The Rally, When It Comes, Will Be a Doozy 117 comments
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Look at the following charts. The amount of cash sitting and waiting for a home is staggering. When it decides to flow into equities, the upside could be like nothing we have ever seen.
What makes me think that? Well, the downside we have just seen is a once in a generation event (at least history tells us these are events that happen about every 90-100 years). We also have not seen cash levels this high in a generation.
Now when does this happen? Hell, I don't know and anyone who tells you they do is full of it. But, what this does tell us is that the market is becoming a coiled spring. It is pulled back about as far as it can go and the cash buildup is the building tension.
The billion dollar question is how long can it stay pulled tight before it snaps back (the big rally)? A month, 6 months, a year? If I had to guess (by the way, anyone doing something like this is guessing), I would say at least 6 months but less than a year... again, just a guess, but we are getting to levels in certain equities that imply obliteration. That just is not going to happen to whole swaths of the economy...
Now, do not get me wrong. I am not saying that everything is great and the economy is in perfect shape. Far from it -- and it will be so for years. What I am saying is equities are being priced as if -6% GDP is the given for the whole year and into next. Even if we go to just 0% growth in, say, Q3 or Q4, that is a huge improvement and will call for a recalculation of equities, fast.
We are at the point where the news flow is bad every day. A couple of good weeks for unemployment, GDP, retails sales etc. could cause the negativity to turn. Caveat: Ignore any good news from housing. We need months in a row of good news before anything here matters. The month to month variations are so extreme right now in part because of new constant monthly government "rescue" programs that until there is a clear trend in housing, a monthly number has ZERO meaning.
It may not be Mardi Gras in the market for a while but it certainly will not be a funeral for eternity either.
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This article has 117 comments:
Equities performed very well for 26 years. I doubt that for the next 5-10 years this will also be the case.
Looking at current (and forward) P/E ratios for the main indexes, I don't see the deep value, which suggests the cash-hording is quite rational.
Doesn't mean folks won't get irrational again (my bet is you're right, and they will), but the magnitude of this downturn might temper some of the irrationality going forward....
It could be equities, but it doesn't have to be. Could be commodities or something else.
And I mean people buying with their own money, not portfolio managers playing with other people's money.
This, I have to see.
I figure a 25-50% upside for the banks in a day.
That cash sitting out there has only one thing to fear right now and that's inflation. Look for some of that conservative cash to move into gold later on this year when inflation starts to roar.
Any speculators?
I am leaning in your direction. There is way too much silence from the powers that be and showing up in the morning, shorting the financials and going home for the day is standard operating procedure. Those folks are walking a tightrope and I am not sure the bulk of them have a clue that they are about to get hung out to dry. I have no idea what shape it is going to take but it is coming.
Whenever any form of trading becomes effortless and easy, look out.
The information flow has started against the financial bears with GE and WFC. Two interesting days for those two.
Something is brewing and it is big.
Think oil. Last summer the CL spring got wound real tight on the plus side, it let loose and look where is it at now? One guy last fall was calling for $30 oil and the prevailing comment theme was "what are you smoking". $30 was too low, but it wasn't that far off.
One thing I do agree with though is demographics may put a lid on any equity recovery. Even when the public is back in the mood for equities most likely a fair amount of that public will not return because they need income and not growth. Interestingly enough, that same demographic trend will relieve the pressure on rising medical costs.
EWY - South Korea - P/E < 10
EWA - Australia - P/E ~10
EWZ - Brazil - P/E < 7
VWO - Emerging - P/E ~10
RIG - Oil Rigs - P/E < 4! Really! despite 5yr growth est 10%/yr!
AMX - Latin American Telecom - P/E ~10 growing fast, even now! seekingalpha.com/artic...
EXR - REIT, self storage - P/E = 8, yields 15.9%, revenues growing too! Buy it low and collect that yield for years. Current ratio near 2!
HCN - REIT, senior housing / hospitals - P/E 9.7, yields 8.8% w/ revenue expected to grow 6%/yr, trading below book value
TIP - inflation-protected securities - 10% value increase baked in when inflation returns, is that doubtful anyone? Downside risk: roughly flat. Yields a little too.
TBT - shorting long-term treasuries - a market rebound OR unexpected inflation number will crush those 2-3% 20 year treasuries. I'm up over 10% since Jan. Oil's back to $45, did you notice?
FRX - pharma - when's the last time you could buy a growing, cutting edge pharmaceutical company for a PE of 6, an ROE of 22%, and $2B in cash vs. a $5.7B market cap?
ASF - staffing - P/E ~10, lots of cash, very little debt, high margins = rebound ready!
ORCL - software - P/E ~ 13, earnings stable, product dominance, $10B in cash on hand, fat margins = rebound ready!
ORA - geothermal / waste heat recovery - High P/E for now, but ORA sells the heat exchangers and green energy that will be heavily incentivized in the near future. They are established, dominant, been profitable for years, and solid, unlike many "green" companies which are little more than wishful thinking or unproven tech.
In closing, let me thank the herd for giving me the opportunity to construct such a great portfolio for so cheap. Please keep hoarding canned goods and gasoline for the next few weeks while a few of my buy limits are reached. :)
What most people seem to be missing is that the current depression and it's attendant stock market crash is not the problem. Rather it is a symptom of the problem. The problem is tens (maybe more) of trillions of dollars in debt which can not be repaid. And there is no government which has enough money to cover those kinds of debts without recourse to the printing press.
This is a vicious and nasty little depression which is going to last for years. When we do hit bottom I expect the economy to basically flat line with zero to minimal growth for several years while all of this toxic debt works its way out of the system. We have several more shoes that have yet to drop including the pending explosion in credit card and student loan default as well as the collapse in the commercial real estate sector which is only just beginning.
And of course the policies of the current administration are rather akin to throwing gasoline on a fire. You can not borrow and spend your way out of debt. The end result of is going to be an 'L' shaped recovery for several years after we eventually hit bottom. This combined with a very nasty spike in inflation suggests to me a return to the bad old days of STAGFLATION.
We have witnessed a crash that is on par with those seen in the early years of the Great Depression. Market losses are nearing 60% and and still sliding. No bounce is going to recover that lost territory. What we need is a sustainable recovery. And there is no evidence anywhere that such is on the horizon. To be brutally honest, I don't even see anything that might act as a speed bump in the slow motion crash we are in.
Until the issue of the toxic debt is definitively addressed (by bank nationalization or some other decisive means) I would stay defensive. If your not already in a defensive mode you need to go there. I am not going to predict a bottom. But I will make two observations. First the bottom MIGHT be a lot farther off than some people think. DOW 5000 or even lower is not beyond my imagination. And secondly when we do eventually hit bottom it's going to be MANY YEARS before we see a real bull market. Expect three to five years of super low economic growth potentially coupled with brutal inflation.
I recently sold almost all of my positions and moved into PRPFX. I plan to stay there until see a true bottom and have a clue where things are going.
Everyone staring at everyone else trying to figure out the best way to 'game' what everyone else is doing.
Its like the final scene in Reservoir Dogs played buy the entire country with each other at once.
No wonder this thing is collapsing ... haha ... what kind of nutty society has this internet unleashed?
Hey Todd! When the global economy endeavors to recover from the current $lump, what will happen to the demand for energy, crude oil in particular? Peak oil and climate change (and other factors) more than suggests that humanity has hit a wall with the resource limits of Planet Earth. See it Todd! See it... or die.
I agree with your assessment. I am just getting tired of those who talk with complete and utter certainty about how bad things are and how much worse they are going to get. I didn't see these posts here in numbers a year ago when such advice might have been actionable.
Positive or negative, a Monday Morning Quarterback is a Monday Morning Quarterback. If you are negative on the markets please take my old editor's advice and "show don't tell". Oversimplified declarative sentences about the end of the world or even the end of finance are of no help to anyone, no matter how certain you are that everyone else on here is a pollyanaish sucker.
And you never will!! Haha ... good point ... and 'the' point!
There are a few of us here who, after the drubbing the markets took in November, increased our 401K contributions to the max our companies would match (in my case, 10%) and are quietly building nice positions in what are finally reasonably-priced equities. As the short-sellers drive the prices down and the gold-bugs and doomsayers hoard ammunition, canned goods and gold, I'm able to buy much larger positions in quality, long-lasting companies than those I closed out in Sept-Oct. I've also got enough left over to buy sizable chunks of lottery tickets against the apocalypse (such as FAS, DXO, DAG, UYM). Soon enough, or preferably later if you'd just keep your yap shut, the panicked populace will realize they've once again been played and that its really not all that different this time, just like ALL the other panics and bubbles.
