Stock Market

[tw]

What makes me nervous is when so many say this is only a correction. Well even a stock market crash is a correction.

For example, Citibank apparently made massive bets and is now exposed for a problem that amounts to $billions. Many hedge funds have been bailed out quietly on the order of many $billions by their holding companies that were once considered 'protected' by financial circuit breakers. Even Goldman Sachs is taking a beating.

Meanwhile, dollars are in massive amounts overseas. No one is quite sure how large those numbers really are. Those dollars are held in assets such as bonds. What is this problem mostly appearing in? Bond markets. What happened if those other nations decide to cut their losses due to a sharply failing dollar - start selling bonds which are financing the American government at about $2 or $3billion per day? Does that number open any eyes? Who has the most American bonds? China - on the order estimated in the $trillions. Remember an earlier post - the actualy amount of currency in all demoninations throughout the world is about $5.7 trillion.

Already central banks have been spending untold $billions trying to maintain liquidity. Capital assets once used as collateral for so many speculative loans is suddenly becoming worth far less than original market value estimates.

Appreciate the problem facing the Federal Reserve. Inflation is threatening. Therefore interest rates must remain same or increase. But the liquidity crunch means the Fed must lower interest rates. A nation that was using finance games to keep the housing and auto markets going (because other market sectors were not doing as well) means the Fed has lost significant manuevering room.

No, I don't believe we are in for a major crash. But when more people say this is not a problem then a worse downturn results. The problem: nobody really knows how much 'rot' is out there in the finance markets. Hedge funds and other risk diversification tools really have unknown value when things get this uncertain. Nobody is really admitting it. But the amount of bailouts appears to be much more massive than is really being reported. A problem that will not appear in corporate balance sheets typically more like for four years later.

Stock market crash was 1929. When did the resulting recession occur? More like 1933/4.

[slang]

Originally Posted by Aliantha

I predict that the knock on or trickle up effect will be a lot higher than some of our other members here seem to think.

That seems almost certain in my mind. We are all fuct until Hillary rides into office to change everything for the better.

[TheMercenary]

Originally Posted by slang

...until Hillary rides into office to change everything for the better.

HA!

[Griff]

Hmmm... we're in a bad place because of easy credit, so we'll fix it by making more money available. Got it, as you were.

[slang]

Originally Posted by TheMercenary

HA!

It's a scary thought, yes I know.

[slang]

Originally Posted by tw

No, I don't believe we are in for a major crash. But when more people say this is not a problem then a worse downturn results.

What changes would you make to improve the US economy if you had the power to do so?

What events and policies would you un-do if you had the opportunity to go back in time?

[Cyclefrance]

I think we are on a bit of a knife-edge right now. It's a strange situation the like of which I've not witnessed before myself - and I've seen and been in a few recessions (and booms).

I was kind of expecting the fuel hikes we've seen to push the economy downwards for quite some time. The availability of growing markets in India, China and the Far East generally seemed to be able to counter that threat, but as we begin to appreciate the cost associated with these markets' growth (slave labour, pollution, contamination in products and so on) we may see a correction there as we address these issues. This will remove the cushioning effect that these markets have provided. That aside the governments and markets generally are well -prepared (i.e. bank-rolled) to try to stave off any crisis - I guess for them it seems the lesser of two evil decisions - spend to stop a mess or lose (probably) more by letting it run unabated.

Well, that's the idea, anyway, but the trouble with this approach in the past has been that the fundamentals have won every time, and trying to buck these has only resulted in a massive loss/waste of revenue as the recession has still come and it has been deeper as a result of the attempts to delay its arrival.

Certainly, I feel that a correction is due - larger than we've seen so far - and I can't help also feeling that it would be better to take the hit as it comes, as this will undoubtedly cause less pain than that resulting from what has always been a futile fight attempting to delay the day.

It'll be interesting to see how durable the Fed's half-percent interest rate cut is as a solution. There's a lot more bad news to come, I reckon...

[lookout123]

The 50 Bps was window dressing for the psyche. A large correction is coming. It has been coming since opening day of the bull market, that's how it works. Whether it comes today, tomorrow or 2009, no one really knows. Economists and market timers have predicted 11 out of the last 9 bear markets and their track record speaks for itself. Buy quality companies based on solid fundamentals. Hold them until there is a fundamental reason not to. Only buy companies that fit within your predetermined asset allocation model and do not veer to the right or left of this regardless of what you hear on the tv or radio.

