The War on Savers….is there any doubt anymore?

[JWM in SD]

People, there is a War on Savers being waged right now. The front line of that war is the housing market in bubble locales and the USD.

They want your money and they want redistribute it to Risk Loves and the modern day equivalent of robber barons.

Tuesday was a major eye opener for me. I didn’t want to become part of the tin-foil hat club but something foul is afoot right now. It is evident that something has scared the Fed shitless in the past two weeks and I don’t think it was just North Rock and Countrywide either.

[Coronita]

imho, savers are always punished by inflation.

I guess that why the "advice" I've always gotten is that when you are young(er), you really shouldn't be putting a majority of your stuff in a low yield bank account/conservative investment. More so in this environment. Plus as a younger person, you have a much longer time to recover should any controlled risk you take goes south. Of course this "advice" usually comes from a mutual fund "advisor" or "broker "that's trying to sell a hot stock tip or mutual fund, but I guess at least in the spirit of things, I don't disagree with that. The only hard part is finding the other things that does better than the low yielding bank account consistently. The other hard part is one's own comfort in dealing with situations when you're wrong and you take a loss. No ones right all the time.

 

The story would be different for older folks in the late 40ies, 50ies, or 60ies+, where in that case you have considerably less time to recover, so having more things in cash/cd's to me would make sense, because you can't afford the risk toward your years of retirement.

 

[JWM in SD]

I’m not just talking about savings accounts FLU. The policies of the Fed and the Govt have pushed otherwise conservative investors towards increasingly risky alternatives since the interest rates have been so low. Like it or not, equities are going to crash eventually as well as the dollar. It is just a matter of time until it happens. I don’t even think diversification will protect against what is coming down the road.

[HereWeGo]

Given the CP crisis, savers (well, Treasury investors) needed a bit of a thwack, at least in the short term.

I find it odd that avowed bear market gamblers can offer any complaints about “risk loves”.

[JWM in SD]

“I find it odd that avowed bear market gamblers can offer any complaints about “risk loves”.”

What the hell does that mean?? Are you talking about my bet on CFC? Well, I gambled with what I was willing to lose. In fact, I lost 2/3 of the value of it before CFC suddently got into trouble. Don’t lecture me about being a bear market gambler. I am not going out and using margin to bet against the market in general.

[HereWeGo]

The purchase of naked puts or naked calls is nothing more than flipping (not that I have a problem with that.) Now admittedly that’s not risk on the order of 10:1 leverage, but the organizations that employ that sort of leverage have generally shown the ability to handle it over time, although obviously economic shocks can shake out the weak in spectacular fashion.

As for the Fed, were the CP crisis to cause banks to continue to be exceptionally conservative with their loans, many small businesses would find it impossible to continue their current level of operations. A .5% hit to the return on savings hurts, but unemployment would hurt savers even more.

[JWM in SD]

“A .5% hit to the return on savings hurts, but unemployment would hurt savers even more.”

Did you see what the Saudis had to say about that? It hurts the dollar…it hurts us all. And please spare me the nonsense about cheaper exports. 25 years ago maybe, but unless count Britney Spears and the rest of the crap we export, I don’t want to hear it.

I get your point about unemployment, but that assumes it won’t happen anyway.

As far as flipping goes, well there is a big difference. I din’t leverage my future income…which is precisely what house flippers do and now they are stuck. Second, when my puts were down 2/3, I wasn’t asking to be bailed out by the taxpayers.

[HLS]

JWM,
I’ve been on the same page as you. You’ve been saying MACRO since I’ve been on this board.

I don’t want to think of it as “tin foil” but I agree that something IS up.
I don’t remember if you posted on this thread:

http://piggington.com/what_should_we_do_to_protect_ourselves

Finger pointing is all over the place. There are millions of people who are blindly/mindlessly contributing to retirement accounts, flooding Wall Street with cash, under the guise of “security for their future”

Most people have no clue what they are doing JUST LIKE the ones who bought houses with no clue to real value.

The big boys are scared and don’t know what to do.
Mao’s Little Red Book didn’t address this situation.

They NEED to protect the system, and perpetuate the myth.
What they said wasn’t an industry & Wall Street bailout is EXACTLY a bailout.

The FF rate cut was good for less than 24 hours. I’m guessing if there had not been a cut, DOW would have been down 600-700 points. (That down day is still coming)

A 25 point cut with a statement to monitor would have been fine. A 50 point cut confirms that they are so scared and aren’t sure what to do. Let the dollar fall, forget about inflation for now.

Don’t forget, they ALWAYS say “We are doing everything that we can” I just LOVE that line !!!

You know this stuff better than anybody.

