In Frantic Day, Wall Street Banks Teeter
By ANDREW ROSS SORKIN
In one the most extraordinary days in Wall Street's in history, Merrill Lynch is near an 11th-hour deal to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.
The dramatic turn of events was prompted by the cataclysm of losses that has shaken the American financial industry over the last 14 months.
The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.
Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industry's reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.
The weekend's once unthinkable outcome came after a series of emergency meetings at the Federal Reserve building in downtown Manhattan in which the fate of Lehman hung in the balance. In the meeting Federal Reserve officials and the leaders of major financial institutions were trying to complete a plan to rescue the stricken investment bank.
But as the weekend unfolded, Barclays and Bank of America, which had both considered buying all or part of Lehman, decided that they could not reach a deal without financial support from the federal government or other banks.
As a result, people briefed on the matter said late Sunday that Lehman Brothers would file for bankruptcy protection, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.
Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, as its subsidiaries remain solvent while the parent firm liquidates, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.
Lehman has retained the law firm Weil, Gotshal & Manges. The firm's restructuring head, Harvey Miller, also spearheaded Drexel's bankruptcy filing in February 1990.
As efforts to acquire Lehman faltered, Bank of America turned to Merrill Lynch and offered at least $38.25 billion in stock for that investment bank, people briefed on the negotiations said. The deal, valued at $25 to $30 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.
Merrill's chief executive, John A. Thain, and Kenneth D. Lewis, Bank of America's chief executive, initiated talks on Saturday, prompted by the reality that a Lehman bankruptcy would ripple through Wall Street and further cripple Merrill Lynch, people briefed on the negotiations said.
Merrill's 15,000 brokers will be combined with Bank of America's smaller group of wealth advisers. The entity will be run by Robert McCann, the head of Merrill's global wealth management business.
Mr. Fleming, Merrill's president, will be president of the combined bank's corporate and investment bank while Thomas Montag, a former Goldman executive who started at Merrill in August, will head all the merged company's all risk, trading and institutional sales.
The leading proposal to rescue Lehman had been to divide the bank into two entities, a "good bank" and a "bad bank." Under that last scenario, Barclays would have bought the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would agree to absorb losses from the bank's troubled assets, according to two people briefed on the proposal. Taxpayer money would not be included in such a deal, they said.
But that plan fell apart on Sunday, all but assuring that Lehman would be forced to liquidate.
The overarching goal of the weekend talks had been prevent a quick liquidation of Lehman, a bank that is so big and so interconnected with others that its abrupt failure would send shock waves through the financial world. Of deep concern is what impact a Lehman failure would have on other securities firms, insurance companies and banks, which have come under mounting pressure in the markets.
Even as Lehman and Merrill played out, the insurance company, the American International Group, was planning a major reorganization and a sale of its aircraft leasing business and other units to stabilize its finances, a person briefed on the company's strategy said on Sunday.
A.I.G. became one of the focuses at an emergency gathering of Wall Street executives over the weekend, and was trying to arrange a capital infusion in the face of possible credit downgrades.
It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $40 billion even as it tried to sell assets to shore up its financial footing.
Among the businesses likely to be sold is A.I.G.'s aircraft leasing business, the International Lease Finance Corporation. Founded in 1973, the business has nearly 1,000 planes in its fleet.
Investors, afraid that A.I.G. would have to absorb further write-downs in its already damaged mortgage securities and collateralized debt obligations, have driven down the company's shares in recent days. The stock closed Friday at $12.14 a share, a decline of 46 percent for the week.
Ben White, Jenny Anderson, Eric Dash, Louise Story and Michael de la Merced contributed reporting.
That is interesting Peter. B of A was navigating on Lehman and wound up with Merril. And reportedly they didn't want to be in the investment banking business at all. I stuck with B of A for my business and personal accounts when things were shaky a while back after Indymac bit the dust thinking a larger bank might have more staying power. What do you suppose is going to happen next?
I wouldn't want to guess.
This is one of those times when I'll sit down with a bag of popcorn and watch.
the rest of world is thrown on it's ear because they are getting jittery due to all the trouble here... It is not a good time at all.