Rally?! It's end times, baby!
Amen ... haha ... telling your neighbor he is a sucker and then telling him why he is a sucker and what he is going to do next to prove it ... just shows you are the sucker.
Several TRILLIONS are gone into thin air, from housing and Equity Mkts all over the World The housing value is still dropping. Unemployment is going to get worse (downward loop for Housing) before it gets better. Deleveraging is going to continue. The BKX banking index has lost nearly 84% and other indexes atl east 55% or more.
The wealth MIRAGE was created with unrealistic Housing values combined with CONSUMPTION Economy built on debt and leverage. You will have to recreate that fantasy again! May be we need an another BUBBLE!
If you think you are going to recover losses back to pre Oct 2007 level it could be 10 yrs or more if we are lucky. Or more likely most of us will never those peaks again in our life time!
NIkki - 40,000 to below 7000K as of now since 1989.
Nasdaq 5000 to 1294 now from March of 2000. Get the drift?
If I buy now and it goes up well over 100% (back to Oct 2007 levels) in 10 years ... I can go with that. Seems like a really good deal actually.
>> Nasdaq 5000 to 1294 now from March of 2000. Get the drift?
Or to rephrase my point ... you are saying don't buy now when the market is in the toilet as that would be buying low and selling higher later. And no one wants to do that.
Ok ... great advice.
Hey, as long as there are human beings - kicking the can down the road is quite a valid strategy. Perhaps at some point people will realize that fact. A global ponzi scheme is fine, the problems only occur when the morons want to pay the dues of past excess.
Self loathing - the calling card of the doom and gloomers.
"They will adopt FASB 157b-- By next week they will be discussing this publically and then watch the shorts cover. I figure a 25-50% upside for the banks in a day."
That would be swan of a different color!
(It's a mind-expanding possibility. But its effect wouldn't be long-lasting, I'm afraid.)
My case for being able to make the above claim:
What is real wealth? Money? Nope. Equities? Nope. T-Bills? Nope. Those are all symbols. What's the real wealth? Go look outside. Go for a drive. It's the freeways, the houses, the roads, the cars, the products, the computers, the energy. Money, equities, t-bills are just symbols for divying out and managing the flow of actual wealth.
So as Americans ... how are we at creating actual wealth?
- Our ability to extract and/or synthasize raw materials has never been so good and is getting better
- Our ability to farm has never been so good and is getting better
- Our ability to fabricate/manufacturer has never been so good and is getting better
In short: Our ability to generate real wealth has never been so good and is getting better.
The only way an L shaped recovery could truly materialize is if the peak oilers are correct (in the short term) and technology can't save us (in the long term). I'd say the odds are stacked against both.
>> In short: Our ability to generate real wealth has never been so good and is getting better.
Man ... someone with a brain. Thankfully!!!
On Mar 06 04:49 PM athena wrote:
> They will adopt FASB 157b-- By next week they will be discussing
> this publically and then watch the shorts cover.
> I figure a 25-50% upside for the banks in a day.
Hehehehehe,
Lordy, I got PO'ed at first at your comment but I kept reading.
I went into the market about one month ago (well, again I am in but I am hoping for a miracle on that one, it registers a 33.3% gain and still reads: $0.00 on my board) and currently am down 1/3 on that purchase. I am thinking about scooping up another block of that stock despite somewhat dire personal circumstances.
Watching the reaction to Jason Schwarz's $30 CL call was an interesting lesson in contrariarnism.
@BeninEden,
So correct! Too many people view money like Thurston Howell III the old caricature capitalist. Hydrocarbons & energy are the limitation and remember, nations used to war over islands of bird dung until the petro-economy came spurting out of the earth.
I always picture that island dude taking the wad of cash, pulling the rubber band, tossing the cash and going nuts over finding the rubber band.
Sure, we could see a sucker's rally to 10,000.
Then the wheels fall off to 2000 when everyone sobers up and realizes that in 2010, even more Alt-A's are going to explode, the 10 miilion people unemployed are still looking for work, unemployment benefits (for those states that still have any without asking for more bail-out money) will be running out for people who have exhausted EVEN their extensions and still can't find a job......
<DEEP BREATH>
AND.....We continue to run 1 trillion dollar deficits, the dollar starts to look like a banana starting to go bad, Chrysler is gone, GM is gone, 401k's are shredded, pensions are being tapped into by desperate states, insurance companies are going under due to CDS's (let's not forget Hurrucane Season....State Farm hasn't....that's why they bailed on Florida).....
<DEEP BREATH>
AND.... Banks continue failing because of default rates in consumer credit like credit cards and car loans, banks are failing because they still have 100's of billions of dollars of houses they can't unload, banks are failing because they still haven't washed 400 trillion dollars of derivative valuation out of the system.....
<DEEP BREATH>
AND....Obama is still pushing Socialism
Obama is still pushing Socialism.....
DId I forget.....Obama is still pushing Socialism.
The Republicans still have their thumb firmly implanted in their Wall Street Whores' asses and still don't have a vision for America.
Sure! LET THE RALLY BEGIN! Let's ZOOM back to 14,000!!!
And as soon as we do Peak Oil rears its ugly head (you thought oil just magically refilled itself in the ground because it's at 30-40 dollars a barrel?) and we grind to a halt yet again as it reaches 150/barrel yet again.
Let's Party Like Its 1999 !!!!
<DEEP BREATH>
AND....Larry Kudlow is still planting mustard seeds, AND Cramer is saying "BUY, BUY, BUY!!" my new book, and the realization that Medicaid is broke (at least on paper) by 2014 at the latest and the total Federal Debt has reached 100 trillion dollars (if you do real accounting and not hide Social Security, Medicaid, VA Benefits, Gov. Pensions)
Sometimes this board reads like a realtor forum: "it's always a good time to buy!"
On Mar 06 04:24 PM TexasER wrote:
> I agree that the US dollars sitting on the sidelines will flood into
> something. I just don't know what it is. Neither do the people holding
> that money...yet.
>
> It could be equities, but it doesn't have to be. Could be commodities
> or something else.
This horrible market is simply anticipating the deluge of baby boom retirements which will start within a few years.
On the government side, each civil servant (local, state, or federal) with a full career pension requires anywhere from $600,000 - $3,500,000 of liquidation of securities. That's just the public sector.
Add in the private sector with the lucky ones who still have defined benefit pensions (not busted-out defined contribution plans) and the liquidation scenario is too awful to contemplate. Even the 401(k) bunch will need to sell in a few years to pay bills for basic needs. Those poor folks who worked hard, but without the cynicism to be "smart," must resign themselves to a work until death scenario.
Money on the sidelines will not cover this demographic catastrophe: old folks will sell investments, directly or indirectly, because of retirements. There are too few productive younger persons to flll the gaps.
This crisis is bigger than Bush, or Obama. It's a once in our history event.
A huge mass of persons hopes to liquidate stocks (by direct sale from defined contribution plans or simply because they retire from defined benefit plans and someone else sells).
What is happening in the stock market today is a prescient realization of the future.
LordD
But, I will go further, in saying that the money on the sidelines is money from the ruling class and its cohorts, in addition to retirement money. In other words, it is there mostly for investments that will extract surplus value or profits. That money is not available to buy the trinkets that the capitalist fools make. The data below illustrates this statement as well as the foolishness of the capitalist elites.
Annual rate of wage rises, in real terms, in the USA
1959-1973 2.9%
1973-1999 1.7%
Annual growth in profits, in real terms, of the 500 companies of the S&P (USA)
1961-1968 6.7%
1991-1999 15.9%
As you can see, up until 1973 the workers (consumers) were getting a good portion of their productive efforts back as buying power or stored demand where profits to wages were only a little over 2 to 1.
However, after 1973 the workers vastly increases in productivity no longer yielded commensurate increase in wages (stored consumer demand) b/c the greedy and foolish capitalist elites "hogged" it all up to the ratio of 8 profits to 1 wages!
The capitalist elite fools destroyed their own market! Knowing this, after 1999 they artificially increased the limits of the market (demand) by credit; but that merely served to temporarily postpone the crisis.
