Checked those out ... I definitely think Oil will go up, but the idea of a ETF doing that kind of market derivative seems a little ... uneasy to me. It's worth a shot with some play money, but it seems a little shakey to me.
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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.
As far as I am aware, companies that offer DB plans face very strict rules in regards to how much they can increase employee contributions, and no matter how much it goes up, it will cost the company more than the employee no matter what.
What will most likely happen is companies offering DBs will switch over to a DC benefit, in which the employees are still effed by the market.
Actuaries are going to be VERY busy in the coming months...
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.
It pretty sad, but I'd say its hypocritical to tear into the auto execs when we have oil execs right in our backyard that have an even more disgusting display of wasting funds and reckless spending of cash on a day to day basis....most of which will be the first to plead for help as this decline worsens.
I have no sympathy for any of these corporations - minus the bottom end workers who will loose there jobs in order to maintain the high salaries of many of these CEO's who will have the privilege of hanging onto there jobs until the bitter end.
Do people really think that it's worth it for the CEO of a major corporation to hop on a southwest flight to DC? Their time is pretty valuable, they can't hold a meeting or talk about strategy or do business on a southwest flight, or waiting in line for security. I get it, it looks awful, but come on.
Also with the private jets that oil companies have, they are necessary. With people flying up to the mine daily, it's a complete waste of time to take a commercial jet for a one hour flight.
Do people really think that it's worth it for the CEO of a major corporation to hop on a southwest flight to DC? Their time is pretty valuable, they can't hold a meeting or talk about strategy or do business on a southwest flight, or waiting in line for security. I get it, it looks awful, but come on.
Also with the private jets that oil companies have, they are necessary. With people flying up to the mine daily, it's a complete waste of time to take a commercial jet for a one hour flight.
When you're bleeding cash - yup
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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?
America is not much different than Japan once you subtract Hispanic and LDS-member reproductive rates. The 'American elite' - the slightly upper middle class+ skilled work force at the heart of American economic leadership - who earn the most money, consume the most goods and in general are responsible for distinguishing American productivity from that of smaller/less prestigous nations is rapidly aging (baby boomers) and has generally reproduced at well below replacement rates. Even worse, that echo generation of Baby Boomers children is reproducing even more slowly than their parents.
The areas least like Japan are American southern border states and Utah. The areas most like Japan (very close in fact but about 20 years behind - which is interesting when you look at Japan's peak ~16 years or so ago) is the entire eastern seaboard and much of the pacific coast (minus Hispanics in California). hmmm, I wonder where America's industrial and financial heartland is? I wonder what is looking to be in massive decline and on the brink of collapse... ? What has been hollowed-out and outsourced enmass? What is suffering from a massive lack of meaningful leadership and/or innovation and not simply borrowing from true world innovators elsewhere and/or benefiting from exploiting opportunities outside the United States in emerging (and future leader) foreign nations?
These Baby Boomers, just like in Japan, have been moving through their peak earning/productivity years the last little while and they are now going to be looking to start drawing down what savings they have (in Real Estate and in other assets like Equities) and/or reducing their consumption as they face the reality of a long long long period between the end of their working life and the extended age to which they are projected to live. They all watched their asset values rise (thus fueling more demand and more of a rise and more demand and more of a rise, as bubbles tend to inflate) and now they all will watch as they decline as they all have the not-so-unique idea to use it for retirement.
Perhaps more importantly though in regards to fertility rate and average age is that comparatively America is ahead of Western Europe and Japan but waaaaaaay behind India, China and a number of other emerging power house economies. America may be able to tread water in the short term but I do not see how, with the current systemic internal decay, they can realistically maintain a world leadership position? And therefore not have long term malaise in the stock markets?
We were already seeing a massive shift of capital away from American markets in IPO's and such before this even happened.
As for the other part of your post, historically the DOW, for example, moves through LONG multi-year periods where returns are somewhere between negative and close-to-flat: http://www.bestmindsinc.com/document...2yearchart.pdf
As for other examples where prices did not simply recover, a number of historic price bubbles come to mind like with sugar or tulips, but most directly I guess the Great Depression is a good example of extended periods to earn back losses?
No two boom/bust cycles are going to be identical (obviously?) but with the Great Depression it took from 1929 until the mid-1950's to regain losses in the market (almost an entire working-life of average worker) and another many years to get much above that.
(As an aside, unemployment hit about 25% during the depression 5 YEARS after the initial decline in the markets and did not get below 10% until 1943, well into the WWII.)
I also saw this little graph from 2002 (before credit market debt REALLY exploded!) and while hardly scientific shows an interesting correlation (and now unheeded warning):
Do people really think that it's worth it for the CEO of a major corporation to hop on a southwest flight to DC? Their time is pretty valuable, they can't hold a meeting or talk about strategy or do business on a southwest flight, or waiting in line for security. I get it, it looks awful, but come on.
Also with the private jets that oil companies have, they are necessary. With people flying up to the mine daily, it's a complete waste of time to take a commercial jet for a one hour flight.
I believe they showed a flight departing from Detroit to Washington with virtually the same schedule as the use of the private jet. They further showed that there were a large number of direct daily flights to suit most any schedule.
They also showed that while he could have saved something like $19,800 flying coach (at least that much, as the $20,000 for the private jet at that time was only a rough estimated cost and could be higher especially when you factor in such things as maintaining a standing fleet of like 6 or 7 jets at any given moment) , he could also have saved something like $19,300 flying first class -- where he would have priority boarding/security status with similar (slightly longer but measured in minutes not hours) timelines to flying on a private jet domestically.
I believe they showed a flight departing from Detroit to Washington with virtually the same schedule as the use of the private jet. They further showed that there were a large number of direct daily flights to suit most any schedule.
They also showed that while he could have saved something like $19,800 flying coach (at least that much, as the $20,000 for the private jet at that time was only a rough estimated cost and could be higher especially when you factor in such things as maintaining a standing fleet of like 6 or 7 jets at any given moment) , he could also have saved something like $19,300 flying first class -- where he would have priority boarding/security status with similar (slightly longer but measured in minutes not hours) timelines to flying on a private jet domestically.
Claeren.
To me, the corporate jet is not so shocking as the amount of money these guys would have earned the day of their testimony. In 2006, the CEO of GM took home something like $8.5 million dollars, that's about $3000 per hour assuming a 60 hour work week and 3 weeks vacation. So he would have earned $30000 - $40000 the day he spoke there... so the corporate jet was less than a day's salary!
<SNIP>
As for the other part of your post, historically the DOW, for example, moves through LONG multi-year periods where returns are somewhere between negative and close-to-flat: http://www.bestmindsinc.com/document...2yearchart.pdf
As for other examples where prices did not simply recover, a number of historic price bubbles come to mind like with sugar or tulips, but most directly I guess the Great Depression is a good example of extended periods to earn back losses?
No two boom/bust cycles are going to be identical (obviously?) but with the Great Depression it took from 1929 until the mid-1950's to regain losses in the market (almost an entire working-life of average worker) and another many years to get much above that.
(As an aside, unemployment hit about 25% during the depression 5 YEARS after the initial decline in the markets and did not get below 10% until 1943, well into the WWII.)
<SNIP>
Claeren.
I am mostly with you on this subject Claeren, but I think any parallels we draw to the Great Depression have to end at 1939. I think we would have seen markets recover a lot faster had it not been for the war. (Which I realize is somewhat contrary to common wisdom that believes that WWII was good for the economy.)
I prefer to draw analogies to the period of 1966 to 1980, which was also a period of extended economic shocks and uncertainties. Although we saw many good bull markets during that period, most gains were typically given up in subsequent bear markets. The market really didn't break out above it's 1966 peak until 1982. (You would certainly have profited had you bought during the down cycles and held beyond 1982, you just have to be sure you aren't the guy jumping on the bandwagon at the peak of each bull market and then panicing and selling at the bottom of the bear market.)
Simlarly, today, although we may very well break out of the credit crisis next year, we still have the outstanding debt bubble you cite to deal with, and the impact of layoffs has yet to materialize as has the impact on the emerging markets, namely China and India.
