This Week In The US Economy

[Demsey]

Anyway, I am new to this thread but I am doing a post-grad in investment management so reading stuff here as well as contributing will be fun

That's awesome. First you have to define the 'box', then you can effectively think outside it.

Seeing this market as 'normal' as you enter the private sector is a major advantage I would imagine. I would also then think a lot of the old school 'Warren Buffet/ Bill Seidmen/Peter Lynch' types are looking at it like it was from Mars. They will not make much of it.

"It's impossible for words to describe what is necessary to those who do not know what horror means. Horror. Horror has a face... and you must make a friend of horror. Horror and moral terror are your friends. If they are not then they are enemies to be feared. They are truly enemies."

Colonel Walter E. Kurtz

Embrace the horror. Horror is your friend.

<edit> Seems the Fed Chairman made good use of 'rehtoric' today; DOW up @195. I hear O. is speaking this evening? Too bad it will be after the market close. His speech is supposed to be "Reaganesque". Now, is that so hard?

Edited February 24, 2009 by Demsey

[Guest asim]

Hi Demsey,

I agree that defining a box and then looking beyond it is a good thing surely. Just defining is the hard part because words in itself are limited.

Horror is only horror if it negates what you perceived as comfortable or pleasant in that given situation. Hence why experience adds composure in life because you see things for what they are and not for what they seem to be.

Either way,

You hit the nail when you mentioned that we should look at the markets as "normal".

The market is basically a rollercoaster ride and the participants are all blindfolded. The ups and downs cannot be seen per se, you can study them before you enter the ride though. If you are trying to invest safe, you will hold a partner by the arm and sit at the back. If you want to play the game a little, you do similarly but sit in the middle of the train, the big risk takers sit at the front and put their arms in the air and enjoy the ride.

Nice to meet you.

[Pugwash]

The lesson I've learned from the economic collapse: No-one, and I mean no-one, truly understands what's going on and how to fix it. Every pundit you read was merely guessing before the crash and are still guessing after.

Fill a room with 100 chickens and one or two of them can guess six right answers in a row by pecking randomly. How many pundits are there and how many of them were consistently right in six consecutive decisions before the crash?

"Croyez ceux qui cherchent la v

[Guest asim]

you're right. hence why you can study a rollercoaster from the outside, but you're blindfolded when you're sitting on the train itself.

people talk a lot, the Madoffs made claims that they have found the anser.. yeh right. keep to the basics.

[Demsey]

Asim, are you really in Catamarca, or the 'other' London?

Anyhoo, I had a post penned and dumped it because it sounded too political even though I went to great lengths to make it not so........................in this environment you just can not separate the US Economy from the politico when 'Stimulus Packages" and "Presidential Fiscal Budgets" are being delivered in the middle of a major recession.....................but to those here whom are gainfully employed in the industry; 'fat.tail.event', 'RobbieG', 'Asim' others....................these adminstrative Bills of late are looking indeed like the "Trickle Up" economic approach that was campaigned by President Obama is on. A type of "War on Wealth"; the buzz word in the media today.

How do you guys think this bodes for the global investment industry? Capitialism? It's amazing, even though many countries employ an indexed 'trade market', the spine of the capitalist system, they espouse they are not 'capitalist' by economic design, but, and I thought through globalization this phenom would have been long since diluted (the US sneezes, the world catches cold), the world markets still seem to look to the US free market as leading the trend?

So it begs the question; If the current administration policies are going to make things hard on the US investor class (through pensions and 401k's aren't we all now?), and if you examine the current proposed provisions of the new fiscal budget proposed this week it most certainly will, isn't that going to hinder global recovery proportionally? I'd be warry as a foreign sovereignty. Maybe more critical than a US citizen. I mean, we voted him in. The general concensus worldwide is in approval of President Obama being elected. Why? How long will that honeymoon last? Two, four, eight quarters? Years? The US economy will probably be the first to recover. How long that recovery takes to initialize and rebound, in the case of a deep recession, just compounds the global recovery's lag. How long will the world languor waiting on the US's 'New Deal' to work or not?

I suppose what I'm after in opinion; Can ermerging markets stand on their own? South America? China? I think the "World's Economic Super Power" tag is going to be handed off from these shores by default as a matter of current adminstrative policy. Who's up to task?

Edited February 27, 2009 by Demsey

[Guest asim]

Hi Demsey,

No I'm from the London London, the English one.

I like your statements and questions as they are at face value complex to answer owing to such a vast degree of factors contributing to the situation.

Politics and Economics have had an "affair" in recent months. Not many people approved of this relationship, but some saw the reasoning behind it.

Unfortunately for Obama he was left with this huge mess to deal with although he wanted to change America with other objectives that he has to put on hold due to the level of finance he may count on without being criticised.

Many top college alumni with years of experience messed up big time by taking huge risks without managing it very well (evidence? you know where to look )

It doesn't hurt them individually per se, as they left the scene with nice "good-bye" packages and hefty retirement funds. Who suffers? The world.

You are correct in mentioning that if America sneezes, the world catches the cold. Now, although America would like to help the world at large, they will try and sort themselves out first. Who wouldn't. I think the motive for the "bailout" plans etc were crucial to keep the US economy alive. But a country like America can easily borrow the money because it will make money to repay debts.

Some other countries have not been given this benefit of doubt such as some Eastern European countries whose credit ratings have gone trash. I believe India is next for trash ratings. The wealth of some of these countries rely on Int'l interests and investments, and especially now when they are facing harsh times, they need the help which will not be found very easily. China themselves are facing a gloomy economy for years to come.Clinton's recent visit was just to reassure them not to worry about America's apparent inability to be able to pay China back as efficiently as before.

I agree, I think the USA will be one of the first to pull out of this mess as Bernanke predicted, but many other countries will find this much harder especially with the crippling economies they are left with at the moment.

[spider87]

@asim, I'm sorry but I get the feeling you support this outrageous spending on Obama's part? How on earth would spending billions / trillions of dollars we don't have help the economy at all? Even worse, how in the heck is pumping this money into the US going to help us at all? It doesn't matter if people are earning it for every dollar printed the value of our dollar drops the value of our dollar dropping is not going to help the economy at all because the regular American is making less now and getting less hours and being laid off more still only getting their 500$ biweekly paychecks to LIVE OFF OF but having to pay substantially more for everything. A mini version of this happened a few years ago in PA when they raised the Minimum Wage... Everyone was like w00t 7.15 an hour we're going to be rolling in it... (ha ok...) but at the same time all of the businesses raised their prices, taxes went up and hours were cut so a lot of the people made the same amount anyway....

Pumping billions of dollars into the economy no matter how they do it is going to kill the economy and the future... we can't even make enough money for our states to pay their income tax rebates let alone pay back 1trillion + dollars worth of debt...

Edited February 28, 2009 by spider87

[Guest asim]

hi spider,

i see your concerns and they are justified. yes, the current economic climate is hurting millions. that's just how recessions and low confidence work, they bring you down.

as for raising wages, as inflation rises so does your wage. that is because prices will be going up etc, thus they have to raise your wage to "keep-up". this is an old rationale.

As for my "support" for these financial injections into screwed up economies. let me put it the way I see it and many others who helped set up these programmes.

First off, it is not a freefall of money into the markets and banks. the money will be distributed after careful consideration. for example the US motor industry.

The US motor industry were at their feet and begged Washington for money. The government (under Bush) only very in the last few minutes at the time told the motor companies, "yes" we will help. the money that was given to them allowed them to have some Cash Flow to continue. More money will be given if they can prove that they can create cars that reflect the future ie Hybrid cars etc, only then will the remainding funds put into their bank accounts.

Bank accounts?

Yes, another area that needed help. In September 2008, one of the roughest months, banks were not lending to each other, they were facing huge debts and no money coming in. People panic and take their money out leaving banks dry and out of money. What do banks do? they need money to lend, invest etc etc and they charge interest.

Well , with nearly no money and nobody willing to lend, liquid clean money was needed to keep up the banking system. Remember, there was such a lack of money at disposal that the banking system in America was prone to collapsing. How do you pay your rent, your bills, where is your money deposited? Imagine your bank account was down. It will be harder for you to pay your bills without getting hit by late payment fees etc etc just because you were not on top of your finances.

Also remember, the crazy institutions the government bailed out(AIG, the Fannies and Macs), were institutions so closely linked to your own life. Your house, insurance and other things that if they went down, it would affect average households much much more and hit the Int'l market world so much with people panicking and having the lowest morale you could possibly have. Bailing those places out were crucial.

Also consider that the government did not bail out places that seemed not TOO detrimental in the long run i.e. LEHMAN bros. Nobody expected Lehman to go, dozen of my own good friends were laid off because of that. Merryl got bought out by BOA and many others were encouraged to merge with other firms and help each other out.

As for the apparent costs of these "bailout plans" and the people baring the brunt. Well, nobody says that it is a nice thing that so much money has to be invested in things that have polluted the world. Rather, all the billions could have been invested into schools and hospitals (things Obama wanted to do but can't right now). The main misconception people have is that average tax payers will have to suffer for life. NO

NO?

Here is the deal, the government gives companies money to help them survive. The government knows as history dictates that economies will have ups and downs and boy are we in a down. Things will go up again. These companies that were invested into are companies that are well known, have good educated staff, nearly new management who will all try and turn their companies around. After all they want to make money don't they?

As companies become more stable, news will spread, confidence will rise, Int'l markets will get a bit more "green", consumers like you and me will seem a bit more confident ourselves, stores put up "Times are getting better, buy these goods at 75% to celebrate better times" signs up, we go buy, more money is injected, revenues rise, more companies get better and there... the economy seems to be steering better again.

Yes that will take a little time but what is my point?

Well as the companies that owe money to the government make more money, the government will keep a close eye on that and make sure they get their money back. Therefore, the money that the government has given to the companies is not a free gift, no, much are preferred stocks etc whereby the interest levels and the dividends collected will be far higher than what the initial cash injection has been.

So if the government gave a crumbling company $10 to survive with, that company will have to pay that back. Remember much of the company belongs to the government, so if the government charges higher interests, they will be getting $15-20-25 back as opposed to just the $10 initial injection.

In the long run therefore, the government is set to make a lot of profit which also in the long run can help Obama do the "good" things he always wanted for America. That is why he is doing all this because he knows that the media loves to sell bad stories, because you would rather read how the world is ending tomorrow apparently rather than "A new species of roses were found in Asia"...

Hope that helped a little

Asim

[spider87]

I love the way you worded that post and I thank you for the information in it asim. :-)

However, I still see it a little differently. IMO, as a company in a free market fails they should be allowed to do so no matter how important their roll. Consider in GM's case, they have been doing things wrong from the beginning. With the promise to each retiree that they will have good retirement funds but rather than save and make an actual fund for them they just decided they'd take it on as another bill when it came along? It's kind of like when buying a car actually deciding to take higher monthly payments rather than making a higher down payment. As in this case you are counting on the fact that you will always be financially stable or above. With a higher down payment you are securing a lower monthly payment and also allowing for your debt to be paid off quicker. What I'm saying is perhaps with that promise their should have been an account somewhere that they just matched highly rather than just telling them they'd be secure for the rest of their lives. I have nothing against GM and personally I love chevy and pontiac but as I stated I feel if they're going to fail let them do it. Piling more money into them is just like putting more water in a rusty bucket. Eventually it's going to all be gone anyway and in some cases the more water you put into it, due to pressure, the quicker it will burst.

Also, I understand that they're not just throwing the money at us but they don't seem to be planning correctly either. Like the couple billion going towards the roads I can see how infrastructure would 'help' us but the thing is this is another case of them putting money into the economy that no one actually has. There is no backing for it and it's just kind of numbers. It is the same as if they were to just go print millions of dollars worth of money. For every bit of money they put into the economy inflation kills the worth of the USD more as evident by a couple months ago where I can't remember which currency it was but (and of course I can't find it anywhere...) it finally surpassed the value of the USD. Of course that can also be credited to their economy in some aspects but it shows the dropping value of the USD. One thing I'd suggest is a tax credit for purchasing 'American Made' vehicles. An easy to claim checkbox then VIN number or something (needs some work there haha) that you just fill out kind of like the first time house buyers credit but instead of just giving you incentive to buy a house it's giving you incentive to buy a car that's made in America. Which is the problem... Less buy them because they're more expensive or just not as 'cool' looking.

As for what you were saying about rising wages and inflation. I understood that my point was just that they kept talking about how this will help the average joe live better and do more with their money but the fact is they were making as much if not less then they were to begin with. I, personally, at the time was working at mcdonalds. I was excited as was everyone else when they raised it but looked at the next 2 weeks that would be on my paycheck and instead of the 22hrs a week I was getting I was only getting 13 each week... So instead of 117.7 gross I was going to be getting 92.95 gross for 1 week of work (first being 5.35 for 22 hours second being 7.15 for 13 hours). And everyone was in the same boat because McDonalds wasn't going to take the hit for the government so they just lessened their work force and cut hours. That was my point.

I'm sorry, I hope I don't look like I just completely ignored your post trust me I read over it and took it to heart and it was very helpful these are just the parts I still don't agree on.

[Guest asim]

spider87,

we both know that there is never necessarily a right or wrong answer, disagreements are crucial for certain discussions to uphold value.

You are correct in stating that in a free market, if your business screws up, it screwed up.. end of.

Like in the case of Lehman Brothers, who cares right? (unless you worked for them that is)

On the other hand, I believe we were faced with a situation whereby if some of the companies ie AIG and some others institutions "helped out",

were not "saved", the repercussions would have been far worse. I do not believe that Lehman's demise hurt you that much, but say the bank you bank with went down, that would screw you over. Say you took out insurance on your house, and your house burnt down (God forbid) and you call your insurance company for help and the kind lady says :"we're out of money sorry", you'd be in a huge dump (yep, the brown stuff). Many smaller companies were put in a more stable position because they were reassured that their bank accounts were still in tact.

At the end of the day, history will be our ultimate judge on that.

Hey as for Obama and his plans, i dunno bro. He needs to sort out the financial crap before he endeavours in other projects as such.

I get your point with the wage. I'll say it "Never believe the hype". Small print is everywhere , I learnt that in Law school.

Most important thing is to make sure you yourself stand upright and correct in any given situation. As the world goes through the storm, build your own persona tall and strong and be in control.

Peace

Asim

[spider87]

Asim,

I completely agree with your statement that there is never a right or wrong answer. And I understand the other side too that the business sometimes are necessary (even in GM's case) you can't let a country just go without it because it's failing. What they ought to do in that case is force reform I mean I know that's going against the free market but essentially in putting money into the economy they're buying pieces of the companies. I mean that's why some of the banks didn't want to participate in the bank bailout because they knew they'd then be obligated to report to the government but they should rather than just tossing money in and hoping for the best they should figure out ways around it. IN the case of GM, maybe even more specifics. They should figure out a way to let off the current retirees without dropping them(yes I know easier said than done but I'm trying to get ready for work lol). It's kind of like how my plan before trying to find an apartment I want to pay off my credit cards. GM is in the same situation, they're already paying all their retirees and now they're going to have even more retirees happens all the time. I know this is more just rambling in this case but I'm just saying.

But I totally see where you're coming from also and as we said there is no right answer as it's not that simple when you have 2 completely different POVs(Customer and Tax payer) on it. Tax payers are saying 'damn I don't want my money in some stupid company that can't hold itself up' while the customers(who in most cases are also tax payers) of the company are saying 'we can't let this company fail we need it'. And of course both sides are right there is no reason people who aren't gaining benefits from paying a certain company should have to do so but there's also no reason a customer that is paying in should have to worry about the availability of funds/services. There's kind of a small scale version of the latter going on where I work now. When the economy was shooting down they started cutting hours badly to the point where we only had single coverage (there was only one of us to hand customers and computers) so with a pretty constant flow of customers it was hard to get any computer work done. In this instance we ended up having a back log of a month or so. The customers paid for their services they just weren't getting done because there was no one available to do the work. They finally started giving us more hours and double coverage again and we are finally getting some stuff done but that's how it was all through January and the beginning of February. The 'tax payer' view would be if our company asked people to donate money so we could work more people at once(not the case but just to post both sides) that's my interpretation of it anyway.

I probably missed responding to something or something but as I stated I have to start getting ready for work haha

-Alex

[Guest asim]

I think you raise the points millions of others are raising amidst this pool of economic stress. they are all making sense and at the end of the day, the government has to raise the confidence that people have lost in the system and help in creating a more balanced and much more "well-looked-after" system which must never be exposed to uncalculated risk as it has been.

Alex, enjoy work and it was fun debating with ya!

*raises beer*

[spider87]

Hehe very fun indeed! I'll see you all after work! Cheers!

[Guest asim]

[fakemaster]

Keep it coming please.

[hank7502]

Could you repeat that?

[spider87]

that

[Demsey]

I'm with everyone's opine thusfar, by default, as I am on the 'fence' with regard to the President's direction here.

I really, really, am trying to suss it out, get behind the policy making but something is amiss. I cannot for the life of me see the 'stimulus' occurring with the plan that is laid out. The core of it, I thought, that I presumed and took stock in despite my vote to the opposition; termed: Shovel Ready infrastructure projects seem to only be a small portion of a disguised 'spending bill'. To say that I am let down thus far with the particulars of the Stimulus Plan and Budget would be a gross understatement. My biggest complaint of the past administration was gross government spending and increase of the deficit, even outside the war chest. I do not see any 'Change' here. In this area, this is indeed the McSame.

It is not a case of; "President Obama has only been in power a month", nor one of "Give the plans time to work" as the general consensus that Barack Obama's imminent election and 'direction' for the country was known last Summer when Lehman Brothers took the fateful dive and the polls swung wildly on issue of "It's the Economy stupid". Since the writing was on the wall then, the market indicators have steadily declined, the DOW falling 2000 points since his inaugeration alone hanging on in quiet desperation for particulars but poorly receiving his intentions with current legislation. So far he has kept his campaign promises and is initiating the plan. The Economy be damned. There is absolutely zero confidence here from corporate America. The free market has fallen in step, proportionally, with the ramping up of the new adminstration's agenda. I have no faith in a Budget pan 'working over time' if I cannot get behind the mechanics of the thing in the first place.

The detractors are now rallying behind a new propaganda slogan, that was first noted here by our own 'robertk'; "We hope the President fails!", which sounds seditious enough and on the face of it, it is, but the putsch behind the reality is that the opposing pundits hope these 'plans' and 'policies' fail. They hope the 'President' succeeds, but in some opinions that will hinge on his abandoning some of his philosophical positioning on the 'social landscape'. In a phrase; "Change for America is good, changing America will not do." And I have to agree; I do not want universal health coverage, I do not want fuel and commodity excise and income tax unbridled, governemental growth into education, retirement, households, blossoming deficit spending, failing corporate control of capitalism and the loss of the entrepreneurial momentum. If that is the plan, I may as well leave back for the 'Old Country' before I get too far removed from my roots and more aliented from kin through any more generations. If this is to be "Europe" I may as well be in "Europe". They have nicer architecture there and it is the place to be if you see no other place that is 'different' nor 'better'. I don't think my Grandfather would have dragged my Dad and Grandmother across an ocean for that "America".

So, what don't we know? Because as citizens, we don't know a lot of what the President does. Or do we know? It's only open to 'speculation' then, so every opinion is valid. Here.

Edited March 2, 2009 by Demsey

[fat.tail.event]

Since Chief kicked this thread off with a Jim Rogers quote, I will throw this out and paraphrase another one.

We also seem to make a lot of medical analogies on here, so it fits well...

"The government is putting band-aids all over a cancer patient"

[Demsey]

"The government is putting band-aids all over a cancer patient"

Yes. That does fit the bill. Or how about;

"What doesn't kill you will only make you stronger.............................unless, of course, it does kill you".

[Pugwash]

IMO, as a company in a free market fails they should be allowed to do so no matter how important their roll.

Show me a free market. One without subsidies, import or export duties, laws on ecological responsibility or child labour. True free markets don't exist, and there's a reason for that.

[robertk]

Yes. That does fit the bill. Or how about;

"What doesn't kill you will only make you stronger.............................unless, of course, it does kill you".

This will be a killer. Or as the famous navy song went "we're in the [censored] now".

But the truth is "nobody knows anything" is still valid.

[Demsey]

"nobody knows anything"

I'm thinking about getting this made up in a vinyl bumper sticker and selling them on the 'Bay. With my luck it would probably launch me into the 35% tax bracket. And break even for my trouble. I could however, consider a good 1000 ft. of the 'new' Interstate 4 passing lane as 'mine' and reel on my patriotism.

Edited March 2, 2009 by Demsey

[Fidestro]

I have not read this whole thread, but is anyone else [censored] off that Obama was at a BASKETBALL game the other night? I am not out watching the Bulls get the [censored] beat out of them and I have a lot less problems than Obama. Hey President, get your ass back in the office and fix [censored]! Is this the Change he talked about?

[robertk]

I have not read this whole thread, but is anyone else [censored] off that Obama was at a BASKETBALL game the other night? I am not out watching the Bulls get the [censored] beat out of them and I have a lot less problems than Obama. Hey President, get your ass back in the office and fix [censored]! Is this the Change he talked about?

I agree......Now, if it had been a Soccer match?