DOW close the day up +900 points

[Spok]

The market came back today, lets hope this is a sign of more times to come..

finishes the day +900

[Jake '53]

It's Monday and we're back on the roller coaster.

[McGrude]

Better than last week. I hope this continues.

[Ryguy]

I sure hope it holds and rebounds. North Dakota's economy is actually holding very stong. We haven't even seen the house market fall out here. Houses here are holding their value and still selling very well. We have a very low unemployment rate, and wages keep going up.

But I do hope the market rebounds.

[cjp91068]

I just looked up my 401k plan.....

I've lost enough to almost buy a Ninja 650R.

[Jake '53]

Originally Posted by cjp91068

I just looked up my 401k plan.....

I've lost enough to almost buy a Ninja 650R.

Until you sell it you haven't lost anything.

[keith_stepp]

The market is in a down trend. Do not get too excited about today. I think it has found its bottom (at 8500), but it is still going down and will continue to go down until the benefits of the recent moves by various governments take effect, which will be months from now. So, expect some rallies along the way like today, but over all... the trend is still down.

[BigJohn]

For most of us, it is a long term journey. Yep, our IRAs are down as is my 401. reality is that I still have 6 to 7 years to retire. Time for the market to rebound and make up for the losses. Most of us here are still employed, still have some case in the bank (not much but a little). for thos of us with jobs the down turn isn't as bas as it is for those who are (1) in debt over their heads, (2) in an industry that is subject to the raviges of the the market place or (3) out of work.

Hold on, remain calm, don't take of your shoes. The redundent departmnet of redundancy will arrive soon. Then we'll begin the journy all over again. Seen it happen to many time over the years. It's cyclic. it happens, it comes back.

[Gatogonow]

IN ADVANCE, SORRY FOR THE LENGTH

It seems that today's spike was started by massive short covering and when the market started upward, greed set in and the herds followed them in. The fundamentals of the economy have not improved and they have pumped Trillions of dollars into the world. The following are my explanations and conculsions of what's happened, happening and going to happen. This is my personal opinion.

We have become a nation of consumers and not savers. We did not have enough savings to consume at a rate we could afford so we borrowed money to consume. We even borrowed money for houses we couldn't afford and everyone, whether they could afford it or not wanted a house, and not just a house, a real nice house. The debt became so huge that we packaged it, gave it a fancy name and sold it to domestic and foreign investors.

Because we no longer manufacture much of anything, we import most everything. We created hugh trade deficits because we bought more than we sold. We paid in our dollars and creating a hugh surplus of those dollars worldwide. The more dollars available worldwide, the lower the value of the dollar. When the same countries we buy from try to use those dollars to buy from someone else, they have all the dollars they need, so they no longer want to accept dollars either. This further pushes down the value of the dollar. When all of this adds up, foreign countries start to raise the prices in dollars for what we buy from them and that is one of the causes inflation.

When we suffer from inflation, we start to tighten our belt. Employers start to lay off people and un-employment increases. With fewer people working everyone starts to spend less. With everyone spending less, un-employment increases at a faster rate. With business down and un-employment up, we have no reserves (remember we are not a nation of savers) so we borrow more money.

Finally people's credit exceeds their capacity to meet their obligations and they start to default on their loans. The default rate gets so high that it creates a glut on the market for all those houses no one could afford when they bought them. Due to supply and demand, house prices start to crumble and that makes the entire mess even worse.

Now remember earlier I mentionsed those fancy packages of debt that we sold to domestic and foreign investors. Well a lot of those investors were banks (they had all those surplus dollars). Well those banks used those packages of debt as collateral for more and more of their loans. With more and more defaults, no one new what those fancy packages were worth, so banks no longer could trust the value of the collateral so they either called their loans due or refused to loan anymore money.

With no money available for those banks to loan to each other, they had to stop loaning to anyone so that they preserved cash and equity ratios. The answer, stop loaning to anyone. With no way of getting anymore of those dollars and their assets declining in value, they ended up owing more money that they had collateral to cover and Abra Cadabra, they are out of business. When they go out of business, other banks no longer can use their loans as collateral and they have to right off the loans and again abra cadabra they are out of business.

Now remember about those foreign investors, they had a bunch of these same packages that they bought with all those dollars that we had been sending them for years for the things we no longer make. So for the first time in a long time, we became the largest exporter of one thing. Financial diaster!

Now where are we? Here we sit with houses that are worth less than people owe. People have less money than they had and can no longer consume on borrowed funds. We have to consume only what we can pay for. Less consumption means less employment. Less employment means less consumption and so on and so on and so on!

Let's go back to all of those foreign countries, remember they saved while we borrowed. They still have money left. In fact they have started to be consumers too, because we gave them all of those dollars for years and they now can afford to consume as well. They still manufacture a lot of what they consume so they are going to do pretty well. What they can't consume they can sell to other countries that were savers as well. However, none of them want to get into the same boat, so none of them want to be paid in dollars, after all we have nothing to sell them so what would they do with those extra worthless dollars.

