Just Curious

[LegalEagle 22]

Countrywide is taking a 13% drop in pre-market trading. Did you buy and sell yesterday?

[otterinbham 0]

Countrywide is taking a 13% drop in pre-market trading. Did you buy and sell yesterday?

Nope...I didn't get around to it. Yeah, yeah, I know. Physician heal thyself.

[otterinbham 0]

Here's a really great analyst, Anatole Kaletsky, with his thoughts. I have followed him for years, and he can always be counted upon for level headed, non-hysterical commentary. This was in today's London Times:

Goodbye to all that: the worst is over for the global credit crunch

Anatole Kaletsky: Economic view

Global stock markets have suffered their worst early-January trading since records began in the 1920s. Conventional wisdom is again overwhelmingly gloomy - about the global economy, the asset markets and even the sustainability of the global financial and trading systems. However, conditions are not nearly as bad as the headlines and market pundits suggest. In Britain, there seems to be almost no chance of economic and financial disasters comparable to those suffered from 1990 to 1992.

In the 17 years that I have been writing these Economic Views, I have devoted my first article in January to challenging, where appropriate, the conventional wisdom about the world economy in the year ahead. Here, then, are five ways in which I think conventional wisdom seems worth challenging in 2008:

1. I believe that the global credit crisis, far from taking a turn for the worse, is now almost over. Since the beginning of this year, credit spreads in the inter-bank market have returned to normal. This is the first sign of the financial system beginning to heal. In the next six weeks all the leading banks will report their year-end results and will announce further big write-offs to cope with the sub-prime crisis. There is a decent chance that investors will recognise these as the final big write-offs. The banks will then recapitalise and return to more or less normal operations.

If, however, this market-based resolution of the credit crisis does not occur and investors continue to question the integrity of bank balance sheets, the world’s monetary authorities will, I suspect, come out with a Plan B. At a minimum, there could be some new international agreement on new models for valuing illiquid assets such as the mortgage-backed securities now paralysing the banks.

At the maximum, the US and European governments will announce public backing for their national mortgage and banking systems – similar to the action already taken by Gordon Brown to guarantee the deposits in the entire British banking system. The credit crisis will have to be resolved by the end of February, if not by the markets, then by governments and central banks. The world economy simply cannot afford to wait much longer for normal service by the banking system to be resumed.

2. There will be no US recession. Until a few days ago, this would not have qualified as an unconventional prediction, since almost no serious economic forecasters anywhere in the world were predicting a recession. In the past week, however, Merrill Lynch, Goldman Sachs and Morgan Stanley have all publicly said that a US recession this year was very probable and may well have started already. I still believe it will be avoided because US interest rates are so low that businesses and consumers will go on spending – and, even more importantly, the Federal Reserve Board has now indicated a willingness to cut interest rates aggressively and keep cutting until the economy revives. Having said this, I must admit that a recession now looks much more likely than it did even a month ago. Whether a recession occurs or is narrowly avoided makes a big difference, because any market economy is similar to an aircraft that has to fly at a minimum speed to avoid crashing. History shows that the US economy’s “stall speed” is around 1.5 per cent in terms of GDP growth. If it slows any further, it is liable to crash and suffer a period of significantly negative growth. In the remaining predictions, therefore, I will give two variants, depending on whether the US crashes into recession or manages to stay aloft.

3. Stock markets around the world will rise in 2008. Valuations of many companies are now very attractive, even on the assumption of a severe slowdown in global growth and a year of falling profits. Moreover, investor sentiment is more bearish than at any time since 1990 – suggesting that a lot of very bad news has already been discounted in market prices. This means that if there is no recession, shares probably should stabilise at around present levels, but may not make much progress until the second half of the year. If, on the other hand, the United States does sink into recession, Wall Street will suffer a more severe bear market in the next few months, but prices will start to rebound sharply well before the recession ends. This recession rebound should start once US short-term interest rates fall well below long-term bond yields. This should happen by March, assuming that the Fed cuts interest rates from the present 4.5 per cent to around 3.5 per cent.

Either way, equity prices are likely to end 2008 at higher levels than they began. In Britain and Europe, interest rates are also likely to be reduced by at least 1.5 percentage points in the 12 months ahead.

But the rate cuts will happen later and more slowly. This is one reason why the outlook for the US economy and stock market is a lot better than it is for Britain and Europe.

