Nervously eyeing the markets

[V]

No matter what is happening in world markets, life goes on for all of us, and we continue to struggle with the same issues, and enjoy the same pleasures, in most cases, as we did before dark clouds began to gather in the world's economies.

There are those who are not so fortunate, and there are many of them- older people who watched as potentially comfortable retirements melted away, and others, who lost jobs, or homes. These victims of the invention and promulgation of collateralized mortgage backed securities have suffered directly, and will continue to suffer, as lost wealth and lost years are truly gone, though wealth can sometimes be restored, in conditions where wealth not lost would have doubled!

People have been taught that boom and bust is a natural part of business cycles, and it may be so, to a degree; but, this latest blow was entirely man made, and unnecessary. One should never discount the true human suffering that others' boundless greed can impose on the rest of us....
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[V]

I've mentioned before that the crash of fall, 2008, was like watching a slow motion train wreck, and a recent visit to a doctor's waiting room reminded me just how much that was true.

There was a magazine dated July 2007 in which they were talking about how the Federal Reserve was pulling out all the stops to try to head off a collapse, as it was clear the housing market was starting to tank, a process that would accelerate as variable rate mortgages reset.

The focus of the article was on how the housing market had dried up: everyone who cared to buy a house- or a second house, or a house to speculate on- had already bought them, many with loans which required NO qualifying, NO down payment and, in many cases, NO payments for the first two years.

Lenders had lost their minds, along with everyone else, in the rush to cash in on the boom, and the chickens were starting to come home to roost.

The world is still living with the consequences of the policies, and mentality, that set that chain of events in motion.
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[V]

On March 24, Life_in_Cancun wrote:

I bet the Euro meets the dollar then settles...... maybe then I'll buy some...

The way I understood this, Life was predicting that the Euro would reach parity (1:1) with the dollar, then fall even further. (At the time I thought he was being a little too pessimistic but it seems he may yet be proven right!)

The Euro has fallen from $1.50 USD/Euro, on December 1, to $124 as of Friday, making a European holiday, this summer, just that much more affordable. Some of my Mexican colleagues, who had been planning to visit China this summer, are now thinking about Europe, instead.
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While the Euro is weaker against the dollar, and projected to weaken, further, there are other currencies that have shown strength against the dollar, and great strength against the Euro. "The Canadian dollar, Swedish krona and Australian dollar are all issued by strong governments in countries with stable inflation and robust economic growth," (quoting Barron's). For more, see- www.online.barrons.com

[Steve]

Gonna move this to Free For All - doesnt have too much to do with living in Cancun.

[twinimini]

The necessary response is one that is very unpalatable to most politicians. There has to be a combination of increased taxes and decreased spending. Otherwise we are looking at joining Greece on the edge of bankruptcy. This is exactly why most of us that opposed Obamacare were so vehement. We just simply can't afford it right now.

[V]

I agree with you twini, about the timing of health care reform: with the country in economic/fiscal crisis, the timing couldn't have been worse.

Obama strikes me as a serious man, but this was one occasion where he could have been even more serious, and done the country a much needed good. To solve the problems, the whole nation is going to have to be onboard. I think if he'd given the following speech, it could have gone a long way in that direction.

"Ladies and gentlemen, I think you all know how much health reform means to me, and to those who helped elect me; so, what I'm about to say, I say in all seriousness. I'm putting health care reform aside for now owing to the profound crisis our country is facing.

Personal and governmental irresponsibility, in the form of borrowing and spending far more than we should have, has put this country and its people into a deep financial hole. We can get out of it, but it's going to take everybody doing their part. It's going to mean sacrifice of programs we've all come to rely on, and perhaps even of a lowering of our expectations for the kind of life we're going to lead- until we, as a people, have gotten a handle on this. I know I can count on you all: the future of our country depends on it."

Several years devoted to this effort would have convinced the people that he was possibly the man the country needed, at this moment in time, whether they were Democrats or Republicans, or "none of the above", and truly won a consensus for doing what was necessary to put the country back on firm footing. As it is, what they mainly saw was someone determined to have his way on the issue of health care reform- needed perhaps, but even more needed was the full support of the American people, something he seems to have calculated he could do without.

