Stock Market - Recovery?

Discussion in 'Money Talk$' started by Gold Dragon, Nov 18, 2009.

  1. Gold Dragon

    Gold Dragon
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    I don't follow the markets much so today is the first time I've looked at the DJI since the big crash. I have to say I'm impressed with how quickly the markets have recovered almost back to 2006 levels after the precipitous drop. I expected a recovery but thought it would take much longer. Can someone who follows the market explain what happened over the last half of the year that has resulted in this rise? Is there some industry carrying the market, consumer confidence returning or God forbid, Obama's policies working? ;)

    Yahoo finance: DJI - 5 years
     
  2. billwald

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    I don't think the DJI reflects the economy. Half the trades are by technical traders using computers. The programs look for trends and try to beat the other computers. The computers don't exactly analyze company management only stock sales trends My money guy is still in bonds and foreign stuff.
     
  3. Gold Dragon

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    Why do you consider automated trades to not be part of the economy? Someone developed the algorithms so that the computers would know when to make their trades. Even if I pick trades with a dart board, wouldn't my transactions still be part of the economy?
     
  4. KenH

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    Inflate money supply like crazy and all of that money has to go somewhere - commodities and/or stocks and/or real estate, etc. The problem is that the money supply can't keep being inflated like crazy forever. And what happens after the inflating like crazy stops and has to be unwound ain't pretty.
     
  5. Gold Dragon

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    So you think it is Obama's spending.

    I also looked at a few other indexes around the world and all of them seem to have followed the same curve and are back to around 2005/2006 levels.

    TSX (Canada), FTSE (UK), DAX (Germany), AORD (Australia) all seem to have the same curves as the DJI and NASDAQ.

    Exceptions seem to be the Hang Seng (HK) which is up to levels just before the crash and the Nikkei seems a little behind everyone else.

    The markets are such strange creatures aren't they.
     
    #5 Gold Dragon, Nov 19, 2009
    Last edited by a moderator: Nov 19, 2009
  6. Andy T.

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    I'm not a market or investment expert, but I think Ken's statement is pretty accurate. I also think the upswing is sort of a "correction of a correction" so to speak. IOW, I think the big drop last year was due partly to panic effect, and this quick upswing is a correction of that. But that's really just a guess and no more.
     
  7. Johnv

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    I've seen a significant improvement in the value of my 401k and IRA investments, which is a strong indicator of how well the long term market is doing. Seems to be a trend, and not just a spike.
     
  8. preachinjesus

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    I've got some good money invested in several market indices. The DJIA is one of several barometers of the economy. (To suggest it isn't reflective of the economy is a misunderstanding of economics.)

    I think its becoming over-inflated right now. For example: My Netflix stock has gone from $25 to $60 a share in only 4 months. That's crazy, but not uncommon.

    Seeing this quick of a recovery after the bottoming out in March this year is unusual but not unprecedented. My money is that we see a micro-bubble burst after the first quarter...well that's what I'm literally putting my money on in terms of shorts and investments.

    While I'm all for the economy getting back to rolling hard, the reality of 10% joblessness hasn't fully impacted what we're seeing yet imho.
     
  9. Winman

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    I saw a lady on TV commenting on this (Elizabeth Warren), and she was saying that the reason the market is doing well, is because they know the government will bail them out if investments fail. Of course, that is at our expense.

    She also said that none of the practices that caused this severe recession have changed, and that the market has gone right back to them.

    I searched for the video I saw and could not find it, but here is another in which she explains how America has forever changed it's business model, and has actually gone socialist. Very informative.

    http://www.youtube.com/watch?v=IE8cCIATHuY

    So yes, the Market is recoving, but it is at our risk and expense.
     
    #9 Winman, Nov 19, 2009
    Last edited by a moderator: Nov 19, 2009
  10. Gold Dragon

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    Thanks for this. Elizabeth Warren appears to have a pretty good grasp on the issues at hand and has the insight to realistically critique the pros and cons of the stimulus plan. I went to the website for the congressional oversight panel and learned a lot from her short video on the TARP. That is probably the one you are referring to.
     
  11. Dragoon68

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    It's just another cycle in what people think their stocks are worth.

    The exchange of real goods and services as well as the real value of the assets behind those stocks is another matter.

    It seems to me that we're becoming less efficient as more of our earnings are siphoned off to feed the continually expanding federal, state, and local government cash consumers.

    It seems to me we're borrowing more on our future because we can't pay our bills today.

    It seems to me we produce less, advertise more, litigate more, regulate more, and waste more every year.
     
  12. OldRegular

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    No one understands the market. Those who think they do say that the market is apparently an indicator of things to come. That certainly was not the case when the market hit 14,000.
     
  13. AresMan

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    Stocks may be going up in nominal terms, but that doesn't mean that more wealth is being created. If you measure the recent nominal growth in stocks with the recent rally in gold (caused by inflation and weak dollar worries), you will see that stocks are not growing in relation to inflation.

    While many U.S. stocks are better to hold than dollars, right now gold is better to hold than many U.S. stocks.

