<< <i>Their debt is from our debt they all bought into the lies...Feeding the rich and starving the poor is what it is going to come to....no one will own anything, Except the Rich! >>
dlimb,
The British situation is very similiar to ours. They are suffering from deflation in home prices. And this shows why deflation is much more severe than inflation. In an inflationary environment consumers are encourage to spend, as goods and services will cost more in the future. So you buy today to avoid the price hikes. Inflation greases the wheels of the economy. Another benefit of inflation is that it encourages innovation and efficiency. This runup in energy costs has led to many advances in alternative energy that will benefit us for decades. But, yes, excessive inflation is not good.
Deflation on the other hand is just plain awful. Why buy today when you buy tomorrow for less money? Deflation completly derails economies. Japan has been in a quagmire for 20 years because of deflation. And deflation in home values may be the worse imaginable as it is the largest investment for most and is also leveraged. If these deflationary pressures filter into other areas of the economy--which they may be, as evidenced in the auto industry--the ramifications will be great. Corporate profits would drop due to lower consumption and lower realized prices. The difference between recession and depression can be measured by the difference between inflation and deflation. For now, be thankful for inflationary pressures.
<< <i>Deflation on the other hand is just plain awful. Why buy today when you buy tomorrow for less money? Deflation completly derails economies. Japan has been in a quagmire for 20 years because of deflation. And deflation in home values may be the worse imaginable as it is the largest investment for most and is also leveraged. If these deflationary pressures filter into other areas of the economy--which they may be, as evidenced in the auto industry--the ramifications will be great. Corporate profits would drop due to lower consumption and lower realized prices. The difference between recession and depression can be measured by the difference between inflation and deflation. For now, be thankful for inflationary pressures. >>
Yep. As much as we don't like inflation, the economic effects of *deflation* -- at least prolonged and/or steep deflation -- are far worse in many cases.
<< <i>There is a reason that GM stock is at a longtime low.
Expect it to go even lower, maybe to Zero.
In Bankruptcy, the Pension Liabilities are unloaded upon you and me, the Tax Payers.
I would be a GM Bondholder. They are the ones who get the new stock without the Long Term Billion dollar liabilities. >>
For the most part, the problems with GM and F are with their domestic operations. They have very high fixed expenses due to union intervention. Also due to past quality control problems their products are seen as inferior to the American consumer. Their operations overseas are doing quite well and their products are viewe das high quality. I believe GM has a dominant market share in China, and if you travel to Europe you will find F and GM vehicles outnumber European manufactured models.
A merger would not help the industry, just like mergers in the airline industy do not help them. They need to completely revamp operations.
[q A merger would not help the industry, just like mergers in the airline industy do not help them. They need to completely revamp operations. >>
I'm sure Honda or Toyato will revamp their line for them. This reminds me of the oil mergers it may be cheaper to buy companies and spin off assests they don't need rather than build anymore factories in the US.
jmski52----You may be suprised to find that PEs are oftentimes the lowest at the tops and highest at the bottom. This is the result of corporate profits being the highest at market tops and lowest at market bottoms.
I heard within the last few days that the current P/E ratio of the Dow is around 82. The average P/E of the Dow is around 12. That is my reason for asking whether anyone else had that same, or similar information.
If the Dow is at 82, it is no doubt - way overvalued. That's all I was getting at.
Q: Are You Printing Money? Bernanke: Not Literally
The problem with GM and F is that they are slow moving giants with huge legacy costs. It will take many years before they get relief from the numbers of retirees who are enjoying generous benefits negotiated years ago. I wouldn't focus on those companies to gauge the health of the US stock market in general. As for Cramer, anyone can throw out opinions on hundreds of stocks per week, hoping to get a hit on one or two. Your time would be better spent watching The Simpsons or Sponge Bob IMO. At least you'll get a laugh.
Wow, now THIS thread is getting very informative...thanks guys!! (Oops, and gals)
cohodk, you're right about GM and F's overseas stuff...I go to China a lot, and there are TONS of their vehicles in nearly every aspect of Chinese life...from local owners, to corporate buses (minivans are huge over there for the smaller companies). And I'd heard in some cases, F outnumbers all other European makers COMBINED in some countries (gotta dig a little more for that, though).
Just to be clear, I'm not going out and sinking $1m+ in GM and F stock...but they're definitely on my watch list...as are the airlines! (May as well fully drop my drawers!). Hey...started using the exclamation points...feels pretty good.
BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
First, we had the checks that were mailed out this spring/summer.
Then, they just passed the second one to help bailout the homeowners and the mortgage companies.
NOW.... they are talking about a THIRD one to come out in the first of 2009.... perhaps ANOTHER check.
? >>
Why not just return to realistic spending limits and eliminate the income tax altogether as Ron Paul would do? That would indeed create an economic boom the likes of which the world has never seen before and restore prosperity to Americans in general?
Do they not want the majority of Americans to prosper?
<< <i>Wow, now THIS thread is getting very informative...thanks guys!! (Oops, and gals)
cohodk, you're right about GM and F's overseas stuff...I go to China a lot, and there are TONS of their vehicles in nearly every aspect of Chinese life...from local owners, to corporate buses (minivans are huge over there for the smaller companies). And I'd heard in some cases, F outnumbers all other European makers COMBINED in some countries (gotta dig a little more for that, though).
Just to be clear, I'm not going out and sinking $1m+ in GM and F stock...but they're definitely on my watch list...as are the airlines! (May as well fully drop my drawers!). Hey...started using the exclamation points...feels pretty good.
BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad... >>
I have not heard if 1/2 of any future profit is to be turned over to the FHA, etc. BUT.... I would think it to be more than fair, for the taxpayer to get something back for the bailout funding (realistically, the 'taxpayer' probably won't get it back.... I'm sure the FED or whomever will keep that money if they get it).
In fact, I'm a proponent of any company, bank, etc., bailout..... needs to be paid back to the taxpayer in the future. That should be a given IMO.
As for Cramer, anyone can throw out opinions on hundreds of stocks per week, hoping to get a hit on one or two. Your time would be better spent watching The Simpsons or Sponge Bob IMO. At least you'll get a laugh.
I'm able to get a chuckle watching Cramer. The other day he was promoting Redhat (the company) while wearing a Red Hat.
A friend commented that now he looks like the clown that he is.
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<< <i>BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad... >>
I know what will happen here. A few years hence when housing recovers and people are looking at significant gains on their property, there will be an outcry about how the government and evil mortgage companies are STEALING half of the gain from these pitiful homeowners who need protection from these jackals who took advantage of them at a time of despair.
And there will be a push to get Congress to repeal this provision in the law.
Mark my words. It will happen after housing recovers enough for these depressed housing markets to register gains again.
<< <i>BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad... >>
I know what will happen here. A few years hence when housing recovers and people are looking at significant gains on their property, there will be an outcry about how the government and evil mortgage companies are STEALING half of the gain from these pitiful homeowners who need protection from these jackals who took advantage of them at a time of despair.
And there will be a push to get Congress to repeal this provision in the law.
Mark my words. It will happen after housing recovers enough for these depressed housing markets to register gains again. >>
A very good point...and I'd put a 60% probability that you're right...especially during a Prez election year. Now, I wonder about another aspect: What about refi's? Would the home owner be forced to pay the Gov'mint their fair (fare) share as part of a refi deal? If so, wouldn't that put the guy back into the same boat? Or are they locked into the deal until they outright sell?
just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this?
Yes. Goto page 396 and read what someone wrote at 12:49pm
<< <i> just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this?
Yes. Goto page 396 and read what someone wrote at 12:49pm >>
Hehe...good thing you put the emoticons...I was about to do just that!!
cohodk, we are going to have the same problem here too...All those houses and no one can afford and real estate prices falling and people with morgages at values higher than the house is now valued...we are knocking on their door step!
The Fed is trying to stop it by proping up the system...but I do not know if it is going to work! They say inflation is holding steady but it could go flat and go the other direction....with all the job cuts and all they are trying everything...but then if it does work how long will it be before we start to recover...how many people are going to be out here without food and shelter...it is not going to be nice...because those people are going to be hungry and what do hungry people do when they have families to feed! Numbers of unemployed are growing cutting down on the spending which we need to boost the economy...in one way it is helping but in the other way it is cutting our throat!
Oh, man...I'm typing too quick today...jazzed that I'm "Senior" now...cohodk, I did go back in this thread (after the light bulb went off).
Good call...where did your report come from (sorry, you probably mention it before THAT entry, but I can't seem to quickly find it)? So far today, with other research I'm doing, I haven't been able to find anyone else that mentions this little tidbit. Really does put a different spin on things...basically turns the Gov into a Landlord...about the only benefit one of these folks would have is the ability to reclaim the principal (if they would indeed lose 100% of the appreciation).
Still, though, some might jump at anything that would prevent foreclosure (I know I would). And if you figure a $400,000 value, that means $360,000 loan. Might make payments significantly lower, especially in some locations where a 35% drop has occurred. I think I agree with you (about not many taking the new financing deal) if you're talking about homeowners in areas where deflation hasn't occurred too much (less than 10% doesn't make much sense).
I think many houses were purchased for speculation. So why go through the trouble of refi if you have to give up your speculation profits? It would be better to foreclose.
dlimb,
I dont think we are going to have their problems. Rather I think they are going to have our problems.
<< <i>Now wait just a minute, they had 32 BILLION in assets in March and now they have 50 to 100 million?????? >>
The FDIC confiscated the assets called "deposits". The assets they have left are buildings equp, etc. worth 50-100 and the liabilities are bills not yet paid. They will file BK and turn both to zero.
<< <i>Do they not want the majority of Americans to prosper? >>
Not independent prosperity but government provided prosperity, they want you to be dependent on the government, that means more control from DC.
You have new neighborhoods of Government Housing...They just tore down Cabrini Green in Chicago a couple years ago...this is new Government Housing at its best!!!!
This time it going to suck many more people into it!
“There are some companies, like (gasp!) Ford and GM that are at historic lows...”
“So, please forgive me if I don't buy this "The Rich will get richer, and the poor will get poorer"”
TH First I think if one wants to own a car company they best pick one in India or China where people work for their daily bread, and don’t have a retirement mansion picked out.
TATA motors comes out with a $2,350 dollar car in the next few months and its stock is also down some 40% this year due to the rich getting poorer. They also are working on a compressed air car that uses NO gas.
While we are on that subject as you agree the rich are taking a bath. The poor are already poor and the trillions of net worth being lost in this current down turn are making thousands of rich guys on Wall Street poorer, as well as lots of fat cat stock and bondholders. No doubt the baby boomers are going to take their share of losses in the 401k’s also but then again I would not consider the vast majority of them poor.
Warren Buffet has said:"Be fearful when others are greedy and be greedy when others are fearful"
BL
Did Buffet say what to do when he was fearful? He is losing hundreds of millions!
“Wow. And after the FED bailed them out. GOLDSAINT, all I can think of is all investor/depositors got their money from the FED and split..... left town..... so the bank has nothing left.”
Tincup,
The report said this, “Regulators said IndyMac ended March with about $32 billion of assets and about $19 billion of deposits,”
So if the 19billion fleed what happened to the 13 billion in assets? I mean they only have 50 to 100 mill now?
