Much money has been moving back into the stock market which is troubling. It was to be expected that many investors would jump into the market near the March lows to pick up stocks at low prices. However, now many stocks are priced very high considering the poor fundamental outlook for the future.
Many of the real estate related bubble jobs will not come back and it will take several years before many of these displaced and downsized workers find alternative jobs. This may be three years or more before the unemployment starts to turn around.
A result of this is uncertainty and uneasiness in the American market for consumer and business spending that has led to a record high savings rate in an economy that is dependent on consumer spending and not exporting.
The result of this is going to be weak corporate profits and most likely depressed stock prices. Right now, the stock market does not appear to be reflecting this but it will most likely within a few years or less from now.
The US deficit will continue to grow over the next few years as the government continues try to spend money stimulating the economy and by providing states and individuals with stimulus and unemployment related loans.
Much of this money going to pay for unemployment benefits is not going into public works projects that will help the economy ... Read More
Using a hypothetical example and assuming that the internet business model could have as great of an impact on other areas of the US economy in the same way as how it has devestated newspapers, what would happen to the economy and public policy?
Job loss is the first thing that comes to mind. If the internet makes businesses more efficent by reduing the number of people required for a job, then a large number of jobs would be lost.
The large number of displaced workers would have a major impact on goverments, costing tax payers money for everything from health care cost to unemployment.
This would put so much pressure on the goverment that raising taxes, would help to solve the budget problems.
We may be entering a period in the future where such an issue becomes a reality. This will become apparent when large numbers of jobs disappear as a result of outsourcing and by efficiencies such as the internet. Such a period will generally put downward pressure on prices due to the cost savings from not needing to use as much labor to get different tasks done.
If something like this happens too quickly, the goverment will most likely have to raise money to take care of these people. Higher taxes for those earning money or high incomes would most likely be the most likely scenerio.
This raises an important issue in the future that ... Read More
The booming housing market helped to employ a large portion of the economy. Housing money went to building materials, construction labor, real estate companies, builders, and banks. Around all of these companies were smaller companies providing products and services.
These jobs were there because of the original lending for homes. Home equity loans provided a number of other jobs. Home equity loans from rising home prices led to all sorts of purchases from cars, clothes, jewelry to expensive Swiss watches.
All of these businesses have been effected by declining housing prices. The question is will many of these jobs come back?
Over the years, many bubbles have passed. Starting with the dot-com bubble, this period lasted from about 1998-2000 when the stock market peaked and then tanked shortly after. The growth in share prices in dot-com companies seemed to have brought many new “speculators” into the market which in turn effected the price of most other stocks.
The same thing happened in many places with real estate from about 2002-2008. During this period a rapid appreciation in prices brought more people to the market and brought up the price of other homes. As a result, others were affected by the speculators similarly ... Read More
The US continues to run budget deficits and will most likely continue this for years. Those who own US bonds are not going to be happy about this. In exchange for purchasing the bonds, the goverment will be paying back in dollars that are worth less due to the huge increase in the money supply created to fund bailouts and other spending.
In the video below, author Peter Schiff talks about these problems.
As a result of these things, the dollar will fall in value and investors will stop purchasing goverment bonds or will only purchase goverment bonds that offer a higher yield. The result will be inflation working its way into the marketplace.
Looking at the CPI published by the Bureau of Labor Statistics it measures the price of many different types of items. It isn’t specific about exactly how they are gathered, whether the prices are sale prices or regular prices.
I’ve decided to make my own little index on food related ... Read More
Obama’s plan is to reduce oil consumption by making buildings more efficient through insulation, energy efficient CF light bulbs and by other means. The other part of the plan is to produce energy domestically through solar and wind.
This second part of the plan may lead to speculation as seen during the internet bubble and during the housing bubble.
Recently the U.S. recently took the lead in wind power generation surpassing Germany. http://www.bloomberg.com/apps/news?pid=20601100&sid=a5qyeN9A6LlY&refer=germany
Solar is also on the increase with massive solar energy farms being added to the desert. Without government tax incentives, these projects would probably never have happened.
In its current state, solar is expensive and has a long break even period. If the U.S. were to implement this on a large scale such as that in Germany, it would increase the cost per kwh during a recession when every dollar is important.
Everyone likes the idea of clean, renewable energy but when it comes to paying for it, we may be in for some sticker shock.
