What's ahead for the U. S. economy

[Lawman]

and what are you doing financially to prepare?

[smiller]

Doom, death, and destruction... haven't you been reading the threads?

[Tony_K]

Yeah, Taters... um, oh... I mean Billy.

 

(with that leading question I couldn't tell you apart from that other guy)

[John Ranalletta]

I'm going to give up meth. It's cutting into my heroin budget.

_________________________

Russell

I'm with Russell.

 

[Joe Frickin' Friday]

Saving a bunch. Still living well, but saving a bunch.

 

If hyperinflation arrives, it may not mean much. I know of people who are literally buying/stockpiling gold bars in their homes.

[Lawman]

Okay...here goes...if I get half of these halfway right I win..That's the deal..

 

 

1. Treasuries will fall hard this year if not down right crash.

2. Stocks will have a nice run up before ending the year with little or no gain

3. U.S. automobile companies will be back for more money

4. Corporate bonds will be higher by years end.

5. The dollar will be lower by years end

6. Inflation will begin to heat up by years's end if not earlier.

7. Precious metals will drop initially and then end the year higher.

8. Whip will buy a new bike.

 

 

 

[RightSpin]

Doom, death, and destruction... haven't you been reading the threads?

 

Billy, don't let Seth fool you. There's nothing wrong with our economy. Everything is just as cool as it could be.

[smiller]

I know of people who are literally buying/stockpiling gold bars in their homes.

Do you know their address?

 

 

[RightSpin]

Okay...here goes...if I get half of these halfway right I win..That's the deal..

 

 

1. Treasuries will fall hard this year if not down right crash.

2. Stocks will have a nice run up before ending the year with little or no gain

3. U.S. automobile companies will be back for more money

4. Corporate bonds will be higher by years end.

5. The dollar will be lower by years end

6. Inflation will begin to heat up by years's end if not earlier.

7. Precious metals will drop initially and then end the year higher.

8. Whip will buy a new bike.

 

Watch unemployment numbers for January when they are released Feb 9th. This may give us a glimpse as to where things are headed. In my opinion, December unemployment will drop less than expected due to employers being reluctant to lay off employees around the holidays. But in January, they won't be so sensitive. I expect it to be a pretty tough month.

[Whip]

"8. Whip will buy a new bike."

 

Do you know what kinda bike????????

 

 

BTW......I think things will level out around mid-year and then slowly start to get better.

 

 

The dollar will be fine cause the rest of the world will be in worse shape.

 

 

.......everything will be fine by the end of 2009.

 

 

:clap:

[tobyzusa]

and what are you doing financially to prepare?

 

I'm buyin' up spare truck batteries by the lot.

[Deadboy]

Growth will finally turn positive in the 4th quarter.....

 

As for preparing, I am buying low now so I can sell high later. Already got enough ammo and a list of people with gold bars.

[Francois_Dumas]

I could give you some addresses of good, reliable Iceland banks if you want...... or come to think of it, US banks even !

 

My money is on park benches rather.... I think they'll sell really well this year. A secret tip: sell old news papers to go with them as blankets and headrests !!!!

[Joe Frickin' Friday]

I know of people who are literally buying/stockpiling gold bars in their homes.

Do you know their address?

 

 

Heh...It was a story my brother told of a friend of his. And my brother chastised his friend for even telling him (my brother) about the existence of said gold.

 

Speaking of hyperinflation, my brother believes the situation is ripe for it. People (including lenders) are hoarding cash, the treasury is printing money like mad, and nothing's moving: the economy is constipated. The prediction is that prices are going to drop over time, and at some point the dam will burst and the sudden flood of cash will make prices skyrocket.

 

What's anyone else's thoughts on this?

[Mike O]

Watch unemployment numbers for January when they are released Feb 9th. This may give us a glimpse as to where things are headed. In my opinion, December unemployment will drop less than expected due to employers being reluctant to lay off employees around the holidays. But in January, they won't be so sensitive. I expect it to be a pretty tough month.

