The ongoing financial turmoil and financial discussion thread

[Phanuthier]

Originally Posted by Slava

^ You guys basically understand how this operates. When the prices drop to certain levels the computer makes a buy for you...it can be based on a number of factors, but that is the general idea.

Yeah, and aren't most of these computer operated althorithms triggered by hedge funds / options? What does that mean to the Nov 30 deadline you were talking about?

[Slava]

Originally Posted by Phanuthier

Yeah, and aren't most of these computer operated althorithms triggered by hedge funds / options? What does that mean to the Nov 30 deadline you were talking about?

Well this is where things get ugly...once we break through that 9k level of resistance (that seems to be there) no one really knows where that next level is. I have heard speculations around the 7-7500 mark, but really predicting that type of thing is impossible.

Of course it could be all a giant moot point....we could just hang around where we are for the next month or so and then rebuild.

[Phanuthier]

Correct me if I'm wrong here Slava, but is the resistance level (DOW at 9000, NASDAQ at 1550) the level in which we are talking about the actual value of the equity? i.e. If I am to understand, the value of a stock = the net equity (assets-liabilities) + the value of its profitability?

I was watching a 1 hour lecture given by Paul Krugman who was talking about how this recession differs from the past few; that unlike past ones, we aren't just talking about paper losses, but actual value (equity) is being lost, companies going bankrupt or leaving the USA.

Even still, I was taking a gander at a list of 30 stocks I'm watching carefully (12 I tend to buy into, 5 I'm in already) and most of those, the market cap is actually below the net equity, and its ROE, OM and PM are still quite strong. (Am I correct in saying the market cap = net equity of the business?)

[badger89]

market cap = price/share x # of outstanding shares. It's not the same as net equity.

Check out the P/E and PEG ratios for a good idea if a stock is undervalued or not...
http://en.wikipedia.org/wiki/PE_ratio
http://en.wikipedia.org/wiki/PEG_ratio

[Phanuthier]

Well obviously I know that. But, at what price do you bid on a share for a stock? Thats my question.

Ben Graham (Warren Buffets teacher) among many others have theories about how to price the market cap, and thus, the value per share, accordingly. Ben Graham proposed when the market cap is 2/3 of the net equity to show an undervalued business.

As I said, I typically don't use P/E ratios - those are for speculators, almost by definition. P/E ratios are set by the the price of bidding for someone looking to buy the stock, not exactly anything to do with the business itself. You saw crazy P/E ratios during the dot com craz for businesses who were unhealthy. P/E ratios don't give you the any clue as to the health or profitability of a business.

[MoneyGuy]

In the interest of continuing education.

Here are some thoughts for those of you considering what to do now regarding this current market.

• Panic selling stage appears over, market now focusing on earnings.
• There are three key criteria to end a panic and we have seen the first two: government initiatives to stimulate the economy, and central bank intervention. It takes time for these to have an effect. The third criterion is for buyers to come back into the markets and this may be starting.
• Analysts and fund managers feel that stock prices are close to their lows, though the markets may trade sideways for a while.
• Valuations are within 15% of their lowest levels of the past 50 years.
• Now seeing a global recession that will probably last into 2009. But recessions are a normal part of the investment landscape.
• Also need to remember that there are now six emerging economies with GDP over $1 trillion and they continue to grow, though at a slower pace.
• Remember that the stock market is a forward-looking indicator and typically bottoms while the economy is still in recession.
• There is likely too much pessimism; confidence will probably start to recover soon.
• Interest rate cuts and other stimulative measures will have an impact, and the global deleveraging process is well underway.
• Market lows are a good time to be putting capital to work.
• Mutual fund managers are starting to deploy their cash because valuations are so attractive. They’re buying with the understanding there could be further declines, but valuations are compelling and they don’t want to be on the sidelines when the turnaround starts.
• Since the Second World War, the average rebound in the U.S. market from the bottom has been 34% over the following year and 51% over following two years.
• The market turnaround, when it comes, will be abrupt, likely with breathtaking daily gains. But it will start when the environment is still bad.

This info is for what you feel it’s worth. Happy investing.

[Dan02]

Thanks MoneyGuy, now if only i had some cash for investing

[Potty]

What are some good financial forums that some of you frequent?

Thanks.

