Weekday Wrap-Up: No Hyperinflation, Years of Low Oil Prices, and a Bubble in Stocks

Sat, Dec 13, 2014 - 11:52am

Matthew Kerkhoff at Dow Theory Letters explains how the banking system works and why QE never led to widely anticipated fears of hyperinflation; Joe Dancy says some of the smartest minds in the energy business believe oil may not get much above $75 for the next five years; and Peter Bookvar from the Lindsey Group warns that stocks are more expensive than they were in the 2000 tech bubble by certain metrics.

Here are a few excerpts from this week’s set of interviews, which recently aired to our subscribers (click here for a 30-day free trial).

Matthew Kerkhoff on why QE never produced the massive inflation or hyperinflation that many predicted:

What I've seen in the marketplace and with most investors is that very few people took the time to actually understand the dynamics of how QE works and instead relied on a much more simplistic reasoning that made sense intuitively but when you actually dig through the details you'll find that that logic is actually flawed… One of the critical things to understand is that when the central bank engages in QE, they are in a sense creating money...but the type of money they are creating doesn't work its way into our economy—it stays within the banking system itself. So at no point does it really have an opportunity to chase goods and services... (click here to listen)

Joe Dancy on $75 oil over the next five years:

Some of the brightest people I've been involved with are putting a $75 price deck for the next five years for oil...the energy market has a lot of moving bits and pieces but to me it's painting a picture that the global economy is a lot slower than people think… (click here to listen)

Peter Boockvar from The Lindsey Group warns about stocks:

[T]he conventional 15-16 times multiple that people like to throw out and think that's reasonable, they have to understand that that's taking place right now on profit margins that are at record highs. Therefore I like to also look at other valuation metrics that I think have been useful in the past in telling investors when things are cheap or expensive. One is price-to-sales. Price-to-sales right now, if you look at the median price-to-sales for the S&P 500, it's actually more expensive than stocks were in early 2000… (click here to listen)

Lastly, in our Saturday public broadcast, technician Louise Yamada says she’s still not buying gold:

"We think that gold has entered a bear market or let's say an underperformance relative to equities. It topped in 2011. It broke down in 2013 about the time that the Dow and the S&P broke out through their 2007 and 2000 peaks initiating conceptually and technically a new structural bull market. Now gold and equity bull markets move in opposite directions so if we are going to be correct that what we've been seeing is a new structural bull market in equities, which until proven otherwise we think is in place, we would not expect gold to move into a new bull market anytime soon. Does that mean that it can't rally? Of course not. It can rally...[but] I would not be buying gold on a long-term basis here. I know there are always bottom fishers but technicians will never get you in at the exact bottom or the exact top; we just want to know what the trend is, and right now the trend is underperformance… (click here to listen)

In the second hour of Saturday’s broadcast, Jim Puplava continues his discussion of the oil market in the “New World (Oil) Order,” available on the Newshour page. Be sure to tune in through our site or in iTunes.

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