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  • bobgiamarco bobgiamarco Aug 21, 2009 7:06 PM Flag

    More Bank Failures - S&L Remember?

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    • gina_and_her_song_lyrics gina_and_her_song_lyrics Aug 22, 2009 12:26 PM Flag

      Bob,

      It's great to have you here and to get your input, as I personally feel your perspective is important to help keep us mindful of the many negatives that are out there in the financial world at the present time. But I suggest you read the following article in full, including the last paragraph in which Bernanke sounds some appropriate caution to counterbalance what is generally a somewhat hopeful view on his part:

      http://www.nytimes.com/2009/08/22/business/economy/22fed.html?_r=1&ref=business

      I also want to make a couple of comments. You recently pointed out that you feel that the market's 50% rise from the March lows is overdone considering the current state of the economy. While I understand your point of view on this, I think it is important to remember that in the past two years the DOW fell all the way from over 14,000, and as such, the DOW in the 9000s may have priced into it the reality of what has happened and the many negatives that are still out there. In my opinion, the selloff to DOW around 6500 was overdone, and that with some stabilization in the economy now and signs of the global recession easing, the DOW in the 9000s has found an appropriate level, which as I said, is way down from the 14,000 level.

      I remain very, very confident that I will win my $1,000 bet with you that the DOW will not break the March 2009 lows anytime between now and January 1st, 2011.

      • 2 Replies to gina_and_her_song_lyrics
      • Gina,

        <In my opinion, the selloff to DOW around 6500 was overdone, and that with some stabilization in the economy now and signs of the global recession easing, the DOW in the 9000s has found an appropriate level, which as I said, is way down from the 14,000 level.>

        What caused and justifies that the DOW should be at 9000 - an appropriate level? Are you suggesting that this is the new norm or benchmark which reflects the real economy - corporate profits?

      • The media spin on Bernanke's comments were a little more positive than he may have intended them to be. His outlook was hopeful but balanced, but it was the hopeful part that got the air play. Bernanke acknowledged the difficulty people are having with credit, a story that is largely being ignored or at least downplayed in the financial press.

        Bobgiamarco with his macroeconomic links and comments is an excellent addition to this board.

    • Sobering thought in light of a recovery.

      http://www.bloomberg.com/apps/news?pid=20601103&sid=a5_XmLUK1JRc

      Aug. 21 (Bloomberg) -- Meredith Whitney, the analyst who predicted that Citigroup Inc. would cut its dividend last year, said the number of U.S. bank failures will quadruple as lenders struggle with bad loans.

      “There will be over 300 bank closures,” Whitney said in an interview with Bloomberg Television from Jackson Hole, Wyoming. “The small-business owner on Main Street continues to see liquidity come away.”

      Unemployment has risen to the highest since the early 1980s and Americans are falling behind on mortgage payments at a record pace, forcing regulators to seize 81 lenders in 2009, the most in 17 years. Ebank of Atlanta was closed today for being “critically undercapitalized,” the Office of Thrift Supervision said. Colonial BancGroup Inc. was shut Aug. 14 and taken over by BB&T Corp. in the biggest failure since Washington Mutual Inc. collapsed in 2008.

      The FDIC plans to ease rules to allow private-equity investors to acquire insolvent banks, the New York Times reported today, citing unidentified people briefed on the situation. The move would help reduce the number of failed banks the FDIC needs to support as their number increases, the newspaper said.

      Whitney said that even though the panic of the financial crisis has passed, investors have been “overzealous” in estimating bank profits for the next few years. Analysts polled by Bloomberg project earnings for the industry will surge more than ninefold this year and 57 percent in 2010 as lenders recover from the worst crisis since the Great Depression.

      “Many banks may be OK for while, but the real driver for the economy, which is consumer spending, I don’t expect that to come back anytime soon,” she said.

      Financial companies in the Standard & Poor’s 500 Index have collectively rallied 140 percent in the past five months after falling to the lowest level since 1992.

    • <Bob, I am well aware that P/E is not the only determinant and I have already explained that I believe the DOW was oversold. And I believe that this condition was in fact brought about in large part by market psychology in the form of fear, uncertainty and a great lack of confidence in the financial system at that time.>

      I believe DOW is currently fairly priced and that the financial system is still shaky.

      <All of those things you mentioned are indeed concerns, but I have more faith in the system than you do, and I believe that things have stabilized sufficiently such that we are not headed for the doom and gloom scenario that you and Prechter envision.>

      I rather base decisions on realistic assessment on facts versus faith. I believe people are severely underestimating the challenges and problems. You can't expect trillions of pumping and printing and borrowing to not have a negative impact in terms of further weakening of dollar, rise in inflation and ultimately interest rates hikes in the future. Consumers are severely maxed out with significant wealth lost in homes and stocks. They will only spend on necessities and not for large ticket items.

      <Bob, I am curious. Given your very pessimistic outlook, what is your investment strategy? Are you primarily in cash and fixed income? Do have short positions? If you feel so strongly that the Dow will break the March lows, it would make sense for you to be short DIA or SPY.>

      I'm all long in equities still. Timing is very difficult to project. I carefully monitor price and volume trends and patterns that signal danger is nearing. If I determine there is a supernatural wave pattern before a peak/high then I will most likely go all to cash and/or short some stocks or indexes.

    • Bob, you misunderstood me.

