Financial topics

Investments, gold, currencies, surviving after a financial meltdown
Higgenbotham
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Re: Financial topics

Post by Higgenbotham »

Higgenbotham wrote:
The Grey Badger wrote:
Higgenbotham wrote:We should see many more articles like this one in the coming years...

U.S. judges seek massive California prisoner release

By Peter Henderson Peter Henderson – Tue Feb 10, 7:18 am ET

SAN FRANCISCO (Reuters) – Federal judges on Monday tentatively ordered California to release tens of thousands of inmates, up to a third of all prisoners, in the next three years to stop dangerous overcrowding.

As many as 57,000 could be let go if the current population were cut by the maximum percentage considered by a three-judge panel.

http://news.yahoo.com/s/nm/20090210/us_ ... california
How many are in for minor drug violations?
It can't be more than about half, as drug offenses only account for 18% of the prison population. My guess is less than 15% out of the 57,000 would be for drug possession with no other history of criminal activity (since drug offenses include crimes other than possession). Here are some statistics and information for reference.

http://ojp.usdoj.gov/bjs/glance/corrtyp.htm
Of those 170,129 inmates, 33,738 people, or 19.8%, were imprisoned for drug crimes. The largest proportion of those inmates -- 13,456 -- were serving time for simple possession
http://www.examiner.com/x-536-Civil-Lib ... e-to-start

So if they release the entire 13,456 along with the 57,000 that would be 23.6%, more than the 15% max I had estimated. However, some of the people who are in for possession probably have more serious past criminal offenses, and I had based the 15% on no past history of criminal activity (for which statistics don't seem to be available). I found an article by someone who had done a thesis on this subject and his estimate is that a release of 57,000 prisoners will increase violent crime by 6%. He said overall it's a wash because the cost savings will about equate to the misery due to the increase in crime. He doesn't take into account the possibility that increases in crime will result in more spending on private security.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
John
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Adam Barth and the 11% Solution

Post by John »

Dear Fred,
freddyv wrote:
> 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.
There's an interesting side story to that article.

My article was based on work done by Adam Barth, of Hoboken,
N.J.-based Barth Research, and published in Barrons, as I described in
my article.

Some time later, I tried to track down Adam Barth. If you google his
name, there are plenty of Adam Barths, including one who's a student
in Hoboken, NJ, but there's no "Barth Research." So either the name
is phony, or the Barron's published an article by a student.

That's probably why he was so honest!!

Here's the text of his article:
Adam Barth wrote: Barron's Online
Monday, July 11, 2005
EDITORIAL COMMENTARY

The 11% Solution
Forecasting broad market earnings creates new problems for investors

By ADAM BARTH

ADAM BARTH oversees Hoboken, N.J.-based Barth Research, which focuses
on value-investment-oriented security analysis.

EVERY BUSINESS DAY, INVESTORS ARE BOMBARDED with new economic data,
macro and micro, all of which supposedly affect the value of U.S.
stocks. While some investors may dismiss macroeconomic information
such as quarterly gross domestic product, initial jobless claims and
factory orders as irrelevant in the making of portfolio decisions, few
probably would file this year's and next year's earnings estimates for
the Dow Industrials or Standard & Poor's 500 under a "More Useless
Information" heading.

But that's what they ought to do: Insights about individual firms are
valuable; fixation on broad measures of current or future earnings
isn't. Not because predicting corporate earnings is an impossible
task, but because future long-term macro-earnings can be predicted
with almost complete precision.

Examine the Dow's annual return on equity for each 20-year period
since 1920 (that is, 1920 through 1939, 1921 through 1940, and so on):
Average earnings as a function of book value barely varies in the
slightest, and has remained basically immune to inflation, wars,
massive changes in the tax code or any other external factor.

For the 34 consecutive 20-year stretches between 1934-1953 and
1967-1986, the return fell in an incredibly narrow range of 10.5% to
11.6% -- or an average of around 11%. Furthermore, the Dow's
book-value growth rate has remained near its 4.8% historical average
from 1920 to 2003 for every 20-year period on record.

A Simple Calculation

Finding the Dow's normalized earnings in any given year is as simple
as multiplying 11% by the Dow's book value at the time. These earnings
will grow at a little under 5% per year -- the Dow's steady and
predictable 20-year book-value expansion rate.

