The ongoing financial turmoil and financial discussion thread

[MoneyGuy]

I've added another point to my list:

1. The market usually leads the economy into recovery by six to eight months because investors make their decisions in anticipation of what they expect to happen, and those decisions are what drives the market. Therefore, if we expect an economic recovery mid way through 2009, it stands to reason that you should begin considering moving into the market gradually maybe starting early in 2009.
2. History shows that investors tend to make up 80% of bear market losses within the first year of the recovery, according to Standard & Poor’s Equity Research. This is American but it’s much the same in Canada.
3. Also from S&P: equities typically recoup a third of what they lost in a bear market in the first 40 days of the recovery.
4. Stock prices are low. This is not to say they’ve bottomed, but prices are lower than they were at the start of 2000.
5. For investors whose faith in equities are wavering, consider the last time they performed so poorly: the 1930s. Investors who may have concluded that stocks were not the place to be would have lost out on decades of bull markets.
6. So far this year, investors have pulled more money out of stock funds than they’ve put in. This is the third time in recent memory that this has been the case. The other two were in 2002, just before a five-year bull market, and in 1988, the start of a 12-year bull. Investors who refuse to get into the market usually don’t make it back in time to enjoy the recovery.
7. Whenever the bottom is reached (whenever that is), you’ll never see those prices again. Yes there will be market crashes, but the next one will not bring prices to these levels. Remember that the best time to invest is when things are their bleakest. I don’t know if this is as bleak as it gets. J
8. Going back to the mid '50s, bear markets are down 30% on average over 11 months and the recoveries average 161% over the next five years.


Bottom line: The recoveries happen when you least expect. They're quick and dramatic. They're spring loaded. Don't miss the recovery.

[Phanuthier]

2 consecutive days of economic news ... and stocks go up both days?

I am confused

[Table 5]

yeah, its been interesting for sure. Listening to Cramer last night, he reasoned that it was mostly institutional investors puting money into the futures markets at the moment, because they are just simply too cheap compared to treasuries.

Ive made 50% on a basic Russia index fund in about 5 days. I keep expecting it to go back down so i can put more money in, but it keeps going up, ha. Im sure its just waiting for me to put money in before it dives. That's pretty much how things tend to roll.

[Slava]

^ Eventually when people realise how cheap you can buy some companies for at the present time the poor news doesn't make a difference. The poor news is already priced in and is widely expected. Also, growth of -.3 isn't exactly the great depression!

[Flames in 07]

Originally Posted by Slava

^ Eventually when people realise how cheap you can buy some companies for at the present time the poor news doesn't make a difference. The poor news is already priced in and is widely expected. Also, growth of -.3 isn't exactly the great depression!

Exactly, too many media outlets looking for attention.

[Flame Of Liberty]

Gotta love this:

TROUBLED US banks could use the US Government's $US700 billion bailout to buy rival banks, pay bonuses, or simply hoard, according to reports.
As the economic crisis worsens, lawmakers on both sides of Congress are starting to gripe that the much-touted $A1.04 trillion rescue package is seemingly far different from the one they were sold by the Bush administration.
...
But reports are surfacing that bankers may instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it.

http://www.news.com.au/heraldsun/sto...14-664,00.html

So the politicians are stepping up again to save the day:

U.S. warns banks that using bail-out money for pay and pensions to executives will be a criminal offence

Using bail-out money for anything other than lending - such as paying bonuses or pensions to Wall Street executives - will be a criminal offence, the powerful chairman of the U.S. House of Representatives Financial Services Committee has said.
The news comes after reports financial giants owe bosses some $40billion in bonuses and pension promises.
Reports that Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses - despite asking the U.S. government for an emergency bail-out - ignited fury among taxpayers.

http://www.dailymail.co.uk/news/worl....html?ITO=1490

and

http://www.washingtonpost.com/wp-dyn...904533_pf.html

and

http://www.cnbc.com/id/27472762

[Table 5]

Good. There should have been a clause that the money can only go to lending in the first place. Isn't that what they did in the UK?

The fact that these companies are still giving out bonuses of any amount in the first place is an absolutely discrace.

[Phanuthier]

http://www.reportonbusiness.com/serv.../Business/home

So, thoughts on this? I've bought in a few, but I keep holding back because I see CPI dropping, jobs keep getting cut (240k jobs lost last month), and so on. If the auto industry tanks, this would be niche market part 2 going down the tube this recession. Another niche market, the high tech - in the past 2 weeks, there have been major layoffs all around, and some companies have started to do more unpaid time off to cut costs. Projects are getting cut all around. All this bailout money they are throwing at this recession doesn't seem to be working, nor should it since we aren't just talking about paper losses anymore. AIG, BS, GM... a trillion here, a trillion there, sooner or later, we're going to be talking about real money.