4. The much-discussed “decoupling” between America and the rest of the world economy will happen in the case of Asia, but not Europe. Asia will continue to grow rapidly this year. However, Asian stock markets will not decouple if the US sinks into recession and Wall Street therefore suffers a full-blown bear market. In that case, Asian equities will suffer even bigger falls than US shares.

Europe and Britain, by contrast, will certainly be dragged down if the US sinks into recession and will do relatively poorly even if (as I expect) the US slowdown turns out to be less severe.

The main European economies, apart from Germany, have been powered by exactly the same combination of rising house prices and easy credit as the US economy. They are simply 12 to 18 months behind the US in the same credit cycle. Germany, meanwhile, is very dependent on the strength of consumer demand in the rest of Europe. The best that Europe and Britain can expect, therefore, is a performance in the economy and housing markets similar to America’s in 2007. If the US suffers a recession, the housing and consumer slumps in Europe and Britain will be that much more severe.

5. In the currency markets, sterling will continue to fall against every other leading currency, partly because Britain is so vulnerable to a serious setback in housing. By the second half of 2008, however, the euro will take over from the pound as the pariah of the global currency markets, since the eurozone will ultimately suffer more than Britain from the slowdown in the global economy because the European Central Bank will resist making the inevitable interest-rate cuts.

This intransigence by the ECB will cause serious economic and political disruptions in Europe – and could even raise questions about the euro’s survival as a reserve currency in the long term.

[CCTAU 3,349]

So according to this, the best bet is to stay domestic until the last quarter. Then buy Asian low?

[otterinbham 0]

So according to this, the best bet is to stay domestic until the last quarter. Then buy Asian low?

No way of telling. I don't fiddle around with foreign equities in Asia. One, I don't understand them. Two, except for Japan, their financial markets are not nearly as well regulated as ours. Three, most of them are not politically stable.

[LegalEagle 22]

By the way, here are two stocks that bear close examination. I think both represent opportunity.

Citigroup. Yeah, it's taken a dive because of its exposure in the mortgage market. But nobody can tell me that this company is going away. It's off 50% since last June, and may go lower. But this company is very strong, has written off most of the losses it's taken, and should be coming back over the next two years. To me, it's a bargain at the moment and should be a good long-term investment.

[/url]

Hey Otter,

I bought $10k of Citigroup on 1/9/08 to secure the "bargain at the moment" you posted your recommendation. I haven't had a chance to check my profits yet. How am I doin'?

[otterinbham 0]

By the way, here are two stocks that bear close examination. I think both represent opportunity.

Citigroup. Yeah, it's taken a dive because of its exposure in the mortgage market. But nobody can tell me that this company is going away. It's off 50% since last June, and may go lower. But this company is very strong, has written off most of the losses it's taken, and should be coming back over the next two years. To me, it's a bargain at the moment and should be a good long-term investment.

[/url]

Hey Otter,

I bought $10k of Citigroup on 1/9/08 to secure the "bargain at the moment" you posted your recommendation. I haven't had a chance to check my profits yet. How am I doin'?

Looks like you've lost a couple of bucks a share. I'm guessing about $660. You'll lose money on it for a while since, as I said in what you quoted, it will go lower still. However, analyists are giving it a Hold or Neutral recommendation, so that's a pretty good sign over the long haul.

[LegalEagle 22]

By the way, here are two stocks that bear close examination. I think both represent opportunity.

Citigroup. Yeah, it's taken a dive because of its exposure in the mortgage market. But nobody can tell me that this company is going away. It's off 50% since last June, and may go lower. But this company is very strong, has written off most of the losses it's taken, and should be coming back over the next two years. To me, it's a bargain at the moment and should be a good long-term investment.

[/url]

Hey Otter,

I bought $10k of Citigroup on 1/9/08 to secure the "bargain at the moment" you posted your recommendation. I haven't had a chance to check my profits yet. How am I doin'?

Looks like you've lost a couple of bucks a share. I'm guessing about $660. You'll lose money on it for a while since, as I said in what you quoted, it will go lower still. However, analyists are giving it a Hold or Neutral recommendation, so that's a pretty good sign over the long haul.

Thanks Otter for your reply. I haven't lost a dime. I didn't buy - just "funnin'" with you. I still believe we have not hit bottom yet.

Thanks again,

LE

[otterinbham 0]

Damn. I hate it when I get serious about myself. I hate myself now.

