Bill Gross of Pimco talks to Bloomberg, Bill manages the largest bond fund in the world, he is an insightful commentator and a successful practitioner. Every time bill has something to say most of the financial world listens.
With unemployment expected to reach 400,000 it tells you one thing instantly: among the group you will have a cross sector encompassing every facet of society. Scientists, builders, finance workers, bus drivers, fast food employees et al will stand shoulder to shoulder in the dole queue, likely with little or no interaction because, quite frankly, unless you’ve signed on before then you know not the frustrating depression that comes with it.
So what could we do? Does it even make sense to allow such a waste of talent? If we have a state that pumping money into the system so that we can be saved from ourselves then should this extend into how we think about welfare? I would say the answer is yes.
There are many people who have lost jobs who probably didn’t love what they did to begin with, obviously they love it more than the dole but if this is the case then why not use this juncture to help them pursue something that …
The talk of ‘Economic Treason’ and calling for the heads of every banker are sadly starting to gain more and more traction, all of this is happening without concrete evidence thus far of exactly ‘who’ we are chasing and ‘for what’ specifically, largely the financial leaders greed is central to accusations of wrongdoing, and while greed may not be morally acceptable to right thinking individuals it is not actually a crime.
The FT recently had an article showing that executive pay misguided but that it didn’t make them criminal by nature, stupidity is an ‘equal opportuntities’ trait. It is important that every person in finance is not villified for what was something that all of society played a part in.
One question nobody is asking is ‘what part did I play in this?’, as a brokerage we are culpable, as a consumer I am personally culpable and as a citizen I will be paying for mistakes made on both …
With one bank totally nationalised and others due to get recapitalised any day now it is time to ask ‘Who is paying, or going to pay for all of this?’. And the answer is in short – the tax payer, it’s just a matter of when and how.
One interesting conversation I had today was with a banking colleague (and I don’t have many friends in the bank system!) who asked me this ‘How can some banks offer deposit rates that are so far above the money market?!’. I told him that this offer existed because of the margins being charged on their lending.
His belief was that they are effectively selling government bonds via their deposit function, the state can either capitalise them -and doing so goes on the official record- or they can be propped up with deposits paid in by the public for high returns, however those returns may eventually have to be paid for by the state and thus, ultimately, by the taxpayer.
Most of us are familiar with the idea of being able to buy and then sell a share, normally this is referred to as going ‘long’ in other words you feel it is a good share and you want to hold on to it. The opposite of this is where you sell and then buy which is going ‘short’, in other words you don’t think the stock is good and you don’t want to hold on to it so you borrow it and sell it today, buy it tomorrow (and dispose again to the original owner) and your position is set by the difference.
In a short sale a drop in the price makes you money because (for instance) if you sold today at $3.00 and bought back at $2.80 then you made 20c per share. If however, the price goes up to say $3.20 then you have to make up the difference. This is before we get into other areas like options or any derivatives. An easy …
Naturally past economic cycles don’t tell us exactly what will happen in the future, but as Mark Twain once said ‘history doesn’t repeat itself but it does rhyme’. And for that reason it is worth looking at some key figures from the past, showing that often the gains in bull markets are all found at the cusp of a bear market.
The stock market generally reacts before consumers and the real economy do and equally it will generally see recovery before them as well. Taking a view of the 20th century markets we can see the following:
In the recession of 1926 to 1927 the market increased by 41%. The years of 1933 to 1937 saw some of the most impressive gains ever in the S&P 500. The eight month recession of 1945 saw markets rise 19.5%, the eleven month recession of 1948-49 saw the markets go up 15.2%. Again in 1953-1954 the ten month recession ended with a market that rose 24.2%.
Any reader will note that much of these ‘gains’ did …
In this clip Peter Schiff argues against the stimulus packages, calling for less government and a need for savings. Normally economic theory supports that increasing savings during a downturn (Keynes – paradox of thrift) hurts the economy. Peter says ‘au contraire’ and this clip is an interesting take on the man they named ‘Dr. Doom’, he is however, the same man who saw with absolute foresight the coming financial crash and he wrote a book about it called ‘Crash Proof’, he is a fascinating commentator.
There are some who are saying that there are amazing deals to be found in the current market and if you consider price only then you may be tempted to believe this. Yields could also present a strong argument for property investment if yields stay at historic levels, however yields are likely to fall in 2009 and will remain stagnant until at least 2011/12 for several reasons which we will outline, we will also look at some of the current dysfunction in the market by examining a few types of sellers and how their personal situations express themselves in their selling behaviour.
The first group bought in the last days of the boom, they likely used minimal deposits (or even 100% finance) in order to purchase and they are in deep negative equity, they are now no longer on fixed rates – which tended to be 1/2/3yr fixed- and may have moved into the variable market which revises their payments upwards. One can be forgiven for thinking they may be a ‘distressed seller’ – the distress …