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Old 10-24-2009, 12:34 AM   #21
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Place your bets, ladies and gentlemen.

Myself, I am invested. I bought equities (50% US/50% non-US) in the first quarter at the lowest point I ever hope to see. I was also unemployed at the time (for 5 months, eventually). Even after withdrawing from my IRA to pay the bills, we are where we were in 2004, which ain't too bad.

You want to see countries in real trouble? Try Argentina, Iceland, Mexico.

Mind you, I am still working. (Paid in petrodollars. Sweet, but unplannned.)

Diversify! No one can know the future. I sure don't.

Suerto,

Gypsy
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Old 10-24-2009, 07:45 AM   #22
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Anyone who thinks the problems associated with the massive credit deleveraging we are experiencing is over is living in a dream world.
Maybe not over, but its hard to argue that there haven't been a lot of improvements.

Leverage is coming down in the financial sector (Goldman's leverage is down to 13x in the recent quarter from about 30x), many other financial institutions have issued equity and some have sold assets. And most of the "toxic" residential mortgage securities have been written down at this point (although losses on commercial bank loans still need to be taken). So not only is leverage lower than it was, asset quality is better. Meanwhile banks are making a killing on the steep yield curve which cushions balance sheets against the commercial loan losses that are coming. In the corporate world, leveraged companies are having good success in terming out near-term maturities and bank debt, improving liquidity and stability. Profits are much better than anyone expected these past two quarters. And for individuals, personal savings rates are back in to the mid-single digits.

Risks abound, but things are much better than they were.
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Old 10-24-2009, 08:02 AM   #23
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Things are much better with my own investments. I bought small value at its lowest point earlier this year, and then large value (which I had sold in '08), and have seen tremendous growth in my portfolio. I think I am past where I was in late '07 (after taking into account my withdrawals and additions the past 2 years).

But I don't have any sense at all that this is solid, so I will re-balance on an "up" day next week.
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Old 10-24-2009, 10:58 AM   #24
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Lead sled dog is Target Retirement 2015 on full auto - ie a certain amount every year goes to Prime MM to fund my ER.

Double Dip? Not to the point of a certain Boglehead who posts over there - 'Don't know , don't care.'

I may get all gervous and nerky over Mr Market from time to time - but hopefully I can continue to do a Bogle-esque 'hurry up, just stand there'.

And then the Norwegian widow tells herself - a dip is an opportunity to pick up a few good dividend stocks - only as side money/lagniappe mind you.

heh heh heh -
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Old 10-24-2009, 11:53 AM   #25
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Maybe not over, but its hard to argue that there haven't been a lot of improvements.

Leverage is coming down in the financial sector (Goldman's leverage is down to 13x in the recent quarter from about 30x), many other financial institutions have issued equity and some have sold assets. And most of the "toxic" residential mortgage securities have been written down at this point (although losses on commercial bank loans still need to be taken). So not only is leverage lower than it was, asset quality is better.

Risks abound, but things are much better than they were.
I disagree.
Leverage has been shifted from the private (business) sector to the government. Second, the consumer is just beginning the process of delevering. Third, the losses on "toxic" loans have not been nearly fully written down. Four, CRE has yet to even begin to raise its ugly head in terms of significant writedowns. Five, at somepoint the massive stimulus being practiced by the Federal Government will have to come to an end (given debt levels).

The only thing that has been achieved in the last year is that the government stepped in and provided massive liquidity at the expense of the taxpayer. I agree they succeeded in stopping the wheels coming off the system, but have not dealt with the underlying problems. Moreover, we have seen only modest improvements to the economy in the face of subsidies measured in the $ trillions. That should give you reason to pause for thought.

The policies to date are only a re-flation of existing issues. We are following in the footsteps of Japan from what I can tell at this point.

Of course, this is only this man's opinion and time will tell...
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Old 10-24-2009, 12:37 PM   #26
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The policies to date are only a re-flation of existing issues. We are following in the footsteps of Japan from what I can tell at this point.
Except Japan's bubble was much bigger (it was said at the peak that the value of the Imperial Palace was greater than all of the real estate in California), the policy response was much slower (Japan didn't start easing monetary policy aggressively for 5 years after the bubble burst), it's banks never recognized loan losses, its economy is far more rigid (Japan's unemployment never went above 6% in the past 20 years and was below 3% for several years after the bubble burst), its population is much older (22% of Japanese are 65 or older vs. 13% in the US), is aging faster, and is shrinking while ours is growing.

We're in much better shape than Japan was, or is.

Be of good cheer.
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Old 10-24-2009, 01:31 PM   #27
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... Yrs to Go,

I hope you are right, but I fear you are wrong.

The only thing weighing in the US's favor at this point is that Japan and China (despite complaining to the contrary) are committed to maintaining exports (to maintain employment) and so will continue, it appears, to fund our outsize deficits.

