The ongoing financial turmoil and financial discussion thread

[Claeren]

Originally Posted by Phanuthier

This just coming down the wire:

http://www.reuters.com/article/funds...41089420081120

Why the hell is Citi bidding...?

I'm hoping JPM gets it cause, uh well, I own JPM stock.

It is the same bankrupt leadership that has led America down this path in the first place.

American CEO's can't have long term plans, they need to worry about day-to-day stock price. So while Japanese CEO's (or private company CEO's) have been busy building real value in their companies, American CEO's have been hollowing out everything they can and then leveraging the rest to buy up the competition, stifling any domestic economic innovation, and generally selling out their childrens future for todays gain.

CitiGroup can use government billions to buy up external assets to get the light off internal liabilities why exactly?

What a joke.



Claeren.

[RougeUnderoos]

I know it's bad for us (in Alberta), but shouldn't the price of energy dropping be good for the rest of the economy?

[Slava]

^ No question there are some bright spots out there. One of them is the cheaper energy that will be available in the nearer term for India and China....they also have the cash to go along with that demand, so eventually there will be some amazing growth continuing there.

Other bright spots include the resurgence of American exports. With the dollar as weak as it was this spurred some good exports for the US that were otherwise simply not there.

[RougeUnderoos]

Another thing I saw today -- the auto executives from Detroit all flew down to Washington in their corporate jets to beg for money.

Some American newscast showed that a round trip on a commercial airline would set you back 600 bucks. It costs at least 20 grand in fuel alone to fly the corporate jet down there so these ######bags could plead poverty.

No wonder they need money. Anyone who would make such a blatant PR gaffe like this shouldn't be in charge of selling anything.

Of course they say it's for "security purposes". Yeah, sure it is. The security of their own egos.

[MoneyGuy]

I'll try to explain this volatility. When stocks go down like this, it results in many margin calls to leveraged investors. The calls go out in the morning, forcing folks to sell to meet those calls. They have to be covered by noon. The vast majority of the selling today is because of this. Many hedge funds use leverage heavily and are getting crushed. Couple this with tax-loss selling, as tis the season for that, which feeds this downward spiral. Mutual fund managers are selling losers to avoid excessive distributions. This should end early soon and we should start to see some re-entry buyers. Remember that the turn-around happens when you least expect it, at the time of maximum pessimism.

[Claeren]

Originally Posted by MoneyGuy

I'll try to explain this volatility. When stocks go down like this, it results in many margin calls to leveraged investors. The calls go out in the morning, forcing folks to sell to meet those calls. They have to be covered by noon. The vast majority of the selling today is because of this. Many hedge funds use leverage heavily and are getting crushed. Couple this with tax-loss selling, as tis the season for that, which feeds this downward spiral. Mutual fund managers are selling losers to avoid excessive distributions. This should end early soon and we should start to see some re-entry buyers. Remember that the turn-around happens when you least expect it, at the time of maximum pessimism.

Is it really that complicated though?

Doesn't market volatility just represent the massive 'unknown' in the markets right now?? No one knows who will fall next, where these massive massive liabilities lay, to what degree the government can help, will help and what internal cost it pays in so helping? etc etc

Any time you take a 'normal market' and then add a dozen or so 'unknown factors' each of which could bring the entire modern finance system to its knees you have volatility regardless of how people are invested and the tools they use (options, shorts, margin calls, etc)?


And can a market ever be 'at the time of maximium pessimism' if seemingly EVERY person who sells mutual funds, stocks, etc and/or job depends on the market and/or holds large positions in the market are all insisting that it can't get any worse and to buy buy buy? Doesn't the very comment that people need to be fully invested 'to take advantage of the turn-around' mean we are not actually at maximum pessimism?

It is like all my realtor friends this last year insisting that people should 'buy on the dip because prices will never drop in Calgary again' and now, like last year, saying 'if you don't buy before spring you are doomed!' We all know how that is turning out, anyone who took their advice has lost tens and likely hundreds of thousands of dollars....


In fact I have a new barometer for the market!!

As soon as YOU start saying we are doomed and to get out of equities it is time to buy!! haha



Claeren.


PS - As people with leveraged positions are forced to exit the market I am not sure how they can re-enter the market? Not only has the equity they were using to leverage been largely wipped out but the means of obtaining leverage has also been drastically reduced. A large part of the losses sustained thus far are likely gone for an extended period exactly for that reason, regardless of whether that leveraged (and thus inflationary money) was within hedge funds or among private investors.

[Slava]

Alright Claeren, I'll humour you. What are you looking for to agree that the bottom is near?

[Claeren]

I have already said that I think we are (finally) potentially near bottom, that is not my primary concern though.

My first contention was that people kept saying we were at bottom all the way down. Thus it is not that I don't think 7500 is low -- it is that I was one of the few that thought 10,000 was not low, 9000 was not low, 8300 was not low, etc. Regardless if 7500 is low the idea that people think 'it cant go lower so invest invest invest' is just as strong as it was at 10,000 and that is worrisome to me.

