Financial topics

[mark]

Tobyguy said:

What's another 3000-4000 DOW points when we've fallen over 7000 already?

Suppose you have a friend who put $10,000 in the stock market when the Dow was at 14,000.
Suppose his investment is now $5,000, after the market dropped 50% to 7000. Suppose your friend has had enough, and gets out of the stock market.

Suppose you put $10,000 in the stock market now, when the Dow is about 7,000.
Suppose your investment becomes $5,000, after the market drops 50% to 3,500. you also lose 50%.

It's all about percentages; not about absolute Dow points.

[tobyguy]

Tobyguy said:

What's another 3000-4000 DOW points when we've fallen over 7000 already?

Suppose you have a friend who put $10,000 in the stock market when the Dow was at 14,000.
Suppose his investment is now $5,000, after the market dropped 50% to 7000. Suppose your friend has had enough, and gets out of the stock market.

Suppose you put $10,000 in the stock market now, when the Dow is about 7,000.
Suppose your investment becomes $5,000, after the market drops 50% to 3,500. you also lose 50%.

It's all about percentages; not about absolute Dow points.

I get that - yes, as things go lower, it means even larger percentage drops (if DOW drops same amount of points relative to the current DOW level).

My point however, was that all the experts never even saw this coming (DOW at 7000).

If they never saw 7000 coming, what a surprise that they don't believe it could hit 3000 or lower.

Only now are they actually discussing the reasons (namely leverage - amongst other reasons).

As the economy continues to tank, it will go lower and lower.

Tobyguy

[John]

Ambrose Evans-Pritchard compares today's economy to that of 1931:

> Judging by the latest Merrill Lynch survey of fund managers,
> investors have a touching faith that China is going to rescue us
> all and re-ignite the commodity boom. How can this be? Taiwan's
> exports to China fell 55pc in January, Japan's fell 45pc. These
> exports are links in the supply chain for China's industry.
> Manufacturing output in the Shanghai region fell 12pc in January.

> My favourite China guru, Michael Pettis from Beijing University,
> is in despair – as you can see on his blog (http://mpettis.com).
> The property bubble is bursting. Developers have built more
> offices in Beijing since 2006 than the entire stock in Manhattan.
> There is a 14-year supply glut. We have seen this movie before.

> Factory output is collapsing at the fastest pace everywhere. The
> figures for the most recent month available are, year-on-year:
> Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc),
> Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc),
> Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc),
> Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and
> Britain (-9pc). Norway sails blissfully on (+4pc). What do they
> drink up there?

> This terrifying fall has been concentrated in the last five
> months. The job slaughter has barely begun. Social mayhem comes
> with a 12-month lag. By comparison, industrial output in
> core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932,
> according to RBS.

> Stephen Lewis, from Monument Securities, says we have been lulled
> into a false sense of security by the lack of "soup kitchens". The
> visual cues from Steinbeck's America are missing. "The temptation
> for investors is to see this as just another recession, over by
> the end of the year. But this is not a normal cycle. It is a
> cataclysmic structural breakdown," he said.

> Fiscal stimulus is reaching its global limits. The lowest
> interest rates in history are failing to gain traction. The Fed
> seems paralyzed. It first talked of buying US Treasuries three
> months ago, but cannot seem to bring itself to hit the nuclear
> button.

> As the Fed dithers, a flood of bond issues from the US Treasury
> is swamping the debt market. The yield on 10-year Treasuries has
> climbed from 2pc to 3.04pc in eight weeks. The real cost of money
> is rising as deflation gathers pace.

> US house prices have fallen 27pc (Case-Shiller index). The pace
> of descent is accelerating. The 2.2pc fall in December was the
> worst month ever. January looks just as bad. Delinquenc-ies on
> prime mortgages were 1.72pc in September, 1.89pc in October,
> 2.13pc on November and 2.42pc in December. This is the trajectory
> eating away at the banking system.

> Graham Turner, from GFC Economics, fears the Dow could crash to
> 4,000 by summer unless there is a "quantum reduction" in mortgage
> rates. The Fed should swoop in to the market – armed with Ben
> Bernanke's "printing press" – and mop up enough Treasuries to
> force 10-year yields down to 1pc and mortgage rates to 2.5pc.
> Monetary shock and awe.

> This remedy is fraught with risk, but all options are ghastly at
> this point. That is the legacy we have been left by the Greenspan
> doctrine. We are at the moment of extreme danger in Irving
> Fisher's "Debt Deflation Theory" (1933) where the ship fails to
> right itself by natural buoyancy, and capsizes instead.

> http://www.telegraph.co.uk/finance/comm ... ssion.html

Even if the $3.6 trillion budget, combined with the $800 billion
fiscal stimulus plan, combined with the $700 bill bank bailout had a
chance of working in the US (which they don't), it would be all for
nought, since the world economy is collapsing, and the US can't
escape being part of the world.

I watch the insanity in Washington, as the new Gen-X President,
together with his Boomer advisers in the administration and Congress,
do everything in their power to wreak as much destruction as possible
on the US economy. This is Gen-X nihilism and destructiveness in
action.

> "Insanity in individuals is something rare - but in groups,
> parties, nations and epochs, it is the rule."

Insanity continues to be the rule today.

