Something to think about. According to the Federal Reserve, as of May 10 money in bank and money market accounts has increased to about $9.36 trillion. In May, 2007 this amount was $7.44 trillion!
American's aren't broke, but they are fearful. A substantial part of this money was pulled from the stock market. Take that, Goldman Sachs! People may be fearful, but they aren't stupid.
To give you an idea of how much moolah this is, consider that all of the employer sponsored retirement plans in the U.S. currently total "only" about $2.7 trillion.
Showing posts with label Fear and Greed. Show all posts
Showing posts with label Fear and Greed. Show all posts
Friday, May 28, 2010
Friday, November 7, 2008
Post Election Blues
Well, the presidential election and the primaries are finally over. The Democrats even let Joe Biden out from under his rock, after a time out for bad behavior. I'm sure he's glad to be back.
Note the catchy title. I chose it to honor the color of the party of the winning candidate. Clever, yes?
So now the economists are predicting a deeper than usual recession. Aren't those the same guys and gals who didn't even see most of this coming? So I should listen to them? I think not. I'll continue my own research, and I'll post my conclusions from time to time.
As for the Obama button toter's, I saw this statement by a fan in a WSJ Forum:
"I believe the market will begin to turnaround in the upcoming weeks. President - Elect Obama will lift the spirits of people worldwide, and American Iconic companies such as Coke, Johnson and Johnson, Wal - Mart, etc. will lead the way. The market needed to contract, and shake out the casino/stock analyst. Wall street will regain its stride, as the market starts to respond the worldwide support for American goods. What we have learned is that the American Presidency is more than just a title, it is the measure of the Free - Market. When people believe that the American president is a good person, they respond by buying up American goods".
OK, pass the guy some more cool-aid.
The Onion had a piece on the emptiness facing these people, now that the party is over. What will they do? Maybe go to an orgy in the dorm, or plan an overthrow of some democracy. Is South Korea on the list? Of course, after proposition 8 in California, there is always the Mormon Church to attack. With the power of the web, the opportunities are endless! Onion Video.
To be serious for a moment, I am concerned by the naivete of some of these people. I'm glad they feel good, but feeling good and having confidence is not the same thing. Nothing has really happened yet. We don't even have President elect Obama's design for tackling the problems or a team to do it. In fact, the only thing we do have is most of the same congresswomen and men who got us into this mess in the first place. Wake up America!
The economy will turn around when people again have confidence in the economy. It will turn around when they reach the point that they are certain that a depression is not just around the corner, or if one has arrived, that we have survived it; and when they reach the point that they can trust their money in the stock market, and in the banks. Finally, it will turn around when the herd reaches the point at which they feel secure. We have a long way to go before the guy or gal in the street feels that way. At present, millions have seen a large chunk of their savings vaporize (or someone else's in the case of many home "owners"). However, it is very important to remember that the stock market will turn around before the economy does. So if you see the stock market turning up and staying there, that's a good sign. As for the economy, it will be a year or more before it actually bottoms. That's my guess, sometime late 2009 or early 2010. Sorry to all of you "instant gratification" people out there. Remember, the crazy people, the speculators, have been out of the asylum and running the financial system for a few years. It's going to take a while to clean up the mess they created. If you were flipping houses, or bought one in 2006-7 and expected a huge increase in value, you should be aware I am talking about people just like you!
I'll know the worst is over when the retirees climb out of their homes and into the light of day and again begin purchasing dinner at the diner down the street. At present, many of these people have apparently, like the proverbial turtle, pulled their head in and dug down. One local restaurant which these types frequent, told me their business was off 70%! Who knows when they will return? Perhaps they'll climb up into the sunlight with the return of spring, or when they begin feeling flush with the 5.8% SS benefit increase. Those retirees and other beneficiaries have a big impact on the economy. As of September, 2008 they numbered over 50 million! See Social Security Beneficiaries Snapshot. To put this number in perspective, in 2006, according to the US Census bureau, there were 144 million employed civilian workers in the US. See US Census Employed Civilians. So when the social security beneficiaries pull back, about 26% of the population with income pulls it's chips off the table. As some of these people work and collect benefits, there is possibly a larger effect on the economy.
For many of us, who have never experienced a true, deep recession, this is a new phenomenon. Unlike the "worst recession since the great depression" campaign rhetoric that Sen. Kerry used in his bid for the presidency, this is the real deal. Kerry was spouting bull. I do remember the Arab oil embargo, the recessions of 1973-74, 1980-82, and the stock market crash of 1987. I have been in the work force since 1963 (worked a real job in high school) so this is not a shock to me. However, it isn't pleasant, either. Now we have to deal with those around us who did not prepare, who refused to prepare, or who speculated and gambled, and deal with the fact that "People Will Be Strange."
Now everyone is impatient to get beyond this crisis. Heck, the unemployment numbers have just begun to really rise. It will take time for this to be resolved, and until then, we can only watch and deal with our personal realities. It took years to get into this mess. It will take years to get out of it. As I said earlier in this blog, we could bottom out in late 2009. But that means that at that point we are just beginning to claw our way out of the pit. If you don't believe me then do your own research, but do avoid MSNBC and the other minute miracle entertainers out there. And don't believe anything an economist or politician tells you.
