Five Predictions for This Market 53 comments
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Things move faster. They just do. If you doubt it, consider the media you are digesting now. It didn’t exist really five years ago. You’d have to wait for it in a monthly periodical ten years ago… but likely you would not have seen this article, or the hundreds beside it, on a site such as Seeking Alpha.
You can read my post on a “Return to the 1970s” here. In the one week since that, the Dow has fallen from 7350 to 6726, a decline of -8.5%. One week is all it took for the Dow to hit my (self-defined) opportunity range of 6500 to 6800.
Things move faster. Yesterday, I had a chance to review a company’s tax returns. In advance of the Obama 2010 tax hikes, the CEO/entrepreneur had booked sizable income for 2008-9 that, in past years, he may have deferred to out-years. Such is American capitalist ingenuity. (I do not prepare the returns for this firm, I just got to look at them.)
Last night, I managed to see the HBO documentary “Perfect Upset”, about the 1985 NCAA championship game, and the triumph of Villanova’s underdog against the Georgetown Hoyas, against all odds.
There are coalescing factors at work, sentiment factors, and in this post I will discuss them.
Americans are creatures of optimism. Today, we are all Villanova – the underdogs. The relentless negativity of Obama apparatchiks will give way… once they realize they are not campaigning anymore, but helping run these United States.
For two months you have read about bad news for vehicle sales and industrial equipment, and various other all-time lows. You have read about Americans tightening their belts, growing their food, buying guns. About all manner of disease, pestilence, and depression to befall us.
Market sentiment is about to turn. The news simply could not get much worse than anticipated.
The Street’s whisper number for unemployment is 10.2% to 11% by year end 2009. By now, analysts (finally) have baked earnings models to include off-balance-sheet vehicles, impairments, and other such write-downs. So, way too late, investors who still heed sell-side analysts have a clear(er) picture of Dow, and S&P, earnings for 2009 and 2010. No sell-side analyst wants to be optimistic now.
Which is why Sentiment is about to turn. As these same sell-siders, with rare exception, did not divine their models’ inflated projections for year 2008, so too can they not see the pessimism of their current models.
It is impossible that Treasury Secretary Geithner is as big a doofus as Jim Cramer has made him to be. Personally, I think Jimmy’s badgering of Timothy is only big-brotherly tough love.
Psychologically, Geithner is one of those forlorn kids in a candy store – know the sort? – the kid who has five bucks to spend, but can’t decide what he wants, so he gets a bit despondent: too many ideas, too many options, not enough time to optimize the whole deal…
Geithner will find his own comfort cycle, and what he finally produces will be decent, well-considered, and positive. If you feel that he can’t do any worse, it also means you feel that he can do better.
Try as Obama’s administration might, the domestic entrepreneur is alive. Not just in small businesses, but in the CEO suites of our world-beating corporations.
If profits are heavily taxed in the US, the CEOs of Apple (APPL), Cisco (CSCO), Nike (NKE) and WalMart (WMT) will just direct investment dollars and growth to overseas opportunities. Any CPA (or physicist) will tell you that an aggressive engineered structure – like the administration’s tax proposals – only triggers equal, aggressive responses. Much like the entrepreneur/CEO I noted earlier, the CEOs of our best businesses will respond with mechanisms such as transfer pricing, overhead allocations, etc.
Obama’s proposals have only the effect of full employment acts for CPAs and lawyers for our current world beaters. (The administration’s big problem is the constraints that these proposals impose upon the “at-risk” industries like autos and chemicals… supposedly the industries that they wish to “save”.)
General Electric (GE) has had its demise writ large in these pages. CEO Immelt has done a dreadful job of outlining his company’s risks. Perhaps he – or GE Capital – doesn’t understand them. More likely, these risks are a moving target for which no handle is easily obtained.
You can read my October 7, 2008 view of the “Great Commercial Paper Bailout” here. To quote myself to clients then, with GE at $20.52: “GE is so f***ed in so many ways that nobody really knows what the hell is going on… There is no silver lining that I see”. So I haven’t been in love with GE before.
