Long-term economic outlook of USA and beyond
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Posts: 5775
Location: God's own country
Posted on: 16-10-08 17:49:52
Location: God's own country
Posted on: 16-10-08 17:49:52
Quote:
Originally posted by pratickm
Who is buying all this cheap stock?
Pratick,
In stock market there is a term known as leveraging down. This means that most mutual fund companies will have to sell their stock once it has reached a certain low point. Others (Mostly Mutual funds with their massive money) will buy it since they see it as a good investment. If it further goes down, the same fund that sold it in the first place will buy back again. It hence has leveraged down / averaged down.
So it is like the sort of the magic that runs the universe (very complicated but nothing untoward happens, generally speaking).
For the same reason, (as mentioned initially), the indexes goes down for no reason at all as these mutual funds clear their account. Others see it as a good investment and buy heavily thus proping up the price after a new low and so the world goes on.
Peace by TK
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Posts: 1628
Location: carl sagan's universe
Posted on: 16-10-08 23:28:15
Location: carl sagan's universe
Posted on: 16-10-08 23:28:15
Quote:
Originally posted by newton
Quote:
Originally posted by investpro
Quote:
Originally posted by newton
Quote:
Originally posted by pratickm
... first sign of recovery.
Please do let us know when it occurs- the first sign of recovery, I mean.
You of all people should know that it is subjective. Even economists differ on this and no one can predict this with any certainty. But from what I have read there are signals one can look out for.
Ok, lemme carve out my tome and hope I don't bore you with this.
The sign I was looking for was a concerted and coordinated effort from all the governments and financial institutions of the world that got involved with the subprime CDOs and CDSs to resolve this financial mess. Last week on Wednesday, I got the Ist signal and over the weekend the 2nd.
I personally believe that with all the governments and many institutions coming together and putting their minds to it, they will come up with a solution.
If so many minds are committed to making it work and with governments involved, there is no use going against the grain in my opinion. Even if at first it doesn't seem to work, their persistence and continuous resolve will ensure that it will in the long run.There will be plenty of volatility while the markets and economy find a footing and there might even be a downward bias in the short run, but everything will sort itself out.
I do not believe a financial Ragnarok is here. Odin and the God of finance will definitely smile on us.
However I wasn't so convinced when the US was going it alone but now with everybody joining the party, we will definitely have a party.
In short, for me the day has come to gradually go into the markets now and test the waters, the risk reward ratio seems to be good.
On Tuesday, I bought into the markets after a long hiatus and again today
Hope things work out.
O/w there's always The Who, AC/DC, Tina Turner...
Quote:Oh, I love this.
Originally posted by investpro
Ok, lemme carve out my tome and hope I don't bore you with this.
So much better than copying and pasting "tomes" from the Internet or online newspapers from so-called "experts" who change their mind more often than the Toronto weather
Quote:May I ask what specifically you are buying?
In short, for me the day has come to gradually go into the markets now and test the waters, the risk reward ratio seems to be good.
On Tuesday, I bought into the markets after a long hiatus and again today
A generic index or individual stock selections?
If so, on what basis are you picking those stocks?
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Posts: 1628
Location: carl sagan's universe
Posted on: 17-10-08 23:13:38
Location: carl sagan's universe
Posted on: 17-10-08 23:13:38
Quote:
Originally posted by tamilkuravan
Quote:
Originally posted by pratickm
Who is buying all this cheap stock?
Pratick,
In stock market there is a term known as leveraging down. This means that most mutual fund companies will have to sell their stock once it has reached a certain low point. Others (Mostly Mutual funds with their massive money) will buy it since they see it as a good investment. If it further goes down, the same fund that sold it in the first place will buy back again. It hence has leveraged down / averaged down.
So it is like the sort of the magic that runs the universe (very complicated but nothing untoward happens, generally speaking).
For the same reason, (as mentioned initially), the indexes goes down for no reason at all as these mutual funds clear their account. Others see it as a good investment and buy heavily thus proping up the price after a new low and so the world goes on.