Although almost all analysts focus on the current or following year's
earnings forecast in valuing stock indexes such as the Dow, the
approach is primitive and misleading. While earnings gyrate from year
to year, the Dow's earnings over the coming 20 years or any 20 years
is virtually preordained.

The popular notion that the long-term earnings growth rate is highly
variable and affected by the daily news that speculators, economists
and the media slavishly focus on is a great red herring.

The portfolio strategy of "relative value" is based on this red
herring. The many purveyors of this strategy tout their "bargain"
investments in companies trading at price-earnings ratios in excess of
20 and well above any asset conversion or private-market value.

Where is the margin of safety for these investments? According to
these investment managers, it exists in how underpriced their
investments are, relative to the market. While these managers claim to
be "bottom-up" value investors, they actually have tied their fates to
that of the broader market.

A major reason for these managers' decision to shadow an index is the
belief that stocks' superior performance in the past proves that they
have been mistakenly undervalued, and should now command a richer
valuation. As a result, most money managers have rejected traditional
equity-valuation standards as overly demanding, and have replaced them
with newer measures.

A Peculiar Notion

The most popular and influential of these new approaches is the "Fed
model," which holds that U.S. stocks' earnings yield should equal that
of the federal government's 10-year bond.

This Fed model rests on the absurd proposition that corporations'
equity -- their most junior and risky obligation -- should be equated
with U.S. government debt. This approach is nonsensical, as it
completely ignores companies' priority of obligations and posits that
U.S. public corporations' equity cost of capital should be the same as
the risk-free rate. The Fed model pretends that the cardinal
risk-and-return principles of finance do not exist.

In the rush to create valuation models that justify current stock
prices, investors and economists have missed the clear evidence that
historical valuations are not only logical, but virtually necessary.

The 11% solution demonstrates why this is so. Of the Dow's 11% ROE, 5%
has consistently been retained -- thus allowing the Dow's 5%
earnings-growth rate. The remaining 6% has been free cash flow
available for distribution to shareholders in the form of dividends
and stock buybacks. As such, the Dow is a perpetuity that can be
easily valued by dividing its current free cash flow (6% of current
book value) by its expected rate of return minus its long-term growth
rate (9% minus 5%).

With the Dow's current book value a little under 3000, its normalized
free cash flow is roughly 180. Dividing 180 by an expected return of
9% minus free cash flow growth of 5% (.09 - .05) yields a valuation
for the Dow of 4500, less than half of its current market valuation.
To justify a Dow value of 10,500, one has to lower the future expected
investment return for the Dow to 6.7%.

From 1920 to 2003, Moody's Aaa corporate-bond yield averaged 5.9%.
Recently, Barron's Best Grade Index has shown a current yield of 5.24%
for top-grade corporate bonds. Assuming a forward rate of return of
6.7% for the Dow would imply an equity-risk premium of just 0.8% to
1.5%.

The preceding analysis will probably shock most investors.
Conventional wisdom is that the Dow's earnings are much higher, and
that its P/E ratio is much lower. Conventional wisdom, however, is
based on some bizarre assumptions and beliefs.

A normalized 20 P/E ratio for the Dow would imply a normalized 18%
return on equity (5% earnings yield x 3.6 book value multiple = 18%).
While the Dow averaged an 18% return on equity over the prior decade,
assuming a lasting return on equity anywhere near this figure is
absurd, given the historical record.

Although there have been many short periods in the past during which
the Dow Industrials' return on equity significantly exceeded 11% (such
as the 1920s, when it also averaged 18%), an elevated return on equity
has always come at the expense of future profits, and ROE has always
reverted near its 11% average over each 20-year period. While the
causes (excess credit creation, faulty accounting) may be contested,
the results are incontestable.

Putting history aside, basic logic alone dictates that a sustained 18%
ROE is impossible. A return of this magnitude would mean that American
business as a whole is capable of lasting, monopoly-type profits. The
truth is the exact opposite: Big Business' profit growth has
consistently trailed broad economic expansion, with nominal GDP growth
increasing at a 7% rate and Dow profit growth lagging behind, at near
5%, for nearly every 20-year period on record.

Small Margin of Safety

Current stock-market valuation levels have made the search for
equities that possess a margin of safety a generally difficult task,
and the job of professionally managing money even more difficult,
given the myriad pressures and incentives to remain fully invested.

In response to this challenge, many investors have turned to a
relative, rather than absolute, value approach.

