I've been working with a stock broker, a close friend who I trust, on the problem of what to do. Here's the situation in a nutshell. He manages $50 million. I manage $50,000. The other guys at the brokerage (my friend's peers) are in a complete panic. They're begging us to give guidance. I had a 30% gain last week, and my friend's fund is not negative, which makes him look like a genius. Here's what we talked about this afternoon:
The US economy is still the engine of world growth. There is no 'decoupling,' except maybe Russia, and everyone who gambled big money in Russia has lost every penny (Exxon, Shell, and the IMF in particular). It was incredibly dumb that Boeing outsourced all the 787 titanium parts to a Russian factory.
We are facing one of two possible economic scenarios. Either a bad recession of two or three quarters in 08, or a total meltdown like the Great Depression that will last for two, three, maybe five years, depending on what the next President and Congress do about it. Some things are dead certain. Congress and federal/state prosecutors in NYC are going to investigate Bear Stearns, Merrill Lynch, etc. Some brokerages and regional banks will probably fail.
Congress will bail out Freddie Mac and Fannie Mae. The Federal Reserve will cut interest rates and redouble lending to money center banks. None of this will do any good. Foreclosures will increase, factories and retailers will lay off workers, credit cards will default, and banks will stop lending altogether. State governments and municipalities will attempt to raise money with tax-free bonds to make up for gaping budget deficits and investment losses.
There is no obvious safe haven for money except to hoard cash as a hedge against deflation and gold in the short term.
Over to you, Brant.
Full Version: Financial mayhem
QUOTE(Wolf DeVoon @ Jan 5 2008, 03:25 PM) 
I've been working with a stock broker, a close friend who I trust, on the problem of what to do. Here's the situation in a nutshell. He manages $50 million. I manage $50,000. The other guys at the brokerage (my friend's peers) are in a complete panic. They're begging us to give guidance. I had a 30% gain last week, and my friend's fund is not negative, which makes him look like a genius. Here's what we talked about this afternoon:
The US economy is still the engine of world growth. There is no 'decoupling,' except maybe Russia, and everyone who gambled big money in Russia has lost every penny (Exxon, Shell, and the IMF in particular). It was incredibly dumb that Boeing outsourced all the 787 titanium parts to a Russian factory.
We are facing one of two possible economic scenarios. Either a bad recession of two or three quarters in 08, or a total meltdown like the Great Depression that will last for two, three, maybe five years, depending on what the next President and Congress do about it. Some things are dead certain. Congress and federal/state prosecutors in NYC are going to investigate Bear Stearns, Merrill Lynch, etc. Some brokerages and regional banks will probably fail.
Congress will bail out Freddie Mac and Fannie Mae. The Federal Reserve will cut interest rates and redouble lending to money center banks. None of this will do any good. Foreclosures will increase, factories and retailers will lay off workers, credit cards will default, and banks will stop lending altogether. State governments and municipalities will attempt to raise money with tax-free bonds to make up for gaping budget deficits and investment losses.
There is no obvious safe haven for money except to hoard cash as a hedge against deflation and gold in the short term.
Over to you, Brant.
The US economy is still the engine of world growth. There is no 'decoupling,' except maybe Russia, and everyone who gambled big money in Russia has lost every penny (Exxon, Shell, and the IMF in particular). It was incredibly dumb that Boeing outsourced all the 787 titanium parts to a Russian factory.
We are facing one of two possible economic scenarios. Either a bad recession of two or three quarters in 08, or a total meltdown like the Great Depression that will last for two, three, maybe five years, depending on what the next President and Congress do about it. Some things are dead certain. Congress and federal/state prosecutors in NYC are going to investigate Bear Stearns, Merrill Lynch, etc. Some brokerages and regional banks will probably fail.
Congress will bail out Freddie Mac and Fannie Mae. The Federal Reserve will cut interest rates and redouble lending to money center banks. None of this will do any good. Foreclosures will increase, factories and retailers will lay off workers, credit cards will default, and banks will stop lending altogether. State governments and municipalities will attempt to raise money with tax-free bonds to make up for gaping budget deficits and investment losses.
There is no obvious safe haven for money except to hoard cash as a hedge against deflation and gold in the short term.
Over to you, Brant.
I don't know why a broker is managing money. There is a basic conflict of interest. Then you say he has a "fund." If you want to stay friends with this guy he must not know what your own investments are, because sooner or later there will be serious pain in the relationship. Otherwise it's okay to shoot the breeze.
I'm glad you had a 30% gain. I assume you didn't do it in a week but cashed in. If not, sounds very risky. How would you feel if you were wiped out or took a 30% loss?
The U.S. economy was the engine of world growth, now turned into very weak dollars. But Chinese markets (100% up in 2007) may continue up for a while out of inertia. Should last longer than Europe and India.
Recession yes, depression no. Excess liquidity is causing most of our economic problems and is being used now to fight them. Not very well because the Fed is acting too slowly, but so much for deflation.
The best gold investment is GLD which tracks the price of gold. A gold stock is much more volatile and dangerous, but the best are Yamana Gold and Barrick. Note: the latter has a market cap of 48 billion.
A European looking at America sees Americans as half as rich as they were five years ago. Americans are spending their way into the poorhouse.
Now take a stock like Altria (MO). It has a 4% dividend, will soon split into foreign and domestic operations and begin a massive stock buyback, most legal problems are behind it: think of it as a bond. Interest rates go down and the price of the bond (stock) goes up. Most excellent. Or, if you don't need income, Bershire Hathaway on pullbacks (one just happened). With 45 billion in cash and tripple A credit it could go up significantly as Buffett grabs bargains as they appear.
Best safe: ten-year treasuries. Hold for two-three years through a bond fund.
Best fund: Ken Heebner's CGM Focus Fund (CGMFX)--(up 87% in 2007) with an excellent track record in many markets for many years including 2000, 2001 and 2002. The man is a genius. Not for retirement.
Best investment book out there right now: Jim Cramer's "Stay Mad for Life." If you don't read this book cover to cover you are just ignorant--until you do.
--Brant
Note (edit): NEVER USE MARGIN! If your stock goes down you could lose that stock. If you own the stock outright even it it goes down 50% you still own it and no margin clerk can cash you out. This does not mean you should not have a margin account, however, or that you should hold a stock down 50%. Shorting is for pros.
Always have at least a 10 percent cash position to take advantage of opportunities without being forced to sell one equity to buy another.
Have a list of quality companies in different sectors and scale into them on market pullbacks. Or buy core positions now and then scale in over this coming year. I'm starting this year almost 100% cash. (I missed this last week's carnage.)
You MUST be diversified into at least 5 different economic sectors (avoid financials now).
Cash is king, don't be afraid of it. Even gold might have a big pullback.
Posted today at Prudent Bear:
This in the context of Tata Motors of India buying Land Rover and Jaguar form Ford. Tata can build the same or better luxury cars with 90% lower labor cost. Bad news, esp. for British workers, but applies broadly to all US and European fat cat social welfare states.
Posted today at Seeking Alpha:
Sorry I can't find anything positive.
W.
QUOTE
It is pretty clear that income levels in the West are converging with those in the more competently run emerging markets. The bad news is that in the years ahead this is likely to happen through an absolute decline in Western living standards. The populations of India and China greatly exceed those of all the rich countries put together. The greater part of Western economies is vulnerable to low-wage competition. Thus the economic histories of a high proportion of the Western population under 30, except the very highly skilled, will involve repeated bouts of unemployment, with job changes involving not a move to higher living standards but an angry acceptance of lower ones. By 2030, it is possible that the median real income in the United States and Western Europe may be no more than 50-60% of its level today.
http://www.prudentbear.com/index.php/BearsLairHome
http://www.prudentbear.com/index.php/BearsLairHome
This in the context of Tata Motors of India buying Land Rover and Jaguar form Ford. Tata can build the same or better luxury cars with 90% lower labor cost. Bad news, esp. for British workers, but applies broadly to all US and European fat cat social welfare states.