PEs are oftentimes the lowest at the tops and highest at the bottom.
One of the greatest value stocks I ever played had a P/E that rose from 15 to 100+. They were completely beaten at 100 and I enjoyed the ride back down 20. After that, I never looked at a P/E again.
And at the same time, if I recall correctly, they were not using negative earnings within the calculation of the P/E of the broad stock market indices. Just pretending they didn't exist.
<< <i> just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this?
Yes. Goto page 396 and read what someone wrote at 12:49pm >>
PEs are oftentimes the lowest at the tops and highest at the bottom.
One of the greatest value stocks I ever played had a P/E that rose from 15 to 100+. They were completely beaten at 100 and I enjoyed the ride back down 20. After that, I never looked at a P/E again.
And at the same time, if I recall correctly, they were not using negative earnings within the calculation of the P/E of the broad stock market indices. Just pretending they didn't exist.
PEs are not lowest at the tops and highest at the bottom of the market. It's not rocket science. PEs are highest when the stock price is high and/or the earnings are low.
If a company has negative or no earnings, then the stock price is purely speculation, because stock valuation has to be based upon the expectation of some type of future earnings.
If you enjoyed a ride in the P/E ratio from 100 down to 20, then you enjoyed getting creamed, or else you sold while the price was still high just after the earnings cratered - but I doubt that that was the case, because the market would have taken care of that pricing discrepancy in a flash.
Q: Are You Printing Money? Bernanke: Not Literally
If the P/E is 100 times earnings, how many years will it take for the earnings to catch up with where the price already is?
If the P/E is 12 times earnings, not accounting for inflation, that simply means that it takes 12 years to recover your investment, if the earnings remain the same.
In a growing economy, you normally expect earnings to grow, which means that you normally would expect to recover your investment on a stock that has a P/E of 12 in something less than 12 years. The rate of growth in the earnings stream is relevant here.
Even in a growing economy, a stock which has a P/E of 100 has a terrific hill to climb - not saying that it can't be done, but it is a rare bird that can produce those kinds of results for very long.
For a hot stock with great potential (like with a hot new product), it's sometimes rational to anticipate that future earnings will accelerate, thus justifying a higher P/E ratio than the industry average or some other comparison such as the stock's past P/E ratio history.
Irregardless of that, what say you about today's P/E - do they still ignore negative earnings when calculating the market's P/E?
See above comment - a negative earnings should only be discounted if you know the industry and have solid expectations that earnings are about to increase, such as when a company invests heavily in R&D, and is about to launch a new product that you happen to think will be wildly successful.
But, a negative earnings history is almost never a good sign, period. It's called "tech bubble." I can vouch for a bunch of those high-flyers that had extremely high P/Es for awhile, and then they disappeared.
Q: Are You Printing Money? Bernanke: Not Literally
THE BUSINESS OF AMERICA IS BUSINESS, Calvin Coolidge famously declared in the 1920s. But the business of America largely has become finance. Eight-plus decades later on, the material well-being of the nation depends not so much on what it makes and sells but in moving money.
As the first anniversary of the credit crisis approaches, one wonders how this happened. The so-called Robber Barons of a century-plus ago built their fortunes on industries that built America -- railroads, steel, oil. The great financiers of the time, such as J. Pierpont Morgan, helped build those industries. Finance then was called the handmaiden of commerce.
As financial markets became deregulated and computing power became cheap and ubiquitous, all sorts of new investments burst forth. Nowhere was this more dramatic as in the mortgage market, because no instrument is close to being as complex as a mortgage in the U.S.
From that relatively simple model sprang models that predicted the behavior of massive pools of mortgages with the precision of Newtonian physics. By assuming the future would be like the past, lenders could structure loans with the most outlandish terms.
From that, Wall Street made the leap to taking those loans and structuring them into securities. Since financiers knew, with statistical certainty, how many loans in the pool would default, they sliced the loans into tranches.
Nowhere has the misplaced faith in the pricing of mortgage instruments been disproved so dramatically as in the writedown and disposal of $30 billion face value of collateralized debt obligations by Merrill Lynch for about 22 cents on the dollar. Merrill financed three-quarters of the sale, so it realized roughly a nickel on the dollar for these CDOs, which could be wiped out by another five percentage point drop in their value.
WASHINGTON (Reuters) - Bank regulators closed a small Florida-based bank on Friday, the eighth U.S. bank to fail this year under pressure from a weak economy and a credit crisis precipitated by falling home prices.
The Federal Deposit Insurance Corp said First Priority Bank had $259 million in assets and $227 million in deposits and its failure will cost the federal fund that insures deposits an estimated $72 million.
SunTrust Banks Inc (STI.N: Quote, Profile, Research, Stock Buzz) has agreed to assume the INSURED deposits of First Priority, whose six branches will reopen Monday as branches of SunTrust Bank.
By SIMON ROMERO Published: August 2, 2008 CARACAS, Venezuela — The central bank sought on Friday to calm fears of faltering banks a day after President Hugo Chávez unexpectedly announced the nationalization of a large Spanish-owned bank, his latest effort to intensify state control over the economy through takeovers of private companies.
Although Mr. Chávez had earlier threatened to nationalize Spanish-owned enterprises in retaliation for European immigration measures, his move surprised investors. He returned from a trip to Spain last week and assured Venezuelans that he had mended relations with King Juan Carlos, who famously told Mr. Chávez to “shut up” at a summit meeting last year.
THE BUSINESS OF AMERICA IS BUSINESS, Calvin Coolidge famously declared in the 1920s. But the business of America largely has become finance. Eight-plus decades later on, the material well-being of the nation depends not so much on what it makes and sells but in moving money.