[MoneyGuy]

Originally Posted by Potty

What are some good financial forums that some of you frequent?

Thanks.

I'd tell you but they're advisor-only forums and then I'd have to kill you.

[Nancy]

Originally Posted by MoneyGuy

I'd tell you but they're advisor-only forums and then I'd have to kill you.

Why would you ever need to visit any other forum other than CP... it's the swiss army knife of forum websites.

[FlamesAddiction]

Originally Posted by fotze

The same ones that Mark Cuban and Martha Stewart frequent?

They're the ones where they collaborate on how to dup people into investing in the stocks they personally have an interest in seeing go up.

[MoneyGuy]

Originally Posted by fotze

You forgot the commisions they collect like on that Manulife One thing that is turning out to be a shamola.

Don't know where you get that from, but it's no scam.

[Claeren]

4 major companies are on the verge of going under:

General Electric
GM
Chrysler
Ford

IF even 1 of those fail how is that not going to induce major panic selling!?

If 1 falls the market drops 10%, if 2 fall it drops 25% (and likely more, as a lot of connected companies start to fail and it becomes clear American market hegemony is dying).

This (as I have said many times) is faaaaar from over people.


(And if the government holds these guys up then the market just gets hit by deflation for 20 years or, in an effort to fight that deflation, hyperinflation. Lose-Lose scenario right now as America uses up all the ammunition it has.... )



Claeren.

[Bobblehead]

Originally Posted by fotze

Apparently for some that got their rate of prime, they are finding out that when the rate goes up, manulife takes the cash, when the rate goes down Prime becomes Prime plus 0.50%. There's a huge thread on redflagdeals about it, some lawyers are looking at class action suit and some finaicial advisors who recommended it aren't too happy. But I digress.

A wee bit of vitriol in that thread.

[Ronald Pagan]

Originally Posted by fotze

Apparently for some that got their rate of prime, they are finding out that when the rate goes up, manulife takes the cash, when the rate goes down Prime becomes Prime plus 0.50%. There's a huge thread on redflagdeals about it, some lawyers are looking at class action suit and some finaicial advisors who recommended it aren't too happy. But I digress.

More information please.

[Bobblehead]

Originally Posted by Ronald Pagan

More information please.

Apparently, for years the rate charged was Manulife's prime rate. But if you actually looked at your contract is was called a "target rate". Last month the website said that rate was tied to prime.

Suddenly this month, Manulife prime is 4% but the "target rate" is 4.5%. And Manulife's website has changed to remove the "tied to prime" reference. Additionally, the satisfaction guarantee of $500 will only be received after you show proof you have reverted back to the same product you had before you went to Manulife. There is also apparently a $14/month fee.

So from what I have read, it sounds like the product recently changed, and people were surprised about the results, with many of them feeling they were misled.

[Table 5]

DOW closed a dip under 8000 today...I'm curious to see what happens tomorrow.

[Phanuthier]

Originally Posted by Table 5

DOW closed a dip under 8000 today...I'm curious to see what happens tomorrow.

Even worse, the NASDAQ goes below 1400. (Its typical resistance level has thought to be 1550)

[Nancy]

Wow... Nasdaq is back to where, 1997 somewhere?

[Phanuthier]

Originally Posted by Claeren

4 major companies are on the verge of going under:

General Electric
GM
Chrysler
Ford

IF even 1 of those fail how is that not going to induce major panic selling!?

If 1 falls the market drops 10%, if 2 fall it drops 25% (and likely more, as a lot of connected companies start to fail and it becomes clear American market hegemony is dying).

This (as I have said many times) is faaaaar from over people. .

I hear ya Claeren, but at the same time, we're reaching levels where companies are priced far below their net equity (asset - libabil) which seems to mean that you are getting the profits of the business for free, in addition to getting a good deal for an asset. I see it sort of like a pinball machine which is worth $1000 and is bringing you in $20 a month. If right now, its only making $5 a month but in the future, its going to bring you in $20 a month, would you buy the pinball machine for $800?

I think its real tough to try and predict the absolute lows and the absolute highs. I mean, GM, Chrystler and Ford have been dying for years now, the news here isn't anything new; the only thing that will suffer are paper losses IMO and probably to the suppliers or any industry integrated with automobiles. To me, that should deter someone from buying the good fundamental companies at a fair or value price.