phillips49

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49 Comments

    • Thu Nov 13th 12:17 PM | Rating: +1 0
      Commented on:
      Defining a Depression
      Thoughtful article, but it seems to me that comparing Credit Market Debt to GDP is a very narrow parameter to evaluate our current condition. Considered by itself, it would be a little scary, especially since there is an implied comparison to the 20's and 30's.

      But, comparing debt to GDP is really more like measuring debt to cash flow. OK, so we owe 3.56 times our current income. Is that really bad? If an individual makes $50K per year and has total debt including mortage, cars, loans and credit cards of $178K, is that really bad? Well, it really depends on the maturity of the debt. If it was all due today, it would be a big problem. But if it is spread out over 20 years, it might not be.

      Another way of looking at our current financial condition might be to look at our debt to equity ratio. We would look at debt to equity ratios to examine the financial condition of a company that we where considering buying stock in.

      In 2005, the per capita wealth of the the US was $513,000 against a population of 296 million making our equity worth $151 trillion. That yields a debt to equity ratio of 0.3. Not to shabby

      You could also look at debt as "the price" and GDP as "earnings" which would yield a P/E of 3.5, again not to shabby.

      That we have had a succession of bubbles is undeniable. The bubbles are now deflating. What happens during the bubble building and deflating process? If one bought at the beginning of the bubble and held until the bubble deflated, there would be zero gain. If one bought at the beginning of the bubble and sold at the top, one would have a gain. If one bought at the top of the bubble and sold at the end, one would have a loss. So it appears to me that bubbles do not create or destroy wealth, they simply transfer wealth.
      View article »
    • Fri Nov 7th 19:16 PM | Rating: +2 0
      Commented on:
      Oil Bubble Continues Its Burst
      Seems to me that it doesn't take much to cause price changes one way or the other when supply and demand are roughly in balance.

      If the sole criteria for declaring and bubble is price decline, then every asset class was in a bubble. I don't seem to recall any prescient bubble callers on all asset classes. The last time I looked gold was off 27%, platinum 57%, copper off 50%, stocks off 40%.

      I think supply/demand arguements are still valid for all asset classes.

      It is my hope that the USA will use the relief on oil and gas prices to develop and implement plans to liberate us from foreign sources of energy. A world power can not remain a world power as long as it is dependant on foreign countries for it's energy. This is a national security issue that must be resolved before we export all of our remaining wealth. As it stands now, if we make someone out there mad, we're walking to work, if work is still open.
      View article »
    • Sun Oct 19th 20:19 PM | Rating: 0 0
      Commented on:
      Things Aren't as Bad as They Seem - Barron's
      I think rational people have pretty much ruled out the '29 end of the world scenario. It should be pretty clear by now that the governments of the world are willing do whatever it takes to prevent that. That means realistically we are dealing with a recession. We have had recessions before and we will have them again. We have always recovered. History proves that.

      I agree that the gas price drop will be a boon for the consumer. It comes at just the right time of the year for the retailers. The holidays...the time of the year they go into the black.

      The stock market behavior appears to be more liquidation driven than value or economy driven. That may be due to a confluence of factors such as hedge fund redemption selling, margin call forced liquidation selling, financials raising cash by selling equities, baby boomers that don't have the time to do it again and the fear mongers benefitting from short selling The current P/E of the S&P is around 13.5 against a 30 year average of 18. To me that says that the sell off was most certainly not value or economy driven but driven by the need to raise cash. The last time the P/E was at this level was 1988. The market returned to more traditional value 2 years later.

      I don't think it is polyanna to be optimistic about the future. History is on my side.

      I shopping for some stocks. They're still on sale this week.
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    • Wed Oct 15th 17:24 PM | Rating: 0 0
      Commented on:
      How Long Will the Bear Market Last?
      Continuing......value can both intrinsic and relative. P/E expresses an intrinsic value. The current trailing P/E of the S&P is 13.5 using SPY as a proxie. This value is low relative to the 30 year average P/E of 18. This would suggest that the current market is under valued relative to the last 30 years. The real GDP of the US has grown on predictable slope for over 50 years. Since the governments of the world seem to want to continue that pattern and appear willing and eager to do whatever it takes to support it, it is reasonable to assume that pattern will continue. The current wave of fear mongering is benefiting those that propagate it at the expense of others, just as other self promoting movements before them promoted real estate, tech, energy, and equities into bubbles.
      View article »
    • Wed Oct 15th 16:50 PM | Rating: 0 0
      Commented on:
      How Long Will the Bear Market Last?
      Falling in love with your thesis will get you murdered in the market. The author's thesis is expressed at the end of his article and the rest of the article is arranged to support the thesis.