    Obama's "stimulus" may be indirectly causing a nominal rise in stock prices, but it is not improving the economy one iota. People are flocking to stocks and gold out of fears of a weak dollar, thereby increasing the demand (and naturally the price) of both. So far, gold is outperforming stocks.
     
  14. AresMan

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    The upswing is not technically a correction. It is a false "stimulus" that is preventing the necessary correction.

    We need the recession so that we can rebuild our savings and get our houses in order; not perpetuate malinvestments and increase borrowing and spending. A recession will naturally cause stock prices to go down for awhile as capital is freed by the market taking it from the wrong places and putting it in the right places. Once the recession allows the painful correction to occur, the economy is viable again to allocate capital in productive capacities.

    Politicians do not like recessions (because it makes them look bad), although they are the ones that caused them with policies that created the artificial boom. Politicians, along with the Fed, always react to recessions with more policies that try to reflate the bubble that caused the recession: even lower interest rates to encourage people to continue borrowing and spending rather than saving and paying off their debts (0.25% interest rates), subsidizing and bailing out businesses that misallocated capital and squandered it to bankruptcy ("TARP" funds), introducing new public programs that rob more money from taxpayers to encourage people to get loans to purchase expensive new items that they do not even need ("cash for clunkers"). None of these policies promote a viable economy. None of them encourage saving and paying off debts. None of them encourage people to own real assets that they can afford instead of being a slave to the web of debt.
     
  15. TomVols

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    At one point this year, Gold was up 6%. Stocks were up 19%, and Silver was up 30%. So Gold was certainly not better than the market, and was even beaten by other commodities. (Go ahead and kill me, Goldbugs :laugh:) I'm not saying Gold is a bad hedge. It's just a bad investment and not the best to have for growth. Remember, yearly ROI for gold is barely above 1 percent. Stocks? almost eight times that.

    I also don't think we're seeing a run up in the market due to thoughts that the govt will "bail them out." Investors have yet to be bailed out. The bailouts have gone to the people who made the lousy investment vehicles, not those who lost money on them by and large. And even if this were the case, does anyone think Washington would be dumb enough to do more bailouts given the wrath felt in the American public?

    Private lending has gotten considerably more conservative, so these practices are not back in vogue. They are being practiced by govt lending entities and guarantee agencies, though. You can't get a 100 LTV Heloc or 100% purchase money right now from many private sources. But Uncle Sam will gladly do it for you.

    I don't think Obama's policies would have had that much time to effectuate a recovery. The market upswing began after March 9 lows (Happy birthday to me!). Obama wasn't in office 50 days yet. I think there was a drastic overreaction that plummeted the market. No way these companies were 90% overvalued. So folks like myself came swooping in to buy these stocks. Now, will there be an overreach? Perhaps there has been. We still have some ghosts in the commercial paper portfolios out there. And there's the spector of the health care legislation that will send shockwaves through the market.

    I do agree with Ken. We cannot artificially prop up anything anymore. The market was robbed of its opportunity to weed out a lot of the dross, although in some cases it has (BoA has taken it on the chin, and lots of financial firms have gone down or significantly downsized). The biggest imrpovement is the much needed whittling down of mortgage originators, realtors, and appraisers. The market had more than it could bear.
    Not bloat....a good investment. Netflix has taken out a competitor (Blockbuster) and is holding its own with the OnDemand services and RedBox. If RedBox gets some contracts with more studios, that could eat into Netflix, but I think you made a great investment. I don't think it will continue its growth, but you can't argue with what you've earned.
     
  16. AresMan

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    It is true that gold is not an investment, but rather a hedge. Bull markets in precious metals and commodities indicate that the government is destroying the currency.

    It is also interesting to note that gold has been in a long-term bull market since 2001--when Greenspan lowered interest rates down to 1% to avoid the recession caused by the dot.com burst and 9/11. The correct thing to do would have been to endure the recession, which would have lasted about a year at most. However, the Bush stimulus and the Greenspan 1% interest rates postponed the recession and started the housing bubble. Gold was around $300 per troy ounce in 2001. Now, gold is closing in on $1200 per troy ounce--a 400% increase measured in dollars. Obviously, those who bought gold in 2001 and held onto it have "profited" highly over quite a few stocks.

    While gold has had the most attention so far, I recommend people think about buying silver now. Silver has not had its spike yet, and the gold-silver ratio is at an all-time high. When the gold frenzy ends (although gold will continue to go up, just not in the spikes like we had recently), there will be a silver spike. Take some spare change and get silver while it is cheap. ;)

    If not, they may resort to more "indirect" bailouts through programs similar to "cash for clunkers" that will try to entice and manipulate people into going further into debt to prop up failing companies and industries.

    You are correct. The predatory private lending practices during the housing bubble were almost forced upon lending institutions who would otherwise not do such things. Because of Freddie and Fannie guarantees, the lending institutions did not have to care as much about mortgage debt, because the debt became an asset class for them--a type of international stock trade in the form of "mortgage-backed securities." Now that the bubble burst, and our benevolent administration wishes to blame the problems created by the moral hazzard of central economic planning on the free market, the solution is to create even greater moral hazzard by eliminating the free market checks remaining on predatory lending and have the government take over the lending industry to guarantee the inflationary bubble conditions.

