The ongoing financial turmoil and financial discussion thread

[Slava]

Originally Posted by MoneyGuy

Some people don't need an emergency fund, not the traditional kind anyway. My emergency fund is a line of credit. Years ago I had someone I used to work with ask me about an EF. She had had $25k in an EF for 25 years. I calculated that she had lost tens of thousands of dollars in growth because she and her hubby had never touched it and probably never will. Both had very secure jobs and were very credit worthy. Some people are way better off putting the money into an RRSP and using the LOC instead. As I said, this is for some people, not for everyone. It depends on several factors.

That is a great point. I would caution that it depends on what use the fund is there for. If you have disability coverage than you're in a better spot to consider a line of credit as an emergency fund than if you don't. We're getting way off topic here though, so maybe I'll kind of stop mid-point!

[arsenal]

Originally Posted by fotze

Why is a country like Germany, who is historically very pragmatic with cash having to bailout a lender and in Canada, so far we have no issues. I don't buy that Canadian banks saw all these American outfits raking in the "cash" these past years and saying "this is not for us". Is Harper right, that all our banks are just fine. How the hell did we happen to get so lucky, I don't buy it.

Shhh stop asking so many questions.. go back to sleep

I don't know.. part of me hopes that our banks and brokers where better with the lending of monies thing. Maybe the rules around lending in Canada were not relaxed the same way there were in the US.

[Slava]

Originally Posted by fotze

Why is a country like Germany, who is historically very pragmatic with cash having to bailout a lender and in Canada, so far we have no issues. I don't buy that Canadian banks saw all these American outfits raking in the "cash" these past years and saying "this is not for us". Is Harper right, that all our banks are just fine. How the hell did we happen to get so lucky, I don't buy it.

Its because the Canadian banks didn't buy as much of the subprime issues and the balance sheets heading in here we're in phenomenal shape before this mess. Its a complex issue, but essentially times have changed here in Canada for the banks. They are going to be reporting income differently going forward and you won't see the enormous growth here that you did in the past.

But there are a few institutions that don't have any exposure to this mess: TD for one, Manulife for another. (When I say no exposure I mean no direct exposure...they might have invested in someone who had invested in these securities). CIBC took some serious write-downs...they have been in this kind of trouble before in their history though and are a little more aggressive when it comes to these types of business issues.

I'm not touching the Harper comment. Suffice it to say though that I find it an interesting dichotomy when a lot of us take great joy in ridiculing McCain for saying the same thing in the US, but think that Harper is a totally different case.

[Table 5]

Originally Posted by MoneyGuy

No sh1t, guys, buy. The missus and I scraped together $10k a week ago and invested it.

Not a fan of building a position as opposed to going all in?

I agree if you are starting investing for the long-term, this is a great time to do it. If only i had more money to put in!

[Bertuzzied]

Well at least Canadian Banks aren't hesitant in giving out loans. I called TD to buy some mutual funds in my son's RESP account and they said I was automatically approved for a $25000 unsecured line of credit. Wicked! So i ask how much is the interest rate and they say it's Prime + 7%!!!????

WTF? no thanx. 11.75% on a line of credit! They might as well be loan sharking.


These markets are brutal. Even with my short on Apple, i even hit a margin call today with all the stocks i'm long in. If you have any type of money this is like Boxing Day for stocks.

[Claeren]

The scary part for me is (putting it the same way I have read a couple times) that the economic system has cancer yet the system/government is trying to sell you a car crash.

Once they clean up this alleged car crash there is STILL cancer to deal with....


I am not so concerned about where the bottom is in the equities market as I am about where the upside is within the next 2-10 years? Companies values are based upon easy credit, low interest, high leverage, etc. This stock drop is just the beginning.

The effects are just starting to be felt and who knows what will happen with the American dollar, inflation, interest rates, etc. But I do know one thing, this is far far far from over and keeping cash on hand may be better than investing back into the market too soon. Seems to me the real bottom will be when even those trying to sell people on the 'stocks on sale' concept have faded into the night...

And I would be super careful with equities priced in USD. You would have to be up 50% just to overcome the loss on the dollar over the past few years, and that dollar could plummit at any moment that foreign debt holders finally pull the plug....



Claeren.

[MoneyGuy]

Another great day in the markets today:


The S&P/TSX composite index initially dropped by 1,185.58 points, a 10 per cent drop, to 9,620.77. However, it has since recovered 10,010.40.
The TSX had not dropped below 10,000 points in more than three years.
"This is triggered by what has become very apparent -- that there is a credit crisis everywhere in the world," Sherry Cooper of BMO Capital Markets told CTV Newsnet.
"Banks in virtually every country are at risk of failure and there is little money being loaned to banks, between banks, from banks to households or to businesses."
The worldwide downturn has also led to a drop in commodity prices, a significant contributor to the health of Canadian markets.
"Canada is really an economy that depends on exports for much of its vitality, particularly on exports of natural resources," Avery Shenfeld of CIBC World Markets told CTV Newsnet. "They tend to do well when the global economy is booming but are the first to feel the pain when the global economy slumps."
Crude oil prices, which have a significant impact on the TSX, rebounded to US$90.62 after falling below US$90 a barrel for the first time since February.
The Canadian dollar fell 1.93 cents to 90.53 cents US.
In the U.S., the Dow Jones Industrial Average took a more than 500 point dive, dipping below the 10,000 mark for the first time in four years.
The Nasdaq composite index lost 90.70 points to sit at 1,856.69, while the S&P 500 fell by 64.37 to 1,034.86.
The slide shows investors are still concerned about the security of their money despite last week's passage of a U.S. bailout package totaling more than US$700 billion.
"I think it's worth noting that of the funds in that bailout package not a cent of it has been spent yet, so it's too soon to conclude that it hasn't worked yet," Shenfeld said.
U.S. President George W. Bush asked Americans on Monday to have patience while officials establish an action plan to distribute funds.
Bush told reporters that while he signed the bill last week, "it's going to take awhile" for the bailout program to get up and running.

(rest deleted)

[Mean Mr. Mustard]

What is the best way to get into the market at the current time though? I have around 10,000 that I wouldn't mind putting into the market, but I really am pretty niave in the whole stock market and how to get involved as in the past I have pretty much gone in on using a family stock broker?

I was looking into companies like GE but I don't want to throw money into a ship that is sinking.

[Table 5]

Well if you don't want to think about it much, invest in an index fund...great time to do it... myself I just started putting money into something called an Ultra Midcap 400...which basically aims to double whatever the index is doing (ie, up AND down). It's very volatile, but has had a lot of losses already this year, and there is (hopefully) not too much more downturn.

GE is not a bad play either for the long term...good divident, and it's stock price hasn't been this low in years. If you dont mind it sitting there for a few years, it's about as sure of a bet as you can get. GE might take on more water, but it won't sink.

[bluejays]

Originally Posted by Slava

^ I don't want to tell you what to go into on a public website. I know that a few posts ago I told you to put some money to work, and I'm comfortable to say that. But I can't say exactly where to be fair to you. I don't know, I have no idea of your situation and no idea of what kind of risk you want to take here.

You have a fantastic margin of safety in a lot of investments right now though. There are some amazing values to be had. Maybe they take a bit of time, but a year from now you should be pretty happy with deals that you do now.

I know you don't want to comment on specific stocks on here, but what sector's do you feel could thrive through this mess? I love O&G stocks (ultra cheap right now - PCA, SU, CLL, UTS), and Tech Stocks (RIM, AAPL, GOOG), but don't know if it's somewhat justified in their drop, in accordance with the slowdown in the economy (at these price levels)? Any idea when to get into these specific sectors? Or do you have other areas you like yourself?

[MoneyGuy]

Originally Posted by Mean Mr. Mustard

What is the best way to get into the market at the current time though? I have around 10,000 that I wouldn't mind putting into the market, but I really am pretty niave in the whole stock market and how to get involved as in the past I have pretty much gone in on using a family stock broker?

I was looking into companies like GE but I don't want to throw money into a ship that is sinking.

I'd average into either an index fund or a diversified mutual fund, dividing the money into equal parts and putting it in over a period of six to eight months. Buying individual stocks right now would be particulary risky, I'd say.

[MoneyGuy]

Originally Posted by fleury

I know you don't want to comment on specific stocks on here, but what sector's do you feel could thrive through this mess? I love O&G stocks (ultra cheap right now - PCA, SU, CLL, UTS), and Tech Stocks (RIM, AAPL, GOOG), but don't know if it's somewhat justified in their drop, in accordance with the slowdown in the economy (at these price levels)? Any idea when to get into these specific sectors? Or do you have other areas you like yourself?

If you want sectors or specific stuff, I'd look at technology and emerging markets. I just dropped some into emerging markets. "Dropped" being the operative word, as it's not done well in the short time it's been in. However, I'm in for many years.

[Claeren]

Originally Posted by Table 5

GE is not a bad play either for the long term...good divident, and it's stock price hasn't been this low in years. If you dont mind it sitting there for a few years, it's about as sure of a bet as you can get. GE might take on more water, but it won't sink.

Do you know the 'fine print' of the Buffett purchase?

The Oracle of Omaha just struck a deal to purchase $3 billion worth of "Perpetually Preferred" stock, paying a 10% dividend. In a shocking coincidence, GE, in turn, used Buffett's Blessing as a marketing kicker for 557.8 shares in a secondary this morning.

For those not fond of reading fine print, the primary difference between the shares Buffett bought and those sold to commoners was that Warren's are guaranteed to kick off $300,000,000 per annum; those buying the secondary have only the perpetual hope that there will be anything left for them.

http://www.minyanville.com/articles/.../index/a/19300




Claeren.

[Finner]

Originally Posted by Claeren

Do you know the 'fine print' of the Buffett purchase?



http://www.minyanville.com/articles/.../index/a/19300




Claeren.

Thats not really that much to GE. ~1% of there yearly earnings.

[Table 5]

Originally Posted by Claeren

Do you know the 'fine print' of the Buffett purchase?

