The ongoing financial turmoil and financial discussion thread

[bluejays]

Originally Posted by Slava

I'll dive in here and say that if the job figures come out Friday morning and are worse than expected than its going to be ugly.

It's a 50/50, but what's your guess on the job numbers? Yay or nay? My whole portfolio is banking on it so make a wise decision.

[MJK]

Originally Posted by fleury

It's a 50/50, but what's your guess on the job numbers? Yay or nay? My whole portfolio is banking on it so make a wise decision.

"
By Ka Yan Ng
TORONTO (Reuters) - Canada is expected to lose jobs in August for the ninth time in 10 months, but at a slower pace than in the previous month as pockets of the economy show signs of recovery.
Market participants surveyed by Reuters expect, on average, Statistics Canada to report net job losses of 10,000 in August, with forecasts ranging from a loss of 38,000 jobs to a gain of 15,000 jobs."

[Cowperson]

Originally Posted by MJK

"
By Ka Yan Ng
TORONTO (Reuters) - Canada is expected to lose jobs in August for the ninth time in 10 months, but at a slower pace than in the previous month as pockets of the economy show signs of recovery.
Market participants surveyed by Reuters expect, on average, Statistics Canada to report net job losses of 10,000 in August, with forecasts ranging from a loss of 38,000 jobs to a gain of 15,000 jobs."

Unemployment is typically the last significant lagging indicator that will turn positive as a recession is ending . . . . .

The stock market will have taken off to the upside, the economy will have turned to positive growth and somewhere far down the road after that, unemployment will flatten out and finally start declining as job growth begins to resume.

EDIT: Interesting to see that America will soon see an historic shift . . . . . for the first time ever, women will outnumber men in the work force.

http://www.azcentral.com/news/articl...-work0903.html

Cowperson

[smith12]

Originally Posted by MJK

I am actually hoping the markets slide again becuase I have some cash lying around and have been waiting a couple months now to invest. I have been expecting the markets to come back down for awhile now and I think there will be some excellent opportunities to buy soon.

I have about 50% of my portfolio in oil stocks and have about 25% sitting in cash waiting for my opportunity to buy.

This is a question to the experts out there...how far can we expect the Dow to drop? Is it unrealistic to get it back down to 8000 at this point? It seems the days of 7000 are behind us for now.

Hmmm, I think you're going to be pretty lucky if you see 9500 again which I think is quite possible sometime this month if the job numbers are not looking good tomorrow. Much less than that and there would have to be signs that we are heading into another deep recession. The tsx only dipped down to the 7 - 8000 range b/c investors had priced in the possibility of a depression and collapse of the banking system. With those threats bascially gone I don't think you'll see much less than 9500, if even that considering that's 12% below what it's at now.

[SeeGeeWhy]

My business needs to add 3 - 4 people (represents a 20 - 25% addition), and the ol' day job needs to add something in the range of 100 - 200% within the next year.

Perhaps some of the money folks can comment on this, but what has been happening with the various money types over the past year? It was my understanding that a lot of the value that got erased in the markets was "M3" type money - which... in my opinion, tends to be a bit of BS if the gap between M2 - M3 is too large (which is what we saw in the last few years).

It seems to me that "real" projects that represent "real" value have been managing to continue to contribute to the economy. Have there been casualties along the way? Most definitely... but I don't know if the numbers can be believed as much as the media flaunts them. The worst statistical recession since 1930 doesn't mean much when they don't talk about the disgustingly large run up in the past decade in the same breath.

[Sylvanfan]

Originally Posted by SeeGeeWhy

It seems to me that "real" projects that represent "real" value have been managing to continue to contribute to the economy. Have there been casualties along the way? Most definitely... but I don't know if the numbers can be believed as much as the media flaunts them. The worst statistical recession since 1930 doesn't mean much when they don't talk about the disgustingly large run up in the past decade in the same breath.

Yeah, but the great depression was also caused by a similar type of run up in the 1920's as part of a post war boom. I read that the stock market actually had a much harsher collapse just prior to World War I which caused them to all out close the market for extended periods of time.

Pretty much any recession is a reaction to some type of run up prior to it. The larger the run up heading in, the harsher the crash coming out.

No doubt though if the Government has infastructure and institutions to build, it's a great time to do it. They'll likely get better quality projects and for a significant discount from what it would have cost 2 years ago.

