Dow down 500!

Discussion in 'Finance, Investing & Economy' started by Anthony, Feb 27, 2007.

  1. wolfp10

    wolfp10 Member

    Sep 25, 2005
    When does the Fed release their decision in interest rates?
     
  2. M

    M Member+

    Feb 18, 2000
    Via Ventisette
    Just over an hour ago... which is why the markets have been dropping like a rock since that point.
     
  3. wolfp10

    wolfp10 Member

    Sep 25, 2005
    And here they come back again!

    Too much emotion is driving investors.
     
  4. Wingtips1

    Wingtips1 Member+

    May 3, 2004
    02116
    Club:
    Liverpool FC
    there is WAY TOO MUCH emotion in the market.
    if the Fed were overly concerned about the mortgage 'crisis', it would be acting on, or at least dropping hints towards, it. i think we should see some normalcy return over the next week or two. shouldn't be too much info related to the 'crisis' coming out in the next few days.

    i'm still on for my prediction of 14,800 for the Dow at year end. stocks closed at 15.3 times forward earnings, which is well below historic levels and also considering that most of the Dow derive more than 50% revs and profits from abroad, where growth is averaging 5%.
     
  5. Flyin Ryan

    Flyin Ryan Member

    May 13, 2004
    Nat'l Team:
    United States
    I'll take that bet on your prediction of 14800.

    BNP Paribas announced this morning they were halting withdrawels from three hedge funds worth a combined 3.8 billion dollars invested in U.S. MBS. The European Central Bank put 95 billion euros into their banking system to cover losses from American-originated investments and the Federal Reserve put 24 billion dollars in theirs.

    Dow Jones down 387 points today.
     
  6. Anthony

    Anthony Member+

    Chelsea
    United States
    Aug 20, 1999
    Chicago
    Club:
    DC United
    Nat'l Team:
    United States
    It did not drop quite as bad today, but I have had the single worst day of investing in my entire life today.

    Only one of my stocks registered a gain.

    The rest are in three catagories

    Down
    Lower
    Crapper
     
  7. Footer Phooter

    Jul 23, 2000
    Falls Church, VA
    I have category 4: Citigroup
     
  8. CrewDust

    CrewDust Member

    May 6, 1999
    Columbus, Ohio
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    Do yourself a favor, on bad days don't look at your portfolio. I rarely look at it on bad days. Seeing those losses may cause you to make an emotional sell of a good stock.
     
  9. CrewDust

    CrewDust Member

    May 6, 1999
    Columbus, Ohio
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    Ha, I worked at WorldComm.
     
  10. wolfp10

    wolfp10 Member

    Sep 25, 2005
    Back in the day, a coworker of mine put his daughters college savings into WorldComm.

    Today, the commissions to sell the stock are more than the value of the stock.
     
  11. CrewDust

    CrewDust Member

    May 6, 1999
    Columbus, Ohio
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    Should have sold in Feb 00.
     
  12. Wingtips1

    Wingtips1 Member+

    May 3, 2004
    02116
    Club:
    Liverpool FC
    the Dow up 300 yesterday!
    and today, Q3 growth was readjusted and comes in at 4.9%.
    WOO CAPITALISM!
     
  13. ratdog

    ratdog Member+

    Mar 22, 2004
    In the doghouse
    Club:
    Chicago Red Stars
    Nat'l Team:
    United States
    More like "WOO GOVERNMENT SPENDING! WOO DOLLAR DEVALUATION!", at least as far as the 3rd quarter is concerned. After all, exports, government spending and inventory buildup provided most of the growth with consumer spending lagging all of those.