Sincerely,

John

[MGUYH8]

John --
I fear that you are correct. The insanity keeps on going. I did not vote for the Big O, but some of his ideas about the government being the ultimate consumer are ok. The Big O, could have been a great President by insisting on spending money to improve our infrastructure, developing sane and sound alternative energy sources and spending money on new gadgets for defense. Instead, the Big O is just throwing money at anything and everything, hoping that something will stick and work. This is insanity at its worst.

[John]

-- Market summary, Monday morning, March 2, 2009

The news about the disastrous results from AIG here and HSBC in
Europe, everyone is very grim faced this morning. The Dow futures
predict an opening below 7000, for the first time since 1997.

An extremely worried Art Cashin said the following on CNBC:

> It doesn't look very pretty at all.

> We have desperately to stay about 700 on the S&P - that's a
> long-term trend line going back to the early 80s. That's your
> last hope. I won't say your last best hope, but it's your last
> hope.

> The market has yielded on many support levels here, and I think
> that there's a level of emotional despondency that's beginning to
> build. We may start to talk about capitulation all over again.
> ...

> I think the market's now grappling with the new budget, some of
> the new policies. That I think interfered with what looked for a
> while like a bottoming process. So they have to find their land
> legs again. ...

> If they test 700 and hold, we could spook the bears, and get a
> decent rally out of it. But they way they've been acting, I think
> they're going to put pressure on them, and if they break, the trap
> door could open.

The Zen-like final sentence means the following: If the S&P falls
convincingly below 700, then there may be a major selloff.

This is, once again, the "capitulation" model, where the huge selloff
will supposedly be followed by a rapid market recovery. This is
wishful thinking at its worst.

Sincerely,

John

[MisterB]

John:

I’m starting to wonder if it is not just incompetence on Mr. O.’s part but that he doesn’t care about saving our economic system. On an even more extreme basis, maybe he actually wants to destroy our current system so that he can rebuild our system on his own lines of “justice”. I certainly think that he actually wants to PUNISH those people making over $250,000 per year. Would this fit into a nihilistic Gen-X analysis?

[John]

> I fear that you are correct. The insanity keeps on going. I did
> not vote for the Big O, but some of his ideas about the government
> being the ultimate consumer are ok. The Big O, could have been a
> great President by insisting on spending money to improve our
> infrastructure, developing sane and sound alternative energy
> sources and spending money on new gadgets for defense. Instead,
> the Big O is just throwing money at anything and everything,
> hoping that something will stick and work. This is insanity at its
> worst.

You can't be sure whether Obama will eventually come to be regarded
as a "great President." It's possible that he'll change his behavior
as the result of some crisis, and end up being considered a hero that
saved the country.

Sincerely,

John

[John]

> I’m starting to wonder if it is not just incompetence on Mr. O.’s
> part but that he doesn’t care about saving our economic system. On
> an even more extreme basis, maybe he actually wants to destroy our
> current system so that he can rebuild our system on his own lines
> of “justice”. I certainly think that he actually wants to PUNISH
> those people making over $250,000 per year. Would this fit into a
> nihilistic Gen-X analysis?

I'm less worried about individual taxpayers who make over $250,000
per year. In most cases, they can take care of themselves.

What really bothers me is Obama's willingness to destroy
non-unionized small businesses. He's willing to destroy millions of
jobs in these small businesses, in exchange for a relatively few jobs
in state and local governments, since the latter are unionized.

Sincerely,

John

[tobyguy]

John:

I’m starting to wonder if it is not just incompetence on Mr. O.’s part but that he doesn’t care about saving our economic system. On an even more extreme basis, maybe he actually wants to destroy our current system so that he can rebuild our system on his own lines of “justice”. I certainly think that he actually wants to PUNISH those people making over $250,000 per year. Would this fit into a nihilistic Gen-X analysis?

Do you think it would make any difference who was president or who was at the helm of our economy or finacial system?

For example, Greenspan was a "rock star" during the recent bull market (positive social mood).

Now the very same man, once seen as one who could do no wrong, is now being seen as a major culprit behind the biggest financial downturn/meltdown since the Great Depression.

He's gone from "hero" to "zero" in no time at all.

What's changed? Definately not Greenspan's actions or beliefs (remember he left at the stock market's high, at the time and received credit for the economy's strength). Many of the issues we're facing today were well known back then if anyone bothered to look.

What's changed? It's been social mood (from positive to negative).

Recent ovservations have made It quite clear that it's not the man so much that makes his legacy.

Rather, it's social mood (and resultant, the state of the economy) that makes the legacy of the man.

(For those who disagree) if the above isn't obvious now, it will never be.

Unfortunately for Obama, he's taken the presidency in a period of negative social mood that will likely last many years.

History will not be kind to him (like it won't be for Greenspan or Bush as they too precided over the bust as well).

Tobyguy

[MisterB]

Okay, I agree with the idea that these generational/social forces have a very large impact. However, I still believe that the people in power and their policies have a significant impact. Certainly, did Greenspan have to loosen credit as much and as long as he did? He did have some control over these actions. As far as the President is concerned, it is very difficult to make things better; but it is relatively easy to make things worse. IMO, a direct rebate to people as a stimulus would have HELPED the situation instead of the spending spree that we got.