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November 13, 2006 at 1:23 AM in reply to: Spiegel: Bush can barely string a sentence together, and more #39831
qcomer
ParticipantLovely example, very simple, very direct succinct manner. One reason many folks don’t buy RE bubble theory is because most folks out there want a single paragraph executive summary or bottom line on what they should do (buy/rent).
Folks saying that the person B will get the mortgage at higher rates (7%) are at odds with the bonds market. The chances of Fed lowering rates lower next year (as recession kicks in) are higher than Fed raising rates next year. Long term rates shouldn’t change by 50bp in a year though as I don’t expect the Fed to change interest rates by a lot within the next year. So folks, person B most probably will be paying same 6.5% if not less, next year.
I accept the 10% return rate is slightly aggressive for average investor. But theoretically, SP500 or a well diversified portfolio will return from 8-10% in 30 years and this is historically correct. Problem is that an average Joe wouldn’t be disciplined enough to save these $600 for 30 years. It is also unlikely that he will have a well diversified portfolio. However, if I had to do this, I would simply choose SP500 or one of those target funds (30 year target).
ParticipantLooks like a typical dead cat bounce here and pumping by the real estate media confirms it. Real estate bubble busts don’t recover in a period of few months, they take time. Along the way, they take suckers who were standing on sidelines checking listings everyday. These buyers are rady to jump in the markets because they have been stung before, being priced out of market. The smart money always looks at broader real fundamentals. We have a slowing economy, rising rates, possible defaults coming in, etc. And this guy with his tunnel vision, looks at buyer/sellers ratio jumping by 2 points and starts shouting “Its over”.
ParticipantTo put things in the right context, 33% decline in dollar (real inflation) hasn’t resulted in actual inflation as China/Japan tied their currency to dollar, thus keeping prices of most everyday items under check. Curency markets are extremely volatile though and dollar may bounce back. For 3 months, it had been going up against all currencies but the GDP numbers changed the picture and reversed trend. I was hoping a Dems victory may help dollar by bringing hopes of govt spending under check.
What impact will a sharp dollar decline have on housing markets in the US? I consider 35% in 4 years to be pretty steep for a major currency. What effect did it have on the markets in the last 4 years (if any)?
ParticipantI have some of my cash in MERKX and what I like about it is that it doesn’t try to speculate in currency markets or chases higher yields etc. They go for the currencies of countries that have sound monetary policies. However, its expense ratio of 1.30% is just too high and for a big cash portoflio, you end up paying too much in fees. I would like something under 1%. Pimco also has currency or international bond funds.
ParticipantThe ignorance of republicans or Americans in general about the arab world reminds me of the ignorance/disrespect some ultra liberals show to the religious/cultural values of real americans and are bashed by republicans for their arrogance and for just not “getting it”. Yet their own policies towards middle east are arrogantly idealistic, far from ground realities of the ME and just plain ignorant of real values of the arab/ME/muslim world.
I like republicans for their practical approaches to problems. But for some reason, with Iraq, they opted for a stupid/arrogant/ignorant ideology of the neo cons. What historical parallels (in MidEast) do you have of an invasion bringing in democracy AND stability to the region? Even if you succeed in stabilising Iraq, what makes you think it will cause Saud family to allow elections and what makes you think muslims there will not choose another Hamas type? What did the democratically elected Hamas administration brought to the table for Americans? You had democratically elected govts in Pakistan from 1988-1999, in which it became real breeding ground of terrorism and training centre for Talebans. Today, if Pakistanis can choose a govt, they will over-throw Mush in a blink. If you consider democracy as an ideological silver bullet to the problem of Islamic fundamentalism then why not start with countries that are real problems like Saud’s/Pakistan/Iran? The whole idea of democracy bringing stability to the middle east with Iraq acting as a beacon of freedom and bearer of American interests, is just loonie.
