So says First Trust, about the current financial problems on the Street. For what it’s worth.
16 thoughts on “The Sky Isn’t Falling”
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So says First Trust, about the current financial problems on the Street. For what it’s worth.
Comments are closed.
Geez, of course the sky isn’t falling, unless you’re the Democratic Party or Hillary Clinton’s re-election fund, which count heavily on massive donations from the employees of Wall Street brokerage firms, or the Sex and the City high-flying NYC twentysomething employees of these firms, who are practising “You want fries with that?” as we speak.
The folks losing their shirts, other than the employees, are all those commodity and real-estate “speculators” that, under other circumstances, the Democratic Party demonizes. Mom ‘n’ Pop Average are only in trouble to the extent they invested in commodity and real-estate funds in the last few years and are counting on that money to pay for retirement right now. That’s not too many people. (Any of us in our 30s or 40s who are interested in buying commodity or real-estate investments for payoff in 20 years are happy about these changes, as it brings the price of such investments nice and low. For the same reason, first-time homebuyers are delighted with the crash in the real-estate market.)
One might think entrepreneurs are in trouble, in that capital will be harder to find, but I’m not convinced. The folks going under were in the business of underwriting speculation in land and commodities, not small business loans, which I would guess are merely tied to the prime rate, and the general health of your bank. Note that BofA is sufficiently healthy and has enough cash on hand to buy Merrill Lynch. Impressive. And, if you’re going to BofA for a small-business loan, looks they’re open for business.
Now, I can believe real-estate loans are going to be a bit harder to get (a lot harder if you’re speculating, i.e. going to flip a second house), but I think that’s much more tied to the levelling-off of housing prices in general, and I doubt it’s that much harder if you’re going for a first mortgage on your primary home, and you’ve got decent numbers. You’re still the best bet, investment-wise, around. Also worth bearing in mind is that interest rates and ease of loan origination vary inversely with house prices, since practically nobody buys with cash. When money is hard to borrow and interest rates are higher, prices are lower, and vice versa. So from the buyer’s POV, it doesn’t matter a whole heck of a lot if, within reason, money is harder and more expensive to borrow, because the lower house price compensates.
I think this is for the most part a “Hurrican Gustav” effort on the part of the MSM to convince us all that the sky is falling, economically speaking, and we really really need a regulatin’ Democrat in the White House to bring order to the Roaring Twenties robber baron mess you always get when a Republican Administration is allowed to take power, coupled perhaps with a genuine sense of concern among Democrat fundraisers that one of their biggest sources of money — Wall Street — is out of lunch money for a while.
The folks losing their shirts…
You missed out people in their 50s/60s who are close to/expecting to retire soon who had a commodity based split on their pension and didn’t shift the lot into government bonds last year. They’re going to see their retirement drifting away into the distance.
As a 30/40 something looking for a second property in the US to compliment my UK ones, I’m reasonably happy, providing the global consumer electronics market keeps as strong as it is.
You missed out people in their 50s/60s who are close to/expecting to retire soon who had a commodity based split on their pension and didn’t shift the lot into government bonds last year.
Umm…I take it you missed this part of what I said:
“Mom ‘n’ Pop Average are only in trouble to the extent they invested in commodity and real-estate funds in the last few years and are counting on that money to pay for retirement right now. That’s not too many people.”
Frankly, anyone who did that was greedy, watching the short-term run-up in real-estate and commodity prices and wanting a piece of the sweet, sweet action. If you do that in your early 60s, when you’re supposed to be making very safe bets, you deserve what you just got.
Pham, sure, let’s summarize. The crash today was rigged by the MSM to make things look bad for the party in power. Absolutely, and may I add also to elect Obama? And actually this was one more gift from George Bush to all of us, going along with Pham’s running list of Bush’s great accomplishments. Which is great and true because nucular really wanted you all to go out and use this wonderful opportunity to buy a new house free of regulation, as nucular adviser Phil Gramm would advise.
The New Physics from Simberg’s personal Newton here is truly profound. The echo chamber rocks.
Frankly, anyone who did that was greedy, watching the short-term run-up in real-estate and commodity prices and wanting a piece of the sweet, sweet action.
Or put their stuff in a set of standard S&P trackers and hoped for the best because they’re a mom’n’pop who don’t really do much with their 401K.
Heck, I’m not as dim as Rand would think and I have to pay somebody else to keep my 401K and other investments on track, it’s a fecking full time job in the US.
They’re the ones really hurting.
By your reckoning there’s going to be an awful lot of people who “deserve what they just got”.
Pham, sure, let’s summarize…[slogan salad]
Apparently, like some of the more talented zoo-trained chimpanzees, you have mistaken the ability to string together phrases without actually violating the rule of grammar for the ability to express and actual original thought, such as human beings do.
That can happen. Early Alzheimer’s, as well as chronic alcohol and drug abuse, can cause brain damage that completely ruins the ability to ruin, while leaving the ability to form sentences intact. Sorry, guy. Wish there was something medical science could do for you.
