Black Friday tonight possible?

[terryw]

The BBC is saying that Super Gord is going to solve the Worlds economic problems.

[Dieter]

I like black fridays....after it follows a golden monday and tuesday...
Time to play or gamble...

Dieter

[Stogie]

Good to see that it's all under control, then...

I wonder if the US tax payer feels like he's getting his money's worth!

[katoeylover]

didnt even make first place on the news tonight - we are getting immune to it already!!

At least we can play footie again

[jaymee]

(mardhi @ Oct. 14 2008,03:12) I recall posting something very similar to this approx: 1 year ago on this forum about China and how they play the long game.  Unfortunately our politicians do not seem to read the same books on history that I have done.      I hate to say, well I told you so as almost nobody is listening but it aint over yet and China will take over the world without a shot being fired.    

Cheers
Mardhi

Chinese imperialist!

I'm not sure on this but china holds a lot of UST bonds and should they pull out and start dumping or stop buying US debt the geopolitical ramifications can be immense. But they have been buying lots of gold and silver.

Long gold short UST long bonds strategy?

We're testing the lows again soon.

[jaymee]

[azza33]

ahh... there's  daddy

[rossco]

Many years ago an economic strategist told me:

In the rest of the world they play chess - a long game with many alternating strategies

In the US we play Poker

Kind of sums up the difference in approach to economic crisis. The US were first to respond but only announced the amount of the bail out and NOT the implementation.

Europe took their time but took, IMHO, the correct route. Loans guaranteed by the Government not a cash bail out.

Now the US has provided more info re implementation. Not dissimilar to the European strategy

So why are the markets still unstable? Maybe because, like so many other crisis, not ALL the facts, nor the real magnitude, have been announced yet.

Maybe I am oversimplifying the bank problem but IF you lend 120% of the borrowers value you should 'write off' (provide) the excess loan.

The problem with that principle is it reduces the declared profits (the write off provision hits the P&L) and therefore the Execs do not get a bonus.

Maybe I am just an old cynic BUT every financial crisis always ends up showing accountancy irregularities. So it is time to implement regulations that banks MUST comply with.

[jaymee]

(rossco @ Oct. 16 2008,17:09) Many years ago an economic strategist told me:

In the rest of the world they play chess - a long game with many alternating strategies

In the US we play Poker

Kind of sums up the difference in approach to economic crisis. The US were first to respond but only announced tthe aount of the bail NOT the implementation.

Europe took their time but took, IMHO, the correct route. Loans by the Government not a bail out.

Now the US has provided more info re implementation.

So why are the markets still unstable. Maybe because like so many other crisis not ALL the facts nor the magnitude have been announced yet.

Maybe I am oversimplifying the bank problem but IF you lend 120% of the borrowers value you should 'write off' the excess lend. The problem with that principle is it reduces the declared profits (the write off provision hits the P&L) and therefore the Execs do not get a bonus.

Maybe I am just an old cynic BUT every financial crisis always ends up showing accountancy irregularities. So it is time to implement regulations that banks MUST comply with.

Well usually it is the case and you're right that irregularities cause problems.

But really what we're seeing now is a culmination of the effects of "fractional reserve lending". What this means is that banks only need to keep a fixed percentage of their cash as reserves - and basically leverage the remainder. The implication of course is that banks can create money out of nothing.

http://en.wikipedia.org/wiki/Fractional-reserve_banking

The leverage has been as high as 20-30 to 1 even and will require time to unwind. Like Lehmann? They have a leverage of 30-1 and the excess cash got tied up in malinvestment.

When problems came each time over the years... the what the Fed did was to simply allow these banks to inflate their base again to keep up with capital requirements (by lowering interest rates or "injecting liquidity") - where newly created funds flowed out via loans, investments etc.

Ironically each time problems came, regulations came to address the symptoms really, rather than the root cause which really the way the entire system functions in the first place.

In short, the banking system is responsible for the bubbles boom and busts with its control over credit and leverage.

Its quite interesting that (somewhere I read but can't remember where), a great deal of anti semitism throughout history was really due to jews apparently practising fractional reserve lending; with the reserve money used being gold or silver.

[rossco]

Jaymee

Yes you are right. But the original principles of banking which, by their very nature, should be ultra conservative was originally based on a 12 to 1 strategy. That is lend 8 times deposit.

I think the current turmoil is not just about the excessive multiplier but the risk factor. In the past a loan was maximised at 80% of the value, of say a house,which left the bank with some level of security. If you lend 120% of value that is dangerous - as they now have discovered.

Likewise with shares - suggesting a P/E ratio of 30 is not sustainable. The price of the sahre is suggesting that the shares are worth 30 years of profits - most modern companies do not survive, in their original state for 30 years.

Again, traditionally, there were guidelines bu Industry sector as to realistic P/E ratios. Speculation (human greed) has seen investors, and institutions, ignore the good basic conservative principles, and share prices have risen to unrealistic levels. When they crash they call it a market adjustment.

The current situation provides an opportunity to 'clean house; and get back to realistic values.

Today most companies do not pay dividends preferring capital growth. Go back 30 years and investors bought shares to derive an income (dividend) and not speculate on the market value of the share itself.

Governments and institutions (who hold the individual's pension plans) should take heed of how we got here and regulate accordingly to prevent a re occurrence

Just my 2 baht's worth.

[azza33]

Likewise with shares - suggesting a P/E ratio of 30 is not sustainable. The price of the sahre is suggesting that the shares are worth 30 years of profits - most modern companies do not survive, in their original state for 30 years.

Interesting point... but 30x is not problematic in the short term as it implies investors expect strong growth..

When i see number like 100x i scratch my head because the compound rate of growth required to achieve this pricing is just crazy...

I always wondered why the US operated on PE multiples that are quite unreasonable...

Even after this big collapse, and i am happy to be corrected, i understand the S & P is sitting on and average of like 17-19.

This should be the top of end of bull market....

And to me the bottom should be around 10-12x

If you are right and the US does take the opportunity to cleanse and return to realistic PE multiples, shareholders are in for a nasty surprise in the US.

[rossco]

Short term - so you admit to becoming a speculator!

It is the short term ism that has caused the madness!

NO SHARE is worth 30 years net earnings - period. Now get real. If a company performs well it should pay a dividend to those who took the time and the interest to invest in the first place.

This speculation sickness is what has caused the problem - come back in 24 months and tell me I am wrong.

Realistic investors should be looking at sustained growth with an annual return on their original investment. Playing monopoly is just crazy - you think 100 I think 1000 so what happens?

That is why regulation should dispense with speculation and Golden Parachutes for ineptitude....

[PigDogg]

(rossco @ Oct. 16 2008,12:43) If a company performs well it should pay a dividend to those who took the time and the interest to invest in the first place.

Sometimes it's better if no dividend is paid.

Neither Berkshire Hathaway nor Cisco pays dividends. This way the investor can take his profit and pay his taxes at the time of his choosing.

U go to Kitten 2nite Rossco?

[rossco]

I totally understand that a dividend is recognized as income (taxable) and capital growth which may be offset against losses. So we are encouraged to play the "Game" which you do not (as a private investor) control. This attitude only encourages the short term speculator - who by the way manages your pension!

Ergo - change the regulations to make income (dividends) more attractive - exactly what I am saying - a total review not a plaster patch. Chess vs Poker

[PigDogg]

(rossco @ Oct. 16 2008,13:07) Chess vs Poker

Those are my two favorite games.