ParticipantI don’t agree with calculating the mean baased on historical median prices for last 80 years. Median or Mean are statistical estimators of a trend. However, it is common practice in statistics to ignore data beyond a certain sample window as that old data is considered “stale” and may skew the median/mean. The reason is because wars, taxes, economy,foreign investment, etc all make the dynamics of each cycle different.
A housing boom and bust cycle on avergae spans 13-15 years or 50-60 quarters. So I calculate mean based on median prices for each quarter, for the last 50 quarters. e.g. the tax changes PS described, benefited home ownership and added a premium over the mean for the next boom/bust cycle. This added premium bumped up the median for thuc cycle from the last cycle. Extrapolating a straight line from 97 would underestimate the true trend, as it ignores the tax premium existsed.
I think median will be around 400K in 2 years and that will be true reversion to mean. That is probably 370K in today’s dollar terms. But the downward momentum may push the median prices further below for sometime onwards.
ParticipantPS,
If dollar does lose value drastically then the worst affected asset will be cash/CDs. When currency loses value, it results in assets demanding more currency to compensate for the decrease in its value. However, I think we may have already seen most part of that scenario pass by us in last 4-5 years when dollar slumped 35%-40% and asset prices rose up in response (Gold/RealEstate). The stage ahead of us should be a deflationary period assuming we have strong Fed policies. If that is the case then I agree with you that cash will be king in that period.I am interested to learn, how dollar cost averaging is a bad idea in the face of a losing dollar, as I didn’t think about this from devaluing currency point of view. To me, dollar cost averaging is simply a mathematical tool, a smoothing low pass filter technique to minimize/filter out short term volatility for long term, in cyclical markets. You can apply it to buy gold/euros/stocks or anything. The basic assumption there is that you cannot time markets over long spans of time and so you choose to buy at an average between peak and trough. In the long term, that average keeps moving up with markets. Appreciate your input.
Also, when do you plan to to get off from your CDs and enter the markets with all the cash? What if the markets don’t come down or maybe don’t come down by as much as you expect or maybe come down much more than what you expected?
Participant“Now the question is the same as I asked people in 1999: how will you know when to get out of the market?”
Actually it’s pretty simple if you remove the element of human emotion from it. The best way to remove human emotion/greed/fear from buying/selling is to automate it. So do your research and put stops based on your research. These stops differ from stock to stock and sector to sector, so I cannot give any rule of thumb numbers. No matter what happens, don’t touch these stops once you have put them in place. In most cases, I have been able to ride the rally pretty successfully, up or down. BTW, I have the same question for you Poway. How do you know when to get in the market?
I agree with the general message of cb. Most averga joe investors out there don’t have the amount of time needed to time the markets and don’t have the skill or knowledge to do that either. The safer way then is diversification, risk managemnt and dollar cost averaging for the long run.
ParticipantChrispy, My apologies. By the billboard title I had assumed something like a billboard. I personally wouldn’t mess around with these signs as I think someone had spent time putting this up. But agree that cardboard signs are pretty much up for this. I would chuckle though I saw the “buy later” sign somewhere :).
ParticipantThe GDP number is lower than most expected and even Goldman Sachs who had been predicting rate cuts based on slow economic growth had estimated GDP at 1.7%.
More surpising is the fact that the GDP number could have been even worse, if not for a one time statistical fluke this quarter. Without that, the GDP number could have been as low as 1%.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aF5My4Z6jHiY&refer=homeRepublicans election chances also depend on how the GDP number is taken. So Henry Paulson and most other economists have come out in support of the economy pointing to consumer spending number that rose 3.3% and which accounts for 70% of GDP and that consumer sentiment increased to 93 or so. But a lot of these estimates are based on the belief that housing slump doesn’t seem to be affecting “reselient” US consumer and then housing slump has seen the worse behind it. They are saying that 4th quarter GDP will rebound but if it falls from this level, we will be bordering on recession. Another spin on GDP number I saw was in an investment newsletter which said that corporates are not dependent on US consumer or US GDP for earnings anymore, as they do business worldwide. It cited McD as an example. Only time will tell.