This could be the beginning of the recession, or not. Just remember that the last recession only lasted 8 months and there are still doomsdayers waiting for that one to end so they can invest again. Seriously, I meet them all the time. They've been sitting on the sidelines since 2002. (notice that they sold at the bottom and missed the last 5 years of gains)

But unless you are retiring and drawing income from your investments in the very near term, relax. There are only two options:
A) This is just like every other time in the market history, it will go down then come back to set new highs, or B) This time it really is different and the market will fall to 0. If that happens so what? Now you are on a level playing field with Bill Gates - neither of your bank accounts are worth anything.

[xoxoxoBruce]

Economists and market timers have predicted 11 out of the last 9 bear markets and their track record speaks for itself.

Say what?

[lookout123]

Just my way of saying that if there were a recession every time the economists were united in believing it was at our doorstep we wouldn't have gone 4.5 years without one. Many many economists are permabears because they live in theoretical worlds surrounded by mountains of negative data. To be fair there are also many permabulls that see everything as proof of the boom we are just entering. Market timers are also notorious. Come to think of it - anyone who claims to be predicting the future of anything usually is wrong just as often as they are right. Crystal balls get foggy and all that jazz.

You can live and invest based on A) predictions, or B) principles (processes). I know what I choose, but everyone has to make that decision for themselves.

[Undertoad]

...there are still doomsdayers waiting for that one to end so they can invest again. Seriously, I meet them all the time. They've been sitting on the sidelines since 2002. (notice that they sold at the bottom and missed the last 5 years of gains)

Schools of thought...

I've been saying it and saying it: for the last 4 years, the mainstream media's economics story is consistently the same: "The economy is secretly bad."

It's like they wrote it with the same outline: The GDP had another quarter of excellent growth. But there are impending signs of disaster.

Every story has had its but.

The major indicies said things were great. So they focused first on the market. When the market boomed, they focused on slow job creation. When the jobs came back, they focused on inequality. When inequality improved, they focused on bad loans.

Now that it's time for the next recession - the inevitable business cycle - they write that it is a "perfect storm". "If people stop spending money we will go into a recession." Durr. Durrrr.

If the AP wrote a weather story it would be "Climate scientists tell us that it's sunny out now, but if a storm comes tomorrow, water will fall from the sky. Water is a major cause of drowning and rots untreated wood." Their economics stories are literally that dumb.

[lookout123]

People have this mistaken idea that the media is still full of journalists who feel compelled to find and report the truth of the world around us, because "people have the right to know".

Turn on your tv and look for a homely broadcaster. Not going to happen. As long as they look good and can read the teleprompter, they're in. Sometimes they don't have to be that good at reading.

Turn on the radio and listen for someone who reports the news of the day in an unbiased, truthful, informative way. Not going to happen. Entertainment rules the airwaves.

The fact of the matter is the media exists for one reason: profit. The way they profit is by selling commercial space. The way they sell commercial space is by gaining and maintaining market share in listeners and viewers. There are only two ways they can get you to tune in daily, 1) Excite you, 2) Scare you. No one would tune into a channel that started their broadcast with, "Today the world was pretty much as it has always been. Some people made money, some people lost money, some people died, and some were born. Here are today's events..." So they have to excite or scare. They aren't creative enough to come up with compelling, positive stories that are also exciting, but they have scaring the public down to a science.
Take the lead paint story as an example. I've been following that one pretty closely so I know which toys are involved. But they got my attention last night with their teaser talking about the dangers found in "some of these toys your children may be playing with right now. Tune in for the details after the break." They showed a woman holding two toys that my son has that I was certain weren't included in the concerns. But they kept my attention for 30 freakin' minutes only to finally report that "toys are dangerous! The chinese are malicious! these toys we've been showing in our teasers are perfectly safe! But what if they weren't?!?" It is exactly what I figured but they still got me to keep their broadcast on.

They do the same thing with financial reports. I have a couple of media types as clients. I can promise you that they know nothing about money or investments, but they sound very convincing when they are expounding on the dangers of rising oil prices and the impending collapse of our economy. I literally saw one "journalist" gravely report that the economy was in danger of spinning out of control because oil went up that day. The very next day oil went down and this very same journalist reported how falling oil prices could lead to broadbased dangers for investors. HUH? Which is it,oh wise one?

