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Thursday, August 27, 2009

No longer riding on the merry-go-round

The stock market continues to climb, while hundreds of additional bank failures are expected and true unemployment is the worst since the Great Depression. Do investors really think things are going to turn around soon for the nation as a whole? Or are they betting they can make a quick buck while the economy in general sinks deeper? Either way, some of us on the sidelines won't be inserting ourselves back into the game any time soon.

Comments (18)

I think the Fed has rigged the stock market for several reasons. First is the always popular greed - if the system is heading for default on our debts anyway, let's go out with a scam.
I also believe the government is desperate to keep investors happy. They know if this segment goes "Iceland" on them, there could be some immediate problems. Anything to buy some time.
The government and Fed have to be running scared, trying to manufacture the appearance of green shoots by pumping trillions of dollars of Miracle Grow into the garden. But all they're getting is those carnivorous Venus Flytraps chomping down on everything.
Still, appeasing the investors for as long as possible makes sense. When they go town hall it really will be over.
I don't know how many times - during discussions with the right wing about Bush's transgressions - I would get a comment on my old blog that basically said, "I don't care what he's doing because my portfolio is soaring and my house is worth so much more now."

In short, the Fed is trying to buy off the segment of the population that takes stocks very seriously. God knows it's worked before, but I doubt it will work much longer this time around.

As far as consumer confidence, my theory is that the famous American attention span has "been there and done that" with this recession, and is ready to move forward. Remember how Iraq really mattered, then it stopped being an issue?
The trouble with our economy is that the problems are so big that consumer confidence will have little impact - especially when it falters again. We could be heading for a "Who are we kidding?" drop.
So for now we pretend we're bouncing back - that we're almost done with this crisis, but in reality, it is far from done with us. Stay tuned and make sure you have a 6-man tent so you won't feel too crowded when the revolution starts.

Judging by what they say on the tube, they all know it will go bust, but in the meantime, they just shuffle the money for fun and profit. What else can they do? This is no time to be looking for work.

So how are you going to put your money to work during stagflation -- in new (failing) ventures or government bonds (plummeting value)? In banks that give you yields that don't even cover inflation? Or real estate (actually, on a selective basis a screaming buy right now if you have a long term horizon)?

Commodities will do fine. Incumbent corporations will do fine. Ironically, that can lead to a populist revolt, and higher taxes which will hurt the economy even more. To get out of using printing presses to fund the debt problem we will have to endure a second round, big W recession and learn to live with a smaller government vision. Then and only then will the economy get beyond the persistent high unemployment that is coming.

As an income earner, a saver and an investor this is not the economy I want, but it is the economy I have unless we are willing to endure the big W right here, right now.

Commodities, maybe. "Incumbent corporations"? I'm not sure what that means. Isn't GM "incumbent"?

and Bill...don't leave out the newly discovered 'rat eating plant' in the Amazon...I think that might be the banks! in your analogy.

Good point.

To get more specific (and nuanced as they like to say these days) I would say surviving, publicly traded incumbent corporations should, as a general rule, do fine. GM is like a start-up at this point. Their stock is out of all the indicies and off exchanges. GM doesn't know where it is going and has no idea how to get there. On that score, no change from the last 20 years.

Incumbents should do well in a stagflation because they survived and will have pricing power in a less competitive (the weakest are gone or hamstrung) and more inflationary environment. Their profitability advantages will be offset by weak economic growth, so the adjective is fine rather than something more glowing.

And if by some miracle, economic growth, low employment, and low inflation occur, having a portion of one's asset in the stock market would be a godsend. The usual qualifications about diversification always apply, it's a question of personal risk preference, emphasis and mix.

Right now I am about half as much invested in equities as I was before March 2007 because the risk is greater and my road to retirement is closer and clearer.

The story shifts if stagflation fades as the most likely outcome.

Always hoping to learn more.

Oh well - if you aren't invested in the stock market or any mutual funds, you can enjoy those sub 2% interest rates the banks and credit unions are passing out. As an active investor, I've already made up for all of my market losses in 2008 and made some profits with conservative bonds funds and mostly S&P 500 stocks. Keep in mind that a number of well known stocks like Microsoft, Chevron and United Technology are paying close to 3% in dividends in addition to any upside the stocks already have. Charles Schwab even has a Visa that pays you back 2% of your purchases every month. There are lots of investment options out there - but you have to get out there to make them - not hope someone else will do the work for you.
One last item - the political hacks and appointees that oversee the Oregon PERS system have lost a large fortune in 2008-2009 - along with California and Washington State. Guess who gets to make up for those losses?