ParticipantPoway,
Here are few things you raised.1. You are correct that the true indciator is YOY earnings growth and YOY earnings growth has been 17% for this quarter when the expected was average of 14% YOY growth. These are just solid solid earning numbers. More than that companies are sitting on piles of cash and they can pump that liquidity in to do stock buybacks/mergers etc.
2. I am not comparing DOw component or SP500 company prices as compared to 2000 values. I can say in the same way to compare to bottom values in 2001 and look at the amazing returns. But I am talking about the current July rally and earnings as well as gains by most SP500 companies, indciate this rally has been broad based.
3. Companies do stock buybacks from the profits that they have earned and if stock buybacks are announced by a company then analysts account that in their estimates. More than trying to push EPS aove estimates, the main reason for buybacks by big corporates is investing in itself when company considers the price is right (takes care of stock option grants to employees, etc). Now, same goes for mergers and are mainly done to buy a competitor or a company doing poorly that can be rejuvenated. Options are included as expenses in earnings as one time expenses in most companies and hence are accounted for in the EPS number. Investors look at the cash flow that a company generates and the capital that it is sitting on and hence potential for buybacks/mergers. The balance sheet, cash flow, etc is normally all priced in the share value.
4. Companies do give conservative forward guidance which is the natural thing to do. However, markets are such tough tough crowd that you can get hammered for beating estimates but not giving a forward guidance that investors expected. In addition, if you invested in growth company that gave a conservative forward guidance, the company can get hammered for slowing growth fears. Also investors (especially institutional investors) know all these little tricks of companies. Whole concept of beating estimates is that current sharevalue represents company’s growth prospects, cash flow, balance sheet, etc and are hence already priced in. Any +ve surprise is then priced positively in share value and vice versa.
ParticipantHeavyd I didn’t say that 80% companies usually beat estimates. The 76% number is only for this quarter and historically, 60% beat estimates, 20% meet and 20% miss. I am in hurry and will post reply to PS question later.
Participant“Young men with no jobs and with limited access to women (many of whom are in the harem of the princes and their retinue); that’s why terrorism flourishes in Saudi Arabia, etc. Heck, I’d become a terrorist, too, under those conditions.”
This quote oozes of American ignorance about other cultures in the worrld. I am just hoping that Washington is not basing tactics to engage terrorism based on the theory that “limited access to women” causes people to become terrorists.
For all now proclaiming that we went there to spread democracy are hiding behind an excuse. Americans went to Iraq believing it had weapons of mass destruction and moreover, beleiving that those weapons would go into hands of terrorists. Iraq could have been democratized anytime from early 90s, but without the WMD, this thing could never have taken off. People say that well in hindsight this war was a mistake. No way, the whole world told us that this was a mistake from the beginning but the American bravado wouldn’t listen to the european pansies. This govt pushed for this war so badly, with so little concrete evidence that one seriously doubts the motives of this govt for the invasion of Iraq. What are the intelligence reports now about Iran and North Korea? What about Pakistan who supplied atomic technology to NK? Why did we ignore much more dangerous terrorist havens and ended up invading a poor, weak, hollow disctatorship and turned the country into terrorist haven?
Another arrogant American concept is that Americans went to Iraq to “liberate” Iraqi people. A recent poll by NBC found that 87% Americans think their govt system is broken. Should another country invade the US with true intentions of fixing its broken democracy and with noble intentions of liberating its people from the corrupt politicians or corporates? The reason why we attacked Iraq ………. well because we could and because we knew that it will be the people of Iraq who will be paying major collateral for any mistakes or error of judgements, that we made. Well the war has caused Americans billions of dollars in debt as a gift to pass onto future generations, ~3000 soldiers and a budding ground for terrorism.
ParticipantPlease report any illegaly placed boards to local officials. I don’t think I have the authority to judge about legality of a billboard and mess it up or take it off.
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