Provocative Forbes Discussion

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Geithner and the Future of Wall Street: A Forbes Panel
Written: November 24, 2008

Intelligent Investing All-Stars
Your Move, Mr. Geithner While Barack Obama picks his top guns, the Forbes.com Investor Team searches for the bottom of the market.With Bill Singer, Matthew Lloyd and Greg Ghodsi
A Special Message from Bill Singer: Folks, I've been involved in a number of conferences, panels, and roundtables during my nearly three decades on Wall Street, but this three-way exchange with Matt Lloyd and Greg Ghodsi is truly one of the most thought-provoking pieces of all.  If you truly want to get a sense of what's on the minds of industry pros these days, and you want some insight as to why fingers are now hesitating over the order trigger (or being pressed down nervously), this is worth reading.

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snaggletooth's picture
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Good article Bill.  So you say you don't see anything new on the horizon that will be the next great thing?
I think when you least expect it, something will surprise you.  I do believe it is long overdue to stop the overseas spending and start investing in OUR infrastructure.  Better mass transit systems are an example of something that can add jobs and help the economy.  Put more money in the average guys' pocket and hopefully he'll spend it.
 
Also, what about alternative energy?  I'm mixed about its possibilities, especially in a timely manner, but things are on the horizon.  How about healthcare?  There are some incredible technological improvements happening all the time. 
 
As for a recovery taking a long time, of course many people will agree with that.  But what about this thesis:  In today's technologically advanced times, where information is processed so rapidly, could market events actually occur over shorter periods of time?  Instead of decline happening over 4-5 years, it actually happens in a year or two max?  And, therefore, the recovery is also shortened in time?  What do you think about that?

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snaggletooth wrote:
But what about this thesis:  In today's technologically advanced times, where information is processed so rapidly, could market events actually occur over shorter periods of time?  Instead of decline happening over 4-5 years, it actually happens in a year or two max?  And, therefore, the recovery is also shortened in time?  What do you think about that?
 
Snags!  Did you hack my computer?!  You are SPOT ON.  I'm going to convert you yet...

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Snaggle/Ice:
 
You both raise provocative issues and I share your interest.  I think it's fair to say that computers have revolutionized the world to the extent that many things happen quicker. As such, it's an interesting point that market cycles may be shorter.  Why not?  On the other hand, the length of a cycle may be disengaged from its severity and although bull and bear markets could be shorter, they could also be far more volatile.
 
My overarching concern, which I tried to note in the Forbes panel, was a fear that the U.S. is losing its edge in innovation.  We invented the car, the airplane, the television, the computer, and so many other significant products and intellectual property.  We also once manufactured those creations and sold them to the world. In recent years, the manufacturing of our ideas seems to have gone offshore.  My fear is whether we will also see a similar migration of the power of ideas. 
 
Bear markets were often rescued by innovative products--be that junk bonds, high tech, dotcoms, subprime, etc.-- but those products also paved the way for the market's destruction.  It's an odd symbiosis where you need to create an alternative to rescue you from the excess created by a prior alternative created to rescue you from the excess created by a prior alternative...Still, that's often what market cycles are about.  However, things seem so truly devastated now, folks so disheartened, and our IB/venture capital sectors so destroyed, that you just have to wonder whether this is the time that for all the pulling on the cord, the motor just won't turn over.  I hope that's not the case. But sometimes things just break beyond repair.
 
 
 
 

buyandhold's picture
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No doubt the pace of modern life has changed, but I don't see that market cycles have gotten shorter. It may appear that they have when you watch CNBC, but if you take the bird's eye view, we've had 10 years where the Dow has gone nowhere as it sorted out the irrational exuberance of the '90s. I also suspect that by trying to shorten the market cycle policy makers have only delayed the inevitable. This is going to be a nasty recesion, imo, partly because they got us out of the last recession with such low interest rates. They're going to try it again with even lower interest rates and higher deficit spending. Eventually we're going to have to take our medicine. .... Look at something unrelated to markets -- the war on terror. We wanted it to be done right away, but even with the faster pace of life today, it's going to take generations to sort out, same as the Cold War.

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rrbdlawyer wrote: _popupControl(); Snaggle/Ice:
 
You both raise provocative issues and I share your interest.  I think it's fair to say that computers have revolutionized the world to the extent that many things happen quicker. As such, it's an interesting point that market cycles may be shorter.  Why not?  On the other hand, the length of a cycle may be disengaged from its severity and although bull and bear markets could be shorter, they could also be far more volatile.
 
My overarching concern, which I tried to note in the Forbes panel, was a fear that the U.S. is losing its edge in innovation.  We invented the car, the airplane, the television, the computer, and so many other significant products and intellectual property.  We also once manufactured those creations and sold them to the world. In recent years, the manufacturing of our ideas seems to have gone offshore.  My fear is whether we will also see a similar migration of the power of ideas. 
 
