patrick.net

the question may be, is this the nominal bottom?

For most sectors (other than financial), maybe. It looks like all the governments are going to ignore inflation for quite a while and focus on pumping, so in the end the stock price expressed in nominal terms may have bottomed.

Oh, one thing that bothers me are those rebate checks. Why does the government want its citizens to prop up the Chinese employment by spending money on rebate? How about building and maintaining some lousy infrastructure here, making sure that the rebate effect stays home? One cannot find stupider and more short-sighted politicians than the American ones, distributing more tax money so that their people can buy more Chinese shit.

the question may be, is this the nominal bottom?

You think Dow 8000 is a nominal bottom? Or did you mean local bottom?

TOB, I once saw a book in Barnes that had a similar book. It talked about the golden ration in market movements. I don't remember the book, but I do remember the math.

Make a line segment with points a' b' & c'.

A= (a' to b') B=(b' to c') C=(a' to c')

Now solve it with the following system of equations.

A+B=C

(A/C)=(B/A)

C=1

the roots are,

[1(+/-) ((5)^.5))]/2

This is the golden ratio that is found everywhere in nature.

Well, looking at the trillions of dollars pumped into the system, and trillions more lined up, I won't be surprised that this is the nominal bottom. I am not saying one should jump in and buy more stocks, but there won't be too much nominal losses from where we were last Friday given the pumping action.

But, here is one major risk which may break all bottoms - boomers cashing out to fund their retirement, originally there could be an orderly exit, given what we are facing, orderly exit is impossible. It depends on how their auto-balancing mutual funds, pension funds, or boomer individuals cash out, the bottom may completely fall out.

What I expect to happen is we will make US stock market far more accessible to foreign investors, particularly from Asia. Boomers understand very well that they will need more than the Xers and Yers to support the current valuation for their comfortable retirement.

RE: golden ratio

It is also called Fibonacci analysis, which is half-way between technical analysis and financial astrology.

Boomers understand very well that they will need more than the Xers and Yers to support the current valuation for their comfortable retirement.

Boomers need only God to support the current valuation, which takes no less than divine intervention to sustain over mid-to-long-term.

Peter,

Don't worry about astrology. Like many boomers, I am reading some chicken bones to see my financial future.

You just made it so.

Here is a better boomer rant than surfer-X's :-)

http://www.youtube.com/watch?v=kF05oDvHPq8&feature=related

Can you guys clarify on the disorderly cashing out for retirement funds.
Will the boomers suddenly convert all thier holdings in to cash at a loss, if they believe we will somehow manage to get through this crisis?
Even if they do that, will they spend them at once ( inflation spike) ?

I Believe, we won't see all boomers suddenly deciding one fine day that they want to cash out all thier retirements and buy all the goods in the markets. I also believe that they won't be selling at bottoms and will be waiting for the rally to continue so that thier holdings reach comfortable levels.

I believe there will be significant downward pressure on stock market once it reached 10K as boomers will be selling stocks and moving thier funds in to bonds when the market looks good enough for them. Recent Bad memories will affect future asset allocation in thier portfolio's. They literally had a near death experience with the collapse.

I'd nominate George Carlin as the all time counter-boomer.

I loved his stuff when I was a kid in the 80s and I consider myself lucky that I did get to see one of his last acts in person.

Different hicks,

http://www.youtube.com/watch?v=00OUOplZ2E8

Here is an analogy of what the boomers did to themselves.

Respectfully, I see a lot of Carlin in that performance. He was the father of that sytle of comedy. Absolutely hilarious.

style

I Believe, we won’t see all boomers suddenly deciding one fine day that they want to cash out all thier retirements and buy all the goods in the markets.

Yes, on the National Boomers Pride Day.

does anyone here do serious ‘quant’ analysis?

I do casual "quant" analysis.

Observe me, do the reverse, and you may have a chance.

Not investment advice.

I do 'some' quant.
I certainly do tons of higher order math.

Is there a sufficiently reliable "quant analysis" based on all the existing boomer holdings and their stacking retirement age to predict when the stock market will hit the bottom?