I believe that we'll see a measurable up-tick in Q4 09. I also believe January will be a telling month. Retailers will be posting final sales numbers from the holiday season (as much as 40% of revenue for some retailers).

 

I also believe a truer test of individual (not institutional) investor confidence will be when the stock market volatility settles down. I continue to read articles that folks are jumping out of the market not only because it's taken a hit on their 401k's but that the 400 point swings provide less predictability. Investors trying to time this are never going to see the real bottom.

 

Me, I'm looking at stocks in companies that are way undervalued (PE) at the moment. Great buying opportunities (have a look at American Express for example). It is an opportune time for cheap stocks.

 

Regards,

 

Mike O

[RichEdwards]

I say two retired-guy prayers.

1. Please Lord, keep the New York State Teachers Retirement System solvent.

2. Thank you Lord for keeping the idiots from privatizing Social Security.

[John Ranalletta]

Me, I'm looking at stocks in companies that are way undervalued (PE) at the moment. Great buying opportunities (have a look at American Express for example). It is an opportune time for cheap stocks.

Okay, but there's a reason the PEs are as low as they are. The market may be fickle but it values assets realistically (in the end) if not savagely.

 

There's a reasonable chance that overall profitability will decline; and, so will PE ratios.

 

I'll take Nassim Taleb's advice and "invest most of your money very safely and take big risks with a small part". I see the market as a big risk, at least in my time frame.

 

[Mike O]

There's a reasonable chance that overall profitability will decline; and, so will PE ratios.

 

I'll take Nassim Taleb's advice and "invest most of your money very safely and take big risks with a small part". I see the market as a big risk, at least in my time frame.

John,

 

There's also a reasonable chance that overall profitability will increase. All of this advice is interesting and Nassim's advice may be suitable for you (given I don't know what your 'time frame' is). For myself, I've got sufficient time to take a gamble on stocks which have historically shown better long term upside than 'investing most of your money very safely' (I read that to mean sock it away in fixed income securities, your mattress, etc.)

 

Market (and company values) will return to reasonable levels (I won't argue that weren't overvalued before). But they are certainly beaten down at the moment, and I'm looking to take advantage of that fact. Is this a suitable strategy for everyone? Heck no... But it is for me. I have faith the economy is going to recover; it has in the past, and will in the future. Trying to time this with short term strategy changes is not for me.

 

Mike O

[Whip]

"2. Thank you Lord for keeping the idiots from privatizing Social Security."

 

Now would be a great time for some SS money to be injected into the markets. The whole world would thank us. That one move could prevent whatever disaster may await.(though I believe the whole thing was over blown and made up)

 

If they just said they would talk about it the market would go up 1000 points.

 

[Ken H.]

What's ahead for the U. S. Economy

Dec 31, 2009

Unemployment above 15%

Inflation above 10%

US Deficit above $10T

The US Dollar below .5 EUR

Mortgage defaults above 10%

Auto defaults above 20%

Credit card defaults above 10%

The DJIA below 5000

 

and what are you doing financially to prepare?

Continuing my 5-year tread of being 100% debt free and investing in non-US bases assets. In particular Asian based Mutual Funds, precious metals, and cash.

 

But I’m not convinced that will work either.

 

 

[smiller]

Trying to time this with short term strategy changes is not for me.

Smart guy.

[Whip]

Ken

 

Dec 31, 2009

 

 

Unemployment above 15%...closer to 7%

 

Inflation above 10%......closer to 3%

 

US Deficit above $10T.......no argument.

 

The US Dollar below .5 EUR.......no chance....the dollar will grow in strength to the EUR like it has been.

 

Mortgage defaults above 10%......closer to 5%

 

Auto defaults above 20%.......no chance.

 

Credit card defaults above 10%...What are they now???