[twinimini]

Sadly V, we haven't had a real leader in the White House in years and years. All we have these days are pretty boys who can get elected because they have a ton of money behind them which came from sources we probably don't want to know about. Sadly I think we are at a point of government for sale to the highest bidder.

[Zackman]

Originally Posted by V

I agree with you twini, about the timing of health care reform: with the country in economic/fiscal crisis, the timing couldn't have been worse.

Obama strikes me as a serious man, but this was one occasion where he could have been even more serious, and done the country a much needed good. To solve the problems, the whole nation is going to have to be onboard. I think if he'd given the following speech, it could have gone a long way in that direction.

"Ladies and gentlemen, I think you all know how much health reform means to me, and to those who helped elect me; so, what I'm about to say, I say in all seriousness. I'm putting health care reform aside for now owing to the profound crisis our country is facing.

Personal and governmental irresponsibility, in the form of borrowing and spending far more than we should have, has put this country and its people into a deep financial hole. We can get out of it, but it's going to take everybody doing their part. It's going to mean sacrifice of programs we've all come to rely on, and perhaps even of a lowering of our expectations for the kind of life we're going to lead- until we, as a people, have gotten a handle on this. I know I can count on you all: the future of our country depends on it."

Several years devoted to this effort would have convinced the people that he was possibly the man the country needed, at this moment in time, whether they were Democrats or Republicans, or "none of the above", and truly won a consensus for doing what was necessary to put the country back on firm footing. As it is, what they mainly saw was someone determined to have his way on the issue of health care reform- needed perhaps, but even more needed was the full support of the American people, something he seems to have calculated he could do without.

Theoretically speaking, that would have been beyond doubt, Obama's best speech AND he would have stayed true to many of his now broken campaign promises. However, that would be impossible to embrace considering ideology of the left to which he is High Priest, along with the other ministers of fanatic liberalism, Nancy Pelosi, or Harry Reid !

[V]

On February 4, I wrote:

A pattern similar to what we saw in the waning days of 2008, when the selling of all investment categories brought their value down and the value of the dollar up- when those sums were moved into U.S. Treasuries- seems to be just emerging. Going to cash, by stages, such as I discussed earlier, could position an individual investor to both preserve his capital, and to buy back in at a lower basis, should this prove to be the beginning of a long-anticipated, significant correction.

There's not nearly as much money to wring out of the system as there was in the fall of 2008, but what's happening (now) makes me concerned we may be witnessing the beginning of another collapse like we saw then, just on a smaller scale, in which all asset classes lose money.

Being all cash, in USD, as Claire326 mentioned, was the ticket, then, and may again prove to be just what the doctor ordered, for those who are trying to preserve their capital.
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[Dave and Ellie]

we've lost so much money we quit watching...........

[V]

Dave and Ellie wrote:

we've lost so much money we quit watching...........

I feel for you guys. This has been a rough decade for America, and about 50 million of its citizens.

Zackman wrote:

...the left to which he is High Priest, along with the other ministers of fanatic liberalism, Nancy Pelosi, or Harry Reid!

That's one of the reasons I believe we have to stop relying on politicians to solve our problems for us.

Politicians are supremely ambitious- for power, prestige and, sometimes, money. Once they get it, they can't bear to let it go.

Just look at Senator Arlen Specter, and the "spectacle" he made of himself, changing parties, so desperate was he to hold onto all that- and he, at 80! Good god, man, give it a rest!

"Left, right, left, right"- this is how we march, and not how we should govern. The sooner Americans stop with the labels and start addressing the problems, and finding solutions, the better, and I think it's more easily done if we don't make a religion out of our political beliefs.
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[V]

How did we ever get to this point?

Our students now owe $750,000,000,000.00 in student loan debt- much of it federally insured loans not dischargeable in bankruptcy, subject to collection through garnishment of wages, and resulting in denial of government benefits for non-payment.

Student loan debt can ruin your life, and our kids have been encouraged to take it on....

