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org4/5/2013
ConceptsofEquilibrium
Flow Stock Robust Fragile Stable Unstable Static Dynamic Commonelement: Astateofbalancebetweenforces,howevertemporary
Insights
Nosuchthingasmorebuyersthansellers Everyshareofstockissuedmustbeheldatalltimes Everybondcertificatemustbehelduntilitisretired Thereisnosuchthingasmoneymovingintoorout
QuantityTheoryandMultipliers
Assumeawaytheeconomicissuesthatmatter
Developmentandavailabilityofproductiveinvestment
Createmore monetarybase Reducetheturnover ofthemonetarybase ThefailureofQEto provokedurable economicgrowthis notafailureof effort;itisafailure ofideasand understanding
MonetaryEquilibrium
Everyzerointerestdollarmustbeheldbysomeone atalltimes QEprovokesaspeculativereachforyield
FiscalEquilibrium
Thedeficitofonesectormust emergeasthesurplusof
another
Result:Record ProfitMargins
Corporateprofitmarginsare presently70%above historicalnorms,precisely becausecombined governmentandhousehold savingsareinarecord negativeposition. Thedeficitofonesector must emergeasthesurplus ofanothersector Corporationsbenefitfrom deficitspending despite wages atrecordlowsasa shareofeconomy
Elevatedmargins,weak4yearprofitgrowth
ADistorted,UnstableEquilibrium
MonetaryPolicy:creates FiscalPolicy:createsa
Whichapproachactuallyworks?
Smoothfundamentals (calculationsnextslide)
FedModelandnaverisk premiumestimates
1)ForwardEarningsModel seeValuingtheS&P500UsingforwardOperatingEarnings:
3)DividendModel seeEstimatingtheLongTermReturnonStocks(1998):
4)ShorthandMarketValue/GDPModel: