The $6 Trillion Bubble

[cute fuzzy bunny]

Not really very fair Ha. You often have a well reasoned "non consensus" opinion, usually with some background in data and experience, and I for one listen to that very closely and have occasionally taken investing action based on your opinions. For example, when you dove into ISM, I figured that was the last straw, I oughta buy some too. Uh, maybe a bad example...

Not very many people have been banned here. A guy who threatened the board operators grandkids. A couple of people who injected their single noted wonderness into every single discussion thread they could, to the distraction of good discussion. A couple of people who seemed to post only to annoy other people and rarely with any value.

I havent seen a well reasoned person with good opinions and good data get called a troll and run off. Ever.

But yeah, unfounded bearishness and people who read a book and think they're an expert in all matters arent often well received by people who live or plan to live on their investments.

[haha]

Quote:

Originally Posted by al_bundy so how exactly does the money vanish?

I will assume that is a real question. The answer lies in the fact that prices, thus capitalizations, are made at the margin. On the day that Mr. CEO nailed down a huge profit, and all the people who bought from him (and all the subsequent owners taken together as a group) nailed down loss, there were many more holders who did not trade. Eventually all these stockholders as a group got hosed, and there was no counterparty to gain. (This is because unless the corporation buys in the stock and retires it, somebody will always own it.)

Value at the top is created by the price that the marginal buyer will pay. It may be a trade of only 100 shares.

Value at the bottom is created by the price the marginal seller is willing to take. Again, it may be only 100 shares.

All the rich people who owned a $500 Roman candle stock surely thought they had wealth. They could sell it (as long as not too many others had the same idea), they could margin it for cash loans, or they could just brag about it on an internet board.

But when they saw it go into bankruptcy, or find a semi-permanent resting spot around $10, could they still sell it for $500? Could they still margin it and borrow $250 per share?

So this is where the wealth went. It vaporized.

For all the sober talk about allocations and returns and stuff, most of us would be well served to remember that really this just another casino.

Ha

[barbarus]

We are indeed just expressing opinions, but there are facts to be had to back them up, for and against. Would the readers of this blog gladly suffer a list of references like those at the end of an article published in a refereed journal?
Which academic style should we chose? Will footnotes be required? How many pages? Is there any way I can get extra credit?

Here is just one hint of things to come.

Old Ben Bernanke, the Jedi master, said last week we might be in for a little slow down, giving the spin that there is not much to worry about. At the same time he's virtually pleading with Congress to stimulate the economy.
Now, after a series of inflationary rate cuts, he makes a virtually unprecedented 75 basis point emergency cut at an off-session time, just as the US stock market is beginning to turn turtle in a big way.
He's scared. Rather badly too. His actions are much more telling than his verbiage. Like a ravening drug fiend, the market is demanding even more slashing at the regular Fed meeting next week and soon more thereafter.
"Easy Ben" can not cut any more than 350 further basis points, unless he has created some sort of negative interest.
As it is, inflation is headed through the roof, waving at the dollar as it passes by sinking through the floor. These are easily accessible numbers it would behoove us to follow. As some other sites say: Got popcorn?

[haha]

Quote:

Originally Posted by cute fuzzy bunny Not really very fair Ha. You often have a well reasoned "non consensus" opinion, usually with some background in data and experience, and I for one listen to that very closely and have occasionally taken investing action based on your opinions. For example, when you dove into ISM, I figured that was the last straw, I oughta buy some too. Uh, maybe a bad example... Not very many people have been banned here. A guy who threatened the board operators grandkids. A couple of people who injected their single noted wonderness into every single discussion thread they could, to the distraction of good discussion. A couple of people who seemed to post only to annoy other people and rarely with any value. I havent seen a well reasoned person with good opinions and good data get called a troll and run off. Ever. But yeah, unfounded bearishness and people who read a book and think they're an expert in all matters arent often well received by people who live or plan to live on their investments.

You are right. I was just shooting off my mouth.

I'll take the post down.

Ha

[twaddle]

Quote:

Originally Posted by haha Value at the top is created by the price that the marginal buyer will pay. It may be a trade of only 100 shares. Value at the bottom is created by the price the marginal seller is willing to take. Again, it may be only 100 shares.

Bingo. I don't recall the exact figure for houses, but in a given year, I believe it's something like 5% of houses are for sale. Those are the sales that define prices.

Right now, 3.5% of the houses in California have had a Notice of Default filed against the owners. Combine that with the already high inventory and dearth of buyers, and the direction of prices should be clear to all.

Calculated Risk: Record California Foreclosure Activity in 2007

[barbarus]

Good post Ha.

To extend the nuclear reference, a convenient working model is that real wealth can neither be created or destroyed, only changed in form.

