosted by the hedge funds. The reality of at least a decade of the market was there right in front of your eyes, it was astonishing (we were in the Sun) it was exactly like the forex market. The inflation and market structures from cheap dollar (the recent rescue) wasn't as big a deal, it was just an emergency measure.
Why I think we may not be back to where we started is because something has been happening, the market has maybe started the process of healing itself. Partly because companies can handle this and can indeed thrive in these circumstances, partly because of what lies within those structures in the Dow. There is a suggestion as well what happened was necessary for this restoration to happen.
There is a little bit of that dark feeling right now during the crisis, anything can happen (or nothing). Anyway the point is if the market is functioning again then it may include future valuations, rather than the messy present. In that case quantitative easing and Fed Funds target rate near zero can be just calming words and not a grim future.
The other way of looking at the calming words of the Fed is that they simply want more cheap money pushed into stocks. Do they or do they not believe the market will recover by and of itself ? That is the grim future, they do not and it will not and all that exists is to find ways of creating conduits to inflate asset values. Computationally, I believe that is less likely.
Note: It might be expected that countries like Canada and Australia would be hit by this new downturn. It could be argued that their protection was directly linked to the initial success of sustaining that asset inflation. But one might expect Canada to have a protection if the real recovery starts in the US.
© 2010 Guy Barry - All Rights Reserved.
