Helocs and refis are dead..consumer drive dead.

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MC Lovin's picture
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For the 34 million households who took money out of their homes over the last four years by refinancing or borrowing against their equity — roughly one-third of the nation — the savings rate was running at a negative 13 percent in the middle of 2006, according to Moody’s Economy.com. That means they were borrowing heavily against their assets to finance their day-to-day lives. 

Real estate values have plumeted, lenders have tightened, solvency is an issue for all levels of finance. Line of credit on home equity are now dead..and so it this consumer driven "growth economy".   We have been in a technical recession since 1999 on the macro (dollar value level).  Where does the growth come from now? What is left for the feds and the economic powers to pump into the system to keep this facade going?  That question scares me.
 
M

doberman's picture
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The Fed is running out of levers to pull. Maybe the Chinese will help us out by devaluing the yuan vs. the dollar, buy some mortgage CDO's/SIV's, or maybe just maybe their sovereign wealth fund will bail-out the bond insurers.
 
Uh huh, yeah right...

Ashland's picture
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MC - Due to your message of hope & optimism, I'm planning on writing you in for President in Nov. You know, when the stock market will be back above $13,000.

josephjones107's picture
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will get through this credit crunch just as we've gotten through ever other crisis. we seem to have a major crisis every 3 years or so

Broker7's picture
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 Brace for the possibilitiy of 5-8 P/E ratios due to this "credit crunch"

Indyone's picture
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Broker7's picture
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Yeah..I think the  6.7 PE ratio we had in 1980 was hilarious!!

newnew's picture
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have a little faith MC! What about the ingenuity/productivity of the American worker? what about tech advances? you continue to sound like these clients that think "we're all going down...just you wait". PLEASE

Indyone's picture
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Broker7 wrote:Yeah..I think the  6.7 PE ratio we had in 1980 was hilarious!!
 
...yeah...interest rates are exactly what they were in 1980...

Broker7's picture
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I'm glad you understand. This situation would be recoverable for the near term if we had high interest rates. Lil' Ben has a few more cuts left... and then?
 

Indyone's picture
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I remain unconvinced.  Why don't we just let hindsight settle this?  Pick a number for the S&P 12 months from now and I'll pick one.  In one year, we'll see who was closer, OK?

doberman's picture
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Indyone wrote:I remain unconvinced.  Why don't we just let hindsight settle this?  Pick a number for the S&P 12 months from now and I'll pick one.  In one year, we'll see who was closer, OK?
 
Can we pick negative numbers?

doberman's picture
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On a separate note, I just read that former Fed Chief Volker is endorsing Obama.
 
Huh?

Indyone's picture
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Dob, sure you can, but I was thinking more like ending index values rather than returns...

MC Lovin's picture
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The numbers guessing game is an impossible one to peg.  I've never made a guess other than saying Bull or Bear as there are too many variables to factor in.   In a 12 month period, the dollar could fall significantly, giving us a decent dow and snp number, the war could be escalated to a new level manipulating the markets.  The list goes on and on.  But the status of the economy is dire without a total change in fundamentals that cannot occur without a crash.
 
 Even the feds are looking for a total market reset.  D. Lockhart said today :"I see the U.S. markets headed toward a "new normal," not a return to normal."   That is a profound statement coming from Lockhart, a total reorganization of economic reality, and a transformation in our way of thinking about, and ordering, life in general, a fundamental change in our lifestyle.
 
I am expecting the big bear to continue as I have for a while now.   Agree or disagree, it is just my opinion.
 
MC

troll's picture
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Y

newnew's picture
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amen

Broker7's picture
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Joe,
I think MC is saying exactly what you are... WAR would be a stimulous for many industries, and the falling dollar makes the market numbers "look" good, even though they are not.  These are 2 of many econonomic stimulous that may be used by the powers that be to keep things rolling...it is just that we do not know when, and to what extent. 
 
 I do know the $150 billion dollar stimulous plan  (printing money from nowhere) will lower the dollar and pump the market to a brief bear rally.  After the feds have no more rate cuts,they may continually feed us funny money.
This is why I cannot predict a number fo the S & P 1 year from now, anyone who can and get it right needs to call BEN right now. 
 
So, indyone..do you have a number in mind??
 
 

MC Lovin's picture
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The falling dollar is the end game trap .  It will stimulate manufacturing and exports...some would argue.  In the end, it could be hyper-inflationary.  What good is that if it takes $12 to buy a gallon of milk?  The danger it the feds and treasury can control this one of many economic stimulis.  The dollar has been shrinkng for the last 7 years, at an alarming rate.
 
As war as my was ecsalation comment. The current war in the middle east has been costing about $1,000,000,000 a day.  That has been stimulating our Raytheon, Haliburton, etc, appearing for us to look like we have been Bullish since late 02. Now please look at the dollar index chart:
 
http://futures.tradingcharts.com/chart/US/M
 
Where is the funding coming from?   Mostly from thin air.  Thereby killing the dollar from about 120 to 75 since 2002 to today (down 38%). 
 