My second point is that it just seems prudent to keep cash because this is not just some 'on-paper loss' in the markets, it represents the entire decline/reckoning of the American economy.

If GE, GM, Ford and/or Chrysler fail, along with CitiGroup, AIG and the iBanks (etc) that have already disappeared, and unemployment runs well into the millions and America is literally bankrupt do you care if the market is 6300, 7300 or 14,000?

To me that scenario is actually more likely than a full recovery at this point - I have yet to see true leadership or innovation among America's leaders to suggest otherwise. As such there will always still be time to 'buy the dip' because even if the dip does not get worse it will not get better, and those that have cash are going to be offered all sorts of great opportunities (in all assets classes, not just equities) once things actually get bad.


Look at it this way, as much money as a select group of people have lost, the REALLY bad part of a recession (not to mention depression) have only just recently started to appear. I am not sure why this recession should be worse on-paper than virtually any before it but should recover and rebound as fast as any average old dip? People are going to feel some real world pain this time around (sadly) and until that happens there is no rush to going heavy on the equities.


That all being said there ARE a couple decent buys out there and if you are wealthy enough to both keep decent cash reserves AND invest in equities then you are in a lucky group no matter what happens.

I see less downside than ever (45% drops in the market tend to do that) but as I said before, there are a lot of very large unknowns that could easily easily easily come crashing down and take another 20% of the market with it.

What 'experts' are not telling the people they are telling to invest invest invest is that this last 10% drop (or the 40% before it) might not be recovered for 10 years or 20 years. They go on and on about how you might miss out on the first 10% of a recovery though don't they?

For example Japan (And I think America is in more trouble than Japan was):




Claeren.

[Slava]

Well there are a few fundamental differences between what you contend and what I think to say the least. First the impact of this recession and depths of it.

To say that this recession is worse than previous recessions or that the sell-off is unprecedented is factually incorrect. The slope might be steeper, but the actual sell-off is not worse than before. Surely the fear-mongering that the media has participated in this time is worse than before though.

Second about the market dropping and recovery there is a misunderstanding: the index that goes down is not the same as the index that recovers. That is the case in any of the events; certain companies will not survive or recover to their previous strength while new companies and industries will begin their journey to stock market darlings.

The current situation and Japan are actually quite dissimilar as well. In under-estimating the US economy you are effectively under-estimating the most innovative and forward thinking group of people on the planet!

Lastly, I think that the idea of hitting rock bottom from an investors point of view is overblown here. While we would all like to be able to buy-in at the exact bottom of the market the sentiment has been that we are historically low and there are great opportunites. Even if you bought in at 9500 you were nowhere near the top of the market; so that will be a bargain down the road.

[Potty]

Originally Posted by Slava

To say that this recession is worse than previous recessions or that the sell-off is unprecedented is factually incorrect.

A little early to make a statement like that, no? We're not out of the woods by any stretch, nor have we definitively reached the bottom of this cycle.

[Claeren]

Originally Posted by Slava

Well there are a few fundamental differences between what you contend and what I think to say the least. First the impact of this recession and depths of it.

To say that this recession is worse than previous recessions or that the sell-off is unprecedented is factually incorrect. The slope might be steeper, but the actual sell-off is not worse than before. Surely the fear-mongering that the media has participated in this time is worse than before though.

Second about the market dropping and recovery there is a misunderstanding: the index that goes down is not the same as the index that recovers. That is the case in any of the events; certain companies will not survive or recover to their previous strength while new companies and industries will begin their journey to stock market darlings.

The current situation and Japan are actually quite dissimilar as well. In under-estimating the US economy you are effectively under-estimating the most innovative and forward thinking group of people on the planet!

Lastly, I think that the idea of hitting rock bottom from an investors point of view is overblown here. While we would all like to be able to buy-in at the exact bottom of the market the sentiment has been that we are historically low and there are great opportunites. Even if you bought in at 9500 you were nowhere near the top of the market; so that will be a bargain down the road.

Where did I say this recession IS worse than previous recessions? What I am saying is that this recession is seemingly shaping up to be worse than previous recessions (not the depression, just recessions). With virtually every pillar of the old American economic guard on the brink of collapse I am not sure how that is even debatable?

You are saying the fundamentals out there say otherwise to you? That LESS people are going to lose their job than in any other recession? That LESS people are to face true once in a generation hardship? Because that is where are now, not much actual bad stuff has started to manifest itself in the real world yet...

All these traders seem to think this is some paper/computer game where the numbers go up then down then up again, easy as pie. This is the first time IMO in the adult lifetime of virtually anyone alive that there looks to be very serious consequences to all of these swings and poor fiscal decisions. I am not convinced we are going to see a recovery before the pain has even set in!? Seems absurd?