      "Foreign Banks will dump treasuries and buy gold"

      Not very likely unless they want to hamstring themselves and their own ability to print paper and cut themselves out of 20% of the gobal economy situated in the good old USA. Gold is a commodity whose value is based on supply and demand unless it's price is standardized and fixed (i.e. gold standard). For the average guy, there isn't much you can really do with gold..... you can't eat it or buy a car with it. The only value it has is what someone else is willing to pay for it in legal tender. After the gold bulls have talked others into buying the stuff and driving up the price, they'll exit leaving others holding the bag. It's happened in every other sector. The last and final bubble to burst will be gold. History says it will.

      As for how long the bear market will last....nobody knows.....it will last until investors begin to feel a little bit more confident and feel like taking a little bit more risk. Nothing is risk free. Not even stuffing your mattress with dollars. Rational people have pretty much ruled out the depression doomsday scenario. That leaves a recession. We've had them before and we'll have them again. We've been through this before and proven that we will come out the other side.
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    • Sat Oct 11th 15:25 PM | Rating: 0 0
      Commented on:
      Is Gold A Sucker's Bet?
      The real estate bubble burst, the financial market bubble burst, the credit market bubble burst, the energy bubble burst, the commodity bubble burst, the stock market bubble burst. Money moved from asset class to asset class along the way.
      The next and final bubble to burst will be gold. History says it will. Gold is neat but you can't do anything with it except cash it in for money to do something else with. When people start to head for the cash register, the price will plummet as viciously as the stock market . It always has. It always will. The slower ones will be left holding the losses and the gold bug rhetoric. I'd rather take my chances with inflation.
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    • Sat Oct 11th 14:27 PM | Rating: 0 0
      Commented on:
      Using History to Plan Near-Term Investing
      Conspiracy of Fear

      I woke up this morning feeling fine. It’s a bright sunny fall day. My car was still in the driveway. The gas station was pumping gas at $2.79 per gallon. Traffic was normal. Best Buy was busy with the usual Friday payday trade. My job was still there. My bank ATM still worked. That is the reality of the day.

      The newspaper headlines read WORST EVER WEEK FOR THE DOW. My paper assets are now worth 20% less than they were a week ago. Jeepers, what is going on here?

      So I have to ask, what was the reality of the week?

      For starters, for every dollar I lost, someone made a dollar someplace. You can bet on that. The dollars didn’t just burn up or evaporate. The dollars are still there. For every sale, there was a buy. That means that wealth just changed hands. Someone picked my pockets. Someone got richer as I got poorer.

      Well, who would want to do that? Well, probably the same ones that cheered on the bull market in equities, housing, real estate, energy, gold and investing for the long term. Now, in light of the financial crisis in banking, the cheerleaders are propagating waves of fear overwhelming the average little guy. Stories of the crash of 29 lead the way. Sell your stuff at a loss, hoard cash. Don’t take a chance.

      The reality of it is, they have exhausted feeding upon each other and are now feeding upon us. And it’s working. They are picking our pockets again. And we are helping them. Just as in 29, some are getting rich at the expense of others. Someone is buying up your fire sale assets. And we are saying thank goodness I got out with something.

      The reality is that if there were no sellers, prices would skyrocket because there would only be buyers. The reality is that business fundamentals don’t dictate the fire sale. The P/E ratio of SPY is 13.5, well below the historic S&P average. The 30 year average P/E is around 18. The 20 year around 22.

      The reality is, this ain’t 1929. The reality is that the nation will survive the market, as it always has. The reality is the money will be in different pockets when it comes out the other side and we will have helped them.
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    • Mon Oct 6th 16:41 PM | Rating: 0 0
      Commented on:
      The Cramer Crash?
      Perhaps Cramer is getting to much credit here. After all, Europe and Asia were down big time overnight and S&P futures were down 270 points before the market open. Personally, without the help of Cramer, I set up stop loss orders over the weekend. It doesn't make much difference whether is is hedge fund selling, lack of confidence, bad news, scary headlines or just plain fear. The impact to ones holdings is all the same. Understanding it, doesn't make the reality of any better. Enough is enough. Personally, I think what happened was the music stopped and a lot of folks heard a wee small voice say.....going down!
      View article »
    • Tue Sep 30th 11:00 AM | Rating: 0 0
      Commented on:
      The Credit Hostage Crisis
      Please don't take this as defending the fat cats on Wall Street, but it seems to me that there is plenty of blame to go around here.

