One of the things I find interesting about discussions about economics is that they can kind of fractal in nature.

They can be incredibly broad and simple or incredibly detailed and complex and still reach the same conclusion.

—And our real economy REALLY SUCKS. That is the real problem: we need to make up for thirty years of disinvestment in our country in favor of speculation. Changes of this scale don’t get done overnight, or in one Administration, and stimulus is largely beside the point. Stimulus is life support but it won’t lead to much real growth, just brake the downswing, which may in fact be counterproductive if the point is to make a buildable bottom in real terms.

You can read the book. I am not an expert, but the reason the Q falls below 1 is not because of overshoot, it is because of overcapacity. How much is an idle factory worth compared to its replacement cost? Book value is depreciated, so I think you have to look at going rates.

I am old enough to remember 1980-1982. Taking a claim on future earnings of U.S. companies didn’t feel like a good strategy at the time. Everyone was just doing the minimum. With the 70’s calamities in recent memory (inflation, campus riots and gas lines) few were doing the buy-and-hold/hope.

Professors were talking up LBO’s profitably being able to profitably buy for asset liquidation, but there was little of even that.

we have not seen the same level of loss-of-confidence, traumatization, and reflexive conservativism in the real economy yet. Q=.3 is a radical, but plausible outcome – over years.

Yeah if the government didnt intervene we would have massive deflation going on now. More so than already exists. And yeah, we could hyperinflate and the stock market could go through the roof unnaturally. And THEN the market could crash again and we would finally be at a bottom.

Shillings analysis available to INSIGHT readers is undeniable. I’ve studied it for a few years now, haven’t found any significant flaws, have profited from it, and see the evidence everywhere.

If you look at the post war 20th century (our lifetimes) in a historical economic context, you see it was a really unusual period of (inflationary) wars. And you can see how since the cold war it’s been winding down, and that deflation is the final result. Which isn’t necessarily a bad thing.

But it never ceases to amaze me how people will continue to deny the self evident truth.

I want to politely disagree with the analysis presented here about the future of the market out to 2014. While the analysis may make sense if you isolate the US economy, I think it is wrong to do so and does not see this event we have entered as the black hole singularity that it is. I think anyone who thinks they can model the outcome of the next 5 years is smoking some real good shit and it is too bad they are offering it to others.

I agree with your position NDK and appreciate your contributions as well as the posting by Yves.

Those that don’t study and learn from history are destined to repeat it.

I’ve had a theory for a while now that goes like this.

There obviously needs to be an intergenerational wealth transfer. The boomers are essentially selfish so they’ll try to keep as much as possible for as long as possible.

Unfortunately their market is much smaller then their supply. We saw equity heights reached as boomers flooded through the system bebinning in 1980’s. We will see equity lows as boomers roll out the other end.

Why the lows? Because the market is younger productive people who are earning but can’t afford the Boomer asetts. The prices must drop. Especially because the boomer boom was massively credit fueled.

Of course massive wage price increases would achieve the same thing.

In fact, if Q is 0.7, the market is “undervalued” so presumably the rational thing is to buy. But, it is argued that it will go down to 0.3 because that is what happened in the past… Maybe someone can explain this point to me because I cannot comprehend it rationally.

I suggest that we may know the market value of a company (numerator) but the book value (denominator) is an accounting entry which may have little to do with replacement cost. How do you value brand names, patents, or resources in the ground?

By the way, when the Q is high, public companies should be selling stock and when Q is low they should be buying it back. Guess what, the opposite happened in the last cycle.