    Correct. To be more exact, the Obama policies are preventing a recovery by forcing more malinvestments and debt to postpone the brunt of the recession but to make it much worse.

    The early days of the housing bubble collapse and the fears of illiquidity and a credit crunch caused a massive rush to the dollar along with inventory liquidation (a characteristic of a true recession), making the dollar artificially strong and stocks plummet. The dollar rally ended with the fears of what was really happening in Washington--massive deficit spending, low interest rates, and more inflation. People then started dumping the dollar to find a safe haven in assets--stocks, precious metals, and commodities. A rush to stocks to avoid a devaluating dollar causes a lot of stocks to become overvalued, because people are not truly investing, just falsely trying to find a hedge. Such stock rushes cannot truly last, and artificially inflated stocks will surely cause some more malinvestments. With no end in sight to inflationary policies, more people will rush to precious metals and commodities over stocks, creating greater bull markets there, but ultimately showing the frailty of the economy. Precious metals and commodities are not investments, but hedges.

    No kidding. Any kind of central manipulation of certain sectors of an economy will create overvaluation and bubbles. The health care legislation will make health care cost much more than it should. Just like government guaranteed home mortgages caused housing prices to increase and a false market trading irrepayable debt, the same will happen to health care. Health care costs will go through the roof, and another bubble will form that will burst years later. Hopefully then, people will wake up to reality that government guarantees on anything aggravates the problem.

    True. Some painful but needed market correction has occurred despite the whims of the government. However, more correction needs to happen, but the government will not let it--it makes them look bad. We need higher interest rates to save the dollar and get borrowing and spending under control. We need people to rebuild their savings, but with such low interest rates, savings accounts are not very profitable and easy borrowing is enticing. Higher interest rates causing less borrowing and more saving will naturally cause home prices to come down. Home prices need to come back down to realistic market levels. This will hurt people who speculated during the bubble, but if the government would get out of the way, the debtors and the creditors could come to some reasonable compromises that benefit both. Falling home prices will then allow the demand to liquidate the excess inventory. Construction companies will suffer in the short term, but this correction is necessary.
     
  17. Gold Dragon

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    Thanks for your thoughts on this, AresMan and TomVols. I think I see the points being made about inflation and the weak dollar causing a perceived increase in stock prices. But does that account for the rate of this increase?

    The dollar has lost 12 cents to the Euro since March which is huge but it looks like inflation has decreased in the time span we are talking about. US Inflation Calculator. I'm not sure how to interpret this.

    Also, why does this trend seem to be occurring in markets around the world as well which I assume have different currency and inflation situations from the US since the crash?

    The argument that the initial drop was an overcorrection has some merit because of the panic surrounding that period. How long do you give for overcorrections to correct themselves before you say that this is the current reality of the market? Also if this is currently an overcorrection the other way, what is causing it?
     
  18. billwald

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    I have to say I'm impressed with how quickly the markets have recovered almost back to 2006 levels after the precipitous drop.

    Two reasons: First, because the Fed is loaning the favored big banks money at less than the inflation rate, Rounded off to the nearest percent, loans at zero interest rate. The favored banks are NOT loaning this money to businesses and house buyers. The favored banks are buying hard assets and commodities like gold and oil futures. This is inflating the economy with a commodity bubble.

    Second, because there are TWO parallel economies, one for those who work for wages and one for people who live off investments. The people who live off investments know that without import duties, they can make more money by shipping jobs off shore. It is almost impossible to buy anything made in USA except food, booze, and ciggybutts. The US is becoming a nation of servants - isn't that what "service industry" means? Servants can't create an expanding economy by serving each other.

    American servants will end up serving the people who are manufacturing machine tools and consumer goods. Agricultural and tourist nations are on the bottom of the standard of living food chain.
     
  19. TomVols

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    Correct. Unfortunately, the late-night hawkers and one note banjos who scream "gold" whenver possible don't understand that. I know you aren't one of these.
    I believe the housing bubble was well in effect before 2001. The loosening of FNMA u/w guidelines, the allowance (and subsequent proliferation) of negative amortization loans and negative equity loans (up to 125 LTV in some cases, even on mfg housing!) were huge contributors. But prior to that, gold took a bath. The exact numbers escape me, but I know one person ancedotally who lost roughly 30% in the 90s in gold.
    I would cautiously agree. Who knows about silver's spike. But it has certainly performed well.
    Yet these same folks want to roll back the tax cuts that helped working Americans. Ironic, don't you think?
    Well said and worth saying.

    More to come......
     
  20. billwald

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    Gold has always roughly paced the inflation rate. Only the gold miners and traders make money on gold. Buy gold and lose 20% up front. The people who bought gold the first tile it hit a thousand . . . how many years have they been waiting to break even? If they paid the 20% premium it has to hit $1200 to break even. But money inflation has increased how much since then?

    At least silver has many industrial applications. Gold? Plating for electrical contacts? Gold leaf for signs? Some photographic applications? Anything else?
     

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