When I went to university there was a belief that the society benefited from educating its citizens, and higher education was heavily subsidized, making it unnecessary to take on debt to get a university degree. My tuition, when I first began my studies, was just $50/semester, a token amount, even then.
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[twinimini]

Originally Posted by V

How did we ever get to this point?

Our students now owe $750,000,000,000.00 in student loan debt- much of it federally insured loans not dischargeable in bankruptcy, subject to collection through garnishment of wages, and resulting in denial of government benefits for non-payment.

Student loan debt can ruin your life, and our kids have been encouraged to take it on....

When I went to university there was a belief that the society benefited from educating its citizens, and higher education was heavily subsidized, making it unnecessary to take on debt to get a university degree. My tuition, when I first began my studies, was just $50/semester, a token amount, even then.
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V, you're showing your age!

Isn't it funny how government jumped right in to tackle the thorny problem of the high cost of health insurance, but nowhere do you hear even the most remote rumblings about the high cost of education. Do you think that the massive support the teachers' unions and the university professors' unions give to various politicians may have anything to do with this lack of indignation? Here's what I see from clients regarding the cost of a university degree...St. Lawrence U. $50,000 per year, Penn State (out of state tuition) $37,000, Cornell U. $60,000 per year. I'm sorry but those numbers are insane. To put between a quarter of a million and half a million into the cost of a degree when most of these colleges are sitting on billions in endowments is just plain stupid. Add to it the fact that the average university professor works less than 20 hours per week and none of it makes sense. Is it any wonder we're in trouble?

[V]

The tuition figure I gave was for in-state tuition, University of Texas, 1965!, just to pin it down, twinini.

Tuition is now an average of $4,500 per semester for residents of Texas, having increased by 90 fold over that period- 13 times more than inflation would have accounted for.

Highly paid university professors at that same school were earning about $32,000/year, at that time. Just keeping up with inflation would have brought such a professor to $221,440/year, now.

I believe much of the change (the 13X part that is not accounted for by inflation, generally) to be due to the societally mandated shift of the cost of government services away from the taxpayers- and onto the recipients of those services- and, in the case of education, also creating a booming business in student loans, many of them virtually risk free to the lenders, being guaranteed by the government, as they are.

You can see this phenomenon everywhere; for example, in higher "user" fees paid by those who visit National Parks, fees charged those who wish to access the justice system, etc., but nowhere is it more evident than in education.

Our kids are still getting educated, but being sent off into their adult life with, in many cases, unbearable levels of personal debt.
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It is widely known that Americans pay the lowest taxes of any developed nation, just how low is not so well known. Recently, USA Today ran an article that asserted the average working American was paying just under nine percent of his total income in total taxes, including income, sales tax, excise taxes, etc.

This is not a very big investment in ones country....

[V]

Gold prices hit an all time high, yesterday, reflecting continued interest in holding something that can be a hedge should the wheels come off, sometime in the future, in spite of governments' efforts around the world to stabilize the economic situation; BUT, there continues to be mixed news, much of it positive, such as China's report, yesterday, that their exports were up 50% in May, from May a year ago.

In addition, striking workers in China at multinational manufacturing plants have forced wage increases of 100%, in recent days. While this will be reflected in higher prices for Chinese manufactured goods, and contribute to inflation in other parts of the world, it's good news for the Chinese domestic economy, which has lagged, owing to low wages, generally. Improving wages there will increase domestic consumption and, in the end, help to further develop their economy, with domestic consumption having been the lagging component.

[Wages in the U.S. have been stagnant for the last 25 years, when adjusted for inflation, and domestic consumption has proceeded by increasing the levels of credit available to consumers and, in the last decade, through large tax cuts, but giving broad wage increases to working people- instead of massive salaries and bonuses to management as has been the practice in the U.S., in recent years- would have the same positive effect on domestic consumption as it would in China, especially if directed towards the lowest wage earners.]

If wage increases can be accomplished in China without a serious disruption to the social fabric which could occur if there were wide spread strikes, there is a chance the world economy can continue the very uneven progress towards stabilization that's now underway: if serious social instability in China should occur now, it would be very bad news, indeed, for the world economy, and all bets would be off.
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[V]

If there is anything that annoys me about the decisions I've made in recent years, it's my failure to seriously consider the roll that gold could play in an increasingly unstable world.