Elsewhere, what I said in that post is that the Fed/Gov intervention in the CP market was basically to prop up GE. But consider the following:
With General Motors (GM), we “saw the fires burning” for decades. Management versus union, bloated costs, declining shares – the worst of piggy American business. And marketing gas-hog, carbon-spewing SUVs that the Obamista love to hate. (That latter point is salient: Obamistas love their iPods – stylish, kind of green, personal, respectful, clean in appearance and function.)
GE is nothing like GM. GE has a case that it is trapped in a maelstrom not wholly of its own making. GE is a smart, well-functioning, somewhat “green” American business (one great progeny of Immelt is the “green” halo near GE). If GE got a tad caught up in financial engineering, well… that was the headiness of the era. GE was never an AIG.
Further, when GE Capital says that it “knows” the majority of its commercial loans, I know that, for a few of these loans, it does. The GEC loans I know are on office buildings in Los Angeles; the loan-to-value for each was 70% or less. While market LTV today is probably over 100%, all of the loans are producing, are adequately served by cash flows, and the owners should manage through.
As a real estate lender, GE was never a Wachovia (at whom, frankly, we laughed). GEC generally did not do “spec” like Lehman. Instead, the GEC boys were tough, principled, and tied to what-if analyses that considered seventeen different tragedies.
The game GEC played was committing to ten-year interest-only loans on commercial, while financing those loans internally at short-term CP rates.
It’s just my call on this: the great CP bailout will continue, for the benefit of GE. GE will not be allowed to go down.
Now that Immelt finally had the guts to slash the dividend, changes will – and must – come. Look for a bunch of truth-telling. A massive mea culpa write-down. Look for credit analysts to beat their breasts wondering how they got it all wrong. How GEC lied to them. Look for cuts in GE’s credit rating, the end of the world…
And then look for GE stock to climb to $15. Once the wizard finally raises the curtain, the market will discover that it ain’t so bad after all.
Manfred Zimmel may be a kook. Manfred Zimmel is not a friend. Manfred Zimmel has done nothing wrong but get nearly everything right. Altogether, Manfred is a dirty little secret from which you can take what you choose, kind of like PerezHilton.com.
I stumbled across Manfred’s website in my intellectual curiosity mode, researching “peak oil” in late 2004. I saved his December 2004 report as a pdf I called “Wacky Scary Right Questions”. In that report, Zimmel called for the SPX to hit 700 by mid-2008 (it was at 1150), for oil to hit $85/bbl by 2008 (it was at $45), the Euro to rise to $1.62 (was at $1.25), and gold to go above $700/oz. (was at $450).
Fair warning: Zimmel is an Austrian economist, an astrologer (?), and someone I have never met. He is and has been pessimistic on America, believes in a New World Order conspiracy, and sees a “Crack-Up Boom” coming that will subsume Capitalism as an ism and lead to 50% unemployment in the US, with 50% annual inflation, by 2012.
Still, when someone of Zimmel’s skew calls, essentially, for a boom in stocks – as in, the market’s early 2009 low should mark “the trough of the 4-year cycle since 2003” (buy his whole report if you must know more) with a rapid rise through mid-2009 – I have to return to Sentiment.
Sentiment: A Conclusion
Most of the boys who “know” have stopped coming on CNBC. Those who touted the market at 9200 do not return calls for interviews. If you’ve watched the last two months, you’ve seen many new faces.
The market as a whole is overwhelmingly negative. Cramer is calling for Obama-proof stocks. The belief is that we are all overwhelmed, the administration is a disaster for investors, there is no shelter from the storm this time. Meanwhile, of all people Manfred Zimmel – an astrologer/economist and perpetual contrarian bear – is expecting the market to rocket.
Me, I’m not calling a bottom until 6540. I’m not saying get heedless. But I will say it’s time to add positions, in opportunity targets like Disney (DIS), Nike (NKE), Intel (INTC), Cisco (CSCO), Costco (COST), and even UPS (UPS). And a host of other firms that you can identify, that will endure profitably into the next decade, and the next administration.
Warren Buffett may say to buy when all others are selling, but I prefer Coppola’s Apocalypse Now: “Someday this war is going to end,” says Captain Kilgore. “Yeah.”
Yeah. This war is going to end. And the future will belong to those who have endured.
DISCLOSURE: No positions in any stocks mentioned. Over coming week, will buy GE at $5, DIS at $16, INTC at $12, NKE at $37.
