The ongoing financial turmoil and financial discussion thread

[puckhog]

Originally Posted by Claeren

The brutal thing is that all the bailout will/could do is postpone the pain.

Unless the government/treasury is going to become one of the worlds largest customers of automobiles 'bailout' is a deceptive term.


Either way industry is dead in America. Either way the consumers, taxpayers, government and most of the companies that used to sell real worldclass products are all tapped out and hedged to the max.

That debt has to either be re-paid (deflationary and painful) or destroyed (deflationary and painful) or paid off with printed money (inflationary and painful) and the pain is going to be pretty significant.

I think at some point reality is going to hit the markets like a ton of bricks, far far too many people are like 'this is a great buying opportunity, I am going to be RICH!' with these new lows and it will only be a true low when people (not just CNN over-reporting the story) are actually thinking 'holy cow I gotta get out of this, there is no hope....'. 90% of the traders I meet are almost happier these days because they think they can't lose, that is always a recipe for disaster.

Early next year when one of the auto-companies fails and unemployment is shooting past 10% (15%?) stocks will start to look overvalued again, and then as 3rd quarter '08 results shrink into 4th quarter '08 results that shrink into 1st quater '09 results stocks will also start to look expensive again, instead of undervalued. (With notable exceptions I am sure, but overall....) And when the USA is trying to trim a $1.5 TRILLION dollar deficit next year and interest rates start to shoot upwards at some point (whether next year or in 10 years) I am pretty sure it is not going to be a party in equities....

I am still pretty confident that at some point this gets a LOT worse before it gets better.

Claeren.

I liked this post and wanted to comment on it a bit more. I agree (taking my non-expert opinion for what it's worth) that we probably haven't seen the worst yet. However, that said, I don't believe that this means it's necessarily a bad time to buy. It's a similar situation to the stock market in the 1930s, if you had bought a portfolio of stocks represented by the Dow Jones at the start of 1932 you would have seen those stocks promptly lose 60% of their value. However, by 1937, those stocks would have increased from their purchase value by almost 100%. The point I'm trying to make is that just because the market might fall more doesn't mean that everything is "overvalued".

One very important thing people need to keep in mind when deciding whether or not to enter the market is their investment horizon (how long they are willing to hold onto the shares). For example in my case, I'm a new university grad and I'm interested in buying a home in the near future. When I decide to do so, I want my assets available in cash, not stocks. In other words, I have a short investment horizon and so I do not intend to buy any stocks right now. If, on the other hand, I was in a position where I was willing to part with some cash for 5-10 years and ride out this downturn, there are companies out there that are worth buying right now. It's also important not to part with more cash than you can afford, which some people seem to forget somtimes.

Unfortunately, people as a group are greedy and impatient, which eventually leads to situations like the one we're seeing now.

[CaptainCrunch]

Originally Posted by flamesfever

What does Harper do now?

Nothing, there's no point in giving money to the Canadian Auto Industry until he knows what the American Strategy is. Also it sounds like the Canadian Auto makers haven't disclosed their short and long term strategies to the government yet, so its not very likely that money will head their way until they disclose this.

[Phanuthier]

Originally Posted by Claeren

The conservative in me 100% agrees because (as you well know) that capital should be allocated to winning American business and winning American producers that can step in and fill that output void with their high value American products.

The problem is that there is not anyone to step in! It is all foreign manufacturers with better technology, better management, better innovation and (therefore) better product.

You let them collapse and there is nothing domestic to take their place. So the logic starts to fray? To not save them is to essentially forfeit a massive part of your industrial base to other nation states. A nation like America simply cannot be in that position. (< which goes beyond economics and markets, it starts to compromise your ability to provide industrial output in major wartimes for example.)

...

I would almost like to see those companies fail but then provide government seed capital to 2 or 3 start-ups with really progressive management teams to buy the Big-3's technology (out of bankruptsy). At least then you are working to rebuild that capacity and innovation inside of America but on a clean slate? New management, new (non union?) workers, no debt, new factories, etc.

...

So in short, it is not even losing the money that bothers me (though it does), it is the fact that even if you don't spend the money there is not really any American company benefitting from it like theoretically (in a closed system) they would.

Thus: You are screwed if you do the bailout and you are screwed if you don't do the bailout so.... you don't do the bailout I guess? Yet it is so far from being a triumph of capitalism... ?

Good post Claeren. First off, I'm with you that its not so much about money (screw capitalism, I remember having this debate with peter12 where he was saying capitalism is the only system that works and its the best system we've ever had... lol) its about whether this bailout will work.

So as we sit right now, we have the Big 3 with outdated production technology, management stuck in 1970's mode and seemingly only understanding 1970's, and still posting negative operating margins (and negative profitability margins in general)... and we want them to do some corporate restructuring and enter a market they don't understand? I don't like the odds of that at all. So, without a doubt in my mind, the answer is: let the Big 3 fend for themselves. If they go bankrupt, so be it, it was a failing business model, entering a market and trying something new with old-school management... and they are starting, trailing their competitors... and they will likely need new technology (i.e. capital expendetures) to do so. They are going to need another multi-billion $ bailout in a few years ago, and this bailout (and 2003) is just to slow down the death process as the Big 3 slowly whimper away. This isn't a bailout, its an allowence (i.e. allowence we got as a kid).