All of you know that the dow is an index of 30 stocks in a dollar amount...
It is $12,220 right now...
what is it in 2002 dollars?
 
WE are sitting at DOW 7500  today.
 
So as the gov starts to give us free money, it is imperative that you know where it is coming from and the repercussions of why they are doing it (dollar down).
 
It is possible for the feds to keep pumping money into the system by all sorts of means....if the dollar index is reset to 38 right now, without changing anything else, the dow would be 24400, but all consumables would go up 100%.   It is all a ponzi scam, a house of cards..and we are trapped.
 
So as the fed  rates approach zero, and many start to see free money in the mailbox, we know exactlty whats going on.
 
SnP could be 4000 this time next year..or it could also be 400.
It depends on what the powers that be aim for..hyperinflation, or deflation.
 
 
 
 

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Assuming a modestly higher dollar, 1600 by 2/7/09...and I suspect that's low.  I won't bother calling Ben as my opinion is no more valid than those in the sky-is-falling camp.  I don't claim any special clairvoyance...I am simply listening to a conference call each day with guys like Lincoln Anderson and Jeff Kleintop who are considerably smarter than me and have no vested interest in seeing me lose money for clients.  They are still pretty bullish, especially when considering the forward P/E's and while you can argue that they are pollyannas, I don't see it.  Every opinion is well-reasoned and well-supported and most strike me as very moderate.  I tend to shy away from predictions to both extremes, as these are rarely realized and I don't see enough ingredients to predict either extreme.  I've heard questions asked about some of the extreme predictions made in these forums and for the most part, they've discounted the extremes as unlikely given the current circumstances.  (BTW, it sounds like most do not believe the service sector ISM number is accurate.  Lincoln said that not even the bears he spoke with felt it was a true representation).
 
Count me as a centrist.  Life on the fringe consumes too much energy for me to live there...

Broker7's picture
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Indy,
This is all in good fun!
BTW, ISM just confirmed the 41.9..so you see the market dump a little.
Using the dollar index of 77 I will say at least 20% lower than your guess. At least...I think it may be alot less!
 
I mean no disrespect by any of this....Remember, either way the market swings, we can all still makemoney.  Clients are happy, referrals are rolling and I have not soliciated any business for a few months!
 
Also, keep in mind heads of commission or economy driven companies are generally bullish, so please look at others for comparison on guidence.  Kleintop..i feel will flip and flop bear...bull....bear.

Indyone's picture
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Yes, indeed.  I know ISM confirmed the numbers, but the new business birth/death assumptions make it highly likely that the number is not accurate...at least until a few more measurements are taken.  We shall see...
 
FWIW, I've heard Kleintop and Anderson both take bearish positions that were equally well-reasoned.  Kramer, on the other hand, goes from one extreme to the other with very little sound reasoning behind his wild gyrations...Lord, help those who eagerly lap up the vomit he spews forth daily...
 
...and no disrespect is taken...most of my clients are not 100% equities either (although personally, given my aggressive posture, I'm doggoned close.)

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C'mon guys if you think it is more or less why not make your prediction where you think it will be, don't hedge.     Good times though.  I personally have no clue where we'll be but am inclined to GUESS we'll be higher than we are today.  (History says I have about a 75% chance of being right.)

doberman's picture
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Indyone wrote:Dob, sure you can, but I was thinking more like ending index values rather than returns...
 
So was I!

Indyone's picture
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Aw man...ANOTHER member of the flat earth society?!!

Broker7's picture
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Indyone wrote:Aw man...ANOTHER member of the flat earth society?!!
 
Indy.....Now wait a minute...it is the other way around.
 
We are the "contrarians stating the earth is a sphere",
Us being CONTRARY to the popular view, thereby making YOU a member of the flat earth society!

josephjones107's picture
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We need real productivity gains in this country. Higher savings rate, less borrowing. This downturn will be painful but necessary.

newnew's picture
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flat earth members focus on one or two metrics to bolster this sky-is-falling-long-term crap. It is very black and white. Life is grey, however, and economies are WAY too complicated to focus on the value of the dollar as a long term predictor of anything. Unplanned contingencies happen everywhere and always, but in the color of grey (no one is always right).
 
 

MC Lovin's picture
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What metric are you using to say everything is OK? Let me guess...history. Keep in mind we are alway rewriting history. 
 
The value of the dollar is a manipulation tool..has little to do with our economic condition..We can be in a depression at dow 6000...or at dow 60000...ie deflation, or hyperinflation.
 