    Do you expect 4.9% growth this quarter? I don't. Why? First, almost all the consumer spending strnegth was concenttrated in July. In October, consumer spending was basically flat. Second, While the Bush administration continues to waste an amazing amount of money in Iraq, state and local government spending (which is larger than federal spending) will suffer due to tax decreases caused by falling property values. Third, the inventory buildup was mostly due to the automakers stocking up in expectations of slower production and possible strikes. Fourth, while currency devaluation can be addicting to governments that know nothing about economics, the benefits are not sustainable. Eventually, our trading partners will be affected by our slowdown and (particularly China) by their own tighter money policies. Finally, while there was a belated, brief and not overly impressive gain in civilian worker compenation from 2Q06 through 4Q06, compensation growth is again on the decline along with continued YOY growth in the participation rate and rising unemployment in 2007. All of this is despite the Fed lowering rates twice this year and with everyone expecting tens of thousands more Amercian families to lose their homes next year to join those who've already lost them this year.

    As far the stock markets, if things are so rosy then why are stock prices rising not on expectations of future growth based on production but based almost entirely on the prospect of another Fed rate cut?
     
  14. Matt in the Hat

    Matt in the Hat Moderator
    Staff Member

    Sep 21, 2002
    Brooklyn
    Club:
    New York Red Bulls
    Nat'l Team:
    United States
  15. ratdog

    ratdog Member+

    Mar 22, 2004
    In the doghouse
    Club:
    Chicago Red Stars
    Nat'l Team:
    United States
    Do you care to add anything of substance on the topic or are you content to just cry like a girl whenever someone brings facts and reason to a discussion?
     
  16. Sachin

    Sachin New Member

    Jan 14, 2000
    La Norte
    Club:
    DC United
    Hey Matt & ratdog, this isn't the politics forum. There is a speech code of civility here.

    Anyway, to answer your questions in no particular order:

    1. You're overstating the subprime crisis on home ownership.

    From NPR

    The subprime crisis will have more effect on Wall St. than Main St. If you have good credit and are willing to live within your means, as most Americans do and are, credit is still cheap.

    As for the stock market, the rate cuts mean debt financing for companies become cheaper, leading to more companies to use debt to finance growth instead of equity. As companies issue more debt, their stock price goes up because debt financing lowers the cost of capital, which lowers the rate of return required for profitability.

    As for the greenback, there is strong evidence that this downturn is cyclical. Other econonomies are growing faster and offering higher interest rates to investors, which would naturally lead to capital inflows into those economies.

    Also, there is strong evidence that the dollar's swoon comes from a peak. Don't forget, the value of the dollar nearly doubled in the 1990s and the current value is still far above the value in mid-80s.

    Growth expectations: I don't expect the economy to continue to grow at a torrid pace, and quite frankly, hope it doesn't. Periodic small recessions ward off large depressions by easing capital spending.

    Sachin
     
  17. ratdog

    ratdog Member+

    Mar 22, 2004
    In the doghouse
    Club:
    Chicago Red Stars
    Nat'l Team:
    United States
    According to a Goldman Sachs estimate, the average number of home purchases per year since 1995 has been about 1 million and that figure must be weighted towards more recent times, given the low interest rates, lax credit standards and, er, "aggressive" tactics by real estate and mortgage brokers. So 1.5% to 2% is still, as I said, even after factoring out properties bought for strictly speculative purposes, tens of thousands of American families losing their homes. And that's with historicaly low interest rates! Of course, unlike past housing booms, this latest one was fuelled by new, much riskier types of loans. We've never had a situation when so many Americans are sweating out their next ARM rate hike.

    And it's not even just about home ownership. It's about the knock-off effect that the housing downturn has, is, and will have on the rest of the economy. From this past Friday's LA Times:

    "The mortgage meltdown is taking a rising toll on the broader economy, increasing pressure on the Federal Reserve to slash interest rates for a third time next month in hopes of averting a recession.

    Homeowners will see their property values sink by $1.2 trillion next year, and 524,000 fewer jobs will be created -- both a result of the trouble caused by loan defaults and rising foreclosures, according to a report released this week for the U.S. Conference of Mayors. The fallout is weakening consumer spending, and auto sales next year will be their worst since 1998, according to the study by research firm Global Insight.