Unfortunately - and I argued with peter12 on this as well, with him saying something to the effect that no country in the world is even close to threatening the USA cause capitalism rulez- the USA's brain drain and the jobs leaving the USA to emerging markets is the biggest problem the USA faces. Now I understand that in business today, business doesn't operate in isolation within a country. This is the problem that needs to be fixed. Rather then invest the money and efforts into bailing out dying companies, I would like to see a serious push towards re-developing the education base in the USA. (How, I do not know.) The USA has to start creating value, rather then just being driven off consumer spending, spend spend spend. To some point, the USA has to do something to keep jobs in the USA, some way some how. At this rate, the USA is in peril no matter if the car industry dies or not.

However... as I said earlier, the USA has the deepest reserves in the world. Car industry aside, the technology and infrustructure, as well as the social infustructure, is currently the USA's competitive advantage (albeit they are losing that quickly) and to me, the USA has to use that to their advantage. I have a few guesses at what those industries are, but a big problem with that is that North Americans in general seem standoff-ish towards the idea of new ideas, crossing the chasm if you will. If only attitudes to innovative ideas moved as quickly as stock market corrections, we'd be set!

[Thunderball]

Originally Posted by CaptainCrunch

Nothing, there's no point in giving money to the Canadian Auto Industry until he knows what the American Strategy is. Also it sounds like the Canadian Auto makers haven't disclosed their short and long term strategies to the government yet, so its not very likely that money will head their way until they disclose this.

Exactly.

Furthermore, I think there's a big bulls-eye on the backs of the CAW and UAW. Their greed and (intentional?) inability to grasp both the enormity of the situation and their significant role in this crisis has brought things to a head. I think the US Government (and the CPC, maybe even the Liberals)(rightfully) expect these guys to play ball. If they don't, I think they'll be happy to help restart a bankrupt Big 3 who get to operate in the same labour conditions as Toyota, Honda, et.al.

To paraphrase what Lee Iacocca said in the 1970s. We have no jobs at exploitative salaries. We have tons of jobs for a fair market wage.

The American (and Canadian) Government would be fools to give money away without solving this huge issue. Business Plans are fine and dandy, but unless they get their labour (and spin-off labour costs, such as benefits packages) under control, they'll be back at the trough before the next US election.

[MoneyGuy]

Deficit spending often sparks inflation. It does more to drive interest rates than does fiscal spending. However, if deficits lead to excessive debt, then this debt is rated lower quality and the market demands a premium rate. The world is trying to boost the market through any means necessary. They’re using monetary policy (lowering rates) and fiscal policy (spending - bailouts) to stimulate the global economy. Often they over react and create an inflationary environment, which then has to be reigned in through opposite monetary and fiscal policies. Rates are likely to stay down and decrease further until economic activity and credit market confidence pick up, and then the world should have a co-ordinated approach to reversing the aggressive policy movements they are now enacting and a future crash can be avoided.

[flamesfever]

Originally Posted by CaptainCrunch

Nothing, there's no point in giving money to the Canadian Auto Industry until he knows what the American Strategy is. Also it sounds like the Canadian Auto makers haven't disclosed their short and long term strategies to the government yet, so its not very likely that money will head their way until they disclose this.

While I agree with you, perhaps to appear proactive and avoid a non confidence vote, the Conservatives should devise an assistance plan conditional on the US bailout, and other considerations.

It means so much to Ontario, that I think simply not doing anything, because of a stalled US bailout, may be disastrous for the Conservatives.

[Claeren]

I can't believe the market spiked yesterday, the world is officially on the verge of being out of ammunition to fight the coming meltdown in the world economy and the market spikes!? haha


People need to come to their senses and realize that an 'accelerated Japan' is starting to look like a best case scenario, not the worst case scenario....



Oh, and despite those cash reserves even Apple is starting to look a bit fragile i see (declining deskstop sales, stagnating computing product for 2009) although price drops should easily help shore things up -- at the cost of revenue/profits and therefore share price of course.





Claeren.

[Slava]

While its true that the central banks have used up one piece of ammunition that is hardly the end of the story IMO. There are still stimulus plans that will come to bear (and already have been adding liquidity and easing the pain).

You can take this two ways though: clearly your position is that this is the last thing that can be done, so the market can now drop to zero. The other position is that this is the last thing to be done, so now the market can begin its ascent to 20,000 and beyond!

[MoneyGuy]

Originally Posted by Slava

While its true that the central banks have used up one piece of ammunition that is hardly the end of the story IMO. There are still stimulus plans that will come to bear (and already have been adding liquidity and easing the pain).