Posted today at Seeking Alpha:
QUOTE
The term, “Debt Supercycle” is attributed to the BCA advisory, which has chronicled the rise of U.S. debt in one of the scarier charts to be found on the long-term prospects for the U.S. economy.
You’ll find it on page 3 of the document, An Inflection Point in the Debt Supercycle (although this particular portrayal downplays the uptrend with a longish horizontal axis). It shows U.S. non-federal debt as a percentage of GDP from the 1970s to present. As can be seen, the percentage of debt to GDP has been cycling ever higher – from 100 to 180 (with the surge since 2000 quite startling).
What this means is that there is a real capacity for a major economic implosion if market forces are left to unwind on their own. A debt-deflation spiral like the Great Depression of the 1930s is a possibility even -- unless the Fed responds quickly and dramatically (as it likely will) to stop the economic multipliers from gathering downward momentum.
There will be the usual fears over “pushing on a string,” and deflationary vortexes but the history of the Debt Supercycle and Fed policy indicates the latter wins out. Besides, there is still plenty of scope for a policy response of sufficient magnitude thanks to low consumer price inflation, aided by fiscal re-stimulation (federal debt is still relatively low at less than 40% of GDP), and a falling dollar.
The side effect of staving off another financial Armageddon will be another upleg in the Debt Supercycle and bubble-like episode (BCA’s picks emerging stocks and U.S. large caps as the favored assets). But this leaves one wondering where it will all end. Debt can’t keep rising relative to income forever. Perhaps the doom-and-gloom prophets will be right eventually about a supernova-like trauma. I don’t look forward to that at all.
http://seekingalpha.com/article/59087-can-...debt-supercycle
You’ll find it on page 3 of the document, An Inflection Point in the Debt Supercycle (although this particular portrayal downplays the uptrend with a longish horizontal axis). It shows U.S. non-federal debt as a percentage of GDP from the 1970s to present. As can be seen, the percentage of debt to GDP has been cycling ever higher – from 100 to 180 (with the surge since 2000 quite startling).
What this means is that there is a real capacity for a major economic implosion if market forces are left to unwind on their own. A debt-deflation spiral like the Great Depression of the 1930s is a possibility even -- unless the Fed responds quickly and dramatically (as it likely will) to stop the economic multipliers from gathering downward momentum.
There will be the usual fears over “pushing on a string,” and deflationary vortexes but the history of the Debt Supercycle and Fed policy indicates the latter wins out. Besides, there is still plenty of scope for a policy response of sufficient magnitude thanks to low consumer price inflation, aided by fiscal re-stimulation (federal debt is still relatively low at less than 40% of GDP), and a falling dollar.
The side effect of staving off another financial Armageddon will be another upleg in the Debt Supercycle and bubble-like episode (BCA’s picks emerging stocks and U.S. large caps as the favored assets). But this leaves one wondering where it will all end. Debt can’t keep rising relative to income forever. Perhaps the doom-and-gloom prophets will be right eventually about a supernova-like trauma. I don’t look forward to that at all.
http://seekingalpha.com/article/59087-can-...debt-supercycle
Sorry I can't find anything positive.
W.
Yeah, I'm in the midst of dealing with this myself. I do medical transcription as an independent contractor. I got an approximately 30% pay cut within the last couple of years (they changed the way lines were counted for production pay). This was on top of a work slowdown, then a learning curve with a second hospital client, new computer, and new software. For a while I was only making maybe half of what I'd done previously.
NONE of my bills went down at all. And my live-in wasn't working for much of the past several years.
Out of panic and desperation, I had gotten payday (and other) loans to help out.
I've been working more hours and working harder in an effort to bring my productivity back up to where I can handle the bills again without desperation measures. And my live-in is working again. Now I'm just hoping that my hands, wrists, and elbows will hold up under the stress.
Yeah, it's my fault that I didn't have a pile of money saved up before all this happened... but the live-in's situation didn't help either. Had he been working when I got my pay cut, things would have been a lot better around here.
My boss (small local company) still pays better than a lot of the big national companies (thankfully). But when the outstanding bills are paid off, we're either getting the hell out of Southern California permanently (moving to where the cost of living is cheaper), or perhaps I'm going to look into a mobile home. My guy loves Southern California weather (he can't drive), but it's gotten to the point that other things are beginning to trump the nicer weather.
Maybe Third Worlders can live on a low income and 15 people to one room, but this has been grueling for me, and I'm sure a lot of other people are in the same boat, even if they initially had more savings than I did.
I realize that I don't own my job... however, some days I feel as if all those Indians and Filipinos are getting jobs at my expense. They may think three cents a line is just dandy, but they don't have to deal with U.S. cost-of-living, taxes, and regulations like native-borns do.
I can't see anything positive in this situation either--not from my point of view. I wasn't living very high off the hog to begin with. I can finally see the light at the end of the tunnel, but it's been financial hell clawing my way back to some semblance of normalcy.
Finally, the more-frequent changing of jobs is a reality for many of us now. I am in my 50s and have not had long periods of unemployment, but I have done a couple of different jobs which have either become less plentiful, changed radically, or practically disappeared, such as low-level commercial artist, headline setting, typesetting, proofreader, word processor (once a hot job category with lots of classified ads), etc.
I don't think that medical transcription will disappear any time soon... but right now I'm hoping I can stay employed in this field until I croak.
If all the clients are looking for is a cheaper price, well, they can surely get that by outsourcing overseas... but I have also heard that this outsourced work is pretty variable in quality (literacy in terms of vernacular speech) and must be heavily edited by American editors. Maybe this will change as overseas personnel become more literate, but all I can say is that judging by the e-mails I get looking to take my job, they're not there YET.
NONE of my bills went down at all. And my live-in wasn't working for much of the past several years.
Out of panic and desperation, I had gotten payday (and other) loans to help out.
I've been working more hours and working harder in an effort to bring my productivity back up to where I can handle the bills again without desperation measures. And my live-in is working again. Now I'm just hoping that my hands, wrists, and elbows will hold up under the stress.
Yeah, it's my fault that I didn't have a pile of money saved up before all this happened... but the live-in's situation didn't help either. Had he been working when I got my pay cut, things would have been a lot better around here.
My boss (small local company) still pays better than a lot of the big national companies (thankfully). But when the outstanding bills are paid off, we're either getting the hell out of Southern California permanently (moving to where the cost of living is cheaper), or perhaps I'm going to look into a mobile home. My guy loves Southern California weather (he can't drive), but it's gotten to the point that other things are beginning to trump the nicer weather.
Maybe Third Worlders can live on a low income and 15 people to one room, but this has been grueling for me, and I'm sure a lot of other people are in the same boat, even if they initially had more savings than I did.
I realize that I don't own my job... however, some days I feel as if all those Indians and Filipinos are getting jobs at my expense. They may think three cents a line is just dandy, but they don't have to deal with U.S. cost-of-living, taxes, and regulations like native-borns do.
I can't see anything positive in this situation either--not from my point of view. I wasn't living very high off the hog to begin with. I can finally see the light at the end of the tunnel, but it's been financial hell clawing my way back to some semblance of normalcy.