 

The DJIA below 5000...I bet it's closer to 10,000

 

 

 

Ya wanna bet????????(Ken only)

 

Dinner for 4 at the 2010 UN Rally...........winners choice of grub.

Drinks and Wine included.

 

 

 

 

 

 

[smiller]

I think you're right Larry but Ken can always hope...

[Lawman]

What's ahead for the U. S. Economy

Dec 31, 2009

Unemployment above 15%

Inflation above 10%

US Deficit above $10T

The US Dollar below .5 EUR

Mortgage defaults above 10%

Auto defaults above 20%

Credit card defaults above 10%

The DJIA below 5000

 

and what are you doing financially to prepare?

Continuing my 5-year tread of being 100% debt free and investing in non-US bases assets. In particular Asian based Mutual Funds, precious metals, and cash.

 

But I’m not convinced that will work either.

 

 

Ken,

 

I'm more concerned with being prepared for your scenerio than I am with trying to take advantage of Whip's. I sold most of my stock holdings on Jan. 2, 2008 and glad I did..I also bought gold before that and glad I did. I have since put some of that cash back into stocks and it has done well so far..But I too am not sure you are where you need to be even if your scenerio plays out..I don't think the euro will compare to the dollar to that extent.. So just what is a guy to do given your scenerio?

[Mike]

I wouldn't dare to venture a guess as to the actual numbers, but I foresee things being rough through 2009. First, we were due for a whopper of a recession anyway. The cumulative effect of numerous ill-informed decisions in government and the private sector have settled upon us at the same time, resulting in an unprecedented confluence of events that are causing turmoil in nearly all sectors of the economy.

 

I think that the pundits who claim to have a clear idea of when and how this will all evolve are full of baloney. The truth is that no one could have foreseen all the events that have led us to where we are today.

 

If we have seen the last of the cataclysmic events affecting the economy, I would expect that 2009 will see the U.S. and world economy in a holding pattern, at best. Assuming no other major blowups, things may start to straighten themselves out in 2010, but I'm guessing that 2009 will be a rough year for many.

[Paul Mihalka]

"Dec 31, 2009

Unemployment above 15%

Inflation above 10%

US Deficit above $10T

The US Dollar below .5 EUR

Mortgage defaults above 10%

Auto defaults above 20%

Credit card defaults above 10%

The DJIA below 5000"

 

Ken, this is one of the rare occasions where I completely disagree with you. For me the glass is half full (like my IRA) and water (or Scotch) is dripping in. Whatever the situation is, it is world-wide, and I can see no reason why 1US$ will be = .5EUR.

 

I'm sure there is one thing we can agree on. We both hope that you are very wrong

[Twisties]

Ken

 

Dec 31, 2009

 

 

Unemployment above 15%...closer to 7%

 

Inflation above 10%......closer to 3%

 

US Deficit above $10T.......no argument.

 

The US Dollar below .5 EUR.......no chance....the dollar will grow in strength to the EUR like it has been.

 

Mortgage defaults above 10%......closer to 5%

 

Auto defaults above 20%.......no chance.

 

Credit card defaults above 10%...What are they now???

 

The DJIA below 5000...I bet it's closer to 10,000

 

 

 

Ya wanna bet????????(Ken only)

 

Dinner for 4 at the 2010 UN Rally...........winners choice of grub.

Drinks and Wine included.

 

Worse and worser.

[Twisties]

Yeah, Taters... um, oh... I mean Billy.

 

(with that leading question I couldn't tell you apart from that other guy)

 

I didn't see it as leading at all.

 

As for my own opinion, I think the stock market is in for long term trouble. All that has floated it is programmed investment from retirement accounts. These are subject to the same influences as SS, e.g. it requires an ever increasing demand. As baby boomers retire and there are fewer workers the markets will be hurt. Population dynamics appear to be somewhat reflected globally as well as in the US.

 

For traditional workers whose retirement is one way or another stuck in the market, this is long term trouble. I think I'm done with 401k because of this.