The capitalist elite propaganda was that if the rich are doing well, then in the long run some of the wealth will trickle down and we will all benefit. This theory has been shown to be as demonstrably false now as it was in the period proceeding the 1930's Great Depression. The twisted logic of capitalism...!
The prevailing sentiment is bearish and not for a snapback. As the rejoinder to my note on that states is to keep it quiet so the masses don't catch on. Last summer I paid close attention to commodities especially CL and other energy commodities and the sentiment on that. Even as the prices started retreating from the top, very few expected it would whiplash as severely as it did, economic downturn or not.
Maybe a few of us here are looking for such a thing but out in the general population there is very grim outlook. I have been through this before with my 401K watching it do down-down-down and then finally getting sick of seeing that... So I stop watching closely, I come back sometime later and what do I say? Holy $#!+ where did all of that $ come from?
Back in August if I told you oil would be trading for $45/barrel in the sprintime, what would you have said to me? I bet it would be something along the lines of "give some of your smoke!".
LordDarley,
Yours is about the only cogent reason put out there to explain for a slow return to 14,000istan or a longer time to 15,000istan than what many think. Even if the death tax is not repealed that wealth will eventually return into play, when those people pass on. The money will not suddenly disappear into the ether, will it? I guess that last conjecture depends on how bad the imminent inflation is.
On Mar 06 04:19 PM Gross Profits wrote:
> Or all that money could flow into gold and commodities. A little
> may flow into stocks raising them 20-30%. But if we have hyperinflation
> what good is that?
> Equities performed very well for 26 years. I doubt that for the next
> 5-10 years this will also be the case.
Your thought just occurred to me the moment before seeing your post. It is quite possible the initial tension could have been upside tension in the American economy as a whole and not just a sector. Still, it is always a temptation to believe the top of the last bull run is the proper place for the market. In any event I think the market has overshot and overshot by quite a bit its proper value.
Preferred stock in hotel REIT's are delivering ridiculous yields: Host (HST) safe as houses pref yields >15%, with 40% appreciation back to its normal levels. Still safe, LaSalle (LHO) prefs yield >20% with 250% appreciation headroom (remember, pref shares normally trade around $25, so target prices are easy to figure). Our company works in this industry and LHO management has proven to be one of the best. They know how to batten the hatches, so my IRA loaded up.
For those with a taste for more risk, others are delivering yields of 30% (AHT) 50% FCH or more. Me, I'm content with conservative LHO and 20% in cash each year.
Sure, it may take a few years for our shares to do the double, but at >20% per year (Buffett territory) while we wait, who's in a hurry?
Bet you could live even better with that! :)
On Mar 06 08:03 PM eternitus wrote:
> Dow PE is 8 trailing and 10 forward with a 4.4% dividend... I'll
> take it. Levels like this don't last long.
On Mar 06 06:06 PM 3201JQ wrote:
> Would all of you knuckleheads please shut up about coiled springs
> and snap-back rallies! All you are doing is wasting your breath trying
> to speak reason to a panicked mob.
I have to agree with 320 on that line. I am expecting consumers to be far more cautious for years to come, and I don't think the consumer based economy will ever return to what it once was. Business people are going to have to be smarter, business plans will have to be tighter, customers will be sniffing extra close to seperate the bs from the solid deals. The one thing we have to remember about this recent economic slowdown was that it wasn't just "one of those cycles in the economy," it was spawned by overly greedy half-witted lending policies and illicit accounting practices. Many of the second stringers who had to rely on those tricks to get by (And let's not try to pretend it was just a few guys out there who have already left the building) are still waiting for the other shoe to drop.
Saying the economy is like a coiled spring is akin to saying: "It's just a matter of time before consumers and investors forget how badly they were screwed and we can start grifting again!"
AND the graphs are deceptive - they are percentage of S&P market cap. Well the graph will shoot up (actually double) just because "S&P market cap" is 50% down with any increase of $ being sidelined! So much for doozy fantasy....
On Mar 06 04:51 PM mr freddo wrote:
> This is a once in a century event so I don't believe that looking
> at cash levels is a reliable indicator of a rally. Any cash that
> is sitting on the sidelines at this point is damn happy and lucky
> to be their instead of riding out the equity debacle like a great
> deal of net worth is doing these days.
>
> That cash sitting out there has only one thing to fear right now
> and that's inflation. Look for some of that conservative cash to
> move into gold later on this year when inflation starts to roar.
"Citigroup reported a net loss of $5.1 billion, or $1.02 a share, for Q1 with more than $10 billion of write-downs. Revenue fell 48% to $13.22 billion. They took $6 billion of pretax write-downs and credit costs on sub-prime loans. The firm also announced write-downs of $3.1 billion on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, write-downs of $1.5 billion on auction rate securities inventory, and a $3.1 billion increase in credit costs in its global consumer business.
Citi also said they have already sold $4 billion in leveraged loans in April. CFO Gary Crittendon said there will be no "transformational" assets sales (they will sell some, just nothing big) in 2008, no more dividend cuts, and no more equity raising. About 9,000 additional jobs, on top of the 4,000 already announced are going to be cut.
In short, things seem to have bottomed. This is not to say it is a shot up from here. My guess is things languish for a while until there is some trust back in the financials. The past month has seem an avalanche of bad news out there, and as a group the financials have taken the hit and equity prices have remained stable.
Now we look to next quarter for more stabilization and perhaps improvement. If there is improvement, it will be small. Just no further billion-dollar write-down would be huge at this point. Investors seem to have much more clarity as to both what is happening inside the bank and in the environment it operates in.
For long term folks, it would seem a good time to get in."
Good time? Great time! I can't wait for this robust rally, based on pixie dust and our collective good vibes....
I asked you before. Retire. Stop. Enough already. Elephants can't tap dance, and you can't "prognosticate".
BeninEden's viewpoint is very similar to mine. I have to believe that the American brand has been severely oversold. Despite all the fraud and excess of the past 10-15 years, the U.S. has some profound structural advantages that will eventually be reflected in market returns. I'm gratified that my belief that Dr. Copper (through FCX) might eventually lead the way out of the darkness has been justified (at least to date).
It also seems apparent that businesses that must daily compete in global markets have grown more competitive than those that don't. I'm more inclined to invest in technology firms than insurance, biotech than healthcare.
But, what do I know?
Sentinel may be right. In the face of a massive collapse of demand, a commodity like oil, that we've delivered in roughly equivalent annual increases for 100 years, may suddenly quadruple in price (despite the collapse of the over-leveraged shadow investment network) and we'll all be screwed.
I'll take that bet.
I disagree strenuously with your sentiment. I think the coiled spring analogy is perfectly fine. Also, you leave out the rest of 320's comment which is bullish and meshes with my outlook.
I put it all out again. If last August I would have called for $40/barrel oil, what would you have said? I have seen these oscillations before and I fully expect to seem them again. I am quite willing to entertain the notion the tension was built into the system at 14,000 rather than it being wound up now, which is something I am starting to become convinced is the case.
Price & value discovery is not an exact science nor are the parties in the deals on the same timelines.
@Jeez, nor is there any law saying it must stay out. I have seen money flow in and out of equities from a fairly close perspective a number of times in my life. I see no reason why this time should be any different unless someone ;-( takes a wrecking ball to our nation's economy, which I admit is starting to seem a reasonable fear.
So much of this seems a redux of Jason Scharz's $30 CL call last summer/fall.
While not admitting it in public, I am sure team Obama/Pelosi is really scared the market drop will continue to erode their political capitol and threaten their agenda. Suspending M2M represents a cheap way to get a bounce and thus have more political cover to complete their transformation of the nation.
The bad thing is that after that the market rises for a few weeks it will sink back to greater lows as the real economy hindered by Washington will continue to decline and eventually inflation will take over and really finish off people not properly hedged. The traders will make out but investors and non-investors effected by the market will get steam rolled once again.
But looking at Fed. Gov't fiscal policy (the quadrupling of an already fairly high deficit, the raising of taxes, the profligate spending) that is a once in history event. It's likely to have predictably awful consequences on the earning power of American companies and their investors (who knows to what extent that will hurt internationally). What will be the fallback repository of value if the dollar inflates? Dollar priced equities?
"FASB Statement No. 157, Fair Value Measurements, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually)."
How will this solve the problem with credit default swaps and CDOs?
On Mar 06 06:14 PM sunny12945 wrote:
> From 2003 Oct 2007 We had a MADEOFF Economy with PHANTOM
> WEALTH which in the first place never existed (Paul Krugman).