There are numerous indicators that point to a bear market..short term and long term.
The multitude of financial problems which are far worse then 1929 has the economy on the ropes right now..again, we have only seen the tip of the iceberg on this one.  The hundreds of billion in subprime losses will be remembered as the first drop in the big bucket.
 
Long term (actually not too long..as it is also in play right now), A growth economy is impossible in a finite world...that is something that some of the best economists and financial experts have failed to understand.  Our global economy is based on infinite growth.  Our resources are severely limited, enough said.
 
newnew..i agree with you on the grey..it's just that my grey is MUCH darker!

newnew's picture
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finite world=no more babies. I doubt it!

Broker7's picture
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new,
answer this.
 
How many people lived around 1850??    Go ahead and google it.....
 
 

Indyone's picture
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I'm using earnings trends for 4th quarter 2007.  Outside of financials, they look good to me.  Forward P/E's are at 18-year lows.
 
There are also plenty of things that are better than they were in 1929, most noteably, the relative lack of speculation in the stock market.  Subprime is nothing compared to banks having the bulk of their capital invested in common stocks (trading at huge multiples of their actual value) back in the 20's.  Heck, they had a fair portion of the depositor's money in the market as well.  Individuals were borrowing just as hard and fast as they could to invest in stocks.  All these things are severely curtailed today.  The brokerage industry has margin restrictions.  The banking industry has Reg T & Reg U.  Banks themselves cannot invest capital in common stocks and are limited in their use of bond derivatives.  The FDIC not only exists today, some folks think it's way overfunded (having no facts or numbers, I have no opinion here).
 
I think we've seen a lot more of the iceberg than you think and that's a product of who we are disciples of.  I tend to buy the moderate pitch and you're sticking with folks who have an exceedingly gloomy outlook.
 
A growth economy impossible in a finite world? Bulls have used "it's different this time" in the past to explain why there should be no limit to what we paid for tech stocks.  Are there some things that are different?  Sure, but I think for the most part, we will repeat the business cycle over...and over...and over again.  It's no different than saying we'll never put a man on the moon or Maris' home run record will never be beaten (at least legally...).  Yes, someday, we will probably deplete the natural resources of this earth, assuming we don't make a significant shift to renewable resources.  By that time, some of us could be living on Jupiter for all I know.  Human beings will continue to adapt and change in response to our changing world(s).  When we're all done and the world comes to an end, Satan and Jesus will swoop down and divide us up depending upon how good or bad we've been, and usher us into the after-life.
 
At that point, it won't matter where the economy or the stock market is anyway...

Ashland's picture
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Indyone... I've heard the food is better in hell. If it's only going to be you, the father, and the son around the dinner table(I assume the holy ghost doesn't eat????), why would you cook for so few?

Broker7's picture
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With all do respect..without finance, nothing else stands! ...period, so your forcast is bigBEAR.
 
Our economy is based on infinite growth..
 
Is infinite growth possible if we know our resources are finite (limited)?
 
finite world= a ceiling
 
Big question, are we near a ceiling??

newnew's picture
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I don't know, but in the meantime it seems like a swell idea to spend my time worrying about it!

Indyone's picture
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Ashland wrote:Indyone... I've heard the food is better in hell. If it's only going to be you, the father, and the son around the dinner table(I assume the holy ghost doesn't eat????), why would you cook for so few?
 
I'm assuming that hell serves cajun...
 
With the tounge in cheek aside, I had to deal with this a few years back.  A new client came to me in 2002 ready to fire her Smith Barney broker because Jack Van Impe (her favorite televangelist) was telling his audience that he'd been out of stocks for several years already and that they should get out of the market.  Her Smith Barney broker naturally disagreed with this strategy and was getting fired as a result.
 
Whether or not we agree with our clients on religion or politics, it's important to show respect and use diplomacy, so without calling Mr. Van Impe a quack/hack/fraud, I reminded her that just as preaching wasn't my specialty, investment management probably wasn't his.  I also told her that if Reverend Jack was right, and the end of the world was near, the direction of the stock market would probably be the least of our worries, but in case he was wrong, we should probably put some money in the market for her future needs.  End result, I moved the account and convinced her to stay in the market.  She's so aggressive now that I can't get her to take some money off the table in the form of a VA.

Broker7's picture
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You better worry about it since you don't have a grasp on this concept..wow.......I understand it....and have accepted it as reality......and I'm making money!
The population in 1850  was about 1 billion..  we now have 6.6 billion.  WHY?
from 1850 till today, oil was discovered.  Oil is used to make nearly everything.
Very  importantly, petroleum oil is fertilizer for our mass farming food crops.  Without it, food cannot be produced at current rates.
 
Believe it or not the world uses 86 million barrels a day now...but production is only 84 million.
Demand higher than supply.  We are in  the "peak oil" situation (look that up).
So we are now on the downwards slide as far as finite resources...that is why it is so different now.  The current financial crisis is a direct result of this infinite is impossible situation.

