View Full Version : Dow drops another 297 points
AngelsSix
02-17-2009, 21:39
Anyone ready to buy stock yet??:D
Defender968
02-17-2009, 22:21
I was considering selling all my stock and buying acreage in the mountains for when it all burns down...:)
We're at a critical support level. If it holds, we've formed a double bottom, and we have a chance for a nice rally.
If it breaks, then Dow Theory indicates continuation of a bear market - and Dow 5500 or less is possible.
We may drift upwards a few days, but any hard drop from current levels is likely to have nasty consequences.
That mountain acreage might be a nice place to stay for awhile...especially since rumor control hints at up to 3 million more job losses next quarter...LINK (http://blogs.wsj.com/economics/2009/02/17/layoff-lawyer-sees-ominous-signs/)
Pleasant dreams.... :eek:
Anyone ready to buy stock yet??:D
I've been buying all along. It's a fire sale. This is when wealth is made.
But that's just me.
Pat
6.8SPC_DUMP
02-18-2009, 00:16
Anyone ready to buy stock yet??:D
The only stock picks that have my interest are emerging technologies and companies whose price is worth next to nothing on bankruptcy fears that probably won't materialize.
I've had my clients on a portfolio aimed at growth during a depression since late in Sept.
I haven't found any emerging tech I like.
There were companies in the American auto and financial industries that I felt were oversold. Did well with Ford and missed out on the financials. Last friday I was torn over SIRI because Mel Karmazin said that the reports they could be filing for bankruptcy today was false. I passed and it was up 100% at one point this morning...
I'm in precious metals, agricultural commodities, treasuries and foreign currency now.
6.8SPC_DUMP, personally, I would wait to see how the current fight between bulls and bears turns out...however...what do you think of the biotech ETF, symbol PBE?
Technicals look so-so, but weakening, with MACD and RSI going the wrong direction, but the MA's still OK, IMO.
Chart Link (http://stockcharts.com/h-sc/ui?s=PBE&p=D&b=5&g=0&id=p36586152006&a=160022322)
6.8SPC_DUMP
02-18-2009, 12:44
6.8SPC_DUMP, personally, I would wait to see how the current fight between bulls and bears turns out...however...what do you think of the biotech ETF, symbol PBE?
Technicals look so-so, but weakening, with MACD and RSI going the wrong direction, but the MA's still OK, IMO.
Chart Link (http://stockcharts.com/h-sc/ui?s=PBE&p=D&b=5&g=0&id=p36586152006&a=160022322)
I don't like ETF's. They are great for a DIY portfolio if the sector is strong and the market is solid. I think there will be tremendous opportunities in the future from this industry, but they won't be realized from an ETF. This one has vastly under performed QQQ/Spiders recently. No easy way to pick the winners. I just try to stay on top of what is being developed, sort out the 20 different expert opinions and see what makes sense i.e. has a future market segment and buy after it is developed but before it is introduced to the market.
I'm also worried about the valuation of the dollar. If the dollar falls 20% in relation to another currency but your stock is up 20% you are flush either way. I try to keep things as simple and safe as possible now.
While I watch the conversation between nmap and 6.8SPC go over my head:confused:, I am wondering if anyone else has noticed the recent trend the last couple of weeks in which a member of the current administration makes public comments and then the Dow starts to drop? Yes, correlation is not causation but maybe the president could work some of his mojo on the skeptics rather than just preaching to his base.:munchin
, I am wondering if anyone else has noticed the recent trend the last couple of weeks in which a member of the current administration makes public comments and then the Dow starts to drop?
I had a similar thought, the Dow dropped after the President's announcement on his new housing plan.
Surf n Turf
02-18-2009, 18:09
While I watch the conversation between nmap and 6.8SPC go over my head:confused:, I am wondering if anyone else has noticed the recent trend the last couple of weeks in which a member of the current administration makes public comments and then the Dow starts to drop? Yes, correlation is not causation but maybe the president could work some of his mojo on the skeptics rather than just preaching to his base.:munchin
I had a similar thought, the Dow dropped after the President's announcement on his new housing plan.
Gypsy / Sigaba,
I am just guessing, but wonder if the “content” of the “public comments” is the cause of a down DOW.
My understanding of the market is that “perception is reality”, and (to use the new housing plan as an example) it was perceived to be a TERRIBLE (technical term) drag on the economy, ill-conceived, and with the drop yesterday, got a vote of no confidence.
As nmap has speculated elsewhere, we could be headed much lower if the investor class continues to sell out of the market.
SnT
Gypsy / Sigaba,
I am just guessing, but wonder if the “content” of the “public comments” is the cause of a down DOW.
SnT
Yes...better clarification of my comment, SnT. One can only hope it holds steady.
The Dow has broken support - according to Dow theory, we go down from here. In my personal opinion, it will be substantial, in both magnitude and duration.
Conserve cash...
I've attached a PDF of the latest Dow Theory newsletter. Those who are interested might find it to be interesting.
Defender968
03-02-2009, 10:00
Here we go, hold on to your hats, and your wallets.
http://www.foxbusiness.com/story/markets/aig-bailout-leads-futures-lower/
Blizzard of Bad News Sends Dow Below 7K
Matt Egan
FOXBusiness
Monday, March 02, 2009
The only thing falling harder on Wall Street than snow Monday morning were the battered markets as the Dow sank below the 7000 level for the first time since 1997 in response to new bleak economic data and the government's latest rescue of AIG.
Today’s Markets
As of 10:23 a.m. EDT, the Dow Jones Industrial Average fell 155.71 points, or 2.21%, to 6908.25, the S&P 500 lost 16.97 points, or 2.31%, to 718.12 and the Nasdaq Composite sank 22.69 points, or 1.65%, to 1355.15. The consumer-friendly FOX 50 dropped 11.30 points, or 2.04%, to 541.54.
While the $30 billion in new aid for AIG (AIG: 0.4843, 0.0544, 12.65%) was at the forefront Monday morning, the markets were also slammed by a gloomy manufacturing report, new data showing the U.S. savings rate hit 14-year highs in January and HSBC’s (HBC: 27.88, -6.94, -19.93%) plans to raise $18 billion.
The combination of gloomy headlines and negative market sentiment sent the Dow below the psychologically-important 7000 mark for the first time since Oct. 1997. The losses come after the Dow ended at its lowest level since May 1997 on Friday, capping off its worst February since 1933. Slammed by the global recession and the worst credit crisis since the Great Depression, the benchmark index is mired in its longest monthly losing streak since September 2002.
“I think we’re going to see some type of dead-cat bounce this week, “NYSE trader Jason Weisberg of Seaport Securities told FOX Business, predicting a “pretty substantial pop.” However, with January’s jobs report due on Friday, he said the gains will likely be fleeting.
Nearly all 30 components of the Dow were in the red Monday morning, led by financial companies Citigroup (C: 1.449, 0.039, 2.77%), Bank of America (BAC: 3.3827, -0.5973, -15.01%) and General Electric (GE: 7.7899, -0.7501, -8.78%). Industrial companies like Caterpillar (CAT: 22.93, -1.68, -6.83%) and General Motors (GM: 2.102, -0.178, -7.81%) also fell sharply. On the other hand, Intel (INTC: 12.7601, 0.0201, 0.16%) and Merck (MRK: 24.14, -0.06, -0.25%) were
flirting with positive territory.
The DOW is down today?
President Bush must have gone out to eat after church down there in Texas.
BMT (RIP)
03-02-2009, 14:31
6,000 anyone??
BMT
Defender968
03-02-2009, 14:45
Sadly I think we'll be there by months end, I hope I'm wrong but they're not addressing the problems best I can tell. On top of that the one keeps preaching doom and gloom, and then he and our politicians go and spend another 500 B on nonsense.
If outrageous spending were a path to economic security wouldn't we be there by now, I voted for the last POTUS both times but the spending he and the Repubs presided over was a train wreck, and now this POTUS seems to think spending more is Change and if he just goes over the top with spending that somehow it will all get better, least that's their public strategy;).
Einsteins definition of insanity anyone? “Insanity is doing the same thing over and over again and expecting different results”.
The media blasted W every chance they could for the fear tactics of the "boogyman" living in the closet.
BHO, instead of reassuring us and the rest of Wall Street, he has become the next to use fear tactics. Sending panic and desperation to everyone, spreading doubt and fear. WHY? Because he is so anxious to cram through every last spending bill, tax increase on the so-called rich, new government regulation, and expansion of healthcare entitlement that he must preserve the atmosphere of crisis as a political necessity. Only by keeping us in a state of panic can he induce us to vote for trillion-dollar deficits and spending packages.
Ret10Echo
03-02-2009, 15:32
For those of you who want to read a little more on the "budget"
http://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdf
Note that there are line items in there that increase certain fees that agencies must collect upward of 500 million dollars.
It isn't a tax increase....but that's what is NOT going to be in your wallet.
The media blasted W every chance they could for the fear tactics of the "boogyman" living in the closet.
BHO, instead of reassuring us and the rest of Wall Street, he has become the next to use fear tactics. Sending panic and desperation to everyone, spreading doubt and fear. WHY? Because he is so anxious to cram through every last spending bill, tax increase on the so-called rich, new government regulation, and expansion of healthcare entitlement that he must preserve the atmosphere of crisis as a political necessity. Only by keeping us in a state of panic can he induce us to vote for trillion-dollar deficits and spending packages.
FWIW, I think the president is sending two messages that are presently in conflict. One message speaks of 'change' in what is done and how. In essence, this vision amounts to a grand strategy for the United States. While I disagree with much of this vision, I appreciate that it offers an endstate in which America is acting rather than reacting.
The other message, increasingly shrill, is a throwback to the crisis management stance that,as often as not, has characterized the federal government's responses to unfolding events. This stances sees America reacting rather than acting.
It is my view that QP csquare's analysis demonstrates how the president is trying to split the difference between these two messages. I would much prefer that the president harmonize his rhetoric with his vision. (That he has not underscores my personal belief that his reputation as an outstanding orator is, so far, undeserved.)
During the interregnum, the then-president elect said something that struck me as problematic when he spoke of the need of appearing to be a strong, confident leader. For all of his study of Lincoln, Franklin Roosevelt, and references to Ronald Reagan, it seems that the president does not yet grasp that the appearance of leadership is different than leadership. If the president were to learn this distinction, I think he might realize the value of talking to his skeptics and critics rather than at them.
Please let me offer another possibility. It may well be that the administration is in a state of panic. Furthermore, they may have some justification for that attitude. Let's put the current decline into some perspective. The lowest point that the Dow Jones industrials reached during the Great Depression of 1929 was 41. That occurred in July 1932. The high point of the Dow was 14164. We have now lost more than half of the appreciation that has occurred over the past 77 years, and we did it in a short time.
The problem we face is a cascading failure. Many large public companies, including those with stocks included in the averages, have defined benefit pension plans. These plans are regulated. In order to achieve high levels of growth, the company's have invested their pension funds in stocks and other instruments that have declined substantially in the current market. Under the regulations, the companies are required to subtract the deficiency between the pension funding requirements and the existing value directly from shareholder equity. Boeing is one particularly telling example. In 2007, their pension fund had a $4.7 billion surplus. In 2008, the pension fund has an $8.4 billion deficiency. When the values are deducted from shareholder equity, there is a real risk that the individual stock will decline further. However, this puts further pressure on pension funds that invested in that particular stock. Then they have to go out and make up further deficiencies. The declines build upon themselves. More discussion of the problem is available at LINK (http://www.chicagobusiness.com/cgi-bin/article.pl?articleId=31402)
Still worse, we do not appear to have accomplished capitulation. At some point, shareholders simply throw up their hands, sell their stock for however many pennies they can get, and walk away. Generally, that means that selling is exhausted. We're not there yet. We have further to go.
What does this mean? Probably more massive layoffs. Certainly a reduction in tax revenues, both from individuals and corporations. At the same time, the demand for social services of every sort at both the state and federal level will increase. We are in unknown territory. And although there is a wealth of opinion, no one really knows when the current bear market will end. Still worse, despite the wealth of opinions, no one really knows how to correct the current problems in the economy.
How will Americans react as they lose their homes, their cars, their jobs, and their hopes of future retirement? I don't claim to know, but politicians must surely suspect that incumbents will not be popular. Blaming previous officeholders will work for a time, but not permanently.
So I suspect that those who are now responsible for dealing with the situation are quite literally in a state of panic. Unfortunately, such a mindset may not lead to optimal outcomes.