Yeah, I am not so interested in finding a direct parallel (there never is one) as showing that the market is not 'V' shaped by definition, as many people seem to think it is both for the equity markets and the real estate markets.
As I know you know already, 'L' or 'U' shapes (among other simple examples) can be pretty damaging for people who invest everything in the hope of a quick return to cover recent losses.
Claeren - again, good post, some things I agree on, some I don't.
First off, I see 2 sides to this thing (America to rebound or to be a epic failure?) and I see them almost equality.
The pessimist in me see's American strong hold companies dying left, right center. Wall Street, the Auto Industry, and if GE falls hard (even if its not bankrupcy) that takes a huge dive out of the reserves. Additionally, even if the dying industry sectors survive, the margins and management of these companies are so poor that they're long term outlook is quite poor. Most other US strongholds aren't really American in the way of producing jobs and value - for high tech, most of the work (especially programmers, techie's, fabs and IT) have all left for Latin America, China (Shanghai) and India (Bagalore). That leads to my second concern, and my biggest concern, the state of the US education system failing. I apologize for sounding anti-american here, but for a 1st world country, the USA education system is really really far behind the curve; the majority of the population have very poor education and little to no skills, and that makes it really tough to create value. Even their university programs seem to produce alot of mediocre talent that its going to be tough for companies to justify keeping the work in house, rather then just shipping it off to Bangalore and Shanghai for 10% of the price. This idea of the American dream producing entrepreneurs and innovators is failing, and imatators and idiots are able to make their quick buck leveraging - why would the innovator go through the hard work? And moreso somewhat, the seperation in wealth between the rich and everyone else is growing faster and faster - in value and in %. As Claeren mentioned, a broken healthcare system at the end of a baby boom and the market crash, just how are we going to expect the World's most powerful country to produce value anymore? Finally, liquidity problems, solvency issues, this balloon debt is a huge huge problem. How many generations is it going to be to pay off this beast, if ever? Unlike other recessions (dot com, ~1997, ~1987) we aren't talking about just paper losses here, we're talking about real losses, debt and sky rocketing unemployment. Sketchy.
India, China and Latin America could have had another 5 years to stabalize themselves as a independent economic strong hold, but right now, when the US catches a cold, emerging markets get mono. Without a doubt in my mind, the future is there and not here. Its just a matter of when, I argue in as little as 2-5 years, some say 10 years, some 20 and a few say never (can't see how they think its going to be never).
The optimist side of me... the US reserves are deep. Production of goods and services have improved every year for the past few centuries, and notably the US in the past 100 years. The US makes more good more efficiently with better reliability and innovation every year which accounts for the rapid rise in the value of alot of blue chip companies. There's reason to believe that this will continue and if so, we should reach highs higher then our previous high. Also, the feds have deep pockets to bailout and give the economy and stimulous package.
I dunno... a big factor to consider. Even still, trying to time the market is sort of crazy. We can keep our eyes on unemployment, CPI and bond rates to use as indicators of the start of a bull market, but the stock market advances the indicators. Also, the 3 weeks of movement in the 8000-9000 mark before the crash this week makes me think alot of the movement came from the people getting out and the people coming in, so the boat for the bull market has already started boarding - you don't want to miss out. If you invest in good companies with strong management and strong profitability, then whether you buy now or when it goes 10% down doesn't make a big difference if its gonna make major rebounds. Also, if you are young like me, I can and am willing to sit on these stocks for 5-10 years, if need be.
Lastely Claeren, if you are targetting your post to the speculators / traders for quick gains, saying this isn't the time to do it, my retort would be that its never really a good time to do that. But hey, some people are good at it - and they're lucky for that with all the crazy graphs, computer algorithms and so on.
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Last edited by Phanuthier; 11-22-2008 at 07:03 PM.
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Lastely Claeren, if you are targetting your post to the speculators / traders for quick gains, saying this isn't the time to do it, my retort would be that its never really a good time to do that. But hey, some people are good at it - and they're lucky for that with all the crazy graphs, computer algorithms and so on.