Bear markets were often rescued by innovative products--be that junk bonds, high tech, dotcoms, subprime, etc.-- but those products also paved the way for the market's destruction.  It's an odd symbiosis where you need to create an alternative to rescue you from the excess created by a prior alternative created to rescue you from the excess created by a prior alternative...Still, that's often what market cycles are about.  However, things seem so truly devastated now, folks so disheartened, and our IB/venture capital sectors so destroyed, that you just have to wonder whether this is the time that for all the pulling on the cord, the motor just won't turn over.  I hope that's not the case. But sometimes things just break beyond repair.
 
 
 
 
 
 
Here's food for thought:  In today's globally interconnected world, does it really matter that something is created by the US vs. China vs. whoever?  The fact is, of your equity exposure, it used to be 100% US.  Now, it's widely accepted 20-25% should go to international investments.  But shouldn't it be closer to 50/50?  Talk about 6 degrees of separation, isn't it more like 2 now?
 
And as far as new innovation goes, just saw this reported on CNBC.  The next thing in TV, especially sports, will be 3-D TV, without those funny little glasses.  The people that follow this stuff are saying it's 5-7 years away. 
 
The technology continues to improve rapidly.  Watch any kind of interview, from local news to national news, from 10 years ago.  It is crazy.  It was only 10 years ago, but the picture was often grainy, people had those big ugly circular eyeglasses, and women had short poofy hair.  There were no iPods, cell phones were phones, people had car phones, computers were on dial up.  It's like a whole different world in just 10 years' time.
 
Imagine the next 10 years.

bspears's picture
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If the cycles do become shorter, the retail investor will stay away.  They can't take the volatility and if the alternative is to put into a fixed rate where you see some growth year over year, I bet they will flock to that. 
I just sent a clients YTD portfolio to her son to look over, down 27%.  His question to me was, wouldn't she be better in cd's?  Hmmm...

Borker Boy's picture
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My BOA has the same sentiments, spears. She has been investing all of her life and told me she was finally beginning to see some progress from the hit she took in the last bear market. But here we go again.
I reluctantly have to agree with you. Going forward, people are going to place more emphasis on the return of their principal than the return on their principal.  

bspears's picture
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Joined: 2006-11-08

I've actually taken the last two weeks and started planning for 09.  I decided to send in my transcripts to the State Licensing dept for CPA's.  I plan on getting my CPA's designation and totally transform my practice by 2011.  I want to transform my business into a niche focused consultant.  Have a small handful of Doc's/Dentists and set up retirement accts/insurance plans/taxes and payroll.  Setup yearly contracts with one ongoing, monthly fee.   Anything not in the contract would be billed separately.  Help the Doc grow their practice and grow their wealth.  Focus on setting up accts in destinations I like to visit...Eliminate a static office...meet at their offices or homes.   Narrow my current client base down to 10-15mil in fee based accts with Less than 50 accts.
This whole correction has caused me to step back and decide where EXACTLY I want to go for the next 25 years.  Less accts to totally focus my energy and efforts on and to be paid accordingly. 

Borker Boy's picture
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I don't think you can go wrong with the CPA designation.

bspears's picture
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Joined: 2006-11-08

I think if anything was missing in my practice at Jones or now on my own was clarity.  I take anyone and everyone as clients.  If you asked me what type of client I would like, I could come up with one but it didn't reflect in my day to day practice.  Its time to change.

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buyandhold wrote:
No doubt the pace of modern life has changed, but I don't see that market cycles have gotten shorter. It may appear that they have when you watch CNBC, but if you take the bird's eye view, we've had 10 years where the Dow has gone nowhere as it sorted out the irrational exuberance of the '90s. I also suspect that by trying to shorten the market cycle policy makers have only delayed the inevitable. This is going to be a nasty recesion, imo, partly because they got us out of the last recession with such low interest rates. They're going to try it again with even lower interest rates and higher deficit spending. Eventually we're going to have to take our medicine. .... Look at something unrelated to markets -- the war on terror. We wanted it to be done right away, but even with the faster pace of life today, it's going to take generations to sort out, same as the Cold War.

 
B&H, I think you aren't looking at it from the right angle.  Security prices constantly oscillate around their equillibrium price, or true market value.  Being that we are not "rational" in a scientific sense, this constant "volatility" is there, trying to "find" equillibrium.  The more information we have, and the more information we can process, the more accurately we can price (bid/ask), and the quicker we can do it. 
 
That's all Snags meant by "shorter market cycles."  Yes, if you look at THIS 10 year period of time, the Dow has gone nowhere...but you are saying that now.  You weren'tm saying that 2 years ago.  It's a matter of perspective. 
What Snags is saying is that, in theory, if we take 3 more years to recover from this crash, it WOULD HAVE taken probably 7 or 8 years (or longer) if this exact same crash happened in the 80s, or 70s, or 50s, etc.  Simply because it would have taken market participants much longer to gather, process, interpret, and ACT on the necessary information to make a decision. 