Team Sergeant
03-02-2009, 18:55
Please let me offer another possibility. It may well be that the administration is in a state of panic. Furthermore, they may have some justification for that attitude. Let's put the current decline into some perspective. The lowest point that the Dow Jones industrials reached during the Great Depression of 1929 was 41. That occurred in July 1932. The high point of the Dow was 14164. We have now lost more than half of the appreciation that has occurred over the past 77 years, and we did it in a short time.
The problem we face is a cascading failure. Many large public companies, including those with stocks included in the averages, have defined benefit pension plans. These plans are regulated. In order to achieve high levels of growth, the company's have invested their pension funds in stocks and other instruments that have declined substantially in the current market. Under the regulations, the companies are required to subtract the deficiency between the pension funding requirements and the existing value directly from shareholder equity. Boeing is one particularly telling example. In 2007, their pension fund had a $4.7 billion surplus. In 2008, the pension fund has an $8.4 billion deficiency. When the values are deducted from shareholder equity, there is a real risk that the individual stock will decline further. However, this puts further pressure on pension funds that invested in that particular stock. Then they have to go out and make up further deficiencies. The declines build upon themselves. More discussion of the problem is available at LINK (http://www.chicagobusiness.com/cgi-bin/article.pl?articleId=31402)
Still worse, we do not appear to have accomplished capitulation. At some point, shareholders simply throw up their hands, sell their stock for however many pennies they can get, and walk away. Generally, that means that selling is exhausted. We're not there yet. We have further to go.
What does this mean? Probably more massive layoffs. Certainly a reduction in tax revenues, both from individuals and corporations. At the same time, the demand for social services of every sort at both the state and federal level will increase. We are in unknown territory. And although there is a wealth of opinion, no one really knows when the current bear market will end. Still worse, despite the wealth of opinions, no one really knows how to correct the current problems in the economy.
How will Americans react as they lose their homes, their cars, their jobs, and their hopes of future retirement? I don't claim to know, but politicians must surely suspect that incumbents will not be popular. Blaming previous officeholders will work for a time, but not permanently.
So I suspect that those who are now responsible for dealing with the situation are quite literally in a state of panic. Unfortunately, such a mindset may not lead to optimal outcomes.
Hey Hey Hey, I said that months ago!!!;)
http://www.professionalsoldiers.com/forums/showthread.php?p=225108&highlight=cascading#post225108
I still do not see an end in sight.
I have another idea/thought of which I hope is wrong.
What if this is the deliberate destruction of the most powerful capitalist nation in the world?
At this moment in time I cannot think of any other reason almost 4 trillion is being spent other than to destroy the dollar and our current way of life.
One does not throw water into a sinking ship, not unless he wants it to rest at the bottom.
Team Sergeant
Ret10Echo
03-02-2009, 19:02
We are in unknown territory. And although there is a wealth of opinion, no one really knows when the current bear market will end. Still worse, despite the wealth of opinions, no one really knows how to correct the current problems in the economy.
So I suspect that those who are now responsible for dealing with the situation are quite literally in a state of panic. Unfortunately, such a mindset may not lead to optimal outcomes.
And what confuses me the most is that those who are responsible for creating an atmosphere where these sort of things were allowed to occur (blind eyes on both sides of the aisle) are the same people that the American public expects to fix the issue.
This is madness.....
I keep waiting for the outrage.....and all I hear are whimpers...or is that the sound of 300 million wringing hands...
riversend
03-02-2009, 19:53
Another perspective on the current mess:
VIX Premium Shows Stocks Bear Market Lasting 2 Years (Update1)
2009-03-02 10:23:49.67 GMT
By Jeff Kearns and Gareth Gore
March 2 (Bloomberg) -- Options investors are paying twice this
decade's average to protect against losses in U.S. stocks through 2011,
signaling the bear market that already wiped out
$10.4 trillion of equity value may last two more years.
"There's a real panic in the markets, with some people wanting to
buy long-term insurance at any price," said Peter Sorrentino, who helps
manage $16 billion, including $130 million in options at Huntington
Asset Advisors Inc. in Cincinnati.
"People have lost hope."
Contracts to protect against a decline in the Standard & Poor's 500
Index for two years cost $15,160 on the Chicago Board Options Exchange,
compared with $6,875 in 2007, according to price-adjusted data compiled
by Bloomberg. Today's level shows traders expect the benchmark gauge for
U.S. equities to fluctuate twice as much in the next two years as it has
since 2000.
Federal Reserve Chairman Ben S. Bernanke said last week the economy
is in a "severe contraction" that may continue to next year unless
actions to save the financial system start working.
The S&P 500 lost 53 percent since peaking in October 2007 while retreats
in commodities and corporate bonds drove 920 hedge funds, or 9 percent
of the total, out of business last year.
Options traders see little chance of relief, based on the so-called
implied volatility of two-year contracts on the S&P 500. It jumped to a
record 43.58 in November and stayed above 30 since then, a level it
never previously exceeded, according to data compiled by Bloomberg and
IVolatility.com, a New York-based provider of options data. Implied
volatility is the main variable in determining an option's price.
Biggest Swings
The S&P 500 slipped 4.5 percent last week to a 12-year low of
735.09 after the federal bailout of Citigroup Inc. reduced shareholders'
stake in the bank and a report showed the U.S.
economy contracted more than forecast in the fourth quarter. The implied
volatility of two-year options closed at 36.08, little changed from a
week earlier.
Futures on the S&P 500 fell 1.9 percent to 720.10 at 10:20 a.m. in
London after Warren Buffett, the billionaire chairman of Berkshire
Hathaway Inc., said in his annual letter to shareholders released Feb.
28 that the economy will be "in shambles" this year, and perhaps longer.
Levels of volatility show traders are using options to prepare for
the longest bear market since 2002. They're at odds with the prevailing
view of Wall Street strategists, who forecast the S&P 500 will rebound
37 percent to end the year at 1,010, based on 10 estimates compiled by
Bloomberg News.
Nowhere to Hide
More than $1.1 trillion in bank losses and writedowns froze lending
in 2008, pushing volatility in the S&P 500 to a record high and sending
62 of 68 industries lower. The intraday fluctuation in the index grew as
wide as 11 percent on Oct. 28, panicking investors. On a closing basis,
the gauge moved more than 5 percent on 18 days last year. Before 2008,
it hadn't risen or fallen that much since July 29, 2002, according to
data compiled by Bloomberg.
Investors had little refuge other than Treasuries last year, as
10-year government notes gained 14 percent in 2008, according to Merrill
Lynch & Co. index data.
Corporate bonds with investment-grade credit ratings fell
6.8 percent, according to Merrill. The Reuters/Jefferies CRB Index of
commodity prices tumbled 36 percent, the most in its history stretching
back to 1957. The average hedge fund lost 23 percent, the steepest drop
on record, according to Chicago-based Hedge Fund Research Inc.
'Volcano, Hurricane'
Two-year options show the same level of concern as one-month
contracts signaled when Bear Stearns Cos. collapsed in March and Lehman
Brothers Holdings Inc. fell apart six months later. The Chicago Board
Options Exchange Volatility Index, reflecting the price for 30-day S&P
500 contracts, closed at 32.24 and 31.70, respectively, after the Fed
helped New York-based JPMorgan Chase & Co. bail out Bear Stearns in
March and Lehman Brothers folded in September.
"There's a new appreciation for the risk of extreme and unlikely
events," said Michael McCarty, chief equity and options strategist at
Meridian Equity Partners Inc. in New York. The increase in volatility
"was an earthquake, volcano, hurricane and tsunami all at once," he
said.
Investors use options to protect against weakening asset prices as
well as speculate on fluctuations. Calls give the right to buy a
security for a certain amount by a given date. Puts convey the right to
sell.
Prices for longer-term options are elevated in part because fewer
investment banks and hedge funds are selling the contracts, according to
strategists at New York-based Morgan Stanley, Paris- based BNP Paribas
and Russell Investments of Tacoma, Washington.
'Price of Insurance'
"We would expect a sustained higher level of implied volatility
until more sellers enter the marketplace," said Jody Smith, a
London-based volatility trading analyst at Russell, which oversees $150
billion. "When the number of insurance companies goes from 100 to 50,
the price of insurance is going to go up."
Dealers are selling fewer contacts after 2008's rout broke a
17-year stretch in which making markets in options earned money.
The Merrill Lynch Equity Volatility Arbitrage Index, which gauges the
profitability of selling options by comparing implied and realized
volatility, plunged 69 percent in September to November.
Gervais Williams, who manages about $1.2 billion in stocks at
Gartmore Investment Management in London, said he used options at least
a year from expiration to hedge a 50 million pound ($72
million) fund in July 2007, just before losses on bonds backed by U.S.
subprime mortgages brought credit markets to a halt.
'Credit Crunch'
"We were concerned equity markets were going to run out of room,
that some kind of credit crunch was about to happen,"
Williams said. The positions netted him more than 15 million pounds in
profit, he said.
Two years ago, Bernanke predicted that "moderate" economic growth
in 2007 would be followed by an accelerating expansion in 2008. Instead,
the U.S. joined Europe and Japan in the first simultaneous recessions
since World War II. Bernanke said Feb. 24 that "downside risks probably
outweigh those on the upside" and the Fed's outlook is clouded by
"considerable" uncertainty.
"The market expects further unforeseen shocks," said Simon Emrich,
head of North American quantitative derivatives strategies at Morgan
Stanley in New York.
John Bogle, who created the $68.8 billion Vanguard 500 Index Fund,
said in a Bloomberg Television interview from Washington on Feb. 24 that
the U.S. recession may linger into 2011. Bank of England policy maker
David Blanchflower predicted a day later that the slump in the U.K.
might intensify "significantly."
'Medication Runs Out'
Two-year volatility dropped 14 percent from its record in November,
compared with a 45 percent retreat in 30-day volatility. The difference
shows that confidence in the market's direction over one month has
improved while concern about longer- term swings remains elevated, said
Paul Britton, chief executive officer of New York-based Capstone
Holdings Group, which specializes in volatility trading.
"The market is subdued now because we have enough morphine in our
system that we won't see the spikes we did in October and November,"
Britton said. "The uncertainty comes when the medication runs out."
Hey Hey Hey, I said that months ago!!!;)
http://www.professionalsoldiers.com/forums/showthread.php?p=225108&highlight=cascading#post225108
I still do not see an end in sight.
I have another idea/thought of which I hope is wrong.
What if this is the deliberate destruction of the most powerful capitalist nation in the world?
At this moment in time I cannot think of any other reason almost 4 trillion is being spent other than to destroy the dollar and our current way of life.
One does not throw water into a sinking ship, not unless he wants it to rest at the bottom.
Team Sergeant
One thing this proves beyond a doubt. One should never, ever think the Team Sergeant is not well ahead of the power curve. :)
Yes, this could easily be economic warfare. Perhaps Mr. Soros is a player; he is, after all, known as the man who broke the Bank of England ( LINK (http://www.telegraph.co.uk/finance/2773265/Billionaire-who-broke-the-Bank-of-England.html) ). In addition, his positions in the exchange rate market were hugely profitable. Add in some countries that would like to injure the U.S., and the scenario could easily come to pass.
Where this gets particularly interesting is when one considers that the dollar is high relative to the past and - much more important - that treasury bonds are too. A 30 year treasury bond yields 3.6%. One could purchase futures contracts on $100,000 worth of T-bonds and put up around $4,500; or, it is possible to sell the contract short in a similar manner. Now let's suppose that interest rates on such securities went to 5.71%. The value of the bonds would decline to about $70,000. Which would mean that the $4,500 margin would generate $30,000 in profits. (Clearly, this is quite risky. Those who engage in such things should have lots of risk capital. I certainly would not do it.)
So, suppose that the U.S. sells large quantities of debt to the world, and continues to do so. Might it be possible for someone to start floating rumors about the ability of the U.S. to repay the debt? Would U.S. debt then decline in value, generating big profits for someone, somewhere? It's all very possible.
Once upon a time, many years ago, a gentleman who is far more adventurous than I commented: "I love the poor. It's cheaper to buy them. And, they're grateful." These are, I think, words to reflect on. Just as someone working for a large corporate employer is less independent than a businessperson or farmer, so too a person with little money is less independent than someone with some savings. The poor are, I think, easier to control than are the middle class. Of course, I hasten to add that I have never seen the slums of the third world - so perhaps my views on the matter are in error. If my premise is true, then a poorer America is an easier to control America.