On Mar 06 07:14 PM BenInEden wrote:
> So as Americans ... how are we at creating actual wealth?
>...
> In short: Our ability to generate real wealth has never been so good
> and is getting better.
On Mar 06 09:52 PM lorddarley wrote:
> We would all love a flashback to the euphoria of a 15,000 point DOW.
> What's missing from this post, and many other writings, is a realistic
> appreciation of demographics.
>
> This horrible market is simply anticipating the deluge of baby boom
> retirements which will start within a few years.
>
> On the government side, each civil servant (local, state, or federal)
> with a full career pension requires anywhere from $600,000 - $3,500,000
> of liquidation of securities. That's just the public sector.
>
> Add in the private sector with the lucky ones who still have defined
> benefit pensions (not busted-out defined contribution plans) and
> the liquidation scenario is too awful to contemplate. Even the 401(k)
> bunch will need to sell in a few years to pay bills for basic needs.
> Those poor folks who worked hard, but without the cynicism to be
> "smart," must resign themselves to a work until death scenario.<br/>
>
> Money on the sidelines will not cover this demographic catastrophe:
> old folks will sell investments, directly or indirectly, because
> of retirements. There are too few productive younger persons to flll
> the gaps.
>
> This crisis is bigger than Bush, or Obama. It's a once in our history
> event.
> A huge mass of persons hopes to liquidate stocks (by direct sale
> from defined contribution plans or simply because they retire from
> defined benefit plans and someone else sells).
>
> What is happening in the stock market today is a prescient realization
> of the future.
>
> LordD
On Mar 06 09:09 PM Paulo wrote:
> Well, if there is a huge rally (and at some point there will be),
> it might provide an opportunity to those who averaged down (among
> other strategies) a chance to bail out of positions they no longer
> want to hold (particularly if currency variables are favourable).
I laugh everytime someone suggests a 2x or 3x ETF or fund that is a "good deal" right now. Look at the portfolio construction of these things and you'll realize that you don't want to hold them for long periods of time. Even the managers for these double and triple short funds say these are for traders trying to take advantage of short-term moves.
www.ssa.gov/OACT/COLA/...
Average American wage:
1959: $3,855.80
1973 $7,580.16
1999 $30,469.84
To compute average annual wage growth from 1973 to 1999 (a span of 26 years), we must answer the question "what number to the 26th power turns 1973 wages into 1999 wages?"
x^26 * 7580.16 = 30469.84
x^26 = 30469.84/7580.16
x = (30469.84/7580.16)^(1/...
x = 1.0549
This is an annual wage growth rate of 5.49%, not 1.7%. Do the same calculation from 1959 to 1973 and you will find an annual wage growth rate of 4.94%, not 2.9%. Notice this is a slightly lower rate of growth than the later period -- the opposite of what you claimed.
Somebody fooled you with bad statistics -- a typical leftie trick. Leftists have no compunction about lying, little aptitude for math and a hefty incentive to make things up, because the truth does not support their ridiculous economics. Socialism has always been the best way to keep the masses poor and stupid.
I did not check your statistics about profit growth, but let us assume they are accurate for the sake of argument. I suspect that it is true that profits increased at a greater annual rate during the later period owing to various productivity boosters (computers, cheaper computers, faster computers, better medicine and chemistry, better agriculture = cheaper food, cheaper goods = more disposable income, internet, LANs, etc). In 1959, the boss had his secretary type a letter and snail mail it to his client, whose secretary opened the letter and presented it to him). In 2009, the boss sends and receives her own email -- enchanced productivity (capitalism even empowered women in the process).
No wonder that companies are more profitable. And why shouldn't the bulk of the profit go to those who risked their capital rather than the workers? Without the initial capital, the workers would have no job. When companies fail, does the capitalist ask the workers to refund their wages? No, he or she loses the entire investment, the workers keep what they earned.
On Mar 06 10:06 PM User 270430 wrote:
> ... The data below
> illustrates this statement as well as the foolishness of the capitalist
> elites.
>
> Annual rate of wage rises, in real terms, in the USA
> 1959-1973 2.9%
> 1973-1999 1.7%
>
>
> Annual growth in profits, in real terms, of the 500 companies of
> the S&P (seekingalpha.com/symbo...)
> 1961-1968 6.7%
> 1991-1999 15.9%
>
>
> As you can see, up until 1973 the workers (consumers) were getting
> a good portion of their productive efforts back as buying power or
> stored demand where profits to wages were only a little over 2 to
> 1.
>
> However, after 1973 the workers vastly increases in productivity
> no longer yielded commensurate increase in wages (stored consumer
> demand) b/c the greedy and foolish capitalist elites "hogged" it
> all up to the ratio of 8 profits to 1 wages!
>
> The capitalist elite fools destroyed their own market! Knowing this,
> after 1999 they artificially increased the limits of the market (demand)
> by credit; but that merely served to temporarily postpone the crisis.
>
>
> The capitalist elite propaganda was that if the rich are doing well,
> then in the long run some of the wealth will trickle down and we
> will all benefit. This theory has been shown to be as demonstrably
> false now as it was in the period proceeding the 1930's Great
> Depression.
> The twisted logic of capitalism...!
On Mar 06 04:20 PM Jimmy R wrote:
> I bought BGU again today. I can't wait to sell it at $50.
It's likely there'll be a slow economic recovery with oil grinding up, some metals lifting, including copper, and steady rise in gold as countries inflate to reduce debt or gain a currency edge in trade.
Silver should be a very good asset as it's mainly a by-product of a now much reduced base metal industry and many people are turning to ownership (if they can find it). It also has an astonishing number of industrial usages which have not gone away.
Infrastructure around the world needs building, or re-building, and as such are natural targets of government programs. It may be then, the recovery begins with these ponderous but effective programs before we once again reach a stage where Wall Street can once more play shell games with paper.
Whatever the case every investment decision now requires a sober and cautious look before that last mouse click. Somewhere there will be doozies but in tomorrow's world there'll be solid, sound reasons behind their ascent.
In the early 80's,. gold was the thing to get into due to inflation - was over $800 per ounce. Then it spent the next 20+ years mired under $300 per ounce. Wow - Great investment!!!
Any useful "use" of gold looses its demand at about $400 - $500 per ounce - prices above that level are driven stricly by investment bubbles in the metal. Don't believe me? Go to any lower to medium priced jewelry counter and see how many 14k or above gold products they are carrying now adays versus three years ago. The average consumer gets priced out of the market - thus lowering demand.
Also, i read that about 98% of all gold ever mined is still "out there."
On Mar 06 04:51 PM mr freddo wrote:
> This is a once in a century event so I don't believe that looking
> at cash levels is a reliable indicator of a rally. Any cash that
> is sitting on the sidelines at this point is damn happy and lucky
> to be their instead of riding out the equity debacle like a great
> deal of net worth is doing these days.
>
> That cash sitting out there has only one thing to fear right now
> and that's inflation. Look for some of that conservative cash to
> move into gold later on this year when inflation starts to roar.
On Mar 06 05:24 PM Chris B wrote:
That means it's time to take your tax losses and
> start putting together a dream portfolio:
>
> EWY - South Korea - P/E < 10
as for all of the yeas and nays about money-on-the-sideline, good luck with whatever you've "predicted". i'm 95% in cash with one short ETF (the Euro) and i'm not at all sure of that one.
As companies report, they decline to provide future estimates. Analysts have yet to go bearish extremes.
The Dividend yields on the DOW and S&P do not reflect the slashes in payout being observed currently,- 2/3rds here total elimination there, 80% somewhere else.
Immelt's "Read my Lips", I will not cut GE's payout. C, a lousy 1 cent payout, gone.
Dead Cat bounce, no Problem.
My opinion, pure and simple, within 2 weeks a major Bull Trap. Thereafter, Sell in May (or a tad earlier) and go away. The January Effect and January Barometers have both given sell signals.
On Mar 06 06:14 PM sunny12945 wrote:
> From 2003 Oct 2007 We had a MADEOFF Economy with PHANTOM WEALTH which
> in the first place never existed (Paul Krugman).
>
> Several TRILLIONS are gone into thin air, from housing and Equity
> Mkts all over the World The housing value is still dropping. Unemployment
> is going to get worse (downward loop for Housing) before it gets
> better. Deleveraging is going to continue. The BKX banking index
> has lost nearly 84% and other indexes atl east 55% or more.
