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wanderer
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Posting #31: Sat Jul 12th, 2008 02:16 |
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wanderer
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Posting #32: Sat Jul 12th, 2008 02:29 |
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Psychological damage
[Updated on 12/07/2008 07:43:00]
While the current US housing contraction has caused plenty of fears and worries, not just in the US but throughout the whole world, most do not realise that the direct impact of the housing contraction on the broad US economy has actually been rather limited. A lot of the damage has been at the psychological level. (Like watching Freddie Krueger)This is due partly to the fact that house prices, which have risen substantially, have been dropping recently. Another factor has been the constant media attention given to scary forecasts (Unker Warren, Unker Jim, Unker Soros, Unker Murdoch.....pls dun sked us lah) that the current housing contraction is the worst since the 1930 Great Depression and that this time round, it could be headed that way. Fortunately, the facts of the matter do not support such a negative view. 
Figure 1 below shows the single–family housing starts over the last 50 years, a stretch of period that covers all kinds of recessions and financial crises. Some of these recessions and crises have been as severe as the current economic situation, while some have been even more serious and frightening than the current global turbulence.
The 1973-75 recession was very severe and global in nature. All the major economies were very badly hit by the 1st oil shock. Inflation and interest rates skyrocketed globally. The economic slump was very severe. In fact, at that point in time, it was the worst economic recession since the 1930 Great Depression. Unemployment rate skyrocketed to nearly 9%. In 1973-74, the S&P 500 plunged around 50%. There were bank failures.
The 1980-82 recession was also severe and global in nature. Like the 1973-74 contraction, there were fears and panic everywhere. Mexico defaulted. It was the start of a global disinflationary phase as the impact of Volcker’s severe monetary tightening bit. The S&P 500 plunged 30%. The US unemployment rate skyrocketed to double digits.
In contrast, what is happening presently is actually very mild. (quick death or slow death??)The unemployment rate is at a healthy 5.4%. While inflation is rising, the cause is cyclical in nature. The S&P 500 cannot even stay in bear market territory. The rise in oil price, while very substantial, has been spread over 8-10 years. Of late, interest rate has dropped instead of rise. US productivity growth has remained impressive unlike in the Seventies and Eighties. The present decline in housing starts has been sharp but instead of fearing more declines to come, the plunge is very close to its end. Most importantly, the recessions in 1973-74 and 1980-82 did not have a fast transforming and developing China. The world economy simply did not have any other major sources of economic growth, unlike nowadays. i Capital is not even convinced that the US economy is in recession. (i think we're alone now - Tiffany)
i Capital retains its short-term outlook of the NYSE at a range of 1,250 to 1,500. This is the part where the NYSE tries to establish its bottom and trading can be volatile. As crude oil price enters a prolonged correction, fears over stagflation would subside. Eventually, investors’ confidence would return. i Capital retains its long-held bullish longer-term target of the NYSE at 1,900 - 2,000.
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Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
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wanderer
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Posting #33: Mon Jul 14th, 2008 01:20 |
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| http://turtleinvestor888.blogspot.com/2008/07/review-of-fy-2008-icapital-performance.html
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Moolah
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Posting #34: Tue Jul 15th, 2008 01:13 |
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That was almost caused a psychological damage to my brain cells.
the facts of the matter do not support such a negative view.
LOL!
Man... what are they talking about?
The collapse of Bear Sterns, the failure of IndyMac, the dire situation that Freddie and Fannie is in ( technically chap lap?) ... i wonder why and what caused it to happen?
Seriously delusional or what?
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wanderer
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Posting #35: Tue Jul 15th, 2008 12:56 |
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James: A lot of what we’d seen previously had
been what we’d termed a “cynical bubble.”
Meaning that people didn’t really believe what
was going on, but were prepared to go with it
because it was in their best interest to do so;
the relative performance kind of stuff. But this
now looks much more like a bubble of belief,
which is exactly what we saw in the tech sector
in ’98-’99, where you got these ridiculous
methods of valuation appearing, such as price
per click and price per eyeball, and that sort of
thing. I don’t know what the equivalent in mining
is, price per tractor tire perhaps, or something
else that seems can be used to justify
almost any growth expectation. But that’s
exactly what we’re seeing now. We’re seeing a
bubble of belief build that this time really is different;
that there is some long-term opportunity
within the emerging markets. Both Albert
and I — Albert from fundamental and liquidity
points of view and I from a market view — have
issues with the notion of decoupling. I just
don’t see it. People always, classically, forget
about lags at turning points. And if your chief
export market implodes, which is potentially
what we’re going to see the U.S. consumer market
doing— if it’s not already done so — it’s hard to
imagine why you’re going to continue to see
export growth. There are an awful lot of fallacies
that surround the emerging markets and the
basic materials, too. And these things aren’t
cheap. Emerging markets are trading on a 40
times cyclically adjusted P/E. Back in 2003,
they were at 10 times cyclically adjusted P/E. As
uncharacteristic as it is to imagine, I actually
got bullish on emerging markets back in ’03
because they were cheap. But now we find that
the reverse is true. Now that everybody else
wants to buy them— and is willing to pay top
dollar for them — I sit here and think, “No, I’d
rather not.”