Every sector of the market is down. Go figure. Maybe by the end of the week things will get back to semblance of order in the rest of the marketplace.
Well, Monday was sure fun!
What will the rest of the week bring?
Here's the Monday night BBC take on Asian markets: http://news.bbc.co.uk/2/hi/asia-pacific/7617976.stm
Article below makes the point about getting the pain and suffering out in the open and letting the chips fall where they may. Probably better than the Japanese take of the 1990's where things were carried on the books but not resolved.
http://www.nytimes.com/2008/09/16/business/16nocera.html?pagewanted=1&_r=1&hp
My guess John, is that today will be a slower roll downhill. I still have popcorn for todays meals. What's going to happen to AIG? That will be an indicator for the near future. AIG is a good company that needs money in a horrible economy.
If they have to sell assets now, they're bankrupt. If they can find a bridge loan to carry them a year, they will be a superman company....
The Fed will meet today and no matter what they do, it will be wrong!
This isn't the big one but it's like blood trailing a deer with a nicked artery. He gets weaker with every step.
This has been coming since they pulled 9/11. It was ripe then. It is ready to be picked now.
Sorry, but I still see it as a pyramid scheme where the guys at the bottom cannot win because the ones at the top have already walked away with the profit.
Just my view - I know a lot of people make money at it if they are above average like you, Peter.
Quote from: glenn kangiser on September 16, 2008, 10:19:55 AM
I know a lot of people make money at it if they are above average like you, Peter.
Above average, not hardly Glenn.....God looks after fools and children. I am both! d*
Well, ...whatever...but glad you are here anyway. You bring lots of good info to the forum.
...and speaking of these topics, I miss muldoon. Hope they are still OK. At least he wasn't right on the coast.
Yeah, I miss muldoon too.
I know what he's going through. Living with no power is not a big thing if your set up for it....but when your whole life revolves around the power grid, it's hard to shower, cook. cool down or repair the house.
My neighbor moved in his RV. I just fired up my big generator. Dozens of people gathered at the nearby hospital trying to get food...The hospital didn't have power either.
I had a spare Generator I loaned out. It was nearly a month before the entire area was back on grid and I got that generator back. I'd just take it from one person who had power restored, to another that was out.
A friend of mine who should know better, had a generator, but no gas. He was closer to the coast in a rural area and would be last to get back on grid. I took him a 50 gallon drum of gas.
After two days, a few of us got together and went from house to house, removing trees from houses. The tree companies were booked for months and were charging unbelievable amounts. 5000.00 to take a tree off (2 hours work). We didn't charge anything but it was a little irritating when people didn't at least say thank you.
It's amazing how many people have come to think it is owed to them. Government training.
We all need more people like Peter and Glenn to teach folks what it means to be a neighbor.
Most of us are out of training and suspicious of "others" after years of huddled by the light of the TV watching cop and CSI type shows.
We don't recognize an act of help and kindness when it happens to us. However, somebody probably got the credit... "Who was that nice man from the PUD?"
This financial meltdown has me feeling pretty helpless, and very unsure of what to do about my IRA. All that work to build it up for retirement, what will happen to it? :(
I wouldn't worry about it in the long run. There is a natural order to meltdowns. The problem now, is that our economy has been doing the shuck and jive for so long, it's complicated the natural order.
The value of your IRA may well go down and stay down....but....eventually the cost of material goods and the cost of living, will come down to meet it. In other words, when everyone is poor, there are no poor people anymore. ???
If that makes any sense.
wow -- I'm out of the loop for a few days and everything just falls apart. This past week has been exhausting, I literally feel like I have aged 10 years; physically and emotionally. Thank you guys for the kind words and prayers, they helped immensely. Life is settling into somewhat normal, as far as that can be right now. Got power back today, that was huge. Lots of work, but I have been busy.
I saw some cnbc coverage that snapped my neck, dow -500, no more leh, aig toast, mer gone? wow. Those guys are sure are dreadful announcers tho, they couldn't sniff out news in a paper bag.
So, I have not read all the details of the events. But what I have seen and background information paints a pretty grim picture.
