Stock Market Forecast and Comments resumed (at least for now)

This week, I resumed posting my column at quillian.net.
It is easy to get caught up in the hype about the bail out. The source of the problem is passing losses due to the fact that all asset prices are overvalued. The question is. Who is going to take the losses?

Stock Market Forecasts and Comments

Here are some of my same old questions.

Look at the astronomical level of cash in margin accounts. Where in the hell is this coming from? In my mind, it doesn't jive with total level of short interest, nor with possible profits on short sales. Could the money have been placed there by we don't know who, for the purpose of goosing equities. I am not being cute. I really can't figure it out.


I won't mention names. I don't believe in name dropping. But I have corresponded with a number of well known "good economists" and have not found an answer to this basic question. I am an economist myself, but I am not a good one.

How is it that the the country is experiencing a credit crunch when all measures of the money supply are expanding? Even M1 has started to take off.
On another note, If there is still anyone who doesn't believe that the treasurary department has been directly sponsoring support of equity prices since at least the spring of 2006, they are on the verge of seeing evidence to contrary.

Edited by James Quillian, 28 September 2008 - 09:00 AM.

In order for the green line to go up.....That money had to short the market....It may be foreign money, hedge funds etc...

How is it that the the country is experiencing a credit crunch when all measures of the money supply are expanding? Even M1 has started to take off.
On another note, If there is still anyone who doesn't believe that the treasurary department has been directly sponsoring support of equity prices since at least the spring of 2006, they are on the verge of seeing evidence to contrary.

I can try to tackle that one. The credit crunch is the result of loss of confidence and mark to market accounting. There is money in the system. But no one wants to lend it as interest rates are low and risks are rising. Mark to market accounting is also depressing the banking lending due to fractional reserve lending system. As in their ability to lend is greatly effected with every write off. As the multiplier contributed on the way up, its also greatly disrupting their ability to lend on the way down.

The system will come to balance at some point as borrowing at low federal rates and lending much higher (example CAT of GS terms) will help banks to rebuild the lending capital. Any relaxation of the mark to market rules would be an enormous boost too.

As for cash in margin accounts.. Look at the volume in the markets past few month. Plenty of sell side volume. The money is taking a break.

Edited by ogm, 28 September 2008 - 09:23 AM.

In order for the green line to go up.....That money had to short the market....It may be foreign money, hedge funds etc...

That is an awful lot of money. There is more cash than total margin debt. That has never happened before, nothing close.

How is it that the the country is experiencing a credit crunch when all measures of the money supply are expanding? Even M1 has started to take off.
On another note, If there is still anyone who doesn't believe that the treasurary department has been directly sponsoring support of equity prices since at least the spring of 2006, they are on the verge of seeing evidence to contrary.

I can try to tackle that one. The credit crunch is the result of loss of confidence and mark to market accounting. There is money in the system. But no one wants to lend it as interest rates are low and risks are rising. Mark to market accounting is also depressing the banking lending due to fractional reserve lending system. As in their ability to lend is greatly effected with every write off. As the multiplier contributed on the way up, its also greatly disrupting their ability to lend on the way down.

The system will come to balance at some point as borrowing at low federal rates and lending much higher (example CAT of GS terms) will help banks to rebuild the lending capital. Any relaxation of the mark to market rules would be an enormous boost too.

As for cash in margin accounts.. Look at the volume in the markets past few month. Plenty of sell side volume. The money is taking a break.

Still, in order for the money supply to expand, credit has to expand. The money supply hasn't just expanded, it has done so robustly.