Finally, the more-frequent changing of jobs is a reality for many of us now. I am in my 50s and have not had long periods of unemployment, but I have done a couple of different jobs which have either become less plentiful, changed radically, or practically disappeared, such as low-level commercial artist, headline setting, typesetting, proofreader, word processor (once a hot job category with lots of classified ads), etc.
I don't think that medical transcription will disappear any time soon... but right now I'm hoping I can stay employed in this field until I croak.
If all the clients are looking for is a cheaper price, well, they can surely get that by outsourcing overseas... but I have also heard that this outsourced work is pretty variable in quality (literacy in terms of vernacular speech) and must be heavily edited by American editors. Maybe this will change as overseas personnel become more literate, but all I can say is that judging by the e-mails I get looking to take my job, they're not there YET.
QUOTE(Wolf DeVoon @ Jan 7 2008, 10:11 AM)
Posted today at Prudent Bear:
It is pretty clear that income levels in the West are converging with those in the more competently run emerging markets. The bad news is that in the years ahead this is likely to happen through an absolute decline in Western living standards. The populations of India and China greatly exceed those of all the rich countries put together. The greater part of Western economies is vulnerable to low-wage competition. Thus the economic histories of a high proportion of the Western population under 30, except the very highly skilled, will involve repeated bouts of unemployment, with job changes involving not a move to higher living standards but an angry acceptance of lower ones. By 2030, it is possible that the median real income in the United States and Western Europe may be no more than 50-60% of its level today.
http://www.prudentbear.com/index.php/BearsLairHome
It is pretty clear that income levels in the West are converging with those in the more competently run emerging markets. The bad news is that in the years ahead this is likely to happen through an absolute decline in Western living standards. The populations of India and China greatly exceed those of all the rich countries put together. The greater part of Western economies is vulnerable to low-wage competition. Thus the economic histories of a high proportion of the Western population under 30, except the very highly skilled, will involve repeated bouts of unemployment, with job changes involving not a move to higher living standards but an angry acceptance of lower ones. By 2030, it is possible that the median real income in the United States and Western Europe may be no more than 50-60% of its level today.
http://www.prudentbear.com/index.php/BearsLairHome
Another seminal post today, by Bill Gross of Pimco:
The Bank of Shadows
and Wall Street brokers are busted:
http://www.bloomberg.com/apps/news?pid=206...&refer=home
The Bank of Shadows
and Wall Street brokers are busted:
http://www.bloomberg.com/apps/news?pid=206...&refer=home
This link just posted today, a concise, extremely clear explanation that I highly recommend.
http://www.prudentbear.com/index.php/GuestCommentaryHome
excerpt:
http://www.prudentbear.com/index.php/GuestCommentaryHome
excerpt:
QUOTE
As yields in financial assets during the latter period of financial market growth were superior, capital pursued returns in the financial markets and not real assets. This financial asset inflation has until recently sequestered the visibility of monetary expansion away from consumer goods prices. The combination of the U.S. BLS and Statistics Canada’s muting of the CPI measures and apparent leasing of central bank gold to suppress the gold inflation signal has also contributed to the masking of the consequences of inflation of the money stock with its attendant record total debt levels in our economies.
We are now living through the terminal phase of a debt and credit cycle where greater amounts are required to be borrowed to pay interest on the existing debt to finance an economy already distorted by excessive credit creation and riddled with associated uneconomic enterprise, misallocation of resources, and speculative activity.
To illustrate the point, the annual credit market borrowing has increased to the extent that, in 2006, the U.S. economy required total credit market borrowing of $3.8 Trillion in a combined Federal, State, corporate and consumer measure. This $3.8 trillion in borrowing occurred in an economy with a GDP of $13.2 Trillion in 2006. Borrowing an additional 29% of GDP led to economic growth optimistically estimated at approximately 3% in 2006 using the current CPI measures.
The greatest danger we face today is the onset of hyper-inflation as the markets reallocate capital to real assets to protect wealth and price controls will not address the reason for this reallocation to protect wealth and maintain market function.
With world capital markets now inflated to more than $150 trillion in value, relatively small reallocations of this capital at the margins to assets undervalued in real terms such as commodities, energy, and precious metals can quickly explode the price of such critical assets in a bout of rapid-onset hyperinflation.
When the markets increasingly realize that bonds, currencies, and equities have been inflated over a prolonged period by monetary policy and have little value, this asset reallocation itself will likely follow the criticality theory model.
During periods of hyperinflation, currencies become worthless and this loss of trust in currency results in economies ceasing their normal function. Federal Reserve Chairman Bernanke and other central bank chairmen advocate making unlimited credit available to solve “liquidity” issues when it is the value of financial instruments and economic unsustainability that is at issue. Again, these injections of liquidity will destroy their currencies in addition to not addressing the underlying economic issues.
It is essential that a focus be placed on preserving faith in our currencies through immediate currency reform to avert a calamity beyond the very difficult economic contraction that is approaching.
We are now living through the terminal phase of a debt and credit cycle where greater amounts are required to be borrowed to pay interest on the existing debt to finance an economy already distorted by excessive credit creation and riddled with associated uneconomic enterprise, misallocation of resources, and speculative activity.
To illustrate the point, the annual credit market borrowing has increased to the extent that, in 2006, the U.S. economy required total credit market borrowing of $3.8 Trillion in a combined Federal, State, corporate and consumer measure. This $3.8 trillion in borrowing occurred in an economy with a GDP of $13.2 Trillion in 2006. Borrowing an additional 29% of GDP led to economic growth optimistically estimated at approximately 3% in 2006 using the current CPI measures.
The greatest danger we face today is the onset of hyper-inflation as the markets reallocate capital to real assets to protect wealth and price controls will not address the reason for this reallocation to protect wealth and maintain market function.
With world capital markets now inflated to more than $150 trillion in value, relatively small reallocations of this capital at the margins to assets undervalued in real terms such as commodities, energy, and precious metals can quickly explode the price of such critical assets in a bout of rapid-onset hyperinflation.
When the markets increasingly realize that bonds, currencies, and equities have been inflated over a prolonged period by monetary policy and have little value, this asset reallocation itself will likely follow the criticality theory model.
During periods of hyperinflation, currencies become worthless and this loss of trust in currency results in economies ceasing their normal function. Federal Reserve Chairman Bernanke and other central bank chairmen advocate making unlimited credit available to solve “liquidity” issues when it is the value of financial instruments and economic unsustainability that is at issue. Again, these injections of liquidity will destroy their currencies in addition to not addressing the underlying economic issues.
It is essential that a focus be placed on preserving faith in our currencies through immediate currency reform to avert a calamity beyond the very difficult economic contraction that is approaching.
Every chance I get I invest in becoming more self-sufficient, like a greenhouse, chicken coop, outdoor boiler, backup power, etc. because I have been concerned about the long term sustainability of the economies of Canada and USA and most industrialized countries.