Oh I agree totally that this extreme volatility offers the speculators/traders/professionals/brave a fantastic time to make a LOT of money.
It also offers at least as a good an oportunity to lose a lot of money.
Pro's understand that (i hope), but I am just kind of saying they shouldn't go telling the masses to follow them into the market without telling them the whole (downside risks) story. (And in turn suggest they may just be trying to get/keep dollars in the equity markets more-so than looking out for their new best friends...)
America is not without hope though, I agee. Obama/Biden was obviously the right choice compared to the alternative (Palin especially) and America is seemingly finally coming out of some anti-intellectual coma they have been in for 20 years and accepting that they need smart leaders surrounded by smart and diverse perspectives not 'average joe' leaders surrounded by one-minded yes-men. It is a start at least.....
America is not without hope though, I agee. Obama/Biden was obviously the right choice compared to the alternative (Palin especially) and America is seemingly finally coming out of some anti-intellectual coma they have been in for 20 years and accepting that they need smart leaders surrounded by smart and diverse perspectives not 'average joe' leaders surrounded by one-minded yes-men. It is a start at least.....
THANK GOD too, Obama's focus on this issue was the single biggest reason I thought he was the better candidate of the two. As I said, innovation and skill are in dire need of injection over imitation and, well, idiots. This shouldn't be hard to do with some funding pushed in since the infrastructure is here to educate the population, as the USA has far and away the most resources available for education of any country per capita.
Random news, so I guess the feds are bailing out Citigroup (was there ever any question). Also a sign of the hard times, alcohol sales are up the past month.
__________________
"With a coach and a player, sometimes there's just so much respect there that it's boils over"
-Taylor Hall
THANK GOD too, Obama's focus on this issue was the single biggest reason I thought he was the better candidate of the two. As I said, innovation and skill are in dire need of injection over imitation and, well, idiots. This shouldn't be hard to do with some funding pushed in since the infrastructure is here to educate the population, as the USA has far and away the most resources available for education of any country per capita.
Random news, so I guess the feds are bailing out Citigroup (was there ever any question). Also a sign of the hard times, alcohol sales are up the past month.
So where are we at with the bailouts now? I heard Obama was facing a trillion dollar deficit first year in office and that most of the bailout money will have been spent by the time he gets sworn in as president. If this were a Latin American country, I'd wonder what was REALLY going on.
So where are we at with the bailouts now? I heard Obama was facing a trillion dollar deficit first year in office and that most of the bailout money will have been spent by the time he gets sworn in as president. If this were a Latin American country, I'd wonder what was REALLY going on.
So I read its $20B and $306B in insurance for Citi. Bear Sterns had $30B of its bad assets bought to aid JPM, but we could see up to its full amount repaid in the future. AIG waas $85B, but they're expected to pay that back in full as it was just a load so AIG could survive, liquidate its assets, and about 80% of the company was leveraged to the feds, e.g. it was nationalized. There was the $700B bailout, $350B now and they'd have to go back to congress for the other $350B, but it looks like the feds have black markered where the $350B so nobody knows whats happened with it. Hard to see where the dust settles, anywhere between $500B to $1 trillion I guess. I also have heard a few times on the news that the Obama stimulous package will be more then the bailout package, and will be over $1 trillion. And then the auto industry, whether the $25B ever goes through or not. With that, I don't think we'll ever see that money again.
Any of these numbers sound real to anyone yet?
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"With a coach and a player, sometimes there's just so much respect there that it's boils over"
-Taylor Hall
So where are we at with the bailouts now? I heard Obama was facing a trillion dollar deficit first year in office and that most of the bailout money will have been spent by the time he gets sworn in as president. If this were a Latin American country, I'd wonder what was REALLY going on.
$20 Billion bailout for a company with a market cap just over $30 Billion Even with out weak currency RBC is now bigger by market cap vs Citi Maybe a Canadian bank should take a run at Citi Don't bank on the banks this time!
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Even with out weak currency RBC is now bigger by market cap vs Citi
Maybe a Canadian bank should take a run at Citi 
Don't bank on the banks this time!
