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Thread: Hope you 'investors' aren't...

  1. #1
    Senior Member Uncle Bill's Avatar
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    Default Hope you 'investors' aren't...

    ...getting sucked in by watching the financial talking heads on the cable channels. Here's a story about one of these so called 'economists', that the DR editor wonders how she can keep her job?

    At least with a bad weather prognostication, which happens frequently I admit, you may only get rained on your parade. Forcasters of financial dealings, like this airhead, can cost you beaucoups bread.

    Caveat emptor. UB

    The Curious Case of the "Normal Recession"
    by Bill Bonner
    London, England


    Nothing much happened in the markets yesterday. Stocks up. Gold up. Oil up. Bonds up. Dollar down.

    But listen up...an important announcement:

    The bear market/credit crisis/depression is over!

    How do we know? Abby Cohen says so. We read this in Bloomberg the other day:

    "U.S. financial markets have been moving 'back towards normal' since March, said Abby Joseph Cohen, Goldman Sachs Group Inc.'s senior investment strategist, in an interview.

    "'Much of what we can recognize as happening now is really a restoration of where we should be,' Cohen said 'This situation is much closer to normal than any place we have been over the last 18 months.'"

    Bloomberg does not mention it, but soldiers had more of a fighting chance under George Armstrong Custer than investors following Abbey Joseph Cohen. In August of 2007, she told CNBC that the S&P 500 would rally to 1,600 by December. Then, in December, she predicted the S&P 500 index would reach 1,675 in 2008. In fact, the S&P 500 traded as low as 741.02 by November 2008.

    We wonder what they put in the water where Abby Cohen lives. The woman always thinks stocks are going up, of course...but there is nothing odd about that; she's paid to think stocks are going up. Of course, we know better. We wouldn't touch stocks with a ten-foot pole.

    But why does she think the situation is close to normal? What's normal in her world? Deficits at 13% of GDP? GM goings bust? US presidents running auto companies and banks? Bailouts...boondoggles...and baloney equal to the entire nation's output?

    If this is 'normal'...what's not?

    We went to dinner with a group of Americans last night - at one of London's oldest gentleman's clubs. Women are not allowed at the bar or in many other parts of the club, but they may come for dinner in the main dining room. Included was a young woman:

    "I have a lot of friends who are just getting out of college. None of them has gotten a good job. Instead, they're all moving back in with mom and dad. And some of them are in their mid-'20s... It's very depressing."

    It's a phenomenon known as household compression. Households expand and contract with the credit cycle. The '80s, '90s and early '00s were a time of household expansion. Families broke up. Men and women separated, setting up house in different places. The average house size went up...but the average number of people per household size went down!

    Now, those trends are reversing. Children are moving in with parents...spouses are moving back in with each other...old folks are staying put. Multi-generational families are becoming more common.

    We don't have any statistical proof of this. But it makes sense. And it's not a bad thing. We've had a multi-generational household for many years. Grandmother, parents and children all in one house. Everyone seemed to benefit from it.

    From around the world comes more evidence that the recession isn't ending soon.

    Bloomberg reports:

    "German exports in April were 4.8 per cent lower than in March, and 28.7 per cent down on a year earlier, official figures show - the steepest annual fall since records began in 1950, although officials said that April 2008 had been exceptionally buoyant."

    Meanwhile, from China, comes news that the world's most dynamic economy has lost some of its old vim and vigor. Chinese exports are down too - 26%:

    "China's exports fall by record after global demand dries up," reports Bloomberg.

    But what's this? The New York Times says China is on a "commodity buying spree."

    How could China import so much copper and iron ore when it's not exporting finished products? Iron ore imports into China, for example, are running 27% ahead of 2008. What are they doing with the raw materials?

    This story from Maritime Global News helps explain it.

    "...could be the fact that domestically produced iron ore in China is of a rather poor quality and quite expensive when compared to spot imported prices. Another explanation could be that of speculators getting into the import market to try and get hold of 'cheap' iron [ore] that would possibly be required under the Chinese government's US$586bn stimulus plan. And a third could be the impending conclusion of the iron ore contract price negotiations."

    Whatever the explanation... China may be importing raw materials, but it is not selling them. Neither is Germany. And neither is Japan, whose economy is shrinking at a 14% rate. So here's a question for Abby: How can you have a global rebound when the world's three biggest exporters aren't exporting?

    They're not selling because the usual buyers aren't buying. Consider this:

    "Hiring Plans Stick at Record Low," begins a MarketWatch story. Employers' plans to add jobs were at an all-time low in the second quarter. Now, according to Manpower's latest survey, they're still at a record low.