[Coronita]

Finger pointing is all over the place. There are millions of people who are blindly/mindlessly contributing to retirement accounts, flooding Wall Street with cash, under the guise of "security for their future"

Most people have no clue what they are doing JUST LIKE

 

So I'm just curious. Folk(s) that are saying that contributing blindly to retirement accounts is dumb, or playing with the market is dumb, what are you specifically doing to improve your odds of coming out ok? Putting cash in a mattress, or buying $700+/ounce gold? Putting into foreign currencies?

Not meaning this as an attack, but I see here a lot of "that's a bad idea, this is a bad bad, blindly doing this, blindly doing that…" So for the folks that think they aren't "blind", what specifically is your strategy? Please, let's play the "three blind mice, see how they run game".

 

My take is in the short term big boys are going to try to squeeze the hell out of shorts to pump up the market. Then when people start jumping in on long positions, the big boys are going to dump on all the longs. But that's just the cynical side of me talking. The big boys can endure massive losses either way before average joe blinks.

 

[JWM in SD]

“My take is in the short term big boys are going to try to squeeze the hell out of shorts to pump up the market. Then when people start jumping in on long positions, the big boys are going to dump on all the longs. But that’s just the cynical side of me talking. The big boys can endure massive losses either way before average joe blinks.”

I think you are right. You just answered your own question. Of course, if you want to try and time that correctly, then go for it.

[JWM in SD]

Look FLU, sorry for being flip about your question. I’m desperately trying to figure this out as well and right now my best answer is to get out of the USD and hedge until I can see that it is gaining strength again. I just think that the probability of that is less than a lot of people are willing to acknowledge at this point. The decisions we see on the surface don’t make sense anymore. That is why I think something is going on. To assume otherwise is to say that otherwise intelligent people in power are bumbling idiots. It is getting very confusing and it’s making me increasingly nervous about the future.

[LA_Renter]

I am thoroughly confused as everyone else. Does anybody think rather than focusing on inflation which the markets are currently screaming at us, the FED is actually concerned about deflation starting in 2008 into 2009. The credit bubble that just popped was to say the least gargantuan, the largest bubble in history, global in scope. The housing bubbles are now popping in the 30 to 40 countries where they existed, the run on Northern Rock in the UK was a defining moment in their housing bubble which is actually bigger than the USA’s. Greenspan recently went across the pond and told their central banks that they are basically f*&ked and should rethink further tightening. Once those economies begin to feel the negative impact of the housing bust the global economy will slow muting inflation and easing pressure on the dollar. The 50 bps cut won’t be felt in the economy until next year, right when the full effects of the popping global credit bubble will be felt around the globe. A large global credit contraction precedes a large consumer spending contraction. Thus the FED decision to lower the hammer in the Fed Funds rate. They know the front end will be volatile with the dollar getting hammered and oil and commodities going higher but they see the magnitude of the slowdown coming our way and are gambling that will mute inflation. Ben indicated the Great Depression could have been avoided if more liquidity had been available in the system. I am not saying this is right or wrong and there are plenty of holes here. I am just trying to make sense of the move our FED made that on the surface seems idiotic.

[JWM in SD]

Nice post LA Renter. I think there may be some merit to your theory about the delayed effect of the cut so as to get in front of the curve on Deflation. I’ve considered this myself, but like you said, it’s confusing and frigtening that we got to this point at all.

I think there are really two camps of thought on this:

One => Increase rates and tighten immediately and then let the cards fall where they may.

Two => Decrease rate and provide liquidity risking the USD until the deflate effects are more obvious.

This is Bernanke’s Box as best as I can describe it. Mish Shedlock predicted this about 18 mos ago. I should have been better prepared 🙁

[(former)FormerSanDiegan]

They know the front end will be volatile with the dollar getting hammered and oil and commodities going higher but they see the magnitude of the slowdown coming our way and are gambling that will mute inflation. Ben indicated the Great Depression could have been avoided if more liquidity had been available in the system. I am not saying this is right or wrong and there are plenty of holes here. I am just trying to make sense of the move our FED made that on the surface seems idiotic.

Regarding the FED’s move … In my opinion, it’s actually quite simple and obvious. When the economy starts sucking, the FED lowers rates. This is what they do. The dollar declines if our cycle is ahead of the rest of the world.

When the rest of the world’s economies start sucking, their central banks will cut rates, too.

When the US recovers the dollar will recover. It’s happened before.

Regarding the dollar … It sank in the late 80’s to early 90’s as well. Starting from a dollar index of 124 in 1986 and declining to 80 in September 1992, as the US started recovering from recession.

The dollar went through a couple smaller cycles and peaked again around 120 in early 2002, dropping to 81 at the end of 2004 and is about 79 today.

So the dollar declined to about 65% of it’s 1986 value by 1992, only to return to within ~5% it’s previous peak by 2002. Currently in a drop to about 66% of its recent peak.

I know things are different this time, but they were different last time, too.

