Financial topics

[Higgenbotham]

A lot of people don't have any savings to speak of. That or they've put their retirement accounts in the stock market and we all know how that's going to end. We've pumped something like 10 trillion into the economy, if not more than that and the bubbles are still deflating. However, what I don't understand is why the stock market bubble isn't popping the way that the housing market has.

I think it's pretty close. This morning the employment report came out (110,000 new jobs and 8.2% unemployment) and the futures finished down over 1%.

Back in 2008, the stock market was at about this level as it was topping out. It's interesting though that the 2 previous employment reports (before the market topped in 2008) showed negative job growth but the market didn't flinch.

Maybe this is showing us that in order for the stock market to continue rising, a lot of forward momentum is necessary. Just a setback in forward momentum and down it goes. We'll see, though; it's my hunch the market won't make a huge down move until things worsen but they could worsen rather quickly.

[Trevor]

I remember seeing this about a year ago. The unemployment rate started going down, the media started screaming "recovery" and it ended up getting derailed because of the situation in Europe. The economy is starting to slow down again, not that it had a whole lot of momentum anyway.

Let's see... Spain is in recession, Italy is in recession, Portugal is in recession, so is Japan, and Greece is still collapsing in on itself. As for China, it looks like they're where we were in 2007-2008, where the problems were obvious, but the full effects had not yet been felt.

[OLD1953]

Something else to remember about savings, many of the advantages the silents or early boomers were given by various governments were locked in stone until they died or let them go willingly, or they managed to get them under contract for life. Fixed rents in large parts of New York City were still locked in by the city government at 1940 rates not many years ago, there was a huge political fight about it. I remember when one of the holders of a fixed rental on a penthouse suite at the Waldorf died, her rooms were costing her 100$ per month, they were then let for a sum in five figures. The silents and early boomers had many advantages, and some of them lasted far longer than you assume they did.

[Higgenbotham]

As far as being able to save, things were worse in 1984 when I started working than they were in 1954 or 1964, let's say. But in 1984 it was still much better than in 2004 or likely will be in 2014. From an old post about my first job in 1984:

"I've also described my first full time job to some younger people and they find it shocking, especially the aspect of the benefits that were received. Here's how it worked. Every employee got a set dollar amount to purchase benefits. It was required that you elect the Blue Cross Blue Shield medical plan that allowed you to see any doctor and had a small deductible. From there, you had maybe $100 per month left over. With that, you could purchase, accident insurance, life insurance, or just keep the extra money. So the new hires got a very solid medical plan from the company (which essentially does not exist today), plus more."

The job paid $27,000 per year and my rent was $260 per month for a 1 bedroon apartment. I would seriously doubt that even 0.1% of college graduates today could find an annual salary that pays over 100 times their monthly rent with full benefits that match what I received. Whereas I can imagine that in 1964 many jobs fell into that category, even most jobs.

[Trevor]

Well, that's one good thing about what'll happen after the housing bubble fully bottoms out; people will actually be able to afford a home... eventually.

I've noticed the people that are hurt the most during a major recessions, such as the one in the 1980's, are the people who are just starting to enter the labor force. That's 2-3 years you can never get back and it'll affect you, since if you're 21-22 and you can't get a job, employers will be less likely to hire you. That was also just when the first members of Generation X were entering the work force.

[Trevor]

This time around, the people that are hit were born around 1986-1990; youth unemployment is around 17 percent and underemployment is close to 30 for people under 30 years old. Course, the Boomers were getting ready to retire and now many of them can't.

[OLD1953]

Aedens, I finally got time to read that entire article from financial sense, I agree with all of it except for one small caveat. Where he says :
***
More sophisticated investors and those who are alert to the tell-tale signs of inflation can weather the storm by incurring debt or investing in hard assets that retain value in inflation such as land, fine art, precious metals and certain companies that own hard assets such as railroads, mines and utilities.
****
I feel that I must object to what he's implying. Hard assets in the US will suffer equally with the stock market, though perhaps later or on a different scale, they will not come through the chaos unscathed. While I do expect relative values to survive in their relative way, a silver dime would buy you a cheap sandwich and a cup of coffee in 1933, and it still will if you can get the value of the silver, and this is part of what he's talking about, mines and utilities are inflated in their derivative worth now, and who among us actually owns a mine or railroad in fee simple? PGM's are in a bubble, and honestly, the only thing of worth that isn't is precious gemstones - and it's damned hard to turn those back into cash in a hurry, and very few know anything about their actual worth. You aren't likely to be spending them at the corner market. The USA is seen as the last resort of the person who is trying to preserve capital world wide, and that means everyone is pouring money into the US, and that's not a good place to be when the crunch comes. It is simply too late because you'll jump into inflated markets - and in the USA, every market is inflated.

It's not going to be a fun ride, but it will be a frightening one.

[gerald]

A different perspective

My first full time job was in 1963, a summer job between high school and college. I worked in a factory, and was paid better then the minimum wage , my take home pay was a few cents over $35 ,no benefits, some of my coworkers lived independently on this kind of income. Some were illiterate. My family had friends who owned apartment buildings during the Depression, debt free, they adjusted the rents to the market. Yes, rents went down, but so did the costs, they did quite well. I know of others who lost apartment buildings during Depression because they had debt.

[Higgenbotham]

Austria Rejects Bank Bonds Backed by Rescued Euro Members

By Jana Randow and Zoe Schneeweiss - Apr 4, 2012 8:48 AM CT

The Austrian Central Bank will join Germany’s Bundesbank in rejecting as collateral bank bonds guaranteed by member states receiving aid from the European Union and the International Monetary Fund.

“We will do that as well,” Christian Gutlederer, a spokesman for the Vienna-based institution, said by phone today. “We are talking about minimal amounts. It will have very little impact on overall collateral.”

http://www.bloomberg.com/news/2012-04-0 ... rs-1-.html

First takeaway from this story would be that although the Bundesbank issued a denial, it's now obvious that it is true. Second would be that there's now a run on that idea, with other Central Banks joining. If these Central Banks are going to start distinguishing between credit quality and rejecting some credit, that has the opposite effect of doing bailouts.

[aedens]

Growth rate time lag. It does not match there level of complexity.
H, how does this match your feedback loop?
It does not match the feds growth rate since logistics are limiting facts
in finite models. http://ocw.mit.edu/courses/biology/7-01 ... growth-ii/