1) when freddy and fannie went under and were placed in receivership by the treasury, this triggered a event in the insurance coverage on those bonds. Companies that wrote insurance against loss on those bonds had to pay up. Enter the biggest insurance company in the US going belly up a week later. I dont agree that AIG is a sound company that just needs funds. They made the bed of billions in debt coverage and their simply is no escaping leverage when it works against you. So they got their "bailout" tonight. The bailout is no such thing, its a 85 billion line of rcedit for 24 months, at 3 month libor + 850 basis points. roughly 12% interest, something like 9 billion a year in interest or 2.3bil a quarter. This is guido loanrates, not bailing out. Its to send a strong picture to others that you really dont want to turn to the "Federal reserve" for help. Not only will the fed gut your management, take your common and opreferred stock to zero, issue warrants, but we'll give out some mafia rates too. The credit crunch has become a full on crisis. In all honesty, the LIBOR could shoot to high hell and AIG is still dead, bailout or no.
2) The other piece of news that I didnt see talked about. The TIC report comes out on the 16th, it runs two months behind and shows the amount of capital going into and out of treausuries.
http://www.ustreas.gov/press/releases/hp1138.htm
Brutal. And this was for July, its certainly much much worse now that I'm hearing about other countries being unable to continue bailing the us show. From the report:
Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative $92.9 billion, and net foreign official flows were $18.2 billion.
so, foreign money is flowing out.
3) Finally on to asset classes, and how these things relate. As LEH and others downstream from them realized they were bankrupt they were forced to SELL everything in order to pay whatever they could. When HUGE selling occurs prices plummet. It occured in stocks, oil, gas, silver, gold, everywhere. Nowhere safe to hide it seemed. ... except maybe treauries? What did us bonds do? We know from point #2 that us Ts are going into the flusher. But the TNX is calm, IRX is behaving. The only thing that makes sense to me is extreme flight to safety. Money always must go somewhere.
Thats bad. in fact I would say its the grimmest set of conditions I have seen to date. That money isnt being invested in Ts, its scared and hiding their and its the only thing holding them up as international support wanes. Quite frankly, once that surge stops coming in, the price of US debt goes to moonshot. It wont matter though.
The fed held a FOMC meeting today, and they said some interesting things. No rate cut because of inflation concerns. On the face that is ridiculous, were clearly deflating. Oil is actually 4% down for the year now, giving back some 40+ a barrel and still falling. I'll be glad when people finally wake up to the fact that the fed is just as dead broke as Lehman or AIG. They could not cut because their is no money to fight the trend. If you offer funds below the rest of the world - you indeed become the only lender because everyone simply goes to you until you bleed dry. This is why the fed doesnt set rates, they follow and have for some decades.
-- my stock tip for this situation, and I know this sounds bad but I believe this is the point at which it becomes prudent, invest some in bullets and beans and the like. might be a long winter.
Great to have you back muldoon and glad things are improving for you.
Great to have your analysis of the situation. It always sounds so professional even though I'm not as deep into this stuff as you guys are - I still read it all and try to pick up a couple smarts..
:)
Quote from: glenn kangiser on September 16, 2008, 11:20:38 PM
Great to have you back muldoon and glad things are improving for you.
Great to have your analysis of the situation. It always sounds so professional even though I'm not as deep into this stuff as you guys are - I still read it all and try to pick up a couple smarts..
:)
Me too muldoon. Nice to have you back!
Muldoon
As said by the others welcome back. I have seen some pictures of the devastation. I hope your place doesn't resemble anything I saw in those flics. It is good to hear from you.
hey muldoon,
glad to see you poke your head out of the gopher hole and you are ok. good analysis on money situation. like has been stated before... plan like we are in the great depression again... bullets and beans and emergency mindset. firearms, water, generators, land, you all know the list. BTW, i loved what some of you had in your emergency kits and gave me more things to add to mine. the financial house of cards is finally crumbling (i still like having junk silver as a stop gap measure).
The market has no direction today. Volume is low but everything on my watch list is up.....except what I own d*
AIG is going down but the SEC is warning shorts they will start enforcing the rules again.....That's very odd. They only enforce the naked shorting rules when it suits their purpose. :-\
ugly this morning. to touch on what I said yesterday about fed being depleted and treasuries getting hammered.