As the first anniversary of the credit crisis approaches, one wonders how this happened. The so-called Robber Barons of a century-plus ago built their fortunes on industries that built America -- railroads, steel, oil. The great financiers of the time, such as J. Pierpont Morgan, helped build those industries. Finance then was called the handmaiden of commerce.
As financial markets became deregulated and computing power became cheap and ubiquitous, all sorts of new investments burst forth. Nowhere was this more dramatic as in the mortgage market, because no instrument is close to being as complex as a mortgage in the U.S.
From that relatively simple model sprang models that predicted the behavior of massive pools of mortgages with the precision of Newtonian physics. By assuming the future would be like the past, lenders could structure loans with the most outlandish terms.
From that, Wall Street made the leap to taking those loans and structuring them into securities. Since financiers knew, with statistical certainty, how many loans in the pool would default, they sliced the loans into tranches.
Nowhere has the misplaced faith in the pricing of mortgage instruments been disproved so dramatically as in the writedown and disposal of $30 billion face value of collateralized debt obligations by Merrill Lynch for about 22 cents on the dollar. Merrill financed three-quarters of the sale, so it realized roughly a nickel on the dollar for these CDOs, which could be wiped out by another five percentage point drop in their value. >>
Thank goodness we still have each others laundry to do.
Government is going to start looking pretty stupid for allowing profitable American business to be gutted to profit a few and al- lowing the jobs to be shipped overseas. At least they've seen the problem and are charging these people to run ahead of the lynch mobs.
PEs are not lowest at the tops and highest at the bottom of the market. It's not rocket science. PEs are highest when the stock price is high and/or the earnings are low.
Comparing the PE of the market to individual stocks can be much different.
For example,
In 2005 the average PE of a homebuilder was about 8x. Everyone on Wall Street said the stocks were cheap cuz the PEs were low. What happened next? Earnings fell, stock prices fell, and the PE went up.
Now they say the oil companies, steel companies, fertilizer companies are cheap cuz the PEs are low. I wonder what will happen next?...................................................
In 2005 RIMM--one of the best performing stocks of the last 5 years---earned 37c and was priced at about $25 giving it a PE of 67. Today the PE is 44---the lowest in years--- and the stock is $120. So the PE fell but the stock went up. I could also have used AAPL as an example. My point is that PEs dont really matter and should not be used as a sole indicator of stock valuations. Sales and debt levels are much more important. Take it from someone who makes a living trading stocks, if you only buy stocks with low PEs and shun stocks with high PEs, your investment returns will most likely be mediocre---at best.
“In 2005 RIMM--one of the best performing stocks of the last 5 years---earned 37c and was priced at about $25 giving it a PE of 67. Today the PE is 44---the lowest in years”
Dave, Perhaps those heady old days of the big brokers pumping up these hot stocks has come to an end?
I mean they cannot even keep up their own stack values in this market.
Look at all the new investment firms that are now public and trading 50% off their original offer price.
I really see no reason why a tech company like RIMM should trade at a PE of 44 and Exxon, XOM, should trade at 9.9. What is the chance that the Chinese, or the Indians will make one of these devices at half the cost in the next 24 months?
I believe we have seen a partial end to the time when these larger brokers could sell the original offerings to themselves and their friends and then pump the PE to the moon. Even if the financials repair somewhat over the next few years their model for making billions in paper-inflated derivatives is now bust .
Oh crystal ball what do you see...it's getting clearer now I can almost see it....yes it is saying to me that a Country coming into the manufacturing age will be buying GM...hummm...oh crystal ball are you sure about that...you would't lie to me know would you crystal ball?
Crystal ball says, Buick is the working mans car...so it must go to where men workie!
I turn crystal ball over on its bottom...what else, MADE IN CHINA.
Great innovative companies will always command higher valuations. I dont think RIMM has a lower PE now because of less "pumping", earnings have just caught up with the stock price. A PE of 44 is certainly high, but a price/sales ratio of 11, is IMHO, excessive and for that reason I am not a fan of their stock. Nor AAPL for that matter. I do believe RIMM and AAPL to be gadget makers whose businesses could easily see increased competition, but I think their bigger fears are market saturation, lack of innovation, and a tapped consumer. I just used them to illustrate that oftentimes the highest PE's are at the lowest stock prices. I could have used hundreds of other companies as examples.
Financial stocks are valued relative to book value rather than earnings. Currently, we really have no idea what book values are as they are changing on a daily basis. For example, when MER reported earnings last month they said their book value was $31, so at $25 the stock looked cheap and it rallied to $36. Then they write off $5 billion or about $5 of book value and dilute their shares by 40% through stock issuance and now their book value is about $25. So now $31 looks expensive and the stock sells off. Confusing, eh? This lack of certainty of valuation, lower earnings power due to deleveraging, and general mistrust, will keep a lid on any banking rallies.
coming out for 1 showing only right now - aug 21st, thursday at 7pm cst, is IOUSA - a movie about our defecits in trade, the budget, and leadership. produced by agora financial. movie follows david walker around on his fiscal wake up tour. features Warren Buffet, Ron Paul, and many other big names as well. you can check out the trailer on this site and find local theaters
You can put your zip code in to see if it's playing near you
Comments
Expect it to go even lower, maybe to Zero.
In Bankruptcy, the Pension Liabilities are unloaded upon you and me, the Tax Payers.
I would be a GM Bondholder. They are the ones who get the new stock without the Long Term Billion dollar liabilities.
<< <i>There is a reason that GM stock is at a longtime low.
Expect it to go even lower, maybe to Zero.
In Bankruptcy, the Pension Liabilities are unloaded upon you and me, the Tax Payers.