    And today comes word that foreclosures topped 300,000 last month - for the third month in a row. At this rate, three and a half million houses will be foreclosed this year.

    No jobs, no income. No income, no buying. No buying, no real boom. No real boom, stocks head down. Why complicate it?


    "Just when you thought 'too big to fail' was going out of style:



    Ohh...and they've already got a great, devious name!

    "BlackRock announced a $13.5 billion merger with Barclays Global Investors today, making the former company the biggest money manager in the world. BlackRock will soon oversee $2.7 trillion in assets, making it roughly twice the size of State Street or Fidelity, its closest competitors. That's $2.7 trillion under management...with a market cap of just $34 billion.

    "If that marriage of assets to equity wasn't unnerving enough, BlackRock will also pick up iShares in the deal. That makes the new world's biggest asset manager also the world's biggest wielder of exchange-traded funds (ETFs) - the rabidly popular, complex derivatives (many of which track other complicated derivatives) that millions own, but very few truly understand. Hmmm..."

    Gradually, Americans are waking up. They are rubbing the sleep from their eyes and wondering what they were thinking when they gave the Bush and Obama administrations their credit cards.

    "This isn't a temporary stimulus but a ramp-up in debt followed by a greater explosion in spending and debt," said Congressman Paul Ryan to Fortune magazine. "The bond markets will come after us with a vengeance. We're playing with fire."

    Playing with fire? Yes...in a refinery!

    Fortune says that over the next 10 years federal deficits will add $90,000 in debt to the average tax-paying household's burdens, bringing the total to about $155,000 per household. Fortune is underestimating. It's likely to be much, much more. We hope you're prepared, dear reader.

    Obama may talk about taxing the rich. In fact, there aren't enough rich people to pay the tab for US spending; the middle class will have to put on the yoke.

    "The revenues needed are far too big to raise from high earners," says Alan Auerbach, an economist at the University of California at Berkeley. "The government will have to go where the money is, to the middle class." The most likely levy, says Fortune: "a European-style value-added tax (VAT) that would substantially raise the price of everything from autos to restaurant meals."

    But wait, there's more...

    The American middle class can't really pay these debts.

    They were living hand to mouth even in the Bubble Epoch. Now, jobs are disappearing and incomes are going down. How would they possibly keep up with the interest, let alone pay down the principal, on an additional $90,000?

    We quoted estimates that taxes would have to go up by 60% to balance the budget by 2019. As we said then; that ain't gonna happen.

    Instead, the US is headed for bankruptcy. And that begins with higher interest rates, as lenders try to protect themselves from the risks of default and/or inflation.

    Fortune: "The risk that the U.S. will follow Britain, which was warned recently that it could lose its triple-A bond rating, has risen from virtually nil to a real possibility, judging by the sevenfold jump in the cost of insuring Treasury debt in the past year. The big borrowing is already spooking the bond markets. This year rates on 10-year Treasuries have jumped from 2.2% to 3.7%. A further increase in rates would aggravate the situation, raising the interest costs on the debt and increasing its size even more."

    Allan Meltzer, the distinguished monetarist at Carnegie Mellon: "I predict far higher rates over the next few years."

    "Under Obama the Bush trend keeps going, but this time on steroids..."

    Bill Bonner
    The Daily Reckoning
    When the one you love becomes a memory, that memory becomes a treasure.

  2. #2
    Senior Member Franco's Avatar
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    I'll sit out of the market and see how bad inflation becomes. With the out of control spending it should get really hairy. Dollar won't be worth wiping one's ass with after Obomononics.

    The stock market today is for suckers.
    The Libertarian Party believes that all persons are entitled to keep the fruits of their labor. A call for the repeal of the income tax, abolishment of the Internal Revenue Service and all federal programs and services not required under the U.S. Constitution. We support the passage of a "Balanced Budget Amendment" to the U.S. Constitution, provided that the budget is balanced exclusively by cutting expenditures, and not by raising taxes. LP.org

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    UB - Franco - what would you do to combat inflation as a little investor? which is what we all are. Sitting it out or putting it in a mattress don't work, but if you'd like, you can look at the performance of GLD &/or SLV to see what putting it there would do. I'll await your answer.
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    Someday your life will flash before your eyes. It's your responsibility to make sure it's worth watching!

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    Senior Member Uncle Bill's Avatar
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    I'm too old to be doing ANY investing at this time. But I am holding my gold and silver. Bought enough so it's not a worry if it decides to drop. I'd left the stock market in the dot-com era, and bought lots of yellar stuff at $330-$350, and the other shiney stuff at $4-6, so am in good shape.

    I did get sucked into some of that commodity shuffle, but got back out with just a small burn, mostly with oil. None of it interests me anymore.