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This article has 53 comments:
Nice post.
The right wing will continue to scream tax increase even when 95% get a tax decrease. Sounds just like the lies of the election. Why does every idiot who writes a column think they are not required to use logic and facts??
Country being run by socialists and traitors -generally NOT a recipe for success.
That said, one does get the fastest and most vicious rallies during bear markets - I expect we'll see some nice ones over the next couple years.
Three - That ABC article yesterday about how people making over $250k are trying to reduce their income is the exception, not the rule. Regardless of the top incremental tax rate, I'm going to continue to work as hard as ever to improve my family's standard of living. I suspect most people that are still aspiring (and perspiring) to make over $250k will, too.
Five - Studies have shown that if you miss just the best X number of days in an upturn, your long-term returns are greatly diminished. I think this concept is particularly germane in today’s volatile markets.
On Mar 04 09:26 AM HiSpeed wrote:
> Another permabull - get on CNBC with the rest of them and scream
> BUY BUY BUY all the way into dow 5000s.
>
> Country being run by socialists and traitors -generally NOT a recipe
> for success.
>
> That said, one does get the fastest and most vicious rallies during
> bear markets - I expect we'll see some nice ones over the next couple
> years.
#2 - y, Geithner is PROBABLY not as bad as he looks right now. We'll see.
#3 - correct. Politicians never understand the law of unintended consequences. Humans are like water; if you dam the river over here, it'll flow around or under. If you change economic incentives, you're going to get a different result and likely not the one you wanted. Sic transit gloria.
#4 - correct. GE is an industrial company that happens to have its own bank. The market is valuing it like a bank and completely ignoring the industrial side. Maybe they should split it up.
#5 - don't know, but a lot of long-time bears are either getting bullish or less bearish (Kass, Fleckenstein, etc.) Sooner or later, every prediction is right (or wrong.)
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
Having conservative fiscal values does not a Right-Winger make! It is a logical and sensible perspective born out of a simple understanding of economics 101.
Your left-winger, government reliant friends were the ones applying for bad ARM's they could not afford. It takes two to tango. Without the application there could be no loan, without the bad loans the economy would not be where it is NOW!
Isn't that calling the kettle black! LOL.
ps: I wish Cramer would stop coming back to CNBC.
"getting it right" is a statistical process. Somebody is bound to be correct on their list of predictions.
However, the value of such advice is meaningless, since there is no way to predict with any confidence a system so complex.
If History is any guide, which is in itself always questionable, the market will bottom when everyone in CNBC et al give up their illusions of recovery.
I also like the Obama approach, which I suspect is more long-term oriented than the markets are used to. We'll see how it works out. I think the specific policies are less important than creating a predictable playing field. As Mr. Garot points out, American entrepreneurs have the ingenuity to adapt.
The values in the markets are normalizing, which means going down for now. It hurts that my investments have gone down, but that's the risk I voluntarily assumed.
There are some great companies which will survive this downturn and prosper after their weaker competitors fall. The trick is figuring out which ones will survive. My crystal ball broke last year, so I'm just wandering in the dark for now like everyone else.
A lot of you are much savvier economists and investors than I, but this is one subject I have foxhole-level experience with, and I can just tell you the president and his experts don't know what they're talking about. Ultimately serices need to trimmed, expectations changed, and the consumer needs to continue to bear part of the expense.
As for the rest of it, I agree with Prudentinvestor. Read the analyises of Felix Zualuf in Barrons. Fairly strong bear market rally in the second half of this year, then the weight of the delveraged, impaired economy pulls the market down and the secular bear continues on. A well-crafted stimulus might provide a quarter or two of some stability then the economy continues to sag, necessitating further fiscal injections.
I'll hold off buying for now. After all, what if prices decline further?! What if next week, they're 90% off? If that happened, I would have to sell my jacket at the consignment store for less than I paid. I could lose money!
Meanwhile, the weather continues to get warmer and warmer, which in my estimation, will reduce demand for down jackets even further. You'd have to be a sucker to buy a down jacket in this market! We're nowhere near the bottom.
I might buy that down Jacket in September or October of 2009 if the down jacket market stabilizes by then. For now, price volatility makes it too risky an investment.
You wrote: "Your left-winger, government reliant friends were the ones applying for bad ARM's they could not afford."