    The Wall Street banks that provided mortgage loan funding were among the early casualties. Merrill Lynch & Co. reported a $7.9-billion loss, and Citigroup Inc. says it could swallow up to $13 billion in red ink. All told, Wall Street will take a $400-billion hit because of loan defaults, according to one estimate. At least one analyst pegs the damage at nearly $500 billion.

    As big as those numbers are, however, they don't begin to cover the broader damage to the economy from loans gone bad. Real estate agents and loan officers are out of work, of course, but so too are landscapers and swimming-pool contractors. Retailers are feeling the pain too. As rising defaults and foreclosures push home values down, homeowners are less willing to tap their equity -- if they have any left -- to finance big-ticket purchases, such as new cars and kitchen cabinets. State and local governments will suffer, too, as revenue from sales and property taxes slows or declines.

    Trying to calculate the costs is nearly impossible, economists say, in part because the crisis is still unfolding.
    "

    Have you seen any figures on consumer debt? Americans are emphatically not "living within our means". Our savings ratio is negative. We're spending more than our incomes and we're net sellers of securities. And we're adding more debt.

    The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. In $Q82 (15 years ago) DSR was 10.8. In 2Q07 it was 14.29. And remember, that's just the required payment!

    The financial obligations ratio (FOR) measures the amount of consumer debt in the DSR but adds to this measure such things as car lease payments, rental properties, property taxes and homeowner's insurance. As of July 2007, FOR ratio stood at 18% for homeowners and 26% for renters. What this data tells us is that the typical homeowner spends around 18% of their disposable income just to own their homes and cars, while renters spend over 26% of their income on these same types of debts.

    There is also evidence that as the home equity ATM was shut down, Americans turned to high interest revolving debt to finance their latest spending and that, frankly, is a little scary.

    It looksm however, like Americans may be forced to start living within their means:

    http://www.msnbc.msn.com/id/21838083/

    http://money.cnn.com/2007/11/28/news/economy/middle_class/index.htm?postversion=2007112812

    http://news.yahoo.com/s/ap/20071121/ap_on_bi_ge/holiday_shopping;_ylt=Ah7.MTvEahNhHgoNoFCc4Qus0NUE

    There are a few things wrong with your argument.

    First, we're in a credit crunch and nobody, not even Bernake, knows how bad it is. We don't know what we're facing because this isn't 1970 any more when all you had to do was look at a bank's balance sheet to know exactly what they had or didn't have. These days, we have all these ingenious derivatives that do a wonderful job of spreading risk around the players within the financial system but do not lower to total risk to the entire financal system itself. This is why even the big money center banks were desperately trying to hide their exposure to derivatives and other potentially bad debt. It's also why inter-bank lending rates have risen - because banks don't know what bombs lurk in each other balance sheets and the level of trust has eroded.

    Seocnd, much of the run-up in stock prices over the past few years has been due to stock buy-backs caused by easy credit. That LBO party is now over. From the WSJ a few days ago:

    "...Now, high-profile companies are cutting back on buybacks, and some wish they held on to the cash they gave back to shareholders. "In an environment like this, stock buybacks take second place," said James Dimon, chief executive of J.P. Morgan Chase & Co., in a conference call last month.

    In recent weeks, Countrywide Financial Corp., which spent $2.4 billion in the past year to repurchase its shares, was forced to sell a chunk of its stock to raise money. Office Depot Inc., which bought back 5.7 million shares for an average price of $35 a share, said on its earnings call yesterday that it would like to buy its shares at the current price of $17.49, but can't. Office Depot fell 7% yesterday.

    Home Depot Inc. said it will delay the rest of its massive stock-buyback plan, while investors in Citigroup Inc. have turned nervous about the health of the bank's balance sheet and capital levels, prompting management to say it isn't in the position to repurchase shares.