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I guess that one thing I may not agree with is the concept that everything is so cyclical that we are merely repeating cycles.  At some point we have game changers (no, I don't want to use that damn "paradigm shift" term, even if that's one we're talking about).  For those of us veterans, we must keep in mind that the old days of market making are now a mere shadow.  Penny spreads killed off the profit. Computer trading massively altered the landscape.  And let's not even talk about the ossification of specialists.  Consequently, there are new market dynamics afoot and much of what was embedded in the old trends may no longer be driven by human beings but by computer models and programs.
 
Consequently, just as we talk about 100-year Flood codes and then see that the recent storms crested way above that 100-year level, we may also need to accept that this current market is off the charts and not necessarily amenable to the same analysis as more recent recessions.  Which is not to say that any given bear market or bull market or recession will not eventuallly end--they will.  Nonetheless, we are in the midst of a very weird time with geopolitical forces shifting power from West to East, with the traditional relationships among fixed income, commodities, futures, and equities acting in previously unseen manner, and with a multi-sector/multi-regional recession the likes of which we have not seen since the Great Depression.
 
While we may all find comfort in repeating that this is just cyclical, we need to be careful that we are not seeing what we wish rather than what the reality is.  Perhaps it's my fondness for ancient history, but I never forget the fact that there were once empires and social systems that ruled the world and have vanished.  I'm sure the Roman Empire had its share of cycles.  But, tell me, where is Latin now spoken as a national language?  Where is Jupiter worshipped?  What Caesar rules the world? 
 
There is change. And there are cycles. And sometimes you just get wiped off the face of the Earth.  Not saying that we're dinosaurs and the killer comet is coming.  On the other hand, maybe we should all take a deep breath and ask ourselves if this is truly just another Elliot Wave---or the largest tsunami to hit our shores?
 
For the record, I think that this too will pass and that there are amazing investment opportunities out there now.  And, no, I don't think that this is the end of the world.  Nonetheless, as sense of mortality and humanity may be helpful.

buyandhold's picture
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Ice: I agree that MARKET cycles are quicker. The stock market fell apart this year, imo, because the invisible hand figured out in about six weeks that the real estate bubble had created this trillion dollar hole in the economy and that we are in for a long recession. Boom --- the stock market was suddenly priced for the bottom of the recession. We lost 40 percent seemingly overnight whereas maybe in the 70s it took three years.
But I don't think we are going to recover in an economic sense from this any quicker and the market can't respond long term any faster than the economy. Personally, I think we didn't take our medicine when the 90s bubble popped -- we immediately borrowed a bunch of money and blew up the real estate bubble. Worse, I think our current policy to to borrow even more money to get out of this mess, which will make the situation even worse someday.
 
As far as the past 10 years, yes, it appears that we've had two quck cycles. But look at the Depression era market. We think of the Depression as one cycle, but you actually  had two years in the middle when the stock market was up dramatically.
 
I'm in my mid-40s. I've seen the PACE of life dramatically increase. For example, my kids have the Internet and calculators and all kinds of things thrown at them. But if you want to teach your kid his multipication tables, you can't speed it up. You've got to six down at the kitchen table and grind. It takes the human brain the same amount of time to learn to add as it did 2,000 years ago. You can't make them learn faster ... and I don't think we'll be able to squeeze the recovery into a six-month period.
 
Again, I'm old. I see the merry go around going faster but not getting anywhere.

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An irreverent Wall Street Blogby Bill Singer
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Blog Home | Past Entries
Did You Hear the One About the Stock-Picking Lawyer?
Written: November 26, 2008

Below you will find links to the four-part Forbes Investor Team discussion published on November 24 and 25th.  And "yes" to those of you who called me today --- two of my stock picks: CAT and CSCO were both up about 5% by 3PM ET today.  Of course, being up and where the stock closes are two very different things.  We've all learned that lesson with far too much pain in recent weeks. 
Nonetheless, a very happy and healthy Thanksgiving Day to all of you and your families!
Bill Singer
What To Tell Your Kids About The Markets
November 25, 2008
David Serchuk and Michael Maiello
Forbes.com The Forbes.com Investor Team gets the family involved.
What's A Blue Chip Worth?
November 25, 2008
David Serchuk
Forbes.com As once-impregnable firms ride south, the definition of blue chip must change. The Forbes.com Investor Team weighs the impact of Citi, Ford and GM as penny stocks.
Your Move, Mr. Geithner
November 24, 2008
David Serchuk
Forbes.com While Barack Obama picks his top guns, the Forbes.com Investor Team searches for the bottom of the market.
Those Heart Attack Markets
November 24, 2008
David Serchuk
Forbes.com Fear is on the rise and the Forbes.com Investor Team says it won't dissipate for months.

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