Extrapolating the current trend of the dollar and coming to the conclusion that it’s a one-way trip is the same mentality that led some to conclude that real estate prices go up forever.

[surveyor]

FWIW

CNN had a story on how some small business and corporations are selling more product overseas because of the weak dollar, narrowing the trade gap. So it’s not all bad.

[HereWeGo]

I can’t possibly go long at this time (except maybe energy and commodities), but I don’t have enough confidence to go short.

That said, I can’t shake the feeling that current market entrants are buying into the maw of a serious slowdown, perhaps even a recession.

It’s true that exports are up, obviously imports will fall with the weaker dollar, but it’s also true that domestic profits are really starting to sag.

[lniles]

If homebuyers default on their loans in great numbers, banks will collapse in great numbers. If banks collapse in great numbers, we are in another great depression and that’s what the fed is scared of. This bailout is of the banks, not of the homebuyers. I think it’s simple and obvious.

[JWM in SD]

“I can’t possibly go long at this time (except maybe energy and commodities), but I don’t have enough confidence to go short.

That said, I can’t shake the feeling that current market entrants are buying into the maw of a serious slowdown, perhaps even a recession.

It’s true that exports are up, obviously imports will fall with the weaker dollar, but it’s also true that domestic profits are really starting to sag.”

Agreed.

[Ex-SD]

JWM & HLS……………IMHO, I think you two are about as “right, as right can be”. Bravo!

[HLS]

FLU,
I could discuss this with you for a long time.
(My opinions are not necessarily those of anyone else)

The mentality of “the market” continues to amaze me.
It’s not a STOCK MARKET, it’s a market of stocks.

Who cares what the DOW is doing, unless that is all you are invested in. It’s a basket of 30 stocks. THIRTY.
I see comments that refer to “THE MARKET” as nothing more than ignorant or foolish, possibly both.

Unless you daytrade, who cares about daily moves.
The larger and well known a company is, the more potential there is for manipulation and worrying about short squeezes etc.

One of the greatest stock market investors is BUFFET.
He recognizes VALUE and businesses that he understands.
He didn’t lose any fortune in the dot com boom, cuz he never bought into the myth, that many “average Joes/Janes” bought into and lost their azz.

There are trillions of dollars “invested” by people that know less about stocks than they do about their mortgage. It’s what they believe is the right thing to do, based on popularity and salespeople.

Everybody CAN’T make money in any market forever. The greater fool theory can only go on so long before it busts.
It’s a legalized pyramid scheme that many people profit from, but it’s not security in my opinion any more than the equity in a house.

Most people may have heard of P/E but cannot explain it. They don’t know what market cap, P/S ratio, enterprise value, PEG ratio, ROE or many other stats that are available FREE.

The fact is that average people that truly know very little CAN make vast amounts of money. It’s called LUCK.
People who bought houses in San Diego before 2003 got lucky. They didn’t KNOW they would double.

Many people gladly sold into that bubble, with huge gains and little remorse. There always has to be a seller for someone else to buy anything.

Happens in stocks, it happens in houses. It’s different when you can explain WHY you are invested or why you are not.

Most people are invested for the long run. You hear all the time that it’s not timing, it’s time in the market. BLAH BLAH BLAH, selling you on what the average returns have been over the past 75 years. BLAH blah BLAH.

Following the herd will reward you when times are good and punish you when times are bad.

Nobody is right 100% of the time. Figure out what works for you.

Quick examples today:
GTF is up 122% RTWI is up 47%
HAR is down 19% TMTA is down 15%

If you own any of the above 4 stocks, do you care what
“the market” is doing today ?

The headlines are beyond idiotic. REAL money is made buying when things are out of favor, at or near bottoms, and selling at a profit. You can make 100%-500% when patient.

Most people jump on a moving train right before it stops moving, chasing gains and performance, hoping for a 10% or 20% gain. Buying yesterdays news about the last quarter that ended several months ago, is simply not logical, but that’s how it works.

When you understand that it’s idiotic, but that’s how it is, you can possibly profit from it.

Lots more can be said….

[Coronita]

I'm not just talking about savings accounts FLU. The policies of the Fed and the Govt have pushed otherwise conservative investors towards increasingly risky alternatives since the interest rates have been so low. Like it or not, equities are going to crash eventually as well as the dollar. It is just a matter of time until it happens. I don't even think diversification will protect against what is coming down the road.

I don't disagree that the equities market will crash some day. The question is when. No one knows. But one thing that probably will happen…As the "conservative" instruments make less and less sense, average joe will be putting things into high risk alternatives. That in itself is going to create another bubble, at which point it's really time to get out.

 

[NotCranky]

I think they panicked at least 10 years ago.

[JWM in SD]

“I think they panicked at least 10 years ago.”

Yeah, rustico you are right. Greenspan failed to correct his errors and now we are gonig to pay for it.

[Author]

Posts