Do you have information about the political demographics of fraudulent mortgage applications?
Nice comment. But I have to ask: Have you factored in seasonality factors in making your price projections?
Talking about deals, we bought $750 worth of brand new luggage for $98 at Dillards last week. They were marked for clearance to make way for the new inventory. And of course jackets were on sale for 1/3 the original price. These types of sales will only increase with malls becoming ghost towns this year. Remember that commecial real estate is the next shoe to fall. With all these businesses going under, who is going to rent those vacant commercial spaces?...nobody.
Did you see the new s today?:
"U.S. private sector bleeds jobs, services slump deepens"
Wed Mar 4, 2009 11:19am EST
NEW YORK (Reuters) - U.S. private companies hemorrhaged nearly 700,000 jobs in February and the service sector slump deepened as the year-old recession showed little sign of abating, according to data released on Wednesday.
The private sector cut 697,000 jobs versus 614,000 in January, according to an ADP Employer Services report that suggested hefty employment declines are on the way in the government's more comprehensive payrolls data on Friday.
The service sector's decline accelerated in February, according to the Institute for Supply Management, whose employment gauge also remained at a depressed level despite its improvement from the previous month."This is a slow "U"-shape recession," said Kurt Karl, chief U.S. economist at Swiss Re in New York. "We are still sinking. There is no sign of a bottom."
"On aggregate, the services sector is more pessimistic going forward and it is contracting a bit faster. It's going in the wrong direction."
The service sector represents about 80 percent of U.S. economic activity.
It often resists the grip of recession longer than other areas, but in February, accounted for more than half of the total private sector job losses reported by ADP, reflecting the rapid deterioration of the economy in recent months.
Red Flag ----"WE ARE STILL SINKING. THERE IS NO SIGN OF A BOTTOM."
On Mar 04 08:39 AM russ wrote:
> Obama is trying to 'constain ingenity and entrepreneurs' ?? Sorry
> but this is the typical right-wing dribble that gets passed off as
> knowledge. Trying to get medical records out of the dark ages, trying
> to get science back into decisions about environment and research,
> trying to get innovation into energy policy sounds like the exact
> opposite.
> The right wing will continue to scream tax increase even when 95%
> get a tax decrease. Sounds just like the lies of the election. Why
> does every idiot who writes a column think they are not required
> to use logic and facts??
On Mar 04 11:51 AM John Lounsbury wrote:
> Caren:
>
> You wrote: "Your left-winger, government reliant friends were the
> ones applying for bad ARM's they could not afford."
>
> Do you have information about the political demographics of fraudulent
> mortgage applications?
Furthermore, its not just about gross earnings, but taxable income -- expect 401K contributions to be maxed out, thereby decreasing tax revenues. And someone, somewhere is going to have to pick up the slack -- enter the middle class. You seriously think that won't happen? Just remember, the middle class aren't as savvy regarding tax implications and don't have resources as the wealthy to know how to maximize take-home pay and overall earnings.
On Mar 04 09:29 AM xsellside wrote:
> Three - That ABC article yesterday about how people making over $250k
> are trying to reduce their income is the exception, not the rule.
> Regardless of the top incremental tax rate, I'm going to continue
> to work as hard as ever to improve my family's standard of living.
> I suspect most people that are still aspiring (and perspiring) to
> make over $250k will, too.
>
Actually, prudent, I think we agree that:
> "If [the market] does shoot up, it will only be to fall again.
> The current general levels (+/- 25%) are consistent
> with pre-bubbles history and with rational metrics and realistic
> economic expectations. The notion that we shall shoot back to bubble
> levels soon and fast is doubtful.
Absolutely, just expecting a +30% bear market rally in my targets. I'd have liked the market to fall further to cheapen up my list. I'll be on the sidelines until prices are where I want them.
Still, as Karen Finerman is saying as I write this, "there is just so much mis-information in the market right now, that there are stocks that are fabulously mispriced."
PS: I'm not a Dem nor a Rep, caren, russ and curmudgeon. Sorry that my post somehow turned this conversation into a political brawl; it was really not my intention.
Best regards -- pg
On Mar 04 09:17 AM oldcurmudgeon2 wrote:
> Why would I follow the advice of an idiot who is blaming President
> Obama for this crisis? Some kid who apparently thinks all the Bush
> tax-cutting created this extraordinarily strong economy we have?
