My point here is that it was government intervention in the markets that caused this disaster,JLak wrote:aedens wrote:In 1929 and 1874, there was still a strong tradition of paying dividends.
I believe the true difference in this stock market decline is the deflationary spiral. Not just that it rarely happens but that people simply don't understand it and how destructive to the economy it is. It seems pretty clear to me that we have at least another year to go and possibly several before enough wealth has been destroyed that we can get back to something similar to a normal economy. Every time I start believing that maybe we are close to a bottom I go back to the numbers and data and come to the conclusion that we have much farther to go.Merrill estimated that the total impact as companies restate pension contributions and are forced to switch strategic asset allocations out of equities into Treasuries (or vice versa) could be as large as $200 billion, leading to more shocks to a increasing less liquid stock market.
...
...investors who are currently invested in companies such Unisys, First Horizon, Con Ed, New York Times, Fed Ex, Pactiv, Goodyear, Dupont (which recently reported a significant earnings miss the bulk of which was attributed to increased pension expense) and 3M should carefully reassess the bull cases here, due to the significant earnings downside potential that could arise out of pension expensing (we neglect to mention GM and F's adverse pension impact as both companies have many other things to worry about currently). Additionally, while not immediately apparent as a threat to earnings, the following companies have tremendous pension underfunding which will eventually catch up to them: LMT, RTN, AA, JNJ, XOM, VZ HON, CAT and EXC. Shareholders should proceeds with extreme caution as this topic becomes more and more noticed the by the mainstream media and the chattering heads on cable TV.
What part does the taxpayer not understand on being margined out?freddyv wrote:As an astute investor I always try to question my positions and assumptions and as a bear (currently, but certainly not permanently) I try to be even more open to evidence that would lead me to a bullish position. Having said that I truly believe we might have the clearest case of a bear market going forward as anytime I have experienced or studied, and that includes the Great Depression Era.
It seems that we have so many things working against the economy and the stock market that the average person/analyst/investor is overloaded and in many cases, ends up just clumping it all together and then sort of dismissing it all as unbelievable.
But there is another big issue making its way to the headlines lately: Underfunded Pensions
Here's an interesting and informative article on the subject:
http://zerohedge.blogspot.com/2009/03/p ... nings.html
I believe the true difference in this stock market decline is the deflationary spiral. Not just that it rarely happens but that people simply don't understand it and how destructive to the economy it is. It seems pretty clear to me that we have at least another year to go and possibly several before enough wealth has been destroyed that we can get back to something similar to a normal economy. Every time I start believing that maybe we are close to a bottom I go back to the numbers and data and come to the conclusion that we have much farther to go.Merrill estimated that the total impact as companies restate pension contributions and are forced to switch strategic asset allocations out of equities into Treasuries (or vice versa) could be as large as $200 billion, leading to more shocks to a increasing less liquid stock market.
...
...investors who are currently invested in companies such Unisys, First Horizon, Con Ed, New York Times, Fed Ex, Pactiv, Goodyear, Dupont (which recently reported a significant earnings miss the bulk of which was attributed to increased pension expense) and 3M should carefully reassess the bull cases here, due to the significant earnings downside potential that could arise out of pension expensing (we neglect to mention GM and F's adverse pension impact as both companies have many other things to worry about currently). Additionally, while not immediately apparent as a threat to earnings, the following companies have tremendous pension underfunding which will eventually catch up to them: LMT, RTN, AA, JNJ, XOM, VZ HON, CAT and EXC. Shareholders should proceeds with extreme caution as this topic becomes more and more noticed the by the mainstream media and the chattering heads on cable TV.
This underfunded pensions issue is just another of many that all eminates from the same source: leverage. Most investors think that only the banks are leveraged but the truth is that every part of our economy is overleveraged to varying degrees. I think the fact that a typical American dog has more and better clothes, jewelry, etc, than many people in the world tells me just how deep it all really goes. People used to laugh at me for making such statements, now they seem to sort of understand how a dog getting a perm and wearing clothes is an economic signal; and a BIG one.
