The ongoing financial turmoil and financial discussion thread

[Phanuthier]

Originally Posted by 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

Yeah, I'll admit I was a little surprised at it too. I guess it had to do with the feds cutting rates, but at the same time, the CPI dropped to its lowest since the 30's (?) or something like that...

And I don't really trust a stock like Apple, especially with Steve Jobs in ??? and their product is basically all on fad items.

With stocks, a different perspective is... if the feds are printing cash to replace credit destruction, you'll probably want to hold stocks which will hold up their value while the value of the dollar deflates... no?

PS : Love this article title:
http://www.streetinsider.com/Corpora...y/4246876.html

Shares of Las Vegas Sands (NYSE: LVS) have spiked intraday on no news. The stock most recently traded at $7.27, up more than 16% from yesterday's closing price.

[bluejays]

Originally Posted by MoneyGuy

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.

I could be totally wrong on this MoneyGuy, but I'm pretty sure I read that it's the 22nd of December this year (this Tuesday).

[Slava]

^ The 22nd is Monday, but I think that the 24th is right because the trade on the 24th would settle before year end.

[Cowboy89]

Originally Posted by 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.

I fully agree. The Dow will soar to 20,000, but in real 2008 terms even then it probably will only be 9-10,000. Kaynesian economics is total BS because the government is incapable of efficiently allocating money and after some organizations/government departments get used to getting topped up with free money from the government they'll fight to the death to keep their funding when times turn good again. Has anyone learned anything from the 1970s and 80s? How much of the National debt incurred in the 70s and 80s was paid back in real terms in the 90s and 2000s? Certainly not enough to adhere to the Kaynes principle of spending when times are bad and saving/paying back when times are good. Considering that when it comes to the national debt, we're actually in better shape relative to other countries, that's sad.

This bail everyone out and spend like drunken sailors on infrastructure and government jobs BS is just going to cause huge stagflation in a couple of years time because price pressures will be up, but productivity will actually decrease. Oddly enough equities will be one of the only places to protect your cash in such a time. So yes 20,000 but not in real income terms.

[HotHotHeat]

Originally Posted by MoneyGuy

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.

Can you explain which sectors of the economy will make this growth possible? Obviously it would be nothing more than a prediction, but I'd be interested to here your insight.

[HotHotHeat]

[MoneyGuy]

Originally Posted by fleury

I could be totally wrong on this MoneyGuy, but I'm pretty sure I read that it's the 22nd of December this year (this Tuesday).

No, it's the 24th. I just checked. This is for funds. I'd make sure that the trade is placed by 2 p.m. Mountain. If it's after 2, it won't make it in by year end.

[Red]

Originally Posted by HotHotHeat

Can you explain which sectors of the economy will make this growth possible? Obviously it would be nothing more than a prediction, but I'd be interested to here your insight.

It'll go up because it always does, just like real estate.

I have a feeling that there won't be much LOL's coming from financial guys (wealth managers etc.) for a while.

[MoneyGuy]

Originally Posted by HotHotHeat

Can you explain which sectors of the economy will make this growth possible? Obviously it would be nothing more than a prediction, but I'd be interested to here your insight.

Not sure if sectors will drive this, but if you're looking for promising sectors, I'd go for technology, infrastructure, health care, financial services and (not technically a sector) emerging markets. I think the main driver will be the general economy. The problem with picking individual sectors is that's a long period of time and different sectors will excel over different time periods within that longer period of time.

[Nancy]

Just noticed that BMO investorline is introducing $9.95 flat fee trading for accounts over $100K. Any opinions on whether or not it is still worthwhile to move to Questtrade (which I was planning on doing.) I probably average only a couple of trades per month.

[Claeren]

Originally Posted by MoneyGuy

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.

You are confusing 'money' with 'wealth'.

Not surprising since you work so closely to the problem that I am sure it seems more abstract than it really is.



I actually do not laugh at all at the notion of a 20,000 DOW, I only laugh at the notion that a 20,000 DOW will mean anything other than inflation eating away at real wealth across the board.