I would be a GM Bondholder. They are the ones who get the new stock without the Long Term Billion dollar liabilities. >>
I wouldn't be surprised to see the US auto makers in some mergers before this is over.
<< <i>Their debt is from our debt they all bought into the lies...Feeding the rich and starving the poor is what it is going to come to....no one will own anything, Except the Rich! >>
dlimb,
The British situation is very similiar to ours. They are suffering from deflation in home prices. And this shows why deflation is much more severe than inflation. In an inflationary environment consumers are encourage to spend, as goods and services will cost more in the future. So you buy today to avoid the price hikes. Inflation greases the wheels of the economy. Another benefit of inflation is that it encourages innovation and efficiency. This runup in energy costs has led to many advances in alternative energy that will benefit us for decades. But, yes, excessive inflation is not good.
Deflation on the other hand is just plain awful. Why buy today when you buy tomorrow for less money? Deflation completly derails economies. Japan has been in a quagmire for 20 years because of deflation. And deflation in home values may be the worse imaginable as it is the largest investment for most and is also leveraged. If these deflationary pressures filter into other areas of the economy--which they may be, as evidenced in the auto industry--the ramifications will be great. Corporate profits would drop due to lower consumption and lower realized prices. The difference between recession and depression can be measured by the difference between inflation and deflation. For now, be thankful for inflationary pressures.
Knowledge is the enemy of fear
<< <i>Deflation on the other hand is just plain awful. Why buy today when you buy tomorrow for less money? Deflation completly derails economies. Japan has been in a quagmire for 20 years because of deflation. And deflation in home values may be the worse imaginable as it is the largest investment for most and is also leveraged. If these deflationary pressures filter into other areas of the economy--which they may be, as evidenced in the auto industry--the ramifications will be great. Corporate profits would drop due to lower consumption and lower realized prices. The difference between recession and depression can be measured by the difference between inflation and deflation. For now, be thankful for inflationary pressures. >>
Yep. As much as we don't like inflation, the economic effects of *deflation* -- at least prolonged and/or steep deflation -- are far worse in many cases.
<< <i>There is a reason that GM stock is at a longtime low.
Expect it to go even lower, maybe to Zero.
In Bankruptcy, the Pension Liabilities are unloaded upon you and me, the Tax Payers.
I would be a GM Bondholder. They are the ones who get the new stock without the Long Term Billion dollar liabilities. >>
For the most part, the problems with GM and F are with their domestic operations. They have very high fixed expenses due to union intervention. Also due to past quality control problems their products are seen as inferior to the American consumer. Their operations overseas are doing quite well and their products are viewe das high quality. I believe GM has a dominant market share in China, and if you travel to Europe you will find F and GM vehicles outnumber European manufactured models.
A merger would not help the industry, just like mergers in the airline industy do not help them. They need to completely revamp operations.
Knowledge is the enemy of fear
A merger would not help the industry, just like mergers in the airline industy do not help them. They need to completely revamp operations. >>
I'm sure Honda or Toyato will revamp their line for them. This reminds me of the oil mergers it may be cheaper to buy companies and spin off assests they don't need rather than build anymore factories in the US.
I heard within the last few days that the current P/E ratio of the Dow is around 82. The average P/E of the Dow is around 12. That is my reason for asking whether anyone else had that same, or similar information.
If the Dow is at 82, it is no doubt - way overvalued. That's all I was getting at.
I knew it would happen.
i am on a short vacation, yet i am long...that this post count will top 8000 by weekend
cohodk, you're right about GM and F's overseas stuff...I go to China a lot, and there are TONS of their vehicles in nearly every aspect of Chinese life...from local owners, to corporate buses (minivans are huge over there for the smaller companies). And I'd heard in some cases, F outnumbers all other European makers COMBINED in some countries (gotta dig a little more for that, though).
Just to be clear, I'm not going out and sinking $1m+ in GM and F stock...but they're definitely on my watch list...as are the airlines! (May as well fully drop my drawers!). Hey...started using the exclamation points...feels pretty good.
BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad...
<< <i>Ah, yes.... the economic stimulus packages.
First, we had the checks that were mailed out this spring/summer.
Then, they just passed the second one to help bailout the homeowners and the mortgage companies.
NOW.... they are talking about a THIRD one to come out in the first of 2009.... perhaps ANOTHER check.
? >>
Why not just return to realistic spending limits and eliminate the income tax altogether as Ron Paul would do? That would indeed create an economic boom the likes of which the world has never seen before and restore prosperity to Americans in general?
Do they not want the majority of Americans to prosper?
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i>Wow, now THIS thread is getting very informative...thanks guys!! (Oops, and gals
cohodk, you're right about GM and F's overseas stuff...I go to China a lot, and there are TONS of their vehicles in nearly every aspect of Chinese life...from local owners, to corporate buses (minivans are huge over there for the smaller companies). And I'd heard in some cases, F outnumbers all other European makers COMBINED in some countries (gotta dig a little more for that, though).
Just to be clear, I'm not going out and sinking $1m+ in GM and F stock...but they're definitely on my watch list...as are the airlines! (May as well fully drop my drawers!). Hey...started using the exclamation points...feels pretty good.
BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad... >>
I have not heard if 1/2 of any future profit is to be turned over to the FHA, etc. BUT.... I would think it to be more than fair, for the taxpayer to get something back for the bailout funding (realistically, the 'taxpayer' probably won't get it back.... I'm sure the FED or whomever will keep that money if they get it).
In fact, I'm a proponent of any company, bank, etc., bailout..... needs to be paid back to the taxpayer in the future. That should be a given IMO.