[Cowboy89]

Originally Posted by SeeGeeWhy

My business needs to add 3 - 4 people (represents a 20 - 25% addition), and the ol' day job needs to add something in the range of 100 - 200% within the next year.

Perhaps some of the money folks can comment on this, but what has been happening with the various money types over the past year? It was my understanding that a lot of the value that got erased in the markets was "M3" type money - which... in my opinion, tends to be a bit of BS if the gap between M2 - M3 is too large (which is what we saw in the last few years).

It seems to me that "real" projects that represent "real" value have been managing to continue to contribute to the economy. Have there been casualties along the way? Most definitely... but I don't know if the numbers can be believed as much as the media flaunts them. The worst statistical recession since 1930 doesn't mean much when they don't talk about the disgustingly large run up in the past decade in the same breath.

The problem with the Credit Crisis is that the disruption in credit caused banks to horde money to keep their balance sheets alive and this process caused a disruption of funding towards "real" projects that had "real" value and thus stalling that value creation. There was a time last fall/winter where you could have been a reasonably sized company with good credit ratings and still not be able to borrow or obtain financing for operations and as such had to delay expansion plans, scale back operations despite still having viable markets and customers. The mass effect of companies in that situation scaling back operations contributed to the layoffs and declining economic activity. A lot of the 'recovery' could indeed be due to companies in that situation that only now are able to get the funding they need to operate and expand.

[SeeGeeWhy]

Originally Posted by Cowboy89

The problem with the Credit Crisis is that the disruption in credit caused banks to horde money to keep their balance sheets alive and this process caused a disruption of funding towards "real" projects that had "real" value and thus stalling that value creation. There was a time last fall/winter where you could have been a reasonably sized company with good credit ratings and still not be able to borrow or obtain financing for operations and as such had to delay expansion plans, scale back operations despite still having viable markets and customers. The mass effect of companies in that situation scaling back operations contributed to the layoffs and declining economic activity. A lot of the 'recovery' could indeed be due to companies in that situation that only now are able to get the funding they need to operate and expand.

Very true, but if it was truly an economic crisis as many are proclaiming, we would still be in the position of nearly impossible project financing. Both debt, equity and institutional lending seems to be trickling back which makes me suspect that this whole kerfuffle was no more than a bunch of BS being flushed from the system.

[Slava]

Originally Posted by Cowperson

Unemployment is typically the last significant lagging indicator that will turn positive as a recession is ending . . . . .

The stock market will have taken off to the upside, the economy will have turned to positive growth and somewhere far down the road after that, unemployment will flatten out and finally start declining as job growth begins to resume.

EDIT: Interesting to see that America will soon see an historic shift . . . . . for the first time ever, women will outnumber men in the work force.

http://www.azcentral.com/news/articl...-work0903.html

Cowperson

There is no question that unemployment is a lagging indicator and of little value in predicting where the stock markets will go...that is a position I've put on the board here a number of times. This Friday is interesting though. While its a lagging indicator if the number is worse than expected it also indicates that markets have gotten ahead of themselves...if you catch my drift here?

[Cowboy89]

Originally Posted by SeeGeeWhy

Very true, but if it was truly an economic crisis as many are proclaiming, we would still be in the position of nearly impossible project financing. Both debt, equity and institutional lending seems to be trickling back which makes me suspect that this whole kerfuffle was no more than a bunch of BS being flushed from the system.

It damn well was/is an economic crisis of epic proportions. The Drano, if you will, to 'flush' everything from the system was trillions of dollars of future generations money. The only reason why things are flowing once again is because world governments took control/insured trillions in bad loans from financial institutions. The true costs of this crisis will be felt for generations. The money used to service this future debt will be taken out of the economy in perpetuity.

My example only consisted of companies that still had viable 'real' projects. Let's not forget that there have been entire industries previously viable business models made obsolete without liberal credit. Also remember that the BOC and the US fed rates are as low as they possibly can be. Which in essence means that anyone who can generate any sort of a return on rediculously cheap money has an incentive to do so. While there has been some positive response, it's not like GDP is growing like gangbusters because of these incentives. Also should we hit another bump on the road while rates are so low, how are central banks going to stimulate the economy? Furthermore any method they try will not be free of very negative consequences (They will only look better on a relative scale with doing nothing).