I think that quite a few people are going to make a great deal of money from that $4 trillion budget. In essence, the tax payers will put quite a lot of cash in someone's pocket. All of that is, perhaps, merely a side effect. The real issue is control. We might not give up our freedom willingly; however, I suspect many will sell it for a low price. Power and wealth have motivated many in the past, and I suspect they still do. The good of the nation and its people could be subordinated to personal ambition.
And what confuses me the most is that those who are responsible for creating an atmosphere where these sort of things were allowed to occur (blind eyes on both sides of the aisle) are the same people that the American public expects to fix the issue.
This is madness.....
I keep waiting for the outrage.....and all I hear are whimpers...or is that the sound of 300 million wringing hands...
Sir, I think that government tends to be a very small, rather ingrown clique of people. We see the same people decade in and decade out. I often wonder if the political contests we see are not more theater than anything else.
Right now, we are, as a people, well fed, nicely housed, and entertained. Should that change, I suspect we will see outrage. The only problem I perceive is that people who are angry and afraid are susceptible to manipulation.
.....What if this is the deliberate destruction of the most powerful capitalist nation in the world?.......
I took a look at some of the world markets from the past year. They all seem to be tracking pretty much with ours.
As an example, this mess is putting a big strain on EU member relations.
With the help of the new president we may be more socialist when this is all over but we may still come out better than other areas of the world.
When push comes to shove just how "nice" are we? Are Americans willing to go hungry a couple of days of the week or have food rationing while we ship millions of tons of grain to third world countries for free? I think that would only last until the next election.
Electron
03-03-2009, 09:27
For those old enough, remember what happened when Carter took office? The stock market plunged while gold, silver and copper skyrocketed. If you wanted to make money, you should have bought all the gold and silver you could while Bush was in office.
Stocks have always been an iffy long-term investment (in my opinion).
"Hindsight is always 20/20 but looking back, it's still a bit fuzzy."
-Dave Mustaine (Megadeth)
Team Sergeant
03-03-2009, 10:57
I was thinking about a few factors related to the current US and global situation:
The largest "communist" country is backing a substantial amount of our credit.
We talked about perceptions just the other day. I believe the reason we are bailing out in the trillions is two-fold, one factor we know and sort of understand, the other is one that no one is talking about in the media, the dollar may weaken to the point where all confidence is lost. If that happens and the world turns their collective backs on our dollar, China calls in our debt, there is a run on US banks, at that point all will be lost (stock market) capitalism would be dealt a huge blow.
Currently there are a great number of banks, (60 + if I recall correctly) not being identified for Gov loans, why not be identified, the loss of confidence = end of story.
The media (Fox news anyway) keeps harping about how much this far left spending plan is going to cost the average American, and most Americans don’t make the sort of money to repay this sort of debt anytime soon, it might take decades to repay. This might get to the point where the rest of the world begins to realize the US is about to go under and make their own run on the banks, taking us with them.
Couple that with our current far left wing Gov attempting to take over (socializing) health care, the perception will be the extreme left is doing something "wonderful" for the poor masses and we are about to get much much poorer. Again Perceptions.
Again, I believe the extreme left might be executing this plan deliberately and with an agenda. Remember who were obama “favorite” mentors were in college? Remember his mother, extreme left wing radical.
Add to this what nmap posted, poor people are much easier to manipulate than a strong middle class. I could not agree more.
Let’s blame the Ivy League for this mess, blame capitalism, blame big business and begin to socialize all you can in the hope it all falls apart and guess who’s in office to pick up the pieces and give socialism a chance.
Then, IMO the new USSR (United States Socialist Republic) begins to emerge and what a better way to greet socialism than to prove capitalism “doesn’t/didn’t work”.
I believe we are in for the ride of our lives. I hope I’m wrong.
TS
Electron
03-03-2009, 13:19
Stop!!!! You're scaring me!!! Make the bad man go away!!!
Electron
03-03-2009, 13:30
When push comes to shove just how "nice" are we? Are Americans willing to go hungry a couple of days of the week or have food rationing while we ship millions of tons of grain to third world countries for free? I think that would only last until the next election.
We could always teach those third world countries how to grow their own grain, but we would have to include tons of ammonium nitrate (to fertilize the crops, of course)...oh, the UN has helped us out with that one...how nice.
We could always teach those third world countries how to grow their own grain,........
It escaped notice in the major news services but I do believe Mugabe a few days ago ordered the last of the white farmers off their farms.
I took a look at some of the world markets from the past year. They all seem to be tracking pretty much with ours.
As an example, this mess is putting a big strain on EU member relations.
With the help of the new president we may be more socialist when this is all over but we may still come out better than other areas of the world.
When push comes to shove just how "nice" are we? Are Americans willing to go hungry a couple of days of the week or have food rationing while we ship millions of tons of grain to third world countries for free? I think that would only last until the next election.
Sir, on the one hand I agree that we are, given present conditions, likely to come out better off than the rest of the world. However, we have an advantage that the rest of the world does not. The US dollar is the global reserve currency. For that reason, debts are often denominated in dollars, which means that when people borrow, their debt may specify that they must pay with US dollars. Eastern Europe faces this problem, because their currencies have declined sharply and their debts are not in their domestic currency. In addition, as long as we have reserve currency status we can freely exchange printed pieces of paper for all manner of goods. If an individual could operate in such a manner, they could simply go to the printer and produce sufficient pieces of pretty paper to live quite well with no work whatsoever. The problem for the individual, or for our nation, lies in the acceptance of the pieces of paper. In a way, it might be to our benefit to hope for the demise of the Euro. Having a competing currency has the potential for partial displacement of the dollar's reserve status.
Therein lies our problem. Should the current spending patterns continue, at some point the world may become less willing to accept US dollars. A symptom of this dynamic lies within the credit default swap (CDS) rates. "The chart shows that CDS premia have risen several-fold since September 2008 on 5-year German, Japanese, and U.S. government securities. Three facts are noteworthy: First, major changes in U.S. Treasury CDS rates have been associated with events that may affect the long-term fiscal situation of the U.S. government." From LINK (http://research.stlouisfed.org/publications/es/09/ES0908.pdf)
Notice the link is to the St. Louis branch of the Federal Reserve. Here's another quote: "As of January 6, 2009, CDS buyers were paying sellers almost 70 basis points for insurance against a U.S. Treasury default. If the CDS sellers expect to make no profit, on average, this price implies the perception of a 0.7 percent chance of default each year. So that means there's one chance in 150, roughly, the U.S. Treasury will default on its debt." This means it is more likely that the U.S. Treasury will default on its debt than a 5-card poker player will get three of a kind, but less likely than getting a full house in a hand (based on the initial deal). LINK (http://www.math.hawaii.edu/~ramsey/Probability/PokerHands.html)
Now what would happen if the current profligate spending resulted in a decline of the dollar and impairment of the ability to borrow more money? It might well be possible to make fortunes using existing speculative tools. The value of food products, as one example, would go up from the perspective of dollars and down from the perspective of other currencies. Were this to happen, domestic food availability would be rationed not by the government directly, but by price. If I may be permitted to speculate, a rationing scheme that purported to provide each American with some minimal diet could be embraced under such a scenario. This would of course create a powerful mechanism for control.
The present appreciation of the dollar probably represents a flight to safety combined with the need for dollars to settle debts. However, the current value of the dollar could perhaps represent a distortion in the actual market value. Such distortions in the housing market have come to grief. A clever and well-funded speculator, perhaps including a sovereign wealth fund such as Saudi Arabia or China, could perhaps exploit and profit from a dollar decline. They might even be able to trigger the decline. I believe it is worthy of consideration that a nation which holds substantial debt assets might be able to use their bonds as an economic weapon.
I believe we are in for the ride of our lives. I hope I’m wrong.
TS
Team Sergeant, I agree completely. The minimal preparation for the future may be an SF tab. I do not say this in jest.
Dang - a little over 4% drop today.
I noticed during the Wednesday radio newsbreaks it was "stock market rally" every 1/2 hour.
Today they seemed to find other things to talk about and then a fast "Dow at" blurb.
I've attached a copy of a newsletter, if anyone is interested.
One of the key points is that the market may indicate future (and substantial) weakness in the economy.
This matters because tax receipts spring from a robust economy. When people are unemployed, when they aren't buying things, then tax revenue from both individuals and corporations declines. At the same time, demands for services increase. Which means that the assumptions for the deficit are too optimistic, and the U.S. will need to borrow more money.
The question is - how much debt is too much? At what point do potential purchasers of U.S. debt decide not to lend any more? I don't know, and I doubt anyone else does either. There is an indicator though - the credit default swap rate. It is the cost to insure debt against default. Per the St. Louis branch of the federal reserve, it is at 0.69% as of Jan 6, 2009. LINK (http://research.stlouisfed.org/publications/es/09/ES0908.pdf). From June 6, 2008 to Jan 6, 2009, the rate increased from 0.08% to 0.69%.
So - what happens if the level of debt impairs the ability of the U.S. government to borrow? Then we must either print, as does Zimbabwe and as did the German Wiemar Republic, or we must live within our means. The likely budget cuts will be wrenching.
6.8SPC_DUMP
03-05-2009, 17:55
IMHO it was largely due to banking worries today.
March 5 (Bloomberg) -- The Federal Reserve Board of Governors receives daily reports on bailout loans to financial institutions and won’t make the information public, the central bank said in a reply to a Bloomberg News lawsuit.
The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aG0_2ZIA96TI
Concerns that China will not continue to buy our Treasuries over the long term has been acute. The privately owned Fed. and Publicly Elected Representatives depend on their accumulation of US debt for the stimulus measures that have been taken.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4782755/Hillary-Clinton-pleads-with-China-to-buy-US-Treasuries-as-Japan-looks-on.html
Hopes that China would increase their own stimulus package have pretty much faded and hopes of this were a big part of yesterdays rally.
http://www.biz-journal.com/articles/2009/03/05/49673742/index.xml
The two schools of thought that I have been most exposed to are that:
1. China should dump our Bonds so that the banks and stimulus would fail because by drawing out our debt we will prolong and deepen the economic hardships. They hope this would force dysfunction to fail thus allowing efficient alternative methods to be developed and also prevent China from "owning" huge stakes of the US.
2. Others think the dollar falling and losing our AAA rating should be avoided so that we can tackle debt once when we are in better shape from the stimulus that takes time to kick in.
I don't know nearly enough to be sure of either.
AngelsSix
03-05-2009, 18:24
I have no doubts that the Dow will fall to at least 5000 by the end of Spring, perhaps before that.
All these Dems that thought the Anointed One was going to make them rich are panicking now. There are a bunch of dot.com-ers that are losing everything and all the money that has been invested in the markets is drying up as notes on $300,000 mini mansions are coming due. Sucks to have gambled on keeping up with the people who have real riches and lost that bet. I saw on the news that the most foreclosures that were happening were in TX, AL, LA, CA, NY, but of course now I cannot find a link on the web. Since all I watch is Fox, I must have seen it on Fox.
Talk about The New World Order.
The two schools of thought that I have been most exposed to are that:
1. China should dump our Bonds so that the banks and stimulus would fail because by drawing out our debt we will prolong and deepen the economic hardships. They hope this would force dysfunction to fail thus allowing efficient alternative methods to be developed and also prevent China from "owning" huge stakes of the US..........
I would think that China would want us to get better. Us getting better would means buying stuff - stuff from China. Complain about Wal-Mart but a ton of their stuff is made in China as well as a number of other retailers.
AngelsSix
03-05-2009, 18:39
Wal Mart sales are up, according to this:
http://www.bizjournals.com/stlouis/stories/2009/03/02/daily63.html
Wal-Mart Stores Inc., Target’s main competitor, reported that same-store sales were up 5.1 percent in February. Wal-Mart is one of the largest employers in St. Louis with 14,300 workers.
....Wal-Mart Stores Inc., Target’s main competitor, reported that same-store sales were up 5.1 percent in February.....
And the same story noted Target was down 4.1%.
alright4u
03-05-2009, 19:37
We're at a critical support level. If it holds, we've formed a double bottom, and we have a chance for a nice rally.
If it breaks, then Dow Theory indicates continuation of a bear market - and Dow 5500 or less is possible.
We may drift upwards a few days, but any hard drop from current levels is likely to have nasty consequences.
That mountain acreage might be a nice place to stay for awhile...especially since rumor control hints at up to 3 million more job losses next quarter...LINK (http://blogs.wsj.com/economics/2009/02/17/layoff-lawyer-sees-ominous-signs/)
Pleasant dreams.... :eek:
And please tell us when to buy?
From the WSJ"
http://online.wsj.com/article/SB123604419092515347.html
The Dow has lost 3K plus points since Obama took office.