    The reversal of the trend exposes a flaw in the buyback strategy -- many companies bought high and are selling low. Now, some investors worry that dividends and buybacks will go from a positive for the market to a negative, as a slowing economy and deteriorating balance sheets put pressure on a host of companies.

    Investors usually embrace buybacks, even if those shares are richly valued, because they typically signal that companies are generating a lot of cash. Compelled by investor demands, however, many companies borrowed money through various forms of "recapitalization" to buy back stock. The added debt has become a burden to an increasing number of companies. Share buybacks and leveraged buyouts have "accounted for downgrades of about a dozen investment-grade companies," says Nick Riccio, a corporate-debt-ratings analyst at Standard & Poor's.

    Home Depot, for example, was downgraded in July by S&P to a triple-B-plus rating from A-plus. The rating agency specifically cited Home Depot's plans to finance a $22.5 billion share buyback through the proceeds of an asset sale and $12 billion in debt as the main reason for the downgrade. Last week, Home Depot, which already spent $10.8 billion on buybacks in the first three fiscal quarters of the year, said it believes "it is prudent to take a cautious stance with regard to the completion" of the buyback program.
    "

    Even more convincing is the fact that we consistently run trade deficits with the rest of the world. We have to sell our dollars and buy other currencies to pay for those goods, driving down the price of the dollar unless governments and central banks intervene or some current event temporarily makes the US dollar a "safe haven".

    Anyway, I don't deny that devaluing your currency may have some short-term benefits like making your debt cheaper - and boy do we have a lot of debt! And it boosts exports, although not enough to overcome our structural trade deficit disorder. But ultimately, it is inflationary and with a slowing economy, the last thing middle-class Americans need is 1970s-style stagflation. Currency devaluation is like borrowing or taking recreational drugs: not so bad when done prudently, but then it can be very hard to stop sliding down that slippery slope.

    Well, even those America-hating bolsheviks over at Fortune are now dropping the "r" word:

    http://money.cnn.com/2007/11/23/magazines/fortune/barr_recession.fortune/index.htm

    Anyway, my biggest problem with Matt and wingtips is that they sacrifice the accuracy of their economic views on the altar of their partisan political ideology. Their triumphalism renders them unwilling to acknowledge any evidence that anything could possibly be suboptimal in either the larger economy or for most working Americans.

    I think that the Fed will ignore the inflationary impact of the falling dolar and lower rates enough to avoid an outright recession but that avoidance will have less to do with "WOO CAPITALISM" or the supposed wonders of the self-correcting market than it will with government action. And that's what wingtips and Matt want to avoid having to admit.
     
  18. saosebastiao

    saosebastiao New Member

    May 22, 2005
    What you don't seem to understand about any viewpoints that you do not share is that things that look bad to you may look good to other people. A non-related example is this: A person who is afraid of global warming will likely be glad that gas prices are rising, whereas someone who drives 70 miles to work will be outraged at gas prices.

    I personally like most of what you have talked about, for my own personal reasons. First of all, I have not bought a house yet. I was planning on buying one this month, but after what you wrote, I might wait another 6 months to a year. This is GOOD news to me.

    Furthermore, stock prices are dropping rapidly. Many stocks are now devalued because of negative momentum. That may not be good news to stock owners looking to cash in, but it is excellent news to stock buyers (me!).

    From an economic perspective, I like how spending has been dealt a blow. It means people are forced to look at reality instead of a persistent and seemingly endless illusion of prosperity with no regard to productivity.

    I also like that banks have been dealt a huge blow. They will be forced to reform their lending practices, and they most likely will have learned from their lemming mentalities: They don't have to do something because another bank is doing it. This means they will likely exhibit more stable forms of growth at least for a few more decades until our generation retires.

    Plus...a recession in a market economy has this tendency to stimulate innovation. It has many times before, and I am looking forward to the consequences of this cutback.
     