I'm able to get a chuckle watching Cramer. The other day he was promoting Redhat (the company) while wearing a Red Hat.
A friend commented that now he looks like the clown that he is.
<< <i>BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad... >>
I know what will happen here. A few years hence when housing recovers and people are looking at significant gains on their property, there will be an outcry about how the government and evil mortgage companies are STEALING half of the gain from these pitiful homeowners who need protection from these jackals who took advantage of them at a time of despair.
And there will be a push to get Congress to repeal this provision in the law.
Mark my words. It will happen after housing recovers enough for these depressed housing markets to register gains again.
<< <i>
<< <i>BTW: One interesting tidbit about the mortgage bailout being foisted upon us honest (loosely-used) taxpayers: I just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this? That actually sounds interesting from a concerned tax-payer standpoint. If, and I'll admit right now it's a BIG if, house prices do recover, the potential write-offs the mortgage companies will I'm sure be allowed to make if they agree to make a deal will at least be partially funded by that equity recovery.
Hmm...not SO bad... >>
I know what will happen here. A few years hence when housing recovers and people are looking at significant gains on their property, there will be an outcry about how the government and evil mortgage companies are STEALING half of the gain from these pitiful homeowners who need protection from these jackals who took advantage of them at a time of despair.
And there will be a push to get Congress to repeal this provision in the law.
Mark my words. It will happen after housing recovers enough for these depressed housing markets to register gains again. >>
A very good point...and I'd put a 60% probability that you're right...especially during a Prez election year. Now, I wonder about another aspect: What about refi's? Would the home owner be forced to pay the Gov'mint their fair (fare) share as part of a refi deal? If so, wouldn't that put the guy back into the same boat? Or are they locked into the deal until they outright sell?
Man, my head's swimming again...
Yes. Goto page 396 and read what someone wrote at 12:49pm
Knowledge is the enemy of fear
<< <i> just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this?
Yes. Goto page 396 and read what someone wrote at 12:49pm
Hehe...good thing you put the emoticons...I was about to do just that!!
The Fed is trying to stop it by proping up the system...but I do not know if it is going to work! They say inflation is holding steady but it could go flat and go the other direction....with all the job cuts and all they are trying everything...but then if it does work how long will it be before we start to recover...how many people are going to be out here without food and shelter...it is not going to be nice...because those people are going to be hungry and what do hungry people do when they have families to feed! Numbers of unemployed are growing cutting down on the spending which we need to boost the economy...in one way it is helping but in the other way it is cutting our throat!
Good call...where did your report come from (sorry, you probably mention it before THAT entry, but I can't seem to quickly find it)? So far today, with other research I'm doing, I haven't been able to find anyone else that mentions this little tidbit. Really does put a different spin on things...basically turns the Gov into a Landlord...about the only benefit one of these folks would have is the ability to reclaim the principal (if they would indeed lose 100% of the appreciation).
Still, though, some might jump at anything that would prevent foreclosure (I know I would). And if you figure a $400,000 value, that means $360,000 loan. Might make payments significantly lower, especially in some locations where a 35% drop has occurred. I think I agree with you (about not many taking the new financing deal) if you're talking about homeowners in areas where deflation hasn't occurred too much (less than 10% doesn't make much sense).
I think many houses were purchased for speculation. So why go through the trouble of refi if you have to give up your speculation profits? It would be better to foreclose.
dlimb,
I dont think we are going to have their problems. Rather I think they are going to have our problems.
Interesting movement in the dollar this week.
Knowledge is the enemy of fear
<< <i>Now wait just a minute, they had 32 BILLION in assets in March and now they have 50 to 100 million?????? >>
The FDIC confiscated the assets called "deposits". The assets they have left are buildings equp, etc. worth 50-100 and the liabilities are bills not yet paid. They will file BK and turn both to zero.
<< <i>Do they not want the majority of Americans to prosper? >>
Not independent prosperity but government provided prosperity, they want you to be dependent on the government, that means more control from DC.
DC giveth and DC taketh away.
This time it going to suck many more people into it!
Totally by design!
“There are some companies, like (gasp!) Ford and GM that are at historic lows...”
“So, please forgive me if I don't buy this "The Rich will get richer, and the poor will get poorer"”
TH
First I think if one wants to own a car company they best pick one in India or China where people work for their daily bread, and don’t have a retirement mansion picked out.
TATA motors comes out with a $2,350 dollar car in the next few months and its stock is also down some 40% this year due to the rich getting poorer. They also are working on a compressed air car that uses NO gas.
While we are on that subject as you agree the rich are taking a bath. The poor are already poor and the trillions of net worth being lost in this current down turn are making thousands of rich guys on Wall Street poorer, as well as lots of fat cat stock and bondholders. No doubt the baby boomers are going to take their share of losses in the 401k’s also but then again I would not consider the vast majority of them poor.
BL
Did Buffet say what to do when he was fearful? He is losing hundreds of millions!
“Wow. And after the FED bailed them out. GOLDSAINT, all I can think of is all investor/depositors got their money from the FED and split..... left town..... so the bank has nothing left.”
Tincup,
The report said this,
“Regulators said IndyMac ended March with about $32 billion of assets and about $19 billion of deposits,”
So if the 19billion fleed what happened to the 13 billion in assets? I mean they only have 50 to 100 mill now?
Tincup,
The report said this,
“Regulators said IndyMac ended March with about $32 billion of assets and about $19 billion of deposits,”
So if the 19billion fleed what happened to the 13 billion in assets? I mean they only have 50 to 100 mill now? >>
WIRE TRANSFER TOP SOME PLACE SAFE just my guess!!!!!!!!!!!!!!!!!!!!!!
