Warning: Crash dead ahead. Sell. Get liquid. Now.
http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25?pagenumber=1
Please tell me he's wrong.
By Leigh Follow Sat, 29 May 2010, 9:45am 1,324 views 26 comments
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47 male
Lafayette, CA
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He's wrong.
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Portland, OR
Thanks, iwog, I feel soooooooo much better;O)
Carry on, folks.
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Oakland, CA
Yeah, I read that one too. I thought he was a bit alarmist. However, looking at the fundamentals he could be on to something. We'll find out soon enough...
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47 male
Lafayette, CA
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If we do get another stock market crash, it will be the first time in history that Warren Buffett missed a long term trend. His record goes back to the 1950s.
I'm not worried. If everyone was saying "Market higher!" I'd be worried. However most people are saying "market lower" which is exactly what you'd expect if the market was going up from here.
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Portland, OR
From the article:
More proof: Earlier economist Gary Shilling said price-to-earnings ratios are at a "nosebleed 22.5 level."
When I 'entered the market' as a new grad RN I was told here's your 401K package. Make your selections online, blah, blah, blah. I was thinking, "I'm an RN, not a stock broker." So I went to the book store and the 1st book I picked up, "The Great 401(k) Hoax" and thought, "I'm screwed." And I really haven't found anything to help me feel confident in my 13 years since reading that book.
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47 male
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PE ratios are supposed to be bad right now because it's very early in the recovery cycle. If things play out like they have historically, earnings will shrink the gap and not stock prices going lower.
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iwog says
But won't better earnings cause stock prices to climb even higher? Hell, look what happens to the market with the slightest piece of good news.
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47 male
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Depends on what the market predicts will happen. Current earnings reports are almost irrelevant. Everyone is making bets on what a company will do several years from now.
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Leigh says
Most 401Ks have the option of stocks, bonds, or fixed interest. If you don't trust stocks or bonds, just put your money in the fixed interest. It's virtually risk-free, and you can watch your savings inflate away.
Most folks use a prudent mix.
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Portland, OR
I pulled out of stock just before the crash ~late 2007 but since then it's been analysis paralysis. I didn't ride the latest recovery and now I fear another fall. So I'm staying in my conservative bond markets (a 'stable value fund, 'income mutual fund', and 'bond mutual fund'.) I don't even see 'fixed interest' as an option in my 401K. I should seek some help but I really don't trust anyone...do I have a problem?!?! Don't anwer that.
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Leigh says
Just by putting your money into the 401k, you realize a gain of around 20-30% just by virtue of it being pre-tax. This money you save earns interest, dividends, and hopefully appreciation. When you pull it out in retirement, you deferred taxes will be much lower since you now aren't working and are most likely in a low tax bracket.
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elliemae's website
For every person that says a crash is immient, there's someone who insists that now is the time to invest. It's just freaky to see it in writing is all.
In healthcare news, have you seen Odyssey's stock went from $19 to $27 after Gentiva offered to buy it? Gentiva was recently accused of jacking up its visits to compensate for a reduction in payment, and Odyssey paid millions to settle an SEC case in California where (it was alleged) that they refused to discharge patients, wouldn't allow them to transfer to another hospice, and signed patients on service that weren't appropriate for hospice.
A marriage made in heaven, huge for-profit healthcare giants merge. ugh.
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Portland, OR
Refused to discharge a patient? Even after they died? I say that only have jokingly.
Could you imagine going through the stress of a loved one dying and then to deal with insurance and care providers...ugh!
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elliemae's website
When I worked there, administration urged us to document the time of death as 12:01a if they died 11:30p or after. To not call the MD to pronounce until after midnight, getting paid another day. They view signing a patient onto service as making a sale.
So, yes, they did refuse to discharge a dead patient. Depending upon the nurse, they succeeded sometimes, too.
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This is the same guy who thinks we should never change allocations in response to market shifts (see anything he's written since 2005 or so...)
Frankly, I only listen to investment advice from people who actually have a proven track record of good investments. Farrell does not (nor, incidentally, do any of the regular writers on marketwatch)
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Unemployment extensions have been injecting $8B/month into the economy.
Doesn't sound like much these days but it's 8 million people @ $1000/mo. If this stimulus adds any monetary velocity that's another 8 million jobs supported by these transfer payments.
If & when this finally phases out our collective standard of living (for wage-earners at least) will experience another leg down, as the weakest members of the economy -- the krill if you will -- disappear as the macro situation compresses, and the fish that had been feeding on this krill start getting hungry.
Then there's non-federal government budget gaps. $112B for FY11 is the minimum, over $250B for 2011-12 is entirely possible. Pick your poison -- either spending cuts or tax increases -- and THAT will be deflationary too. Or, can states borrow their way out of this hole?
Speaking of debt, Federal debt held by the public is $8.5T now, up $1.5T (!) from a year ago. This added debt would have provided a comfortable existence (ie $30K) to FIFTY MILLION people. Did it?
Total government spending is alleged to be over 6.5T this year. USG can continue to borrow, or print, but I think things are getting wacky and I see more instability in the future, not less. I think the recent "flash crash" is a repeat of the Feb 2007 market free-fall. There's something rotten in the state of Denmark but (in the short term) the market generally moves to screw as many people as it can, not in a long-term "rational" manner at all. (I learned this getting stopped out of my LEH puts in Sept 2008.)
