Financial topics

[Joe the miner]

I have a simple question about the $800 billion dollar give away that was passed today, and simularly, the TARP2 that Geitner is working on. The question is this: isn't the approval by the senate/house nothing more than a purchase request that has to be funded by floating treasuries? That being the case, the only countries that seem to be capable of extending us credit right now are Japan & China. With the current state of both of these countries, and due to the shear amount of the treasuries that will have to be issued, there won't be enough investor interest abroad to buy up what the treasury needs to sell. As a consequence, the treasury will have to increase the interest rate on this debt to attract a broader investment pool which will ultimately put pressure on other key rates to rise as well. Isn't there the possiblity that the rest of the world could snub this effort thereby leaving congress with another unfunded liabilty causing even more inflationary pressure. Won't this blunt the deflatinary spiral, or is it too small of an amout to stop it?

[Barion]

No, at the moment I work full time as a security guard, but later this year I hope to become a teaching intern (different from a TA, in that I would actually be the one teaching the class and not assisting a professor) on top of that, giving me even more income.

The private security industry should be one of the few growing industries. Generally, I expect increasing need for security at the same time financially strapped governments have less ability to provide it. I envision all kinds of opportunities opening up in private security. In my opinion, it is almost certain that your real income will grow and that your employment prospects are excellent.

Yeah, I already kind of figured I had job security in, well, the security industry, which is good for the short term. Once I get my Ph.D., though, I'll definitely have to get on with it and get a job as a college professor, which should also not be a problem...education is another growth industry as the massive Millennial generation keeps coming to college, wave after wave of them, as aging Silent and Boomer professors step down (or die). The oldest Millennials are just now getting their graduate degrees themselves, and they're just the tip of the iceberg.

I'm a middle X'er, so I should still have lots of time on my side (turning 37 in a couple months). Once the economy gets past this crisis, I should be firmly established in my career as an experimental psychologist/professor, and I'll be in a good position to begin investing in the new, strong economy.

[JLak]

Once I get my Ph.D., though, I'll definitely have to get on with it and get a job as a college professor, which should also not be a problem

PhD in psychology: yet another commodity with a massive supply:demand ratio. Nobody else is going to say it because much of the rest of this forum is in the top 1% of wealth and status, so they feel sympathy for a hard-working joe. Good thing for you that I'm an a-hole. A psychology degree is clearly a consumer discretionary purchase. I know that at Stanford only the very top social science PhD grads get faculty jobs at any school. How do you match up? This will only get worse. No need to take my advice, but I say stick with the security industry.

I'm a middle X'er

>/.figures

I'll be in a good position to begin investing in the new, strong economy.

Where? Are you saying there will be free-market capitalism in the aftermath of nuclear winter? Sweet.

[freddyv]

Comparison

http://1.bp.blogspot.com/_pMscxxELHEg/S ... tWarII.jpg

A good comparison so I've posted the image for easier viewing...



Since we are most worried about the comparison to The Great Depression here is another chart showing how unemployment grew during that period:

from http://encarta.msn.com/media_461546193/ ... ssion.html

...and here are some other sources...



http://seekingalpha.com/article/119481- ... ment-chart

--Fred

[Higgenbotham]

Yeah, I already kind of figured I had job security in, well, the security industry, which is good for the short term. Once I get my Ph.D., though, I'll definitely have to get on with it and get a job as a college professor, which should also not be a problem...education is another growth industry as the massive Millennial generation keeps coming to college, wave after wave of them, as aging Silent and Boomer professors step down (or die). The oldest Millennials are just now getting their graduate degrees themselves, and they're just the tip of the iceberg.

I'm a middle X'er, so I should still have lots of time on my side (turning 37 in a couple months). Once the economy gets past this crisis, I should be firmly established in my career as an experimental psychologist/professor, and I'll be in a good position to begin investing in the new, strong economy.

I believe education and health care are going to be revamped. I'd stay with the security industry or at least stay in it part time with the opportunity to go full time if your other plan doesn't work out.

[Rube]

Thanks for posting the unemployment figures Fred.

One thing to keep in mind, however, is that unemployment is calculated differently today than it was back in the 1930's. Back then, if you were unemployed, you were unemployed, period. However, today if you are unemployed but got discouraged and are no longer actively looking for work, you don't get counted. Also, if you're working part-time but you really want to work full-time, you're not counted. I read somewhere (can't remember the link, still looking for it) that if you wanted to compare apples-to-apples between today and the 30's, today's unemployment should read 5-10% higher than what the BLS is telling us it is. That would put it at 13-18% today in actuality.

Looks like we're well on our way! The scary thing is that the RATE of unemployment is currently going up. Anyone who thinks this will turn on a dime is delusional. It's impossible for a $12 trillion economy to turn that quickly.

http://www.sfgate.com/cgi-bin/article.c ... 9120L1.DTL
http://www.doctorhousingbubble.com/the- ... ta-mining/

[John]

Yesterday I posted this from a web site reader:

> Thought you might enjoy this table I found for S&P500 earnings
> and estimates dated 2/6. You'll laugh at S&Ps projections that
> show PE going up to 37 and then 43 over the next 2 quarters!