One of the greatest value stocks I ever played had a P/E that rose from 15 to 100+. They were completely beaten at 100 and I enjoyed the ride back down 20. After that, I never looked at a P/E again.
And at the same time, if I recall correctly, they were not using negative earnings within the calculation of the P/E of the broad stock market indices. Just pretending they didn't exist.
and take both your legs in exchange. Heck of a deal.
Camelot
and take both your legs in exchange. Heck of a deal.
Camelot
<< <i>I know I know I know, they put it into an Annuity and no one can touch it...not even Uncle Sam! Just like OJ dune! >>
There your go! The insurance companies have it!
Either that or JPMorgan grabbed some of it somehow..... just like they swallowed Bear Stearns.....
<< <i> just read that part of the deal for those 400,000+ struggling sub-prime folks is they will have to surrender 1/2 of any future profit (equity) to the FHA (or Treasury or heck, govmint). Has anyone else heard this?
Yes. Goto page 396 and read what someone wrote at 12:49pm
i think i am in a different time zone..
But we still have the stearn Bear.
The only way to make an economic system truly stable is to permit the free market to take over.
One of the greatest value stocks I ever played had a P/E that rose from 15 to 100+. They were completely beaten at 100 and I enjoyed the ride back down 20. After that, I never looked at a P/E again.
And at the same time, if I recall correctly, they were not using negative earnings within the calculation of the P/E of the broad stock market indices. Just pretending they didn't exist.
PEs are not lowest at the tops and highest at the bottom of the market. It's not rocket science. PEs are highest when the stock price is high and/or the earnings are low.
If a company has negative or no earnings, then the stock price is purely speculation, because stock valuation has to be based upon the expectation of some type of future earnings.
If you enjoyed a ride in the P/E ratio from 100 down to 20, then you enjoyed getting creamed, or else you sold while the price was still high just after the earnings cratered - but I doubt that that was the case, because the market would have taken care of that pricing discrepancy in a flash.
I knew it would happen.
What an odd assumption. P and E both vary.
Irregardless of that, what say you about today's P/E - do they still ignore negative earnings when calculating the market's P/E?
True.
If the P/E is 100 times earnings, how many years will it take for the earnings to catch up with where the price already is?
If the P/E is 12 times earnings, not accounting for inflation, that simply means that it takes 12 years to recover your investment, if the earnings remain the same.
In a growing economy, you normally expect earnings to grow, which means that you normally would expect to recover your investment on a stock that has a P/E of 12 in something less than 12 years. The rate of growth in the earnings stream is relevant here.
Even in a growing economy, a stock which has a P/E of 100 has a terrific hill to climb - not saying that it can't be done, but it is a rare bird that can produce those kinds of results for very long.
For a hot stock with great potential (like with a hot new product), it's sometimes rational to anticipate that future earnings will accelerate, thus justifying a higher P/E ratio than the industry average or some other comparison such as the stock's past P/E ratio history.
Irregardless of that, what say you about today's P/E - do they still ignore negative earnings when calculating the market's P/E?
See above comment - a negative earnings should only be discounted if you know the industry and have solid expectations that earnings are about to increase, such as when a company invests heavily in R&D, and is about to launch a new product that you happen to think will be wildly successful.
But, a negative earnings history is almost never a good sign, period. It's called "tech bubble." I can vouch for a bunch of those high-flyers that had extremely high P/Es for awhile, and then they disappeared.
I knew it would happen.
<< <i>Either that or JPMorgan grabbed some of it somehow..... just like they swallowed Bear Stearns.....
But we still have the stern Bear. >>
Good one
Camelot
Down the paper tube!
Got hard assets?
Finance Has Become the Business of America
Barron’s
FRIDAY, AUGUST 1, 2008
THE BUSINESS OF AMERICA IS BUSINESS, Calvin Coolidge famously declared in the 1920s. But the business of America largely has become finance. Eight-plus decades later on, the material well-being of the nation depends not so much on what it makes and sells but in moving money.
As the first anniversary of the credit crisis approaches, one wonders how this happened. The so-called Robber Barons of a century-plus ago built their fortunes on industries that built America -- railroads, steel, oil. The great financiers of the time, such as J. Pierpont Morgan, helped build those industries. Finance then was called the handmaiden of commerce.
As financial markets became deregulated and computing power became cheap and ubiquitous, all sorts of new investments burst forth. Nowhere was this more dramatic as in the mortgage market, because no instrument is close to being as complex as a mortgage in the U.S.
From that relatively simple model sprang models that predicted the behavior of massive pools of mortgages with the precision of Newtonian physics. By assuming the future would be like the past, lenders could structure loans with the most outlandish terms.
From that, Wall Street made the leap to taking those loans and structuring them into securities. Since financiers knew, with statistical certainty, how many loans in the pool would default, they sliced the loans into tranches.
Nowhere has the misplaced faith in the pricing of mortgage instruments been disproved so dramatically as in the writedown and disposal of $30 billion face value of collateralized debt obligations by Merrill Lynch for about 22 cents on the dollar. Merrill financed three-quarters of the sale, so it realized roughly a nickel on the dollar for these CDOs, which could be wiped out by another five percentage point drop in their value.
WASHINGTON (Reuters) - Bank regulators closed a small Florida-based bank on Friday, the eighth U.S. bank to fail this year under pressure from a weak economy and a credit crisis precipitated by falling home prices.
The Federal Deposit Insurance Corp said First Priority Bank had $259 million in assets and $227 million in deposits and its failure will cost the federal fund that insures deposits an estimated $72 million.
SunTrust Banks Inc (STI.N: Quote, Profile, Research, Stock Buzz) has agreed to assume the INSURED deposits of First Priority, whose six branches will reopen Monday as branches of SunTrust Bank.