http://sahamas.net/attachment.php?id=9833
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Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
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wanderer
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Posting #36: Tue Jul 15th, 2008 13:01 |
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Sorry, this should not belong to : What are they talking about? but i thought it too interesting. So i would just continue here:
Albert: That’s right. All I’d add is that from the
commodities side what has surprised me, as I
have written, was that when I looked at some of
the commodities indices, because I was sort of
relating the CRB to world growth, it’s only been
in the last six months or so that the CRB has
totally detached from the cyclical slowdown
we’re seeing and gone potty. And when I actually
looked at some of the industrial commodity
indices that exclude oil, like the Economist’s
industrial baskets, which includes agricultural
industrial commodities as well as metals, and
the IMF industrial commodity index, they’re
actually flat year-on-year, which, to be honest,
surprised me. So I dug around a bit more and
then found out — because I don’t keep my eye on
these things all the time — that actually things
like lead, zinc and nickel are down about 50%
from their peaks. As always, as James says, people
reach for growth, so as these sort of cyclical
risk dominoes tumble, they funnel into the
remaining stories that haven’t yet been disproved.
What is interesting is that this is now
very much a food and energy bubble. All the
speculation seems to have funneled in, even
within the commodity complex, to food and
energy, just those few commodities. Obviously
they are key commodities. But the oil price —
before I left London to come out here I read
through a stack of newspapers from this week,
and saw an interesting article in the Wall Street
Journal saying that actually there is a glut of
spot oil. Some Gulf states are hiring tankers to
basically park their surplus oil in the Gulf,
because they can’t find buyers for it.
http://sahamas.net/attachment.php?id=9833
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Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
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wanderer
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Posting #37: Tue Jul 15th, 2008 13:05 |
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James: That’s the equivalent of moving up the
income forecasts to try to justify valuations.
One of the things about commodities that I
don’t think is getting anywhere near enough
attention is the whole idea that because people
have suddenly seen commodities as an asset
class, and you have had these huge institutional
investment inflows into commodities, those
inflows themselves have changed the structure
of the markets. If you’re investing in futures,
which most of theses funds tend to do, it used
to be that the market was generally in backwardation,
so you collected a positive roll on your
contracts. But now, because these guys have
driven up the spot prices so much, a lot of
these markets tend to end up in contango,
which means you get a negative roll. That
means that you’ve got to make 15%-16% per
annum in price move — just to cover the negative
roll. The consultants missed that. The very
process is sort of a demonstration of the
Heisenberg Uncertainty Principle; you cannot
observe without influencing. These guys have
forgotten that their own actions matter. It’s
poker, not roulette, that we’re playing here.
The behavior of others, their actions, have an
impact on the outcomes.
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Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
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wanderer
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Posting #38: Tue Jul 15th, 2008 13:09 |
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Albert: One other thing that I like to point out
is the liquidity effect on commodities and
emerging markets. We’ve had one liquidity
bubble go pop with the credit crunch. But
there’s another one still to unravel, which is
the change in the U.S. current deficit. While it
was blowing out, it acted as a huge liquidity
pump for the rest of the world because the
emerging economies intervened to hold their
currencies down. So a chart of EM reserves
goes up vertically and hasn’t come down yet.
But what I am highlighting is, hey, if the U.S.
economy is going into a recession now, which it
probably is, then we’re moving to a different
phase. Housing was the least import-sensitive
component of U.S. domestic demand. So the
housing crash hasn’t really impacted the trade
deficit all that much in the U.S. But now the
credit crisis’ impact is moving into consumption,
which is the most import-sensitive component.
So it’s likely that you’re going to get a
rapid decline in the U.S. current account
deficit over the next 6 to 12 months, which
means the emerging economies’ surpluses
come down very sharply, so they don’t have to
intervene so much in their currencies — which
means the growth in their money supplies collapses,
which means the growth of liquidity in
their economies collapses. Any analysis of what
drives emerging market growth rates and
emerging market equities and bond performance,
shows that the printing of money by
these emerging economies’ central banks has
been a huge factor in bolstering their
economies. But that is going into reverse in the
next 6 to 12 months, in a major way. The
reserves will still grow, but at a much, much
slower rate. That will produces a big sucking
noise in terms of the impetus for emerging market
growth, and actually put downward pressure
on commodities. If you blow up the emerging
market growth story, then you kick away the
crutch for the secular bull market in commodities
for a while.
:thumbsup: 
They know WHAT THEY ARE TALKING ABOUT... 
Last edited on Tue Jul 15th, 2008 13:11 by wanderer
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wanderer
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Posting #39: Tue Jul 15th, 2008 13:33 |
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Albert: What the “liquidity” everyone talks
about really is, is leverage. If there’s price
momentum, you want to borrow and play that
price momentum — often in cyclical risk assets.