6.8SPC_DUMP
03-06-2009, 19:27
I would think that China would want us to get better. Us getting better would means buying stuff - stuff from China. Complain about Wal-Mart but a ton of their stuff is made in China as well as a number of other retailers.
Yes Sir - crucial point.
But don't you think if China feels we are not able to repay the debt they will have to weigh that against the loss of revenue from us as a consumer?
CoLawman
03-06-2009, 21:48
Okay I get it! My question is probably on the minds of most owners of portfolios of greatly dminished value. I have been a good steward, or so I thought, and stayed pat while continuing to invest on a monthly basis. All the while my net worth has continued to plummet. Is it time to save the remaining funds by moving to the sideline? I understand the necessity to continue to buy. Where I am confused is what I do with that money that is now a pile half the size it was a little over a year ago. This little voice has been telling me to run for the sideline all along.
Is it time to finally listen to the little voice and turn my paper loss into a real loss but at least have some assets left.
From everything I have read there is not one expert out there predicting a quick recovery of our portfolio losses. But I sure has heck hear alot of experts predicting a continued decline.
And if I am the only one on this forum that has been riding this baby to the bottom please be merciful and don't let me know! :D
doctom54
03-06-2009, 22:23
Okay I get it! My question is probably on the minds of most owners of portfolios of greatly dminished value. I have been a good steward, or so I thought, and stayed pat while continuing to invest on a monthly basis. All the while my net worth has continued to plummet. Is it time to save the remaining funds by moving to the sideline? I understand the necessity to continue to buy. Where I am confused is what I do with that money that is now a pile half the size it was a little over a year ago. This little voice has been telling me to run for the sideline all along.
Is it time to finally listen to the little voice and turn my paper loss into a real loss but at least have some assets left.
From everything I have read there is not one expert out there predicting a quick recovery of our portfolio losses. But I sure has heck hear alot of experts predicting a continued decline.
And if I am the only one on this forum that has been riding this baby to the bottom please be merciful and don't let me know! :D
Nope I'm there with you. After it started falling I thought there might be a small rally, say up to 8000, and I my plan was to stash it in bonds or something then (my 403b and 457K have limited choices). As it is I'm riding it out like Major "King" Kong (Slim Pickens) in Dr. Strangelove.
The good news is I have a job and my health and I can work till I'm 75 or 80:)
And please tell us when to buy?
The Dow has lost 3K plus points since Obama took office.
I'll certainly be glad to share my opinions as the market moves and the situation develops. I will also include my reasons, as well as some of the resources I use so that anyone who cares to do so can investigate the logic and make sure it makes sense for them. The problem we face is that the bear market may extend for quite some time, both in number of points down and duration over time.
We've just finished a 25 year bull market, and on average the following bear market will last from one fourth to one third as long. That implies a bear market of 6 to 8 years duration. There is also the possibility of a Japanese-style bear market. I've attached a link to a chart of the Nikkei index. Notice it hit a peak almost 20 years ago at about 38,900. It has had strong rallies that have lasted several years, but it is never reached the old highs. Due to the accumulation of debt, at both the governmental and individual levels, the US may face a similar outcome. This would imply that the buy-and-hold strategies of the past would be invalidated. Now compare the Nikkei index with what you see in a similar monthly chart of the Dow Jones industrials. In the US markets, a buy-and-hold strategy would've worked for the past quarter century. It might be advisable to consider the possibility that straight buy-and-hold is no longer the best approach.
Nikkei 20 year monthly chart (http://stockcharts.com/h-sc/ui?s=$NIKK&p=M&yr=20&mn=6&dy=0&id=p06670667561&a=162683087)
Dow Industrials 20 year monthly chart (http://stockcharts.com/h-sc/ui?s=$INDU&p=M&yr=20&mn=6&dy=0&id=p06670667561&a=162683096)
I would also like to add that those who happen to have strong situational awareness and some people skills could add to the developing picture. For example, a shopping mall with a full parking lot and a lot of shoppers is interesting. It's even more interesting if the people are walking around but not buying anything. More useful still might be a visit with some of the people in the stores in order to get information about the level and trends of business. Of course, such things would need to observe the necessary requirements of personal and operational security; however, it seems unlikely that such observations would violate either. I have noticed on some sites that people are entering a state of genuine panic, which may suggest that we're close to a brief rally. It's important to remember that bear market rallies can be very fast and tend to bring in people who are eager to recoup some of their losses. Therefore, signs or indications of spreading panic can have value as a contrary indicator. The market has an interesting tendency to make the majority wrong.
Okay I get it! My question is probably on the minds of most owners of portfolios of greatly dminished value. I have been a good steward, or so I thought, and stayed pat while continuing to invest on a monthly basis. All the while my net worth has continued to plummet. Is it time to save the remaining funds by moving to the sideline? I understand the necessity to continue to buy. Where I am confused is what I do with that money that is now a pile half the size it was a little over a year ago. This little voice has been telling me to run for the sideline all along.
Is it time to finally listen to the little voice and turn my paper loss into a real loss but at least have some assets left.
From everything I have read there is not one expert out there predicting a quick recovery of our portfolio losses. But I sure has heck hear alot of experts predicting a continued decline.
And if I am the only one on this forum that has been riding this baby to the bottom please be merciful and don't let me know! :D
CoLawman, you're right about the number of people who believe the markets will continue down. That's the only thing that bothers me about the current picture. When everyone, or almost everyone, is on one side of an issue the markets can spring all sorts of surprises. However, on the other side of the equation we don't seem to have entered capitulation. People have not thrown down their stocks, sworn never to buy another stock during their entire lives, and cursed the day the stock exchange was born. That sort of exhaustion of selling pressure can mark bottoms. As for the present, the best we can say is that the trend is down.
The best strategy may not be continued purchases into a down market. Instead, please consider accumulation in a secure interest-bearing account, perhaps with a bank or credit union. Then, when the market transitions from the present downtrend to an uptrend, your capital will have been protected. As I mentioned above, there is a possibility that we will spend years or even decades in a market that does not reward the buy-and-hold strategy that has predominated over the past quarter century. If that's the case, we may all have to change our behavior. Otherwise, we can spend years making a little, losing a little, and gaining nothing. I guess it's a way to minimize taxes, but that's about the only benefit.
I don't think you need to feel bad about your numbers. The bear tends to maul everyone. Even Harvard lost 22% of their investments in the first four months of their fiscal year, and that was reported on December 9, 2008. I mentioned the weekly indicator and the use of the free services stockcharts.com a few posts back, and those might be of use to you. They can be applied to your favorite index, and also to individual mutual funds.
For example, a shopping mall with a full parking lot and a lot of shoppers is interesting.
Observing basic usage patterns in a parking facility at a shopping mall is not likely to provide much insight into how well the retail establishments are doing. A full parking facility is often an indication of one of two dynamics.
Most often, the dynamic is the result of a poorly managed parking system. Quite often, parking facilities seem to have inadequate parking because employees are parking in the most convenient areas for long periods of time. Visitors and shoppers will try to find empty spaces in these areas, find there are none, and either wait or start (slowly) looking for open spaces. This process leads to congested drive aisles and long waits and the widely held perception, spread by word of mouth, but unsubstantiated by field data, that there's inadequate parking.
Rarely, a full parking facility is a byproduct of a well designed parking facility with a carefully calibrated management policy. The design would reflect an understanding that most parking spaces are unused most of the time and that a developer's money is better spent building a parking system that can handle the typical parking demand 85% of the time rather than a facility that can handle all of the parking demand during the busiest times of the year. (Depending on the mix of land uses in a shopping mall, the busiest times of the year will be either the week after Christmas or the weeks leading up to Christmas.)
/end thread hijack
ETA:
A recent edition of The Economist offered that newspaper's assessment of China's economy (link (http://www.economist.com/world/asia/displaystory.cfm?story_id=13012736)). If you are so inclined, nmap, I am very interested to know your views on the article as well as the topic more generally.
Actually, Sigaba, it isn't a thread-jack at all. Anecdotal reports should receive critical and skeptical review. Alternative explanations should be encouraged.
I chose this particular example because it is relatively simple and to the point. There are others - they range from the increased price of some single-malt scotch whiskeys to tales of restaurant drinking patterns. Whether any of them actually tell us anything is very much another question.
Perhaps you are familiar with the tale of Joseph Kennedy and the shoeshine boy.
"Kennedy later claimed he knew the rampant stock speculation of the late 1920s would lead to a crash. It is said that he knew it was time to get out of the market when he received stock tips from a shoe-shine boy." LINK (http://en.wikipedia.org/wiki/Joseph_P._Kennedy)
Can we locate that shoeshine boy and discern his message today? I don't know. But it's good clean fun, and relatively harmless.
I saw the following piece in MarketWatch, which is affiliated with the Wall Street Journal. It offers a perspective that may be of interest; it seems to suggest that we cannot - cannot even in principle - fix the current problem easily. The reason lies in the derivatives market, which represents $700 trillion dollars. (Yes, seven hundred trillion dollars).
For you consideration:
LINK (http://www.marketwatch.com/news/story/The-700-trillion-elephant-room/story.aspx?guid=%7b024DB809-8506-4AA9-83BB-B053FD4E1C11%7d&print=true&dist=printMidSection)
--------------------------------------------
SANTA MONICA, Calif. (MarketWatch) -- There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy.
Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.
But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.
To be sure, the derivatives market is international. But much of the trouble we're in began with contracts "derived" from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values.
Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn't even value her portfolio because "no one knows anymore who is on the other side of the trade."
Derivatives pricing, simply put, is determined by what someone else is willing to pay for the contract. The value is based on an artificial scenario that "X" will be worth "Y" if "Z" happens. Strip away the fantasy, however, and the reality of the situation is akin to a game of musical chairs -- without any chairs.
So now the music has finally stopped.
That's why stabilizing the housing market will do little to take the sting out of the snapback we are going through on Wall Street. Once people's mortgages were sold off to secondary buyers, and then all sorts of crazy types of derivative securities were devised based on those, and those securities were in turn traded on down the line, there is now little if any relevance to the real estate values on which they were pegged.
We need to identify and determine the real value of derivatives before we give banks and institutions a pass-go with more tax dollars. Otherwise, homeowners will suffer as banks patch up the holes left in their balance sheets by the derivatives gone poof; new credit won't be extended until the raff of the old credit is put behind.
It isn't the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished -- trading phony instruments to the tune of $700 trillion.
Let's figure how to get out from under that. Then maybe the capital will begin to flow again through the markets. Right now, this elephant isn't just in the room, it's sitting on us.
Thomas M. Kostigen is the author of You Are Here: Exposing the Vital Link Between What We Do and What That Does to Our Planet (HarperOne).
Dozer523
03-09-2009, 11:10
Last night, my darling 16 year old daughter (whom I refer to as the “Bright Center of My Universe” BCMU) came over to me, kissed me on the cheek.
Sez BCMU, “Daddy, you are the smartest person I know and possibly the wisest human being in the world, of all time. I have struggled with this High School assignment all weekend long; read, and googled until I can’t anymore; I have exhausted all available resources. Now . . . I turn to you . . . my last resort. PLEASE, help me with this assignment so I can remain in my honors classes; on the Honor Roll; and continue my quest for a full ride scholarship to Stanford. Father, dearest. . . (dramatic pause) YOU ARE MY LAST HOPE.” How could I refuse? What was she struggling with?
Sez BCMU, “Please explain the sub-prime mortgage market crisis."
Okay . . . what she really said was, “duh-ADD, I forgot I had homework and I spent all weekend with my friends, and I’m REALLLLLLLLY tired. Explain the mortgage mess to me. Quickly, and so I can remember it for the quiz tomorrow at 10:00. I want to go to bed.”
Sez me, “Lets make cookies.”
Sez BCMU, “Awwwwww Daaaaaaaaaaaa-duh”
Sez me, “You want my help or not?”
Sez me, “Thought so, let's continue. Get out the finest ingredients, the cane sugar (not the cheap stuff), we’ll use butter not margarine (let it soften on the counter, don’t micro-wave it). Open a fresh package of brown sugar - the dark kind, get the real vanilla extract not the imitation (wait do we have any of the real beans left?). The bitter-sweet chips, too. Heat the oven to exactly 325 Fahrenheit and put the thermometer in there to confirm. Put the blender away, we’re going to stir this by hand. Line the cookie sheets with parchment paper, we aren’t going to oil them and we certainly are not going to spray them.
Sez BCMU, “groan. . . “
Sez me, “Now go out in the backyard and bring me back Ľ teaspoon of the dog’s poop.”