Now for the conclusion. The dollar will most likely fall further and faster, foreign goods will become very expensive and we will not be able to afford them. What we do make will be manufatured at dollar costs so foreign countries will start to buy what we make in cheap dollars. Remember they still have boat loads of them. Because we are competing against countries that can afford to get rid of their dollars, they can afford to pay more for things than we can. That will cause not only what they make, but what we make to be more expensive. That's called inflation. Inflation will run rampant and will last for years. To control inflation, the Federal Reserve will have to raise interest rates to unheard of levels.

For those that say, don't worry, it will come back. I say show me any economic reason, not the old standby "because it always has", but any economic reason it will come back in the near, medium or distant future and I might think there was a chance you are correct!

A recession is when your neighbor loses his job, a depression is when you lose yours. A recession is what we are in, a depression is most likely where we will end up. Will it get better, yes. How long will it take, a very, very, very, long time!

Again, just my opinions.

[keith_stepp]

Originally Posted by Gatogonow

Now for the conclusion. The dollar will most likely fall further and faster

A pretty good analysis, but I do not think so. I think the current value reflects future expectations pretty well. Relatively speaking, the US economy is actually in pretty good shape when compared with Europe. Russia, China, and India are the only ones left standing right now; and we do not really import much of anything from Russia; and China's currency is tied to the US dollar; and India's economy is very tightly linked to the US's.

To control inflation, the Federal Reserve will have to raise interest rates to unheard of levels.

Inflation is not an all bad thing. In fact, the opposite of inflation is deflation, which is a very bad thing. The key is to manage inflation. The problem has been unsustainable economic growth empowered by low interest rates. But, keep in mind... all of the current lending problems are a direct result of easing requirements for loan applicants (sub-prime loans), not low interest rates.

For those that say, don't worry, it will come back. I say show me any economic reason, not the old standby "because it always has", but any economic reason it will come back in the near, medium or distant future and I might think there was a chance you are correct!

Boeing, Caterpillar, Merck, etc etc etc. The simple fact of the matter is, fundamentally, the US economy is still strong. We still produce some of the best products in the world; some prodcuts that cannot be found anywhere else. The problem is that somewhere along the way people were convinced that there was a New Economy emerging that promised to grow an economy without ever having to actually produce anything real.

A recession is when your neighbor loses his job, a depression is when you lose yours. A recession is what we are in, a depression is most likely where we will end up. Will it get better, yes. How long will it take, a very, very, very, long time!

I think a fairly deep recession is what we are now in and I think it will take at least 5 years for us to dig our way out of it. Once people get a handle on the idea that they have to actually pay back all that money they borrowed, things can improve.

Again, just my opinions.

Mine too

[Gatogonow]

I would agree with most of your observations.

I would disagree that the dollar is stable. With huge trade deficits along with the trillions we are printing, the dollar is not currently farily valued, I believe is it significantly overvalued. I also agree that the key is China, if China decides to no longer peg their currency to the dollar and lets it freely float, we are in deep do-do!

Inflation is not bad if you have a cushion. Inflation hurts people who have the least the most. If a large portion of your income is covering your variable expenses, you can only cut so far. If you are like most Americans when that happens, credit is no longer an option.

I think this deep recession is one breath away from a depression. The situation is so fragile, it would not take much more to push it over the edge and prick that final bubble. Remember, this ease in credit is not for consumers and the housing contracted may only be in mid stream. We have a lot more shoes to drop.

Thanks for the response

[keith_stepp]

Originally Posted by Gatogonow

I would disagree that the dollar is stable. With huge trade deficits along with the trillions we are printing, the dollar is not currently farily valued, I believe is it significantly overvalued.

Its hard to say. The biggest thing going for the US dollar right now is that most of the oil in the world is traded in US dollars. You cannot destablize the US dollar without destablizing pretty much the entire world's currency. To understand the stength of a currency, you have to look at what backs it. Without a gold standard, we have the power of the US workforce and economy, which is hands down, still the most powerful in the world... by a large margin. If we go down, we will take everyone else with us.

I agree that the key is China, if China decides to no longer peg their currency to the dollar and lets it freely float, we are in deep do-do!

From an inflationary perspective... to a degree, because we import so much stuff from them, but really... not that much. Not enough to hurt us. There is still enough low cost goods available from South American and Asia that it would not be a big deal. Conversely, it would make US products cheaper in China and would help our exporters. China is emerging as the top consumer nation though, which is big potential market. The neo-liberal and and more recently neo-conservative economic and political strategy of globalization demands that China open up is markets... or else... epic fail. They got us by the short hairs right now. A rather unnerving turn of events.

Inflation is not bad if you have a cushion. Inflation hurts people who have the least the most. If a large portion of your income is covering your variable expenses, you can only cut so far. If you are like most Americans when that happens, credit is no longer an option.

Yup. The key is wage inflation. If it does not keep up with price inflation then you will see a drop in standards of living. Historically though... wages have outpaced inflation and standards of living have steadily increased since the 40's.