You can take this two ways though: clearly your position is that this is the last thing that can be done, so the market can now drop to zero. The other position is that this is the last thing to be done, so now the market can begin its ascent to 20,000 and beyond!

My money's on the latter of those two positions. But I've been called a perma-bull.

[LChoy]

http://buffalobeast.com/133/bigthree.jpg


(If someone can display this, that would be awesome)

[corporatejay]

NSFW language in the pic so I won't post it...but it's worth a click.

[Claeren]

Originally Posted by Slava

While its true that the central banks have used up one piece of ammunition that is hardly the end of the story IMO. There are still stimulus plans that will come to bear (and already have been adding liquidity and easing the pain).

You can take this two ways though: clearly your position is that this is the last thing that can be done, so the market can now drop to zero. The other position is that this is the last thing to be done, so now the market can begin its ascent to 20,000 and beyond!

Funny, because I think there is a middle ground and it is called 'Japan'??

19 years of debt destruction and stagnation as rates languish around 0 and the economy looks for some sign, any sign, of a REAL reason it should start moving forward again relative to the excess of the prior generation.


But yeah, 20,000 is the other option.... lol



The biggest thing to me is that there is a cost in using any of these tools, especially the ones they have not tried yet (which is scarier because the cost is often not even fully known OR is known but is so high it is put off until last resort -- which is now). That cost HAS To be paid, whether you pay it now through the debt destruction that HAS To take place, or later through some other wealth destroying force.



Think of it this way, it is not capitalism that is holding the market at 8,800'ish it is naked socialism by the government of what was once the biggest capitalist force on earth. I am not a bear because I am against capitalism, I am a bear because I am against socialism.

To be a bull in this market is to say you believe that government knows better than the market, and that nationalization of assets is more efficient than privatization of those assets. Hard for me to believe.

Maybe you are aware of some group of socialized nations that have done a great job of producing true wealth and value for their economies? I don't. I DO know of a lot of socialized countries that have stagnating while protecting their wealthy elite at the cost of the entire middle class until an event large enough forces an eventual collapse of their domestic economy and, when they are lucky, the eventual establishment of a true open economy (usually until the cycle repeats).





Claeren.

[Shazam]

Next up for the USA: Quantitative easing.

Over a long enough period, everybody can be bullish.

I have no idea how anyone can think that asset prices could ever fall to zero. Is the zombie invasion starting tomorrow?

[Claeren]

Originally Posted by Shazam

I have no idea how anyone can think that asset prices could ever fall to zero. Is the zombie invasion starting tomorrow?

I certainly don't think they will. Did I (mis)write something that said I did? Or you are refering to Slava's post?

I am bearish but I am not saying it is going to completely collapse.




Claeren.

[Slava]

In a bear market, all the news is bearish and in a bull its all bullish. The US is the largest and most innovative economy on the planet; to suggest that is going to be stalled for 10 years or longer just because we have a recession right now is interesting, but I still think not the case.

That viewpoint sells papers and gets TV viewers, but isn't necessarily right on that basis.

[Claeren]

^ That is why my initial post today said 'accelerated Japan' scenario.

I think America can potentially (though far from 'for sure' ) get through all of this in waaaaaay less than 19 years.


That is hardly a ringing endorsement for investing heavily in equities at this moment.



Claeren.

[Shazam]

Originally Posted by Claeren

I certainly don't think they will. Did I (mis)write something that said I did? Or you are refering to Slava's post?

I am bearish but I am not saying it is going to completely collapse.




Claeren.

I was referring to Slava.

Claeren, IMNSHO, you are the only person on this board that has any grounding in financial reality.

[MoneyGuy]

Originally Posted by Claeren

But yeah, 20,000 is the other option.... lol

I have actually had clients ask me if the market can go to zero. I've told them that theoretically it can, but that would require a total economic collapse, and then their money in banks would also be worthless. The chance of that happening is virtually nil. You laugh at the notion that the market will eventually reach 20,000, but it will. When it does, Slava and I should come back here with our own LOLs.

Hear me out. North American markets are right now, let's say, roughly 7,800. At an average gain of 8% (not unrealistic, I'd argue, using today's low prices as a base point) it would take a little over 12 years to get to 20,000 (if 9% = 11 years). This assumes a constant rate of growth, which we all know is impossible. The point is that we will see 20,000 and it should happen in the next 10-15 years. Of course, we could see a serious correction like this one when the market reaches 19,900 which would delay the inevitable, but 20,000 is inevitable.

[flamesfever]

It seems to me that tax loss selling is extending well into December this year which is understandable with the large drop in the market.

What is the final date to take advantage of this?

[MoneyGuy]

Originally Posted by flamesfever

It seems to me that tax loss selling is extending well into December this year which is understandable with the large drop in the market.

What is the final date to take advantage of this?

Must be completed by Dec. 31. If you have funds, I believe the last trade date is Dec. 24 (T+3). If stocks, they can be transacted faster. Make sure you make the Dec. 31 deadline date.