The problem is that these investment approaches are radically
different, despite some seeming similarities. In choosing relative
value, investors subject themselves to the value of the broad market.

This is not a prudent choice, given the current valuation of large-cap
U.S. stocks and the limits to these companies' profitability and
growth, as demonstrated by the 11% solution.

Editorial Page Editor THOMAS G. DONLAN receives e-mail at
tg.donlan@barrons.com1.

URL for this article:
http://online.barrons.com/article/SB112 ... 81092.html
Sincerely,

John
John
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Re: Financial topics

Post by John »

From a web site reader:
It is interesting to see how long the index took to recover from
the high. What might be more meaningful to me (and my clients)
would be to see how long it took a portfolio to recover that had
used dollar-cost averaging for the 15-25 years prior to the high.
Does anyone have any information on this?

Sincerely,

John
Higgenbotham
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Re: Adam Barth and the 11% Solution

Post by Higgenbotham »

John wrote: Some time later, I tried to track down Adam Barth. If you google his
name, there are plenty of Adam Barths, including one who's a student
in Hoboken, NJ, but there's no "Barth Research." So either the name
is phony, or the Barron's published an article by a student.
A peoplefinders.com search shows a person by that name, age 39, in Hoboken, NJ.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
freddyv
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Ray Dalio and The D-Process

Post by freddyv »

I think I have found one more person who really "gets it" and is educated enough (unlike me) to understand the specifics rather than just the fact that things will get lots worse, which is basically what I know. I find these people rare and highly valuable so I thought I would pass on this article by Barron's at http://online.barrons.com/article/SB123 ... 58867.html

It is an interview with Ray Dalio, and this man gets it. I had a WOW moment (or several of them) while reading this article, similar to what I felt when I discovered Generational Dynamics or Nouriel Roubini.
Ray Dalio wrote: When I first started seeing the D-process and describing it, it was before it actually started to play out this way. But now you can ask yourself, OK, when was the last time bank stocks went down so much? When was the last time the balance sheet of the Federal Reserve, or any central bank, exploded like it has? When was the last time interest rates went to zero, essentially, making monetary policy as we know it ineffective? When was the last time we had deflation?
I love that! No BS. Just right to the heart of the issues. You can't get the right answers if you don't ask the right questions and this guy knows what questions to ask.

Later in the interview he states...
Ray Dalio wrote: But the future of banking is going to be very, very different. The regulators have to decide how banks will operate. That means they will have to nationalize some in some form...
Every expert who gets it seems to agree on this point; the banks must be nationalized and of course, they have been to a certain extent already. They all agree on one other thing: this crisis or restructuring will last for several more years, and much more if we do the wrong things and don't allow the needed changes and restructuring.
Ray Dalio wrote: By the way, in the bear market from 1929 to the bottom, stocks declined 89%, with six rallies of returns of more than 20% -- and most of them produced renewed optimism. But what happened was that the economy continued to weaken with the debt problem. The Hoover administration had the equivalent of today's TARP [Troubled Asset Relief Program] in the Reconstruction Finance Corp. The stimulus program and tax cuts created more spending, and the budget deficit increased.

At the same time, countries around the world encountered a similar kind of thing. England went through then exactly what it is going through now. Just as now, countries couldn't get dollars because of the slowdown in exports, and there was a dollar shortage, as there is now. Efforts were directed at rekindling lending. But they did not rekindle lending. Eventually there were a lot of bankruptcies, which extinguished debt.

...

You mentioned, too, that inflation is not as big a worry for you as it is for some. Could you elaborate?

A wave of currency devaluations and strong gold will serve to negate deflationary pressures, bringing inflation to a low, positive number rather than producing unacceptably high inflation -- and that will last for as far as I can see out, roughly about two years.

Given this outlook, what is your view on stocks?

Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century.
--Fred
mannfm11
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I dispute a 5% earnings growth rate

Post by mannfm11 »

I am going to have to get into an old computer some day and put together then data I pulled out of Shillers old S&P Data. Shiller has changed his manipulation of that data over time, but the numbers are the same. The average inflation rate since 1926 has been 3% from what I can recall and the growth rate of earnings was roughly 3/4% above inflation from what I recall. Having done very well in my degree in finance, I digested a lot of ideas that I had to put together to get a real valuation of the stock market.

