The Dow and S&P.....

[Sheherezade]

I don't want to get in to the politics here because that always ruins this but......OMG!!!

AIG posts a 60 billion dollar loss on swaps?

I'm beginning to think the doomsday book I chuckled at when the slide in the markets started called it. He was predicting a bottom at 65% off the top -- so something around 5100 or so. I was thinking the Dow would bottom at around 7000. Now, we are below that. I'm holding cash and looking to invest....so I'm mostly just staring at this train wreck in wonder and waiting for the bleeding to stop.

I read last week that if the S&P went beneath 750 it triggered all kinds of new sales that would start a different slide - but I didn't understand the underpinnings of the story. I thought it might have to do with hedge funds/mutual funds and more forced sales to make capital.

Any other financial junkies out there?

[houseelf]

Re: The Dow and S&P.....

No, but I'm tempted to crawl into a corner, suck my thumb, and rock myself soothingly back and forth.

I read today's financial news and was .

Kelly

[Ladybug]

Re: The Dow and S&P.....

I'm not a financial junkie, but I'm watching keenly from the sidelines. We've moved out for now. We didn't sell anything off, but reallocated our investments into a fixed 3% account for now. Everyone says not to do this but, please, it's not like we're going to miss the upswing and we're maintaing our purchasing power in the meantime. We'll buy low with full purchasing power and catch the upswing which will be long and slow. I'm not basing our decisons on fancy financial analyis, but on common sense. I don't expect the market to turn around until later this year at the very earliest. It's going to take that long just to implement a new plan, feel it out and gain people's trust...or not. There was so much dishonestly going on, and you can't just erase that. The only cure is time and slow, honest growth. Lately I've been wondering if it's not better to just funnel all our money into debts so that when things do turn around we're ready to invest aggressively, but again, I hate to lose the pretax benefits of the 403b.



It ain't prettty.

[Sheherezade]

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You said it, sista.

We are still in our mutual funds for retirement. We talk a lot about dollar cost averaging in soothing tones and we hum happy tunes when we glance quickly over our statements before filing them away never to be seen again. Hopefully, we are buying low now to make up for buying high before the fall. DH gets a "settle-up" payment each year because he is paid on productivity. We failed to invest it last year because we thought we might be doing some remodeling. Now, I'm soooooo glad that we are sitting on that hunk of change. He's due for his next settle up in a month or two. I plan on sitting on that sucker as well.

Meanwhile, I've been trying to study up so that I can make better choices when we do jump back in. It's fascinating. Unfortunately, the more I study up, the more I believe that we will not be rising back to 14000 for a long time.

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It's a mess.

I don't think it can all be blamed on politics but I think that Geithner's very vague plans caused a lot of short term worry and lack of confidence. I don't envy his position -- he wasn't there long enough to have more specifics...but c'mon already. You can't toss out this "stress test for banks" business without telling the banks (and public) what the stress test is going to be. That just makes them hang on to the money they've got. Stress test is right. Thanks a bunch, Tim, for introducing more uncertainty to the market.

That a million other things make this a big stinkin' mess. Bah humbug.

[Sheherezade]

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My main concern is this. How much of the previous decade's growth was based on increases in credit in the economy? If everyone suddenly had more "money" that was actually equity or credit and not actual money, was that the spending that drove the economy? If so, a return to more sane lending practices and a drop in housing values will suck all that "money" out of circulation for a long time coming. Item two on my econ sh*t list is the crazy levels of leverage that had become commonplace. 33-1?? Wowza. With that level of leverage gone, again we will lose "value" in the economy. It wasn't real to start with. This makes a return to Clintonian Dow levels much more likely in my mind. Rewinding now to.....1996! (Does this mean I get my pre-baby body back?)

I'd like to share my twelve year old's thoughtful take on the economy after he listened to an hour of news with me this weekend. "Mom, why doesn't GM just open up a counterfeiting operation in some of the factories that aren't making cars anymore? Then, they could give out the money with cars they sell and it won't count as inflation because it isn't the government increasing the money supply...." Good work, my boy. I believe Citibank has a job for you!

I've still got to listen to This American Life from Friday. It's on Banking. *swoon*

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Item two on my econ sh*t list is the crazy levels of leverage that had become commonplace. 33-1?? Wowza.

ITA.