>
> The wealth MIRAGE was created with unrealistic Housing values combined
> with CONSUMPTION Economy built on debt and leverage. You will have
> to recreate that fantasy again! May be we need an another BUBBLE!
>
>
> If you think you are going to recover losses back to pre Oct 2007
> level it could be 10 yrs or more if we are lucky. Or more likely
> most of us will never those peaks again in our life time!
>
> NIkki - 40,000 to below 7000K as of now since 1989.
> Nasdaq 5000 to 1294 now from March of 2000. Get the drift?
T-bill bubble, etc.
Why would anyone with, let's say, $500,000, keep it in cash, if we're to see several years of 10%+ inflation?
The answer is: they won't
Where it is deployed is the question, but you can bet equities, commodities, and real estate will be at the top of the list.
On Mar 06 11:30 PM Jeez wrote:
> Exactly my sentiments. There is no reason in the world why the sidelined
> money MUST get back in. The whole article is based on the premise
> that there is some natural law that says they must get back into
> the equity markets. Why not preferred or debt or bonds or commodities
> or FDIC backed paper.... Why must it be banks and GE and GM ?
>
> AND the graphs are deceptive - they are percentage of S&P market
> cap. Well the graph will shoot up (actually double) just because
> "S&P market cap" is 50% down with any increase of $ being sidelined!
> So much for doozy fantasy....
T-bill bubble, etc.
Why would anyone with, let's say, $500,000, keep it in cash, if we're to see several years of 10%+ inflation?
The answer is: they won't
Where it is deployed is the question, but you can bet equities, commodities, and real estate will be at the top of the list.
On Mar 06 11:30 PM Jeez wrote:
> Exactly my sentiments. There is no reason in the world why the sidelined
> money MUST get back in. The whole article is based on the premise
> that there is some natural law that says they must get back into
> the equity markets. Why not preferred or debt or bonds or commodities
> or FDIC backed paper.... Why must it be banks and GE and GM ?
>
> AND the graphs are deceptive - they are percentage of S&P market
> cap. Well the graph will shoot up (actually double) just because
> "S&P market cap" is 50% down with any increase of $ being sidelined!
> So much for doozy fantasy....
the neo-conservatives lead us right into this mess. what was with their math skills? they were all for tax cuts and going to war. doesn't work, guns and butter, for Lyndon Johnson or George W. Bush.
as for being liars, it's a common trait of both lefties and righties. few people of any political persuasion are bigger liars than Rush Limbaugh, Bill O'Reilly, George W. Bush, Dick Cheney, Tom DeLay, Phil Gramm, Paul Wolfowitz, Donald Rumsfeld or Sarah Palin. These people are world class expert liars. they have lied even in the face of video tapes proving their lies. that is the true test of an olympic class liar. all of them passed this test with flying colors. most of them more than once.
as for the poor capitalist business owner who "loses everything" while the (greedy? selfish?) workers get to "keep" what they made. what. total. hog. wash.
the capitalist business owner has his stashed away in an offshore bank. the worker (real wages have fallen considerably over the past 30 years) has scraped by until he got "down-sized" by the capitalist business owner long before the business went under.
as for your math, i was one of those people earning the average wage of $3,855.80 a year in 1959. i'm 72 now and after fifty years on the job i'm pulling right at $50,000. $50,000 today buys very little more than $4,000 did in 1959. i know. i was there and i've got the bills to prove it.
in the intervening years i've improved my skills, gotten a master's degree and done additional professional training and my life style is now pretty much the same as it was then. that's o.k. with me. i'm doing what i want to do. but, there are a lot of Americans who have gotten screwed, repeatedly, and the American worker is at the top of the list.
you used the term "the masses"! uh oh, that socialist lingo is even creeping into your vocabulary. as for keeping them poor and stupid, BillO, Fox News and Oxycontin Rush are the premier snake oil salesmen for the poor and stupid.
you need to study your heroes a bit more closely, but of course they make their pronouncements on TV, not in writing where the lack of logic or reason can be covered up by their pomposity and thuggishness.
On Mar 07 09:39 AM milkchaser wrote:
> I prefer the "twisted logic of capitalism" to your faulty statistics
> (the source of which you do not cite). The levels of wage growth
> are way off. I computed them using the "national average wage indexing
> series, 1951-2007" which comes from the Social Security administration
> (which is required by law to compute an accurate accounting of wages).
>
> www.ssa.gov/OACT/COLA/...
>
> Average American wage:
> 1959: $3,855.80
> 1973 $7,580.16
> 1999 $30,469.84
>
> To compute average annual wage growth from 1973 to 1999 (a span of
> 26 years), we must answer the question "what number to the 26th power
> turns 1973 wages into 1999 wages?"
>
> x^26 * 7580.16 = 30469.84
> x^26 = 30469.84/7580.16
> x = (30469.84/7580.16)^(1/...
> x = 1.0549
>
> This is an annual wage growth rate of 5.49%, not 1.7%. Do the same
> calculation from 1959 to 1973 and you will find an annual wage growth
> rate of 4.94%, not 2.9%. Notice this is a slightly lower rate of
> growth than the later period -- the opposite of what you claimed.
>
>
> Somebody fooled you with bad statistics -- a typical leftie trick.
> Leftists have no compunction about lying, little aptitude for math
> and a hefty incentive to make things up, because the truth does not
> support their ridiculous economics. Socialism has always been the
> best way to keep the masses poor and stupid.
>
> I did not check your statistics about profit growth, but let us assume
> they are accurate for the sake of argument. I suspect that it is
> true that profits increased at a greater annual rate during the later
> period owing to various productivity boosters (computers, cheaper
> computers, faster computers, better medicine and chemistry, better
> agriculture = cheaper food, cheaper goods = more disposable income,
> internet, LANs, etc). In 1959, the boss had his secretary type a
> letter and snail mail it to his client, whose secretary opened the
> letter and presented it to him). In 2009, the boss sends and receives
> her own email -- enchanced productivity (capitalism even empowered
> women in the process).
>
> No wonder that companies are more profitable. And why shouldn't
> the bulk of the profit go to those who risked their capital rather
> than the workers? Without the initial capital, the workers would
> have no job. When companies fail, does the capitalist ask the workers
> to refund their wages? No, he or she loses the entire investment,
> the workers keep what they earned.
GE will surely bounce back with a vengeance at some point since it's a great company with lots of great businesses... and was mainly punished for missing its dividend. (which of course was the right thing to do)
What do others think about Fannie Mae and Freddie Mac? (will they stay on their fannies or rise up like baloons?) (they can hardly fall any further)
And what about GM? Is it heading for bankruptcy or will it be trading at at least $5 in two or three years? (not a bad profit if it only does that)
And are there any Really DEEP crystal ball gazers out there regarding the future of Citibank? At one dollar per share it costs less than an option.
Thanks for any well-reasoned views.
Here's the thing, the short side is as historically over-invested as it has ever been in 80 years, the market is just as historically divested, and cash is piled to the roof.
It wouldn't take much to tilt the balance and set off at least a short term squeeze of huge proportions- reintroduction of the uptick rule, re-evaluation of mark to market, something completely unseen and unknowable at this point... a "white swan event" in this black swan world.
The wise investor has proven time and time again over the years to be the one who doesn't take the crowded side of the trade, but rather the one who is early to the uncrowded side.
And in my three decades of watching the greatest show on Earth, I have never seen a more crowded short side bias. Never.
On Mar 06 04:49 PM athena wrote:
> They will adopt FASB 157b-- By next week they will be discussing
> this publically and then watch the shorts cover.
> I figure a 25-50% upside for the banks in a day.
I wish I knew where the trust in the future and growth will be. However, it will be somewhere soon.
Geithner's resignation alone would be about 3000 on the dow.
On Mar 07 12:25 AM Marcus Aurelius wrote:
> LilBob,
>
> I disagree strenuously with your sentiment. I think the coiled spring
> analogy is perfectly fine. Also, you leave out the rest of 320's
> comment which is bullish and meshes with my outlook.
>
> I put it all out again. If last August I would have called for $40/barrel
> oil, what would you have said? I have seen these oscillations before
> and I fully expect to seem them again. I am quite willing to entertain
> the notion the tension was built into the system at 14,000 rather
> than it being wound up now, which is something I am starting to become
> convinced is the case.