Economic growth in the scope we knew it pre-crisis cannot occur at the same rates most likely for the next decade or so because:

1) Money governments use to service recently amassed debt, will be taken out of other spending that would have otherwise provided economic investment.

2)Any business that benefited from freely available credit for customers will not see sales volumes recovery very quickly.

3)Lower market returns is kinda a self-fulfilling prophecy for more lower market returns. When markets are performing well, University Endowment funds, retirees, insurance companies, etc. have a lot more spending power and thus stimulate the economy, the opposite is true when returns are lower or negative.

4)Consumers are likely to be net savers in large percentages not seen in decades to make up for the wealth lost during the crisis, leaving much less money to spend.

[Slava]

Originally Posted by Cowboy89

It damn well was/is an economic crisis of epic proportions. The Drano, if you will, to 'flush' everything from the system was trillions of dollars of future generations money. The only reason why things are flowing once again is because world governments took control/insured trillions in bad loans from financial institutions. The true costs of this crisis will be felt for generations. The money used to service this future debt will be taken out of the economy in perpetuity.

My example only consisted of companies that still had viable 'real' projects. Let's not forget that there have been entire industries previously viable business models made obsolete without liberal credit. Also remember that the BOC and the US fed rates are as low as they possibly can be. Which in essence means that anyone who can generate any sort of a return on rediculously cheap money has an incentive to do so. While there has been some positive response, it's not like GDP is growing like gangbusters because of these incentives. Also should we hit another bump on the road while rates are so low, how are central banks going to stimulate the economy? Furthermore any method they try will not be free of very negative consequences (They will only look better on a relative scale with doing nothing).

Economic growth in the scope we knew it pre-crisis cannot occur at the same rates most likely for the next decade or so because:

1) Money governments use to service recently amassed debt, will be taken out of other spending that would have otherwise provided economic investment.

2)Any business that benefited from freely available credit for customers will not see sales volumes recovery very quickly.

3)Lower market returns is kinda a self-fulfilling prophecy for more lower market returns. When markets are performing well, University Endowment funds, retirees, insurance companies, etc. have a lot more spending power and thus stimulate the economy, the opposite is true when returns are lower or negative.

4)Consumers are likely to be net savers in large percentages not seen in decades to make up for the wealth lost during the crisis, leaving much less money to spend.

Good post. That bolded part makes me wonder though....particularly in the US. This recession/depression was to be the deepest and lowest in recent memory and we're being told its over basically a year in... (2 yrs technically, but not felt by the general public for 2 years for sure!). I wonder whether the increased savings is a blip or an actual new trend for the public. When times are good again does consumption go back to the same standard, or do people actually start saving?

I hear about how everyone is cutting back, and then there are line-ups at a new mall and the other malls are all packed with shoppers as well. It can't be both!

[Cowboy89]

Originally Posted by Slava

Good post. That bolded part makes me wonder though....particularly in the US. This recession/depression was to be the deepest and lowest in recent memory and we're being told its over basically a year in... (2 yrs technically, but not felt by the general public for 2 years for sure!). I wonder whether the increased savings is a blip or an actual new trend for the public. When times are good again does consumption go back to the same standard, or do people actually start saving?

I hear about how everyone is cutting back, and then there are line-ups at a new mall and the other malls are all packed with shoppers as well. It can't be both!

My bet is that the "Let's buy everything on Home Equity under the assumption that real estate prices increase always and forever" racket is probably ruined for a while. Maybe savings rates don't increase that far into positive territory, but I bet they don't dwell as far into negative territory as they were, meaning that a lot of money that was on the consumer table 2 years ago is off the table for the next little while.

[Slava]

I hope that is the case (that people stop buying so much with borrowed money), but as the markets increase and "everybody else" is making a 20% return around them people tend to get greedy. That kind of psychology is far from a pure stock market phenomena.

[Pastiche]

I hope no one went too short in anticipation of gloomier job numbers:

http://www.cbc.ca/money/story/2009/0...b-rate581.html

27,000 new jobs although employment creeps to 8.7%.

Should be an interesting day on the market.

[Slava]

^ I came here to post the same type of comment, and the US news is that they lost 216,000 jobs, but were expecting to lose around 225,000. The news is good on both fronts and that should be also good news for investors.