      I never said I base financial decisions on faith. I base financial decisions on reality and my assessment of the facts. It just so happens that I see enough positive realities out there amidst the negatives that I am led to have a greater faith in the current global economy going forward than you do. I believe that you are overly focused on the negatives and putting too little weight on the positives.

      We could go on and on about this. All I can say is stick around and you will see on 1/1/10 and 1/1/11 that where the DOW will be has turned out to be much more in line with my conclusions than yours. And I am willing to bet a lot more money to back up what I say.

      I am amazed that you are long equities when you feel so sure that there will be a major decline in equities coming soon. I would think that if you really believed this that you would invest accordingly.

    • <I am amazed that you are long equities when you feel so sure that there will be a major decline in equities coming soon. I would think that if you really believed this that you would invest accordingly.>

      I anticipated that the stimulus money and cheap credit would give a temporary boost to the market. I waiting for the herd to rush in now and drive the market further to peak before I pull the plug.

      There is a method to my madness.LOL

    • Well I admire your courage in staying long and trying to time the market in that fashion when you anticipate a big decline is coming.

      Ironically, In spite of my less negative overall view than yours of where the market is headed, I went to all cash on Friday, because I feel that the market is at or near the top of the sideways trading range I expect it to be in for the remainder of this year.

      G

    • Interesting OP-ED. Warren doesn't usually speak publicly unless he really really needs to say something important. Translation: Buffett is really really really worried but can't outright scream doom and gloom.

      http://www.nytimes.com/2009/08/19/opinion/19buffett.html

      The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

      To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

      Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out

    • <Well I admire your courage in staying long and trying to time the market in that fashion when you anticipate a big decline is coming.>

      Gina, a prudent approach is to go cash now. My indicators say if DOW reaches anywhere between 9000-10,500 then pull out. But as I told you many times the market could suddenly fall off the cliff immediately or go down in several wave cycles over a period time. I suspect the latter. I can't predict exact timing. Could be months. Could be years. But I do know it will tumble once it reaches maximum bullish sentiment of 90-99%.

      As I said there is a method to my madness. Currently bullish market sentiment is at 86%. Market has a bit further to go before it goes to extreme Bullish sentiment where the herd mentality piles in. (90-100%). It's all psychology. Remember Warren famous words " Be Greedy when those are fearful. Be fearful when those are greedy.

      That is why it's interesting to see "recovery" from powerful Media, Analyst, Feds and Pundits. This is the tiny snowball which starts the herd mentality on the masses. Very predictable. This takes time to play itself out. Hence why I decided to push our bet out to end of 2010. For all I know it can take longer. Once Bullish sentiment reaches over 90%, I take contrarian position and wait it out.

      I've done this many times with many stocks including Ebay at $10.

    • <Well I admire your courage in staying long and trying to time the market in that fashion when you anticipate a big decline is coming.>

      Gina, a prudent approach is to go cash now. My indicators say if DOW reaches anywhere between 9000-10,500 then pull out. But as I told you many times the market could suddenly fall off the cliff immediately or go down in several wave cycles over a period time. I suspect the latter. I can't predict exact timing. Could be months. Could be years. But I do know it will tumble once it reaches maximum bullish sentiment of 90-99%.

      As I said there is a method to my madness. Currently bullish market sentiment is at 86%. Market has a bit further to go before it goes to extreme Bullish sentiment where the herd mentality piles in. (90-100%). It's all psychology. Remember Warren famous words " Be Greedy when those are fearful. Be fearful when those are greedy.

      That is why it's interesting to see "recovery" from powerful Media, Analyst, Feds and Pundits. This is the tiny snowball which starts the herd mentality on the masses. Very predictable. This takes time to play itself out. Hence why I decided to push our bet out to end of 2010. For all I know it can take longer. Once Bullish sentiment reaches over 90%, I take contrarian position and wait it out for months or years?

      I've done this many times with many stocks including Ebay at $10.

      • 1 Reply to bobgiamarco
      • Well, the fact that you believe it is prudent to go to cash now makes me feel even better about the fact that I actually did go to 100% cash in both of my accounts on Friday.

        Bob, your posts are excellent and you obviously are very involved in the market and you bring a ton of experience to the table. It would be great if this board could join in with a greater focus on market discussion and investing. It appears that this is already starting to happen. We have a lot intelligent minds here and any differences we have only enriches the variety of perspectives that can be shared.

        I don't know what my own next investment moves will be, but I am fine with being on the sidelines right now even if the market decides it wants to thumb its nose at me and make further advances in the short term.

        Regards,
        Gina

    • http://www.gold-eagle.com/editorials_01/seymour062001.html

      Look at the media quotes and market pattern. It's eerily similar now and in 1933 crash. I'm not saying that the past predicts the future 100%. But one should not choose to ignore the past and learn from it as well as be prepared for potential serious downside risk..especially those who are retiring soon and have lost alot of wealth already - house and market.


      8) .. a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
      - HES, November 10, 1929
      "The end of the decline of the Stock Market will probably not be long, only a few more days at most."
      - Irving Fisher, Professor of Economics at Yale University, November 14, 1929

      "In most of the cities and towns of this country, this Wall Street panic will have no effect."
      - Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

      "Financial storm definitely passed."
      - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

      8) "I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
      - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
      "I am convinced that through these measures we have reestablished confidence."
      - Herbert Hoover, December 1929

      "[1930 will be] a splendid employment year."
      - U.S. Dept. of Labor, New Year's Forecast, December 1929

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