So, how does this type of news affect the short term and long term projections of the health of the USA economy?

[transplant99]

Circuit city declares bankruptcy. How many other retailers are to follow?

http://news.yahoo.com/s/ap/20081110/...ity_bankruptcy

[Ronald Pagan]

Originally Posted by Table 5

Good. There should have been a clause that the money can only go to lending in the first place. Isn't that what they did in the UK?

The fact that these companies are still giving out bonuses of any amount in the first place is an absolutely discrace.

Bonuses are tricky.

While they appear to be (and might well be) just glad handing and spreading the spoils to people who don't deserve them, they can be a good recruitment tool.

Arguably in times like these you need the best talent to manage your corporation out of a financial mess. Bonuses are a way to recruit that talent.

In a very competitive labour pool, companies will need to find some way to attract the best managers. Bonuses tied to stock increases are a preferred way to do that.

[Nancy]

Originally Posted by Ronald Pagan

Bonuses are tricky.

While they appear to be (and might well be) just glad handing and spreading the spoils to people who don't deserve them, they can be a good recruitment tool.

Arguably in times like these you need the best talent to manage your corporation out of a financial mess. Bonuses are a way to recruit that talent.

In a very competitive labour pool, companies will need to find some way to attract the best managers. Bonuses tied to stock increases are a preferred way to do that.

Actually, there is a lot of research that shows that stock option bonus schemes only lead managers to take crazy risks in order to give the stock price a short term kick... Like writing a bunch of high risk mortgages. Also part of the culture of management today is that managers don't spend there entire career at one company any longer and therefore aren't concerned with long term issues. IMO, with a very few exceptions in venture-tech firms, managers should be given equity bonuses and not options.

[corporatejay]

Originally Posted by transplant99

Circuit city declares bankruptcy. How many other retailers are to follow?

http://news.yahoo.com/s/ap/20081110/...ity_bankruptcy

Actually they filed for bankruptcy protection which is waaay different than bankruptcy, in fact in Canada "chapter 11" doesn't really exist, it's called corporate reorganization.

What they have asked for is protection from creditors petitioning them into bankruptcy, if they are like every other electronics retailer they'll do more business in the six weeks leading up to christmas then they would the rest of the entire year, so they are likely banking on huge profits in this quarter to offset their losses and will probably be fine come january.

[metallicat]

So when do I start sinking money into GM? Share is down 23% on the day right now.

[FlamesAddiction]

Originally Posted by oilers_fan

So when do I start sinking money into GM? Share is down 23% on the day right now.

I'd say as soon as a Japanese or Korean automaker buys them out.

[Table 5]

Originally Posted by Ronald Pagan

Bonuses are tricky.

While they appear to be (and might well be) just glad handing and spreading the spoils to people who don't deserve them, they can be a good recruitment tool.

But do you need bonuses right now? A huge chunk of the financial industry is going under or laying people off (atleast here in NY, where one would imagine the biggest and best firms are based from). When things are going great, and you have to fight your way with 10 other companies just to hire someone, sure offer bonuses.

Keeping/Having a job is the "bonus" you get right now. I haven't received a frickin bonus in the 5 years Ive been in the workforce. I think some people out there are a little out of touch with reality.

[V]

I get bonuses every year. I think it's great. I'll get another one in a couple months.

[Table 5]

Originally Posted by oilers_fan

So when do I start sinking money into GM? Share is down 23% on the day right now.

Hmm, considering that I've heard the dividend might be gone if the US gov't helps them out, I'm not sure this is the time. Usually stocks take a tumble when the dividend is chopped.

However it might not be a bad time to look into companies that would benefit from bailouts indirectly. I've actually started looking into automotive companies that make carious parts for the car industry, but are not actually car companies themselves. One of them is Lear (LEA). They have been absolutely hammered this year, but apparently have already made some big preperations for the slow-down, so should be able to weather the storm. They make electrical parts and seats, something that shouldnt necessarily be affected too much if there is continued green-push in the car industry.

[Bertuzzied]

Originally Posted by FlamesAddiction

I'd say as soon as a Japanese or Korean automaker buys them out.

I highly doubt that. Unless they can somehow get rid of the union.

[Table 5]

Originally Posted by V

I get bonuses every year. I think it's great. I'll get another one in a couple months.

Good for you, you're luckier than a lot of us. It sure as hell better not be coming from a government bailout though, as is the case with financials in the US.

[FlamesAddiction]

Originally Posted by Bertuzzied

I highly doubt that. Unless they can somehow get rid of the union.

Yeah, I don't know. It was more of a backhanded comment on the quality of their product versus Asian automakers...

... although, I did hear on TV that Hyundai might be buying the Jeep division from Chrysler.