Ashland's picture
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Indyone wrote: Ashland wrote:Indyone... I've heard the food is better in hell. If it's only going to be you, the father, and the son around the dinner table(I assume the holy ghost doesn't eat????), why would you cook for so few?
 
I'm assuming that hell serves cajun...
 
With the tounge in cheek aside, I had to deal with this a few years back.  A new client came to me in 2002 ready to fire her Smith Barney broker because Jack Van Impe (her favorite televangelist) was telling his audience that he'd been out of stocks for several years already and that they should get out of the market.  Her Smith Barney broker naturally disagreed with this strategy and was getting fired as a result.
 
Whether or not we agree with our clients on religion or politics, it's important to show respect and use diplomacy, so without calling Mr. Van Impe a quack/hack/fraud, I reminded her that just as preaching wasn't my specialty, investment management probably wasn't his.  I also told her that if Reverend Jack was right, and the end of the world was near, the direction of the stock market would probably be the least of our worries, but in case he was wrong, we should probably put some money in the market for her future needs.  End result, I moved the account and convinced her to stay in the market.  She's so aggressive now that I can't get her to take some money off the table in the form of a VA.

You're right, of course. Knowing you for a while I knew you'd take it the way it was intended. Certainly didn't mean to offend...

Indyone's picture
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Broker7 wrote:You better worry about it since you don't have a grasp on this concept..wow.......I understand it....and have accepted it as reality......and I'm making money! I grasp what you're saying, but I'm also telling you that there are plenty of people much smarter than you or I who don't buy into that POV.  Again, the nature of human beings is to adapt and thrive.  We lived before oil was discovered and used and my guess is that we'll live (albeit differently) after it's gone.  In fact, I believe that we'll be on to some alternative before it's gone and these natural resources will never be depleted.
The population in 1850  was about 1 billion..  we now have 6.6 billion.  WHY?  I think that's a simple mystery to solve...  At some point, yes...we will reach a point where many people will simply not have the necessary resources to support more children and the population will self-correct.  Sadly, in some instances, this is happening today.  Children die because their parents irresponsibly create them without the resources to raise them.  I think the zero population growth people are fundamentally right, even though morally, it's difficult to tell someone that they can't have a child. 
from 1850 till today, oil was discovered.  Oil is used to make nearly everything.  Again, things were made before the industrial age and my guess is we'll find another way and oil will be considered an obsolete source of power.
Very  importantly, petroleum oil is fertilizer for our mass farming food crops.  Without it, food cannot be produced at current rates.  This again assumes a complete lack of innovation that any futurist would adamantly refute.  At one point early in the computer age, the head of IBM envisioned the need for perhaps five computers in the world.  There are plenty of innovations coming that will amaze both of us.
 
Believe it or not the world uses 86 million barrels a day now...but production is only 84 million.  Come on...that's pure baloney.  We all know that (1) OPEC is holding down production to support higher prices and (2) this is simply a temporary inventory adjustment or we'd have long since ran out of gasoline.  If I bought into that, I'd expect to see gas at $1,000 per gallon by now.  The following is from the January EIA report:
 
"Global oil markets will likely remain tight through 2008, then ease moderately in 2009.  EIA projects that world oil demand will continue to grow faster than oil supply outside of the Organization of the Petroleum Exporting Countries (OPEC) in 2008, leaving OPEC and inventories to offset the upward pressure on prices. In 2009, higher non-OPEC production and planned additions to OPEC capacity should relieve some of the tightness in the market.  As a result, the level of surplus production capacity is projected to grow from its current level of under 2 million barrels per day (bbl/d) to more than 4 million bbl/d by the end of 2009." (emphasis mine)
 
Demand higher than supply.  We are in  the "peak oil" situation (look that up).  I've seen it...and I'm still not buying.  There are plenty of articles that state to the contrary.  If you don't believe it, just Google "Peak Oil Myth".  There are certainly crackpots on both sides of the argument, but there is also compelling evidence against the peak oil theory.  At the very least, it's arguable that we're there now.
 
So we are now on the downwards slide as far as finite resources...that is why it is so different now.  The current financial crisis is a direct result of this infinite is impossible situation.
 
Certainly, we're not without our challenges globally.  Where you and I part agreement is whether or not the human race has the capacity to solve those challenges.  Given our history of ingenuity, I'm willing to bet that there will be solutions in the future that neither of us have the capacity to imagine today.  I think that healthy amounts of both optimism and pessimism are necessary for society to advance.  Too much of either side gets the stock market and life in general out of balance.  I'm happy to continue acting as your counterweight...
 
...oh...and I'm making money too.

Broker7's picture
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Indy,
sorry man, just noticed......that last post you responded to was for new new...
I know you grasp what I am saying..you are my trusty counterbalance..

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