Nor do we know what will be at the end of the tunnel when we do emerge. Given the typical Americans penchant for instant gratification, I have no idea on how these addicts will deal with the new reality. I do know that some and perhaps many of us will eventually come to the conclusion that the worst is over, and like the passing of a tornado, we will conclude it is safe to again emerge from our shelters. At that point we will breath a sigh of relief and allow our lives to resume. When enough of us have done this, the stock market will begin a reversal, people will begin spending some of the cash they hoarded during the "crisis" and the economy will rebound. Will we return to the "good old days" of the Internet boom, cheap credit and so on? No. We blew that wad of cash and sent much of it overseas. Nor will oil return to $25 a barrel; more likely it will return to $150 a barrel and continue upwards, perhaps reaching the predicted $200 a barrel in 2030.
Until then, I suggest we simply watch something besides the talking heads, the economists and that drivelling weatherman Tom Skilling on WGN-TV. Unless you enjoy the equivalent to listening to our economists. You know, 15 minutes of noise about the weather, and then the next morning no matter what Skilling said, you look out the window, go online to Weather.com and decide how to deal with the current events. As for TS's Proselytizing, as we know, the weather will do what it will do, and frequently, it has little to do with the "predictions".
On a positive note about the election, Pres. elect Obama may be the perfect guy for the job. Let him deal with his team-mates Nancy Pelosi, Harry Reid, Charles Rangel, John Dingell, Barney Frank and the rest of them. Have fun fella! This will be more entertaining to watch than the weather or the economists. Of that, I am absolutely certain. The trick will be to separate the wheat from the chaff.
Today, the New York Times decided to put a positive spin on the economy in the article:
Stocks Are Higher After Jobs Report. Here are a couple of choice quotes:
"Investors were not letting a barrage of grim economic news get them down.......After two days of heavy losses, shares on Wall Street bounced back on Friday................In late afternoon trading, the Dow industrials were up about 165 points............but they were still poised to close lower for the week after a two-day sell-off that sent the Dow plunging by nearly 1,000 points".
Ok, so this cool-aid would have me celebrating that the Dow is only down 835 points, or about 9% over the past three days. Wow, I am thrilled. If I had put $10,000 into the market at the close on Wednesday, I would have lost "only" about $710 by the close on Friday; it was actually a larger loss at the time the NYT issued their "news". That's what they call "bouncing back" in New York ? I'm sure my broker would be thrilled, as he made a commission on the sale. Oh, that's right, Wall Street is in New York City, isn't it? So my stock purchase was good for the big, rotten apple. Should I send some more $$$ to the poor people in Times Square? I think not! OK, to put a positive spin on all of this, as they say "long term" the stock market indexes always go up! However, brokers make no money selling Vanguard indexes, so it is some company's stock I would have purchased. In 5 years or so, my stock may be worth more than I paid for it, or then again, the company could have imploded, like Enron!
Note the catchy title. I chose it to honor the color of the party of the winning candidate. Clever, yes?
So now the economists are predicting a deeper than usual recession. Aren't those the same guys and gals who didn't even see most of this coming? So I should listen to them? I think not. I'll continue my own research, and I'll post my conclusions from time to time.
As for the Obama button toter's, I saw this statement by a fan in a WSJ Forum:
"I believe the market will begin to turnaround in the upcoming weeks. President - Elect Obama will lift the spirits of people worldwide, and American Iconic companies such as Coke, Johnson and Johnson, Wal - Mart, etc. will lead the way. The market needed to contract, and shake out the casino/stock analyst. Wall street will regain its stride, as the market starts to respond the worldwide support for American goods. What we have learned is that the American Presidency is more than just a title, it is the measure of the Free - Market. When people believe that the American president is a good person, they respond by buying up American goods".
OK, pass the guy some more cool-aid.
The Onion had a piece on the emptiness facing these people, now that the party is over. What will they do? Maybe go to an orgy in the dorm, or plan an overthrow of some democracy. Is South Korea on the list? Of course, after proposition 8 in California, there is always the Mormon Church to attack. With the power of the web, the opportunities are endless! Onion Video.
To be serious for a moment, I am concerned by the naivete of some of these people. I'm glad they feel good, but feeling good and having confidence is not the same thing. Nothing has really happened yet. We don't even have President elect Obama's design for tackling the problems or a team to do it. In fact, the only thing we do have is most of the same congresswomen and men who got us into this mess in the first place. Wake up America!
The economy will turn around when people again have confidence in the economy. It will turn around when they reach the point that they are certain that a depression is not just around the corner, or if one has arrived, that we have survived it; and when they reach the point that they can trust their money in the stock market, and in the banks. Finally, it will turn around when the herd reaches the point at which they feel secure. We have a long way to go before the guy or gal in the street feels that way. At present, millions have seen a large chunk of their savings vaporize (or someone else's in the case of many home "owners"). However, it is very important to remember that the stock market will turn around before the economy does. So if you see the stock market turning up and staying there, that's a good sign. As for the economy, it will be a year or more before it actually bottoms. That's my guess, sometime late 2009 or early 2010. Sorry to all of you "instant gratification" people out there. Remember, the crazy people, the speculators, have been out of the asylum and running the financial system for a few years. It's going to take a while to clean up the mess they created. If you were flipping houses, or bought one in 2006-7 and expected a huge increase in value, you should be aware I am talking about people just like you!
I'll know the worst is over when the retirees climb out of their homes and into the light of day and again begin purchasing dinner at the diner down the street. At present, many of these people have apparently, like the proverbial turtle, pulled their head in and dug down. One local restaurant which these types frequent, told me their business was off 70%! Who knows when they will return? Perhaps they'll climb up into the sunlight with the return of spring, or when they begin feeling flush with the 5.8% SS benefit increase. Those retirees and other beneficiaries have a big impact on the economy. As of September, 2008 they numbered over 50 million! See Social Security Beneficiaries Snapshot. To put this number in perspective, in 2006, according to the US Census bureau, there were 144 million employed civilian workers in the US. See US Census Employed Civilians. So when the social security beneficiaries pull back, about 26% of the population with income pulls it's chips off the table. As some of these people work and collect benefits, there is possibly a larger effect on the economy.
For many of us, who have never experienced a true, deep recession, this is a new phenomenon. Unlike the "worst recession since the great depression" campaign rhetoric that Sen. Kerry used in his bid for the presidency, this is the real deal. Kerry was spouting bull. I do remember the Arab oil embargo, the recessions of 1973-74, 1980-82, and the stock market crash of 1987. I have been in the work force since 1963 (worked a real job in high school) so this is not a shock to me. However, it isn't pleasant, either. Now we have to deal with those around us who did not prepare, who refused to prepare, or who speculated and gambled, and deal with the fact that "People Will Be Strange."
Now everyone is impatient to get beyond this crisis. Heck, the unemployment numbers have just begun to really rise. It will take time for this to be resolved, and until then, we can only watch and deal with our personal realities. It took years to get into this mess. It will take years to get out of it. As I said earlier in this blog, we could bottom out in late 2009. But that means that at that point we are just beginning to claw our way out of the pit. If you don't believe me then do your own research, but do avoid MSNBC and the other minute miracle entertainers out there. And don't believe anything an economist or politician tells you.
Nor do we know what will be at the end of the tunnel when we do emerge. Given the typical Americans penchant for instant gratification, I have no idea on how these addicts will deal with the new reality. I do know that some and perhaps many of us will eventually come to the conclusion that the worst is over, and like the passing of a tornado, we will conclude it is safe to again emerge from our shelters. At that point we will breath a sigh of relief and allow our lives to resume. When enough of us have done this, the stock market will begin a reversal, people will begin spending some of the cash they hoarded during the "crisis" and the economy will rebound. Will we return to the "good old days" of the Internet boom, cheap credit and so on? No. We blew that wad of cash and sent much of it overseas. Nor will oil return to $25 a barrel; more likely it will return to $150 a barrel and continue upwards, perhaps reaching the predicted $200 a barrel in 2030.
Until then, I suggest we simply watch something besides the talking heads, the economists and that drivelling weatherman Tom Skilling on WGN-TV. Unless you enjoy the equivalent to listening to our economists. You know, 15 minutes of noise about the weather, and then the next morning no matter what Skilling said, you look out the window, go online to Weather.com and decide how to deal with the current events. As for TS's Proselytizing, as we know, the weather will do what it will do, and frequently, it has little to do with the "predictions".
On a positive note about the election, Pres. elect Obama may be the perfect guy for the job. Let him deal with his team-mates Nancy Pelosi, Harry Reid, Charles Rangel, John Dingell, Barney Frank and the rest of them. Have fun fella! This will be more entertaining to watch than the weather or the economists. Of that, I am absolutely certain. The trick will be to separate the wheat from the chaff.
Today, the New York Times decided to put a positive spin on the economy in the article:
Stocks Are Higher After Jobs Report. Here are a couple of choice quotes:
"Investors were not letting a barrage of grim economic news get them down.......After two days of heavy losses, shares on Wall Street bounced back on Friday................In late afternoon trading, the Dow industrials were up about 165 points............but they were still poised to close lower for the week after a two-day sell-off that sent the Dow plunging by nearly 1,000 points".
Ok, so this cool-aid would have me celebrating that the Dow is only down 835 points, or about 9% over the past three days. Wow, I am thrilled. If I had put $10,000 into the market at the close on Wednesday, I would have lost "only" about $710 by the close on Friday; it was actually a larger loss at the time the NYT issued their "news". That's what they call "bouncing back" in New York ? I'm sure my broker would be thrilled, as he made a commission on the sale. Oh, that's right, Wall Street is in New York City, isn't it? So my stock purchase was good for the big, rotten apple. Should I send some more $$$ to the poor people in Times Square? I think not! OK, to put a positive spin on all of this, as they say "long term" the stock market indexes always go up! However, brokers make no money selling Vanguard indexes, so it is some company's stock I would have purchased. In 5 years or so, my stock may be worth more than I paid for it, or then again, the company could have imploded, like Enron!
Monday, October 20, 2008
Was it Greed or Stupidity?
I saw an article on Henry Cisneros, Clinton's Top Housing Official. He now has some misgivings about the housing market:
http://www.nytimes.com/2008/10/19/business/19cisneros.html?_r=1&em&oref=slogin
I sent the article on to a friend with some comments. He replied with an email "Thanks for sending the article which I missed in my rush thru the day. I always thought he [Cisneros] was a bad guy, starting from the sex scandal and what I read about him....He is partly to blame. And there are zillions of others....In the housing disaster, more to blame nationally are the lenders who could have given fixed-rate mortgages but persuaded many people to take variable-rate loans which then turned sour, often containing verbal promises to turn the mortgages later into fixed-rate deals (which were lies)....For even educated people, understanding the terms of a mortgage are almost impossible. I am convinced that lobbyists for financial institutions made the contract language confusing....Next, consider Fannie May and Freddie Whatever. McCain blames them and Obama but consider the facts. While these two companies are huge, they are responsible only for 2% to 3% of the housing and mortgage disasters. And McCain's Rick Davis was chief lobbyist for Fannie Mae, receiving big bucks until one month ago.....But the real reason for the financial crisis is more with the packaged fiancial instruments that Wall Street sold around the world. Nobody--even the big guys--understands what the contents of these really are. My son....says even the sophisticated bankers do not. Blame the Congress (Republicans for 6 of the last 8 years), lobbyists and McCain for sticking to deregulation, and the phony "greed" mantra (as tough it is 100% Wall Street's fault now). The Dems are in for some of the blame but the root of all this goes back to Reagan and the start of deregulation....To quote McCain of two or three years ago, "Deregulation is good for the growth of our economy."
To this email I responsed as follows:
As they say, “The Road to Hell is Paved With Good Intentions”.
We are currently in the eye of the storm.
And yes, no one understands these collateralized debt obligations (CDOs) which were backed by asset and mortgage backed securities, because each contains pieces of thousands of mortgages, the true value and rating of which is unknown and would be difficult to determine.
The math was faulty; when constructing these financial instruments the failure or default rate for new non-collateral mortgages (0% down, no income, no asset “liar” mortgages) were assumed to be identical to “normal” or collateral (20% down) mortgages. This is of course ridiculous.
As I see it, the big failure was the ratings agencies. They gave these dubious instruments a rating identical to US Treasury bills and bonds. That is gross negligence. And yes, I do agree that they could not determine some of the underlying numbers. However, it is illogical to assume that a CDO or mortgage based security built from tranches (slices or pieces) of mortgages including sub-prime, sub-sub prime and so on, is as safe as a US Treasury bill and to rate them as such.
There have been a lot of articles alluding to this for the past several years. They were generally given titles such as “the disconnect of return to risk” and so on.
As has been said, there is more than enough blame to go around. Many politicians were eager to get the poor into their own homes; as is the case with many things, this is OK as long as the make-up is a very small percentage of the total mortgages. In the current “crisis”, the total number of houses sold included too many risky mortgages. As a consequence, we today have millions of people in homes they cannot afford to live in, or soon will not be able to afford to live in.
This is so because of the vast quantity of option-ARM loans out there. It is my understanding that these reset five years following the origination of the loan. However, these loans include a clause and if the borrower reaches a specific negative equity, somewhere in the range of 110% to 125% of the original loan balance, then the loan immediately resets to a higher rate. This some call a “surprise” reset. This event is automatic. It is anticipated that many option-ARM borrowers will face significantly higher monthly payment increases in the near future. How many? I saw a chart and it indicated loans totaling about $30 billion will reset in 2009 and as much at $70 billion will reset in 2010. These are not sub-prime loans.
As a result, defaults are expected to double again. Politicians or economists who expect the housing market crises will “bottom” in early 2009 are absolutely wrong, unless there is strong government intervention to prevent these automatic resets. This event is not a surprise. In March 2008, Goldman Sachs estimated that a 15% decline in housing values would occur and that 21% of the total number of people with a mortgage would owe more than their house was worth. However, it was also estimated that if a recession occurred then there would be a total decline in the value of housing of 30% and a whopping 39% of people owing mortgages would be under water. It is now a certainty that we are in or are entering a serious recession.
I am not certain if our government will intervene until it is too late. At present, congress is working on committees of lynching parties rather than averting this looming crisis. So batten down the hatches and be prepared for a potentially rough ride for the next two or three years.
Here is a chart to support what I said about loan resets:
http://www.goodevalue.com/wp-content/uploads/2008/04/imfresets.jpg
As for the “greed”, there are too many questions about that. Is it “greed” to expect to have things I cannot afford? Is it “greed” to expect to live in a house I cannot afford? Is it “greed” to want all of this stuff to the point that we feel entitled to our desires? When every man, woman and child in a nation expects that things will always turn out and that they can and will have in their lifetime whatever they want, at the expense of others, is that “greed”? Or simply stupidity?
http://www.nytimes.com/2008/10/19/business/19cisneros.html?_r=1&em&oref=slogin
I sent the article on to a friend with some comments. He replied with an email "Thanks for sending the article which I missed in my rush thru the day. I always thought he [Cisneros] was a bad guy, starting from the sex scandal and what I read about him....He is partly to blame. And there are zillions of others....In the housing disaster, more to blame nationally are the lenders who could have given fixed-rate mortgages but persuaded many people to take variable-rate loans which then turned sour, often containing verbal promises to turn the mortgages later into fixed-rate deals (which were lies)....For even educated people, understanding the terms of a mortgage are almost impossible. I am convinced that lobbyists for financial institutions made the contract language confusing....Next, consider Fannie May and Freddie Whatever. McCain blames them and Obama but consider the facts. While these two companies are huge, they are responsible only for 2% to 3% of the housing and mortgage disasters. And McCain's Rick Davis was chief lobbyist for Fannie Mae, receiving big bucks until one month ago.....But the real reason for the financial crisis is more with the packaged fiancial instruments that Wall Street sold around the world. Nobody--even the big guys--understands what the contents of these really are. My son....says even the sophisticated bankers do not. Blame the Congress (Republicans for 6 of the last 8 years), lobbyists and McCain for sticking to deregulation, and the phony "greed" mantra (as tough it is 100% Wall Street's fault now). The Dems are in for some of the blame but the root of all this goes back to Reagan and the start of deregulation....To quote McCain of two or three years ago, "Deregulation is good for the growth of our economy."
To this email I responsed as follows:
As they say, “The Road to Hell is Paved With Good Intentions”.
We are currently in the eye of the storm.
And yes, no one understands these collateralized debt obligations (CDOs) which were backed by asset and mortgage backed securities, because each contains pieces of thousands of mortgages, the true value and rating of which is unknown and would be difficult to determine.
The math was faulty; when constructing these financial instruments the failure or default rate for new non-collateral mortgages (0% down, no income, no asset “liar” mortgages) were assumed to be identical to “normal” or collateral (20% down) mortgages. This is of course ridiculous.
As I see it, the big failure was the ratings agencies. They gave these dubious instruments a rating identical to US Treasury bills and bonds. That is gross negligence. And yes, I do agree that they could not determine some of the underlying numbers. However, it is illogical to assume that a CDO or mortgage based security built from tranches (slices or pieces) of mortgages including sub-prime, sub-sub prime and so on, is as safe as a US Treasury bill and to rate them as such.
There have been a lot of articles alluding to this for the past several years. They were generally given titles such as “the disconnect of return to risk” and so on.
As has been said, there is more than enough blame to go around. Many politicians were eager to get the poor into their own homes; as is the case with many things, this is OK as long as the make-up is a very small percentage of the total mortgages. In the current “crisis”, the total number of houses sold included too many risky mortgages. As a consequence, we today have millions of people in homes they cannot afford to live in, or soon will not be able to afford to live in.
This is so because of the vast quantity of option-ARM loans out there. It is my understanding that these reset five years following the origination of the loan. However, these loans include a clause and if the borrower reaches a specific negative equity, somewhere in the range of 110% to 125% of the original loan balance, then the loan immediately resets to a higher rate. This some call a “surprise” reset. This event is automatic. It is anticipated that many option-ARM borrowers will face significantly higher monthly payment increases in the near future. How many? I saw a chart and it indicated loans totaling about $30 billion will reset in 2009 and as much at $70 billion will reset in 2010. These are not sub-prime loans.
As a result, defaults are expected to double again. Politicians or economists who expect the housing market crises will “bottom” in early 2009 are absolutely wrong, unless there is strong government intervention to prevent these automatic resets. This event is not a surprise. In March 2008, Goldman Sachs estimated that a 15% decline in housing values would occur and that 21% of the total number of people with a mortgage would owe more than their house was worth. However, it was also estimated that if a recession occurred then there would be a total decline in the value of housing of 30% and a whopping 39% of people owing mortgages would be under water. It is now a certainty that we are in or are entering a serious recession.
I am not certain if our government will intervene until it is too late. At present, congress is working on committees of lynching parties rather than averting this looming crisis. So batten down the hatches and be prepared for a potentially rough ride for the next two or three years.
Here is a chart to support what I said about loan resets:
http://www.goodevalue.com/wp-content/uploads/2008/04/imfresets.jpg
As for the “greed”, there are too many questions about that. Is it “greed” to expect to have things I cannot afford? Is it “greed” to expect to live in a house I cannot afford? Is it “greed” to want all of this stuff to the point that we feel entitled to our desires? When every man, woman and child in a nation expects that things will always turn out and that they can and will have in their lifetime whatever they want, at the expense of others, is that “greed”? Or simply stupidity?
Things to Watch to Determine if the Economy is Improving
Short term, there are several indicators which can be observed to give an idea of the state of the economy:
1. The so called "TED spread" or difference between LIBOR and US Treasuries. Ideally, watch the 3 month figure, which is normally about 1%:
http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND
2. Commodities prices. Oil is a good indicator of confidence in the economy. Commodities and oil in free fall are an omen of lack of confidence. Consumption might also be useful to watch:
http://www.bloomberg.com/markets/commodities/cfutures.html
http://www.eia.doe.gov/emeu/international/crude2.html
http://www.bloomberg.com/apps/cbuilder?ticker1=DOEDMGAS%3AIND
3. Dollar weakening slightly against other currencies, most notably the Euro:
http://finance.yahoo.com/q/bc?s=USDEUR=X
Longer term, the inventory of existing homes for sale is a possible indicator:
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=1395
http://www.realtor.org/research/research/ehsdata
Just for chuckles, here is a list of the prime rate. I was once one of the unlucky ones who had a home equity loan at the time the prime was 20%. My hat's off to former Fed Chairman Volcker! Ouch:
http://www.data360.org/dataset.aspx?Data_Set_Id=47
1. The so called "TED spread" or difference between LIBOR and US Treasuries. Ideally, watch the 3 month figure, which is normally about 1%:
http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND
2. Commodities prices. Oil is a good indicator of confidence in the economy. Commodities and oil in free fall are an omen of lack of confidence. Consumption might also be useful to watch:
http://www.bloomberg.com/markets/commodities/cfutures.html
http://www.eia.doe.gov/emeu/international/crude2.html
http://www.bloomberg.com/apps/cbuilder?ticker1=DOEDMGAS%3AIND
3. Dollar weakening slightly against other currencies, most notably the Euro:
http://finance.yahoo.com/q/bc?s=USDEUR=X
Longer term, the inventory of existing homes for sale is a possible indicator:
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=1395
http://www.realtor.org/research/research/ehsdata
Just for chuckles, here is a list of the prime rate. I was once one of the unlucky ones who had a home equity loan at the time the prime was 20%. My hat's off to former Fed Chairman Volcker! Ouch:
http://www.data360.org/dataset.aspx?Data_Set_Id=47
Tuesday, October 14, 2008
To quote Rod Serling, we are now in the Zone
"There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man's fears and the summit of his knowledge. This is the dimension of imagination. It is an area which we call the Twilight Zone."
The above is from the opening of the original Twilight Zone television program. It premiered October 1, 1959 on CBS.
The above is from the opening of the original Twilight Zone television program. It premiered October 1, 1959 on CBS.
Monday, October 13, 2008
Ouch!
What else can I say about the latest "bang" to our economy? The market dropped as panic selling took hold. I actually purchased some stock in the past week, looking toward the long term.
Is it gambling? Could be, as our political leaders are as clueless as ever. I watched Sen. Joe Biden at a political rally on C-SPAN and there was Sen. Hillary Clinton, head rhythmically moving up and down, looking so much like a bobble headed doll on his right.
This is getting close to my "worst case" scenario of about a 50% loss. The problem is, we haven't even "officially" entered the recession yet, and already the market was down 43% off it's high set about 1 year ago.
I do have to admit, I am glad the waiting is over. I have been waiting for this "bang" for a few years now. Perhaps it is me, but I really couldn't see how we could avoid this. Too many people way, way overextended, too many people making money by moving money around, too many people always willing to blame someone else, way too many people willing to live beyond their means, and too many people expecting it will all turn out well, no matter what they do.
I have always had confidence in the American system, but the past 10 years have put that confidence under quite a strain. I am of the opinion that we as a nation face quite a "headwind". Americans have been too willing to put their trust in politicians, who really do little but make laws about collecting and spending our money. There is no long term planning! Thanks to the Internet and 100s of cable TV channels, we all have access to the same "information" and the picture is not pretty.
I use the word "information" with some hesitation. There is actually little true information available on the popular media, which has evolved from that age when it bragged that "we don't report the news, we make the news" to the very modern "we are the news". So there's not much reason to watch TV or radio news. Even NPR and PBS are very narrow in their news focus, although there is some air time given to the BBC. While travelling across Nebraska last year, I was delighted to be within range of the Omaha PBS radio station and expected to be able to hear at least a part of General Petraeus testimony before congress. However, the NPR channel had decided to play religious music for the Jewish holy days, instead. So I did not hear that testimony until I returned home and was able to get a copy of the transcript.
Th current financial crisis will, I fear, accelerate the flight from the dollar and further erode our ability as a nation to accomplish the many daunting tasks which do face us. It will also make world cooperation far more difficult as people all over the world have realized that this emperor really doesn't have any clothes!
After reading this, you may wonder if I am optimistic or pessimistic. As a businessperson, I am optimistic. I think that American businesses can and will continue to innovate and to operate successfully within the strictures imposed by our politicians. As a citizen, I am pessimistic. We have no viable energy bill and, for example, the Democrat's proposal of $15B per year for 10 years is laughable and woefully inadequate. We still have 78 million baby-boomers who will be retiring in the near future and a broken social security ponzi scheme. We have a failed medical system in which all comers are rewarded if people are ill. Need I go on?
Is it gambling? Could be, as our political leaders are as clueless as ever. I watched Sen. Joe Biden at a political rally on C-SPAN and there was Sen. Hillary Clinton, head rhythmically moving up and down, looking so much like a bobble headed doll on his right.
This is getting close to my "worst case" scenario of about a 50% loss. The problem is, we haven't even "officially" entered the recession yet, and already the market was down 43% off it's high set about 1 year ago.
I do have to admit, I am glad the waiting is over. I have been waiting for this "bang" for a few years now. Perhaps it is me, but I really couldn't see how we could avoid this. Too many people way, way overextended, too many people making money by moving money around, too many people always willing to blame someone else, way too many people willing to live beyond their means, and too many people expecting it will all turn out well, no matter what they do.
I have always had confidence in the American system, but the past 10 years have put that confidence under quite a strain. I am of the opinion that we as a nation face quite a "headwind". Americans have been too willing to put their trust in politicians, who really do little but make laws about collecting and spending our money. There is no long term planning! Thanks to the Internet and 100s of cable TV channels, we all have access to the same "information" and the picture is not pretty.
I use the word "information" with some hesitation. There is actually little true information available on the popular media, which has evolved from that age when it bragged that "we don't report the news, we make the news" to the very modern "we are the news". So there's not much reason to watch TV or radio news. Even NPR and PBS are very narrow in their news focus, although there is some air time given to the BBC. While travelling across Nebraska last year, I was delighted to be within range of the Omaha PBS radio station and expected to be able to hear at least a part of General Petraeus testimony before congress. However, the NPR channel had decided to play religious music for the Jewish holy days, instead. So I did not hear that testimony until I returned home and was able to get a copy of the transcript.
Th current financial crisis will, I fear, accelerate the flight from the dollar and further erode our ability as a nation to accomplish the many daunting tasks which do face us. It will also make world cooperation far more difficult as people all over the world have realized that this emperor really doesn't have any clothes!
After reading this, you may wonder if I am optimistic or pessimistic. As a businessperson, I am optimistic. I think that American businesses can and will continue to innovate and to operate successfully within the strictures imposed by our politicians. As a citizen, I am pessimistic. We have no viable energy bill and, for example, the Democrat's proposal of $15B per year for 10 years is laughable and woefully inadequate. We still have 78 million baby-boomers who will be retiring in the near future and a broken social security ponzi scheme. We have a failed medical system in which all comers are rewarded if people are ill. Need I go on?
Wednesday, October 1, 2008
A letter to our Senators sent today re: $700B Bailout
This is the text of emails sent today to our US Senators and a version was also sent to our Representative.
"My spouse and I am opposed to the Federal bailout of Wall Street, HR3997 and the Senate version. I believe the plans are seriously flawed.
I have read the House version and first, I do not think taxpayer funds should be allocated for the purpose of purchasing the assets of “any” financial institution, and specifically “foreign authorities and central banks.”
Second, I do not think that funds should be used for the purpose of hiring firms to help manage the assets of companies the government basically nationalizes. This has the potential of providing federal funds to the firms that contributed to, profited from or participated in the failure.
Finally, I think the primary purpose of the plan should be to address the problems of the taxpayers who are being asked to pay for this plan. I do understand there is more than enough blame to go around, and that many people were stupid or at the very least ignorant, and possibly millions participated in some form of fraud. However, this is a reward to the people who promoted and profited from this situation.
We are homeowners who purchased below our means and are practicing a philosophy of living below our means. We are saving for our retirement and have invested in bank funds such as CDs and we also have 401(k), 403(b) and Roth-IRAs which we have used to invest in American companies. We are feeling the pain of the current financial situation and while I am “entitled” to retire with social security benefits, I am in fact working and paying taxes. Frankly, my financial future is in jeopardy.
We are registered voters and my spouse and I will be thinking long and hard about the forthcoming election and we will be voting our conscience in this matter. "
"My spouse and I am opposed to the Federal bailout of Wall Street, HR3997 and the Senate version. I believe the plans are seriously flawed.
I have read the House version and first, I do not think taxpayer funds should be allocated for the purpose of purchasing the assets of “any” financial institution, and specifically “foreign authorities and central banks.”
Second, I do not think that funds should be used for the purpose of hiring firms to help manage the assets of companies the government basically nationalizes. This has the potential of providing federal funds to the firms that contributed to, profited from or participated in the failure.
Finally, I think the primary purpose of the plan should be to address the problems of the taxpayers who are being asked to pay for this plan. I do understand there is more than enough blame to go around, and that many people were stupid or at the very least ignorant, and possibly millions participated in some form of fraud. However, this is a reward to the people who promoted and profited from this situation.
We are homeowners who purchased below our means and are practicing a philosophy of living below our means. We are saving for our retirement and have invested in bank funds such as CDs and we also have 401(k), 403(b) and Roth-IRAs which we have used to invest in American companies. We are feeling the pain of the current financial situation and while I am “entitled” to retire with social security benefits, I am in fact working and paying taxes. Frankly, my financial future is in jeopardy.
We are registered voters and my spouse and I will be thinking long and hard about the forthcoming election and we will be voting our conscience in this matter. "
Wednesday, September 17, 2008
Ouch! The Market is in Turmoil (Again? Yet?)
Well, AIG just about went under and was bailed by the Fed. But the price was high. 11% interest on an $85 billion loan and government control with ownership (I think that's the word) of 80% of the stock.
What we are experiencing, the experts say, is "deleveraging" or the unwinding of debt. It is definitely going to take a while for this process to run its course. It's going to take a few things to happen to reach the end of this process. The banks, brokerages and other financial institutions will have to admit their mistakes and sell or "write down" the value of the distressed assets that were purchased with borrowed money. Debt will have to be reduced by paying it off and that may require the sale of other assets. These financial institutions will also have to build up their reserves, or capital cushions, which have eroded by the losses on the distressed assets.
Come to think of it, these are exactly the same things that the American consumer needs to do; face up to the fact that that McMansion that was purchased with borrowed money isn't going to appreciate at 10% or more per year and is, in fact worth less than the value of the loans or mortgages outstanding. Then start paying down credit card, equity loans and other debt. Finally, stop spending so much and begin a savings program. I know, this will be very, very difficult. You won't be able to purchase that new car this year, or a new iphone, or that new model flat screen 120hz LCD TV. or a blue-ray disc burner, or a new digital camera, HDTV movie camera, that trip to the Mayan Riviera for Christmas or the latest Media PC . Gee, life sucks!
I was driving home tonight and listening to NPR and later to PBS. One of the commentators asked one of the experts if he had looked at his 401(K) lately. I decided I won't! I have the same dread I did only a few months ago, when I would open it up and discovered that it had jumped by a few percentage points. I could not see the "why for " these large increases. I wasn't aware of some fundamental shift that would cause profits and the value of these companies to simply go up and up. So I had a dread as my perspective was that once the people who were bidding these stocks up got cold feet, these same stocks would plummet. Well, they have more than cold feet. They've got the flu!
So today they said that people were rushing for gold, treasuries, etc. As a consequence gold went up by $90 and treasuries were yielding 1%.Home building at 1991 levels! said the headlines. Well, it seems that everyone who could afford a house had bought one and many who couldn't did the same, anyway. So I guess there are no more qualified buyers.
Wharton in the article "Will the Levee Break? An Ocean of Bad Debt Rises despite Fed Rescues" gives a pretty good summary of the current situation. Professor Joseph Gyourko made the statement regarding residential homes "The excess supply will wear off by the end of 2009, but not before.... The end of this debacle keeps getting put off and put off."
Here are a couple of interesting articles at Wharton:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2050http://knowledge.wharton.upenn.edu/article.cfm?articleid=2052
Daniel Gross had a September 8 Newsweek article entitled "Get Ready for the 'Pain of Paying'" and I think it summed the current personal credit situation pretty well. See:
http://www.newsweek.com/id/156342/output/print
[Note added September 18: Goldman Sachs Group, Inc. was quoted in the WSJ: "Residential mortgage losses alone could hit $636 billion by 2012...triggering widespread retrenchment in bank lending. That could shave 1.8 percentage points a year off economic growth in 2008 and 2009 -- the equivalent of $250 billion in lost goods and services each year."]
What we are experiencing, the experts say, is "deleveraging" or the unwinding of debt. It is definitely going to take a while for this process to run its course. It's going to take a few things to happen to reach the end of this process. The banks, brokerages and other financial institutions will have to admit their mistakes and sell or "write down" the value of the distressed assets that were purchased with borrowed money. Debt will have to be reduced by paying it off and that may require the sale of other assets. These financial institutions will also have to build up their reserves, or capital cushions, which have eroded by the losses on the distressed assets.
Come to think of it, these are exactly the same things that the American consumer needs to do; face up to the fact that that McMansion that was purchased with borrowed money isn't going to appreciate at 10% or more per year and is, in fact worth less than the value of the loans or mortgages outstanding. Then start paying down credit card, equity loans and other debt. Finally, stop spending so much and begin a savings program. I know, this will be very, very difficult. You won't be able to purchase that new car this year, or a new iphone, or that new model flat screen 120hz LCD TV. or a blue-ray disc burner, or a new digital camera, HDTV movie camera, that trip to the Mayan Riviera for Christmas or the latest Media PC . Gee, life sucks!
I was driving home tonight and listening to NPR and later to PBS. One of the commentators asked one of the experts if he had looked at his 401(K) lately. I decided I won't! I have the same dread I did only a few months ago, when I would open it up and discovered that it had jumped by a few percentage points. I could not see the "why for " these large increases. I wasn't aware of some fundamental shift that would cause profits and the value of these companies to simply go up and up. So I had a dread as my perspective was that once the people who were bidding these stocks up got cold feet, these same stocks would plummet. Well, they have more than cold feet. They've got the flu!
So today they said that people were rushing for gold, treasuries, etc. As a consequence gold went up by $90 and treasuries were yielding 1%.Home building at 1991 levels! said the headlines. Well, it seems that everyone who could afford a house had bought one and many who couldn't did the same, anyway. So I guess there are no more qualified buyers.
Wharton in the article "Will the Levee Break? An Ocean of Bad Debt Rises despite Fed Rescues" gives a pretty good summary of the current situation. Professor Joseph Gyourko made the statement regarding residential homes "The excess supply will wear off by the end of 2009, but not before.... The end of this debacle keeps getting put off and put off."
Here are a couple of interesting articles at Wharton:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2050http://knowledge.wharton.upenn.edu/article.cfm?articleid=2052
Daniel Gross had a September 8 Newsweek article entitled "Get Ready for the 'Pain of Paying'" and I think it summed the current personal credit situation pretty well. See:
http://www.newsweek.com/id/156342/output/print
[Note added September 18: Goldman Sachs Group, Inc. was quoted in the WSJ: "Residential mortgage losses alone could hit $636 billion by 2012...triggering widespread retrenchment in bank lending. That could shave 1.8 percentage points a year off economic growth in 2008 and 2009 -- the equivalent of $250 billion in lost goods and services each year."]
The Forbes 400
Forbes Magazine issued it's list of the 400 richest people. For the second year in a row, the price of admission to this list is $1.3 billion. "In this, the 27th edition of the list, the assembled net worth of America's wealthiest rose by $30 billion--only 2%--to $1.57 trillion."
http://www.forbes.com/lists/2008/54/400list08_The-400-Richest-Americans_Rank.html
I guess it was a tough year for the ultra rich. About 64 of these people are listed with a residence in New York City, which is pretty convenient for the displaced people in the financial services industry. I'm referring to a book recently published called "The Big Squeeze: Tough Times for the American Worker". The author is Steven Greenhouse, Publisher: Knopf, 365 pp., $25.95.
In the book, Greenhouse cites Northwest Airlines who gave a booklet to workers who had been laid off. The name of the booklet was "101 Ways to Save Money." One piece of advice was not to be shy about taking something you like from the trash.
The Forbes list should be helpful to the displaced, as the very rich should have the best trash around.
Note: Hat's off to Bill for forwarding the book review. Note that I can't comment on it's accuracy.
http://www.forbes.com/lists/2008/54/400list08_The-400-Richest-Americans_Rank.html
I guess it was a tough year for the ultra rich. About 64 of these people are listed with a residence in New York City, which is pretty convenient for the displaced people in the financial services industry. I'm referring to a book recently published called "The Big Squeeze: Tough Times for the American Worker". The author is Steven Greenhouse, Publisher: Knopf, 365 pp., $25.95.
In the book, Greenhouse cites Northwest Airlines who gave a booklet to workers who had been laid off. The name of the booklet was "101 Ways to Save Money." One piece of advice was not to be shy about taking something you like from the trash.
The Forbes list should be helpful to the displaced, as the very rich should have the best trash around.
Note: Hat's off to Bill for forwarding the book review. Note that I can't comment on it's accuracy.
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