[LegalEagle 22]

Damn. I hate it when I get serious about myself. I hate myself now.

Well, I like you.

But, back to my original post - things ain't lookin' so great on the economy front are they? I don't see anyone coming to the front and taking credit for it like they did when things "appeared to be" going well. Imagine that.

[otterinbham 0]

Damn. I hate it when I get serious about myself. I hate myself now.

Well, I like you.

But, back to my original post - things ain't lookin' so great on the economy front are they? I don't see anyone coming to the front and taking credit for it like they did when things "appeared to be" going well. Imagine that.

Well, we're not exactly talking about a depression here. I think the financial press has forgotten what a real shock to the system feels like, hence the apocolyptic articles.

[Bottomfeeder 244]

I bought $10k of Citigroup on 1/9/08 to secure the "bargain at the moment" you posted your recommendation. I haven't had a chance to check my profits yet. How am I doin'?

OMG

[otterinbham 0]

I bought $10k of Citigroup on 1/9/08 to secure the "bargain at the moment" you posted your recommendation. I haven't had a chance to check my profits yet. How am I doin'?

OMG

BF. It's not like buying a lotto ticket. You buy and hold for years. People who watch their stocks day-to-day really shouldn't buy stocks.

[TexasTiger 13,028]

The economy is great! The media just won't report all the good news!

[Bottomfeeder 244]

I bought $10k of Citigroup on 1/9/08 to secure the "bargain at the moment" you posted your recommendation. I haven't had a chance to check my profits yet. How am I doin'?

OMG

BF. It's not like buying a lotto ticket. You buy and hold for years. People who watch their stocks day-to-day really shouldn't buy stocks.

I believe it is just like buying a lottery ticket.

I understand the buy and hold concept, I just don't practice it anymore. I prefer option plays and then investing that money in a CD or gold. It's kind of like taking the buy and holder's money. Many pension funds are buy and hold, along with securities/cash/gold, in other words well diversified. In these days of uncertainty, I take nothing for granted, especially with the present inflation rate. I'll even go as far as to short the Federal Reserve Note because they're worthless and everyone knows it. I just don't agree that this is a time to buy and hold anything valued in Federal Reserve Notes.

[otterinbham 0]

The economy is great! The media just won't report all the good news!

I didn't say that. What I did say is when the economy is down and stock prices reflect that, it's time to do some bargain hunting on stocks that will be around for the long haul. In other words, buy low, sell high.

[TexasTiger 13,028]

The economy is great! The media just won't report all the good news!

I didn't say that. What I did say is when the economy is down and stock prices reflect that, it's time to do some bargain hunting on stocks that will be around for the long haul. In other words, buy low, sell high.

I didn't say you did. I was referring to a not so uncommon refrain on this forum regarding the economy.

[Bottomfeeder 244]

Recession fears unsettle markets

Fears of a recession have gripped markets in recent days

Fears of a recession sent US shares reeling again, after weak manufacturing data and a massive loss at investment bank Merrill Lynch unsettled investors.

The benchmark Dow Jones industrial average fell 306.95 points, or 2.46%, to close at 12,159.21.

A survey showed that factory activity in the US mid-Atlantic region slowed to levels that typically signal recession.

Merrill shares dropped 10.2% to $49.45 after the firm reported its biggest quarterly loss in its history.

It made a net loss of $7.8bn (£3.9bn) in the 12 months to the end of December from a net profit of $7.5bn in 2006.

In the final three months of 2007 alone, it chalked up losses of $9.83bn

European falls

"Fear and pessimism is really beginning to dominate Wall Street," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

"More data showed weakness in the economy, and Merrill Lynch took a write-down the size of which, until recently, would have seemed unfathomable."

The Standard & Poor's 500 Index was down 39.95 points, or 2.91%, at 1,333.25, a 15-month low, while the tech-heavy Nasdaq Composite Index was down 47.69 points, or 1.99%, at 2,346.90.

European stock markets also closed lower, though the falls did not match the magnitude of US markets.

The FTSE 100 index was down 0.68% at 5,902.40, while Germany's Dax dropped 0.78% to 7,413.53.

The steep falls came despite hints from Federal Reserve boss Ben Bernanke that more interest rate cuts were in the pipeline to shore up the economy.

http://news.bbc.co.uk/2/hi/business/7195262.stm

[LegalEagle 22]

Just consider the impact on retirees if we had replaced Social Security with individual investments. Even the pros get hosed on the market every now and then. A novice investor is in a crap shoot.