This came out this morning, still no link, just bloomberg terminal.
FED: Statement on Tsy program: "Today, the Treasury Department
announced the initiation of a temporary Supplementary Financing
Program.The program will consist of a series of Treasury bill au
ctions, separate from Treasury's current borrowing program, with
the proceeds from these auctions to be maintained in an account
at the Federal Reserve Bank of New York. Funds in this account
serve to drain reserves from the banking system, and will theref
ore offset the reserve impact of recent Federal Reserve lending
and liquidity initiatives"
Now were bailing out the Federal Reserve?
apaknad, I tend to agree on the junk silver. I have a couple hundred dollars in face value of mercury dimes. they are 90% silver, working out to 11 dimes or so is an ounce of silver. At the time it was some insurance and something I could pass to my kids or grandkids one day. speaking of that holy moly, look at gold and silver spike this morning. its acting like it they are talking of printing.
(http://www.kitco.com/images/live/gold.gif)
peter - I think the direction is panic looking for exits. I would watch the treasury market moreso than the stocks today as thats where the real panic may come in. were about to see the great bond death spiral.
This will take some time to play out, but to be honest I didnt expect to see where we are now until well after the election. Things are picking up steam.
Panic looking for exits does not sound good.
Saw this on marketwatch (Home Depot cuts prices up to 50%) http://www.marketwatch.com/news/story/story.aspx?guid={A2A6E1FA-5914-4251-83C0-1294FA0F1707}&siteid=rss
More and more looking like a deflationary spiral headed for the drain...
Doesn't it spin the other way in the southern hemisphere? ???
i might also add to not buy gold to hold as it is not easily liquidable. you may have to have it assayed to prove to someone that it is gold of whatever purity whereas silvers value is easy to figure out as muldoon was saying. if you feel that you want gold then think mining stocks, or buying w/o planning on having it delivered or mining equipment stocks(i wouldn't buy any stock right now but maybe something to consider later after due diligence) i can't believe being a comodities broker in precious metals years ago still has its uses, go figure ???
best bet, bottom line...junk silver to hold.
I suggest digging your own gold. Cut out the middle man. I'm working at it...and I don't mind digging. [crz]
Just to keep the longer term in perspective:
http://www.marketwatch.com/news/story/gurus-corner-how-bad-its/story.aspx?guid={1B147F0F-2256-4CB4-A1BA-9136F4112570}&dist=hpts
We will likely muddle through on this one... again. But that's difficult to remember in the heat of all the yelling and hand wringing.
Quote from: John Raabe on September 17, 2008, 11:47:34 AM
Just to keep the longer term in perspective:
http://www.marketwatch.com/news/story/gurus-corner-how-bad-its/story.aspx?guid={1B147F0F-2256-4CB4-A1BA-9136F4112570}&dist=hpts
We will likely muddle through on this one... again. But that's difficult to remember in the heat of all the yelling and hand wringing.
I agree John and I suppose I shouldn't sound so negative. My contention is not that we can't muddle through, rather....every time we muddle through under the circumstances we have had for the last several years, weakens us further. I firmly believe that the slow meltdown is nearly complete.
As an example, when I started saving cash many years ago, I'd go to the bank every paycheck and get two packs of 50-one dollar bills. I'd take them home and stack them in a safe I had made (I was too cheap to buy one).
After a few years it looked impressive. Imagine several thousand dollars in one dollar bills. I had added a section for gold and silver I bought every month. Things were filling up so I switched to getting packs og five dollar bills.
Then ten dollar bills, then twenties, fifties and now hundreds.
In other words, every time I filled it, I'd start replacing the older stuff with higher denominations.
Our government does the same thing in reverse. Each time there is a reason to rearrange the box, they do it with the next lower denomination.
I'm afraid we may have to go to rolled quarters soon.