A stock is just like a bond when you value it. There either has to be a dividend or an implied dividend or at least a zero coupon that becomes a source of cash flow in the future. A company has to be able to produce income to someone. If not a stock holder in the form of a dividend, another company in the form of its assets. One has to figure out what that value is, which it is the discounted value of its stream of income. The financial value of a stock is equal to P=d/(k-g) where d=dividend, k=capitalization rate and g=growth rate. The capitalization rate is a degree of risk assigned to an asset class or subclass. It can be deduced by reverse osmosis in that a stock has a 4.5% dividend and a 5% growth rate, so k=9.5% or .095 and g=.05, so the stock should sell for dividend/.045 which is about 22 times dividend rate. It is this stream of income that has to be discounted. I am going to go into a little detail and if you can understand what I am going to write and throw out the academic nonsense of the day, you can get an idea what stocks are worth and that the market was and is overvalued.

For one, the return on the market doesn't materialize over time alone just because you buy stocks. It materializes over time when it is looked at from a time when the proper discount results in the market price to a time when the same is present. Buying the market with a 2% dividend as it was in 2007 isn't buying the market at a proper price. Growth over time is a function of a real factor and inflation. The real factor over a short term, a time of prosperity, might be 2 or 3 percent, but over times good and bad it is more like 1/2% to 1%. Thus if we have average 3% inflation 1% average real growth, then a market that pays a 1% dividend, as the S&P 500 did in 2000 will return 5% FOREVER. If the long term market requires a higher return, the results are going to be devastating for the holder. The only way it will return more than 5% over the forever long term is if inflation is greater than 3% or growth can defy the mathematical weight of compound values, which is a mathematical impossibility. This seems to be lost on people. You can't go back to a time when the S&P 500 paid a 3% dividend, like it paid in 1929 or 1966 and take the current market and price it to a 3% dividend (we are in that territory right now) and come up with one of those fantastic price growth rates. I think the rate of inflation from 1966 gives a CPI multiple of about 7 and if you take the SPX top in 1966, which I think was about 110, you would now have a inflation adjusted price of about 770. It might have been only 100(I know the SPX was at least 100 in 1966), so you have a 700 SPX inflation adjusted. So, now we are looking at an SPX that paid a 3% dividend and produced a real 20% price change over 43 years. This doesn't count the management fees of keeping up with the index, but it is a devastating blow to the proponents of owning stocks and it holds very closely to the idea that real growth in income derived out of holding stocks is around inflation plus 1/2%. Go look up the data and do the math if you don't believe me. The whole industry is a fraud, a bigger fraud than the Madoff fraud.

What should stocks bring? My best guess is around inflation plus 5% or a little higher. Long term interest returns based on short term rates give inflation plus 3% on a risk free basis. Shiller had a rate for every year on a short term basis and it quite interestingly produced an inflation plus 3% return. I worked through a lot of his equations to get an idea what he was using to be sure I was working on the right valuation ideas myself. If this is correct, then it is safe to assume that investment grade bonds should yield inflation plus 4% at a minimum and the stock of such companies should yield a higher return, maybe inflation plus 5%. Lower grade stuff should pay inflation plus 5% over time and the stocks inflation plus 6% or even 7%.

There were so many speculative issues that I am sure this 11% or so that a speculative group would pay clearly played out in the good times. But, what we never see in the returns are all the companies that go to zero. Billion and billions and billions. I don't know how much I am going to write here, but if you understand what I am about to put down here, you will be skeptical about stocks for a long time. There is a lot about Wall Street on the CDO's and stuff, but the CDO's are the honest stuff on wall street. The stocks are as crooked as they have always been. My point is, we are all told to buy and hold. We are told to not short because that is dangerous, while buying and holding such great companies as YHOO, (90% loss over the past 9 years), ENE &WCOM went straight from $100 billion plus valuations to zero in a month or less, AIG, FNM, C, FRE, LUC, NT, BAC, LEH, BS and so on is safe and practical. I can put down 50 issues from 10 years ago that are down $5 trillion in value, losers of more than the entire housing crunch. The business is selling, not buying stocks. The shorts are those guy that are in the business of selling stock feeding stock to the public to be bought back at a more advantageous price. You really think Wall Street worries about maintaining the floor under a stock after they have unloaded their float in it?

