Stocks and investing thread

[NUKE_CLEVELAND]

The top economist from the Soros foundation said that the fundamentals indicate oil should be around $65.

 

 

What fundamentals are these? Even at 94 and change a barrel demand still keeps on rising and there is no new supply coming to market to offset it.

[kapkomet]

What I find really amusing is that all these people keep saying we're headed for recession when you have GDP growth approaching 4% for this quarter according to the latest read on it that was out today. It doesn't seem as though the housing problem is hurting the economy as a whole with numbers like that. This is doubly remarkable in the face of the ongoing subprime mortgage mess and sky high energy prices. People have been predicting impending doom for the economy for months now and even though events say we should be slowing down, we're not.

But WHY is GDP close to 4%? If growth is so robust, why cut rates?

[southsider2k5]

Look at where it closed... It ran like a scared little b****. It isn't fundamentally ready for these levels. At least not yet.

 

Of course I say that, and in the same day inventories are down almost 4 million bbl and the fed mentions energy prices in its statement...

[southsider2k5]

I'm just a bit confused. I thought the housing meltdown had a bit to do with the fact that the housing craze made everything pretty overpriced in general and put a lot of people in a much more financially strapped position than they could afford to be in. As those people started to default on their houses, the mortgage market imploded which basically created a shortage of liquidity in the market? This doesn't seem to be an altogether bad thing - because the liquidity that was there caused big financial institutions to overstretch on housing, yes?

 

So, although a drop in the Fed interest rate helps keeping the housing market from cooling too quickly, is it really doing the right thing in an economy headed for recession? Lower interest rates equals a weaker dollar. This would help our exporting, however with our manufacturing base shriveled, is that really a huge gain for us anymore? On the other hand, it helps boost energy costs, specifically the price of oil. This fuels inflation in food and energy - which seems to be the big problem for the most of us who don't have a ton of cash to throw around on 3.00+ a gallon gas and 4.00+ a gallon milk. So while prices for essentials for Americans increase, savings rates get further depressed because traditional means of savings are getting more and more pointless. Wouldn't this dampen the already weak American will for saving further?

 

I just don't see how rate reductions at this point would be a good thing for the average American.

 

I just happened to be listening to CNBC when the Fed annoucement was made yesterday so I got to hear a fair amount of interesting information.

 

#1- this might be the last rate cut for a while. It also might not be, but the fed did change their bias language to pretty nuetral, with phrases included about analyzing data and the like.

 

#2- inflation, specifically commodity based was also deeply dicussed.

 

#3- Yes the mortgage companies are hurt in all of this, but one thing I have heard discussed, is that while losing homes is happening, almost all of these people are not becoming homeless. They are still spending housing money in one form or another, meaning they are still paying rent, or a smaller mortgage.

 

#4-Inflation is out there, no matter what the statistics say. The funny thing is that right now, the huge cheap import volume is what is really saving us from 70's style inflation, and that is why no one is really doing anything about China and the rest of Asia. Alan Greenspan was quoted as saying that China is even starting to have serious inflationary pressures, and he believes we will move back into an inflationary cycle in the middle term future ( a few years from now). My personal theory is that you will see the cheap/slave labor pool begin to move out of Asia when this happens, and into the most underdeveloped place of all, Africa. It would be cheap to industrialize and modernize there to utilize its labor and burgeoning numbers.

 

#5- The Fed estimated that the housing crisis, as it is being dubbed, has knocked 1.1 percentage points of growth off of the GDP. The interesting part is that the rebound of exports due the cheap dollar, has actually added 1.0 percentage points of growth to the GDP, which is why we are still in plus territory, and not in a recession. While some sectors of the economy are in the toilet, the economy as a whole is still growing. I think this is why the fed isn't too worried about the falling dollar. It will end up putting a lot of pressure on China in the very near future.

[NorthSideSox72]

What I find really amusing is that all these people keep saying we're headed for recession when you have GDP growth approaching 4% for this quarter according to the latest read on it that was out today. It doesn't seem as though the housing problem is hurting the economy as a whole with numbers like that. This is doubly remarkable in the face of the ongoing subprime mortgage mess and sky high energy prices. People have been predicting impending doom for the economy for months now and even though events say we should be slowing down, we're not.