Sez BCMU, “That's disgusting!"
Sez me, But, it's only a tiny little bit, and the rest is the finest ingredients available."
Sez BCMU, “Yuck, I'm not eating dog poop!”
Sez me “Well the Mortgage Industry thought Investors would buy Mortgage backed securities with little bits of crap in them.”
BCMU kissed me on the cheek and went off to bed.
I had to make cookies until 0130!;)
That's a perfect analogy! :cool:
Now...take all of the batches of cookies, pies, cakes, and pastries in a bakery. Tell the customer that one item - just one - among all the selections within the bakery has some dog poop in it. But refuse to tell them which it is. Customers will stay away in droves.
Now...tell the customers in a great city that one single bakery - no one knows which one - has introduced dog poop into a single selection. But they won't reveal which one. Customers will, again, stay away.
So the price of baked goods falls through the floor, and the value of bakery stocks do the same. Bakeries go through bankruptcy all 'round.
Unless and until the bad elements are revealed and disclosed, the markets will assume that every crumb is contaminated and act accordingly. With 700 trillion crumbs (yes, trillion with a T) out there, no group of governments can stop the progression of disaster. Only truth and honesty can do so.
Who said "Know the truth, and the truth shall set you free?" :D
Words worthy of reflection, perhaps.
John Mauldin's latest.
Short version: 2009 will be no-growth, 2010 and beyond will show little growth. And Eastern Europe may add another gaping hole to the global financial structure.
LINK (http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/03/09/reality-bites.aspx)
John Mauldin's latest.
Short version: 2009 will be no-growth, 2010 and beyond will show little growth. And Eastern Europe may add another gaping hole to the global financial structure.
LINK (http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/03/09/reality-bites.aspx)
This is an outstanding discussion going on here.
And the above article is a great read. Thanks to all who continue to contribute to this thread - you're providing valuable info to the layman like myself.
Bull Trap and False Start Market?
Terms I'm reading today.
Some are saying this may be a false rise, in that there is nothing backing it. A false start, so to say. Might go on for a few days but there will be another big sell off.
All I know is my Mom is one POed camper. She was about 50% CDs and 50% stocks before things started falling. She's happy she has the CDs.
I think you're exactly right, Sir. We've been overdue for a rally - but it would be very, very unlikely that this marked the turn in market trend.
January was down - generally, a down January means a down year.
April and May are often seasonal highs, with October and November seasonal lows.
I've attached the latest Russell update...
So the market is up 500 points and we're off to the races...or are we?
Stocks have moved up remarkably fast - but the trend is not up. The rally is, perhaps, tradeable - but it is unlikely to be something one can purchase and forget.
Here's a link to a weekly basis chart of the DJIA, with moving averages for 20 and 50 week periods. The 20 week is still well below the 50 week average, so we have not transitioned to a long-term uptrend yet.
LINK (http://stockcharts.com/h-sc/ui?s=$INDU&p=W&b=5&g=0&id=p05830871313&a=163853014)
Russell is attached.
Up more today - so, is this a new bull market? Some analysts think so. I'm not buying it (pun intended), and here's one of the reasons why.
Chart Link (http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=20&mn=0&dy=0&id=p38467024284&a=164551821)
This is a weekly-basis chart of the S&P 500. Notice two simple moving average lines - one is for 20 weeks, and the other for 50 weeks. When the blue 20-week line is on top, the market is in an uptrend. If the red line is on top, the market is in a downtrend.
Now, suppose an investor bought when the blue line went above the red line, and sold when the red went below the blue. There would be a few spots where you missed the bottom (1990 and 2002 for example), and there would be a few wild (but tradeable) moves. However, such an investor would have enjoyed the uptrends and avoided most of the downtrends. He could check the market once a week and spend the rest of his time on other things.
The blue line is still beneath the red line. So, by this one measure, the trend has not yet changed.
:munchin
DinDinA-2
04-02-2009, 20:38
nmap, your attached pdf files are great reading...please keep them coming.
Then my momma would say…..baby…..nobody is gonna borrow it, cause they fixin to not be able to pay it back.
Is your mother related to Karl Denninger? :D
Just kidding, of course - but he writes some blogs related to the markets. Your sentence above is about what he said in a page....
LINK (http://market-ticker.org/archives/933-How-Does-It-Feel-Ben.html)
By the way, if anyone wants to see a picture of a real bear market, I've linked to the Nikkei - it's been declining since 1990. The dots are the actual average, with one dot per month. The moving averages are 5 and 12 months, which are about the same as the 20 week and 50 week moving averages I've mentioned.
Notice that there are extended periods with a trend. These are tradeable, if one is so inclined. But the Nikkei is not something to buy-and-hold. If this is similar to what we face in the future, then the winning investment strategy of the past quarter-century must be modified.
LINK (http://stockcharts.com/h-sc/ui?s=$NIKK&p=M&yr=20&mn=0&dy=0&id=p79164158539&a=164702040)
DinDinA-2
04-04-2009, 20:25
nmap, I would guess you are trading this market. Do you use P&F charts to aid your decisions?
nmap, I would guess you are trading this market. Do you use P&F charts to aid your decisions?
I do use point and figure - but what I'm focusing on is covered call writing. In essence, buy stock in a quality company that is strong technically, then offer to sell it at a price higher than the current market, and get paid a small amount to do so. If ( a very big IF ), one can avoid getting stocks that have sharp declines, it works fairly well.
DinDinA-2
04-04-2009, 21:43
So...you get paid the "small amount" for the call, whether the call is executed or not? What is a typical time frame for the covered call?
So...you get paid the "small amount" for the call, whether the call is executed or not? What is a typical time frame for the covered call?
Here's an example.
ADM is Archer Daniels Midland. I'll use it here. It closed Friday at $28.90.
Calls expire on the third Saturday of each month. There are generally 1,2, and 3 month options, along with others that go for longer periods - generally no more than 9 months.
Let's suppose we write the June 30 options. That means they expire on the third Saturday of June, 76 days away. The number 30 is the strike price, and represents the price the stock can be "called away" at. The closing price of the option was $1.90.
So....to implement the strategy, one would purchase 100 shares of the stock for $28.90, then sell the covered calls and receive $1.90.
Cost of stock: $2890 + commissions
Premium received: 190 - commissions
Net cost: $2700 + total commissions
If we suppose that the commissions are about $11 for each trade, then we have:
Cost of stock $2901
Premium received: $179
Net cost: $2722.
For now, let's ignore the possibility of actively trading the stock or option. We will wait until expiration to do anything.
Also - and this is important - notice we bought the stock. If we sold the option without owning the stock, we would have written a "naked" call. This is quite dangerous; if the stock went up, we are obligated to sell at the specified price of 30. This means a theoretically unlimited loss. Not good.
OK, so what can happen?
The stock can go up a bunch. Let's suppose it goes to $35. The person who bought the call will exercise the option, and take away our stock at $30. We keep their premium. So we wind up with $30, minus commissions.
Stock sold: $3000 - $11 (for commissions)
Proceeds: $2989.
Profit: $2989 - $2722 = $267,
Return: 267/2722 or 9.8% for 76 days. We can live with this.
Second possibility. Stock stays unchanged.
We keep the stock. The option expires worthless, and we keep the premium.
So we write another option at the price available at the future date.
$179/$2901 = 6.1%.
Third possibility. Stock goes down a lot.
Let us suppose the stock goes to 15.
The option expires worthless, and we keep the premium. We have a devalued stock. It cost $2722, and is now worth $1500. The loss is $1222, or nearly 45%.
We can either dump the stock and take a loss, write calls at a low strike price, for example 15, and get some premium, or hold on to the stock in hope (hope being a 4 letter word) it will go up.
This is a case where one examines the stock and the trend. In this example, the trend is clearly down. If there is no compelling reason to hold the stock, it should be sold.
If one hopes, then one can either see the stock go up, down, or do nothing - just like with any stock.
And if one writes the options at a strike price of 15, then one gets some premium (which is good), but locks in a loss if the stock recovers. It is a nasty situation.
Hope that helps!
Oh, BTW - you can take a look at the various premiums available HERE (http://www.optionsxpress.com/OXNetTools/Chains/index.aspx?SessionID=&Symbol=RUT&Range=4&lstMarket=0&ChainType=&AdjNonStdOptions=OFF&lstMonths=&FromVB6=True). Adjust the stock symbol and expiration to whatever you are interested in. Concentrate on calls for now - puts are another subject.
DinDinA-2
04-06-2009, 19:30
Thanks for the explanation. I think options may be a bit deep for me. I have been trading this market, short term,...both long and short, with some success. Options intrigue and scare me some.
How is the strike price set, as well as the price for the covered call when you write it? Do you use the covered call as a form of insurance for other positions?
I think I need to read a book.
Latest Russell comments attached.
Of particular interest:
Confidence Index -- I keep an eye on this Index, which appears weekly in Barron's. The CI is the ratio of yields between the yield on the medium-grade bonds to the yield on the highest-grade bonds. Last week the CI showed one of the biggest drops I've ever seen in the CI -- from 59.5 the week before down to the current 51.8. This shows a major move to safety in the CI with bond money shifting to the highest-grade bonds. Usually, this is bearish for the stock market, which often follows the bond market by a few months.
This is a significant danger sign - for the market, of course, but also for the economy as a whole.
Thanks for the explanation. I think options may be a bit deep for me. I have been trading this market, short term,...both long and short, with some success. Options intrigue and scare me some.
How is the strike price set, as well as the price for the covered call when you write it? Do you use the covered call as a form of insurance for other positions?
I think I need to read a book.
Options aren't that hard - it's just a contract that specifies an action at a set price any time before an expiration date.
The strike price is set by the OCC (Options Clearing Corporation). They add them based on the stock price, and add additional strikes as the stock fluctuates.
The price is pure market action - some people buy, some sell, and their decisions determine the price.
You can use options as a form of insurance; in my case, I'm generating a return in a trendless market.
Again, let's concentrate on calls.
A call has a buyer and a seller.
The buyer purchases the right to acquire 100 shares of stock at a specified price any time before the expiration date. At the same time, the seller agrees to sell that same 100 shares of stock to the buyer, again at the specified price, any time before the expiration date - and the seller receives the premium from the buyer.
Suppose Joe is an option buyer. He thinks ADM will go up a lot. Bill is an option seller. He thinks ADM will do nothing. As in the earlier example, let's suppose the stock is at 28.90, and the option of interest is the June 30.
So Joe pays Bill $190 - a price the two agree on through the mechanism of the market.
If ADM goes to 40, Joe could exercise the option and take Bill's stock for $30 per share. So Joe's cost would be $3,000 + $190, or $3,190. Probably, Joe will just sell the option for around $1,000. Notice the leverage - Joe has turned $190 into $1,000.
Or, ADM might do nothing. Then Bill laughs at Joe, keeps the stock, and keeps the $190. Joe is annoyed - but he only lost $190. Bill made a nice income.
If ADM goes down to 15, Joe has still lost only $190. Bill has lost a bit more than $1,000.
So, each party acted rationally - according to what they expected the stock to do. Raging bulls buy calls. Cautious bulls and mild bears sell covered calls. Raging bears would not want to own stock.
Books are fine, but they often have a great deal of extra complication. If I may suggest, look at the free material at the CBOE HERE (http://www.cboe.com/LearnCenter/default.aspx). Then, do a few imaginary (on paper only, no money!) trades and watch how the positions work.
And keep in mind - first, decide on how you believe the market and your particular stock will go. Then choose an appropriate strategy.
I've attached links to a pair of videos from the Business Network. Each is about 30 minutes in length.
The guests on the show are all market bears who believe in gold. Thus, they present a biased view - as always, there are opposing views. Still, I found them interesting, and perhaps you will too.
LINK 1 (http://watch.bnn.ca/#clip158793)
LINK 2 (http://watch.bnn.ca/#clip158804)
doctom54
04-07-2009, 22:05
I've attached links to a pair of videos from the Business Network. Each is about 30 minutes in length.
The guests on the show are all market bears who believe in gold. Thus, they present a biased view - as always, there are opposing views. Still, I found them interesting, and perhaps you will too.
LINK 1 (http://watch.bnn.ca/#clip158793)
LINK 2 (http://watch.bnn.ca/#clip158804)
Thanks for the links. Very interesting views.
From a purely technical perspective, it looks as if the intermediate term trend has switched to up. That does not mean the bear market is over; however, it does suggest we'll be up for awhile. For the particularly agile, it may be a trading opportunity. Or, when (and if) it weakens, it might offer a chance to lighten up on some battered stocks.