It's worse than we think. In Atlanta, over 7,000 people showed up to apply for 300 Wal-Mart jobs paying minimum wage.
http://www.ajc.com/metro/content/metro/dek...0109.html?imw=Y
http://www.ajc.com/metro/content/metro/dek...0109.html?imw=Y
Ooooops! (potential 5-alarm fire) US may lose its AAA credit rating
"Today's Financial Times front page article that Moody's foresees the USA losing its AAA rating instantly rang alarm bells. For nearly a hundred years, the US Treasury has been the most creditworthy counterparty in the world, serving as the baseline against which all other credits are rated. Losing its AAA status as a creditor would undermine all US credit markets, the US dollar as a reserve currency and the global economy more generally as heightened uncertainty shakes up all credit evaluations."
http://www.dailykos.com/storyonly/2008/1/1...6169/389/434889
"Today's Financial Times front page article that Moody's foresees the USA losing its AAA rating instantly rang alarm bells. For nearly a hundred years, the US Treasury has been the most creditworthy counterparty in the world, serving as the baseline against which all other credits are rated. Losing its AAA status as a creditor would undermine all US credit markets, the US dollar as a reserve currency and the global economy more generally as heightened uncertainty shakes up all credit evaluations."
http://www.dailykos.com/storyonly/2008/1/1...6169/389/434889
QUOTE(Wolf DeVoon @ Jan 11 2008, 10:16 PM)
Ooooops! (potential 5-alarm fire) US may lose its AAA credit rating
"Today's Financial Times front page article that Moody's foresees the USA losing its AAA rating instantly rang alarm bells. For nearly a hundred years, the US Treasury has been the most creditworthy counterparty in the world, serving as the baseline against which all other credits are rated. Losing its AAA status as a creditor would undermine all US credit markets, the US dollar as a reserve currency and the global economy more generally as heightened uncertainty shakes up all credit evaluations."
http://www.dailykos.com/storyonly/2008/1/1...6169/389/434889
"Today's Financial Times front page article that Moody's foresees the USA losing its AAA rating instantly rang alarm bells. For nearly a hundred years, the US Treasury has been the most creditworthy counterparty in the world, serving as the baseline against which all other credits are rated. Losing its AAA status as a creditor would undermine all US credit markets, the US dollar as a reserve currency and the global economy more generally as heightened uncertainty shakes up all credit evaluations."
http://www.dailykos.com/storyonly/2008/1/1...6169/389/434889
Like Bill Fleckenstein says: It ain't gonna happen.
--Brant
Here's a pie chart of a model brokerage account for 2008
link
Approximately half in cash. 44% in bulletproof funds BEARX, VIPSX, GLD
4% short General Motors in a March put option
2% long a gold mine in Mongolia, backed by Rio Tinto
Not shown: twice as much socked away in FDIC insured CDs
link
Approximately half in cash. 44% in bulletproof funds BEARX, VIPSX, GLD
4% short General Motors in a March put option
2% long a gold mine in Mongolia, backed by Rio Tinto
Not shown: twice as much socked away in FDIC insured CDs
QUOTE(Brant Gaede @ Jan 12 2008, 01:21 AM)
Like Bill Fleckenstein says: It ain't gonna happen.
--Brant
--Brant
I agree. Once we stop spending ourselves into bankruptcy on the incompetently fought Iraq war, things will settle down. It is amazing how -good- one can feel when he stops beating his head against a brick wall.
Ba'al Chatzaf
QUOTE(BaalChatzaf @ Jan 12 2008, 08:43 AM)
Once we stop spending ourselves into bankruptcy on the incompetently fought Iraq war, things will settle down.
Rubbish. Social Security, Medicare, muni debt, state and Federal revenue plunging, credit inflation bubble.
W.
QUOTE(Wolf DeVoon @ Jan 12 2008, 07:14 AM)
Here's a pie chart of a model brokerage account for 2008
link
Approximately half in cash. 44% in bulletproof funds BEARX, VIPSX, GLD
4% short General Motors in a March put option
2% long a gold mine in Mongolia, backed by Rio Tinto
Not shown: twice as much socked away in FDIC insured CDs
link
Approximately half in cash. 44% in bulletproof funds BEARX, VIPSX, GLD
4% short General Motors in a March put option
2% long a gold mine in Mongolia, backed by Rio Tinto
Not shown: twice as much socked away in FDIC insured CDs
I'd also consider Yamana Gold (AUY) as a more conservative speculative play. Way too much in CDs. Buy some Altria (MO) and get 4% plus capital appreciation. This company is virtually bulletproof. CDs are worse than bonds. However, they may help one sleep at night. That put option is getting close to expiring. Here's an idea for anyone who wants to have fun: Bank of America. It's merger with Countrywide Finance might not be very digestible. Put a long put on that!
--Brant
QUOTE(Wolf DeVoon @ Jan 12 2008, 09:47 AM)
QUOTE(BaalChatzaf @ Jan 12 2008, 08:43 AM)
Once we stop spending ourselves into bankruptcy on the incompetently fought Iraq war, things will settle down.
Rubbish. Social Security, Medicare, muni debt, state and Federal revenue plunging, credit inflation bubble.
W.
The Sky is Falling. We shall see.
Ba'al Chatzaf
QUOTE(BaalChatzaf @ Jan 12 2008, 12:34 PM)
QUOTE(Wolf DeVoon @ Jan 12 2008, 09:47 AM)
QUOTE(BaalChatzaf @ Jan 12 2008, 08:43 AM)
Once we stop spending ourselves into bankruptcy on the incompetently fought Iraq war, things will settle down.
Rubbish. Social Security, Medicare, muni debt, state and Federal revenue plunging, credit inflation bubble.
W.
The Sky is Falling. We shall see.
Ba'al Chatzaf
The Fed will cut Monday morning or shortly thereafter. You get to look good for a few months. That's not the question. It doesn't matter if interest rates go to zero. I will personally bet $100 to a donut that US private sector employment falls 10% this year and rate cuts won't do a damn bit of good, because the issue is solvency not liquidity.
Two sound investment ideas for the coming crisis: food, uniforms and ordnance.
QUOTE(Wolf DeVoon @ Jan 12 2008, 10:04 PM)
QUOTE(BaalChatzaf @ Jan 12 2008, 12:34 PM)
QUOTE(Wolf DeVoon @ Jan 12 2008, 09:47 AM)
QUOTE(BaalChatzaf @ Jan 12 2008, 08:43 AM)
Once we stop spending ourselves into bankruptcy on the incompetently fought Iraq war, things will settle down.
Rubbish. Social Security, Medicare, muni debt, state and Federal revenue plunging, credit inflation bubble.
W.
The Sky is Falling. We shall see.
Ba'al Chatzaf
The Fed will cut Monday morning or shortly thereafter. You get to look good for a few months. That's not the question. It doesn't matter if interest rates go to zero. I will personally bet $100 to a donut that US private sector employment falls 10% this year and rate cuts won't do a damn bit of good, because the issue is solvency not liquidity.
Two sound investment ideas for the coming crisis: food, uniforms and ordnance.
Hang on. We shall see. The Day of Reckoning is coming, but when? You say soon. Maybe. We shall see.
Ba'al Chatzaf
QUOTE(Wolf DeVoon @ Jan 12 2008, 09:04 PM)
I will personally bet $100 to a donut...
Wolf,
When I was growing up, the phrase was "I bet you a dollar to a donut..."
Hmmmmmm...
Michael
QUOTE(Michael Stuart Kelly @ Jan 13 2008, 02:41 AM)
QUOTE(Wolf DeVoon @ Jan 12 2008, 09:04 PM)
I will personally bet $100 to a donut...
Wolf,
When I was growing up, the phrase was "I bet you a dollar to a donut..."
Hmmmmmm...
Michael
Galloping Inflation.
Ba'al Chatzaf
A brief recap of how things stand. Arthur Laffer says there's no inflation, no recession ahead. Larry Kudlow says screw the inflation, run the printing presses at flank speed. Rick Santelli quotes Atlas Shrugged on air from the Chicago Board of Trade, and Cramer punts. In fairness to those who see America as the land of the free, here follows a multiple choice true-false quiz.