I do, and i still think it's a great long-term purchase. The stock is currently at an 11 year low, has a great divident, a fairly low P/E, and still has a ton of cash. And remember that last week, amongst the turmoil, there was a nuclear deal with India passed by the U.S. govt, that could potentially be a 40 Billion dollar contract for nuclear builders like GE.

[Table 5]

nice to see a bit of a rally late today....hopefully it will make some of the headlines a little less hysterical. If only a part of that 700 billion went to paying off the media to try and make things a little bit more cheery, heh.

[Claeren]

Originally Posted by Finner

Thats not really that much to GE. ~1% of there yearly earnings.

I guess so.... just because it is cheap does not mean it is a good buy. (But what do i know?!)

It seems to me GE-Capital is a massive blackhole bigger in liability than all of GE is in total assets.

There IS a reason that they agreed to essentially handi-cap themselves with a "Buffett Tax" for the rest of the companies future, and that reason cannot be a good one. Maybe you see it differently?

And I imagine that the "Buffett Tax" will be more than 1% of earnings going forward as well.


Lots of public doom around the company right now, IE:

http://emac.blogs.foxbusiness.com/20...sures-from-ge/

I’ve already warned you that GE has serious quality of earnings problems, including a debt load that swamps its net worth. GE also has on its balance sheet loads of illiquid securities that push its tangible book value, or net worth, under water.

And it uses off-balance sheet vehicles to house potentially bad debt, debt which, if loaded back onto its balance sheet, would swamp its tangible book value (see blog “What Buffett May be Missing at GE”).

GE is on the SEC’s list of companies whose stock cannot be shorted under the agency’s temporary ban. Short sellers borrow stock betting that the price will fall, then return the shares after pocketing the difference when the shares do plunge.

Corporate risk disclosures are par for the course for publicly traded companies. GE’s filing, however, is loaded with unusually pointed language and new information.

Also, the fact that GE had to sell new common stock and give Buffett such a rich premium (a 10% dividend), along with fears it may have to tap its $62 bn in credit lines, is raising concerns on Wall Street about whether GE is well-capitalized and whether its coveted triple-A rating is in jeopardy.

Of concern, too, is the fact that GE had to shore up its balance sheet by stopping its stock buyback program, freeze its dividend for the first time in 32 years, scrap the sale of its credit card unit and curtail borrowings at GE Capital.

In a significant disclosure, the filing warns that GE gets “a large portion” of its borrowings via the commercial paper markets, but that “there can be no assurance that such markets will continue to be a reliable source of short-term financing for GE Capital.”

GE also warns that if the market continues to worsen, or if it can’t unload assets to weed back its gangly operations, the company would hit a wall as it “would seek to repay commercial paper as it becomes due or to meet our other liquidity needs” using its recent $12 bn common stock offering “and the Berkshire Investment,” as well as drawing upon its credit lines, “and/or by seeking other funding sources.”

Meaning, more capital raises. It adds: “Under such extreme market conditions, there can be no assurance such agreements and other funding sources would be available or sufficient.”

[RougeUnderoos]

Originally Posted by Table 5

nice to see a bit of a rally late today....hopefully it will make some of the headlines a little less hysterical. If only a part of that 700 billion went to paying off the media to try and make things a little bit more cheery, heh.

No kiddin'.

CNN has a headline right now that says "60% see depression likely". It's not followed by "99% don't have a clue" which it should be, so all it does is back up negativity with more negativity. Right in the article it says "economists don't see a depression", but there ain't a headline of that either.

Out of the interests of self-preservation you'd think they'd be a little more upbeat.

[Displaced Flames fan]

Originally Posted by RougeUnderoos

No kiddin'.

CNN has a headline right now that says "60% see depression likely". It's not followed by "99% don't have a clue" which it should be, so all it does is back up negativity with more negativity. Right in the article it says "economists don't see a depression", but there ain't a headline of that either.

Out of the interests of self-preservation you'd think they'd be a little more upbeat.

Thanks for pointing that out. Was just going to post that.

I have a small amount in what's called a lifetime fund that is geared toward retirement around 2040 (I'd better be fataing retired by then) so it's a more volatile fund. I don't have the heart to look at it. I am in it for the long haul and so will look at it like I'm buying low!

[Phanuthier]

Originally Posted by MoneyGuy

I'm in my 50s and am in this business so have to deal with nervous clients. Unlike Slava, my clients aren't all in cash.

I don't really understand some of you guys. If I was at least eight to 10 years from needing my money and worked in some other field where people weren't calling me to ask about the markets, I'd be loving this market SALE. You guys should be totally ignoring your statements and piling as much money as you can into your investments. If a company or a mutual fund has done very well and is well managed and has good fundamentals but has sucked lately, buy all you can.

No sh1t, guys, buy. The missus and I scraped together $10k a week ago and invested it. Would have been better today, but hey no ones know these things. Years down the road you'll be looking back and kicking yourself if you don't do this.

Thats sort of where I sit. I sold out almost all my investments just when the sub-prime crisis hit, but now I'm trying to scrounge up all the money I threw into bonds and GICs at that time and I've been flipping through the stock index like a sales flyer. My christmas list right now is a list of funds lol.