The best thing you can do is turn off your tv. If you invest interview and hire an advisor based on his plan for downside money management. It isn't how much you make, it's how much you keep and volatile markets are where an advisor earns his money, or gives you reason to fire him.

[Cyclefrance]

I tend to agree with your views on generalised news coverage - although it's not that bad over here. The major players are the ones who move the markets, buy and sell our pension investments and so on and they rely on the likes of Reuters and Bloomberg for the news they need as part of their decision-making process. Added to this they have sophisticated models to refer to and the hype of the general media is of litte concern.

We, the individuals who see our money go into the institutions, have little control over how the main players react, and the worst we can do is make decisions based on the generl media's extremely (in terms of the way markets work) historic information - by the time they tell us, it's too late.

There's an interesting article in today's Sunday Times Money section which shows the tools available to the likes of Morgan Stanley - not sure I undertood it all, but it shows how much details goes into their decision-making

[lookout123]

The major players do not rely on news services for their tactical decisions, they have their own analysts and use a "use a boots on the ground" method. They send their own people to the companies to review processes, products, and prospects.
Individuals watch the news and make decisions. Those individuals may not mean much with their individual trades but remember "an avalanche starts with just one flake". Individuals are usually in mutual funds. If enough individuals get nervous and put sell orders in the mutual fund manager has to sell his positions to cover the client redemptions. Sometimes this means the fund looks to be losing when in reality it is in a great long term position. But then 10,000 other individuals get nervous and sell.... <insert painful cycle here>

[tw]

Originally Posted by lookout123

they have their own analysts and use a "use a boots on the ground" method. They send their own people to the companies to review processes, products, and prospects.

That is where the problems start. Most stock analysts don't come from where the work gets done. They know all about investing in nuclear power and yet don't even know how a nuclear chain reaction works? That is the problem. Even worse, they take insist they need not understand such things.

One girlfriend as a bank VP heard rumors about a chicken farm disease. So she visited the clients - major chicken producers. All those chickens could have been sick and she would have never known it. She was an expert on this industry only because she could read spreadsheets.

Therein lays so much fear and wild speculation. We don't listen to stock commentators to know what industry is doing. We listen to them to learn how the street is feeling and guessing and rumor mongering.

How to make money on the street. Know the difference between reality and fear so often promoted by stock market bean counters.

The sub-prime fallout has created massive problems in some financial institutions. However, others saw this obvious problem long ago and bet accordingly. Whereas even Goldman Sachs is caught bailing out their bad investments, a few hedge funds are rumored to have made $billions by seeing the obvious.

We discussed here a serious problem in the housing market. An economy in recession if not for low interest rates that were maintaining strong housing sales and strong auto sales. Is that a healthy economy - or curing symptoms by throwing money at it? If other more productive parts of that economy start doing better, then low interest rates were a solution. In the past four years, without low interest rates, then this economy was not doing well. Those low interest rates can create economic activity which is confused with growth. An economy can have massive economic activity and near zero growth. Welcome to the early 1970s. Even with money games from easy money, economic growth had still fallen to about 60%.

Are stock brokers in panic mode? Good. Time to buy. We listen to bean counters because they have little idea what makes companies prosper. When they panic for reasons financial, then this is good time to return to the market. Only rarely do we listen to market analysts to know how productive or stable a company is. By the time the spread sheets finally report it, those realities have existed for years.

Now for caution. Market analysts like to panic in October. October with so many panicked market analysts tends to imply a stock market meltdown.

Did the stock market crash of 1928 create the recession? No. Those problems existed long ago - masked by easy money. If we are in a recession, then market analysts are only just beginning to suspect it - which makes October so dangerous.

How long ago were we talking about the housing market crash? What was known in reality finally appeared in the market how many years later? These are the people with "boots on the ground" who could not see this problem how many years ago?

Why do stock brokers underperform the market? They have 'boots on the ground' but forget to have what is necessary behind the eyes - knowledge of how the work gets done. This liquidity crisis did not just suddenly appear. It has been ongoing for years right in front of those so many 'boots on the ground' who still did not see. Why the panic? Because market analysts did not see for years what should have been obvious to every one of them. Instead they kept pointing to economic indictors (that measure things four and more years ago) to prove everything is just fine.

We listen to market analysts to learn about their emotions – because so many bean counter types have little grasp of what is really happening. But again, stock broker performance tends to underperform the market. Listen to learn their emotions because their emotions determine prices. Some are so foolish as to think they are experts on an industry.