John,
I understand where your coming from in terms of muddle through. I'm not saying this is the end of the world today. But to discount whats going on as a short term thing or that it wont find its way to real people in the real world is ludicrous. The 3 month treasury is trading at 7 bips yield. 0.07% , it got down to 0.03% this morning.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDuzxeT3TsnM&refer=home
here is the chart for the IRX or 13week T:
http://ichart.finance.yahoo.com/b?s=%5EIRX
seriously, this is a broken credit market. we blew through how bad it was in 1987, then 54, and now were looking at the conditions from the 1939. Gold has had its largest move up in history today. 12% up and close to 80 bucks in a day. This is not abject negativity, it is an outright disaster.
http://research.stlouisfed.org/fred2/data/TB3MS.txt
This will reach the "real economy" but people wont associate it with the events of today. They certainly will not associate it with the bailouts. Maybe some will, maybe some will read http://www.reuters.com/article/idUKN1752966920080917 and realize what its saying. Continue that line of thought forward and you tell me what happens when the USA is no longer able to borrow the 2billion every day just to keep afloat? What about when the 9trillion they already owe needs to be rolled over and the only thing available is a 30% interest rate to do so?
Anyone telling you its a great time to buy stocks "for the long term" here will also conveniently be selling something.
pardon me for hijacking this thread(glen put it where it belongs, if i knew how to do it i would). i haven't worked since april and i just got a job about 15 min. ago. hired over the phone. i had to share my good news with everyone. it's a good job and glen you are going to love the irony, i am going to do non destructive testing on various types of heavy duty equipment, ie. boom trucks, aerial ladders, pickers, hi-los, etc. to make sure they are in safety compliance(osha and others). just think glen, i might be inspecting some of your toys(which, i am sure are perfectly in compliance). ;D i'll be traveling around the country for awhile and then be working in michigan because they said that they have no one in MI. and they are turning down business. i sent them a resume about two months ago and never heard a thing. i hope now i can ride out this financial storm that has hit this country due to greed and mismanagement.
That's great, Dan.
Not sure if mine are in compliance or not. I never check them. d*
Wow Muldoon, glad you are back. I just located all of my Houston grandkids yesterday. What a ride.
Speaking of a ride. What are us little ($'s) folks supposed to do? We cant have our IRA's without nasty tax implications...do we just sit here and watch it melt? I hate this, I worked so hard and have to wait so long before I can touch it.
That is the plan, Considerations. You didn't think they would actually let you have it, did you? hmm
"Suppose that some great disaster were to sweep ten million families out to sea and leave 'em on a desert island to starve and rot. That would be what you might call an act of God, maybe. But suppose a manner of government that humans have set up and directed, drives ten million families into the pit of poverty and starvation? That's no act of God. That's our fool selves actin' like lunatics. What humans have set up they can take down....Whoever says we've got to have a capitalist government when we want a workers' government, is givin' the lie to the great founders of these United States...."
A Stone Came Rolling
Olive Tilford Dargan
Browsing through the Russian news again--- Came upon a topic I was taught in the second grade by Mrs. Tatman, My mean lunch hour boozing teacher who taught me a lot of stuff about how the world runs. Interesting read
http://english.pravda.ru/opinion/columnists/17-09-2008/106391-proletariat-0
Quote from: considerations on September 17, 2008, 10:46:14 PM
Wow Muldoon, glad you are back. I just located all of my Houston grandkids yesterday. What a ride.
Speaking of a ride. What are us little ($'s) folks supposed to do? We cant have our IRA's without nasty tax implications...do we just sit here and watch it melt? I hate this, I worked so hard and have to wait so long before I can touch it.
The same question came up about 4 months ago, and I'll say the same thing. I am not qualified in any way to tell anyone else what to do with their money. However, if you read the last few posts of this thread (bottom of page 2) (http://countryplans.com/smf/index.php?&topic=4606.0) you can read my ideas on how to shore up your exposure to loss and get your money safe. I think they are still as applicable and relevant today as when I wrote them.
------------
apak,
congrats - nothing like the feeling of getting a job when you have been out for a spell. cheers to you. [cool]
The next few weeks (days?) should be very important in this global struggle for stability. If we do muddle through (which I am hoping and expecting based only on past history) it will likely be because there are so many cohesive economic forces at work in the world that will reroute money around the landslides and boulders that are being flung off the volcano.