Peace by TK
Actually the markets were spiralling down because hedge funds and investment banks were 'asked' (ok arm twisted) to delever (fancy word meaning to sell).
Scenario simplified
TK gives investpro who runs a hedge fund $100M to invest. Investpro turns around to granddaddy pratickM and asks for $400M against that $100M and invests $500M.
When credit turns tight, PratickM tells investpro, "sorry boss, I need to recall $200M because newton from whom I borowed the money to lend you just made me an offer I cannot refuse(remember Godfather). Investpro goes to market to sell $200M worth of shares, but because money is tight, there are no buyers. investpro asks $200 for the million shares he wants to sell but the counteroffer is only $150, but he has to sell at that price o/w pratickM will ram a knife into his hand. So he sells and sells driving the price down until there are no buyers.
Finally investpro goes crying to the govt and tells them he is screwed. Govt listens to him and jumps in to lend a helping hand
That is where we are- the lender/buyer of last resort- the govt.
Hopefully things will turn around from here, nahin to pura vaat lagne wala hai
Same scenario with investment banks which were not regulated and were leveraging upto 25 X.
Commercial banks were regulated to the tune of 10X.
Whether by arm twisting or by choice, because of tight money situation people started to delever and the markets crumbled.
Posts: 1628
Location: carl sagan's universe
Posted on: 17-10-08 23:35:04
Location: carl sagan's universe
Posted on: 17-10-08 23:35:04
Quote:
Originally posted by pratickm
Quote:Yep, I agree with that.
Originally posted by newton
Then the govt has to do what any average family does to pay off debt. Increase revenue (raise taxes) and decrease costs (cut subsidies). There is going to be pain either way but Canada successfully achieved it.
There is no reason why a Govt's budget should be handled any differently than a household budget.
Just like a household, the Govt has to take on debt.
However, at some point it needs to be repaid.
So far, the US has avoided repaying the debt because other countries have been gobbling up US securities and have been using the USD as a safe haven during turbulent times.
Even now, the value of the USD has not fallen in any way.
This is similar to how lenders will not hesitate to lend moeny to some person with very good credit rating.
They will continue lending until the point the person becomes insolvent.
In uncertain times, banks will lend money to the person with good rating even if he/she is piling on more debt.
Eventually it will catch up.
That's been the position of the US in the world.
They have stayed afloat on debt for many years now.
If you are comparing govt debt to household debt, just be informed that I know several families who are nearing retirement age who have forever lived in debt, amounts of which move accordion style- waxing and waning throughout the years, and yet their net worth has been growing every year.
There are several households who have a debt of over $200,000 including their mortgage with gross assets of $600K-$700K leaving them with a net worth of $400K-$500K and mind you they have forever been in debt.
If i know of several such households I am sure if a study was run, the majority of households would be in such a situation. Rare would be the case where a household is totally free of debt at least here in North America.
Therefore one should see the total net value of the country not the fact that it is in debt perpetually- at least that is the premise of modern economics.
That is what Steve Forbes is always pointing out and another thing he promulgates is the eradication of mark to market valuation (Canada just undertook that today for the time being) and a govt policy for a strong greenback. Not that one has to name drop Forbes for a moratorium on mark to market valuations.
Posts: 1628
Location: carl sagan's universe
Posted on: 17-10-08 23:36:51
Location: carl sagan's universe
Posted on: 17-10-08 23:36:51
Quote:May I ask what specifically you are buying?
Originally posted by pratickm
[
A generic index or individual stock selections?
If so, on what basis are you picking those stocks?
Am sending you pm
Guys,
Here is an exclusive conversation with Warren Buffet. Like always, he has some great views to share. http://www.charlierose.com/shows/2008/10/01/1/an-exclusive-conversation-with-warren-buffett
According to him current assets come very cheap and are great buys for long term investors.
People also forecast that markets will plunge further for atleast some more months.
For a short term investor would investing in ETFs that are inverse in nature; e.g. PSQ (Short QQQ ProShares), Short MSCI EAFE ProShares, Pro-Share MSCI emerging Markets (EUM), make any sense? Any views?
Regards,
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