Money, on the other hand, can be printed ad infinitum, by the presses of the Federal Reserve, (actually the Treasury under the influence of the Fed), resulting in an inflation devastating to fixed-income people, but eminently useful to a profligate government.

[haha]

Quote:

Originally Posted by barbarus We are indeed just expressing opinions, but there are facts to be had to back them up, for and against. Would the readers of this blog gladly suffer a list of references like those at the end of an article published in a refereed journal?

Just try us

Quote:

"Easy Ben" can not cut any more than 350 further basis points, unless he has created some sort of negative interest.

He has. See your very next statement for how.

Quote:

As it is, inflation is headed through the roof...

Nominal interest rate minus inflation rate equals real interest rate. We already have negative real rates, and he is just getting started. I think after this little scare goes away at least some asset classes are going to really like this situation.

All old Ha is interested in is figuring out which pigs are going to get the lipstick.

Ha

[twaddle]

Quote:

Originally Posted by haha All old Ha is interested in is figuring out which pigs are going to get the lipstick.

That's a good question. We should probably start by asking who will have access to all that cheap capital. Not many consumers since credit underwriting is tight. Not many leveraged companies.

Basically, that leaves people like us who will probably mortgage our homes to buy index funds. So, there's your answer.

[Running_Man]

Quote:

Originally Posted by al_bundy so how exactly does the money vanish? one day idiot #1 buys Yahoo at $1000 a share and spends say $100,000 giving it genius A who sells close to the top. Genius A now has $100,000 in the bank from that sale and keeps it there since he thinks the Naz is toast 2 years later idiot #1 finally parts with Yahoo at $10 a share and loses a lot of money. Genius A still has the money earning 2% a year because he is thrifty.

At the point where the idiot is buying Yahoo for $100,000 I would say that both the idiot and the Genius had $100,000 in net worth for a total of $200,000. At the bottom only the Genius has any wealth and the combined value is now only $100,000 after commission costs and a couple of iced coffees at McDonald's.

[armor99]

Quote:

Originally Posted by barbarus We are indeed just expressing opinions, but there are facts to be had to back them up, for and against. Would the readers of this blog gladly suffer a list of references like those at the end of an article published in a refereed journal? Which academic style should we chose? Will footnotes be required? How many pages? Is there any way I can get extra credit? Here is just one hint of things to come. Old Ben Bernanke, the Jedi master, said last week we might be in for a little slow down, giving the spin that there is not much to worry about. At the same time he's virtually pleading with Congress to stimulate the economy. Now, after a series of inflationary rate cuts, he makes a virtually unprecedented 75 basis point emergency cut at an off-session time, just as the US stock market is beginning to turn turtle in a big way. He's scared. Rather badly too. His actions are much more telling than his verbiage. Like a ravening drug fiend, the market is demanding even more slashing at the regular Fed meeting next week and soon more thereafter. "Easy Ben" can not cut any more than 350 further basis points, unless he has created some sort of negative interest. As it is, inflation is headed through the roof, waving at the dollar as it passes by sinking through the floor. These are easily accessible numbers it would behoove us to follow. As some other sites say: Got popcorn?

Wow...... so negative!!! I tend to look at this with an optimist point of view. My retirement horizon is at least 15 years away. This is a time to buy! A time to plan. A good time to buy a car, or maybe that investment property I have been thinking about. Even in a down market there are ways to succeed, if you dare to try. You seem to have a vested interest and desire for things to fail that I just cannot fathom....

[clifp]

Quote:

Originally Posted by twaddle That's a good question. We should probably start by asking who will have access to all that cheap capital. Not many consumers since credit underwriting is tight. Not many leveraged companies. Basically, that leaves people like us who will probably mortgage our homes to buy index funds. So, there's your answer.

Well my 100K from a Pen Fed Home Equity loan arrives tomorrow. I am going to skip investing in CDs or index funds, and buy stocks that will do well in an easy money environment. They pretty much all have 5%+ dividends.

Uncle Ben is going to be inflating his way out of this mess.

[twaddle]

Yup, I'm almost convinced banks are the way to go. They are being targeted by both monetary and fiscal policy. That new conforming loan limit potentially makes this a whole new ballgame. They just made it much easier to buy overpriced homes.

[Walt34]

Quote:

Originally Posted by ERD50 I'll go you one further - it does not even make much difference when you buy or sell, unless you are upsizing or downsizing. If it is a buy/sell and moving to a similarly priced home - not really much difference, is there? -ERD50

Not much difference at all. We had a paid-for house in MD and just swapped it for another, much nicer one, in WV. After the dust settled this one was $3K more.

[cute fuzzy bunny]

Come on Walt, we all need to belly up to our portion of the $6 trillion dollar shortfall.

I'm gonna have to figure out a way to lose a half million bucks before I can even get started.