Technology, communications and the whole flat world economy is an enormous and powerful river that was only a stream in the 1920's. If we were to be beaten back to economic isolation and victory gardens as we were then it will take the equivalent of an economic nuke. Perhaps the huge explosion (implosion?) of the credit markets will be enough to do this. I don't know.
I do know that I appreciate and respect the analysis and shared experience of all the members of this economic thread - especially peternap and muldoon! I hope my comments about "hand wringing" were not taken personally - they were not meant that way. A lot of people are worried and scared (see above and myself included) - that is totally appropriate. I hope the worst of what can happen does not happen.
Here is a quote from a non-economist (a guerrilla entrepreneur actually) who I've followed for years. He has a good history of economic predictions (but he is also scared).
Here is my prediction - we will see the start of an unprecedented ecomomic boom starting in mid 2009, and lasting for 5 to 7 years.
All the vetting of the bad news nows, is actually good for the economy.
Get all the bad out of the way. Clear out the weak banks, get rid of the bad loans, get rid of the speculators (which has already done wonders for the price of oil), and let the current real estate inventory continue to decline (due to no housing starts for the past 18 months).
All this is going on right now.
Which means in about 5 to 9 months, we will have a pretty good slate.
The remaining banks and lending institutions should be on firm ground, real estate inventories will be lower (which will cause a rise in home resale prices), government bailouts of fannie mae and freddie mac will mean more money in the mortage markets, and the stock market will have vetted out all the bad news.
And we'll have a new president - which gives consumers a psychological boost.
This is pretty much what happened at the end of the terms of the last few 8 year presidents.
Same thing happened with Clinton (although people tend to forget the collapsing stock market, enrom and other financial scandals that appeared at the end of the Clinton era.)
And people forget the financial problems at the end of Bush 1 era. And the deep financial problems at the end of the Carter era.
History doesn't really repeat itself, but there are certainly patterns which repeat.
In this case, financial bad news seems to pile up right before an election, causing the economy to stumble (often aided and abetted by the media).
Then the new person comes in, the economy rebounds, and the new person takes credit - even though the rebound is usually driven by small businesses, innovation and consumers.
Bill Myers - bmyers.com
I disagree John I don't think we'll see any real growth for the next 5-10 years. I think the purpose of this wealth transfer that's happening now is to bring the US standard of living in line with other nations in this global economy. I expect the standards in other nations like china and india to rise a bit while ours falls back to around 1970's levels. 1 car households, smaller homes, less eating out etc. I don't think this is really a bad thing. I also expect the gap between rich and poor to widen. The middle class is going to be reshaped by all this. Sure there will still be a middle class but it will look much different than it does now. The process of getting there won't be pretty though.
No worries about the hand wringing comments, were all worked up. I may say something that rubs someone else the wrong way - and for that I apologize in advance, it's not my intent either.
I think historically, he is spot on. In the past it has worked that way, in the past for literally centuries we have seen business cycles of boom and bust. None of this is new, as irrational exuberance takes over people make poor choices, those fail and the slate is cleaned and bad debt washed away only to start new again. Traditionally this business cycle is on an 8 year cycle of boom and bust. There also is another cycle on a 70-90 year frequency known in financial world as a Kondratieff wave cycle (http://www.kwaves.com/kond_overview.htm). This cycle is a little larger and paints larger swatches of decades with the same basic principles.
In the past if you were a buyer during the intermediate downturns it could work out very well for you when the market rebounded the following year. For the larger wave, it could work out well for you in the following decades. I am not debating the concept of buying low sell high demands you purchase when times look bleak, I am saying I do not believe in any fashion that this is the bottom because the effects have not manifested in the real world yet. Once reached there is no way to truly determine which companies are going to survice and rebuild? How many people bought Yahoo or Novell 800 only to see them trading near 40 today. Holding long term can be very good, IF your exit time is at the end of the ramp up, buying at the peak of the market and holding it into the decline does not help just because you bough and held.
Quote
Here is my prediction - we will see the start of an unprecedented ecomomic boom starting in mid 2009, and lasting for 5 to 7 years.