In any event, the attachment may be of interest.
(And yes, it is uncharacteristic for me to post positive developments... ;) )
The Reaper
04-09-2009, 17:35
From a purely technical perspective, it looks as if the intermediate term trend has switched to up. That does not mean the bear market is over; however, it does suggest we'll be up for awhile. For the particularly agile, it may be a trading opportunity. Or, when (and if) it weakens, it might offer a chance to lighten up on some battered stocks.
In any event, the attachment may be of interest.
(And yes, it is uncharacteristic for me to post positive developments... ;) )
I'm bookmarking this post.;)
TR
nmap, Once again: Thank you for sharing your insight.
Here are some links to read and reflect on. The first one is from Karl Denninger and focuses on tax receipts and the rapidly expanding debt. It is a cautionary signal for the economy as a whole.
LINK 1 (http://market-ticker.org/archives/950-To-Treasury-Here-It-Comes.html)
The second link, likewise from K. Denninger, is a bit more esoteric. It suggests that the very big money people, those who trade for small profits on very big blocks, are the ones moving the market. It goes on to suggest that we are nearing a phase where they will let retail customers - people like you and I - purchase stocks as they sell. At that point, if the model is correct, the market would decline sharply.
LINK 2 (http://market-ticker.org/archives/951-Do-Not-Be-Stupid.html)
The third link is to a blog by Nathan Martin. It again focuses on the sharp decline in tax receipts, and includes some charts to illustrate its points. It sometimes loads the title rapidly, and then the text takes a bit longer, so some patience may be worthwhile.
LINK 3 (http://economicedge.blogspot.com/2009/04/us-budget-disaster-strikes-march.html)
The challenge with all of this is to discern what it means for the future. There is a school of thought that suggests that the market - the Dow, the S&P 500, or other such averages - represent all the news and all the facts because the prices are the sum total of all knowledge in the possession of all participants. The school of thought goes further to suggest that the study of the market itself can offer a prediction of the future, since it does bring together the opinions of everyone involved. From that standpoint, the study of fundamentals, such as at the links above, is pointless. The market already "knows" this.
On the other hand, these numbers and trends may shape the news tomorrow - from tax rates to interest rates, from the DOD budget to how the plans for medical care evolve. From that perspective, an awareness of the existing budget shortfalls can be helpful.
From a personal perspective, I think we have some potential challenges ahead, and should beware getting too complacent about future upward moves in the market. If the present rally fails and we go below the previous lows, then the bear market is reconfirmed from a technical standpoint. From a social standpoint, I suspect people will start exhibiting signs of fear, and perhaps anger. And from a political standpoint, the 2010 elections may be fascinating.
DinDinA-2
04-11-2009, 20:19
Thanks again for the updates.
I cannot understand why this market is rallying to the extent it is. I watch pundits on TV who say..."the market is going higher and yes, fundamentals don't matter". A stock in major rally mode... its rep announced, "its declining revenues are decelerating". Wow.
From your update, it does look like the "really big money" is indeed fleecing the amatuers and once a turn is visible, the big shorts will have lunch!
I remain a two day trader...really don't like to hold overnight anymore, especially going into a weekend.
Attached is an update from Russell.
The long-term charts of previous bear markets illustrate our present dilemma nicely, IMO.
For some time now, I've been puzzling over strange happenings in the commodity markets - specifically, copper has been strong. Often, copper serves as an indicator of industrial activity. So, if it's strong, then we should be seeing stronger numbers in manufacturing - if not in the U.S., at least somewhere. Those numbers haven't been apparent.
Here's a link to a chart of the copper market: LINK (http://stockcharts.com/h-sc/ui?s=$COPPER&p=D&b=5&g=0&id=p51557353036&a=163281228)
The following article may explain the phenomenon. China is quietly exiting the dollar, stockpiling for the future, and preparing for future industrial activity.
A 'Copper Standard' for the world's currency system?
Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.
By Ambrose Evans-Pritchard
Last Updated: 2:41PM BST 16 Apr 2009
Comments 15 | Comment on this article
China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.
Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.
"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.
The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).
While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.
John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."
Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.
The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.
If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.
Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.
While Beijing's fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.
One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.
This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.
The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.
Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".
LINK (http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html)
More hints that China is doing some interesting things behind the scenes...
Possibility that the market will test the current uptrend soon...
Discussion of what "great values" means...
Russell's end-of-week comments.
Enjoy!
Some more articles on the subject...
First, Jim Rogers, an ex-partner of Soros. He's no longer shorting U.S. Financial stocks, he likes commodities, as well as Chinese stocks. He thinks U.S. Treasury bonds will head down, with rates going up.
LINK: Barrons (http://online.barrons.com/article/SB123991915029526857.html)
The second one is by a Harvard economic Historian. In essence, he thinks the U.S. will have problems, but perhaps fewer than other nations. He perceives a partnership (existing and persisting) between China and the U.S.
More troubling, he sees many of our companies being dissolved and sold at large discounts to foreign sovereign wealth funds.
LINK (http://www.theglobeandmail.com/servlet/story/RTGAM.20090223.wferguson0223/BNStory/crashandrecovery/home/?pageRequested=all)
In addition to the links, I have attached the article PDFs.
nmap, Thank you for keeping the harsh light of reality clearly focused on the issue. The Niall Ferguson piece is scary. After reading that you can see why the people who have destroyed this country, also want to remedy the 2nd amendment a non issue ASAP. They know Bastille Day is just a shot away.
First, Jim Rogers, an ex-partner of Soros. He's no longer shorting U.S. Financial stocks, he likes commodities, as well as Chinese stocks. He thinks U.S. Treasury bonds will head down, with rates going up.
Do you trust Bow Tie Rogers?
Pat
6.8SPC_DUMP
04-22-2009, 23:18
Do you trust Bow Tie Rogers?
Pat
I agree with him for what it's worth. The two areas where every broker wishes they were an expert now are real estate and the Shanghai, Hong Kong and Shenzhen Stock Market's.
I agree with him for what it's worth. The two areas where every broker wishes they were an expert now are real estate and the Shanghai, Hong Kong and Shenzhen Stock Market's.
Did you agree with him 10 years ago? Five years ago? He's been around awhile. Did you trust him then?
Do you trust him now?
Pat
6.8SPC_DUMP
04-23-2009, 11:51
Did you agree with him 10 years ago? Five years ago? He's been around awhile. Did you trust him then?
Do you trust him now?
Pat
Pat-
I try not to implicitly trust anyone's financial advice. I don't follow Roger's closely now, and haven't in the past, but I don't need to know someone to agree with their stance on an issue.
Correct me if I'm wrong but it sounds like you are asking if I think Rogers is intentionally trying to harm America. Not from what little I've seen - even if his politics would harm us. I don't think "betting against America" in your investments means you don't want America to prosper. The Japs don't invest in foreign interests, but American traders will invest in what they think will do well. I have to agree with our way of doing things: if someone trusts you with their money you have a responsibility to act in their individual best interest.
Great looking Akita pup.
Apropos of the comments...from the Atlantic Monthly...quoting Jeff Goldberg...
It turns out that my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart. Or so say the extremely smart—and wealthy—people I asked to help me figure a way out of my paralysis. One of these people was Robert Soros, the deputy chairman of the fund started by his father, George. I went to see him at his office, where he spent two hours performing an autopsy on my assumptions.
“You think a brokerage should be a place you go to pay commissions for fair and unbiased advice, right?” he asked.
“Yes,” I said.
“It’s not. It never has been.” He then cited another saying of Buffett’s: “‘Wall Street is a place where whatever can be sold will be sold.’ You are the consumer of their dreck. What they can sell to you, they will sell to you.”
“But they told us—”
“They lied.”
He went on: “You should be disheartened and disappointed. But don’t kid yourself. You’re a naive capitalist. They were never your advisers. Do not for a moment think that a brokerage firm is your friend.”
“So who’s my friend?”
“You don’t have one. This is the market.”
“Okay, that’s Merrill Lynch. What about the others?”
“They’re not your friends,” Soros said patiently.
Much more in the Atlantic Monthly at This Link (http://www.theatlantic.com/doc/200905/goldberg-economy)
Correct me if I'm wrong but it sounds like you are asking if I think Rogers is intentionally trying to harm America.
I wasn’t at the time I asked the question but, on further investigation, it seems that JR has sold his home here and moved to Singapore. In and of itself there is nothing wrong with that. But, his close association with George Soros certainly causes me to raise an eyebrow.
He always struck me as negative towards our economy. At first I figured that he was just pursuing a contrarian tack, but even contrarians have to be positive at some point. Perhaps it was just his way of getting attention…like the bow tie.
Since I’m not interested in commodities investing, I have not read his investing books, but his Investment Biker: Around the World with Jim Rogers sounds interesting.
I try not to implicitly trust anyone's financial advice.
My brother-in-law manages two (soon to be three) brokerage offices for an S&P 100 firm. Several weekends a year are spent visiting his friends in various Federal prisons. :D
Great looking Akita pup.
Thanks.
Pat
The Japs don't invest in foreign interests, but American traders will invest in what they think will do well.
6.8--
I disagree with your word choice (the "Japs") and your interpretation of Japanese investment patterns. In regards to the latter, Japan's government has been working to iron out concerns so that Japanese businesses may invest more in the United States. A discussion of these efforts is here (http://www.google.com/url?sa=t&source=web&ct=res&cd=1&url=http%3A%2F%2Ftokyo.usembassy.gov%2Fpdfs%2Fwwwf-20070601-invest-rpt-e.pdf&ei=zePwSZeEEJ_qsgP8u7DQCg&usg=AFQjCNF8cWMdqWRRpGzed--mXQbsGnZk4g). I would also point to the efforts of Sony to establish a foot hold in the entertainment industry through its acquisition of Columbia Pictures in 1989, and the that studio (since renamed Sony Pictures Entertainment) was <<LINK (http://www.nytimes.com/1989/10/04/business/company-news-sony-s-columbia-deal-is-criticized-in-japan.html?pagewanted=print)>> and remains a powerful (and controversial) example of a Japanese company taking a huge risk in foreign investment. On a smaller order of magnitude, I would point to Pioneer Electronic's presence in the analog and digital cable industries as another example of a Japanese company thinking globally in its investments.
In regards to your unfortunate decision to use the word "Japs," I can not overstate my dissatisfaction. In many circles, that word is considered a racial slur. Military historians--rarely confused as members of the "politically correct" crowd--have long accepted that racial hatred among the combatants greatly contributed to the ferocity of combat operations in both the Pacific and Eastern European theaters of operations during the Second World War.
While it is anyone's right to view different groups of people as they see fit, the practice of using dehumanizing slurs has had destructive and self-destructive consequences that reverberate to this day.
nmap, Thank you for keeping the harsh light of reality clearly focused on the issue. The Niall Ferguson piece is scary. After reading that you can see why the people who have destroyed this country, also want to remedy the 2nd amendment a non issue ASAP. They know Bastille Day is just a shot away.
Somewhere, I read a saying: There is no one more conservative than the man who has just purchased a house, been promoted to foreman, and gotten married.
I suspect the converse is true - that no one is more radical than the fellow who has just lost his job, his house, and his family.
And if his children cry from hunger, and he has no viable options to feed them, then he just might behave as they did in Hungary in 1956.
I think our various policy makers should reflect on that. I'm betting they won't.
The latest Russell...
The Dow info is interesting - but the material on China is (IMO) fascinating!
Ambiguity reigns - some indicators suggest we're ready to go up, others say the opposite. The next week or so of trading should provide a clue.
Dow theory...not yet a clear buy, but we may be close.
Interesting discussion of batteries and their associated stocks.
And...dare I say it?...hints of bullishness.
It looks like we'll be up for awhile!
Good news, for a time.
For those who miss my messages of gloom, not to worry - I'm sure I'll find something soon. :D
They just might be right. If you take the distance between the top and bottom of the current move, and divide by 2, you come out a little over 10,000. That would represent a 50% retracement - which is absolutely possible.
Some time, if you are so inclined, watch a bit of CNBC. Or, if you have the patience and some time to waste, watch Cramer (also on CNBC). To a great extent, they are a cheering section, assuring the public that all will be well and that we have a great buying opportunity. But if we're supposed to buy - who is selling? Perhaps some billionaires?
I think it's interesting to watch oil - up again today. If economic activity is down, why is oil up? Inflation, perhaps? Or is there something deeper? I think the latter. I think that the upper crust knows all the material about peak oil, and is maneuvering for the next shoe to drop.