Makes me wonder why I even bothered being a productive citizen.... by the time I retire Social Security will be cleaned out by illegal action to cover govt debt and my 401K will likely be worthless....

This ought to be the theme song for Boomers like me.....

The government and corporate America have left us nowhere to run and nowhere to hide...

Portland Native,
I did see that story about the rat-eating plant they just discovered. Quite something although the scientists implied the plant was big enough to eat a rat, but I don't think they actually saw a rat go in one. Still, a very hopeful story, isn't it? I mean picture what that could do for New York.

One other reference update: The old "going postal" reference should now be "going town hall."

Reading the posts on the economy and listening to the news reminds me of a quip from a century ago:

(with apologies to Grover Cleveland)

Ma, ma, where's my Pa?
He's drinking the Kool-Aid, ha ha ha!

Note that the combined assets of the >400 banks on the current list total $300B, or less than the $307B in WaMu's assets that the FDIC's Sheila Bair gave to JPM's Jamie Dimon last Sept 25th for a microscopic $1.9B.

Recall that, last May, JPM advised that it expects to clear at least $29B in profits on the "toxic assets" acquired via Ms Bair.

Recall also that JPM eliminated 14,000 jobs -- very many in the NW -- after obtaining WaMu from Ms Bair.

Add in the many $millions in the 401(k)s of former WaMu employees that dissolved following the transaction arranged by Ms Bair.

The damage done to OR and WA by Ms Bair's rash assault upon WaMu is very deep: she has taken enormous resources from the NW for the benefit of the publicly subsidized "too-big-to-fails" of Wall St Nation.

There is no reason to have any faith in our financial system until transparency regarding the events of last September is achieved. That transparency must include a truthful assessment of the non-performance of the financial regulatory agencies -- OTS, FDIC, SEC -- in the dissolution of WaMu.

Whether the bankruptcy hearings underway in DE will provide sufficient transparency remains to be known.

Dave A., I forgot to ask:

Can you offer an estimate of how much OR PERS, along with similar pension funds in WA and CA, lost when OTS seized WaMu for Sheila Bair and JPM last Sept 25th?

Gardiner: I'm not sure about the size of the losses to OR PERS when WaMu was seized; but had an article recently that listed the Billions that OR, WA State and CA lost via hedge fund and "private placement" investments in 2008.
This hurts everyone in the state because the PERS shortfalls will have to be made up with tax revenues we don't have right now.

Any 'scheme' to make money based on things like 'bid', 'asked', 'spread' is nothing but a con game.

It's legalized gambling using 'ponzi' as the model.

Stay out just on ethical grounds, its a fake, it produces nothing.

I worked by behind off for 25 years at the same company. I was rewarded with a generous 401K when the company was sold.

I turned it over to a private financial company that invested it in a great portfolio. Over the years I made a great percentage rate and felt confident that I would be able to retire on time.(like all of us)

Oops, financial meltdown, half of it has disappeared to somewhere. I will be working the rest of my life.

But here is what I wonder, Why can't the regulations be flexible and allow a person to withdraw the existing monies out without a %30 penalty?

I realize that the cheat and abuse factor is there and the rich would take full advantage of it. But the little guy should be able to cash in the remainder to protect what is left. I could prove that I have no extensive assets or income.

It could be put into dozens of safe institutions but earn a lower rate.

Heck I could do better dabbling in the black market and do as well as what is going on now. It is just as reckless and volital.

Once again the little guy is screwed.

WSJ has offered this telling visual representation of the size of the theft of WaMu by Paulson, Bair, and Dimon:

The data in the list complement the graphic impact of that one premeditated, collusive act. IndyMac, which some in this forum have invoked as a "just like" event, was about 1/10th the size of WaMu, yet the transfer of assets took several months, unlike WaMu's $307B in assets that were taken and given in less than a day.

And here's an update on what gunslinger Henry Merritt Paulson, Jr, is doing since leaving Treasury:


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