Or put their stuff in a set of standard S&P trackers
Daveon, first of all, an S&P index fund consists of stocks. Here is a list of the S&P 500. See any mortgage brokers or oil speculators in there? Nope. I don’t know where you’ve worked, but at all the places I’ve had 401k’s, if you want real estate or commodities speculation in your portfolio, you’ve got to ask for it.
Secondly, the whole point of an index fund is to spread your risk around in many sectors of the economy. No such fund would concentrate its money in commodities and real estate leverages investments, that defeats the entire purpose of an index fund.
Finally, as I said, no one following even the most primitive “default” 401k strategy would have all their dough in one or two sectors of the economy unless they deliberately did it, in which case, as I said, I’m guessing they were driven by the greedy possibility of earning way more than an index fund earns.
Daveon, first of all, an S&P index fund consists of stocks.
Yes, did you notice there was a small correction on those yesterday, probably more to come when AIG goes. I suspect that we’ll see WaMu tank in the next few weeks. We’re down 5% on stocks so far, care to work out how low it’ll go or when it’ll recover?
The core issue isn’t about greed or portfolio’s but who managed your portfolio… like, say, Lehman Brothers, whom my boss found out had a non-trivial chunk of his non-US pension fund.
Sure, the money won’t all be lost, but based on what happened last time a brokerage with pensions went down in the UK, if you were due to retire in the next decade you had to change your plans and expect to work at least another 5 years.
Carl Pham wrote:
“Umm…I take it you missed this part of what I said”
Carl, your prose is impressive. One thing to keep in mind is that you write for your audience. Most people don’t want to be bogged down in a multi-paragraph dissertation. Discussion/Comment threads are meant for concise propositions that support a stated conclusion. Anything more than that and everyone is going to gloss over your post. As a teacher you should know that a student could hand in a paper that was spot on in reason and logic. Yet, the student can still get a failing grade if the format and composition is not appropriate for the assignment.
Eh, Daveon, this is one of those six degrees of separation, everything is connected to everything arguments. Sure, because Lehman went under, many related and even distantly-related stocks went down. Big deal. Others stocks went up, of course, and whether in general when the S&P or Dow goes down you are helped or hurt depends in complex ways on your personal situation.
Remember, the world consists of buyers as well as sellers, and when prices fall the former are sitting pretty even as the latter gasp in pain. Think of it as the yin and yang of business.
To really evaluate the impact of changes in the world of finance and trading, I don’t think you can look at short-term, superficial issues like what the prices are, and whether you can find someone hurt by their fall (you always can).
You need to look at long-term effects, and whether they are healthy or not. It’s like the fact that you can’t tell whether a given activity is good or bad by whether it hurts. Sometimes (breaking your arm, a heart attack, a wound) it’s bad. Sometimes (a hard workout, getting your teeth cleaned, surgery) it’s good. You’ve got to look deeper.
In this case, I think the changes we’re seeing are good. We’re seeing the wild enthusiasts who bet on skyrocketing shortages in commodities and absurb continuing overvaluations in real estate crash and burn. This is part of the correction I actually predicted, right here on Rand’s blog, in the late spring, when oil prices were going through the roof and everyone was waxing hysterical about Peak Oil. I said then that it was a commodity bubble and would probably pop in the fall, as they usually do, and a whole bunch of speculators and overly enthusiastic investors would lose their shirts. And so they are.
The result, in the next few years, will be a return of commodities and real-estate prices to something closer to their actual value, and a general reduction in inflation. That’s good news for buyers, good news for consumers, good news for the economy in general. The only price is a mild dip in general stocks — 5%? This is hardly Great Crash territory! — some modest difficulty scoring mortgages in the next year if your credit sucks, and a bunch of arrogant twentysomething bottom-feeding chain-smoking bonus-chasing brokers at Merrill Lynch having to go out and flip burgers, with which I can easily live.
The only people for whom I might feel bad are the janitors at Merrill, but there’s always room in the world for a good janitor, so they’ll land on their feet.
I’m also sorry to hear the McCain campaign echoing the brain-dead FUD propagated by the MSM/Democrat machine. Some asswipe on NPR this morning, a fool who certainly lived through the early 80s (12% unemployment, near 20% inflation, a prime rate above 12%, economic growth stuck in the 2% range), and whose parents lived through the Great Depression, said our economy is fundamentally broken. Talk about a thorough loss of perspective, or cynical deception of the worst kind.
everything is connected to everything arguments
Nope, just that the financial markets are extremely interconnected. If they weren’t, then they’d have let AIG crash and burn today – they didn’t because they’re insuring the arse out of a bunch of other banks who are teetering on the edge.
WaMu will almost certainly go soon, and there’s a lot of other high street names circling the drain at the moment and the US tax payers can’t bail out all of them.
I’m just glad I’m 20 odd years from retirement, because I think you’ll find anybody who thought they could in the next 5 years is in deep deep trouble.
a bunch of arrogant twentysomething bottom-feeding chain-smoking bonus-chasing brokers at Merrill Lynch having to go out and flip burgers
Talk about arrogant. I know some of the IT group in NYC. They’re out of work now. Mark has a young family, a mortgage and is now unemployed. The people who got us into this mess probably don’t have any financial issues.