[DementedReality]

Originally Posted by Slava

^ I came here to post the same type of comment, and the US news is that they lost 216,000 jobs, but were expecting to lose around 225,000. The news is good on both fronts and that should be also good news for investors.

i think Obama should put me on his payroll ... see what I mean?

lol!

[Slava]

Originally Posted by DementedReality

i think Obama should put me on his payroll ... see what I mean?

lol!

If you could've found a way for that number to be positive instead of losing the 216k then I think he would!

[SeeGeeWhy]

Originally Posted by Cowboy89

Let's not forget that there have been entire industries previously viable business models made obsolete without liberal credit.

[...]

Economic growth in the scope we knew it pre-crisis cannot occur at the same rates most likely for the next decade or so [...]

Great post Cowboy.

I agree with you that government and central bank intervention was critical in softening the initial blow, and that the effects of this implosion will be felt for a long time. Its uncertain for me how, but there is no way that a global economy can simultaneously employ this amount of economic stimulation and not have some kind of equal and opposite reaction.

I had to point out the two quotes above.

First, I would argue that a large part of the pre-crash returns were being driven by complex option and derivative trading that was riding on the back of over simplified efficient market theories. Dangerous combination, and it was likely a contributing factor to some of the liberal credit policies you are referring to.

Were they really sustainable business models if they are gone today? My point is that the truly sustainable business models are still around, post-crash. Those that are grounded in real assets, and generate real returns.

I agree that we will not see pre-crash returns for a long time. I should say that I hope to never see these types of returns because there was just something about them that seemed too good to be true.

Financial innovation is important, it creates the space for business to expand and for wealth to be generated. However, it should not be the primary driver for that growth. What is the point of creating a whole bunch of money to cover money? Was it financial "risk management" (insurance) or was it simply gambling and the run finally ended?

Creating debt and then making good on your loan is a FUNDAMENTAL of business. How on earth can you hope to do that in a sustainable and reliable fashion if all you're doing is placing bets on which way a stock price will go? Its insane. Of course it blew up. The more insane part is that it was a HUGE part of the global economy, was creating false demand and was thus driving activity that didn't need to happen. Why was that allowed to occur? What business basis did any of this have?

The effects will be felt for a long time, but I hope that the study of this run up and collapse leads to a better understanding of creating sustainable business models and sustainable markets. It starts with investors who are rational (i.e. have reasonable expectations and judgement), but that is another debate I suppose.

[macker]

Originally Posted by Pastiche

I hope no one went too short in anticipation of gloomier job numbers:

http://www.cbc.ca/money/story/2009/0...b-rate581.html

27,000 new jobs although employment creeps to 8.7%.

Should be an interesting day on the market.

Most of the jobs were part time retail jobs and full time jobs actually declined in Canada. In the US the bond markets were pricing in 230,000 lost jobs and the number was unexpectedly 216,000. Your right though as the employment numbers were better than expected. This clearly tells you that things are getting better.

Other positive signs :
-Libor has fallen for 12 straight days and the fed and treasury have done a great job at easing pressure on the credit markets. http://www.bloomberg.com/apps/quote?ticker=US0003M:IND Quite amazing if you think about where things were last year : see : http://www.nytimes.com/2008/09/15/bu.../15lehman.html
-Next week will see 70 billion in treasury offerings and foreign investors continue to like US debt.
-Global PMI numbers continue to improve.
-As a result markets around the world are going up right across the board : TSX is up about 20% year to date, S&P 500 over 10%, not to mention the Brazil index that is up close to 48% year to date but then again it was down over 40% last year so this year is just pay back from last years mess. Classic mean reversion. http://www.raymondjames.com/indices1.htm

It is like watching a bunch of magicians doing magic and you are not sure how they are doing it but it continues to work. I guess it is like the Bricks don't pay a cent event and the Brick nations are the enablers lining up to buy the debt....It is still hard to ignore the 7 Trillion in US debt and Obama's talk about health care reforms which will pile on more.... http://www.npr.org/templates/story/s...514565&ps=cprs I Guess that is why I am riding stop losses!

[Bill Bumface]

More solid news. Gas prices up a bit, and the Magna/Opel deal propping things up on this side of the border:

http://www.bloomberg.com/apps/news?p...d=apXWzIQyAdCM