> Garotte Garot!
Who milked the system? I assume that by 'milking the system' you mean 'made billions of dollars'. Was it the fly-by-night mortgage companies writing NINJA loans and immediately selling them to Investment Banks? I-Banks and the like who securitized those loans and re-sold them world-wide? The ratings agencies who rated this crap AAA? The folks buying and selling CDO's CDS's based on this junk? The de-regulators that facilitated all this?
You are not smart. Turn off the FOX and think for yourself. Duh indeed.
On Mar 04 04:18 PM Caren wrote:
> People milking the system generally tend to be more socialist in
> nature. Duh.
All I can say is: great! I hope you're right, Mr Garot! I won't mind missing out on all the massive gains when the market sky-rockets and stays up there forever thanks to Mr Geithner, because I will just be so happy if we are out of any recession/depression and have a stable economy without hyperinflation.
Then I can just run my gold coins through my fingers and chuckle at how silly I was. And believe me, I'd be a happy person, I really would.
Alas, I'm not compelled to optimism on that level, however sunny I try to keep my side of the street. I think the reality is that our economy is on the brink of collapse. It might rally a bit, but I think eventually this system has to come crashing down. I hope we accept it sooner, rather than lumping it onto our kids along with a much warmer planet.
If Obama really wanted to get out of this thing, he would hold an "entrepeneurs summit and poll the best and brightest for the top 10 reasons they are not starting businesses these days and undo them. I My list includes SOX, Options treatments, Overly burdensomeTax system, burdensome frivolous lawsuites. Sadly neither Obama nor any of his inner circle have run so much as Quickie Mart so I really expect no progress.
I will end my rant with this question, how has loading all of the tax load on the top earners worked for California?
On Mar 04 11:26 AM growser7 wrote:
> Russ, as a physician I can tell you that all of the ballyhoo about
> electronic medical records is just that. It is a pipe dream to believe
> that some technological trick is going to improve health care efficiencey
> and thus bring down costs. The causes of expanding costs have a lot
> to do with burgeoning back offices both on the payor and provider
> sides, and misaligned incenitves---and unreasonalbe expecations about
> life and death which are parts of current American culture. There
> is a huge medical bureaucracy which like all bureaucracies acts like
> a self-polymerizing "Borg" which won't whither and die without a
> fight. I saw the depositions on a lawsuit brought against Blue Cross
> in a state I won't mention. The average salary for a Blue Cross employee
> in the state was in excess of $110,000 (oer the attorney general).
> On the provider side, it is typical for overhead to be in excess
> of 70% of collections, with collections often less than 70% of billings.
>
>
> A lot of you are much savvier economists and investors than I, but
> this is one subject I have foxhole-level experience with, and I can
> just tell you the president and his experts don't know what they're
> talking about. Ultimately serices need to trimmed, expectations changed,
> and the consumer needs to continue to bear part of the expense.
>
>
> As for the rest of it, I agree with Prudentinvestor. Read the analyises
> of Felix Zualuf in Barrons. Fairly strong bear market rally in the
> second half of this year, then the weight of the delveraged, impaired
> economy pulls the market down and the secular bear continues on.
> A well-crafted stimulus might provide a quarter or two of some stability
> then the economy continues to sag, necessitating further fiscal injections.
Good article and good thinking.
I'm very glad to see a young person thinking for himself instead of mocking nabobs whose every comment is swayed by politics.
On Mar 04 11:26 AM growser7 wrote:
> Russ, as a physician I can tell you that all of the ballyhoo about
> electronic medical records is just that. It is a pipe dream to believe
> that some technological trick is going to improve health care efficiencey
> and thus bring down costs. The causes of expanding costs have a
> lot to do with burgeoning back offices both on the payor and provider
> sides, and misaligned incenitves---and unreasonalbe expecations
> about life and death which are parts of current American culture.
> There is a huge medical bureaucracy which like all bureaucracies
> acts like a self-polymerizing "Borg" which won't whither and die
> without a fight. I saw the depositions on a lawsuit brought against
> Blue Cross in a state I won't mention. The average salary for a
> Blue Cross employee in the state was in excess of $110,000 (oer the
> attorney general). On the provider side, it is typical for overhead
> to be in excess of 70% of collections, with collections often less
> than 70% of billings.