Most of the blame for this mess lies with Michael Milliken, and he doesn’t care any more.
It’s paltry pinning this on “mostly” one person no matter who and thus “largely” absolving all others (including your acquaintance) from responsibility as if they’re no better than mindless automatons.
Not that many aren’t but a lack of acknowledged responsibility invites repeating the lessons not learned. Simple truths: withdraw if you’re losing sleep or should be/only jeopardize what you can afford to lose, and monkey business will forever chase you.
Easy come easy go, hurry with the burgers Joe.
It’s paltry pinning this on “mostly” one person no matter who and thus “largely” absolving all others (including your acquaintance) from responsibility as if they’re no better than mindless automatons.
Obviously you’re not acquainted with Michael Milken (http://en.wikipedia.org/wiki/Michael_Milken) – the man who pretty much single handedly created the whole Bond market we see now.
Nor do I see how Mark, who worked in the IT department on trading reconciliation systems really has anything to do with this.
Milken and the traders will never have to worry about what they’ve done to the financial markets. Unless they snorted all the money they made, most of them are probably secure for life.
IT staff, admins, clerical people etc… are not, nor is it remotely sensible to say that they should have had an influence on what was going on on the trading floor.
On a side note, I see the Dow lost another 5% today, that WaMu has put itself up for sale and the largest holder of mortgages in the UK is in crisis talks with a competitor to buy them.
I guess everybody who works for them is just going to get what they deserve.
Nope, just that the financial markets are extremely interconnected.
Er, so? Your argument was that everyone’s 401k was going to go up in smoke, or at least those would of those that merely bought shares in index funds. Unless you want to make the argument that the entire economy, including all commercial paper, all municipal bonds, et cetera, is so incredibly tightly interconnected that one domino down means the entire house is going to crash — which is Chicken Littleism at its grandest — you’ve lost that argument.
WaMu will almost certainly go soon, and there’s a lot of other high street names circling the drain at the moment and the US tax payers can’t bail out all of them.
Nor should they. This is called “creative destruction.” You think companies don’t go out of business every day in the United States? You don’t think the aggregate paper wealth represented by small and medium-sized businesses who are going bankrupt doesn’t dwarf these failures? Give me a break. Lehman Brothers employed 25,000 people and had annual revenues of about $3 billion on capital controlled of about $150 billion. That’s not small potatoes, but it’s utterly dwarfed by the size of the 100 million worker, $14 trillion US economy. In a decent 4% growth year the US adds the value of Lehman Brother’s entire capital portfolio every 90 days.
I know some of the IT group in NYC
Do you recall me saying anything about the support staff? You do not. What you would have found is my saying that only people for whom I do have substantial sympathy is the support staff, e.g. the janitors, and of course an IT guy is just a janitor for the electrons. Sucks to be out of a job because the big boys had their head up their ass.
But that’s life in the free market. We’ve all been there, and will be again. Try not to make the argument that an IT guy with a good CV is going to have a hard time finding another job to pay that mortgage, ‘kay? I don’t want to get coffee all over the keyboard.
No, I have been saying that if you’re 5 years away from a proposed retirement then it sucks to be you, because your 401K will be probably worth 5-10% of what it was a few days ago, and if we go with your “creative destruction” idea with AIG – why on Earth would anybody pick up annuities that are already paying out? That’s dead money.
Just leave those retirees with a sorry note? Better luck next time? Because that’s what AIG and some of the others circling the drains have a lot of.
Lehman Brothers crashed with 650BN in liabilities. AIG apparently could have been bigger because they’re insuring a bunch of other things.
I now read that if WaMu goes then there isn’t enough money in the Federal Insurance Account to cover the up to $150K deposits and savings limits…
Try not to make the argument that an IT guy with a good CV is going to have a hard time finding another job to pay that mortgage, ‘kay? I don’t want to get coffee all over the keyboard.
It largely depends on what the job market in the IT and banking sector is in NYC at the moment. I’d not put good odds on him finding a comparable job anytime soon. I suspect he’ll be taking a non-trivial pay cut…
Of course, that kind of thing couldn’t possibly effect the economy…
Daveon so the “creator” of the junk bonds market is at fault but not the people who make junk bonds?
You’re not differentiating between junk bonds and all the regular kinds of bonds? If so make sure to vote CPUSA cause they need your support and are feeling lonely and blue (on account of the Democrats stealing their voters) and could you bring them soda and pizza too? That would be very kind of you ^_^
I didn’t get that the acquaintance you were talking about was an IT/ICT guy so he’s excused, I wrongly assumed that you were talking about some trader at a (to me unknown) company abbreviated to IT since that’s the only thing that would make sense in the discussion. Support staff clearly aren’t at fault.
*deleted long personal rant about stupid management/owners and watching profitable coworkers in important if not crucial positions with a very high workload being fired to make up for flaws in an unrelated company owned by the same while personally receiving more than double pay as a consultant instead of just being hired*