For example your "8%" growth, you really think America is producing 8% in additional REAL productive wealth each year? I would say even in a good scenario it is likely under 2% (like any mature lumbering giant of a value producer). They are however definitely producing 8% more money each year. And if you want more money at the cost of more wealth go ahead -- I'd take wealth over money any day of the week. (Thus my bearish stance, because wealth is being destroyed just to get money for unproductive sectors of our economy like bankers and hedgefund losers who add ZERO real value to the economy all while the real productive types suffer and pay for it with the wealth they work so hard to create.)


You can keep on creating more and more money to cover up a lack of wealth for quite a long time, especially when so many other nations hold you up to secure their own well being, but eventually -- whether today, tomorrow, or in 10 years, or 100 years that HAS to end and whomever has been actually creating wealth takes over and that old money has zero value because it is no longer backed by anyones hard work (hard work = wealth).




Excellent article on the matter here:
http://www.minyanville.com/articles/.../index/a/20376

Money doesn’t create wealth, and more money does not necessarily mean more wealth; wealth is only created through production. If you create more baseless money, but don’t create more wealth, you’re just dividing the existing wealth by more money.

Since price is the amount of money it takes to do a thing, prices will go up if you create more money (but wealth will not). For example, if IBM stock is trading at $100 and overnight the amount of money in the system is doubled (willy-nilly), the stock price of IBM will jump to $200 (all else being equal).

And we finally come to the conclusion we’ve been looking for - the one the Fed doesn’t want you to recognize: When they create more money out of nothing (debt) they aren’t creating more wealth; they’re just raising nominal prices.

Citizens need to quickly come to the understanding that more money isn’t more wealth. By devaluing the currency, the Fed has propelled asset prices higher and higher without creating any new wealth. The government cannot create wealth, but can only transfer that wealth from one person to another.

Unfortunately, the government tends to transfer wealth from productive activities/people to unproductive ones, thus perpetuating the problem of debt: Because we’re unproductive (empty strip malls and repaved highways), we need more and more debt to maintain our standard of living. But we’re only borrowing that standard of living from our children.

Yesterday was a sad day indeed: The Federal Reserve said it will “print as much money as necessary to revitalize growth.” As I’ve pointed out, this won’t revitalize growth, as it creates nothing but more dollars. What they’re really saying is “We will borrow as much as necessary from your children’s standard of living to keep things going today.”

Congress and the President stress that we must “share the wealth.” By this, they mean to take our children’s (perhaps the most productive assets this country has) wealth away and use it to bail out bad banks and companies (who have proven they’re unproductive).

It is ironic (as Cowboy and Phanuthier astutely point out) that equities actually become a decent store of value if/when inflation really kicks in. As long as you don't lose more on the currency than you gain on the equity....

Thus in terms of the market, in light of the MASSIVE amount of money (in their own words 'virtually limitless') being pumped into them by the US government/fed, I start to look at equities bullishly even if the value they represent does not justify it. The big question is in which currency to price those equity plays (as I posted an article about a while back)? Japan (because they have been going through this for years?)? Canada (because we have been a bit more prudent with government spending than most)? It is something I wish I knew the answer to but is beyond my knowledge base....



Claeren.


(PS - The same thing applies to home prices as well. High ratio loans, just like the 40-year/0-down ones exploited in Canada, merely created more money in the system and raised prices. What it never did was raise the underlying value (or 'stored wealth') of those homes. Leaving people owing/paying a lot of money without getting much in terms of value. Likewise to the general economy, the party eventualy ends and no more money can be added to the system, a situation we have seen play out badly in America, roughly 2 years before it hits here...)

[jammies]

Very well articulated Claeren. I think much the same as you do, although you are obviously much more knowledgeable about the details than I.

To sum up my feelings: Everybody wants more of the pie, but nobody wants to make pie, so we buy cheap pie from the rest of the world and put it on credit. When the credit looks to be running out, we up our credit limit and merrily keep on ordering pie, pie, and more pie.

The day will come, however, when the last bit of credit is used up, and then there's going to be a shortage of pie like you don't want to even imagine. Then it'll be off to the kitchen with our fatbodies to make our own damn pies, and by then we'd better hope we haven't forgotten the recipe.

[Cowboy89]

Originally Posted by Claeren

It is ironic (as Cowboy and Phanuthier astutely point out) that equities actually become a decent store of value if/when inflation really kicks in. As long as you don't lose more on the currency than you gain on the equity....



Claeren.