 

Whip is correct about the effect of SS privatization on the markets, at least in the short term. In fact I always assumed that the market boost was the secret agenda behind the proposal. However, in the long term the population demographics will override the influx and poor performance will resume.

[John Ranalletta]

Mike,

 

I hope your scenario plays out; however, we're a small consulting firm with ca 250 clients. Very, very few are experiencing an uptick in their business and most are pulling back and even laying off employees in response to reduced demand for their products and services.

 

My largest client (70k employees) just instituted a global travel and hire ban. My smallest (85 employees) just laid off 23 production employees.

 

In my view, the question is, "If profitability is a function of sales less costs, where's the money for purchases originate?" Home equity is tapped. Credit cards are tapped. Banks aren't lending and unemployment is increasing. Costs cannot go to zero absent bankruptcy.

 

The government can not spend enough money fast enough to impact the problem; thus, I think we'll see tax holidays; however, I believe many consumers will pay down debt and increase savings with the extra $; so, I don't see a revitalization of consumer spending in the near term.

[Lets_Play_Two]

Mike,

 

I hope your scenario plays out; however, we're a small consulting firm with ca 250 clients. Very, very few are experiencing an uptick in their business and most are pulling back and even laying off employees in response to reduced demand for their products and services.

 

My largest client (70k employees) just instituted a global travel and hire ban. My smallest (85 employees) just laid off 23 production employees.

 

In my view, the question is, "If profitability is a function of sales less costs, where's the money for purchases originate?" Home equity is tapped. Credit cards are tapped. Banks aren't lending and unemployment is increasing. Costs cannot go to zero absent bankruptcy.

 

The government can not spend enough money fast enough to impact the problem; thus, I think we'll see tax holidays; however, I believe many consumers will pay down debt and increase savings with the extra $; so, I don't see a revitalization of consumer spending in the near term.

 

It is very easy to focus on a short term dooms day scenario and say where will the money come from. Even if Ken's wishful thinking comes true, 85% of those who want to work will be working and at some point demand increases again. Going back to the late 70's and early 80's, inflation and unemployment were over 10%, how did we recover from that? If you look at inflation and unemployment data historically you can see the cycles. I wish I could predict when the upturn will start, but I can't. I do know that history shows us how these cycles work and how we have gotten through them, without civil war (in spite of what the Russians think!!) Individuals and businesses do adapt. Right now we are being battered by 24 hour news and the availability of a lot of noise. The noise always gets the early attention.

[RightSpin]

I wouldn't dare to venture a guess as to the actual numbers, but I foresee things being rough through 2009. First, we were due for a whopper of a recession anyway. The cumulative effect of numerous ill-informed decisions in government and the private sector have settled upon us at the same time, resulting in an unprecedented confluence of events that are causing turmoil in nearly all sectors of the economy.

 

I think that the pundits who claim to have a clear idea of when and how this will all evolve are full of baloney. The truth is that no one could have foreseen all the events that have led us to where we are today.

 

If we have seen the last of the cataclysmic events affecting the economy, I would expect that 2009 will see the U.S. and world economy in a holding pattern, at best. Assuming no other major blowups, things may start to straighten themselves out in 2010, but I'm guessing that 2009 will be a rough year for many.

 

Good points, Mike. The global economy is huge and very dynamic. I believe that it's impossible for any one person to fully grasp all of it. Hopefully, we'll soon see a series of indicators which will reveal the direction things are moving. It feels very uncertain at this point.

[Ken H.]

I'm sure there is one thing we can agree on. We both hope that you are very wrong

Hey, my crystal ball is just as cloudy as the next guys. But your right - I hope I’m wrong.

 

I just don’t see any evidence of the past dynamics returning to allow a return to the status quo of past/current financial models. I.e. - an economy fueled by spending financed by personal debt.