"Rising income inequality and slow real wage growth since 2000 reflect strong profit growth, much of which may be cyclical, and dramatic income gains for the top one percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations rather than conventional trade in goods and services."
http://benmuse.typepad.com/custom_house/20...collar-blu.html
"In light of the banking reforms and improved understanding of macroeconomic monetary theory, our economic situation is such that no recession will ever transform into the prolonged agony of the Great Depression. Businesses and individuals placing savings in banks can be reassured that should their bank fail, the FDIC will reimburse their deposits up to $100,000. This faith in the system in turn prevents the mass bank runs that worsened the situation at the beginning of the Depression. Federal Reserve officials like Alan Greenspan have exhibited appropriate and effective monetary responses to fluctuations in the economy, as opposed to the harmful actions taken by the Fed in the 1920s and '30s. By assessing the Federal Reserve and banks' actions in the past, we have ensured that the same mistakes will never be repeated again, and our country will never have to experience another calamity such as the Great Depression."
http://minneapolisfed.org/pubs/region/01-06/essay.cfm
Today, the total consumer debt is around $10 trillion... There is always the option to print money. That would go something like this. The US has a massive debt, so it prints money to ease the debt payments. This devalues the dollar. OPEC and China divest from the dollar, and then the dollar will devalue further. Theoretically, this would be good for exports if the US were not buying goods from China, Japan, Germany, and UK as well as service from India and Ireland. Jobs will move abroad, leading to increased unemployment. Things are already headed that way.
http://blogcritics.org/archives/2007/12/18/120921.php
“There is still a long way to go,” said Nouriel Roubini, an economist at the Stern School of Business at New York University and chairman of the research firm RGE Monitor. Mr. Roubini has long predicted the real estate downturn would cause a severe recession. He envisions foreclosures accelerating this year, and banks counting fresh losses. That could make them less able to lend and further slow economic activity, not just in the United States but around the world.
“We’re facing the risk of a systemic financial crisis,” Mr. Roubini said. “It’s not just subprime mortgages. The same kind of reckless lending has been occurring throughout the financial system. And it’s not only mortgages: Now it’s credit cards and auto loans, where we see problems increasing. The toxic junk is popping up everywhere.”
http://www.nytimes.com/2008/01/13/business...&ei=5087%0A
"Rising income inequality and slow real wage growth since 2000 reflect strong profit growth, much of which may be cyclical, and dramatic income gains for the top one percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations rather than conventional trade in goods and services."
http://benmuse.typepad.com/custom_house/20...collar-blu.html
"In light of the banking reforms and improved understanding of macroeconomic monetary theory, our economic situation is such that no recession will ever transform into the prolonged agony of the Great Depression. Businesses and individuals placing savings in banks can be reassured that should their bank fail, the FDIC will reimburse their deposits up to $100,000. This faith in the system in turn prevents the mass bank runs that worsened the situation at the beginning of the Depression. Federal Reserve officials like Alan Greenspan have exhibited appropriate and effective monetary responses to fluctuations in the economy, as opposed to the harmful actions taken by the Fed in the 1920s and '30s. By assessing the Federal Reserve and banks' actions in the past, we have ensured that the same mistakes will never be repeated again, and our country will never have to experience another calamity such as the Great Depression."
http://minneapolisfed.org/pubs/region/01-06/essay.cfm
Today, the total consumer debt is around $10 trillion... There is always the option to print money. That would go something like this. The US has a massive debt, so it prints money to ease the debt payments. This devalues the dollar. OPEC and China divest from the dollar, and then the dollar will devalue further. Theoretically, this would be good for exports if the US were not buying goods from China, Japan, Germany, and UK as well as service from India and Ireland. Jobs will move abroad, leading to increased unemployment. Things are already headed that way.
http://blogcritics.org/archives/2007/12/18/120921.php
“There is still a long way to go,” said Nouriel Roubini, an economist at the Stern School of Business at New York University and chairman of the research firm RGE Monitor. Mr. Roubini has long predicted the real estate downturn would cause a severe recession. He envisions foreclosures accelerating this year, and banks counting fresh losses. That could make them less able to lend and further slow economic activity, not just in the United States but around the world.
“We’re facing the risk of a systemic financial crisis,” Mr. Roubini said. “It’s not just subprime mortgages. The same kind of reckless lending has been occurring throughout the financial system. And it’s not only mortgages: Now it’s credit cards and auto loans, where we see problems increasing. The toxic junk is popping up everywhere.”
http://www.nytimes.com/2008/01/13/business...&ei=5087%0A
Hey, Wolf: I've got a thousand donuts!
--Brant
--Brant
QUOTE(Brant Gaede @ Jan 13 2008, 11:34 AM)
Hey, Wolf: I've got a thousand donuts!
--Brant
--Brant
Limit one donut. You're on. 10% decline in US private sector employment in 2008. To be decided after BLS revisions June 09. Offsetting gains in federal, state, local government or government contractors does not count.
QUOTE(Wolf DeVoon @ Jan 13 2008, 01:27 PM)
QUOTE(Brant Gaede @ Jan 13 2008, 11:34 AM)
Hey, Wolf: I've got a thousand donuts!
--Brant
--Brant
Limit one donut. You're on. 10% decline in US private sector employment in 2008. To be decided after BLS revisions June 09. Offsetting gains in federal, state, local government or government contractors does not count.
I'll buy the donut tomorrow morning!
--Brant
QUOTE(Brant Gaede @ Jan 13 2008, 08:27 PM)
QUOTE(Wolf DeVoon @ Jan 13 2008, 01:27 PM)
QUOTE(Brant Gaede @ Jan 13 2008, 11:34 AM)
Hey, Wolf: I've got a thousand donuts!
--Brant
--Brant
Limit one donut. You're on. 10% decline in US private sector employment in 2008. To be decided after BLS revisions June 09. Offsetting gains in federal, state, local government or government contractors does not count.
I'll buy the donut tomorrow morning!
--Brant
You're going to hold a donut until June 09 !!! in what, nitrogen?
QUOTE(Wolf DeVoon @ Jan 13 2008, 07:55 PM)
QUOTE(Brant Gaede @ Jan 13 2008, 08:27 PM)
QUOTE(Wolf DeVoon @ Jan 13 2008, 01:27 PM)
QUOTE(Brant Gaede @ Jan 13 2008, 11:34 AM)
Hey, Wolf: I've got a thousand donuts!
--Brant
--Brant
Limit one donut. You're on. 10% decline in US private sector employment in 2008. To be decided after BLS revisions June 09. Offsetting gains in federal, state, local government or government contractors does not count.
I'll buy the donut tomorrow morning!
--Brant
You're going to hold a donut until June 09 !!! in what, nitrogen?
Naw, I'm just goin' to toss it bare-assed naked into my freezer.
--Brant
QUOTE(Wolf DeVoon @ Jan 13 2008, 08:55 PM)
You're going to hold a donut until June 09 !!! in what, nitrogen?
Wolf,
June 09 is my birthday. I normally don't eat white sugar, but I'll take donuts...
Michael
Yet another meltdown angle: the credit default swap (CDS) market
http://ftalphaville.ft.com/blog/2008/01/14...ncial-meltdown/
On IBM 'preannouncement' the stock market will get a big pop today. Keep in mind that nothing has changed on Main Street. Anecdotal evidence pouring in that credit card companies are unilaterally bumping interest rates on unpaid balances and chopping spending limits. 50/50 chance that IBM is another Enron story in the making. In any case, 2/3 of the reported IBM growth came from dollar weakness. Gold is over $900 and climbing.
