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Tuesday, May 28, 2013

A few tidbits to start the week

This first chart is interesting, but I am not sure if it is meaningful or not.


From the start of the secular bear market in 2000 until 2011 the gold/silver ratio moved inversely to SPX nearly all the time.  The bottoms in SPX and tops of gold/silver were fairly close in proximity.  However, bottoms in gold/silver seem to precede tops in SPX.  The article points out the prior two red arrows where they traveled up together and ended with SPX falling.  With the last bottom in gold/silver back in 2011 this is the longest time they have moved up together in over a dozen years.  The trouble for me is that correlation and causation are two different things.  If this limited history is valid this chart would imply SPX should head south some day in a meaningful way.  In the few minutes I have pondered this chart I have not come up with any real reason why it looks like it does.  I know that the global growth rate peaked in 2011 and that EEM (emerging market ETF) and EEB (BRIC ETF) topped in 2011.  Is there some connection?  Beats me.  I just thought I would show the chart and let everybody decide for themselves if there could be some meaning behind it.

This next chart is an attempt to show how stock buybacks have affected index prices.


Stock buybacks may be a good way to boost a stock's price, but it seems like a stupid way to use money.  It provides zero future benefit in any way.  This is an interesting quote from the article.

The S&P 500 now has 2.3% fewer shares than it did in July 2011, when share total reached its high for the bull market. The drop in total stock outstanding accounted for 25% of the past year’s earnings-per-share growth for companies in the index.

I am sure the increase in share buybacks since July of 2011 is tied to the global growth rate topping out that spring.  This is really nothing more then earnings manipulation.  Incidentally buybacks in 2007 were extremely high as the market topped out.  That was a big waste of money now wasn't it, LOL.  Are they wasting it again?   I guess time will tell.

This next chart I find very disturbing.  Tthat could be because I have a firm belief that no entity can spend its way to prosperity.


On an inflation adjusted basis tax receipts have flattened out since 2000.  You don't suppose that is because of all the tax cuts we have had do you.  Clearly spending was not throttled back in any way.  Obviously this situation is not sustainable.  Either spending comes down or we will all be paying more taxes.  Just for the record I complained bitterly to my wife all the time when Bush cut taxes and increased spending.  She got tired of hearing it.  Since then we have had more of the same, only a bigger dose of it.  Stupidity plain and simple.  I should point out that the stupidity goes back to the late 20s.  The majority of the time since then we have been over spending.  It just cracks me up when the pundits say you can't cut spending now, it will hurt the economy.  Well when exactly are we supposed to do it.  When will it not hurt the economy?  It will seriously hurt the economy to have the bond market balk at the over spending.  That is nicknamed the bang moment.  By then it is too late to do anything about it.  Just ask Greece.


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