>
> Price & value discovery is not an exact science nor are the parties
> in the deals on the same timelines.
>
> @Jeez, nor is there any law saying it must stay out. I have seen
> money flow in and out of equities from a fairly close perspective
> a number of times in my life. I see no reason why this time should
> be any different unless someone ;-( takes a wrecking ball to our
> nation's economy, which I admit is starting to seem a reasonable
> fear.
>
> So much of this seems a redux of Jason Scharz's $30 CL call last
> summer/fall.
On Mar 07 10:17 AM fahrender wrote:
> does anybody know why Autozone (seekingalpha.com/symbo...)
> is one stock that has been rising right through all of the past four
> months of bloodshed? i have never owned this stock but anybody that
> does must be smiling big time.
>
> as for all of the yeas and nays about money-on-the-sideline, good
> luck with whatever you've "predicted". i'm 95% in cash with one short
> ETF (the Euro) and i'm not at all sure of that one.
Magnificent! We need to hear your eloquence born of truth, the wisdom of the elders who have quietly and patiently contributed so much of real value, so please keep contributing. I will visit your website soon.
Dragon
On Mar 07 11:37 AM fahrender wrote:
> lefties have.... little aptitude for math, like Nobel Laureate Paul
> Krugman you mean? or John Kenneth Galbraith?
> the neo-conservatives lead us right into this mess. what was with
> their math skills? they were all for tax cuts and going to war. doesn't
> work, guns and butter, for Lyndon Johnson or George W. Bush.
>
> as for being liars, it's a common trait of both lefties and righties.
> few people of any political persuasion are bigger liars than Rush
> Limbaugh, Bill O'Reilly, George W. Bush, Dick Cheney, Tom DeLay,
> Phil Gramm, Paul Wolfowitz, Donald Rumsfeld or Sarah Palin. These
> people are world class expert liars. they have lied even in the face
> of video tapes proving their lies. that is the true test of an olympic
> class liar. all of them passed this test with flying colors. most
> of them more than once.
>
> as for the poor capitalist business owner who "loses everything"
> while the (greedy? selfish?) workers get to "keep" what they made.
> what. total. hog. wash.
> the capitalist business owner has his stashed away in an offshore
> bank. the worker (real wages have fallen considerably over the past
> 30 years) has scraped by until he got "down-sized" by the capitalist
> business owner long before the business went under.
> as for your math, i was one of those people earning the average wage
> of $3,855.80 a year in 1959. i'm 72 now and after fifty years on
> the job i'm pulling right at $50,000. $50,000 today buys very little
> more than $4,000 did in 1959. i know. i was there and i've got the
> bills to prove it.
> in the intervening years i've improved my skills, gotten a master's
> degree and done additional professional training and my life style
> is now pretty much the same as it was then. that's o.k. with me.
> i'm doing what i want to do. but, there are a lot of Americans who
> have gotten screwed, repeatedly, and the American worker is at the
> top of the list.
> you used the term "the masses"! uh oh, that socialist lingo is even
> creeping into your vocabulary. as for keeping them poor and stupid,
> BillO, Fox News and Oxycontin Rush are the premier snake oil salesmen
> for the poor and stupid.
> you need to study your heroes a bit more closely, but of course they
> make their pronouncements on TV, not in writing where the lack of
> logic or reason can be covered up by their pomposity and thuggishness.
>
>
Speaking for myself: those 55 years or older do not have the time to wait for the rebound. What we are doing is amassing cash for retirement and hoping for our equities to recover some of their original value. So when cd rates actually go up, then the seniors will be long on cds and income producing stocks.
Most common explanation for Autozone and the like is people are repairing their current cars rather than running out and buying a new one. In addition, probably a number of more people are doing the repairs on their own. Last fall I did some brake jobs on my own requiring me to visit similar stores a number of times.
The stock market is a ponzi scheme like insurance is gambling.
LilBob,
We'll just disagree on that then. I agree the fundamentals of our economy look bad at the moment, for some reason they always seem horrible even in good times. Admittedly, my views are based more on technical/contrary sentiments. As I said I heard a lot of people calling $5.00/gallon gas last summer and the scoffing at the $30 CL call was legion and wrong.
He's been thumbing his nose at them since his inauguration and he even had the audacity to provide public funding (with strings attached), limitations on executive compensation (for institutions attached to the public teat), shared sacrifice, NO buyout of toxic assets at non-market prices (at taxpayer expense), repeal of Bush tax cuts, a bad bank strategy that relies on public/private partnership (and not just free money), closing tax loopholes like off-shore/secret Swiss accounts, etc.
Look, in case you haven't noticed, a class war has developed between a democratically elected President and private, powerful, extraordinarily wealthy, hidden interests.
These interests will invest again in the market and economy only after the people's elected representative, Mr. Obama gets on his knees, and submits.
Any gesture on his part will do the trick. All he needs to do is offer a bank plan (detailed OR NOT), which places the burden on the back of the average American taxpayer.
Once he does, you'll see the trillions on the sidelines enter the market. They'll be in control once again, in power, and happy to invest.
Until that happens, until Mr. Obama acquiesces, we'll grind around at these (and lower) levels indefinitely.
That's what will end this.
These
The only time money moves from the sidelines into the market is when a company issues new stock, and it moves out to the sidelines when a company buys back it stock.
As for the graphs, Jeez said it right.
Judging from the lack of thumbs up, it appears that his comment went over the head of many readers.
On Mar 06 11:30 PM Jeez wrote:
> AND the graphs are deceptive - they are percentage of S&P market
> cap. Well the graph will shoot up (actually double) just because
> "S&P market cap" is 50% down with any increase of $ being sidelined!
> So much for doozy fantasy....
save your wisdom teeth, great source of stem cells.
> jack
The only chart that would count is the first one which shows only a 15% increase. In fact it shows a deceleration in MM growth during the middle of 2008
The other two charts only show the ratio of cash to market cap. Well duh, maybe the ratio spiked because market value has tanked 50% or more.
So where IS the cash? ...margin payback, unemployment, short positions, sitting in longs?
and look what happened after that.
You can't convince me that my labor and stress levels are being paid for with ever-increasing profit margins ( User 270430). Who do you think are providing jobs that spur consumer spending? Businesses and their owners.
Be nice to them. Its a very difficult job.
IMHO Lord Darely has provided the most succinct and objective comment here, so I will not repeat his views in my own words.
On Mar 07 11:41 AM MBL wrote:
> Someone should tell milkchaser that real wage growth means wage growth
> after being adjusted for inflation.
On Mar 06 09:52 PM lorddarley wrote:
> We would all love a flashback to the euphoria of a 15,000 point DOW.
> What's missing from this post, and many other writings, is a realistic
> appreciation of demographics.
>
> This horrible market is simply anticipating the deluge of baby boom
> retirements which will start within a few years.
>
> On the government side, each civil servant (local, state, or federal)
> with a full career pension requires anywhere from $600,000 - $3,500,000
> of liquidation of securities. That's just the public sector.
>
> Add in the private sector with the lucky ones who still have defined
> benefit pensions (not busted-out defined contribution plans) and
> the liquidation scenario is too awful to contemplate. Even the 401(k)
> bunch will need to sell in a few years to pay bills for basic needs.
> Those poor folks who worked hard, but without the cynicism to be
> "smart," must resign themselves to a work until death scenario.<br/>
>
> Money on the sidelines will not cover this demographic catastrophe:
> old folks will sell investments, directly or indirectly, because
> of retirements. There are too few productive younger persons to flll
> the gaps.
>
> This crisis is bigger than Bush, or Obama. It's a once in our history
> event.
> A huge mass of persons hopes to liquidate stocks (by direct sale
> from defined contribution plans or simply because they retire from
> defined benefit plans and someone else sells).
>
> What is happening in the stock market today is a prescient realization
> of the future.
>
> LordD
A generation is 90-100 years? 20-25 years is a generation. 90-100 is a rather long lifetime.
And if we hadn't run up over $11 trillion in debt by the last three "fiscally responsible" republican administrations, think of how much better shape we would be in right now.