W.
http://ftalphaville.ft.com/blog/2008/01/14...ncial-meltdown/
On IBM 'preannouncement' the stock market will get a big pop today. Keep in mind that nothing has changed on Main Street. Anecdotal evidence pouring in that credit card companies are unilaterally bumping interest rates on unpaid balances and chopping spending limits. 50/50 chance that IBM is another Enron story in the making. In any case, 2/3 of the reported IBM growth came from dollar weakness. Gold is over $900 and climbing.
W.
Another inflation call:
http://seekingalpha.com/article/60261-all-...-more-inflation
http://seekingalpha.com/article/60261-all-...-more-inflation
Five things you need to know... and the threat of deflation
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
QUOTE(Wolf DeVoon @ Jan 17 2008, 09:14 PM)
Five things you need to know... and the threat of deflation
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
Wolf, if you're afraid of deflation you should not be in gold. Recession or depression this will be one for inflation, unlike the 1903s.
--Brant
QUOTE(Brant Gaede @ Jan 17 2008, 10:37 PM)
QUOTE(Wolf DeVoon @ Jan 17 2008, 09:14 PM)
Five things you need to know... and the threat of deflation
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
Wolf, if you're afraid of deflation you should not be in gold. Recession or depression this will be one for inflation, unlike the 1903s.
--Brant
Yeah, I know.
Honestly I can't figure it out. Cost of living is rising, real estate value dropping.
QUOTE(Wolf DeVoon @ Jan 17 2008, 10:09 PM)
QUOTE(Brant Gaede @ Jan 17 2008, 10:37 PM)
QUOTE(Wolf DeVoon @ Jan 17 2008, 09:14 PM)
Five things you need to know... and the threat of deflation
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
http://www.minyanville.com/articles/C-jpm-...c/index/a/15570
Wolf, if you're afraid of deflation you should not be in gold. Recession or depression this will be one for inflation, unlike the 1903s.
--Brant
Yeah, I know.
Honestly I can't figure it out. Cost of living is rising, real estate value dropping.
Look at the aggregate, esp. the dollar relative to other (inflating) currencies. This is world-wide. Hence, gold up. Also out of fear. BUT, diversify! Buy stocks like Altria or beaten down infrastructure. When the gov'ments try to get things going infrastructure gets the money. Caveat: gold'll go down short-time as speculators bale to get cash to cover their ass. Buy on any weakness, right like now.
--Brant
QUOTE(Brant Gaede @ Jan 17 2008, 11:56 PM)
Look at the aggregate, esp. the dollar relative to other (inflating) currencies. This is world-wide. Hence, gold up. Also out of fear. BUT, diversify! Buy stocks like Altria or beaten down infrastructure. When the gov'ments try to get things going infrastructure gets the money. Caveat: gold'll go down short-time as speculators bale to get cash to cover their ass. Buy on any weakness, right like now.
--Brant
--Brant
I spent some time at the bank today, bought Treasuries to balance an Oppenheimer intl bond fund. I know what you're saying about MO, and you're probably right. But what I told the broker was Lockheed and Raytheon, anyone who makes bullets, bombs, and rockets. Pretty sad commentary about where I think government is going to spend money.
QUOTE
The price of bread rose 7.4 percent last year, almost twice the rate of inflation. The price of eggs rose 29.2 percent in 2007, while the price of fresh whole milk was up 13.1 percent. Since July, when milk prices first soared, the price of fresh whole milk has risen by almost 23 percent. "The kinds of things you purchase every day are going up (in price)," said Gus Faucher, the director of macroeconomics at forecaster Moody's Economy.com in West Chester, Pa. "People who are at the lower end of the income scale are going to feel that more."
It's not just rising food prices that are pinching the budget of working Americans. The price of health insurance, another major political campaign theme, rose by 10.1 percent last year. Medical inflation also continued to outpace the broader consumer inflation rate. The price of medical care nationally rose by 5.8 percent in 2007 and the price of medical care services rose by 5.3 percent. But consumers perhaps most felt the energy-price squeeze. Gasoline prices rose 8.2 percent on average last year, the slowest rate of growth since 2002. But pump prices began climbing anew in October and for the last quarter of 2007 average prices rose by just more than 30 percent. Similarly, the price of fuel oil used for winter home heating rose 7.4 percent for all of 2007, but in the last three months of the year rose by more than 27 percent. (Atlanta Journal Constitution, today)
It's not just rising food prices that are pinching the budget of working Americans. The price of health insurance, another major political campaign theme, rose by 10.1 percent last year. Medical inflation also continued to outpace the broader consumer inflation rate. The price of medical care nationally rose by 5.8 percent in 2007 and the price of medical care services rose by 5.3 percent. But consumers perhaps most felt the energy-price squeeze. Gasoline prices rose 8.2 percent on average last year, the slowest rate of growth since 2002. But pump prices began climbing anew in October and for the last quarter of 2007 average prices rose by just more than 30 percent. Similarly, the price of fuel oil used for winter home heating rose 7.4 percent for all of 2007, but in the last three months of the year rose by more than 27 percent. (Atlanta Journal Constitution, today)
W.
Vote for Ron Paul~its our only real hope.
www.ronpaul2008.com
www.whoisronpaul.name
I signed up to be a precinct leader in my home town. Thousands of volunteers are doing the same all across the country now. The goal is to enable Ron Paul to receive the Republican nomination for president.
Join us!
galt
www.ronpaul2008.com
www.whoisronpaul.name
I signed up to be a precinct leader in my home town. Thousands of volunteers are doing the same all across the country now. The goal is to enable Ron Paul to receive the Republican nomination for president.
Join us!
galt
QUOTE(galtgulch @ Jan 18 2008, 05:18 AM)
Vote for Ron Paul~its our only real hope.
Go away. We have more important ideas to discuss here.
FT Alphaville today on credit default swaps:
http://ftalphaville.ft.com/blog/2008/01/18...ith-armageddon/
Because of globalization, trade and monetary, what is happening in the US--the re-assertion of the business cycle--will seriously wash out world-wide.
--Brant
--Brant
Wolf, you are obviously more sophisticated than I am financially, but I hope you are having a little investment fun too with a small portion of your money.
The last time I brought treasuries, many years ago, I dealt directly with the government and saved a little money. This is probably the most efficient area of government the public is ever likely to have any business with.
--Brant
The last time I brought treasuries, many years ago, I dealt directly with the government and saved a little money. This is probably the most efficient area of government the public is ever likely to have any business with.
--Brant
QUOTE(Brant Gaede @ Jan 18 2008, 11:24 AM)
Wolf, you are obviously more sophisticated than I am financially, but I hope you are having a little investment fun too with a small portion of your money.
The last time I brought treasuries, many years ago, I dealt directly with the government and saved a little money. This is probably the most efficient area of government the public is ever likely to have any business with.
--Brant
The last time I brought treasuries, many years ago, I dealt directly with the government and saved a little money. This is probably the most efficient area of government the public is ever likely to have any business with.
--Brant
This is getting really weird. You were right, Brant, that emerging markets are in trouble too.
http://ftalphaville.ft.com/blog/2008/01/18...xposed-in-2008/
Cash, government bonds. Not much of a strategy, but that's my plan for Q1.
James Saft at Reuters sees gold and oil as lagging indicators; we should brace for deflation.
http://www.reuters.com/article/reutersEdge...l=0&sp=true
http://www.reuters.com/article/reutersEdge...l=0&sp=true
QUOTE(Wolf DeVoon @ Jan 19 2008, 12:24 PM)
James Saft at Reuters sees gold and oil as lagging indicators; we should brace for deflation.
http://www.reuters.com/article/reutersEdge...l=0&sp=true
http://www.reuters.com/article/reutersEdge...l=0&sp=true
Well, falling inflation, if that's what we are facing, is not deflation. However, we are concerned with prices as such. The unravelling of the yen carry trade is the only thing Ken (not-as-smart-as-he-thinks) Fisher worries about re equity prices. Personally, I see no floor under equity prices. And where is their up with the financials still an unfathomable black hole? James Cramer got it right when he scorned the 150 billion dollar bailout. The heart of the problem is the mortgage insurers. Deal with them or you aren't dealing with it.