Oh, perhaps we also need boomer mortgage and other asset profile, those with sufficient money are more likely to hold on to their stocks compared to those who need money yesterday to make ends meet.

Maybe boomers will be the first generation that collectively go broke in their old age.

Yes, on the National Boomers Pride Day.

Oh dear, I didn't get my flyer in the mail this year. On what date does this occur? Do we still burn Guy Fawkes and Surfer-X in effigy? :?

Actually when you think about it, it is no laughing matter that not enough population from the US or Europe will have enough money to buy up all the liquid assets from the boomers, it is simply a mathematical impossibility, unless by virtue of some kind of miracle, we all suddenly create a lot more wealth through innovation and tech breakthrough, but wealth must be materialized by the counterparty who pay enough to consume it or hoard it. That counterparty is warm body with money to pay.

The boomer were not a problem because they were thought to be the richest generation the world has ever seen, so there is no need for them to cash out everything, they just pass them down to their kids, that was always the assumption, so they will sell some to fund retirement, but it won't be a pressing need for them to liquidate like what we saw on Friday.

However, catching up on recent financial data of boomers makes one worry that if their retirement will be a financial disaster for all of us following. Housing will be worthless for another 20 years, simply because the population pyramid dictates so, and don't think legal or illegal immigration is going to help us. Illegal and legal immigrants typically come to the US in their 20s, not when they are almost 40. For them to save enough to start buying a house in a proper environment, that will take another decade no matter which route you take (illegal immigrants make lower pay, but legal immigrants need much longer study period like 6 years for PhD before making any serious money). So even if we drastically increase the number of immigrants allowed in this country, it will take another 10 years for them to pitch in the housing market.

It is in fact much easier to resolve the stock market dilemma, if the US still proves itself to be the most transparent and fair market, foreign capital will continue to pour in and we can take advantage of the benefits, but not the burden of population growth which all happen outside of the country. But after the debacle of Wall Street, how many foreigners are still looking at the US as the ultimate place to park their money?

The investment instruments that will thrive in the next 2 decades will be what the foreign population and productivity growth will consume and hoard. That is definitely not houses in the US.

Paulson quote from Sept. 23 senate banking committee testimony:

Says Paulson: "RTC was about failure. Putting capital into institutions is about failure. [my bailout proposal] is about success." He does say that in certain cases where institutions are in trouble Treasury might want to take an equity stake. But in general he wants healthy institutions to want to participate, and he doesn't think they'll want to dilute their shareholders.

Acknowledgment of failure brings a record rally? He has been wrong about everything he's said so far.

NOT the bottom.

The hope is that this will bring banks to lend again but the elephant in the room is average american that's too loaded with debt to borrow any more.

Next up at the bailout feeding trough-- the consumer.

How much ya wanna bet they short everything on the planet by Friday. :)

I just cannot imagine how bad the final drop will be after today.

Local minimum or not? I think all eyes will be on the Intel Q3 report tomorrow after market close.

thenuttyneutron Says:
I am still in moderation after 8 hours?

Sorry, been a busy day and I did not get to read till just now. I checked just now, and there are no posts in moderation.

Yea - by backstopping all new debt - I cnnot even get my head around the possible fraud here. Start a business. Get a loan. Pay youselves $1billion. Banks doesn't care that you business plan is to sell 1 tamale for $1t - hey the debt is backstopped. You declare bankruptcy, but walk away with $1b. The banks says, "Gosh, that didn;t work out." The US backs the debt. And you and I, the taxpayers pay.
This market intervention will prop up markets for a while. And, for me, I will sell into strength. Becasue this is just sillly.

Someone obviously hasn't tried to get a business loan from a bank.

Duke,

I was concerned about that, too. For example, three banks arrange to give each other big loans, and then use the loans to pay off some other bad debts. Then they default on the loans and let the public pay. Nice arrangement. Gives a while new meaning to the term "credit default swap"

On the other hand, I can not believe that the government has not built safeguards into the program. Think of it this way: If you default on an interbank loan then you are in effect asking for the FDIC to take you over and sell you off. All the management will be dismissed. Mist banks would not want this to happen.

If the terms of the insurance make any sense at all, this is how it will work. But where are the details published.

Again, this is why we need to socialize the credit market.

All new debt needs to be secured against something tangible, such as existing hard assets or pre-existing income.

No, how about moving more to privatizing and letting bad decisions hurt the ones who make them.

The more control is put on actual lending, the more the potential for corruption. If I ask you to lend me $10 you will make a decision based on whether you think I will pay it back. If you are in charge of a government run lender, you will be more susceptible to a bribe or favor to approve a loan.

justme Says:
October 13th, 2008 at 10:27 pm
"Local minimum or not? I think all eyes will be on the Intel Q3 report tomorrow after market close."

I'll be glued to the TV waiting.....not! One corporate report is what you're going to base your financial security by?

Malcolm, I wasn't planning on it, exactly. Should be an interesting data point nevertheless, since some people appear to think that the bank capital injection will "save the market".

What bothers me is that even those in the MSM who say that the real problem is housing prices do not seem to "get it". The pundits are all saying that we should do our damndest to prop up housing prices, rather than letting the prices revert to the historical trend.

Of course, nobody around this blog ought to be surprised about this development.

I was just curious what you were going to get out of it. Are you looking at it as a sign of consumer power? (can they still buy laptops?) Or as an economic sign of are they buying laptops? Or maybe how is Intel doing with market share, or is the international market buying more chips? Or are you local and curious if you are going to have a job?

I guess it is an interesting single data point for a few different things, it made me wonder why that one report out of all of the news is important to you.

The bigger problem is this.
There is supposed to be a cost of capital. It reflects risk. In an economic down-turn it should be hard to get money. You had better have a stellar idea to start a business during a recession as the initial debt will be expensive.
Now.
Now.
Well, the governement says, "Loan to anyone and we will back you." So we fund ideas like Joe's tamale stand. Who cares that it is a bad business plan? Who cares that it cannot possibly make money? There is upside to the bank if it works and ALL DOWNSIDE is shifted to the backer of the loan - the taxpayer. Once again, we are disconnecting an interest in seeing the interprse succedd from the cost of failure. Just like the HUGE FRAUD we saw in MBS we are going to see this wind up wih scam businesses. I mean, why not? Bankers will say, "The governemtn told me to lend or esle. They forced me to take $25b and said, "Go lend!"
I do understand that the intent of this bailout was only to slow the contraction - to possibly prvent the over-correction. And we may even achieve it. But the cost will be enormous. Trust is shattered.
Who here will not find a way to sell on strength and wait to invest once all the intervention is done. Once transparancy is in place?
And who here does not fear the loss of value in our currency as we print more and more to patch up our broken financial system?

No, how about moving more to privatizing and letting bad decisions hurt the ones who make them.

Except that doesn't happen. They just get bailed out, again and again. We already have socialism for the wealthy and irresponsible, how about opening up the benefits to the rest of the population?

Socialize debt and make defaulting a criminal, not a civil issue.

From marketwatch.com:

Banks have until Nov. 14 to request capital from the Treasury. The minimum amount for banks is 1% of their risk capital, while the maximum is $25 billion.

The government will receive senior non-voting preferred shares and warrants to purchase common shares in return for the capital. The shares will pay a 5% dividend for the first five years and 9% after that, creating an incentive for the banks to buy back the shares from the government as soon as possible.

Biggest drawbacks: No voting rights. Pricing to be determined later (of course). Some say conversion rights would be better than warrants.

Malcolm, because INTC and JNJ and maybe CSX are the only really big and well-known companies on the earnings calendar TODAY. That's why.

No other big earnings news until tomorrow, when there be a larger amount of "leading" companies (abt, ebay, JPM, ko, WFC and others).

... and yeah, getting a feel for consumer sentiment is always useful.

Duke,

My assumption is government backing inter bank lending. I didn't think they were going to back stop banks. Banks still need to make prudent loans for them to be in business. I do know some people can misuse inter bank lending trust, I don't see it any different from managements using people's money to make fraudlent loans to benefit themselves.

Not sure I understand it completely.