There are times to own stocks, but you have to understand inflation and that formula I presented. Someone who understands bull markets can trade in a bull trend, but you can't make money buying and holding an index of stocks once the dividend yield presents an impossible picture as it has the past 14 or so years. Also, now we are just down to peak value in the dividend game and it is going to get worse. We are headed toward a horrible period of growth, so the dividend plus real growth is going to become a dividend minus real growh equals 5% or higher. It is very clear that we are headed toward a market where the dividend yield on the market could very well go to 8% or higher. Not because the maket demands 8% dividends, but because the pace of the dividend shrinking might be 5% or higher annual as it is now. There have been some big dividends wiped out in the last year and we are just in the starting stages here. This is why, as John posted, the studies show that depression kids are risk adverse. They don't grow up hearing about how Joe down the street just put $50 a week in the stock market over the past 20 years and now has a million. The market was lower in 1950 than it was in 1930.

Lastly, how did the market get so high? I believe it got so high for a couple of reasons. One was excessive money creation created an asset bubble. Another was the market went nowhere between 1966 and 1982, but prices went up about 3 times. When the market went back to full value in 1987, it had produced a triple over about 5 years. People weren't going to miss that and the academics were producing the buy and hold tale, because they could then present inflated prices as the norm from a base of deflated prices. People bought into portfolio theory and took the return out of the portfolio. Thus every stock in the S&P 500 was required to be inflated to be put in the portfolio. The idea of portfolio theory was to produce a risky return with near risk free risk and the result of the 1990's had turned the return into below risk free while ignoring the risk in the assets. Thus individual stocks were now selling at below risk free returns, a literal impossibility.

I could write a book easily on this subject. I have a pretty good start on one in another computer and for the very reason that history has been very bad on long term stock returns at 3% or lower dividends and very good at 6% and higher returns. I wrote in late 2003 that long term, the holder of the S&P 500 would never get even once the market normalized. The index was about 1100 then so I missed the big debt bubble bull, but people who held from that spot to this day are going to regret not getting out for the rest of their lives. My book was going to be called, "So you think it is safe to get back in the water?" I had found a photo of a big Brown Bear with about 25 pound salmon in his mouth to put on the cover. That holder of the SPX is now that salmon.
mannfm11
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Re: Financial topics

Post by mannfm11 »

Freddy, all these guys are years late. This guy is off base. For one, there is still too much asset bubble cash out there and people are speculating. One reason I know they are speculating is gold is up as high as it is and they are speculating in all kinds of metals. The market will destroy that cash in another year. Another speculative indicator is the number of existing home sales, a pre 1997 record by about 15%. It has never declined to the record level of pre-bubble. Does anyone really believe that all this activity is first time home buyers, when the percentage of population that owns their own home is dropping fairly rapidly now? These are knife catchers and without them the market would have totally collapsed. They are going to lose their skin in the game and will be on the courthouse steps by years end.

They are trying to sell the 5% growth story in China still. That will be a good one. I read At the Crest by Robert Prechter in 1997. It called for this stuff, the devastation of every financial institution in the US and in most of the world once that trend in force ended. Prechter made premature calls of that trend ending, but he was right on the money as to what was going to happen once it ended. His call on where the gold price was going to be hasn't been met yet, but I bet it will be before this is all said and done. But, then again, he didn't believe the guy running the Fed would be as willing to destroy the money as this moron clearly is. But, then again, we haven't yet been backed up by the bond holders, which will come. There won't be inflation unless they can produce demand because default puts people out of business and they will keep selling. This seems to be lost on people.

I didn't work between 1997 and 2005 and I spent thousands of hours studying and writing on this subject. A guy that called himself the Professor on the Prudent Bear page tried to set me up a webpage in 2001, but I was too stupid to use it. I have come upon a lot of guys on the net, guys like Fleckenstein, who had some idea and read a lot of guys like Jimmy Rogers and Marc Faber and what they thought was coming. The best I have read was Doug Noland, who writes a page called the Credit Bubble bulletin since 2000 for the firm. Doug was onto FNMA in 2000 and right on about this credit bubble and the mortgage finance bubble. They used to maintain an archive of every thing he had done since 2000 and it was a masterpiece. Doug has this right on 5 years before Roubini said a word about it and the comprehension wasn't even a match. Doug expects inflation, which for now is where we differ. If they do get an economic reaction out of this, I will quickly join him.
Barion
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Re: Financial topics

Post by Barion »

JLak wrote:
Barion wrote: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.
Barion wrote:I'm a middle X'er