If I may be permitted some pure speculation, I have this nasty hunch that we'll see a recovery in the Dow, along with some recovery in the actual economy. That could easily set off inflation - which the fed would control with increased interest rates - which would spark another recession. But what if we have a combination of effects, with increased interest rates, inflation, and increased oil prices due to supply constraints? And if that aborts the recovery...and sends us back into an even worse economy...that's when hope fails and the spark you mention gets lit.
And you're right about the Dow. It won't be the spark. But the markets are a way to grasp the totality of what's going on and maybe (big maybe) see the dim outlines of the future. None of us can know everything that's going on. We simply cannot read everything, analyze it all, evaluate it all. But the markets do so, because everyone in the markets in any way contributes what they know to the overall patterns. So by watching charts of the markets, we can (maybe) get an idea of what's coming.
What your friends are telling you is that they expect the global economy to go into the tank. There are some reasons to expect precisely that. We have high crop yields right now, and we are (largely) well fed - but it is because of the widespread use of fossil fuels. I think we must ask ourselves if the mechanisms instituted by the U.S. Ag. dept.'s Green Revolution - the ones that made it possible to nearly triple global population - might fail. If so, we should reflect long and hard on the fate of the reindeer on St. Matthews Island. LINK (http://www.gi.alaska.edu/ScienceForum/ASF16/1672.html)
Another little leaf in the wind - isn't it interesting that even though gasoline prices are low, we're seeing more and more emphasis on fuel economy? And local leaders are urging the use of public transportation and car pooling? Isn't it fascinating that we're seeing discussion of the electrical grid becoming a so-called smart grid in order to reduce fuel usage? I wonder - is this to reduce carbon emissions, or do they know that future fuel availability will decline?
Anyway, thanks for the info. I think we live in exciting times. And they just may get even more exciting...
There's an old saying...sell in May and go away. Generally, one "goes away" from the market until October/November.
I noticed I was up a little more than 17% on some things, so I removed 10% of the balance and put it aside just in case this rally falters. That probably means the market will immediately go up a bunch. ;)
YMWPVAB. (Your mileage will probably vary a bunch).
Personal opinion: this rally seems to be getting a bit tired.
The latest Russell letter is attached.
From a strategic perspective, the material on page 6 may be of particular interest. Our nation's goal of transitioning to green energy may become more difficult as a result.
A variety of interesting items...
Yes, of course its gloomy! :D
This is Mauldin's latest.
Some interesting items about the collapse of global trade - this suggests that other nations will face significant default levels. Spanish banks may be in deep trouble - which might help explain why one Spanish bank sold a unit to Chavez in Venezuela.
A big issue is the increase in debt, not only in the U.S. but everywhere. This may well force interest rates up - with implications for the cost to carry our accumulated debt. This may imply future tax increases.
I also hi-lited a line about AIG. The piece notes that European banks bought credit default swaps on lower-rated bonds from AIG. And if you don't know who is paying to make those CDS's work, you need only gaze into a mirror. Thus, we are all paying taxes to keep foreign banks solvent. :rolleyes:
Ignore if you have no interest in fiscal and financial matters that beset the US today. Also ignore if you do not have the time to read a somewhat lengthy article.
Key points:
The US is at a financial crossroads; our future prosperity will depend on the path we choose.
Current policies and directions - without change - are leading us down the wrong path and do not bode well for our economic future.
There are a dozen key things we should be doing to insure future economic prosperity; we are not doing or even discussing them.
The theory part (roughly the first half of the article) is kind of dry; those key points that follow are definitely worth the read.
Richard's $.02 :munchin
The End Game Draws Nigh – The Future Evolution of the Debt-to-GDP Ratio
Horace "Woody" Brock, Ph.D.
Preface: In this new report, we link together three quite different concepts that have been discussed in these publications during recent years. First, the problems posed for classical fiscal and monetary policy when extremely large deficits must be financed; second, the critical importance of the rate of economic growth as primus inter pares of all economic variables; and third, the all-important concept of "incentive-structure-compatibility" introduced by Leonid Hurwicz in the 1960s, and recognized in the award to him in 2007 of the Nobel Memorial Prize.
We weave these three concepts together so as to make possible an extension and generalization of "macroeconomic policy" as normally understood. Central to this extension is the need for policies that drive down the nation's Debt-to-GDP Ratio over time. Accordingly, we identify 15 policies that jointly reduce the growth of federal debt and increase the growth of GDP over time.
Doing so not only points to a new set of policies for exiting today's quagmire, but also permits an appraisal of the Obama administration's current policy proposals. Regrettably these proposals do not fare well. Furthermore, the extension of macroeconomics we propose applies not only to the US economy, but to most all others as well. It should thus be of interest to readers everywhere.
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/05/18/the-end-game-draws-nigh-the-future-evolution-of-the-debt-to-gdp-ratio.aspx
DinDinA-2
05-26-2009, 09:59
Thanks for the article, Richard...very good reading!
It seems that Paulson...a hedge fund manager who called the housing decline and made excellent profits...is now looking at gold for substantial long-term profits. This implies a decline in the dollar, along with possible inflation in the price of a great many things.
I've attached the latest Russell newsletter, which lists Paulson's investments. :cool:
For those interested in the latest move up in treasury rates, Karl Denninger of TickerForum has some thoughts that may be worth considering. LINK (http://market-ticker.org/archives/1066-It-Is-Failing-ALL-OF-IT.html)
He suggests that your house and mine just went down in value by 15% today - and includes justification for the statement.
Key points:
The US is at a financial crossroads; our future prosperity will depend on the path we choose.
Current policies and directions - without change - are leading us down the wrong path and do not bode well for our economic future.
There are a dozen key things we should be doing to insure future economic prosperity; we are not doing or even discussing them.
The theory part (roughly the first half of the article) is kind of dry; those key points that follow are definitely worth the read.
Richard's $.02[/COLOR] :munchin
There is another issue that may be critically important.
On page 11:
Case Study of Energy: As a case study in how poor the administration's policies are in this regard, consider its energy policies. Is anyone in the new administration reading about the disastrous 9% annual decrease in the output of "old" oil (yes, "peak oil" turned out to be true), in conjunction with a collapse of previously scheduled investments in exploration and development, and in refining capacity? Are they blind to the supply-crisis that is unfolding, one that calls not only for "renewable energy," but also for a major expansion of traditional oil and gas production?
By now, has it not become crystal clear that the increased production of traditional fuels should come from within the US, given the devolution of both the political leadership and the infrastructure of those thugocracies upon whom the US increasingly depends for 40% of its consumption? Is no thought being given to the rising probability of $500 oil prices—or perhaps outright rationing—when global energy demand recovers? [Recall how jointly price-inelastic demand and supply curves cause huge changes in price both upward and downward, as we demonstrated mathematically five years ago.]
Now compare this with the Hirsch analysis of GDP versus Oil; LINK (http://www.aspousa.org/proceedings/houston/presentations/HIRSCH%20HOUSTON-ASPO-USA.pdf) on page 11.
If true, this represents a reduction of GDP distinct and apart from that called by other factors. That in turn makes it more difficult to increase the denominator, and more tempting to increase the numerator.
The article urges investment in infrastructure; in my opinion, we would be wise to rebuild the railroads - which will permit more fuel-efficient transportation of goods and people. By railroads, I do not refer to high-speed rail; rather, I look to the slower railroads that could easily be revitalized.
As the article points out, our policy-makers are not pursuing favorable choices.
It looks as if the rally in the Dow is not confirmed by the transports. For those who want an up market, this is not good.
But overall policy, with its emphasis on inflation, may be leading toward debt service that costs $500 billion per year - which is likely to crush the dollar.
Much more in the attachment...
More bad news for the Dow...
But the interesting part (which I've underlined) deals with economic warfare by China and other nations. It seems we have made ourselves vulnerable to attack through our debt.
If that's the case, we are, in my opinion, quite vulnerable.
Glad the ratings agencies haven't run out of AAA pixie dust...Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds
(http://www.bloomberg.com/apps/news?pid=20601087&sid=aeTzfvEedKpQ)
It looks as if, per Dow Theory at least, we've switched to a bull market!
Hopefully, the good times will roll for awhile.
The latest Russell newsletter.
It now takes $6.49 of new debt to create $1 of added GDP - that's up a lot.
Rhetorical question: What happens if additional debt creates negative amounts of GDP?
I've hi-lited some parts I found of interest.
CoLawman
08-21-2009, 18:01
Okay Nmap,
Being the attentive student over the past several months. Two of your indices that you spoke of before seem to be bullish:
Copper is up 105 percent for the year.
The S&P 500 Moving average is up 100 points in the last fifty days.
Sensei, this is good stuff, no?
After the drop Monday, what is your feeling for this market. V shaped or W?
Okay Nmap,
Being the attentive student over the past several months. Two of your indices that you spoke of before seem to be bullish:
Copper is up 105 percent for the year.
The S&P 500 Moving average is up 100 points in the last fifty days.
Sensei, this is good stuff, no?
After the drop Monday, what is your feeling for this market. V shaped or W?
Probably W.
Markets have major and minor trends. We had 25 years of bull market, so its unlikely we've finished our bear market. The major trend is, I think, still bearish.
Keep in mind that the dollar is still headed lower, the deficit is growing, and unemployment has shown no signs of decline.
But the short term reaction is bullish. And no one can know when that will end.
So if you decide to nibble at the markets, be careful - if the trend changes, bail.
Back in 1929, after the crash, the market went up more than 50% - and then went down further. As I say, be prepared for the possibility of a trend change.
stockcharts.com is a site that offers quite a lot of free services; if I may suggest, you might want to take a look at them.
LINK (http://stockcharts.com/index.html)
Here's another item worth considering.
LINK (http://www.decisionpoint.com/ChartSpotliteFiles/090821_bo.html)
He's bullish - even for the longer term. He's made some very good calls....
6.8SPC_DUMP
09-28-2009, 13:48
The deadline for payment of 2008 IRS income taxes (and disclosure of offshore accounts) for small businesses was extended to October 15, 2009.
I have no clue as to the scale of probable bankruptcies of small businesses which necessitated the 2008 extension - just food for thought.
The Reaper
09-28-2009, 15:23
The deadline for payment of 2008 IRS income taxes (and disclosure of offshore accounts) for small businesses was extended to October 15, 2009.
I have no clue as to the scale of probable bankruptcies of small businesses which necessitated the 2008 extension - just food for thought.
President must be looking for some more Cabinet members or czars.:rolleyes:
TR
The deadline for payment of 2008 IRS income taxes (and disclosure of offshore accounts) for small businesses was extended to October 15, 2009.
I have no clue as to the scale of probable bankruptcies of small businesses which necessitated the 2008 extension - just food for thought.
Perhaps the following suggests an answer - especially since this article refers to large corporations that can float debt in the public markets. For small businesses, the type that must contend with a bank loan officer, the troubles must be substantial.
LINK (http://www.reuters.com/article/Restructuring09/idUSTRE58R4QO20090928)
NEW YORK (Reuters) - U.S. corporate debt default rates are expected to hit "unprecedented" levels in 2009, even though the economy may be past the halfway mark of the U.S. recession, according to a forecast unveiled on Monday at the Reuters Restructuring Summit.
"There is a lot of pain left - we are only just half way through the 600 or so defaults in this cycle," said Phil Kleweno, a partner at Bain's corporate renewal group.
The forecast for the 2009 corporate default rate has risen to 12 percent to 14 percent, from a May forecast of 11 percent to 13 percent, according to Bain's corporate default outlook. That suggests a total of about 180 to 210 companies could default on their debt this year.
"Our ongoing gross domestic product models are calling for a softer and longer climb out" of the economic decline than previously thought, said Kleweno.
Defaults will rise to 500 to 600 in the period between 2008 and 2011, up five-fold from the previous four-year period.
About 50 percent of defaults to-date have occurred in media, entertainment, automotive, chemicals and packaging industries. Going forward, there will be little relief for these sectors, he said.
"Consumer facing companies will continue to be at a higher risk of default," said Kleweno.
DEBT EXCHANGES
More defaults will come from debt exchanges -- meaning a company agreed with its bondholders to exchange old debt for new debt and equity -- rather than from corporate bankruptcies, according to the study.
Distressed debt exchanges have occurred 40 percent more often than bankruptcies so far this year.
"People are being proactive," said Kleweno. But he added that these amendments are only buying time. Rather than fixing the balance sheet, the amendments and lender negotiations tend to kick the can down the road and defer the problem, he said.