But as soon as that momentum turns, like the
Roadrunner, liquidity may continue running off
the cliff for awhile, but eventually gravity takes
hold. Prices re-couple with the cycle. And as
we’ve seen with CDOs, liquidity just evaporates
overnight. That’s the problem with relying on
liquidity as an investment tool. It’s just basically
a leveraged momentum trade, which can
explode in your face. Now, some of these private
equity people are still able to raise money —
that’s what’s so amazing. But liquidity essentially
can evaporate overnight, as we’ve seen with
the CDO market.
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Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
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wanderer
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Posting #40: Sat Jul 19th, 2008 01:39 |
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Scary News, Exciting Times
[Updated on 19/07/2008 07:58:00]
Once again, it is the US financial institutions that are making all the frightening news. This time, it is Fannie Mae and Freddie Mac even though other troubled institutions are constant targets of rumours and short selling. The share prices of Fannie Mae and Freddie Mac have both been plunging and are now down by more than 90% from their peaks.
The Federal National Mortgage Association or commonly known as Fannie Mae, is a government sponsored enterprise. It is a shareholder-owned corporation authorised to make loans and loan guarantees. Fannie Mae was established in 1938 by the Reconstruction Finance Corporation at the request of President Roosevelt to provide liquidity to the mortgage market in difficult economic conditions.
In 1968, Fannie Mae was converted into a private corporation. The US government established Fannie Mae in order to expand the flow of mortgage funds under all economic conditions and to help lower the costs to buy a home. Fannie Mae is the leading market-maker in the secondary mortgage market. This market is crucial as it helps to replenish the money for mortgages and enables money to be available for housing purchases.
Fannie Mae's primary method for making money is by charging a guarantee fee on loans that it has securitised into mortgage-backed bonds. Fannie Mae guarantees that the principal and interest on the underlying loan will be paid regardless of whether the borrower actually repays. Fannie Mae receives no direct government funding or backing. The securities of Fannie Mae carry no government guarantee of being repaid. This is explicitly stated. Neither the certificates nor payments of principal and interest on the certificates are guaranteed by the US government.
To create competition to Fannie Mae, the US government decided to set up the Federal Home Loan Mortgage Corporation, or commonly known as Freddie Mac, in 1970. Like Fannie Mae, it is also a government sponsored enterprise of the federal government. As a stockholder-owned corporation, it is authorised to make loans and loan guarantees. Similar to Fannie Mae, Freddie Mac's mission is to provide liquidity, stability, and affordability to the housing market.
As of 2008, Fannie Mae and the Freddie Mac own or guarantee about half of the $12 trillion US mortgage market. Given their size and importance in the US mortgage market, it is not surprising that the financial markets are concerned with any problems these two institutions would have.
The troubles facing Fannie Mae brings the US economy one full cycle. Fannie Mae was set up during the Depression days of the Thirties to help revive the US economy. Now, together with Freddie Mac, they could be potential sources of great systemic risk to the financial markets and thus the US economy. With the huge harm that they could impart, one can expect the US government to come up with more emergency measures to shore up investor confidence and prevent any adverse impact on the fragile US economy. It is useful to remember that the US government created many agencies in the 1930s to help revive the economy. These included :
[1]. The Federal Home Loan Bank System. Authorised under the Federal Home Loan Bank Act of 1932, it set up 12 regional Federal Home Loan Banks. It was created to provide a stable source of funds to member firms for residential-mortgage and economic-development loans.
[2]. The Home Owners’ Loan Corporation was set up in 1933. It bought and refinanced distressed mortgages on 1- to 4-family homes, subject to income and loan qualifications. It was liquidated in 1951 but it issued over one million loans between Aug 1933 and Jun 1936.
[3]. The Federal Housing Administration. Established in 1934, it offered home mortgage insurance on 1- to 4-family homes and was intended to stabilise the mortgage market and improve housing standards and conditions.
[4]. The Federal Savings and Loan Insurance Corporation, set up in 1934, provided deposit insurance for savings and loan associations and was abolished in 1989.
Then, the US government went all out to revive the economy. However, the Thirties was a different era altogether. The entire global economy was devastated. Now, the US economy is still growing, courtesy of exports and business spending. Persistent deflation was the bugbear in the Thirties; rising inflation is now the worry. Then, the Federal Reserve was inexperienced while Bernanke is highly familiar with the Great Depression.
i Capital has been wrong in being optimistic over the NYSE in recent months. The S&P 500 has been unable to rally. Nevertheless, i Capital is still of the view that the selling on the NYSE is overdone and that a bottom should soon be reached. i Capital revises its short-term outlook of the NYSE to a range of 1,190 to 1,260. However, i Capital retains its long-held bullish longer-term target of the NYSE at 1,900 - 2,000.
____________________
Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
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