One other comment: For all of those screaming about socialism, please take a moment and look up the definition. No one is talking about nationalizing the means of production in this country. No one is talking about setting quotas, controlling distribution of goods, setting wages, except in the case of a handful of CEOs who have run the financial system into the ground but still think they deserve millions in compensation. Adding a couple of hundred billion to social programs to help the unemployed survive or help with healthcare is something we've done for decades. Upping the top tax rate another 6% to where that socialist Reagan set it at, is not stealing from the rich. I would benefit if the top tax rate was lower, I would benefit if the cap gains is lower, but there are many government services that I feel we should pay for and not borrow trillions upon trillions and pass it on to my grandchildren like past administrations have done.
Since I consider this money to be Savings, I believe most of it will sit there indefinitely. Unless of course, the Instutions decide to "borrow" it.
Shares are created constantly by short sellers. Institutional investment houses are allowed to borrow shares from In-House stock to lend to the short sellers for Sale.
This essentially creates more shares than in the float. If the float is 100 and 25% is short, then the stock acts as if there is a 25% dilution. BTW, we are the In-House stock.
GE might go Bankrupt this year or next. Their Financial arm is as insolvent as that of...say GM. GE has yet to Mark to Market something like $50 Billion or so of Real Estate they hold worlwide. At last glance, I haven't seen any area of the world exempt from major declines. This is an opinion.
This is an albatross. They no longer have the Capital to spin it off.
This week's Barron"s has a "Doom, Gloom" article. I am still trying to figure out what to buy based on it.
Take care all.
Yeah, right.
So was The Flood.
They'll be nothing left to party about when this is all over -- many years from now.
www.bloomberg.com/apps...
This would mean,
1. We are edge of Armageddon,
and/or
2. Even grandma is shorting stocks to help out with the pension.
I am personally betting against Grandma.
1) Baby boom controls most of this "cash on the sideline" and they are at the age where stocks should make up less and less of an ideal portfolio, they cannot risk it on the stock market anymore.
2) Competition for capital, the next 12 to 24 months is going to see enormous amounts of government debt come to market. Trillions will need to be raised in US bonds, and Europe will be even greater, with losses from eastern European investments forcing western european countries to issue trillions of euros in to the bond market. The debt market will absorb most of this cash on the sideline, and people will be only too happy to get a risk free return, no matter how small the return, from Uncle Sam.
Cash on the sideline is a myth, it will go into bonds, it simply has to... because if these bonds don't attract this cash, then you will see some real panic! Governments without the ability to raise cash now would be a disaster.
I don't care how smart you are or what the math tells you. Bankrupting yourself(and those around you) is a dumb move. Not sure the gun toters are going to applaud you for righting the world by bringing us to the dark ages.
Gamblers who lose big don't just walk away. I've read just as many posts about people getting into the market lately in some form or another as people who are getting out. More people will invest on their own in the future.
The comments about this being inevitable because of baby boomers and entitlements is spot on. But then, why are we so against trying to solve these problems instead of admitting it and getting things done. I guess its socialist to solve problems.
Pensions and entitlements are going to shrink to what can be supported. That's plain and simple. People lived for thousands of years without entitlements, we'll make it.
I think Ad Orientem nailed it, and any rally, impressive as it may be, will ultimately be a 'suckers rally'. We are not out of deep water yet. This depression is not merely a confidence issue.
You miss one gigantic detail. The people of America, who, believe it or not, still have the power to control their own collective destiny, will never stand for a true dictatorship.
All of this pissing and moaning does little good. Opinions are great. But if you see something is wrong, there is something you disagree or agree with, get out there and get involved, people. It's the only way out.
On Mar 06 10:23 PM The Geoffster wrote:
> America voted for Obama and got what it deserves. "What me a socialist?"
> Hyperinflation will be followed by dictatorship. Remember Germany
> after Weimar? Now that's change you can believe in!
PART ONE: A PERFECT EXAMPLE OF WHAT HAPPENS WHEN MATHEMATICIANS BECOME BANKERS
Milkchaser, your numbers are likely mathematically correct, but they are economically incompetent. See Part Two for details.
PART TWO: FACT CHECK
Milkchaser, User 270430 uses "real" wage growth, which attempts to account for inflation, thereby measuring purchasing power.
So, your numbers are likely correct, as are User 270430's. I didn't double-check your math, and I didn't confirm 270430's numbers but they are similar to the numbers regularly printed by the press...and not just the "mainstream" press, but the financially literate press.
BACK TO PART ONE
If the root of THIS current finanicial and economic meltdown could be boiled down to a single villian, it would be the disconnect between math and economic-investing reality. The mathematical madels used by the banks were/are flawed. And all of those MBAs and PHd's in the chain of command didn't care what inputs were used so long as that input supported conducting more transactions.
Math and bankers -- A dangerous mix?
On Mar 07 09:39 AM milkchaser wrote:
> I prefer the "twisted logic of capitalism" to your faulty statistics
> (the source of which you do not cite). The levels of wage growth
> are way off. I computed them using the "national average wage indexing
> series, 1951-2007" which comes from the Social Security administration
> (which is required by law to compute an accurate accounting of wages).
>
> www.ssa.gov/OACT/COLA/...
>
> Average American wage:
> 1959: $3,855.80
> 1973 $7,580.16
> 1999 $30,469.84
>
> To compute average annual wage growth from 1973 to 1999 (a span of
> 26 years), we must answer the question "what number to the 26th power
> turns 1973 wages into 1999 wages?"
>
> x^26 * 7580.16 = 30469.84
> x^26 = 30469.84/7580.16
> x = (30469.84/7580.16)^(1/...
> x = 1.0549
>
> This is an annual wage growth rate of 5.49%, not 1.7%. Do the same
> calculation from 1959 to 1973 and you will find an annual wage growth
> rate of 4.94%, not 2.9%. Notice this is a slightly lower rate of
> growth than the later period -- the opposite of what you claimed.
>
>
> Somebody fooled you with bad statistics -- a typical leftie trick.
> Leftists have no compunction about lying, little aptitude for math
> and a hefty incentive to make things up, because the truth does not
> support their ridiculous economics. Socialism has always been the
> best way to keep the masses poor and stupid.
>
> I did not check your statistics about profit growth, but let us assume
> they are accurate for the sake of argument. I suspect that it is
> true that profits increased at a greater annual rate during the later
> period owing to various productivity boosters (computers, cheaper
> computers, faster computers, better medicine and chemistry, better
> agriculture = cheaper food, cheaper goods = more disposable income,
> internet, LANs, etc). In 1959, the boss had his secretary type a
> letter and snail mail it to his client, whose secretary opened the
> letter and presented it to him). In 2009, the boss sends and receives
> her own email -- enchanced productivity (capitalism even empowered
> women in the process).
>
> No wonder that companies are more profitable. And why shouldn't the
> bulk of the profit go to those who risked their capital rather than
> the workers? Without the initial capital, the workers would have
> no job. When companies fail, does the capitalist ask the workers
> to refund their wages? No, he or she loses the entire investment,
> the workers keep what they earned.
JD151,
The problem is the source of the "loss" mainly being declines in stock portfolios and real estate values.
True, many many people have lost hundreds of thousdands of "value" in the price of their real estate recently. However; the money that was printed to purchase the homes at these overinflated levels is still in the system (the mortgages, debt). Of course now the FED has to print even more money (debt) to cover these outstand debts that were taken on by the lending institutions. Which will further encourage inflation or stagflation.
Furthermore, many of the investment vehicles that were commonly purchased (either directly or through funds), were in some way related to some kind of leverage (debt), directly or indirectly. So all of these vehicles that had their earnings and prices pushed up to unreasonable heights have now plummeted in value and the money (or debt) that was printed to create these investments is still in the system.
So obvious the problem is that asset values are declining, but the money that was printed to buy these assets is still in exsistence and now the gov. needs to print even more money to help cover the interest payments on the original purchase price of these assets....hence inflation at best and stagflation at worst.
The far more sinister and underlying problem however is summed up in a simple statement: our money is debt.
On Mar 08 01:21 AM jdl51 wrote:
EXERPT:
I'm having a little trouble understanding the hyper-inflation talk. We've just lost a few trillion out of our economy so what we're borrowing now may not even reflate to previous levels. And in a worst case scenario, if there's no demand how could you possibly have inflation, as in the present oil situation. Demand fell, prices fell, basic economics.
JD151,
The problem is the source of the "losses" mainly being declines in stock portfolios and real estate values.
True, many many people have lost hundreds of thousdands of "value" in the price of their real estate recently. However the "money" that was printed to purchase the homes at these overinflated levels is still in the system (the mortgages). Of course now the FED has to print even more "money" to cover these debts that were taken on by the lending institutions.
