Financial topics

[Higgenbotham]

Same situation as above. I never bought Apple by the way, but this day was about the bottom or was the bottom. Apple is up 5 fold since. Now we have some companies that are effectively Triple A and the US is not. That is the key variable to watch now and see how it unfolds.

by Higgenbotham » Sat Oct 11, 2008 2:59 pm

Another way to approach this is to look at specific stocks. I made a list of stocks that I thought astute investors might take a look at once they got ready to bargain hunt. One example, Apple Computer. Apple Computer hit a low on Friday of 85 and closed up about 10%. I think it closed around 96. The last 4 quarters of earnings are $5.12 from what I remember, so that would make the PE around 19. But what I had identified that an astute investor might look at is the fact that Apple has 23.45 in cash on its books and no debt. So if Apple paid that 23.45 out to investors or invested it into new income generating businesses, the PE would remain unchanged. So let's say an investor bought Apple at 85 and to keep it simple Apple paid that cash out. We know they won't do that, but that effectively makes the price of the stock 62 and the PE 12. I can't find hundreds of examples where this situation exists, but there are quite a few. Most of them exist in the technology area, and the Nasdaq was up on Friday.

Anyway, I compiled a list of companies like Apple that I tbought investors would buy for various reasons once they felt the panic and forced liquidation in the stock market subsided and smart investors began to take over. Day after day, those stocks got hammered because people were just selling everything. Finally, on Friday, as the market turned up, this time those stocks got bought and most of them were up substantially by the end of the day.

[John]

Reading and listening to the news today, I just have the feeling that
things are deteriorating very quickly, in Europe and America. Even
I'm getting scared. Unless something happens to soothe all this
anxiety (and I have no idea what that could be, since both Europe and
America have used up all their bullets), we could be very close to
full scale panic.

At best, this is a very dangerous time.

John

[Higgenbotham]

China blasts US over credit rating downgrade

BEIJING (AP) — China, the largest foreign holder of U.S. debt, demanded Saturday that America tighten its belt and confront its "addiction to debts" in the wake of Standard & Poor's decision to downgrade the U.S. credit rating.

http://news.yahoo.com/china-blasts-us-o ... 34430.html

OK, here we go again with my list and as of this morning every single item on this list is flashing "code red". The 2 items that intersect on this new reality are underlined. In the old days, a country shipped a load of gold to cover its trade deficit. Imagine if the US had bought a load of goods from China or Europe in 1931 and had shipped gold plated tungsten bars in exchange and passed them off as gold. Today, US Treasury bonds are transferred to cover our trade deficit. With the downgrade, the US has effectively and officially tungsten degraded an international trade asset that used to be "good as gold" under Bretton Woods.

These are the issues we've discussed in this forum that Bernanke does not address in his speech (all of these issues have a bearing on the question of whether he can generate inflation through the creation of electronic dollars):

Effects of Fed actions on profitability and tax collections

Potential for resulting international trade lockups

International political realities

Dual nature of dollar (simultaneously debt and extinguisher of debt)

Multiple terms of dollar debt instruments and changing yield curves

Quality of debt instruments and changing credit spreads

Multiple forms of dollar (currency notes, commercial paper, derivatives, etc.)

Market preferences for various forms of dollars

Exogenous events (BP, terrorism, etc.)

Wage deflation and employment rates

Demographics

Generational dynamics realities with an emphasis on attitudes toward debt

Money velocity

[OLD1953]

The effect of the debt downgrade is not predictable, there are too many loose ends. It's very much a chaotic situation, events will simply have to play out over time. The downgrade is not a black swan, but the RESULTS of the downgrade are.

One result is near certain, there'll be a very new mood on raising revenues when Congress resumes.

[Higgenbotham]

They (referring to the Tea Party) are nevertheless a symptom of a much deeper, long term issue — the replacement of the nation state with the market state, as historian and professor of law Phillip Bobbitt describes it. The issue is not about big government or small government, although they are certainly issues in a country that is rapidly losing its middle class. The problem is whither government itself?

Thus the cost is not likely to show up in bond yields, but in something far more fundamental: in yet more destruction of the foundations of our society for short-term, selfish ends.

U.S. debt was downgraded because it nearly didn’t have the go-ahead from U.S. leaders to agree to pay the debt obligations today. That is why S & P’s primary focus was on the process used to increase the debt ceiling. There is the ability to pay one’s debt and then there is the choice to pay one’s debt.