Keep in mind that GDP is a trailing indicator. Let's see where its at in 2008.

 

But I do agree with you in general that the slowing in growth which IMO will occur, will not be massive. But it will happen, because it has to. People simply have much less money to spend. The only way to artificially prop up consumer spending at 2006 levels is if the consumer base decides to stretch themselves thin in their credit cards to the same extremes they did in home equity - and if that happens, we could see a much more precipitous correction further down the line.

 

[Balta1701]

So, for those with more experience in this whole arena than me...a simple question for you.

 

When's the last time that you felt more hawkish on inflation than the Fed?

[Cknolls]

It means our deposit rates are going to drop...again...

 

the blue hairs are going to go CRAZY when they can't even get 4.5% on a CD.

 

 

Go to Countyrwide(CFC). They're paying 5.85% on a 6 mo. cd last I heard, because that is the only way they can get deposits. NOT GOOD. Hey BAC how's that $2 billion you put into CFC, convertible @$18 looking? I'll look to buy this crap in the single digits.

[Cknolls]

Keep in mind that GDP is a trailing indicator. Let's see where its at in 2008.

 

But I do agree with you in general that the slowing in growth which IMO will occur, will not be massive. But it will happen, because it has to. People simply have much less money to spend. The only way to artificially prop up consumer spending at 2006 levels is if the consumer base decides to stretch themselves thin in their credit cards to the same extremes they did in home equity - and if that happens, we could see a much more precipitous correction further down the line.

 

 

It is already happened/happening. This is the next BIG shoe to drop. Consumers have already maxed out their home equity and are using their last resource..

[Cknolls]

And this is potentially worse than the mortgage crisis because this debt is all UNSECURED!!

 

Some stats:

 

Consumer credit rose at an annual rate of 5.9% in August, the biggest increase in 3 months.

 

The increase in consumer credit was led by an 8.1% increase in revolving credit, which is the category that includes credit cards.

 

Non-revolving credit, which includes auto loans, also rose at a faster pace, increasing 4.7% annualized, compared with 3.1% in July and 4% in June.

 

Overall, consumer credit rose by $12.2 billion to a record $2.469 trillion.

 

 

Edited November 1, 2007 by Cknolls

[southsider2k5]

So, for those with more experience in this whole arena than me...a simple question for you.

 

When's the last time that you felt more hawkish on inflation than the Fed?

 

Never. The last time inflation was a concern, I thought inflation was something that applied to balloons. (think Reagans first term)

 

The last time I disagreed with the Fed this strongly was when they didn't raise rates to stop the stock market bubble about year before the bubble burst and recession set it.

[NorthSideSox72]

And this is potentially worse than the mortgage crisis because this debt is all UNSECURED!!

 

Some stats:

 

Consumer credit rose at an annual rate of 5.9% in August, the biggest increase in 3 months.

 

The increase in consumer credit was led by an 8.1% increase in revolving credit, which is the category that includes credit cards.

 

Non-revolving credit, which includes auto loans, also rose at a faster pace, increasing 4.7% annualized, compared with 3.1% in July and 4% in June.

 

Overall, consumer credit rose by $12.2 billion to a record $2.469 trillion.

Does your source have a total number for the amount of revolving credit outstanding? I see the 8.1% increase, but I'm curious how much unsecured leverage there is out there.

 

[Cknolls]

Does your source have a total number for the amount of revolving credit outstanding? I see the 8.1% increase, but I'm curious how much unsecured leverage there is out there.

 

 

Don't have that figure, but here is some historical data:

 

Year Annualized Growth Rate (Credit Cards)

2003 2.3%

2004 3.8%

2005 3.1%

2006 6.3%

JUNE 2007 7.1%

JULY 2007 7.5%

AUG. 2007 8.1%

[NorthSideSox72]

Don't have that figure, but here is some historical data:

 

Year Annualized Growth Rate (Credit Cards)

2003 2.3%

2004 3.8%

2005 3.1%

2006 6.3%

JUNE 2007 7.1%

JULY 2007 7.5%

AUG. 2007 8.1%

Jeez.

 

[Cknolls]

Jeez.