  19. ratdog

    ratdog Member+

    Mar 22, 2004
    In the doghouse
    Club:
    Chicago Red Stars
    Nat'l Team:
    United States
    What you don't seem to understand about this argument is that wingtips, Ted and Matt first spent the first years of the Bush administration trying to sell the snake-oil of the self-financing tax cut and trying to claim that anything good that happened in the economy was due to tax cuts. When the Fed started raising rates, I told them exactly what would happen and it has happened but they tried to deny the turn despite the mounting evidence. I'll give Matt credit for eventually acknowledging that people would be in pain as the housing market fell victim to higher rates but then he simultaneously tried to say both that things have never been beter for working Americans AND thathe looked forward to profiting from those same working Americans losing their very homes. And he could not see the contradiction there until I pointred it out to him. So no, it's not a case of two people have differing but equally valid views of the same events. It's that they let their partisan politics dictate their view of reality and if objective reality contradicts what they want to be true, then it's reality that goes out the window, they start spouting inaccurate statements and retreating to whining about how anyone who doesn't see things they way they do is a "pessimist".

    BTW, it doesn't matter to me which of the two halves of our power structure is in office. I won't suddenly change my tune in 2008 just because the Dems take the White House as well as Congress, if they do so. I would expect the Dems to merely correct some of the worst excesses of Reep irresponsibility and bush's attack on the middle class. But I'd be shocked if they did anything meaningful about any of the imbalances in our economy. If the economy is poor under the Dems, I'll point it out just like I've pointed out how Bush has hardly been the economic genius that wingtips or Ted think he is.

    So you admit to not being able to see beyond you own immediate interests rather having enlightened self-interest that takes into consideration that what is bad for others may indirectly but eventually turn out to be bad for you as well. OK. But let me give you an unrelated example that is rather the reverse of your thinking. Henry Ford, whatever his other faults and dubious practices, could have squeezed his employees as tightly as he could like all his competitors. After all, the more he squeezed them, the more went into his own pocket. Right? But Ford paid his employees TWICE the prevailing wage, started the 40 hour work week and a minimum wage. Naturally, Wall Street railed against him. I guess he had no idea what his interests were. The thing is, not only did he thereby reduce costly turnover and attract better employees but he enabled his workers to afford his cars and thereby boosted the Detroit economy and provided a model market for his product. His recognition that what was good for his workers might also indirectly but eventually be good for him contributed to his company growing into one of the big three while many others failed or were gobbled up by rivals.

    The US stock markets have been very volatile over this past year because they've been driven more by short-term events than by long-term views of earnings growth. We're still ahead of where we were a year ago despite the fact that the economy has been slowing. Of course, if you go back five years, the latest gyrations become mere blips that signal uncertainty:

    http://chart.finance.yahoo.com/c/5y/_/_gspc

    The LBO party may be over but I'm hardly expecting a stock market crash.

    I agree. Now please tell that to Matt and wingtips.

    Two words: moral hazard.

    OK, now some more words... The banks won't learn because they don't have to learn because they know the Fed will always bail them out. If the banks were gouing to learn the lesson, they'd have learned from the either the S&L collapse or the foreign debt debacle both of which happened 20 years ago. They didn't learn then and they won't learn now.

    Innovation typically comes from investment. A recession -particularly one driven by a credit crunch- chokes off investment. Anyway, I'd like to see the study showing that innovation increases faster than trend during recessionary periods than during other periods.
     
  20. bostonsoccermdl

    bostonsoccermdl Moderator
    Staff Member

    Apr 3, 2002
    Denver, CO

    I still dont see the contradiction. Perhaps it comes down to defining why certain people are in pain, and whether or not irresponsible spending got them in that place. For those who didnt behave in such a way, there are opportunities.

    As Sachin said, lets not drag other previous arguements into this area from the P&CE. Ted hasnt even posted in this thread, no need to bring him into it.
     