People who think price inflation is going to save the day aren't seeing the full picture AFAICT. Oil going to $200 would be very bad for the economy (though the recent Euro weakening is also lessening OPEC's need to jack prices I guess).
I consider my weekly trips to the supermarket to be a benchmark and a live micro-economics experiment. I like seeing the prices of the nonessentials -- the can of Pringles, the Sobe bottles, the soda prices. I think immense overcapacity exists and I am curious to see whether the food producers will down-price their offerings or just accept slower sales for these mini luxury goods.
On the macro-economics level, is there any good news? $200B/yr trade imbalance with China, about the same with non-OPEC, 350 million barrels a month of oil imports is an outgo of $300B/yr to the oil producers.
Aye yie yie.
Even social security, something that was "fixed" until at least 2017 if not 2039, is now paying out more than it is taking in. The Medicare "Doc Fix" is going to cost $200B+ this decade, and Medicare itself needs an immediate 4% (of all payroll) tax rise to come into actuarial balance.
Military spending is approaching $700B/yr, seven million middle-class jobs at $100K per, and again perhaps another seven million jobs thanks to the velocity of money. So each 1% we cut from military spending will throw 140,000 people out of work. Will we cut anything, or will we just continue to throw this money away on non wealth-creating endeavors?
Somebody tell me why I should be optimistic about this decade.
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Troy says
That's not really true and you know it. What percentage of the cost of a fighter jet is labor? Or a nuclear sub?
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Bellingham, WA
tatupu70 says
uh, a lot?
Parts don't appear in a Star Trek-like matter duplicator. Somebody has to dig the sh-t out of the ground, transport it, process it, ship it again, form it, ship it yet again, before it gets to the assembly stage. Every item of capital used to facilitate this production also has a parallel amount of embedded labor in it.
You are correct that the costs of this economic activity can be divided among wages (both to labor and management), interest (to those who provided capital investment), and sheer profit (economic rent), but it really doesn't matter what you cut from that $700B/yr. In the end every cut is going to be less money entering a local private economy (what the unwashed masses know as a "community") somewhere.
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Troy says
Very true. But I'd guess that by the time it gets into a fighter jet or sub, we're talking much less than 50% of cost--my (mostly uneducated) guess would be ~20%. So, my point is that you should adjust your job losses down accordingly...
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Troy says
All military spending came out of the local private economy in the first place. The money didn't come from the tooth fairy. All government spending comes from taxes. It's a zero sum game. Except what is being borrowed which represents future taxes on the local private economy
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my point is that you should adjust your job losses down accordingly…
According to wikipedia, the major drivers of the defense spending are:
Operations and maintenance $283.3 billion
Military Personnel $154.2 billion
Procurement $140.1 billion
R&D $79.1 billion
I don't really know the total employment this amount of spending supports, nor its cascade effect as these paychecks get deposited and the money returns to the private economy. This paper asserts 5 million jobs on $600B in spending ($120K/per), but it is apparently ignoring the cascade effect.
The overall question is WHERE IS THE MONEY GOING??? If we're not getting 14M jobs, both directly (people in uniform plus the industrial sector selling them the stuff they need) and first-stage indirectly (private spending by the "direct" category supporting national and local employment) from this $700B, we're getting ripped off somewhere.
Lots of parts of the South wouldn't even have an economy if it wasn't for the Defense establishment there. BRAC in the 90s saved $20B and $7B/yr going forward, IMHO we need to apply a 50X BRAC cut ($350B/yr) to align defense costs with our actual defense needs, ie. defense spending should have been held constant in nominal dollars from 2001.
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bob2356 says
Of course. My only point is that we need to cut defense spending to sustainable levels since it has little value-add for the immense amounts of dosh we've been shovelling into its maw this past decade.
These cuts will be exceedingly painful to large swathes of the economy. So much so they won't ever be done, and something somewhere else is going to have to give, and we will have spent trillions & trillions of dollars with little actual public wealth improvement (aka capital wealth) to show for it.
Borrow $10B to improve a highway and you've got infrastructure that facilitates future private earnings. Borrow $10B to build out a new carrier group, and you got a wasting asset to join the pile we've already got on hand, cruising the world's oceans on the taxpayers' dime, looking busy but actually accomplishing f--- all.
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bob2356 says
Except the vast majority of military spending takes money from rich coastal states and redistributes it to poor southern states.
The military budget will likely never be cut in any significant way, because if you did so the entire south and midwest would collapse (the midwest has a slightly better chance because of all the massive farm subsidies)
I still can't figure out why the states that are the most anti-federal government benefit the most from it. Seems like a good scam to me.
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Bernanke has already shown how he can jack up the stock market with quantitative easing. He'll do it again if the market goes down enough. It's called the "Bernanke Put". It's in effect and stocks do allow you to hedge against dollar destruction.
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@ ellie,
isn't there only a few people that can legally call the time of death, or even call a person dead? Just something I heard once.
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Portland, OR
Bap33 says
Yeah, but if you call the on call doctor at 3 a.m. to come declare death in the middle of Montana, Iowa, Alaska, and even Portland! you are gonna get an ear full. In the hospital setting it's easy but think of hospice, nursing homes, etc where there is no doc on site.