 

As Steve rightly points out, once upon a time spending (on any level) was financed by assets and wealth creation, not by debt acquisition. I think the pendulum is swinging back that way. But before it does the concept of debt financing the world has to die. And for that to happen all the applications of it have to fail. And that’s going to take some more time to sink in. 2011–2012 range. So IMHO 2009 (and 10 and maybe 11) will be nothing more than a continuation of that (downward) swing of the pendulum.

 

Do you know that all of the bailouts, economic stimuli, government interventions, etc. to-date worldwide are only 0.3% of the combined GDPs they’re trying to save? We can’t spend/borrow/print our way out of this. Only a global paradigm shift of how growth is created can. And so far almost nobody is talking about that.

 

[John Ranalletta]

It is very easy to focus on a short term dooms day scenario

Define "short term". I have many friends who are at, approaching or have just passed 60.

Most, like the client with whom I met this morning, has a retirement account that is down 35%

on the year. Short term is not this year IMO, it's the next 3-5 years; and, I think we're in

for a rocky ride. Will some companies prosper along with their stock prices? Sure. I just don't

know which ones and the only guy who had a very good record (Madoff) is going to jail.

 

I sure as hell am not going to take advice from anyone who's investments tanked last year

including damned near every analyst, stock broker, friend, client, etc.

 

"...credit cycle dynamics of the last three to four decades strongly influenced and

supported corporate earnings growth in a big way" (contraryinvestor.com). So, if true,

and the credit cycle is backpeddling, how do you think that will affect profits and p/e ratios; or,

is it different this time?

 

Here's a chart from contraryinvestor.com. See any correlation?

 

 

In response to friends who are recommending high dividend stocks, they should beware:

As you look back over the period of the 1910's through 1940's, there were a number of

periods where equity market dividend yield spiked very significantly. We all know that

was a result of a decline in equity prices as opposed to a massive increase in company

dividends. But the important issue is that post these clear and significant spikes,

aggregate equity yields dropped like a rock. Was the subsequent drop in S&P dividend

yield a result of massive equity market rallies? Far from it. It resulted from huge

drops in nominal dollar S&P dividends themselves. Companies either went bankrupt or

cut dividends very meaningfully.

[Ken H.]

I think you're right Larry but Ken can always hope...

I take no joy in my predictions. The worldwide misery will be great. If for no other reason than the crime it will foster.

[Lawman]

"It feels very uncertain at this point."

 

RS

 

That's always the case no matter what condition the economy is in..If I knew what the stock market would do and when it would do it I would never need to work again. At the end of 2007 had you known the S&P 500 would end 2008 down 38% I suggest you would have assumed we would have to be in pretty dire straits..I think there is a reasonable possibility that that might in fact be the case..

[smiller]

 

I'm not saying that there's no correlation between credit markets and corporate profits, but then again... global warming is clearly decimating the pirate population...

 

 

 

 

[Lawman]

Come to think of it I think your pirate numbers for 2008-2009 need to be added..

That trend is reversing..

[John Ranalletta]

Another chart Madoff sent to his investors. The SEC thought it made sense though.

[Lets_Play_Two]

"I sure as hell am not going to take advice from anyone who's investments tanked last year

including damned near every analyst, stock broker, friend, client, etc."

 

I use a very small investment advisor and I have for the last 8 years. The reason I use him is because our thinking is the same. He was (i am) down 12%. I'll take that.

[Lawman]

[quote=Lets_Play_Two

I use a very small investment advisor

 

Is he a midget or just very young?

[David]

And as short as he was, it looks like he lost another 12% of his height.

[Quinn]

[quote=Lets_Play_Two

I use a very small investment advisor

 

Is he a midget or just very young?

 

Does he give short answers?

 

 

[Lets_Play_Two]

[quote=Lets_Play_Two

I use a very small investment advisor

 

Is he a midget or just very young?

 

Does he give short answers?

 

 

In fact he is a soft spoken, 22 year old small person.

[John Ranalletta]

"I sure as hell am not going to take advice from anyone who's investments tanked last year

including damned near every analyst, stock broker, friend, client, etc."