You make a good point about the other stuff too. I wish I could remember who was saying it, but on one of the NPR shows, an economist was talking about credit/money owed as a percent of GDP, I believe. Typical levels were around 50% but then it went up and that part of the graph looks "like a hockey stick" to nearly 100% (again, on memory, I think that was the amount). Banks let people over-leverage, individuals took it and over-leveraged themselves, etc. Blech.

It's auction time again so I haven't been keeping up with news all that much or other listening. Was the This American Life a new episode or a repeat of one of the previous banking episodes?

[Sheherezade]

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New. I've been following the Planet Money podcast and they took a break to record this much bigger segment for This American Life. It aired on the 27th. I think they do a good job explaining all this.

My Box Tops fundraiser is over this week. Only prizes left to give out now...all the hard stuff is done. Yeah! Freedom!

Are you doing the online auction again? You'll have to clue me in how that works. We don't have that here.

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The online auction was in December and we just had the "live" auction on Sat night. I did a lot less this year but am so over it. So. Over. It. Too many brides at one wedding. Between the flu and the auction -- whoosh there went February. I'll email you a link to our online so you can check it out.

I'll have to look for that new episode. Two things I love -- This American Life and economic stuff (not in the current state though).

[GrayMatterWife]

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Why is anyone surprised by the fact that the market has absolutely cratered since the election? Literally, giving back all the gains (plus some) since 2001? The market is a measure of the future prospects. While the general public may feel "hope" now, based on prosaic appeal of the administration, people in the markets feel no hope because...they actually know what makes the economy work. Markets are raw analyzers of facts--they don't swoon because something comes in a really pretty package.

You can't blame Obama. Obama was very straightforward about his fiscal and monetary plans. And we voted for it anyway, because he's hope. So, we got exactly what we asked for. The markets aren't reacting to uncertainty (which also can cause destabilization). The opposite--they are reacting to the certainty of what they're being told, and what Obama is delivering on what he promised.

His plans are completely contrary to what history teaches us would be helpful to grow the private sector. The new administration's policies are a gamble: that they would work even though they have never worked before. Obama really was asking people to bet on hope--not on hope in the American ingenuity but in him and the government. I took a bet against that. So did most people I know.

I went to a total cash position the minute it looked like Obama would pull ahead after the beginning of September.

[Sheherezade]

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Politics, Abigail, politics!!!!

[GrayMatterWife]

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Politics, Abigail, politics!!!!

Oh, I thought I was OK...I double-checked to make sure I was in "Debates"!

Hard for me to answer the thread without being political. The markets are reacting to political realities.

[Sheherezade]

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I know that's your opinion. I was just hoping to keep politics out of this and stick to economic theory. Free market vs. Keynes, etc. It will denigrate in to name calling fast otherwise. So much commentary seems to be about the politics and little about economic theory.

[GrayMatterWife]

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I know that's your opinion. I was just hoping to keep politics out of this and stick to economic theory. Free market vs. Keynes, etc. It will denigrate in to name calling fast otherwise. So much commentary seems to be about the politics and little about economic theory.

OK. Shorthanded, improve the economy by lowering taxes. If you lower the taxes on the job-creating engine (businesses), then you get long-term, sustainable jobs. See Kennedy. See Reagan. If you raise taxes on the job-creating engine, you lose jobs. See, e.g, California currently. If you incessantly argue that FDR "saved" us by pulling us out the Depression, and so massive "infrastructure" spending will "work" this time, you don't understand the difference between fiscal and economic policy. See 1933-1935.

Plus, you get the benefit of the Government getting MORE in taxes. Growth in the economy = companies are making more money, so they are net paying more taxes.

[ladymoreta]

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I don't know that we can discuss this without either staying surface level and everyone happily agreeing that we're screwed, or bringing up politics. I agree with Abigail that unless investors truly believe they will get positive returns, they will not invest. All we are hearing (investors included) is that there is going to be a big tax increase in 2011 for the "wealthy", including businesses. Why in the world would anyone want to invest in that??? Put your money into something that may not be able to survive after two years? That would just be silly. So we lose investors.

But another part of this is realizing that we can't just buy our way out, and it will get back to normal in a couple of years. Because of all the debt (individual, corporate, and government), our economy must shrink if we're ever to get back to being a financially healthy nation. The shrinking will be very painful, but I believe it is necessary since a lot of the growth has been based on borrowed (not real) money. I think the bailouts and stimulus packages are preventing, or at least delaying, that from occuring. But, if our congressmen and women don't do something, they're likely to get voted out in the next election, so they keep passing these things and getting our government further into unsustainable debt and prolonging the pain of a realistic economy.