I cannot see this occuring. In order to have growth and boom you must have credit. Business's borrow to grow and build. Currently we have a frozen credit market, even with LIBOR shooting (nearly doubling this week), no banks can loan right now to other banks. They are either insolvent or do not believe the other party will be there to repay. Lehman bankrupted on Monday and left 650bill in bad debt for other financial instituional bagholders to figure out. As long as the fraud and lies are still present no one will put new money into this situation. True wealth is sitting out and will not return until fraud is removed - there is no course for this to occur. Even if there was a course of action in place today it cannot be completed in just a year.
Quote
All the vetting of the bad news nows, is actually good for the economy.
Get all the bad out of the way. Clear out the weak banks, get rid of the bad loans, get rid of the speculators (which has already done wonders for the price of oil), and let the current real estate inventory continue to decline (due to no housing starts for the past 18 months).
All this is going on right now.
Which means in about 5 to 9 months, we will have a pretty good slate.
I couldn't agree more that in many ways the downturn is part of the cure. Remove the bad elements and get a fresh start. If the weak parts of the system were being forced to correct or shutdown this would be accelerated. By bailing them out we are prolonging this and making it much more painful. Another thing to consider is the ramifications in the changes to bankruptcy laws in the last few years. In times past it was possible to simply walk away from all debt and start over, now many of those loans cannot be walked away from as easily. It changes the landscape and diminishes the effectiveness of this stage.
Quote
The remaining banks and lending institutions should be on firm ground, real estate inventories will be lower (which will cause a rise in home resale prices), government bailouts of fannie mae and freddie mac will mean more money in the mortage markets, and the stock market will have vetted out all the bad news.
And we'll have a new president - which gives consumers a psychological boost.
Housing downturns on average last 10-18 years from peak to trough, I do not see any reason to believe that prices will go up in 5-9 months. In fact, with rising interest rates and reluctance to lend - prices may indeed come way down to be a price that can be afforded by others. A 100k house with a 6% mortgage looks better than a 50k house with a 15% mortgage. As rates increase prices will continue to fall as the "whats my monthly payment" crowd shops.
The new president could be good or bad, we'll have to wait and see.
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This is pretty much what happened at the end of the terms of the last few 8 year presidents.
Same thing happened with Clinton (although people tend to forget the collapsing stock market, enrom and other financial scandals that appeared at the end of the Clinton era.)
And people forget the financial problems at the end of Bush 1 era. And the deep financial problems at the end of the Carter era.
History doesn't really repeat itself, but there are certainly patterns which repeat.
I agree with that, but the problems were seeing now are not the same as then, we need to move the clock back some more to see a larger picture of time to get adequate analogies.
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In this case, financial bad news seems to pile up right before an election, causing the economy to stumble (often aided and abetted by the media).
Then the new person comes in, the economy rebounds, and the new person takes credit - even though the rebound is usually driven by small businesses, innovation and consumers.
Bill Myers - bmyers.com
So, there is a scenario where we may see an increase of monetary base and credit to offset this. If the Federal reserve in conjunction with the Treasury were to "fire up the printing presses" and create dollars out of thin air without anything behind them. This has not occurred in the US since the civil war with the greenback and 5 dollar us notes. Since then all frn notes have been born from debt sales or direct taxation conversion. If they were to persue such a path they literally could open up the clogged pipes and get money moving again. However the result is hyperinflation, and it has destroyed every single country that has ever attempted this course. (Zimbabwe, Weimer Germany, Argentina).
This is not a desirable course of action in any way to me, and to be honest I dont see this as a realistic option open to them currently. Many believe this is the course and the plan, I simply just do not want to believe it and to date it has not occurred.
I agree with you, muldoon...no fast fix available.
One thing I am not as sure about "The new president could be good or bad, we'll have to wait and see."
I see that one only as bad or worse.
There is also the slight chance that Bush will not relinquish power, but as screwed up as it has become under his watch he will probably move to his South American digs.
I agree too.
The crisis periods are becoming more frequent. It looked today that very trades were on fundamentals. Tomorrow, I expect it to be flat and who knows on Monday.
This week has reminded me more of a trip to Las Vegas than investing.