Though Bain expects the U.S. economy to bottom by the end of this year, corporate default pressures will remain as many companies continue to struggle to meet interest payments on heavy debt loads.
Bain expects the default rate in 2010 to be around 9 to 11 percent of debt issuing companies, or about 140 to 160 defaults.
WAVE OF MATURITIES
A spike of maturities beginning next year will cause the next wave of financial distress, according to the Bain study.
Debt maturities are expected to rise by 50 percent in 2010, from the year before, to $62 billion, then almost double again the following year, to $117 billion.
"As debt matures over the next couple of years, speculative grade refinancing will prove difficult," according to the Bain study.
Team Sergeant
09-29-2009, 09:44
Add to that this year 95 banks went under. 400 are in trouble. I heard this morning if one more "major" bank fails it will break the FDIC.
Yeah, the recession is almost over, the second Great Depression is about to begin....
Hows that for hope and change.....
Start buying gold.
Banking Regulators Propose Banks Prepay Fees
WASHINGTON--U.S. banking regulators proposed Tuesday that banks prepay three years of fees to help cover the rising cost of bank failures, facing a $100-billion cleanup bill through 2013.
Banks would prepay $45 billion of regular quarterly assessments under the plan, but not have to recognize the hit to their earnings until the fees are normally due.
The five-member board of the Federal Deposit Insurance Corp voted unanimously to put the proposal out for 30 days of public comment.
Regulators have been exploring ways to replenish the fund that safeguards bank deposits without putting a huge burden on healthy banks.
FDIC staff raised their expectations for bank failure costs from 2009 through 2013 to $100 billion, up from a previous estimate of $70 billion.
If finalized, the proposal would require banks to prepay on Dec. 30, 2009 their regular assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012.
The FDIC said the insurance fund's balance is expected to become negative this quarter and will remain negative through 2012, but said the agency will still have plenty of cash to operate and handle bank failures.
"We have tons of money to protect insured depositors," FDIC Chairman Sheila Bair said before the vote. "This is really about the mechanics of funding."
So far this year 95 U.S. banks have failed, compared to 25 last year, and only 3 in 2007.
Those failures have whittled the balance of the insurance fund down to $10.4 billion at the end of the second quarter, from $45 billion a year earlier.
FDIC officials said they expect bank failures to peak in 2009 and 2010, and that industry earnings will have recovered enough in 2011 to absorb a proposal to raise regular assessment rates by three basis points that year.
The FDIC in May authorized a $5.6-billion emergency fee on the banking industry and warned of similar special fees.
But banks have argued that more fees would be a significant hit to their balance sheets just as they are starting to recover.
FDIC staff explicitly recommended no more special assessments in 2009.
http://www.foxbusiness.com/story/markets/industries/government/update--banking-regulators-propose-banks-prepay-fees/
Hows that for hope and change.....
Start buying gold.
Gold and bullets. You can keep your "Change"
Gold or bullets...sounds like oro o plomo ;)
However, to add to that view, it appears that the Federal Reserve now owns the mortgage market - and it is a very sick market.
First, we have a projection of 7 million foreclosures overhanging the market. LINK (http://www.housingwire.com/2009/09/24/amherst-sees-7m-foreclosures-poised-to-distress-house-prices/)
Despite positive signs of house price stabilization and rising new and existing home sales, existing loans continue to deteriorate in performance, as Amherst noted a “staggering” 13.5% delinquency/foreclosure rate in a Q209 survey by the Mortgage Bankers Association (MBA).
Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.
Loan modifications won't help.
Even should HAMP outperform historic modifications, Amherst does not expect much of the overhanging inventory to cure. Assuming an 85% qualification rate for the 7m units seen in the overhang, analysts pointed out a 50% borrower outreach success rate — meaning servicers will statistically contact only 50% of the qualifying borrowers. Of these borrowers eventually reached, analysts said only 50% will submit the necessary documentation and only 75% of those modifications will succeed.
“[I]t suggests that 16% of the overhang or just over 1m units would be eliminated,” analysts wrote. “And many of these borrowers would default later, if they remain in a negative equity position.”
Now, who is supporting the mortgage market? You are, gentle reader. Consider:
LINK (http://www.chrismartenson.com/blog/federal-reserve-buys-more-100-mortgages-issued-2009/28343)
In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of new (purchase) mortgages in 2009.
That's not a free housing market; that's a market bought, owned, and sustained by the Federal Reserve's willingness to print up three quarters of a trillion dollars out of thin air.
While the individual mortgages issued in 2009 may or may not be the exact same ones purchased by the Federal Reserve, that's immaterial. All the mortgage issuers care about is that when they issue a mortgage, a purchaser with money exists somewhere down the line. The chain needs a terminal buyer, and that buyer has become the Federal Reserve.
The impact of these purchases by the Federal Reserve is to both provide liquidity and to drive down the rate of interest for new mortgages. By lowering both the long end of the Treasury curve (which the Fed does by actively buying Treasuries) and providing more than sufficient demand for MBS and agency paper, long-term interest rates come down.
Without the Fed's activities, it is a rock-solid certainty that mortgage interest rates would be higher than they are, and possibly a LOT higher.
What all this means is that when (not if) the Federal Reserve begins to try and unwind itself from all of the magnificent interventions of the past year, it must contend with the fact that it is the housing market.
Where the Fed is hoping that it can gently release the soft chubby fingers of the housing market, which will then toddle off under its own power, it will discover that it is actually carrying a helpless newborn.
This suggests that the fed will have a hard time exiting the mortgage market. When it attempts to do so, the housing market will crash (again). This will impair the underlying collateral (again). Which will precipitate a banking crisis (again). This may well mean that the home mortgage market will have been, in fact, nationalized.
But as the first item suggests, this also means that the taxpayers will have undertaken quite an expensive long-term burden with no exit strategy, no debate, and minimal hope of winning.
Rhetorical Question: I wonder where that money will come from? Borrowing? Taxation? Running the printing press?
incarcerated
09-29-2009, 18:53
Add to that this year 95 banks went under. 400 are in trouble. I heard this morning if one more "major" bank fails it will break the FDIC.
http://online.wsj.com/article/SB125423323602549299.html?mod=WSJ_hpp_LEFTWhatsNew sCollection
FDIC Fund to Be in Red for Years as Bank Failures Jolt System
SEPTEMBER 30, 2009
BUSINESS
By DAMIAN PALETTA and MICHAEL R. CRITTENDEN
WASHINGTON -- The government said the fund that protects consumer bank deposits has fallen into the red and will remain there into 2012, a pointed symbol of how the aftershocks of the financial crisis will reverberate for years as banks continue to fail at a high rate.
The negative balance is a headache for the Federal Deposit Insurance Corp., which runs the fund. On Tuesday, it proposed the unprecedented step of having the banking industry prepay $45 billion in fees by the end of the year to give the government more breathing room to handle future failures.
The only other time the fund fell into the red was in 1991, during the savings-and-loan crisis, and it shows how U.S. officials underestimated the impact of this crisis on the government's cash needs.
"Though some of our largest bank failures have already taken place, there are still hundreds and hundreds of banks that are going to fail in this cycle," said Gerard Cassidy, a bank analyst at RBC Capital Markets.
FDIC officials stressed that the fund's depleted state wouldn't affect depositors because federally insured deposits are backed by the full faith and credit of the U.S. government.
The prepayment proposal was met with unexpected support from banks. Some saw it as preferable to another option the FDIC seriously considered -- an emergency charge of $5.6 billion on top of the regular fees. This would have likely come directly out of the capital reserves at thousands of banks.
FDIC officials said banks would be able to spread the impact of the fee prepayment over several years by the way they account for it on their balance sheet.
J.P. Morgan Chase & Co. Chief Executive James Dimon, in an interview, praised the FDIC's plan as "an elegant way for them to do it."
In essence, the FDIC is proposing that most banks hand over by the end of the year their deposit-insurance fees -- the fund's standard source of income -- for the end of 2009 and all of 2010, 2011 and 2012.
The FDIC said that without the new policy, its cash on hand would be outpaced by its cash needs sometime early next year. Bank failures are expected to hit their peak either this year or in 2010.
The FDIC continues to have cash even though its deposit insurance fund has fallen into the red. It has already taken more than $30 billion out of the fund to cover bank failures over the next year. This is the money that is expected to run dry early next year without the prepayment assessments. FDIC officials estimated the deposit insurance fund wouldn't be back to comfortable levels until 2017.
Government officials on Tuesday estimated that bank failures from 2009 through 2013 will cost the FDIC $100 billion, up from a projection several months ago of $70 billion. Ninety-five banks have failed so far this year.
The FDIC's proposal reflects a growing recognition from government officials that more money will be needed to mop up the mess than they projected just months ago. It is also a stark reminder of how the banking sector continues to be strangled by bad loans.
There have been bank failures in most states since January 2008, hitting Georgia, Illinois and California particularly hard. The FDIC had 416 banks on its "problem" list at the end of June, and the number is expected to grow.
FDIC officials project the deposit insurance fund will remain in the red into 2012, despite the prepaid assessments from banks. This is largely an accounting issue -- the FDIC has to count the prepaid assessments as both an asset and a liability because it is technically deferred revenue.
Another option the FDIC considered was to borrow billions of dollars from the Treasury Department. Officials felt such a move would send the wrong message to the public.
"I do think that the American people would prefer to see an end to policies that looked to the federal balance sheet as the remedy to every problem," FDIC Chairman Sheila Bair said.
But for the first time, Ms. Bair said Tuesday that she had directed the agency to prepare the "mechanics" for borrowing from the Treasury in case it ever became necessary, although "today is not that day."
The evaporating deposit-insurance fund had $10.4 billion in June, the latest figure available, down from $45.2 billion in June 2008. That posed a public-relations problem for Ms. Bair. She has had to both move rapidly to close failing banks, which is costly for her agency, while retaining public confidence in the FDIC.
The rising number of bank failures has infuriated some politicians who have recently begun pressuring Ms. Bair's regulators to ease up on their increasingly close supervision of the industry.
The FDIC said banks could ask for an exemption if they didn't have the cash on hand to prepay the fees.
—David Enrich contributed to this article.
Write to Damian Paletta at damian.paletta@wsj.com
A stunning interactive graphic can be found here:
http://online.wsj.com/article/SB125423323602549299.html?mod=WSJ_hpp_LEFTWhatsNew sCollection#project%3DFDICfunds%26articleTabs%3Din teractive
Incarcerated's article above suggests real weakness in the banking sector - it is a threat that should not be ignored.
The latest Russell newsletter came out, and is attached.
Bottom line - we may be getting ready for a substantial move down. Time for caution.
Deflation seems to be taking over - some of the commodities seem to be getting markedly weaker, fast. It may be a good time for caution - and cash.
Deflation may suggest that we are on the threshold of a depression.
Latest Russell attached.
6.8SPC_DUMP
10-08-2009, 19:29
Here is US steel Guru, Dan Dimicco's, idea on how to curb the long term severity of America's economic problems.
Link (http://www.cnbc.com/id/15840232?video=1289135096&play=1) (It's 10 minutes if you skip in 1:40)
Dimicco compares job losses in recent recessions showing that we are at 17.5% real unemployment.
He identifies the relationship between jobs - equaling tax revenues - and brushes on the debt and trade issues that make it so urgent ( but are still the big unknown variables of the day).
More importantly:
His temperary solution is to drill every where we can here and building nuclear power plants. Not by investing in green energy technology that is decades away from possible efficiency.
He says any stimulus should be focused on job creation through manufacturing and construction to this extent - but over shoots how much we should spend IMHO.
I'd add that durring that time we develop:
These new, small, fission-reactors meet important criteria for nuclear power plants. With no control rods to jam, they are far safer than the old models -- you might well call them nuclear batteries. By not using weapons-grade enriched fuels, they are non proliferating. They minimize nuclear waste. And they're economical.
Today, 20% of our electricity is provided by 104 nuclear energy plants in the United States. These are already cheaper and cleaner than burning coal, oil and gas with all their pollutants, especially CO2.Link (http://online.wsj.com/article/SB124580572129645069.html)
Here is one under development, by Hyperion Power Generation, that will power 20,000 homes for a one time cost of $2,500 per. residence (7-10 years between refueling): Link (http://www.hyperionpowergeneration.com/index.html)
I think this could be the key for energy independence and world-wide access to nuclear power - all without nuclear proliferation. Also leading the way to resurrecting our auto manufacturing sales, world-wide, with already proven and affordable electric cars.:confused:
World Nuclear Association Home Page (http://www.world-nuclear.org/info/inf33.html) for more info.