Bill Gross (PIMCO) - Turn from Inflationist to Deflationist (increase Treasuries from 27% to 44%)
Martin Weiss (MoneyandMarkets.com) - Turn from Deflationist to Inflationist
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My Analogy based on US statistic
Private debt - 45 trillion
Public debt - 12 trillion
Total Debt - 57 trillion
Other debt/commitment not included
Derivatives - 100 trillion
Socialcare, Medicare, Medicade - 30 trillion
GDP - 14 trillion
Consumption - 10 trillion
Market Capitalisation = 14 trillion
Assume PE of 14 - Earnings is 1 trillion p.a.
Dividend Yield = 2.5% = 0.35 trillion
Earnings - Dividend = 0.65 trillion = Free Cash Flow (FCF)
Private Debt = say 20yrs tenure = 45/20 = 2.25 trillion repayment p.a.
Interest = say 2.5% p.a. = 1.125 trillion
Total REPAYMENT = 3.375 trillion
With only FCF = 0.65 trillion
Loan repayment = 3.375 trillion
How is US corporation going to settle this amount?
Most debts will turn bad, then bankruptcies, then unemployment, then consumption drop and savings increase.
Do you think bank will give out more credits during this period? Most banks and housing lenders will go under other than those too big to fail.
The deleveraging will far exceed the money printing (only very little will flow into consumptions, because most stimulus goes into toxic assets, and banks dare not lent, and borrowers dare not borrow due to already high gearing)
Of course, the market is very fluid at the moment, Fed may print a couple of more trillion, and it may delay the deflation process, but unlikely to stop it. So, the risk of deflation will come first and then (many years later), the last deflation (is on the US dollars) which other called it inflation or hyperinflation.
Watch what they do, not what they say?
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