>/.figures
Barion wrote: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.
No way I'm taking your advice. Forego my Ph.D. to keep working my barely above minimum wage job? I live in Los Angeles and make $10/hour. Get real. I get by on that because I live in a very cheap studio utilities-included apartment, my 1995 Oldsmobile is long paid off, I don't drive much, so gasoline expenses are minimal, and I only socialize occasionally. My main expenses are rent, food, cable/Internet, phone, cell phone, insurance, Netflix, and my credit card bills. Anyway, I'm a top level grad student. I graduated summa cum laude when I got my B.A. and I'm consistently top of my class. I do high level research and am the type coveted by research institutions. I'm also a member of Psi Chi. Anyway, even if it doesn't lead immediately to a university faculty position, I will be eminently overqualified to teach at a junior college somewhere...and that, too, would pay WAY more than my security job.
freddyv
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Re: Financial topics

Post by freddyv »

mannfm11 wrote:Freddy, all these guys are years late. This guy is off base. For one, there is still too much asset bubble cash out there and people are speculating.
No doubt people are speculating, but he has the fundamentals down as far as I'm concerned and he got the timing right to start with; that's a big thing in my book. There are very few people who fit that category and I listen to all of them, though always with an understanding that each will have their own weakness.

I was "years late" but I sold at just the right time because I was not wedding to a belief at the expense of what was actually happening in the market.

From my POV it is vital not to be too early in and to not to be too early out. This man seems to be more of a pragmatist and I assume he will allow future data to tell him when is the best time to buy back in. I can assure you that things will not be pretty at that time. 1932, 1974 and 1982 were not years when most people were saying to buy into the stock market yet they were exactly when you would have wanted to buy in.

I often say that we are in for a decade or more of pain but that does not mean I will not get long the stock market before then. I will wait and see how this develops. Generation Dynamics tells me that we are in for a restructuring that includes changing the way we think and act as well as the way we do business. I know from history that these restructurings tend to take a decade or two but the stock market may correct itself much more quickly than other apsects of our society, as was the case in The Great Depression. I don't rule out a longer decline like Japan is seeing but I will let the market tell me and I will use standard, time-tested valuations, based on the entire history of the stock market, to tell me when to get back in.

Ultimately I do have faith in America because it is still the one place where people of all kinds are welcome and are allowed to freely pursue their dreams with vigor.

Finally, while I am as sure as can be that we are in for more hard times I always keep in the back of my mind the book that came out, I believe in the early 1980's titled, "The Coming Stock Market Crash". I also remember P/E ratios in single digits and dividends of 8% or so. As Warren Buffet said, "The time to buy is when there is blood in the streets" and I plan on being just a bit more patient than Mr. Buffet. In the end, history will not reward those who are too tightly bound up in a particular belief system. Time will pass them by. Generational Dynamics isn't just about calling the crash but about the entire dynamic, including the rebirth or our society and economy.

--Fred
malleni
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Pennies on the Dollar

Post by malleni »

Elliott wave researches have also something to say.
Congratulations.

"
...
Ten billion dollars per day.
A staggering figure, but what could it possibly be?
The amount of money spent between the TARP, TALF and other alphabet soup of bailout programs? No.
The amount needed to spend the proposed stimulus package? No.
The amount of asset value lost everyday in the stock market in 2008? No.
The amount of money being printed daily at the U.S. Treasury?

Still cold, so I’ll tell you. In 2009, the U.S. will post a current account deficit of more the $1 trillion, and in order to finance this deficit, more than ten billion dollars every working day must flow into this country.

Like every castle in the sand, like any house built of straw – or, in terms of Elliott wave analysis, like any third-wave advance – such a capital structure is not sustainable. "Stimulus package" or not, the U.S. cannot attract enough foreign capital to sustain a $1 trillion trade deficit, a $1 trillion current account deficit, net foreign debt of $15 trillion and unfunded federal mandates of $54 trillion.

According to the CIA's World Factbook, the U.S. right now is at the very bottom of the Current Account Balance list, below Haiti and Cuba. And it's no coincidence that the three countries at the top of the list – China, Germany and Japan – have made significant structural reforms to their economies to an export-based model.

In contrast, the consumption-based model of the United States has placed us at the bottom. To put it simply, we consume more than we produce, and we literally ship billions out in national wealth every year for non-durable goods.
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