Saturday, December 17, 2016

No money flow no pricing function

Mish:  Money FlowIt’s important to know that money does not flow into stock or bonds. Nor does money flow out of stocks and bonds.Given there is a seller for every buyer there cannot be a flow. Equity funds can have a “flow” so to speak, but there is no net flow. The alleged amount of cash on the sidelines does not change one bit.On an overall basis, it is impossible to dump stocks for bonds or cash but one can do that on an individual basis.
Pricing cost money, it won't happen until there is net money flow.  The problem is that inflating or deflating money happens on a generation times scale.  Hence the upheavals and riots and war.  Currency banks suffer currency risk because they have the uncertainty principle, so they have to create and destroy money along the way, as part of price discovery. These will be real actuarial losses and gains.

It is a delusion that it does not happen, and the result of the delusion it happens all at once, generally collapsing when one generation runs the till dry.

No comments: