Post #305,295
3/9/09 9:20:02 PM
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That's 20th Century thinking. Get with the program!
If you haven't seen it, check out Roubini's thoughts about where the market may end up:
http://www.rgemonito...ts_go__much_lower (free registration)
What are the downside risks and the upside risks to these bearish predictions for US and global equities. On the downside we have argued here that there is at least a third probability of a L-shaped global near depression rather than the mere current severe U-shaped recession. If a near depression were to take hold globally a 40% to 50% further fall in US and global equities from current levels could not be ruled out. But in this L-shaped near depression the last thing one would have to worry about would be stock markets as more severe issues would have to be addressed (unemployment rates in the mid-double digits  15% or above - and multi-year stagnation and deflation).
On the upside one could argue that the aggressive policy stimulus in the US and other countries will lead to a faster sustained economic and financial markets recovery that expected here. We have discussed why this Âsustained as opposed to Âtemporary in Q2-Q3 recovery is highly unlikely to take place. But the bullish argument for a non-bear market and early persistent recovery of global equities is based on a better than expected recovery of the US and global economy.
More excerpts are at CR: http://www.calculate...-be-36-month.html
Until demand picks up, prices will keep falling. Demand probably isn't going to pick up significantly without a significant plus-up of the federal stimulus plans. $800B won't fill a $2.9T hole very well... http://mediamatters....060025?f=h_latest I wonder what it'll take to light a fire under Congress again.
Cheers,
Scott.
(Who hasn't taken the time for the WSJ registration yet...)
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Post #305,303
3/9/09 11:14:22 PM
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I've got it! Lottery tickets!
OK, you've got these loser companies that nobody wants to own stock in, because the stock's worthless because nobody wants to own stock in them.
So it looks like the only way to turn the market around it to do something stupid involving having the government buy up the crap assets, and there is all this "
oh, what can we do" where they are trying to figure out what value to put on the assets, because if the government pays too little the private interests aren't going to invest and if they pay too much, well, they pay too much. Like most dilemmas in the real world, this one is a result of trying to lie. The assets don't have a value because they are crap, not because nobody is smart enough to figure out the value. The value is JACK. The lie is that it is something more.
So here's my solution. The government buys them, but not for cash - for lottery tickets. Let's say you have an asset with a face value (or equivalent pretend value) of a billion, that's maybe worth 10M. The asset is converted to lottery tickets. One lucky holder gets 20M and everybody else gets receipts that can be recycled.
Look into the psychology of lotteries. It works. Granted, it doesn't work with people who are paying attention, but these are people who bought derivatives they didn't understand.
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Post #305,307
3/9/09 11:43:43 PM
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That makes a lot of sense.
It's a shame it won't work. :-(
As you say, a lot of the toxic assets are worthless. They're still on the bank's books as having some value and contributing to the bank's capital. As I understand it, if the banks have to put them into a scheme and that scheme values them at something approaching their "real" value, then banks risk being (finally) recognized as insolvent. At that point, they're out of business. And other banks that count on their investments in that bank as having some value are forced to recognize that that investment is damaged. And so on.
The lottery tickets idea has an appeal, but doesn't help the "every bank owns a piece of every other bank" problem.
That's why the Treasury is continuing to tinker with TARP and so forth. They want to keep the banks operating, somehow, without the system imploding. Maybe they're thinking that something like Japan's Lost Decade wasn't such a bad outcome after all. http://krugman.blogs...pan-reconsidered/
Cheers,
Scott.
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Post #305,306
3/9/09 11:33:57 PM
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Let's talk real economy
Until demand picks up, prices will keep falling.
Everyone in the media keeps pretending the Dow is the economy. It's not. GM doesn't suddenly sell more cars because their stock price goes up ... or down.
What are we making?
What are we buying?
What are we selling?
You know, real economy. --
Drew
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Post #305,308
3/9/09 11:54:41 PM
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Understood.
People will invest in GM or GE or AT&T when they feel that the risk of investing in them will pay off more than sticking the money in the bank or a bond. That means they think the company will have growing profits. That generally results from growing sales, meaning more customers or the same customers buying more.
So, people have to buy stuff so that prices will stop falling. Then, stock prices would stop falling.
You're right that the press conflates the DJIA will the stock market as a whole, and worse than that, as the economy as a whole. TV especially, likes nothing more than reducing complicated topics to an "objective number". The stock market and the economy exist in the same world, but they aren't a proxy for each other.
That's why I made the flippant remark about 20th century. Remember the .com boom? How some people argued that profits had nothing to do with stock values? It's wacky the things that get published. I think that sober people are recognizing that fundamentals eventually have to be paid attention to...
Cheers,
Scott.
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Post #305,310
3/10/09 12:16:59 AM
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I got the sarcasm
I just think you're giving investors too much credit if you think that they're buying because they think the company will have growing profits. They buy stock because they think the stock will grow.
--
Drew
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Post #305,316
3/10/09 1:57:42 PM
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go to vegas, your chances are better than the market
when the p&e settles around 10 (roughly 6500) it will settle out. I do remember a story about a guy that bought RCA in 1929 and held it until it regained to what he purchased it for. 1969 or thereabouts.
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Post #305,319
3/10/09 3:23:17 PM
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Good point
Making money by timing the market, like all gambling, is a zero sum game. Anything you win is coming straight from someone else's loss. Whenever it seems like the whole market is up, that's just paper earnings. You can't cash out without someone else buying in, so there's no way for the entire market to be winning at the same time. Just can't happen. (And let's not bring up the vig ... excuse me, the fees.)
When GM sells a car -- let's pretend we're talking about a time when that was happening profitably -- GM gets the money from the sale, the buyer gets a car, the workers get paychecks, the stockholder get a share of the profits. Everyone wins.
When your business model is timing stock fluctuations, you can win or lose regardless of how many cars GM sells. Workers are laid off, potential customers don't have new cars, there's no dividend, but hey, you shorted the stock, so you still made money. Someone else lost, though. It's less than zero sum.
--
Drew
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