Stocks and investing thread

[Balta1701]

http://biz.yahoo.com/rb/070907/greenspan_market.html?.v=6

 

Well, if Greenspan thinks that, I wonder when we are going to have our 1,000 point in one afternoon drop?

Considering how big of a role he had in building up this house of cards...

[kapkomet]

Considering how big of a role he had in building up this house of cards...

I agree, but only to a point. I'll explain why later. Must go work.

 

[southsider2k5]

http://biz.yahoo.com/rb/070907/greenspan_market.html?.v=6

 

Well, if Greenspan thinks that, I wonder when we are going to have our 1,000 point in one afternoon drop?

 

So far we are stuck in a range between 13k and 13.5k. Its going to take the rate cut, or lack there of, to get out of it. We are going to trade sideways until the market gets it into its head what is going to happen. I think after today's news we will see a nice little selloff into the weekend, as no one will want to be long. I think we settle close to 13k.

[kapkomet]

Half point cut.

 

I'll tell you - I think this is a little too aggressive. There's still too many inflationary pressures - i.e. $82 bbl oil, commodities (corn, milk, soy, etc.)... and I don't care what anyone says, you can't discount those items ("core" CPI) when looking at inflationary pressures.

 

[southsider2k5]

I agree 100%. They should be looking at the overnight rate, but there are way too many inflationary factors out there right now with record commodity prices all over the place. They are going to regret this move. Hopefully it is the only cut they make, but if they start out with a 50 Bps cut, that tells me more cuts are on the way.

[kapkomet]

I agree 100%. They should be looking at the overnight rate, but there are way too many inflationary factors out there right now with record commodity prices all over the place. They are going to regret this move. Hopefully it is the only cut they make, but if they start out with a 50 Bps cut, that tells me more cuts are on the way.

If they "regret" this move, then we are all in a HEAP of trouble.

[southsider2k5]

If they "regret" this move, then we are all in a HEAP of trouble.

 

Pumping more money into a situation where you already have too much money chasing too few goods is the worst possible solution for this economy. The only dumber move you can make is to raise rates in a contractionary situation.

 

Mark my words now, inflation will hit 5% by the Presidential election.

[Cknolls]

Can you say STAGFLATION. Looks like the Fed is trying to inflate the housing bust away. Only sure trade= Buy gold.

 

 

BERNANKE PUT= BUY STOCKS, SELL DOLLARS

 

 

 

[NorthSideSox72]

As much as people get on Greenspan about his responsibility for the housing bubble, I tend to agree with him that its a natural cycle that needs to play itself out. I don't think this rate cut is a good idea. The very small difference it would make for the average mortage or car loan holder won't overcome the problems those people are having - it will however cause greater speculative debt forays. It might ease the pain for housing development-related industries, but long run, it just introduces more risk.

 

Blech.

 

[NorthSideSox72]

Whoa - just looked, and the major equity indices are up around 3%. Holy moley.

 

[kapkomet]

If we get into a serious 'stagflation' cycle, we're all going to be in a world of hurt. Seriously. We will see unemployment double, if not more.

 

[Balta1701]

As much as people get on Greenspan about his responsibility for the housing bubble, I tend to agree with him that its a natural cycle that needs to play itself out. I don't think this rate cut is a good idea. The very small difference it would make for the average mortage or car loan holder won't overcome the problems those people are having - it will however cause greater speculative debt forays. It might ease the pain for housing development-related industries, but long run, it just introduces more risk.

 

Blech.

So, I've been one of the hawkish folks on the housing bubble for a couple years I'd say...but I'm not sure this isn't a bad gamble. 2k5's looking at the potential downside, which I'll agree is large if everything goes wrong, but here's the question; what is the likelihood of us getting stuck in a stag-flationary cycle that we can't get out of? Even with the current situation of inflation, I'm not sure it's that high. On the other hand, what is the potential downside of doing nothing or of a limited action for now...that'd basically be a complete yanking out of the bottom of the housing market, and probably a very long period of low growth/recession while 15% of the economy tanks...and what is the likelihood of that happening? If no action was taken, I'd say the likelihood of that was very high. Housing prices are going to tank here for the next few years, there's almost no way around it...but an action like this may result in softening the bottom and slowing the spread.