> http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

The same web site reader has sent the following additional comments:

> I was playing around with the table and came up with some very
> interesting conclusions. Try changing the earning estimate for
> Q109 in cell D34 to a more realistic number. For example, if the
> contraction in earnings growth stops and Q109 simply posts the
> same loss as Q408 (-$8.79), the PE of the S&P500 will be 173 at
> the end of Q109, and 505 at the end of Q209 (assuming the price
> stays at $868). Even if there is a reversal, and Q109 comes in at
> $0, the PEs will be 63 and then 83.

> Another great feature of the table is that you can change the S&P
> price in cell D17 and get current PEs. For example, if you put
> in today's close of $823, you can see that the PE went down to 28.
> As I'm sure you are thinking--this is still 200% of the
> historical valuation.

> Looking at this hard data makes me think that there is no way in
> hell that the S&P500 will drop any less than 50% in the next 3
> months. There is no way that the newly improved spending package
> will change the numbers for this quarter--its already half over,
> and from what I can tell, it will be as bad as ever. Am I wrong
> in this analysis?

> As a side note, I'm just a molecular biologist with no training
> in finance, but I've been asking finance people in my company and
> circle of friends about PE values. Every person so far claims
> that PEs are low and stocks are cheap. I love the look on their
> faces when I show them a PE of 25 for SPX on cnbc.com. No one
> gets it, not even the professionals. Are they stupid, or just in
> denial?

> I only found your site recently and got out of stocks way too
> late. I'm mostly in cash, but have opened some short positions
> using ETFs. Do you have any thoughts on the risks of doing this?

I may no longer be the best person to give a rational answer to these
questions, because I've become so completely sickened and disgusted
by what I see happening that I don't know how to be rational.

On the question of short selling, I've advised against it because
there's a question about whether you'll lose your money across a
major stock market crash. Other people have criticized me for that
view, and I posted their objections in an article last year.

** SEC blames stock market problems on 'false rumors' and 'naked short selling'
** http://www.generationaldynamics.com/cgi ... 16#e080716

There are people who contribute to this forum and who participate in
short selling. Perhaps they'll add their thoughts.

I would just add that if you want to try short selling, just make
sure that you know what you're doing, and don't forget that a bear
market rally, even a short one, could cost you a great deal of money.

Sincerely,

John

[Matt1989]

Thanks for posting the unemployment figures Fred.

One thing to keep in mind, however, is that unemployment is calculated differently today than it was back in the 1930's. Back then, if you were unemployed, you were unemployed, period. However, today if you are unemployed but got discouraged and are no longer actively looking for work, you don't get counted. Also, if you're working part-time but you really want to work full-time, you're not counted. I read somewhere (can't remember the link, still looking for it) that if you wanted to compare apples-to-apples between today and the 30's, today's unemployment should read 5-10% higher than what the BLS is telling us it is. That would put it at 13-18% today in actuality.

Looks like we're well on our way! The scary thing is that the RATE of unemployment is currently going up. Anyone who thinks this will turn on a dime is delusional. It's impossible for a $12 trillion economy to turn that quickly.

http://www.sfgate.com/cgi-bin/article.c ... 9120L1.DTL
http://www.doctorhousingbubble.com/the- ... ta-mining/

So our modern U-6 used to be the standard measure for unemployment? When were these changes made? Do you have a chart or a graph of the historical rates?

[freddyv]

I keep refering people to John's article at http://www.generationaldynamics.com/cgi ... 0711eleven which is titled, "The 11% Solution: An article in Barron's says the stock market is very overvalued"

If you haven't read it I suggest you do and if you begin to think this market is looking enticing I suggest you re-read it.

This article and the information it provided really made an impression on me and continues to serve as the basis for my market valuations. I combine it with the expert knowledge of people like Meredith Whitney, Louise Yamada and Nouriel Roubini to direct my path through this economic jungle we are navigating.

I want to persoanlly thank John for writing that article because it was exactly what I was searching for at that time and it really provided a tremendous amount of data that allowed me to not only save a significant amount of money but to profit by this stock market decline over the past year and a half. At this point, even if I take a serious hit I will come out ahead of where I would have been had I simply bought and held, as so many were advising at that time.

Thanks, John.

--Fred

[StilesBC]

Are they stupid, or just in denial?

Why ask either/or questions?

So our modern U-6 used to be the standard measure for unemployment? When were these changes made? Do you have a chart or a graph of the historical rates?

I believe most of the changes were done in the early Clinton years (as were many economic statistics). However, those numbers were still tinkered with compared to the 30s (just a guess, but you could probably pin that one on Nixon.)

It is really difficult to compare because of the addition of women to the workforce. There's also other factors that can affect the statistics from one era to another. Consider those employed in the "black market." Governments will crack down on this unevenly, thus skewing the numbers. Consider the collection method of the statistics, which is typically done via landline household surveys. Many people (certain demographics more than others) don't even have a telephone anymore and use their cellphones.

As far as comparing major economic peaks and troughs, I don't think there is a legitimate way to use employment figures. A 3 or 4 week moving average of the weekly benefit application survey can be useful for determining near-term pressures. The non-farm payroll data is so flawed (birth/death model adjustments, for example) that by the time the adjusted numbers come in the impact can already be seen via other indicators.

Ultimately, very few statistics can stand the test of time in their relevance due to many of the factors above. The composition of the economy, demographic changes, societal preferences, technological advancements, etc ultimately render old statistics useless. North America was mainly an agricultural economy in the 30s, so even if we had reliable retail sales numbers from that time, would they mean anything in the context of our consumption based economy?

"There are three kinds of lies: Lies, Damned Lies, and Statistics." -- Mark Twain.