5 worries on Wall Street

[cyphire]

I agree the money has to go somewhere… but watch the exit when the correction happens. Hey it’s anyones guess there is SO MUCH MONEY out there – and it does have to find a home.

[cyphire]

I agree the money has to go somewhere… but watch the exit when the correction happens. Hey it’s anyones guess there is SO MUCH MONEY out there – and it does have to find a home.

[kewp]

I dunno.

What worries me is all the financial advice I’ve seen recently about ‘put X amount in index funds at 20 and retire at 40’ floating about. I.e., the amount of *certainty* that that there is a magic free money machine that will guarantee future riches with little to no risk.

Face it, all investments are a zero-sum game (ponzi scheme really) and given the dim prospects for the current generation (poor job market, flat wages and tighter lending standards) I think the market may just be burning out the last of the ‘greater fools’.

[kewp]

I dunno.

What worries me is all the financial advice I’ve seen recently about ‘put X amount in index funds at 20 and retire at 40’ floating about. I.e., the amount of *certainty* that that there is a magic free money machine that will guarantee future riches with little to no risk.

Face it, all investments are a zero-sum game (ponzi scheme really) and given the dim prospects for the current generation (poor job market, flat wages and tighter lending standards) I think the market may just be burning out the last of the ‘greater fools’.

[Anonymous]

Chris, the sooner we start the ‘tragedy,’ the sooner we get to clean up the mess. Burn baby, burn!

The same ‘bright’ class of folks who regulate banking, credit, drugs, etc., hard at work with the life savings of teachers, firefighters, etc.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aW5vEJn3LpVw&refer=home

This is going to be a nightmare.

[Anonymous]

Chris, the sooner we start the ‘tragedy,’ the sooner we get to clean up the mess. Burn baby, burn!

The same ‘bright’ class of folks who regulate banking, credit, drugs, etc., hard at work with the life savings of teachers, firefighters, etc.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aW5vEJn3LpVw&refer=home

This is going to be a nightmare.

[cyphire]

I think so to jg… Will blood run in the streets of La Jolla? The corner of Fay and Prospect will be ground zero! (uncomfortably close to my office)

[cyphire]

I think so to jg… Will blood run in the streets of La Jolla? The corner of Fay and Prospect will be ground zero! (uncomfortably close to my office)

[Anonymous]

I think that blood will run in the streets of La Jolla, cyphire. In fact, maybe especially so.

Lots of folks in La Jolla (me included) have ‘bubble’ jobs: jobs that arise directly and indirectly from the tons of easy money floating around.

La Jolla/UTC is home to lots of biotech and technology startups, funded by venture capital. Pension funds and insurance companies are large limited partners in venture capital funds. When the pension funds and insurance companies start taking hits from their CDO ‘investments’ and their junk — I mean corporate — bonds, they’ll cut their investment allocation in risky things like venture capital, killing off the startups.

Lots of well-heeled folks in La Jolla, today, live off of venture capital, either directly — as VCs or employees at startups — or indirectly, as service providers (lawyers, real estate brokers, insurance providers, investment advisors, etc.).

I think La Jolla will be hit particularly hard. My gift back to the community — my future soup line — will be in operation for a long time.

[Anonymous]

I think that blood will run in the streets of La Jolla, cyphire. In fact, maybe especially so.

Lots of folks in La Jolla (me included) have ‘bubble’ jobs: jobs that arise directly and indirectly from the tons of easy money floating around.

La Jolla/UTC is home to lots of biotech and technology startups, funded by venture capital. Pension funds and insurance companies are large limited partners in venture capital funds. When the pension funds and insurance companies start taking hits from their CDO ‘investments’ and their junk — I mean corporate — bonds, they’ll cut their investment allocation in risky things like venture capital, killing off the startups.

Lots of well-heeled folks in La Jolla, today, live off of venture capital, either directly — as VCs or employees at startups — or indirectly, as service providers (lawyers, real estate brokers, insurance providers, investment advisors, etc.).

I think La Jolla will be hit particularly hard. My gift back to the community — my future soup line — will be in operation for a long time.

[cyphire]

I guess so – but why will the money dry up??? Won’t it just move elsewhere? Anyway – prices here for the quality of homes is crazy…. I’m renting here (It’s tough to find a good rental) and will buy when prices get reasonable. If that means a long wait or it never happens… So be it.

The murder up the street makes me nervous anyway – not sure I want to stay here (just kidding). I’m here because the school is here.

[cyphire]

I guess so – but why will the money dry up??? Won’t it just move elsewhere? Anyway – prices here for the quality of homes is crazy…. I’m renting here (It’s tough to find a good rental) and will buy when prices get reasonable. If that means a long wait or it never happens… So be it.

The murder up the street makes me nervous anyway – not sure I want to stay here (just kidding). I’m here because the school is here.

[Anonymous]

When times get tough, money doesn’t move; it dries up.

When you can’t repay your subprime or Alt A loan; when you can’t get an exit via IPO or M&A for your startup; when falling demand for cars kills your ability to repay the ridiculous loans that you took out to ‘LBO’ Chrysler; that money disappears.

How? The banks and pension funds write off the loans and ‘investments’ to zero and tighten their lending and investment standards. That means that they fund fewer risky ventures, such as startups and highly leveraged, wildly optimistic (‘look at these potential synergies’) LBOs.

And, my assumption is that such colors their appetite for investments with any risk component (commercial real estate, business expansion, etc.).

It was a wild up and down in the tech crash and following recession:
[img_assist|nid=3554|title=|desc=|link=node|align=left|width=466|height=267]

It will be even more ‘fun’ this time around.

[Anonymous]

When times get tough, money doesn’t move; it dries up.

When you can’t repay your subprime or Alt A loan; when you can’t get an exit via IPO or M&A for your startup; when falling demand for cars kills your ability to repay the ridiculous loans that you took out to ‘LBO’ Chrysler; that money disappears.

How? The banks and pension funds write off the loans and ‘investments’ to zero and tighten their lending and investment standards. That means that they fund fewer risky ventures, such as startups and highly leveraged, wildly optimistic (‘look at these potential synergies’) LBOs.

And, my assumption is that such colors their appetite for investments with any risk component (commercial real estate, business expansion, etc.).

It was a wild up and down in the tech crash and following recession:
[img_assist|nid=3554|title=|desc=|link=node|align=left|width=466|height=267]

It will be even more ‘fun’ this time around.

[Anonymous]

Specifically, when a bank writes off a loan (an asset to the bank), it reduces its capital (bad loan reserve and equity). And, given our fractional reserve system, a reduction in capital can markedly reduce its ability to make future loans: if a bank did not adequately reserve for bad loans, and has to start digging into equity, it could end up having to call in loans to get back into compliance with reserve requirements.

Kind of like a margin call.

We moved to La Jolla for school, too: we have a daughter at Bishops, with a son there next year, too (coming from Evans). Which school are your kids at?

[Author]

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