[otterinbham 0]

The market will almost certainly take a hit on Tuesday...could be a bad week.

[TexasTiger 13,028]

The market will almost certainly take a hit on Tuesday...could be a bad week.

Could be a bad year.

[otterinbham 0]

The market will almost certainly take a hit on Tuesday...could be a bad week.

Could be a bad year.

Yep. This could go one of two ways. Either a total meltdown á la 1979-81, or a mild speed bump like we experienced in 2000-2001 (Yeah, I know it didn't feel that way, but compared to recessions past...).

I think the entire world is watching and waiting for the Treasury Department and the Fed to do something and do something fast. You know, purists are wringing their hands wanting the Fed to not lower rates so that the market can do its work. At the same time, it's important to remember that the Fed caused the Great Depression. The Stock Market Crash in 1929 was a shock to the system, but the real misery was caused when the Fed actually tightened the money supply. It was akin to spraying gasoline on a fire. Add the Hawley Smoot Tariff Act, which destroyed international trade, and the government made some seriously boneheaded decisions in the late 20s and early 30s. Here's hoping that some adults are running the show up in Washington this week.

[Bottomfeeder 244]

The market will almost certainly take a hit on Tuesday...could be a bad week.

Could be a bad year.

Yep. This could go one of two ways. Either a total meltdown á la 1979-81, or a mild speed bump like we experienced in 2000-2001 (Yeah, I know it didn't feel that way, but compared to recessions past...).

I think the entire world is watching and waiting for the Treasury Department and the Fed to do something and do something fast. You know, purists are wringing their hands wanting the Fed to not lower rates so that the market can do its work. At the same time, it's important to remember that the Fed caused the Great Depression. The Stock Market Crash in 1929 was a shock to the system, but the real misery was caused when the Fed actually tightened the money supply. It was akin to spraying gasoline on a fire. Add the Hawley Smoot Tariff Act, which destroyed international trade, and the government made some seriously boneheaded decisions in the late 20s and early 30s. Here's hoping that some adults are running the show up in Washington this week.

Fast forward a couple of months. Now what do we see? Who's next, Citigroup, Fannie or Freddie?

I still like my chances with hard assets like gold.

Cramer is preaching safety now and had life jacket on tonight, LOL. I never use that kook's recommendations. I do my own research and get information from people I trust. I never trust the media.

LOL! Watch this Cramer a week ago:

http://www.youtube.com/watch?v=4sZCNlPwG8o

Please read this article from Gary North:

http://www.lewrockwell.com/north/north613.html

I guess most of you still think I'm a kook, that's kewl.

The media explanation of the Fed's program caused some loses. Never listen to the media, they are not your friends and trusted associates. I "laughed out loud" today listening to Paulson's interview.

Gary North again:

http://www.garynorth.com/public/3234.cfm

January 13, 2005

http://www.stls.frb.org/news/speeches/2005/1_13_05.html

Liquidity Risk

Fannie Mae and Freddie Mac must roll over roughly 30 billion dollars of maturing short-term obligations every week. At a time of disrupted financial markets, the credit markets might refuse to accept the F-F paper. Fannie Mae and Freddie Mac recognize this risk and both firms indicate that they maintain sufficient liquidity to survive for some time (3 months or longer) without access to rollover markets. However, the U.S. General Accounting Office (1998) has pointed out that holding securities in their investment portfolios for liquidity purposes represents a highly profitable arbitrage for both firms, since the return on the assets exceeds the cost of the agency bonds used to fund the positions. Therefore, if Fannie Mae and Freddie Mac are unable to sell new debt, then they may also be unable to carry out sales of the “liquid” securities from their investment portfolio.

I discussed liquidity risk at some length in a speech last spring.(8) I won’t repeat that analysis, but the bottom line is simple: The Federal Reserve has adequate powers to prevent the spread of a liquidity crisis, but cannot prevent a solvency crisis should Fannie or Freddie exhaust their capital. In the event of a solvency crisis, the market would become unreceptive to Fannie and/or Freddie obligations; they would have difficulty rolling over their maturing debt. Moreover, their outstanding obligations would decline in price and their markets would become less liquid. Beyond that, it is hard to say exactly what else might happen.