Furthermore, many of the investment vehicles that were commonly purchased (either directly or through funds), were in some way related to some kind of leverage directly or indirectly. So all of these vehicles that had their earnings and prices pushed up to unreasonable heights have now plummeted in value and the "money" that was printed to create these investments is still in the system.
In both of these cases, the losses are paper losses and do not actually reduce the amount of the "money" supply.
So the obvious problem is that asset values are declining and the "money" that was printed to create/buy these assets is still in exsistence and now the gov. needs to print even more money to help cover the interest payments on the original purchase price of these assets....hence inflation at best and stagflation at worst.
The far more sinister and underlying problem however is summed up in a simple statement: our money is debt.
On Mar 08 01:21 AM jdl51 wrote:
EXERPT:
I'm having a little trouble understanding the hyper-inflation talk. We've just lost a few trillion out of our economy so what we're borrowing now may not even reflate to previous levels. And in a worst case scenario, if there's no demand how could you possibly have inflation, as in the present oil situation. Demand fell, prices fell, basic economics. Mar 09 01:54 PM |Report abuse| Link | Reply +10
I never claimed to support the various people you mention. I don't watch O'Reilly. I don't often listen to Rush (I'm at work). They are irrelevant to my post.
As for your personal circumstances, they do not refute what I am saying either. I don't know how they relate to the topic. I don't want to personalize the topic. But I am happy for you for having lived a long and prosperous life.
On Mar 07 11:37 AM fahrender wrote:
> lefties have.... little aptitude for math, like Nobel Laureate Paul
> Krugman you mean? or John Kenneth Galbraith?
> the neo-conservatives lead us right into this mess. what was with
> their math skills? they were all for tax cuts and going to war. doesn't
> work, guns and butter, for Lyndon Johnson or George W. Bush.
>
> as for being liars, it's a common trait of both lefties and righties.
> few people of any political persuasion are bigger liars than Rush
> Limbaugh, Bill O'Reilly, George W. Bush, Dick Cheney, Tom DeLay,
> Phil Gramm, Paul Wolfowitz, Donald Rumsfeld or Sarah Palin. These
> people are world class expert liars. they have lied even in the face
> of video tapes proving their lies. that is the true test of an olympic
> class liar. all of them passed this test with flying colors. most
> of them more than once.
>
> as for the poor capitalist business owner who "loses everything"
> while the (greedy? selfish?) workers get to "keep" what they made.
> what. total. hog. wash.
> the capitalist business owner has his stashed away in an offshore
> bank. the worker (real wages have fallen considerably over the past
> 30 years) has scraped by until he got "down-sized" by the capitalist
> business owner long before the business went under.
> as for your math, i was one of those people earning the average wage
> of $3,855.80 a year in 1959. i'm 72 now and after fifty years on
> the job i'm pulling right at $50,000. $50,000 today buys very little
> more than $4,000 did in 1959. i know. i was there and i've got the
> bills to prove it.
> in the intervening years i've improved my skills, gotten a master's
> degree and done additional professional training and my life style
> is now pretty much the same as it was then. that's o.k. with me.
> i'm doing what i want to do. but, there are a lot of Americans who
> have gotten screwed, repeatedly, and the American worker is at the
> top of the list.
> you used the term "the masses"! uh oh, that socialist lingo is even
> creeping into your vocabulary. as for keeping them poor and stupid,
> BillO, Fox News and Oxycontin Rush are the premier snake oil salesmen
> for the poor and stupid.
> you need to study your heroes a bit more closely, but of course they
> make their pronouncements on TV, not in writing where the lack of
> logic or reason can be covered up by their pomposity and thuggishness.
>
>
On Mar 07 11:41 AM MBL wrote:
> Someone should tell milkchaser that real wage growth means wage growth
> after being adjusted for inflation.
On Mar 09 01:35 PM DaRanger wrote:
> Milkchaser, your numbers are likely mathematically correct, but they
> are economically incompetent. See Part Two for details.
Nevertheless, the point of the original post was that wage growth and profit should track each other and that strikes as equivalent to demanding that my investment income should track that of my broker. It never does, nor should it.
On Mar 09 01:35 PM DaRanger wrote:
> This is a two-part comment.
>
> PART ONE: A PERFECT EXAMPLE OF WHAT HAPPENS WHEN MATHEMATICIANS BECOME
> BANKERS
>
> Milkchaser, your numbers are likely mathematically correct, but they
> are economically incompetent. See Part Two for details.
>
>
> PART TWO: FACT CHECK
>
> Milkchaser, User 270430 uses "real" wage growth, which attempts to
> account for inflation, thereby measuring purchasing power.
>
> So, your numbers are likely correct, as are User 270430's. I didn't
> double-check your math, and I didn't confirm 270430's numbers but
> they are similar to the numbers regularly printed by the press...and
> not just the "mainstream" press, but the financially literate press.
>
>
> BACK TO PART ONE
> If the root of THIS current finanicial and economic meltdown could
> be boiled down to a single villian, it would be the disconnect between
> math and economic-investing reality. The mathematical madels used
> by the banks were/are flawed. And all of those MBAs and PHd's in
> the chain of command didn't care what inputs were used so long as
> that input supported conducting more transactions.
>
> Math and bankers -- A dangerous mix?
>
>
tinyurl.com/dldt42
I used per capita disposable income in chained 2000 dollars. The relevant figures are:
1961: $09,901
1968: $12,892 (avg growth 3.84% annually)
1991: $17,609
1999: $24,564 (avg growth 4.25% annually)
So wages grew at a 25% higher rate in the 90s than in the 60s. Perhaps this shows that workers did benefit somewhat from gains in productivity that had boosted profits (albeit not proportionally to the increase in profits). But were workers primarily responsible for the increases in productivity, or were they carried along by the tide of technology?
It will be hard to convince people for decades to come that the stock market is a good investment and consider that most of that money belongs to people are probably close to retirement age (people in their 50's and 60's people tend to have more money) and won't be taking a chance on the stock market.
Yes, at some point there will be a good bounce, but just do a tiny bit of research and you will find that the biggest declines give us the biggest bounces. I would gladly miss the 100% bounce of 1932 if it meant I also missed the 90% drop that lead up to it.
Staring with $10,000:
90% of $10,000 = $1,000
2x $1,000 = $2,000
WOW, that's only an 80% drop to get that 100% gain.
Be careful out there!
100 years ago the government was much more supportive
of middle class policies. That has changed post 1980
America via all the presidents..status quo elites
throw bailout money to the same people who created
the problems, while throwing the masses to the wolves.
Tax codes, bankruptcy laws, Glass-Steagall repeal,
property and capital gains.. all favor the wealthy.
Didn't Warren Buffet have that famous quote about his 60k secretary paying higher tax rates than he?
Rallies will happen but the trend will be down through
2011 in both equities and real estate. My friends tell
me inflation will save them...sorry, look at Japan.
First, the two bottom charts are ratios with respect to the market capital of stocks (SP500 and Willshire 5000). Both of those indices have taken a beating in the the past 6 to 7 months, so the actual market capital of these indices has declined dramatically. This is most likely the reason that the curves have risen so dramatically, the decline in market capital, and not the increase in available sideline capital. You're implying that the ratio has increased because the numerator (sideline capital) has increased, when it is the denominator (market capital) that has decreased. Would you still draw the same conclusion looking at the graphs with this in mind?
I'm not 100% sure what the uppermost graph is showing, but I believe it is a mixture of savings and short term money market funds. I wouldn't think that savings would normally move into equity markets, assuming that it belongs to investors (?) that are risk intolerant, so a large portion of the funds shown on this graph would likely not be available to fuel a rally (my opinion, of course). The small increase (relative to the axis scale) in late 2008 is probably money being pulled out of stocks. I'm assuming the axis is in billions so the increase represents several hundred billions, not an insignificant sum. But it is a far cry from the several trillion lost in the last six months, and while it may be enough to fuel a rally I'm not certain it's enough to fuel a sustained one.
Aside from the above points, my opinion is that predicting rallies using this type of information assumes that most investors ignore market realities such as current and future profitability of the companies who's stock they are purchasing. Such profits will likely be a long time returning, and that's not pessimistic it is reality. But perhaps the reality of the market is that the predominant investor has a herd mentality and will jump in when they see others jumping, regardless of the health of the stocks they are buying.