Very true. Lets remember why Equites perform better in inflationary times, because they are much more flexible and nimble in achieving a real rate of return due to their more efficient allocation of the means of production. We should never forget this fact especially when talking about government sponsored stimulus. Even so, if the 1970s stagflation example unfolds again in the 2010's, equities could be more of a loss cushion than a growth vehicle. In 2020 (epecially if the OCED gets serious about GHG emissions as well as experiences stagflation), your scenario could prove true where your equities could be worth three times what they are today, but worth less in real terms.

[Cowboy89]

Originally Posted by jammies

Very well articulated Claeren. I think much the same as you do, although you are obviously much more knowledgeable about the details than I.

To sum up my feelings: Everybody wants more of the pie, but nobody wants to make pie, so we buy cheap pie from the rest of the world and put it on credit. When the credit looks to be running out, we up our credit limit and merrily keep on ordering pie, pie, and more pie.

The day will come, however, when the last bit of credit is used up, and then there's going to be a shortage of pie like you don't want to even imagine. Then it'll be off to the kitchen with our fatbodies to make our own damn pies, and by then we'd better hope we haven't forgotten the recipe.

That's exactly right. The 1980s, 90s, and early 2000s was a period of time in which 'keeping up with the Joneses' was funded by cheap and readily available credit as opposed to proportional increases in productivity. So to put it boldly everyone wanted to live like a millionaire, but did so while making thousands. Last 20 years: Want a dream vacation, a new home, a new TV, don't save up, work harder, or get a better job, just borrow with a new low introductory rate of XX%. Generically speaking, quite frankly if you were making payments on anything except for your mortgage and maybe a car (Even then how may people really 'need' to drive a new car to the point at which it costs you financially), you had no business posessing what you were making payments towards relative to what you make.

[Bobblehead]

I think something has been left out of the discussion.

The multiplier effect of the credit.

The oodles of credit of the last while had already artificially inflated the money supply. All the new instruments (Credit Default Swaps (CDS), and so on) have been "invented", lots of wealth was created, yet the inflation rate has been under control.

Now the house of cards has fallen down, and this will result (has resulted) in the massive shrinkage of the money supply. Ongoing concerns need money and can't get it.

Feds are cranking out the money, and it is because they are fighting deflation.
Fear of deflation > Fear of inflation.

This isn't to say that anyone in this thread is wrong. With the added cash supply, all other things being equal this will result in inflation. But all other things aren't equal. Until the current credit crisis is averted, worrying about inflation is like worrying about your University grades while you are busy failing high school.

[flamesfever]

I noticed growing up in the 50's and 60's in Ontario that the whole province runs on salt. The salt causes cars to start showing rust after 3 years, so everyone thought they had to have a new car every 3 years.

I also reasoned at the time that if you consider the profit from an average family over a 3 year period, that all the profit was used buying a new car every 3 years. Therefore the average family were forgoing the building of wealth to keep the car makers in business.

[Bend it like Bourgeois]

Originally Posted by Claeren

For example your "8%" growth, you really think America is producing 8% in additional REAL productive wealth each year?

America maybe not, but the companies in the Dow, for sure this is possible. 2% productivity growth, plus population growth is probably enough to do the trick.

There's a lot of smarts under your tinfoil hat and in what you say, but not everything relates back to the downfall of civilization. Sometimes a cigar is just a cigar.

[Nancy]

Add Toyota to the car companies bleeding red ink. It is predicting it's first ever operating loss of about $1.7 billion. They should learn to stop making cars that suck.

[MoneyGuy]

Originally Posted by Nancy

Add Toyota to the car companies bleeding red ink. It is predicting it's first ever operating loss of about $1.7 billion. They should learn to stop making cars that suck.

Are you serious?

[Thunderball]

Originally Posted by Nancy

Add Toyota to the car companies bleeding red ink. It is predicting it's first ever operating loss of about $1.7 billion. They should learn to stop making cars that suck.

Insane really. They don't even have out-of-control labour costs like the Detroit 3.

I suspect Nissan will be next to announce a loss. Honda is probably hiding a loss in its auto sector, but using its subsidiaries to hide it. Its not a matter of building lousy cars... its a matter of building expensive, non niche vehicles that fewer and fewer people can afford.