In the five years since 2005, gold has tripled in value, and yesterday traded at a new record high. We all know what's happened to other assets during those five years, and it's been a roller coaster for most. Buying in June 2005, you'd never had to experience the pain of watching your purchase slip below what you'd paid for it: in fact, you'd have remained comfortably above that, and enjoyed watching its value climb.

Even at today's prices, it remains in demand: I read, recently, that orders for the U.S. gold coin have doubled, in recent months, as many consider what may happen to their savings should hyperinflation arrive at our doorsteps.

Land, houses, etc., do not represent the same investment because, although they too, retain value, they do not "spend" when times are hard- and there are no buyers, at any price....

[Life_N_Cancun]

Originally Posted by V

Land, houses, etc., do not represent the same investment because, although they too, retain value, they do not "spend" when times are hard- and there are no buyers, at any price....

Maybe you know something I don't V, but having friends with pawn shops and such I am somewhat familiar with the sale of gold.... gold may be X dollars per ounce, but unless you have a legal tender gold piece with a guaranteed market value redeemable someplace, selling gold as a private citizen will almost never get you the market value... the only way to quickly sell gold around here, and I expect in most areas, is to sell it as "scrap" to refineries that resell it to jewelry makers and mints. That means taking about a %15-20 loss on the market price per ounce of 24k gold. I agree the climb in gold has been incredible, and I still keep saying it can't go any higher only to see it make a liar out of me.. but I'd still take land over gold any day, its harder to have stolen, easier to pass on, and more versatile... you also have to worry about the day some wacko figures out how to make gold from peanut butter.. thereby making your horded savings worthless..

[V]

My thought, Life, is that what I've read made sense; that is, to have 20% of your net worth in gold coin. It would be something you keep, in a bank safety deposit box, hoping it would go up in value- but mainly to have it in hand, as a substitute for money, should all money go south. In times like that, others would also want to have your gold coins, and they would trade fairly with you for them, it seems to me. If anything, the gold coins would be even more "in demand", eliminating the problem you spoke of which occurs now- when someone wants to exchange them- of their being somewhat "undervalued" when compared with the market price of gold.

For gold to have gone up in price 3X, over the last five years, there has had to be tremendous demand for it, especially given the fact that more is being produced, from gold mines around the world, everyday. Without knowing for sure, I suspect this may be due, in part, to the growing prosperity of India, and China, where there exists a long, historical tradition of hoarding gold against hard times. With their 2.5 billion population, that's a lot of potential gold hoarders out there!

As for passing it down, I suppose my children would be happy with the appearance- and reality of the value- of beautifully minted, gold coins they, too, could keep "just in case".

[Life_N_Cancun]

Fancy one of these V?



Story.

[V]

It's starting to look increasingly likely that the U.S. has begun sliding back into recession.

In recent days, the data that's been returned has, for the most part, been worse than expected. Today's report that home sales (contracts pending) had plunged 30% month-to-month, in spite of mortgage interest rates that are at 50 year lows (under 5%), and yesterday's consumer confidence figure coming in at just 52, when the previous month it was at 62, point in the same direction. New car sales figures from the majors in the U.S. also posted a 12-13% drop, and new claims for unemployment for those recently layed off again increased.

U.S. efforts to stimulate its economy have not been very effective, with most of the money going to shore up banks and other institutions saddled with bad debt, and had merely stabilized an economy that was in a downward trajectory: now that the stimulus has been exhausted, and with Congress rejecting attempts to provide new stimulus, or even sustain those that were in place, the slide will probably resume.

Cutting off unemployment benefits- as the Congress seems bent on doing- will just contribute to the slide, by immediately removing benefits from 1,300,000 unemployed Americans who were putting that money back into the economy, everyday.

It is said there is another 2,000,000 who will lose their benefits before the end of July, if nothing is done. It's been years since we've had unemployed citizens marching and rioting in the streets, demanding jobs, but we could see that yet. The unemployed now total 15,000,000 in the U.S., and food stamps and unemployment benefits have kept them off the streets, to this point.
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At the G-20 meeting, recently, other countries' leaders chided the U.S. for running big deficits. Many of them have introduced a number of austerity measures, increasing the hardships their people are experiencing, but feeling it's necessary to stabilize markets, especially the bond markets.

