There will be no regular blog post for Sunday. Friday night/Saturday morning we had a structure fire to fight. The call came in at midnight:15 and I did not get home until 8 am.
We were incredibly lucky. We got there and the house was engulfed in flame (no one had a camera, damn it) and surrounded by trees with all sorts of logs, brush and slash on the ground but there was zero wind. So it was hours of work but I would say essentially no danger of spreading.
As the house disintegrated though there were pieces of house all over with nails, bolts and screws but no one was hurt. Additionally there was one room in the basement with cans of paint and roofing tar but there was never a color of smoke or flame to indicate danger from those things.
It was my first structure fire, the longest I'd ever worked on one fire and as has often been the case I was the incident commander. It was a great learning experience but needless to say it has messed up my entire weekend. I did no work during the day on Saturday and am just now getting to Barron's.
Normal blogging should resume Monday, thanks for your indulgence.
15 comments:
Sorry you had such a rough day and will not be posting. I have some comments though based on my analysis.
I understand many peoples comparisons to the 1930's as that was an extremely bad patch and analogous in some respects. But does anyone believe we are headed to 25% unemployment? Does anyone believe we will have roughly 7000 bank failures? Even if we have thousands of bank failures do you believe the consequences will be as severe? Today bank deposits are guaranteed by the FDIC, in the 1930's when your bank failed individuals took a big loss. Today individuals will not experience a loss if their bank fails.
the 1930's was a world wide depression. Now we will see a world wide recession (not as bad). I might have advocated selling everything in July of 2007 but from my vantage point things seem rather over done today. Of course things could stay over done longer than I expect. None the less I am still comfortable with my 80% equity allocation. I do not know when we will get a rally, but things seem cheap to me.
Take a look at the indices's versus their 50 day moving averages. Decide for your self what is a worst case scenario going forward. If you do not want to invest here I understand, but before you sell low only to buy high at some later point, take a good look at a 10 year chart of your favorite index. Are equities priced high or low in your opinion?
seg
The word that comes to mind is "anchoring"...
I retired as a Chief from the FDNY after 30 years on the job. The "War Years" as we say. My first year on the job my unit went to 8200 responses. By the end of my second year we were up to 10,000 and climbing. That's per year. One July we had 1200 responses. We stayed on the apparatus the entire tour, never getting off, even when we returned to quarters. (except to pee and eat). Saw many horrible things over the years, things you never forget. I still wake up in the middle of the night in a cold sweat more often than I care to admit. Anyway Rog, good blog. I am trying to learn from you as I have a small IRA ( after paying for my kids colleges there sure wasn't a hell of a lot left to put in an IRA). Not complaining, just thankful to be alive. Thanls again.
Hope you got some rest and are ready for another fun filled week.
I'm the type of person that is always thinking of ways to "fix"
things. Roger, if a retired person had his entire portfolio
in the "high fliers" (that have
crashed) would it make sense to
flip stocks to safe high paying
dividend stocks that have come down about the same percentage or?
Anyone else think of any ideas
to rescue people?
thx,
90% cash:-)
The analogy of today's financial markets and a multi-alarm fire is too good to pass up.
Response to the anonymous poster above:
“But does anyone believe we are headed to 25% unemployment?”
Do you really believe the real unemployment rate reported by the US Government at just 6%-7%? Are we even aware that the calculation methods for unemployment, CPI, GDP etc. etc. have been altered many times by the last 4 administrations to show more “soft” numbers?
There is a site (shadow government statistics) that shows the data by using the old calculation methods (before 1980) and the actual unemployment rate in Sep 2008 would have been 14%-15%. Does that tell us anything? How about the negative GDP numbers since 2000!!! and inflation (CPI)at 14%.
Regarding banks I would refer you to BauerFinancial. This site rates all banks and credit uninons in the US. There are many banks near the end of the rope already.
References:
Shadow goverment statistics site
Nick, we have been using the same method of calculating unemployment since the Kennedy administration. The unemployment numbers are real and have not included people who have given up looking for work for many decades.
CPI has been recalculated a number of times and can never be accurately measured, but I do not recall seeing CPI in the post above. Do you really think the sky is going to fall? If down 40+% is not enough, exactly how much do you want things to fall before you think it is time to buy?
This thread is revealing of exactly the sentiment that keeps a bottom from forming: "how much do you want things to fall before its time to buy" tells me that there are still too many people that think "what comes down must go up".