AND DON’T TELL ME TO SHUT UP , HA HA HA
By SIMON ROMERO
Published: August 2, 2008
CARACAS, Venezuela — The central bank sought on Friday to calm fears of faltering banks a day after President Hugo Chávez unexpectedly announced the nationalization of a large Spanish-owned bank, his latest effort to intensify state control over the economy through takeovers of private companies.
Although Mr. Chávez had earlier threatened to nationalize Spanish-owned enterprises in retaliation for European immigration measures, his move surprised investors. He returned from a trip to Spain last week and assured Venezuelans that he had mended relations with King Juan Carlos, who famously told Mr. Chávez to “shut up” at a summit meeting last year.
You go GS...!
Man, those exclamation points do feel good...!!!
<< <i>Down the paper tube!
Got hard assets?
Finance Has Become the Business of America
Barron’s
FRIDAY, AUGUST 1, 2008
THE BUSINESS OF AMERICA IS BUSINESS, Calvin Coolidge famously declared in the 1920s. But the business of America largely has become finance. Eight-plus decades later on, the material well-being of the nation depends not so much on what it makes and sells but in moving money.
As the first anniversary of the credit crisis approaches, one wonders how this happened. The so-called Robber Barons of a century-plus ago built their fortunes on industries that built America -- railroads, steel, oil. The great financiers of the time, such as J. Pierpont Morgan, helped build those industries. Finance then was called the handmaiden of commerce.
As financial markets became deregulated and computing power became cheap and ubiquitous, all sorts of new investments burst forth. Nowhere was this more dramatic as in the mortgage market, because no instrument is close to being as complex as a mortgage in the U.S.
From that relatively simple model sprang models that predicted the behavior of massive pools of mortgages with the precision of Newtonian physics. By assuming the future would be like the past, lenders could structure loans with the most outlandish terms.
From that, Wall Street made the leap to taking those loans and structuring them into securities. Since financiers knew, with statistical certainty, how many loans in the pool would default, they sliced the loans into tranches.
Nowhere has the misplaced faith in the pricing of mortgage instruments been disproved so dramatically as in the writedown and disposal of $30 billion face value of collateralized debt obligations by Merrill Lynch for about 22 cents on the dollar. Merrill financed three-quarters of the sale, so it realized roughly a nickel on the dollar for these CDOs, which could be wiped out by another five percentage point drop in their value. >>
Thank goodness we still have each others laundry to do.
Government is going to start looking pretty stupid for allowing
profitable American business to be gutted to profit a few and al-
lowing the jobs to be shipped overseas. At least they've seen
the problem and are charging these people to run ahead of the
lynch mobs.
Comparing the PE of the market to individual stocks can be much different.
For example,
In 2005 the average PE of a homebuilder was about 8x. Everyone on Wall Street said the stocks were cheap cuz the PEs were low. What happened next? Earnings fell, stock prices fell, and the PE went up.
Now they say the oil companies, steel companies, fertilizer companies are cheap cuz the PEs are low. I wonder what will happen next?...................................................
In 2005 RIMM--one of the best performing stocks of the last 5 years---earned 37c and was priced at about $25 giving it a PE of 67. Today the PE is 44---the lowest in years--- and the stock is $120. So the PE fell but the stock went up. I could also have used AAPL as an example. My point is that PEs dont really matter and should not be used as a sole indicator of stock valuations. Sales and debt levels are much more important. Take it from someone who makes a living trading stocks, if you only buy stocks with low PEs and shun stocks with high PEs, your investment returns will most likely be mediocre---at best.
Knowledge is the enemy of fear
Dave,
Perhaps those heady old days of the big brokers pumping up these hot stocks has come to an end?
I mean they cannot even keep up their own stack values in this market.
Look at all the new investment firms that are now public and trading 50% off their original offer price.
I really see no reason why a tech company like RIMM should trade at a PE of 44 and Exxon, XOM, should trade at 9.9. What is the chance that the Chinese, or the Indians will make one of these devices at half the cost in the next 24 months?
I believe we have seen a partial end to the time when these larger brokers could sell the original offerings to themselves and their friends and then pump the PE to the moon. Even if the financials repair somewhat over the next few years their model for making billions in paper-inflated derivatives is now bust .
Crystal ball says, Buick is the working mans car...so it must go to where men workie!
I turn crystal ball over on its bottom...what else, MADE IN CHINA.
Great innovative companies will always command higher valuations. I dont think RIMM has a lower PE now because of less "pumping", earnings have just caught up with the stock price. A PE of 44 is certainly high, but a price/sales ratio of 11, is IMHO, excessive and for that reason I am not a fan of their stock. Nor AAPL for that matter. I do believe RIMM and AAPL to be gadget makers whose businesses could easily see increased competition, but I think their bigger fears are market saturation, lack of innovation, and a tapped consumer. I just used them to illustrate that oftentimes the highest PE's are at the lowest stock prices. I could have used hundreds of other companies as examples.
Financial stocks are valued relative to book value rather than earnings. Currently, we really have no idea what book values are as they are changing on a daily basis. For example, when MER reported earnings last month they said their book value was $31, so at $25 the stock looked cheap and it rallied to $36. Then they write off $5 billion or about $5 of book value and dilute their shares by 40% through stock issuance and now their book value is about $25. So now $31 looks expensive and the stock sells off. Confusing, eh? This lack of certainty of valuation, lower earnings power due to deleveraging, and general mistrust, will keep a lid on any banking rallies.
Knowledge is the enemy of fear
take it FWIW
FOUR MORE TO 8K
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Tom Pilitowski
US Rare Coin Investments
800-624-1870