>
> A lot of you are much savvier economists and investors than I, but
> this is one subject I have foxhole-level experience with, and I can
> just tell you the president and his experts don't know what they're
> talking about. Ultimately serices need to trimmed, expectations
> changed, and the consumer needs to continue to bear part of the expense.
>
>
> As for the rest of it, I agree with Prudentinvestor. Read the analyises
> of Felix Zualuf in Barrons. Fairly strong bear market rally in
> the second half of this year, then the weight of the delveraged,
> impaired economy pulls the market down and the secular bear continues
> on. A well-crafted stimulus might provide a quarter or two of some
> stability then the economy continues to sag, necessitating further
> fiscal injections.
No, instead, we get Obama bashers. It's pathological.
"There were four massive stock bubbles in the 20th Century: 1901, 1929, 1966, and 2000. During each of these bubble peaks, the S&P 500 neared or exceeded 25X on professor Robert Shiller's cyclically adjusted P/E ratio.* After the first three of these peaks, the S&P 500 PE did not bottom until it hit 5X-8X. We're still in the middle of the last one."
(Source: finance.yahoo.com/tech...=^dji,^gspc,^ixic)
Today we saw the S&P 500 end at 682. Right now we are in the 12X range for Shiller's cyclically-adjusted Price-Earnings ratio. If we're to get to 5X to 8X ratios, as historically these bubbles have bottomed out at, we'd have to see the index in the 450 down to 300 range. That's downright disgusting to contemplate!
Note: The article also mentions how, because the last rise was up to 40X, which had not been seen before, it's possible there may be an overshoot to the bottom. All-in-all, I highly suggest taking a sobering look at that article before making your own predictive pronouncements.
What a load of garbage. Did Gates and Buffet make all their money under Bush II? How about Steve Jobs?
Like it or not we cannot have a nation of two classes. Those two classes being "rich" and "think they're middle class but really working poor." I'm sorry but if someone is going to just "give it all up" because of a lousy 3% extra on taxes after the first quarter million they are heartily invited to leave the country and not come back.
Try Sweeden or Great Britain or France. Maybe Germany or Italy is to your liking. Oh, wait, they all have much higher taxes than us. And yet, they all have rich people too. How is that possible.
I know, those guys only think they are rich. The banks show them phony statements every once in a while to humor them.
Final word to the author:
Give it up, guy. McCain lost, Palin is back to her moose hunting. The adults are in charge now and, if you don't mind, they are trying to correct the market failures that got us to this point.
Two: Treasury Secretary and noted tax cheat Tim Geithner strikes me as a blathering idiot. I do not trust him to do anything but prolong the agony.
Three: Obama will cripple American ingenuity. Every time I look at the news I feel like I'm living through the first three-hundred pages of Atlas Shrugged and the Equalization of Opportunity Act is now coming into force. Sure, it's a novel that, to quote Dorothy Parker, should not be "tossed aside lightly [but rather] should be thrown with great force," but Mr. Obama and crew just strike me as "looters" to use Rand's term.
Four: I've never trusted G.E.'s bookkeeping in the past and I'm not about to start doing so now.
Five: The market will rise. Then it will fall. Then rise, etc. It's the Malaria Economy now. In the final analysis everything turns on the strength of the U.S. Dollar. I remain unconvinced that it can continue to sustain but I am, as always, open to rational and well buttressed counterarguments.
My Statement:
You want "Apocalypse Now"? I'll go with Kurtz--"The horror . . . the horror . . . "
Yes, counter rallies will come along...dow to under 4000.
This is an "L" and life will not be the same for my generation..
the damage is to deep on to many levels... not to mention
the corrupt leaders intent on taxing people into poverty.
Stop down in South Florida and look at all the brown lawns..
it's depressing down here... Real estate has fallen off a cliff and
has at least 3 more years of downside to weed out foreclosures.
People here are just starting to realize it's over..middle classes wiped out... pilots, realtors, dentists, yacht industries, hotel, restaurant, financial
services, merchants... I could give you a long list of successful people who
are losing their homes...not flippers either.