The cost to outfit just one small home with solar costs about $12K-$20,000. On a $20K system, even at a low interest rate of 5%, the interest would be about $1K a year and pricipal payments of about $1000 a year. For most, this is more than the cost of purchasing electric directly ... Read More
Value Line’s Timeliness rank is the proprietary ranking system that Value Line has developed. The Timeliness rank is from 1-5 with 1 being the best, 2 being above average, 3 being average, 4 being worse than average and 5 being the worse.
Here is what Value Line states on their website:
A stock portfolio of #1 Ranked stocks for Timeliness from The Value Line Investment Survey, beginning in 1965 and updated at the beginning of each year, would have shown a gain of 22,062% through June 2008*.
That compares with a gain of 1,145% in the Dow Jones Industrial Average over the same period. VALUE LINE #1 RANKED STOCKS OUTPERFORMED THE DOW BY MORE THAN 19 TO 1*.
This gain would have beaten the S&P 500 by nearly 16 to 1 for the same time span.ne-year holding periods in Value Line’s 100 Top-Ranked TimelinessMstocks
Below is a chart showing the returns from Value Line’s Timeliness rated stocks. Group 1 is the best performance and Group 5 is the worst performer.
The returns are based on rebalancing the portfolio every year. Dividends and commissions were not included in the calculations.
Based on the great performance of this, some ETF’s have been created to try and mimic the performance of this.
PowerShares Value Line Timeliness Select Portfolio (ticker: ... Read More
I see a problem with this statement that the market is always forward looking. Recently, companies around the US have been laying off employees.
Stock prices have gone lower as people expect things to get much worse. As a result, some people cut spending, sell assets and stocks. This is forward looking.
However, as the recession grows, the market may go from forward looking to one that is based on current needs. When the economy gets worse and unemployment is near its peak, funds will ineviatably be tight for a great number of people.
In such a case stocks will go much lower as people try to raise money to pay for living expenses. When the stock market goes lower, the outside observer that believes that the market is forward looking may believe that the low stock prices are a forecast of the future when in reality it is what is going on currently.
... Read MoreThe United States is made up of mostly non natives, many whom have evolved in much different environments. Europeans that have genetic variations towards cool weather have moved to the warm south western and southeastern areas of the US. Others such as Asians have moved from warm, tropical areas to dry desert areas or cool areas of the US.
It is relatively easy for people from people from many different regions to survive in the US because of the business systems created in the past such as the industrial revolution and the agricultural revolution.
The result of this is it eliminated hunting and gathering as well as many small farms. These things helped to increase our population but have created other problems in the process.
In a hunting and gathering society, harmony with the environment was required. Over hunting one year would mean less food the next year, so careful attention must have been made as far as only hunting what was necessary and nothing more.
If mistakes were made, the system would correct itself. If too many animals were killed, the group may have gone hungry the next winter or died. In a hunting and gathering society, there was a checks and balances system in place.
Move forward to today and we see that things are much different.The environment does little to control us. We control the environment. We use enormous ... Read More
This jump in price was caused after Porsche announced over the weekend plans to increase its stake in Volkswagen from 42.6% to 75%. With few shares outstanding (less than 5%) and a potential increase in the stock price as a result of Porche buying stock, many short sellers decided to close their positions and buy back the shares.
The result of this was a short-squeeze. Friday the shares were trading at $57 and when Monday trading opened, the shares were trading at $95 a share. This continued until Tuesday when the stock peaked at $230, surpassing the value of all of the automakers combined.
Sources:
... Read MoreThe plan is to use the $700 billion dollars of newly printed money to purchase “distressed assets.” My interpretation of this is that these are loans where the people are late at paying or show signs that they will not be able to pay the mortgage soon such as ballooning debt or lowered credit score.
So the government is supposed to buy these “bad loans” from the banks then hopeful turn around and sell them in the future at a higher price than what they paid for them.
For sure these will be “bad loans” because the banks won’t likely want to sell good loans to the government.
The money paid for these bad loans cannot be too low, or the banks won’t receive enough money and the wrong message will be sent to the market. The government has been stating that they want to pay above
current values for these loans so that it sends a positive message and so banks have more money.
So, how can we make money at this if we cannot buy below market value for the loans which will most likely fail anyways?
As far as transparency goes, will the government know just how bad these loans are? If they purchase one home, for instance, will they find out that the person owning the home also has seven other homes
that he has defaulted on while only making $50,000 a year in income?
{mosgoogle ... Read More