This is just one more issue on top of many others that seem too overwhelming to keep track of, and so most investors just put it out of their minds and go about their ways, investing as if this were just another bear blip in a big bull market. One wonders what exactly it will take to adjust the thinking of these people?
--Fred
Speaking of Ponzi Schemes, who do you think will get the cell next to Madoff? Stanford for a paltry $6B? How about Warren Buffett? 20 years and up to $200B in valuation without paying out a single dividend. Given that Brk was considered the ultimate 'value' investment, I now call into question the validity of Graham's 'value investing strategy, which is based on dividends, earnings and book value. Clearly I have no problem with dividends. We've seen that reported earnings can be easily manipulated so that's pretty useless. Book value also has almost no basis in reality and clearly has more utility as a source of depreciation for tax purposes than anything else. If the business fails, then even the capital equipment is worthless for obvious reasons (modern capital at least). So basically, value investing a'la Graham is antiquated. I want to see net margin growth and dividends. This is econ 101 as a growing company should only do so to attain greater economy of scale.mannfm11 wrote:That is a good post Jlak. [thanks!] I am a boomer [that's alright, even us whippersnappers respect your opinion quite a bit], but I had an education in finance. The boast about the 1990's was we were dealing with informed investors while they were driving the dividend yield of the SPX to near 1%.... I didn't have it in me to peddle a Ponzi scheme.
Once again, things start going off the rails in the late 1990s, theNeil Baron wrote: > The record [of the ratings agencies] was excellent until what they
> refer to loosely as "subprime."
> There was Enron and Worldcom, ... but it didn't compare with what
> happened with the advent of subprime.
> You need to look at ratings agencies when there was just S&P and
> Moody's. They had it to themselves, and they did not have to
> cmpete for business. The enter Fitch.
> I was vice-chairman and general counsel of Fitch, there until
> 1998, when we sold Fitch and I retired.
> But Fitch introduced competition.
> What Fitch did is it went out and met with probably 200
> investors. And the investors became comfortable with the analysis,
> and the investors asked for the Fitch ratings. So that was the
> investor demand at that time that generated the business, and
> things worked well during that period.
> You know that subprime wasn't really introduced until 2005.
> [[Gasparino: Although the credit quality of the mortgages started
> dipping clearly in 97, 98, 99, and then it led into the
> subprime.]]
> I would say that's generally true, but that the ratings of
> mortgage backed securities through that period performed well.
> What went wrong them is you started off with bad loans, loans
> were mortgage lenders put people into loans they couldn't afford.
> [[Gasparino: I heard that ratings guys were being paid $200 grand
> a year until the mid 1990s, and then when the mortgage market
> picked up, people that had been making $200 grand a year were
> making a million dollars a year -- and they were getting paid on
> volume -- on volume of companies that they rated. Isn't that the
> case?]
> You're correct. Part of the cost of that was that the best
> rating analysts were being head hunted by investment banks, and
> being brought on for 4, 5 times what they had been making. so
> they had to compete.
> But also, there was a general shift of focus away from the
> correctness of ratings and the appreciation of what an important
> role ratings play in our economy and in our financial systems --
> there was a shift away from that to revenue production.
An outstanding article. Very thought provoking.wvbill wrote:From Martin Armstrong:
What we are confronted with currently, is what I have throughout the years defined as the "Waterfall Effect" that is a complete type of collapse from what you might call Exhaustion following a curved decline. Penetrating the Nov. low, could lead to a drop to 4,000 by June 2009 or September 2009.
Throughout the years of research covering all major economies and civilizations back to the beginning of recorded time, what has always distinguished the end of an era is how the decline unfolds. Sharp spike drops are indicative of corrections within a long-term trend that ultimately survives. When we see the “Waterfall Effect" the decline tends to mark the end of that organized state as we once knew it.
Link to full article:
http://www.contrahour.com/contrahour/20 ... ights.html
Bill
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