Go read some books on the depression- here's one:
"Hanging on or How to Get Through a Depression and Enjoy Life"
or "Only Yesterday" by Frederic Lewis Allen.
What happened to civil unrest in this country.. bonus marchers...
war protest, Vietnam, Watergate... we, including me, are nothing more
than domesticated sheep.. no stomach to tackle the octopus in power.
by Polly Cleveland
Economists conventionally attribute the Great Depression to blunders by the then-new Federal Reserve Bank. According to this story, promoted by Milton Friedman and the Chicago School, after the stock market crash of 1929, the Fed kept interest rates too high, strangling the economy. This story made most economists confident that it couldn't happen again.
But there's a different story: the story of the giant 1920's real estate bubble. It began with cars.
Starting in 1899, the auto industry took off exponentially, dipped for two years during World War I, then took off exponentially again during the 1920's. Production reached a peak of over 4 million vehicles in 1929, before collapsing. It did not again pass 4 million until 1949!
The auto suddenly opened up vast suburban and rural areas to housing. Developers--legitimate and bogus--leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages"--effectivel... allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "club house" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926 Chicago population increased 35% and land values rose 150%, or about 12% a year.
In 1926, land values stagnated, then fell. By 1933, Chicago land values had fallen some 70% overall; peripheral areas fell even more dramatically. After 1929, home construction collapsed, and--paralleling the auto industry--did not again pass the 1926 level until 1950. Around Detroit, over 95% of recorded lots were vacant as of 1938. Nationally, there were an estimated 20 to 30 million vacant lots, compared to about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields.
The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs--panicky depositors withdrawing cash--further crippled the banking system. Between drops in spending and lending, businesses failed, unemployment soared, and prices fell.
Thus a radical innovation of the early 1900's--the automobile--set off a destructive real estate bubble in the 1920's. Another radical innovation took hold in the late 1990's: "securitization", that is, the aggregation of consumer debts, especially mortgages, into marketable packages known as "collateralized debt obligations" or "CDO's." CDO's set off another giant real estate bubble by making houses "affordable" to poorer Americans. The collapse of the CDO bubble stuck banks once again with "toxic" real estate.
Fortunately, economists--and markets-- now recognize that to limit damage, we must force banks to write down the garbage quickly. But write-downs will reveal that some big banks' liabilities exceed their assets, requiring drastic remedies, including restructuring, breakup, and possibly temporary nationalization. Unfortunately, so far our new Treasury Secretary, Tim Geithner, either lacks the nerve or the authorization. Unless he acts soon, we face another "lost decade" like the 1930's.
Oh no, Jim gives credit where it is due. Geithner is a complete and utter doofus. Love how he tried to distract everybody with the global warming Schtick in front of congress yesterday.
On Mar 05 09:17 AM Johnaudio1 wrote:
> I can state 100% sure that BC/BS employees do NOT average 110K ...
> Period. This "physician" needs to learn how to spell.
Hey, User 370791 --
Come on, you completely misquoted me! I don't mind your interpretations of what I said... but don't put them in "quote-marks" as if I said them.
FYI, I liked Bill Clinton. Voted for him both times. Thought the guy was the smartest guy in the room (before that phrase was popular), and a guy that I would like to know. Not right-wing at all. As a kid, voted for myself in Bush I's election vs. Dukakis (and persuaded several others to vote for me, check the Library of Congress).
Actually I was raised, and always felt I voted ,as a Daley (Chicago) Dem.
That is, a pragmatist. In favor of what works. (or what I thought would work.)
I am sorry my words made this article devolve into a political hate-bash session. I'm all in favor of Obama-- provided he does what makes the whole system work overall. And by "system", I mean the betterment of ALL our citizens first, and then the world.
I would like to pass on to my kids a United States of America to which they can bring their own passions and talents, and prosper.
(And if you have a problem with anyone even saying "United States of America" in a positive sense, then there's a nice walk-up on the Rive Gauche for you -- you'd like it there, I lived that life, too.)
I do not ascribe to an idea that our country is generally wrong, historically inviolate, or otherwise. And if you do, anyone: screw you. Become a student and learn what other "empires" (including Aztec, Sioux, other "native" cultures), with their area's or the known world's most fearsome militaries became, and how they imposed true iron-fisted Will.