      If the root cause of the problem, is the housing market collaspe and mortage defaut, well then who did that?...it wasn't Wall Street.....it was us!

      Yes, the FED kept rates too low too long and money was easy, yes Wall Street invented CDS's and CDO's, yes accounting regulations require mark to market, not mark to model, yes the FED kept rates to high to long and were igorant of the impact on derivitives, but we (the taxpayer) borrowed the money...nobody made us take it....nobody made us bid up homes prices beyond reasonable value, noboby forced us to get in over our head...we fell for it...we created the housing bubble, we are the ones defaulting, we the people are the problem.

      At the end of the day, we were no better than the banks or Wall Street.
      View article »
    • Tue Sep 23rd 09:05 AM | Rating: 0 0
      Commented on:
      Oil Price Speculation Truth Begins to Leak into Mainstream Media
      Absent credible facts and data, this article is SPECULATION.
      View article »
    • Sat Aug 23rd 19:31 PM | Rating: 0 0
      Commented on:
      Witnessing the Biggest Transfer of Wealth in History
      Everybody is entitled to an opinion as you stated.

      My opinions:

      The Fed is walking a tightrope on interest, not necessarily because of the best interest of FRE or FNM shareholders and bondholders, but because of the balancing act between throwing the entire economy into a deep recession, igniting serious inflation, supporting the dollar and trying to keep energy costs contained.
      At this point in the cycle, I think the following is true:
      Lower interest= weak dollar=higher oil
      Lower interest=higher inflation
      Lower interest=higher home ownership rate
      Lower interest=better propects of avoiding a deep recession
      Higher interest=recession=hig... unemployment
      Higher interest=stronger dollar=lower oil prices
      Higher interest=reduced homeownership

      The Fed created this mess because they raised interest rates to fight demand based commodity inflation. Wages where never an issue. The process of raising interest rates caused the collaspe of the mortgage market and nearly the entire financial system due to derivitives and leveraging because they didn't understand the consequences of their actions.
      One way or the other the tax payer is going to pay for all of it. It's just what pocket it comes out of, whether a few pay for all or whether everyone pays a little. Keeping as many employed as possible seems like a better choice to me. Even no growth is better than a major contraction. Having a job to pay for higher gas is better than no job and gas at a lower price.
      View article »
    • Sat Aug 23rd 17:03 PM | Rating: 0 0
      Commented on:
      Natural Gas Fund Is Flaming Out
      I recently read in Platts that natural gas producers look at $8.00/mmbtu as a breakeven point to begin to moderate production and drilling. Now may be a good entry point for natural gas producer stocks. You may not see much gain until late spring 09 though when the storage process begins again. EIA reports current storage is 9% lower than a year ago this time, but still in the middle of the 5 year average range. No shortage now. No excess either. If a huuricane disrupts production in the Gulf, prices will shot up. If winter is colder than normal and depletion is higher, prices will shoot up quickly. If producers cut back production the price will go up. $8.00/mmbtu appears to be a good lower support level.
      View article »
    • Thu Aug 21st 09:18 AM | Rating: 0 0
      Commented on:
      Why I Finally Bought Fannie Mae
      Stan,

      I was of the same mind as you and I bought FNM. In a matter of weeks I lost 37% of my money. That was more pain than I could stand. I got out while I still had something to get out. If I had held on, I would have lost an additional 30%. At the end of the day, it doesn't make any difference what we think. Stock is only worth what someone else is willing to pay for it. The market obviously sees a lot more risk than potential reward and has pulled all support. Hope your investment is a small holding.
      View article »
    • Tue Aug 19th 15:04 PM | Rating: 0 0
      Commented on:
      Are Current Commodity Prices as High as Compared with Previous Years?
      Just to see how what I suggested might look, I pulled some data from inflation.com. They have a table of the average annual oil prices adjusted for inflation through 2007.
      The average of 30 years of inflation adjusted oil prices from 1978 through 2007 was $42.70/bbl. The 2008 average was $98.66, so our current price is >100% higher than the 30 year inflation adusted average. That's quite a little bit different from taking the highest high.
      View article »
    • Mon Aug 18th 20:08 PM | Rating: 0 0
      Commented on:
      Are Current Commodity Prices as High as Compared with Previous Years?
      I love numbers, you can do just about anything you want with them. Take the highest-high, multiply by inflation and compare it to current price. I don't think that approach really tells us if commodities are fairly valued today. Maybe the average of the inflation adjusted yearly averages compared to the current year average would be more accurate.
      View article »
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