Canada, having never deregulated its banks and investment banks, thereby preventing them from taking on risky investments, is said not have suffered much at all from the global downturn. (It would be interesting to hear from any readers who are from Canada who could comment on this. Brewster, are you out there?)

If the scenario I suggested at the beginning of this post comes to pass, it may suggest they were right, in some way, if the stimulus that was applied in the U.S. merely delayed, but did not prevent, a further decline.
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[V]

At the G-20 meeting, recently, other countries' leaders chided the U.S. for running big deficits. Many of them have introduced a number of austerity measures, increasing the hardships their people are experiencing, but feeling it's necessary to stabilize markets, especially the bond markets. Canada, having never deregulated its banks and investment banks, thereby preventing them from taking on risky investments, is said not have suffered much at all from the global downturn. It would be interesting to hear from any readers who are from Canada who could comment on this.

I want to leave that invitation open, because I, and perhaps others, know nothing about how daily life in Canada has been impacted by the global downturn.
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European bond markets trembled a few months ago when there was the threat of default on government bonds issued by Greece; following that, there downgrades on the bonds issued by Spain and Portugal. During that time, interest rates demanded by investors on Greek bonds rose, sharply.

Meanwhile, the U.S.- with debt more massive, and borrowing running amok- soldiered on with scarcely a ripple in the U.S. bond market. U.S. interest rates remained low, demand for U.S. bonds remained relatively strong, and in spite of massive borrowing, no one is saying the U.S. is facing more than a hypothetical crisis.

Part of the difference has to be that the U.S. government is practically free to print more money to pay its bills, as it's currently doing. Another part may be due to the fact that, years ago, the U.S. set its currency up as a reserve currency, and got other nations to agree to price commodities in U.S. dollars. But why there has not been, as of this date, a serious loss of confidence in the value of holding USD is a little hard for me to understand- other than to see it as a house of cards, ready to come down.

Following the G-20 meeting, and the sound rebuff dealt President Obama's suggestion that other governments should increase spending, rather than impose restraint, the USD dropped sharply in value against the Euro and certain other currencies (it didn't against the Mexican Peso).

It will be interesting to see what happens, next week, when the currency markets are again open.

[twinimini]

I think the biggest reason that the US bond market has held steady is that there are really very few "safe harbors" for investors. China has the strongest economy but also one of the more difficult governments to assess what their actions will be. Japan has been in a funk for years. Korea may be at war at any time. That leaves basically Germany, the UK and the US. The first two may be saddled with the problem of the PIGS (Portugal, Italy, Greece and Spain) and that tarnishes the lustre of their bond markets. Hence, the US is the only place to hide.

[Brewster]

Originally Posted by V

I want to leave that invitation open, because I, and perhaps others, know nothing about how daily life in Canada has been impacted by the global downturn.

Well, here is some input as a Canadian. Canada has several large banking institutions, as opposed to numerous smaller independent banks as seen in the U.S..

Canada's banks are regulated to where they are not able to participate in the risky and some would say unethical investments that some banks in other countries took part in. Nevertheless, banks stocks here plunged, no doubt because of the "guilty by association" phenomenon.

Canada's two largest economic provinces suffered during the height of the downturn. Ontario (the most populace) because of a large automotive sector and manufacturing ties to the U.S.. Alberta, because it's largest export is oil and gas, which saw a reduction in demand.

Canada did not experience the downturn on the same level as the U.S. and other nations. It was tough...but not as bad. We are well on our way to recovery but it remains uncertain because of our global economic ties, particularly to the U.S..

I think all our governments role, in this area, is to provide and enforce reasonable laws and regulations in all industry, including banking. There is a balance to be struck, between the free market and potential for abuse.

[V]

Thanks for that Brewster

I think for many Americans- me included- what goes on "up there" remains a black hole for information even though it's our nearest and best neighbor

We hear a lot more about Mexico- a country that in reality is less important as a trading partner than is Canada
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