I think this deep recession is one breath away from a depression. The situation is so fragile, it would not take much more to push it over the edge and prick that final bubble. Remember, this ease in credit is not for consumers and the housing contracted may only be in mid stream. We have a lot more shoes to drop.

The scariest thing is the notion that there simply is no more money to lend. Without money to lend... capitalism collapses. The nationalizing of banks by European countries, Iceland, to an extent here in the US, etc... is a very VERY bad thing. It is very ironic that countries with the most available capital right now are former communist countries.

Thanks for the response

I love these kinds of conversations.

[Gatogonow]

I have pondered the dollar's value, it's decline and the corespondning affect on our economy.

I agree that with a low dollar, our products will be more attractive to countries like China. So attractive that we will not be able to afford what we do make because China will outbid us for our own products.

China is also a nation that is transforming itself, they will surpass the US in oil consumption in the not to distant future. If you were an oil producing nation that manufactuers nothing, who would you want to sell your oil to, and in what currency? My guess is China, at least you would have parity for your imports. It is non inconceivable that the dollar may not be the currency of choice for emerging nations. You could easily see the equivalent of $400 for a barrel of oil. Not a pretty outcome. Guess we better keep those nukes warmed up.

It would also seem that the government has decided to replace banks for all businesses by allowing companies like Ford, General Motors and General Electric to borrow directly from the Federal Reserve. Without the need for banks and the unlikelyhood that the government can back out "once they have the tip in", our currency could be far more at risk that most believe. Remember that prick of the bubble story!

Me Too!

[keith_stepp]

Originally Posted by Gatogonow

China is also a nation that is transforming itself, they will surpass the US in oil consumption in the not to distant future. If you were an oil producing nation that manufactuers nothing, who would you want to sell your oil to, and in what currency?

The reason why the US dollar was chosen was because of how stable the US was emerging from WW2, not so much because of how big and powerful our economy was/is. The most desirable quality of a currency is that it is stable, which is dependent on monetary policy of the issuing country. The US is risking its stability status by being $10 trillion in debt. The more in debt we go, the riskier it is that we will be able to grow economically to meet that expectation. Switching to another currency to trade oil in (something that Iran and some other countries are trying to do) would effectively end US economic hegemony in the world. Not an all bad thing. It would be good for us to have to actually compete again.

My guess is China

There is no doubt that China is emerging as an econmic powerhouse that will eventually dwarf the US and Europe, but right now... they are not real stable.

[Gatogonow]

Then again, neither am I!

[LordGT]

I'm wondering if I should START a 401k at my job NOW!

IF things are so bad, and stocks are down so much, it seems like now is the time to buy stocks via a 401k.

When things come back, the 401k could really ballon with some good gains.

Is this stupid thinking? Or a good idea??

Comments???

[Gatogonow]

My personal opinion, is that it is a very good idea to start putting money into a retirement account, especially if your company matches a certain level of contributions. That being said, it should be a self directed 401K if possible and the short term direction should be in cash or cash eqivalent investments.

Stocks are down and seem attractive at this point but if they have not hit their lows it may not be the best time to buy stocks. You never buy at the low nor do you sell at the high, if either happens, it's luck not intelligence.

If you start with a stock at $100 and have a 50% loss, to get back to the $100 you need a 100% gain. If you have $100 in cash and the market goes done 50% and you then buy $100 in stock and have a 100% increase, you end up with $200.The risk for stocks is certainly weighted towards the downside at this point in time.

If you invest in cash or cash eqivalent investments for the short term, you will not make a lot, but you will protect your investment. If you do not invest at all, you will spend it and never save. If people never save, the only time they will be able to retire is the day the go to the funeral home!

[Jake '53]

Interesting read: Analysis: What went wrong with the markets? - Washington Post - MSNBC.com

Real questions for me is in this world of financial markets: How many steps removed from the actual resource/commodity can a monetary transaction be and still define its value based on those resources/commodities? When money is treated as a commodity unto itself does it have any real value?

[Gatogonow]

Originally Posted by Jake '53

Interesting read: Analysis: What went wrong with the markets? - Washington Post - MSNBC.com

Real questions for me is in this world of financial markets: How many steps removed from the actual resource/commodity can a monetary transaction be and still define its value based on those resources/commodities? When money is treated as a commodity unto itself does it have any real value?

The value of any given currency is what some one is willing to trade you for it; their product, service or currency. You used to be able to tell what your currency was worth, because it was valued in gold or silver, that is no longer the case.

This is the reason that high continued trade deficits create an excess of a currency that becomes less and less valuable over time. The general theory is that if you have more than you can spend in any one currency you have to just sit on it. The longer you sit on it, the longer it has the potential to be worth less than it was the day you got it. So now you have to use more of it to buy the same things you used to buy for the original amount, hence your buying power has diminished. If China and the Middle East have lots of dollars and do not need or want anymore, they may want to exchange transactions in their own currencies. This destabalization of the dollar further diminishes the value of our currency.