 

It's a gamble...and it's a gamble that we could have easily avoided by more sound monetary and regulatory policies since the housing runup began in the late 90's...but a gamble is about all he can do right now.

[NorthSideSox72]

So, I've been one of the hawkish folks on the housing bubble for a couple years I'd say...but I'm not sure this isn't a bad gamble. 2k5's looking at the potential downside, which I'll agree is large if everything goes wrong, but here's the question; what is the likelihood of us getting stuck in a stag-flationary cycle that we can't get out of? Even with the current situation of inflation, I'm not sure it's that high. On the other hand, what is the potential downside of doing nothing or of a limited action for now...that'd basically be a complete yanking out of the bottom of the housing market, and probably a very long period of low growth/recession while 15% of the economy tanks...and what is the likelihood of that happening? If no action was taken, I'd say the likelihood of that was very high. Housing prices are going to tank here for the next few years, there's almost no way around it...but an action like this may result in softening the bottom and slowing the spread.

 

It's a gamble...and it's a gamble that we could have easily avoided by more sound monetary and regulatory policies since the housing runup began in the late 90's...but a gamble is about all he can do right now.

One thing we should be thinking about now is how to prevent things like the housing bubble in the future. And while predatory lending had a hand in it, I think the biggest driver by far was bad decision-making by consumers. The best way to address that isn't to take away tools from everyone, but instead to educate the public better on matters of finance.

 

[southsider2k5]

There are two different distinctive interest rates at play here. There is the overnight rate at which the fed lends to banks, and the discount rate, which banks lend to each other at, and which forms the basis for prime rate. The consumer end of things is fine. The discount rate does not need to be changed. Up until today I agreed with Bernankes moves of the Fed stepping in at the discount window and providing liquidity to the system both through the system, and through lower interest rates. Putting more money into the hands of consumers at a time when commodity prices are at record high levels accross the board (Gold 28 year highs, Grains at multi-decade highs, crude oil all time high etc) is a stupid idea, because all it does it create more opportunity for price increases.

 

The banking system needs more cash, consumers do not.

[kapkomet]

There are two different distinctive interest rates at play here. There is the overnight rate at which the fed lends to banks, and the discount rate, which banks lend to each other at, and which forms the basis for prime rate. The consumer end of things is fine. The discount rate does not need to be changed. Up until today I agreed with Bernankes moves of the Fed stepping in at the discount window and providing liquidity to the system both through the system, and through lower interest rates. Putting more money into the hands of consumers at a time when commodity prices are at record high levels accross the board (Gold 28 year highs, Grains at multi-decade highs, crude oil all time high etc) is a stupid idea, because all it does it create more opportunity for price increases.

 

The banking system needs more cash, consumers do not.

And that's exactly right - which is why I think we're now in some trouble. 5% inflation is not what we need - and I'm telling you, we're getting ready to hit some serious bumps in the road.

 

[NorthSideSox72]

And that's exactly right - which is why I think we're now in some trouble. 5% inflation is not what we need - and I'm telling you, we're getting ready to hit some serious bumps in the road.

Yes. And as foreclosures have seen a HUGE jump in the last two months, I think we haven't even yet seen the big dip in consumer spending that is inevitable. Its a lagged effect. All that equity cash people have taken out of their properties is just now starting to run down, and so as the months go by, spending will plummet. The general market fears will only amplify the effect, as people hunker down and spend less.

 

The good news is, that in itself will help counter inflation a bit on highly price-sensitive goods and services.

 

[kapkomet]

Yes. And as foreclosures have seen a HUGE jump in the last two months, I think we haven't even yet seen the big dip in consumer spending that is inevitable. Its a lagged effect. All that equity cash people have taken out of their properties is just now starting to run down, and so as the months go by, spending will plummet. The general market fears will only amplify the effect, as people hunker down and spend less.

 

The good news is, that in itself will help counter inflation a bit on highly price-sensitive goods and services.