 

I use a very small investment advisor and I have for the last 8 years. The reason I use him is because our thinking is the same. He was (i am) down 12%. I'll take that.

Why evaluating risks and avoiding large losses is so important. You're lucky to be have lost only an 1/8 of your investment. You only need your stocks to gain 14.3% to get even. Investors whose losses are in the 30-50% range have a bit longer to wait as the curve is almost parabolic.

 

Amount of Loss Incurred / Return Required To Break Even

 

10% / 11.1%

15% / 17.7%

20% / 25.0%

25% / 33.3%

30% / 42.9%

35% / 53.9%

40% / 66.7%

45% / 81.8%

50% / 100.0%

60% / 150.0%

70% / 233.3%

 

To demonstrate the point of this table, the S&P 500 Index plunged apprx. 45%

from its high of 1527.46 during the bear market of 2000-2002. Buy-and-hold

index fund investors who suffered that 45% decline had to earn a total cumulative

return of over 81%, just to get back to where they were in March of 2000, and it took

them over seven years to do so.

[John Ranalletta]

In fact he is a soft spoken, 22 year old small person.

Yikes. In his adult, working life, he's never experienced a full business cycle or recession. Must be an Edward Jones broker.

[Lets_Play_Two]

In fact he is a soft spoken, 22 year old small person.

Yikes. In his adult, working life, he's never experienced a full business cycle or recession. Must be an Edward Jones broker.

 

His advantage is he doesn't know any better.

[RightSpin]

His advantage is he doesn't know any better.

 

Have you considered using a dart board?

[PRC]

You only need your stocks to gain --- to get even.

 

Please forgive me, but if I was up 30% from my initial investment and now I'm down 15% from that, how in the world can I actually have lost money?? I'm still up 15% from the initial investment right??? Let's see here, subtract 15 from 30..uhhh 15+15=30, so i got it, 30-15=15!!! I know, it's not that simple....or is it?

 

I guess my teachers were right when they said I'd never learn "new" math.

[Mike O]

...To demonstrate the point of this table, the S&P 500 Index plunged apprx. 45%

from its high of 1527.46 during the bear market of 2000-2002. Buy-and-hold

index fund investors who suffered that 45% decline had to earn a total cumulative

return of over 81%, just to get back to where they were in March of 2000, and it took

them over seven years to do so.

I don't have your spreadsheet handy (or your source) but venture that it wouldn't be attainable simply stashing away money in a CD. And this is precisely why I'm looking for bargains at the moment. Sure, it's a gamble, but I'd rather not wait 7 years and I have faith that ROI's will be attainable far quicker with some shrewd purchases today.

 

Seriously John, I do understand what you (and your clients) are experiencing. Our industry (high tech) is taking it in the shorts as well. None of us here can predict the future of stock/market valuations in the next 5 years. Given the choice to squirrel away cash and hope that mediocre returns and inflation won't negate the exercise vs. having faith in our country's businesses (from Mom/Pop to IBM's) to entrust our investments for an above average ROI.... I'll take the later. I HAVE to trust in the later. Otherwise I might as well give up and move to Canada.

 

Mike O

[Joe Frickin' Friday]

Please forgive me, but if I was up 30% from my initial investment and now I'm down 15% from that, how in the world can I actually have lost money?? I'm still up 15% from the initial investment right??? Let's see here, subtract 15 from 30..uhhh 15+15=30, so i got it, 30-15=15!!! I know, it's not that simple....or is it?

 

I guess my teachers were right when they said I'd never learn "new" math.

 

You do end up ahead, but not by 15%.

 

Start with a base investment value of 1. A gain of 30% means you multiply by 1.30, leaving you with... 1.30.

 

Now you suffer a loss of 15%. So you take your current value of 1.3 and multiply it by 0.85, leaving you with a final value of...1.105.

 

So up 30 and down 15 leaves you up only 10.5%.