I guess I look at America as in full decay. Massive debt (among companies AND government AND consumer/citizens), massive deficits (among companies AND governments AND consumers/citizens), growing unemployment, a hollowed out industrial complex, a bankrupt healthcare and (largely) education system, rapidly growing disparity and disconnect between rich and poor, rapidly aging population, government corruption and mismanagement, etc etc.

There is no law that America has to be on top in the world and the mismanagement of the position they had at the end of the cold war is at best shocking and at worst criminal.

Other places on earth have been quietly building their reserves, educating their peoples, and industrialising their heartlands all at America's expense. They have some ways to go but they are gaining ground as quickly as America is giving it up....


America is still obviously the worlds super-power but only real change and strong leadership will guard that position going forward over 10 years, 25 years, etc.

CEO's, lobbyists, and day traders looking for a quick buck have served to undermine that position and that is what this whole decline is all about in my mind.

The real everyday PEOPLE of America, and future generations of Americans, (and thus in parallel Canadians) have not been benefiting at all in the last 25 years and if you look to returning to that world, where companies cannot simply leverage 25-to-1 (like GE for example) to falsely inflate their balance sheets, where they cannot offer cheap money (debt enslavement) to the struggling middle class and where they have to offer REAL value in goods and services and not simply lok to make money out of money will now have to return to values closer to pre-2000's historical norms (where we are just arriving now).


This market IMO is not bouncing back above 10,000 any time soon. (Outside of hyperinflationary scenarios which is a whole other negative scenario obviously, or perhaps mass volatility, but i doubt it.)

You sound like you want to bet on America and I can get that, historically it is not a bad bet to make. I just think America needs more pain in order to create the will necessary to change for the better. Change that should start creating REAL value in American companies again, and in turn REAL value in all of the other major economies that partake in the systems of trade that depend on that value.

Medium term though I still just see wave after wave of bad news tempered by brief periods of denial....


Claeren.

[MoneyGuy]

If I were you folks, I'd start to care a wee bit less about this market and more about your DB pension plan, if you have one. If you don't, this will still impact you. I suspect that in a year from now those might be the bailouts that hit the news.

Actual facts about one DBPP:
Last year's valuation showed a 5% surplus. They were paying out just over 5% of assets in pension benefits to retirees. Deposits amounted to roughly 3.5%. The shortfall was made up of the investment return from cap gains, dividends and interest. Target investment mix was 60% equity (overweight Canada, underweight U.S.), 40% bond (75% Canadas and Prov, 25% AA+ Corp).

Year-to-date return is negative 37.5%.

Thus, the payout is now almost 8%. Since DB pension payouts can't be adjusted, employee contributions must go up by nearly 40% (you get nothing in return for the extra money).

Next shoe to drop??? This has the potential to be far more severe for those of you are young than this current market. Markets? Pfft. Worry about this.

[MoneyGuy]

Originally Posted by Warren Buffett

...the U.S. economy should start to recover by the middle of next year and will eventually "go to new heights."

Full story here.
http://www.cnbc.com/id/27840868

I've said before that the market tends to move about half a year ahead of the economy. If Buffett is right and the economy turns around in mid-'09, plan accordingly.

[Phanuthier]

OK this thing just went up 200 pts in the past 30 minutes? lol

Are these those crazy market derivatives (hedge funds, options, etc) kicking in at 12:00?

[Phanuthier]

1 hr, over 400 pts gain on the DOW. Over 50 pt gain on the NASDAQ. Crazy.

[Bend it like Bourgeois]

Originally Posted by Claeren

For example Japan (And I think America is in more trouble than Japan was):


Claeren.

Japans had an ageing and shrinking population for 10 years though. They had similar issues to the US, then got old and started dying. Their GDP per capita grows, but overall not. They had no hope of recovery.

Is the US in the same position? Is there an example other than Japan where the population is not an issue?

[Phanuthier]

This might be a dumb question, but how do you buy oil in the stock market?

[metallicat]

I think oil is strictly traded on the mercantile exchange, not the NYSE. I am not sure if you can buy that or not.

[V]

Buy HOU.

You short oil by buying HOD.

These two ETFs are both supposed to follow 2x the price of oil (HOD follows 2x the inverse of the price).

Honestly, I can't see HOU being a bad buy right now. Even if it declines, there is far more upside than downside.

[Nancy]

Originally Posted by Phanuthier

This might be a dumb question, but how do you buy oil in the stock market?

You can buy stocks in oil companies or as mentioned above you can buy an ETF that is long oil or short oil. Or you can trade futures, but that is a little more involved.

Some other oil ETFs:

ProShares Short Oil & Gas,DDG,US Listed Stocks ETF,
Claymore MACROshares Oil Down,DCR,Commodity Based ETF,
Claymore MACROshares Oil Up,UCR,Commodity Based ETF,
PowerShares DB Oil Fund,DBO,Commodity Based ETF,
United States 12 Month Oil,USL,Commodity Based ETF,
United States Oil Fund,USO,Commodity Based ETF,