Maybe, but those types of items are not what generally fuels the economy - so with that said, it's going to be quite turbulent. I also think that you are right - they are trying to curb the inevitable (HUGE) downspend in consumer spending. I don't think that this rate cut is going to keep that from happening - AND you are putting more money back into the economy which will drive up prices even more.

 

Ugly ugly ugly.

 

 

[Balta1701]

Maybe, but those types of items are not what generally fuels the economy - so with that said, it's going to be quite turbulent. I also think that you are right - they are trying to curb the inevitable (HUGE) downspend in consumer spending. I don't think that this rate cut is going to keep that from happening - AND you are putting more money back into the economy which will drive up prices even more.

 

Ugly ugly ugly.

So, if you're opposed to this rate cut...I'll fire back...what exactly is the alternative? You're agreeing that there is going to be a huge downturn in consumer spending in the near future due to the rapidly shifting credit environment, and you're agreeing that there is going to be a huge downturn in other key economic sectors like home construction...so is the Fed just supposed to sit by and let things see how far they can drop? What is the alternative here?

[kapkomet]

So, if you're opposed to this rate cut...I'll fire back...what exactly is the alternative? You're agreeing that there is going to be a huge downturn in consumer spending in the near future due to the rapidly shifting credit environment, and you're agreeing that there is going to be a huge downturn in other key economic sectors like home construction...so is the Fed just supposed to sit by and let things see how far they can drop? What is the alternative here?

IMO, you cut the discount rate by 50 basis, and MAYBE the funds rate by .25 to wait and see where things go from here - it is my opinion that you do not give consumers (read: companies) more money in this environment of rising prices. You make things to where money can move easier, but you don't push it back all the way to the consumer. If you cut the discount rate alone and make funds ACCESSIBLE (NOT available - I know that's very minute in meaning but in this case is very relevant) that is what needs to happen right now.

[NorthSideSox72]

Yikes. Moody's is now projecting a 7.7% average drop in home values nationally over the next few years. Drops will exceed 10% or more in 86 of the 379 major metros, according to their research. Some areas will see 25% drops or more.

 

That's a lot.

 

Good news: Chicago is not among the 100 areas with the biggest drops. If you look at the 100 list (bottom), Chicago isn't on it, and the bottom city (Memphis) is projected at 1.1%. So, I don't see the specific number, but I suppose that means Chicago is projected to do no worse than a 1% drop.

 

[Balta1701]

I thought the important note about that story was that the 7% drop prediction was an updated one from like the 3% or so prediction they made less than a year ago.

[NorthSideSox72]

I thought the important note about that story was that the 7% drop prediction was an updated one from like the 3% or so prediction they made less than a year ago.

Yeah, that was very interesting.

 

[NUKE_CLEVELAND]

Yikes. Moody's is now projecting a 7.7% average drop in home values nationally over the next few years. Drops will exceed 10% or more in 86 of the 379 major metros, according to their research. Some areas will see 25% drops or more.

 

That's a lot.

 

Good news: Chicago is not among the 100 areas with the biggest drops. If you look at the 100 list (bottom), Chicago isn't on it, and the bottom city (Memphis) is projected at 1.1%. So, I don't see the specific number, but I suppose that means Chicago is projected to do no worse than a 1% drop.

 

 

In a perverse way I kinda hope that comes true. I may be in the market for a home in the Seattle area when I move to Ft. Lewis next year and that would help things greatly.

[southsider2k5]

Well early as it may be, the earliest vicitm of the interest rate hike is the US dollar itself. It has been beaten up since the rate cut, and along with that, the stories about countries abandoning the dollar peg, and our bonds is really starting to beat loudly. Not good. Not good at all.

[kapkomet]

Well early as it may be, the earliest vicitm of the interest rate hike is the US dollar itself. It has been beaten up since the rate cut, and along with that, the stories about countries abandoning the dollar peg, and our bonds is really starting to beat loudly. Not good. Not good at all.

I knew that was going to happen. That was an easy call. Wait until people start dumping and pumping.