Still, the points you raise about Japan are valid (though I am not certain you are correct on the relative size of the "credit" bubbles), but you neglected to mention the most important difference as regards this situation vis a vis the US and Japan, IMHO: the Japanese are savers and the nation runs current account surpluses. Both of these are major positive differences for Japan as relates to the US and its current predicament.

Finally, I again disagree with you that our policy responses have been substantially different than Japans (other than we have tried the re-flation card quicker). And in particular, we have taken a similar approach to recognizing loan losses throughout the system.
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Old 10-24-2009, 04:04 PM   #28
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And in particular, we have taken a similar approach to recognizing loan losses throughout the system.
I don't see how that is possible considering that so much of the large bank's exposure was in the Mark to Market books. These things were getting written down way before the securities even defaulted. Japan had nothing like that. Sure we still have a bunch of commercial loans in the accrual books, but according to the IMF earlier this month . . .

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As in past estimates, the IMF said that banks in the U.S. are further ahead in dealing with potential losses than those in Europe. Banks in the U.S. have recognized about 60% of anticipated write-downs, the IMF calculated. Banks in the Britain and continental Europe have recognized only about 40% of their potential losses.
So we've recognized 60% of the anticipated write downs already. I wonder how long it took Japan to hit that mark. Meanwhile the capital ratios of our large banks are better than they were before, in many instances. Basket-case Citigroup, for example, reported a Tangible Common Equity ratio of 10.3% in the latest quarter, up from 2.8% in 2007. So we've taken more than half the hit, and our largest banks have more capital than when we started.

True, a lot of the rest of the exposure is at smaller banks. But they're getting closed down on an ongoing basis. I don't see us sweeping this under the rug to the extent the pessimists claim.
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Old 10-25-2009, 07:49 PM   #29
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I don't know about a double dip, but I do think it is time to rebalance
and shorten up on your bond duration, if possible.

Short rates are going up, IMHO, but how soon? Nobody knows. If long
rates don't follow suit, then the probability of a double dip is higher.

Cheers,

charlie
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Old 10-25-2009, 08:22 PM   #30
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For those interested in the similarities between the US and Japanese crises:

U.S. Risks Japan-Like ‚€˜Lost Decade‚€™ on Stimulus Exit, Koo Says - Bloomberg.com

Whether we have a double bottom or not depends, IMO, on whether the government can continue to prop up the economy despite popular opposition. If government spending slows down (because of concerns over the deficit) or if the Feds raise interest rates (to support de US $) before the consumers and companies can pick up the slack, we will probably have a double dip. Raising long term rates would be a disaster for the housing market at this point.
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Old 10-25-2009, 09:11 PM   #31
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Charlie wrote: "If long rates don't follow suit, then the probability of a double dip is higher."

There is no question that the bond market is screaming on-going recession (and not even suggesting the end of the first dip let alone a second one).

The stock market, on the other hand, is screaming recovery.

One is right and one is wrong: my money is on the bond market being correct.
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Old 10-26-2009, 02:42 PM   #32
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Yrs to Go,

Another guy who agrees with me about US and Japan similarities as well as bank write downs. Quotes from David Rosenberg's (former Merrill Lynch economist now with a Canadian firm) most recent piece:

On Japan and US:

“The story in Japan is that the country kept zombie banks alive for fear of unleashing financial Armageddon — much like the U.S.A. today. As a result of the private financial system’s incapacity to create credit in Japan, the tradeoff for not shuttering insolvent banks has been two decades of economic stagnation, lower bond yields and a pervasive bear market in risky assets. Instead of following the Swedish system, or following the painful financial and economic restructuring that allowed emerging Asia to rise from the ashes after its debacle of the late 1990s, the U.S. is following the Japanese model of keeping failed banks in the system and sanctioning an accounting system that allows these institutions to disguise their true net worth and hide losses embedded in their asset base.”

On bank write downs:

“There have been more bank failures this year than in the past 15 years combined, and the only reason why the big boys never followed suit was because the government guaranteed all their debt and then allowed them to hide their losses by switching to mark-to-model accounting from mark-to-market. Believe us when we tell you that even the most renowned experts could not tell you what is really sitting on the balance sheets of these large U.S. banks…”
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Old 10-26-2009, 03:12 PM   #33
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The stock market, on the other hand, is screaming recovery.

One is right and one is wrong: my money is on the bond market being correct.
I think the bond market's predictive record is better than the stock market's record. I think one of the main reasons the stock market is so much higher in the last few months is that people are looking for places to put their money and seeing pathetic yields everywhere else. Having said that, while my crystal ball is broken I saw "Dow 10000" as a convenient excuse to rebalance and lighten my equity load a bit. It seems like silly psychology, but the Dow has always had a lot of trouble taking and keeping another digit -- often for well over a decade. It had trouble holding 100, 1000 and now 10000.

Much higher stocks from these levels, considering economic realities and even factoring in a modest recovery, feels like irrational exuberance.
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