Wednesday, April 4, 2012

Thoughts about 'Value' and the Stock Market

I spent a small amount of time looking around the internet on the concept of value. It appears the term value is a nefarious kind of concept. A bit like ghosts in castles. There are great scientific models and equations that measure value and there are opinions that measure value.

So what are we to make of where we are, right now, in the sense of monetary value and especially the value we place in gold and silver?

Perhaps the stock market is a good place to begin?

In a podcast this week, Chris Martenson interviewed Charles Biderman. In this podcast, there is discussion around liquidity and value. Charles talks about the current stock market rally in the US, which has replicated around the world. The liquidity provided by the Fed to 'goose' the markets higher has allowed large companies to buy back their own stock hence creating demand and sending prices of those stocks higher. According to Charles, this is about to end.

Perhaps he's right, as today we see 'anaylsts' excitedly spouting the merits of Apple Computer shares and the likelihood of those stocks moving to $1000 each, thereby making Apple a trillion dollar company. So yes, once the wholesale investors move out of the stock market, try with all the media frenzy you can muster to get the schmuzy public retail investors onboard and buy the shares. Must have it always going up!

No doubt, as with the tech stock boom in the late 90s, there will be quite a few sucked in. Maybe if you are first and get out soon enough, you'll make some fiat dollars. But urging people on hype to enter markets rather than looking at fundamentals, like PE ratios and the like, is dangerous.

The liquidity sloshing around the system causes a rigged market. Bubbles form in the usual suspect places. It's happened to commodities in some sense, but don't believe that gold and silver are in bubbles. They are merely reacting to the increase in money supply and some speculative forces. These precious metals markets are tiny compared to stock markets.

No, gold and silver will be the value touchstones for the financial system as we go forward with this new round of destructive money printing. Perhaps they will see a bubble, like the late 1980s, who knows.

In these times, value is very difficult to define. But holding hard assets, especially gold and silver, which have defined the transfer of value for over 5000 years on human monetary history, is probably important right now.

Gold in New Zealand dollars: $2008.79 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.89 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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