The whole concept of REVALUATION (aka deflation due to de-leveraging) means revising prices to reflect CURRENT reality, not some "hoped for" scenario, including any that posit that because the market has averaged 11% returns over the past 75 years, then it must continue to average 11%, and any blip below that average is obligated to correct.
The market will stay down and hopers will finally drift away. There may be some head fakes along the way, but step back and take an honest look: do you think these brand name companies would be laying off '000 of e'ees if we just need to work through a few more months of unpleasantness and then its off to the races?? Do you think they'd be offering their debt at double digit yields if they weren't desperate for cash and finding too few takers?
Do you think the governments that are injecting billions of dollar directly into banks are lightly throwing over the premise that markets work best without command and control involvement?
Until people get it out of their heads that this is a "correction" and more fully accept that this is a re-valuation, and most essentially, until folks stop anchoring their future expectations on some wished for threshold or highwater mark from the past, the pain will continue. And even when it stops, it will continue.
The point of a vicious cycle (like a virtuous one) is that it feeds on itself. With 11% unemployment (see Mish's site for a nice explication of the differing measures of unemployment and underemployment), we are already both feet on that slippery slope to a vicious cycle. Plant closings lead to consumers shutting down leads to more layoffs leads to depressed demand leads to more plant closings.
I fully agree that there are some values to be had at these prices. But I emphatically disagree that anyone can be certain that we are NOT headed for 25% umemployment/underemployment, or an SPX of 600. And, with the high likelihood of further rate cuts, we're going to see some EM countries currencies get hammered, and with it the increasing likelihood of sovereign defaults.
The woods are getting darker, not thinner. Best bring an axe, a flashlight and extra batteries...
R in NY
Anonymous,
I am not here to convince you or anyone else about the “real” unemployment rate. This is an academic subject and there are several references and papers available. If you are really interested in the subject, you will find that the information I have indicated is correct.
Several administrations have changed the calculation methods, ratios and metrics of unemployment. The current Section U-6 of BLS (Alternative measures of labor underutilization)is available at Alternative measures of labor underutilization. This is an example of an alternative official rate and it is as of Sep 2008 at 11%.
Furthermore, changes related to the unemployment rate calculation have occurred the following years: 1978, 1986, 1990, 1994, 1997, 1998, 1999 and 2000. Furthermore, beginning in Jan. 2006, data are not strictly comparable with data for 2005 and earlier years because of the revisions in the population controls used in the household surveys.
Finally, estimates of unemployment rates prior to 1940 are based on sources other than direct enumeration. Data prior to 1948 are for persons age 14 and over (That adds to the high unemployment rate of the depression era). Data beginning in 1948 are for persons age 16 and over.
Reference: http://stats.bls.gov/
Wow R in NY, you paint a real bleak picture for the future. I remember reading the same type garbage back in 2002-2003. If we hit 600 you deserve a congrats but I would say we are much closer to a bottom right now. I am dipping my toes in while you run away from the water.
Hi Roger,
Attached is an interesting read by Grantham which seems to confirm what Serrepere is saying. Calling for a SP 500 bottom range of 575-800. Let us know what you think?
http://www.gmo.com/websitecontent/JGLetter_ALL_3Q08.pdf
Grantham was quoted in Barrons' saying fair value was around 1025 so maybe expect a 20% overshoot.
I read through the PDF before, maybe i missed where he mentioned such a low number for SPX there but that would contradict what he said in Barron's.
Grantham makes the statement that he expects a 20-40% overshoot and therefore a 580 - 700 bottom in the Quarterly Report at the end of the pdf.
R in NY
PS: Anon 7.59; Grantham and Roubini... not bad company. (I'm not even mentioning Taleb... now that's a Cassandra!) Personally, I think "bottom" is the wrong way to think of it. I think we're now at what is likely to be the top half of a sideways channel, with a mean about 820 on the S&P. But the channel could trend downwards. My rant is mostly focused on those that are confident that if we hold our breath long enough, we'll be back over 1000 permanently, and on our way to new highs. (As I said earlier, values can be found right now. I'm just convinced that not all revaluation has yet taken place.)
I read through the PDF before, maybe i missed where he mentioned such a low number for SPX there but that would contradict what he said in Barron's.
Grantham just added a Part 2 to his quarterly letter where he fleshes out potential downside targets in more detail.
As I understand his argument, the downside price target is if the market "inefficiently" prices trough earnings with a trough multiple just as it recently "inefficiently" priced peak earnings with a peak multiple.
The S&P will bottom at 666..LOL
but I'm putting some $ to work again...I've turned into a day trader trying to find the bottom.
85% cash
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