--Brant
long, Altria. Short, too dangerous to mention. 80% cash.
Good post at Minyanville, comparing US deflation vs Japan's experience in the 90s (and continuing)
http://www.minyanville.com/articles/index.php?a=15597
http://www.minyanville.com/articles/index.php?a=15597
QUOTE
Differences Between Japan and the US
Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will.
Enormous consumer debt makes the problem the US faces far more severe than the problem Japan faced. Consumer debt that that cannot be repaid will be defaulted on. Rising unemployment will further exacerbate mortgage-related problems and credit card-related problems.
Consumption continued in Japan because of savings. The US will be forced to cut back on consumption and increase savings.
Global wage arbitrage is a far bigger economic force now than during the bulk of Japan's deflationary years.
Japan had the benefit of a global Internet boom followed by a global housing boom to help the economy. The US is facing a global contraction of the housing boom.
Most people in the US "own" their own home. The skew of those deep in debt is huge. 1/3 of Americans owe nothing on their homes. The debt is carried by those who can least afford to carry that debt in an economic downturn.
Japan had a huge valuation problem in real estate. The US not only has a huge valuation problem, commercial real estate is also woefully overbuilt.
Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will.
Enormous consumer debt makes the problem the US faces far more severe than the problem Japan faced. Consumer debt that that cannot be repaid will be defaulted on. Rising unemployment will further exacerbate mortgage-related problems and credit card-related problems.
Consumption continued in Japan because of savings. The US will be forced to cut back on consumption and increase savings.
Global wage arbitrage is a far bigger economic force now than during the bulk of Japan's deflationary years.
Japan had the benefit of a global Internet boom followed by a global housing boom to help the economy. The US is facing a global contraction of the housing boom.
Most people in the US "own" their own home. The skew of those deep in debt is huge. 1/3 of Americans owe nothing on their homes. The debt is carried by those who can least afford to carry that debt in an economic downturn.
Japan had a huge valuation problem in real estate. The US not only has a huge valuation problem, commercial real estate is also woefully overbuilt.
QUOTE(Wolf DeVoon @ Jan 19 2008, 05:20 PM)
Good post at Minyanville, comparing US deflation vs Japan's experience in the 90s (and continuing)
http://www.minyanville.com/articles/index.php?a=15597
http://www.minyanville.com/articles/index.php?a=15597
QUOTE
Differences Between Japan and the US
Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will.
Enormous consumer debt makes the problem the US faces far more severe than the problem Japan faced. Consumer debt that that cannot be repaid will be defaulted on. Rising unemployment will further exacerbate mortgage-related problems and credit card-related problems.
Consumption continued in Japan because of savings. The US will be forced to cut back on consumption and increase savings.
Global wage arbitrage is a far bigger economic force now than during the bulk of Japan's deflationary years.
Japan had the benefit of a global Internet boom followed by a global housing boom to help the economy. The US is facing a global contraction of the housing boom.
Most people in the US "own" their own home. The skew of those deep in debt is huge. 1/3 of Americans owe nothing on their homes. The debt is carried by those who can least afford to carry that debt in an economic downturn.
Japan had a huge valuation problem in real estate. The US not only has a huge valuation problem, commercial real estate is also woefully overbuilt.
Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will.
Enormous consumer debt makes the problem the US faces far more severe than the problem Japan faced. Consumer debt that that cannot be repaid will be defaulted on. Rising unemployment will further exacerbate mortgage-related problems and credit card-related problems.
Consumption continued in Japan because of savings. The US will be forced to cut back on consumption and increase savings.
Global wage arbitrage is a far bigger economic force now than during the bulk of Japan's deflationary years.
Japan had the benefit of a global Internet boom followed by a global housing boom to help the economy. The US is facing a global contraction of the housing boom.
Most people in the US "own" their own home. The skew of those deep in debt is huge. 1/3 of Americans owe nothing on their homes. The debt is carried by those who can least afford to carry that debt in an economic downturn.
Japan had a huge valuation problem in real estate. The US not only has a huge valuation problem, commercial real estate is also woefully overbuilt.
Okay. Deflation will mean lower interest rates which means the value of intermediate and long term bonds will go up. In such a situation the best bond would be the 20 year treasury as it outperformed the 30 last time.
--Brant
Wow, Wolf, the shit is hitting the fan. Tomorrow is going to be dramatic. The problem is downgrade of mortgage insurer, collapsing yen carry trade, etc. What happened overseas is mild compared to what's going to happen after they see the US sell off. The policy of weakening the dollar weakens the viability of the yen carry trade. The collapse of equity markets can only be stopped, maybe, if the US government immediately steps in to buy up the four major mortgage insurers and their obligations, the Bank of Japan cheapens the yen immediately, too, and the Fed. raises interest rates 50 basis points. (Lowering them won't do any good anymore. It was too little too late for positive effect. Now if it cuts it will magnify the panic after very little relief.) Investors world-wide are also sophisticated enough to know that the proposed 150 bil. give-away stimulus is ineffectual government BS and that the powers that be haven't a clue.
I doubt if tomorrow will be a buying opportunity in anything. Too dangerous. I may sell my Altria on the opening if it's above my cost, even though it's too strong to crumble it's not too strong not to be also hurt somewhat. If I do I hope to buy it back with a 5% yield.
--Brant
Caveat (edit): There is a danger here for traders: chasing the market down with puts and shorts. Unless you are completely expert it would just be gambling. This primary bear market cannot be turned into a bull market again for many months if not several years but snap-back rallies can happen anytime. One may happen in the middle of the day tomorrow.
Wolf, I hope I had something to do with your big cash position. I know you did with mine. Thanks.
I doubt if tomorrow will be a buying opportunity in anything. Too dangerous. I may sell my Altria on the opening if it's above my cost, even though it's too strong to crumble it's not too strong not to be also hurt somewhat. If I do I hope to buy it back with a 5% yield.
--Brant
Caveat (edit): There is a danger here for traders: chasing the market down with puts and shorts. Unless you are completely expert it would just be gambling. This primary bear market cannot be turned into a bull market again for many months if not several years but snap-back rallies can happen anytime. One may happen in the middle of the day tomorrow.
Wolf, I hope I had something to do with your big cash position. I know you did with mine. Thanks.
Folks, please read Brant's post above.
My two cents is a transcript from FT Alphaville "Markets Live." The upshot is that futures contracts caused the big global sell-off as hedge funds dumped speculative positions. There's an enormous amount of money at risk in derivatives. $45 trillion in two-party credit default swaps, for instance. Maybe an equally gigantic sum in option contracts. Here's what happened in London:
Important point indicated above: Big long-only funds (pensions, insurance) were not selling, really couldn't act fast enough, and besides they are covenanted to remain fully invested. Normally, these big institutional investors are a "put" or floor under market prices. What we need to watch for tomorrow is any hint that Calpers is reallocating faster than announced, and if so how? Maybe real estate (I doubt it), maybe hedge funds (!)
For the rest of us, cash is king. Cut spending. Pay off credit cards as fast as you can.
W.