  21. ratdog

    ratdog Member+

    Mar 22, 2004
    In the doghouse
    Club:
    Chicago Red Stars
    Nat'l Team:
    United States
    First, the idea that it's just a few irresponsible jerks who are getting hurt is a myth. Plenty of people who have nothing to do with mortgage lending or who haven't bought homes they knew they wouldn't be able to afford are getting hurt by the ripple effects of the general downturn whether the pain comes from a lost job or increased crime rate in areas with forelcosures.

    Second, the problem is that Matt tried to argue how great things are for working Americans while also bragging about taking advantage of how bad it sucks for those same working Americans. It's like bragging about how happy and satisfied the fanbase is for your soccer team at the same time you're looking forward to the increased space around you from the empty seats in the team's stadium caused by the fans staying away in droves due to the team's poor play.

    If he'd said things were great for him personally and that he looked forward to profiting on the misery, then he'd be accurate. As it is, he contradicted himself.

     
  22. bostonsoccermdl

    bostonsoccermdl Moderator
    Staff Member

    Apr 3, 2002
    Denver, CO
    Fine, rain on it as much as you like.

    If it begins to take on a snarky tone on from either side, it gets deleted.
     
  23. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    Lest RatDog label me a triumphalist...

    I am very concerned that the weakening dollar combined with the credit crisis and a slowing economy could tie Bernanke’s hands, forcing him to raise rates as a recession looms.

    That said, our economy has been proven to be extremely resilient, weathering each shock that the perma-bears have said would bring on recession. They've been singing the same tune for the last 5 years.
     
  24. ratdog

    ratdog Member+

    Mar 22, 2004
    In the doghouse
    Club:
    Chicago Red Stars
    Nat'l Team:
    United States
    Like Matt's was.

    Right?

    Why would the factors listed in your post force Bernanke to raise rates?

    Also, who has been predicting an imminent recession of the past five years running? I can't recall any mainstream economists who were prediciting recession as the Fed was lowering interest rates throughout 2001. I'm pretty sure that even Roubini wasn't predicting a recession in 2002 or 2003 but I guess I'll have to go back and check.

    Meanwhile, I do know that several people both in the MSM new media (practically anyone on "MSNBC", for example) and elsewhere were in denial about the expected effects of the rate hikes in 2005 and who kept on predicting an imminent revitalization in the housing market until into this year when there was no data to support such a prediction. It was funny watching people who normally trumpet the superiority of "the market" suddenly switch gears and try to defend their panglossian vision by arguing the the USA is somehow uniquely immune to... wait fot it... basic normal market forces! In the immortal words of Artie Johnson:

    [​IMG]

    "Verrrrrry interesting."

    Now some those same people have even further politicized economic discussion by lowering the bar of economic growth so much that anything short of another Great Depression will be some kind of victory to crow about. What we should be focusing on is ways to enjoy economic growth and stock appreciation that aren't built on the sand of easy credit. But that would mean investing in Americans and our infrastructure here rather than borrowing money so we can piss it away on useless things. But how to grow a proper economy is an inherently political topic so we'd have to move back to P&CE to follow up on it.
     
  25. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    Because that'd be the logical tool for propping up the dollar and fighting inflation? Think of it like 1980, the Fed will have ponder some serious trade-offs.

    As for the last 5 years, the song goes something like this:

    2002 - The economy isn’t growing
    2003 - Okay, the economy is growing, but it is a jobless recovery
    2004 - Well, the economy is growing and we’re creating jobs, but wages are stagnant.
    2005 - Fine, the economy is growing, we’re creating new jobs, and benefits and wages are rising, but energy prices will put an end to all that.
    2006 - Alright, rising energy prices didn’t sink the economy, but the sub-prime lending crisis will.
    Today - We’re really ********ed, no seriously, we are really ********ed. I'm not kidding this time, we are really, really ********ed.
     

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