    If I were younger, and had an itch, I'd be looking into local real estate. I think if you can get into these government auctions, you can reap some great bargains, especially if you are a fixer-upper, or have a crew of family that is looking for some working income. I have my youngest son's father-in-law doing just that, and has done, and continues to do very well.

    I also believe the TV stock pushers are just following each other, making a filler show, because they need to to keep their job. Almost all, with very few exceptions, are blowing smoke. But ALL that are hyping stocks OR bonds at this precarious time, are really rip-off artists in the same vein as the old fly-by-nite snake oil salesmen. They all have gimics, which will be proven to make the vigorish for the sales crowd, but leave you skinned.

    FWIW, Marvin, you could do a lot worse than holding for now. I MIGHT be more inclined to believe these yahoos if the Dow wasn't so damned manipulated by throwing off what's no longer to their benefit, and adding whatever will make it look like it's moving in the direction they need it to go, so they can sucker in the morons. Even with their more glamorous stocks now comprising their "top-30", it will still drop below 5K before it's anywhere near the bottom, and providing an opportunity to "invest". Until then, it's pure speculation, and azz burning time.

    UB
    When the one you love becomes a memory, that memory becomes a treasure.

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    Senior Member Mike W.'s Avatar
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    Meanwhile the market has moved 40% off it's March low.....

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    Senior Member Uncle Bill's Avatar
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    Quote Originally Posted by junfan68 View Post
    Meanwhile the market has moved 40% off it's March low.....

    How is YOUR portfolio doing? What's included in that 40%?

    Do you have lots of bank stocks? Doesn't take many to show even a 100% rise eh?

    Remember the .COM era? When you could buy Enron for pennies compared to where they were...and many did? Just think of the PERCENTAGE of increase those kind of 'investments' would show.

    Percentages, used as a meand for measurement, are the biggest rip-off that can be foisted on anyone. They can be made to look just like the author of those stats what them to look.

    I always love the pheasant count percentages, issued each year by the federal wildlife orgs. Sodak ALWAYS has the smallest PERCENTAGE, because the actual numbers are too large. States with the least population, will, with just a few more numbers total, have a large percentage increase.

    So, by themselves, percentages are very misleading. Unless you know the actual numbers of what they are representing, they can be practically worthless.

    Hope you are invested wisely, because in this current environment, one bit of lousy news can cost you a bunch, especially if it's among those 'fast-rising' speculative offerings that the talking heads like to promote.

    UB
    When the one you love becomes a memory, that memory becomes a treasure.

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    Senior Member Franco's Avatar
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    Quote Originally Posted by Marvin S View Post
    UB - Franco - what would you do to combat inflation as a little investor? which is what we all are. Sitting it out or putting it in a mattress don't work, but if you'd like, you can look at the performance of GLD &/or SLV to see what putting it there would do. I'll await your answer.
    Too late to buy precious metals, price is too high. Two years ago would have been fine.

    Today? A 1% return is better than loosing money. I've got most of mine since 2001 in a Money Market. That is what money I haven't invested in real estate. Good time to buy raw land and rental property, especially if you have enough cash to finanace less than 40% of the purchase price
    The Libertarian Party believes that all persons are entitled to keep the fruits of their labor. A call for the repeal of the income tax, abolishment of the Internal Revenue Service and all federal programs and services not required under the U.S. Constitution. We support the passage of a "Balanced Budget Amendment" to the U.S. Constitution, provided that the budget is balanced exclusively by cutting expenditures, and not by raising taxes. LP.org

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    Senior Member Mike W.'s Avatar
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    How is YOUR portfolio doing?
    I'm only up about 8% this year, but then again I've been about 70% cash, so my equities are up between 30-40%. But I was only down 6% last year, against a market down 40%.


    Do you have lots of bank stocks? Doesn't take many to show even a 100% rise eh?
    I actually do have some financials. And energy.


    Percentages, used as a meand for measurement, are the biggest rip-off that can be foisted on anyone. They can be made to look just like the author of those stats what them to look.
    I'm talking about the market stats. Emerging markets up 30-40% YTD, NASDAQ up 18%, S&P 500 up 40% from the March low of 650. They are what they are my friend.

    So, by themselves, percentages are very misleading. Unless you know the actual numbers of what they are representing, they can be practically worthless.
    Not quite. I'm referring to the most liquid investible indices, not some random penny stocks that have gone up 10x.



    But then again, I've been an investment advisor for 18 years, and manage over $400 million of my clients' money.


    The biggest mistake investors make year in and year out is to work off of yesterday's playbook. In this case, yesterday's playbook was to be defensive. This year's playbook so far has been to take on risk. The million $ question is to be where the ball will be next year, not where it is now.

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