Our country is responsible for 80% plus of the inventions that have most benefited all humankind. We have not asked much for it -- no supplicants, just a pittance of profits -- as we have cured diseases, linked families to families, provided a beacon against tyranny. Our benefits list is endless.
(I had a debate with a friend about this. She said she thought that Kenya was more "beautiful" and "pure", since the people there were not "into" capitalism. While living there over 8 months, she contracted a resilient staph infection. I noted, nicely, that they were researchers at Gilead who had spent many hours away from their wives and kids to develop, test and distribute the very pill that cured her. And wasn't that time important to them, and didn't they deserve an extra nice vacation from it? She finally allowed, "well, yes, ummm, yes.")
I am not George Bush first or second. I am not Ronald Reagan, nor am I Bill Clinton or Jimmy Carter or Ford or Lincoln.
I am me, and the closest parallel I offer as to who that is is Patrick Henry. If ever there was a real "liberal", in the true sense, it is Patrick Henry.
So stand up, this Patrick says. Rabble rouse! Assert your God-given rights (yes, "God" is in Jefferson's preamble) to have this dialogue.
Above all, everyone, thank you all for the healthy dialogue.
All the best -- pg
PS: If you look at my "optimistic" post of Feb 24, 2009 "13 Safe Stocks", or my "Paper is Dead"/Santelli Tea Party post, you'll see that I assert that I believe it doesn't matter, as you suggest, what any administration does, it's all about the (American) entrepreneur, who will find a way to succeed regardless. Think we agree on this, kid.
On Mar 06 12:14 AM User 370791 wrote:
> "Obama will constrain American ingenuity, with punitive taxes on
> successful entrepreneurs."
>
> What a load of garbage. Did Gates and Buffet make all their money
> under Bush II? How about Steve Jobs?
>
> Like it or not we cannot have a nation of two classes. Those two
> classes being "rich" and "think they're middle class but really working
> poor." I'm sorry but if someone is going to just "give it all up"
> because of a lousy 3% extra on taxes after the first quarter million
> they are heartily invited to leave the country and not come back.
>
>
> Try Sweeden or Great Britain or France. Maybe Germany or Italy is
> to your liking. Oh, wait, they all have much higher taxes than us.
> And yet, they all have rich people too. How is that possible.
>
>
> I know, those guys only think they are rich. The banks show them
> phony statements every once in a while to humor them.
>
> Final word to the author:
>
> Give it up, guy. McCain lost, Palin is back to her moose hunting.
> The adults are in charge now and, if you don't mind, they are trying
> to correct the market failures that got us to this point.
>
>
>
How do I know this is the right strategy?
It's easy when you watch congress and our newly elected president. It's obvious they've learned nothing and will continue making stupid decisions that will end in a bankrupt America and a worthless dollar.
Clinton started this mess, Bush made it worse, and Obama is proving that change isn't necessarily for the better. I only have one more thing to say. Where is Ron Paul when you need him?
You have to be kidding!!
1) Obama's last road trip was to the 3 major swing states. He's already running for 2012
2) yesterday he blamed all this mess on healthcare costs. He is just promoting his socialistic agenda not "running the country"!!!
You said--The relentless negativity of Obama apparatchiks will give way… once they realize they are not campaigning anymore, but helping run these United States.
2. Geithner...what can I say other than he is not going to save us, always has that deer in headlights look, overpromises and underdelivers.
I do think that in the next week or so there will be a sizable bounce up followed by a move farther down. I would not call a bottom here, the ultimate bottom is nowhere in sight as long term visibility is almost nil.
Let's talk Patrick Ewing...
Signed,
Unfortunate Knicks Fan
When I wrote this, GE was at $6.50. It closed today (April 7, 2009) at $10.65. I suggest that whoever might have followed this advice sell most of their GE and book their 63% gains right now.
Likewise, Disney, Costco, Intel, Nike, and UPS were near lows.
DIS at $16.50, COST at $40, INTC at $12.75, NKE at $42.55 and UPS at $40.65.
They are now DIS at $19.12, COST $46.39, INTC at $15.50, NKE at $50, and UPS at $51.50.
I would harvest half the gains in DIS, COST, and INTC. NKE I would sell about a third of the position. UPS I would sell all.
Best -- pg