While I am not addressing whether the downgrade was warranted, I will say that S & P got it right when they focused on the political process. Think of the Republicans and Democrats as two partners in a real estate partnership or two members in an L.L.C. They had the means to borrow the money necessary to continue operations including servicing their debt, however, they very nearly weren’t able to agree to do what was necessary to pay the debt i.e. raise the debt ceiling – that was the reason for the downgrade.

A borrower’s ability to service its debt and their ability to agree to service their debt are two different things. In the five C’s of lending this falls under the “C” that stands for character – will you do whatever it takes to meet your financial obligations. The U.S. character has been impaired.

Berkshire Hathaway Chairman and CEO Warren Buffett told the FOX Business Network that S&P's downgrade of the United States' triple-A credit rating "doesn't make sense."

"I don't get it," Buffett told FBN late Friday night. In fact, Buffett reaffirmed his belief in the quality of the United States' credit telling FBN, "In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that."

Buffett told me tonight that Berkshire Hathaway's T-bill exposure is significant.

"We just filed our 10Q and we have $47 billion in cash and cash equivalents. Well over $40 billion of it is in short end T-bills. (Tonight's S&P downgrade) doesn't tempt me to sell. We'll stay right there."

Buffett sounded no alarm bells about the downgrade, going so far as to say it wouldn't have much effect on the markets Monday. "If nothing else takes place, meaning, if all other variables hold and there isn't say, a new problem in Europe, it won't make any difference."

Read more: http://www.foxbusiness.com/markets/2011 ... z1UH8OEHg4

More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s long-term debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers. “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” says S&P. It also blames what it considers to be weakened “effectiveness, stability, and predictability” of U.S. policy making and political institutions.

Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?

If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long term debt — or, more accurately, the ratio of debt to GDP — is none of S&P’s business.

Read more: http://www.businessinsider.com/why-sp-h ... z1UHPBKACT

[jusme]

Seems from what I've been reading that what we've been seeing over these last 10-11 day's " was the move" of the investor's knowing it was going to be downgraded ?

There are "other's ' who wonder what they are really up to as they seem to be appearing more "political than "financial" ?

I can't digest how a rating angency helps commit the biggest loot on America, and American's ,makes billions of dollars doing it,

knowone has been charged with a crime, there still in "business as usual " and please tell me why is it they get to rate our Country or any darn thing now ?

Roger Ebert has more credibility than these "Con's" !

Who rate's the "rating Angencies " ?

Also, some are wondering "why" Moody's and Fitch are not tagging along ?

At this juncture I would go with Naked Cap. /Buffett.

8:15 on Fri. night ?And The Pres. is well , "chilling" at camp David ?

My favorite saying ...."Don't listen to what they say,watch what they do" !

You can't make sense out of non-sense !

jusme

[Higgenbotham]

At this juncture I would go with Naked Cap. /Buffett.

Same here. I closed out short positions as posted and wired out of my futures account on Friday. 92% in short term T-bills, 8% cash. From 2004 to April 2011 I was 20-55% in gold/silver, now 0%.

If stocks can rally back up, I will short again but not here. So maybe I am done and going into hunker down mode.

[jusme]

Not here ?

Where ?

jusme

[jusme]

John

Do like I did.

Get rid of cable !

Then you won't watch or hear all the "fear monger's' !

If it's going to blow up,you need to have a very good bottle of wine or spirit's handy ! ! !

Oh ! And a supply of ramon noodles !

If you get rid of cable you can go out in style !

jusme

[Higgenbotham]

Not here ?

Where ?

jusme

I'm gaming this.

Being 100% in US dollars I can't stand in front of a possible meltup by being short here. Stocks (S&P) have too big of a chance to snap back to 1300 give or take.

Back in 2009, someone could take a low risk bet on the short side if they were long some gold/silver because if Bernanke could boost stocks with QE there was a good chance gold/silver would move faster. But that is a tougher proposition now.

Going short stocks in August after a quick initial drop of 15% with the 200 day moving average still moving higher is an improbable payout historically speaking. Of course, everyone knows this so if the markets do go into crash mode now it can be all out panic. In that event, my game plan would be to put some lowball offers in on some real estate. When stocks crash, real estate sellers get really scared because nobody knows how far a meltdown can go or if another buyer will ever show up. That includes the buyers. I bought a piece of land once for 38% off list price during the Russian bond default. And that was nothing compared to what could be looming now.