 

 

Here you go: http://www.federalreserve.gov/releases/g19/Current/

[Cknolls]

Tomorrow, the SPX closing below 1530 on a weekly basis would signal 1490/1500 area, especially if the jobs report tomorrow comes in weaker than expected. 1493 is the midpoint in the SPX for 2007, IIRC.

 

1533 is also the midpoint for SPX in October.

Edited November 1, 2007 by Cknolls

[NorthSideSox72]

Here you go: http://www.federalreserve.gov/releases/g19/Current/

So, U.S. consumers hold approximately $915 billion dollars in revolving debt (credit cards, short term payment plans, short loans, etc.). There are 300 million people in the U.S., but about 120 million households (the appropriate level, IMO, where most credit measures are useful). That means that the average household has about $7600 in revolving debt. And in those instruments, usually, the interest rates are very high.

 

That is scary.

 

[kapkomet]

So, U.S. consumers hold approximately $915 billion dollars in revolving debt (credit cards, short term payment plans, short loans, etc.). There are 300 million people in the U.S., but about 120 million households (the appropriate level, IMO, where most credit measures are useful). That means that the average household has about $7600 in revolving debt. And in those instruments, usually, the interest rates are very high.

 

That is scary.

Banks are whores. That is all.

 

[NorthSideSox72]

Banks are whores. That is all.

I blame the consumers more than the banks. But yes, the banks deserve some of the blame.

 

[Balta1701]

I blame the consumers more than the banks. But yes, the banks deserve some of the blame.

Thankfully...the banks haven't yet eliminated the last recourse of many of these consumers, bankruptcy!

 

Oh wait, that's right...

[Cknolls]

But they keep soliciting people with credit card offers in the mail on a daily basis. And when the s*** hits the fan, they'll be wondering how it all happened.

 

[Balta1701]

But they keep soliciting people with credit card offers in the mail on a daily basis. And when the s*** hits the fan, they'll be wondering how it all happened.

No they won't. They won't wonder that at all. Because in most cases for the credit lending companies...the people with bad credit wind up being by far the most profitable people. They'll lose some money on some of those deals, but that's what the repo guys are for, and then they can go right back to making more money off the people as they try to rebuild.

[Cknolls]

There were 635,159 foreclosure filings in the quarter, or one for every 196 households, including default notices, auction notices and bank repossessions. The rising foreclosures is further pressuring home prices on a national level. Not one of the 10 major cities tracked has shown price appreciation for four consecutive months.

 

[NorthSideSox72]

No they won't. They won't wonder that at all. Because in most cases for the credit lending companies...the people with bad credit wind up being by far the most profitable people. They'll lose some money on some of those deals, but that's what the repo guys are for, and then they can go right back to making more money off the people as they try to rebuild.

Not true. The most profitable customers are those with any level of credit but low to middle income - they tend to have balances a lot, but pay the minimum monthly most of the time. That is their ideal customer - not one who has bad credit, because they disappear or declare bankruptcy.

 

It was far too easy before to use bankruptcy as an easy out. I think in some cases it is even still too easy.

 

[NorthSideSox72]

There were 635,159 foreclosure filings in the quarter, or one for every 196 households, including default notices, auction notices and bank repossessions. The rising foreclosures is further pressuring home prices on a national level. Not one of the 10 major cities tracked has shown price appreciation for four consecutive months.

Which is why I would recommend, if you have the money for it, this is a good time to invest in real estate. Make low offers - some will be rejected, but some will take it out of desperation. People made a lot of gains in the last 10 years, they are still making out well today, unless they overextended their credit. I know it seems harsh, but, when there is blood on the streets...

 

[Balta1701]

Which is why I would recommend, if you have the money for it, this is a good time to invest in real estate. Make low offers - some will be rejected, but some will take it out of desperation. People made a lot of gains in the last 10 years, they are still making out well today, unless they overextended their credit. I know it seems harsh, but, when there is blood on the streets...

If I had the money to do that, I'd still wait. IIRC, the peak of ARM Mortgage resets, the month that most of these sub-prime ARM mortgages see their rates jump, doesn't even happen for another 6 months, so there is a lot of bloodletting still to come before things even can begin to even out.