My two cents is a transcript from FT Alphaville "Markets Live." The upshot is that futures contracts caused the big global sell-off as hedge funds dumped speculative positions. There's an enormous amount of money at risk in derivatives. $45 trillion in two-party credit default swaps, for instance. Maybe an equally gigantic sum in option contracts. Here's what happened in London:
QUOTE
PM: 6%???
NH: actually we lost 20 points while u have just typed that in
PM: And what are we?
NH: 243 points down at 5,657.9
PM: So what have you been picking up in the market place — body parts?
NH: well a number of things since we last talked
NH: first volume is not that heavy
NH: most of the trading desks are not frantic
PM: trade never heavy when prices fall v sharply — cos no one buys
NH: in fact most of the business at the big banks today has been from hedge funds on their DMA machines
NH: just cutting positions and getting out
PM: DMA — direct market access — (smarty pants Neil)
NH: not real selling by the long only funds
NH: most of this seems to have been futures driven
PM: Quickest way to trade when market overall moving fast
PM: For those who were not on earlier we should perhaps run through the underlying reasons for the weakness of the indices
PM: The big prop which has been removed here in London is the mining sector
PM: Falls here are absolutely horrible
PM: Santa — there are a good number of short-specialist funds out there
PM: And yes, some people will be making a killing
NH: futures driven - means that it is selling of futures contracts that has pulled the market lower
PM: tail wagging dog
NH: actually we lost 20 points while u have just typed that in
PM: And what are we?
NH: 243 points down at 5,657.9
PM: So what have you been picking up in the market place — body parts?
NH: well a number of things since we last talked
NH: first volume is not that heavy
NH: most of the trading desks are not frantic
PM: trade never heavy when prices fall v sharply — cos no one buys
NH: in fact most of the business at the big banks today has been from hedge funds on their DMA machines
NH: just cutting positions and getting out
PM: DMA — direct market access — (smarty pants Neil)
NH: not real selling by the long only funds
NH: most of this seems to have been futures driven
PM: Quickest way to trade when market overall moving fast
PM: For those who were not on earlier we should perhaps run through the underlying reasons for the weakness of the indices
PM: The big prop which has been removed here in London is the mining sector
PM: Falls here are absolutely horrible
PM: Santa — there are a good number of short-specialist funds out there
PM: And yes, some people will be making a killing
NH: futures driven - means that it is selling of futures contracts that has pulled the market lower
PM: tail wagging dog
Important point indicated above: Big long-only funds (pensions, insurance) were not selling, really couldn't act fast enough, and besides they are covenanted to remain fully invested. Normally, these big institutional investors are a "put" or floor under market prices. What we need to watch for tomorrow is any hint that Calpers is reallocating faster than announced, and if so how? Maybe real estate (I doubt it), maybe hedge funds (!)
For the rest of us, cash is king. Cut spending. Pay off credit cards as fast as you can.
W.
It is now 7:30 ET
Dow futures down 501 or 4.14%
Nasdaq futures down 77.75 or 4.2%
S & P futures down 59.9 or 4.52%
Overseas markets are down +5% and they are still open for their second big down day this week. US markets won't trade until 9:30 tomorrow for the first time. If there is no foreign reversal before then, we are likely to lose up to 2000 on the Dow during this week--or even more if panic chases panic. The big losers will be those on margin and sellers. If you own a share of stock and nobody wants to buy it except half what you paid for it, so what? The stock is still yours as long as you don't sell it. If you didn't buy garbage in the first place, it will recover. If stocks don't end up suffering too badly this week by the end of the week, remember the basic big grind down is still going to be with us for quite a while.
--Brant
Dow futures down 501 or 4.14%
Nasdaq futures down 77.75 or 4.2%
S & P futures down 59.9 or 4.52%
Overseas markets are down +5% and they are still open for their second big down day this week. US markets won't trade until 9:30 tomorrow for the first time. If there is no foreign reversal before then, we are likely to lose up to 2000 on the Dow during this week--or even more if panic chases panic. The big losers will be those on margin and sellers. If you own a share of stock and nobody wants to buy it except half what you paid for it, so what? The stock is still yours as long as you don't sell it. If you didn't buy garbage in the first place, it will recover. If stocks don't end up suffering too badly this week by the end of the week, remember the basic big grind down is still going to be with us for quite a while.
--Brant
The futures strengthened about 10% then reverted. Some markets are down 8, 9 nearly 10%. US markets will be hit hard tomorrow, but I don't think/hope so bad. Treasuries are up. That means interest rates are down. Now I own two stocks. One doesn't count (MDR) for I never trade it. It will probably be down pretty big tomorrow. Mox nix; it's only 60 shares. My Mother inherited them over ten years ago. Then they had a dollar value of $800. They went down to about $100 because of the asbestos nonsense. I think they peaked at around $62/share and are now back down to $45 and change. (See what I mean about not using margin?) I don't know for how many years my step-father owned them before he died. As an investor he was a great professor of Spanish literature. The other stock is Altria (never mind my short; you don't own shorts; you are just responsible for them; it might well go UP tomorrow it's such a queer, small-cap case [don't short a small cap. I've learned my lesson. What a bucking bronco!] But if it's down I'll probably cover for it'll probably be down for the wrong reason. The other stock is Altria (MO). With it's 4% yield it should tend to act like a bond, but in a general sell off it will probably sell off too, BUT for a snap back it's guaranteed! If you want to make some money buy down big mid-day tomorrow regardless of the market! It doesn't matter if it keeps going down; it's near bond status all but guarantees you'll make a lot of money on it in the next twelve months plus one day. BUT, no more than 20% of anybody's portfolio; better ten percent MO and the rest cash.
Don't be afraid; the future's a blast! I want as much of it as I can get (absent an asteroid hit)!
--Brant
Don't be afraid; the future's a blast! I want as much of it as I can get (absent an asteroid hit)!
--Brant
The futures are continuing to deteriorate. This is good news for me. The more the market goes down the sooner the more I can play a snap-back rally.
--Brant
--Brant
Panic is generally overplayed. I know. Once I was panicked out of a short position on a short squeeze. The next time I added to my position. It's like flying an airplane in real instrument conditions. If you don't/can't trust your instruments you will die! The seat of your pants will kill you!
In Oct. 1987 the damage was generally confined to the US--that is, it was US this and US that. Now it is the world this and the world that. What this means is that no matter what the US does to counter the panic it will be substantially less effective than in 1987.
Anyone who buys before Wednesday--except me--is nuts.
--Brant
In Oct. 1987 the damage was generally confined to the US--that is, it was US this and US that. Now it is the world this and the world that. What this means is that no matter what the US does to counter the panic it will be substantially less effective than in 1987.
Anyone who buys before Wednesday--except me--is nuts.
--Brant
Damn, this is so exciting! I'll need a pill to go to bed, which I must right now! The futures are still deteriorating, but they no longer matter unless they reverse significantly on Europe. Futures can say the world is going to end in two hours and actual markets go the other way. Two days of panic in foreign markets before the US even opens for its first day tomorrow means I might be able to buy Altria tomorrow for a trade!
--Brant
--Brant
from Toro:
"Anecdotally, I am hearing that the hedge fund community is having a terrible year. The consequence may be that any rebound could be met with waves of selling as hedge funds try to lock in gains on a bounce to minimize realized losses."
Stand clear for a few days. Cut spending. Pay off credit card balances.
W.
"Anecdotally, I am hearing that the hedge fund community is having a terrible year. The consequence may be that any rebound could be met with waves of selling as hedge funds try to lock in gains on a bounce to minimize realized losses."
Stand clear for a few days. Cut spending. Pay off credit card balances.
W.
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