Rolling US Economy Into The Shitbin Thread

The purchasing power of little kids and grandmas has increased dramatically though.

Like do they know exactly how many people are going to default?

simply put, it's an educated guess that is mostly based on historical data and complex mathematical formulas.

why compare the USD to the pound; as opposed to, say, US's largest trading partner?

because i live in the UK and travel to the US a lot.

ah - it was more of a general question actually. i see the two compared alot and wonder why it isn't held up against it's two north american trading partners more often.

even that's pretty funny - the last 50 years of not giving a shit about our elders are something of an aberration, no?

somebody in Suck.com wrote years ago and wondered if the "Greatest Generation" thing was something that boomers came up with so that everybody could now counteract the shit they put their own parents thru for 30+ years, and for the young folks of today not to give them the same decades of shit they themselves gave.

The dollar is falling against the penny there is more than 1.2cents worth of copper in a penny.

(In the UK we make our pennies out of steel, but this is also true for pre-1992 UK copper coins)

why compare the USD to the pound; as opposed to, say, US's largest trading partner?

Because the US's largest trading partner (china) pegs its currency to the dollar and it's second largest (japan) does it's darndest to keep itself weak vs the dollar. Euro and Pound free float. Euro is probably the more important measure as the pound is strong as well as the dollar being weak. the Euro is more comperable.

when the financial press say that sub-prime is not turning out as bad as expected, what they're really talking saying is: it's not turning out as bad as expected for the big financial institutions. No doubt, a lot more *individuals* are going to start defaulting when they come off teaser rates, but the investment banks have already marked to market the securities backed by them so, in theory, they have no exposure left to them.

I've heard this explanation before, but I'm still not sure it makes sense to me -- how can the holders of those securities know exactly how bad the fallout is going to be when more of the mortgages reset? Like do they know exactly how many people are going to default? What if it's a lot more than expected because other economic conditions are worse than expected?

The holders of the securities won't know how bad the fallout is, but the holders will now all be speculative investors, hedge funds, conduits etc. Whatever subprime backed securities were on the bank's balance sheets when the shit hit the fan are being moved off the bank's balance sheets (but obviously, they're having to sell at a loss, which is what all these write downs are). That doesn't mean it can't sneak in the back door, so you might still get the odd unexpected write down, but for the most part the banks will have cut their losses.

so when should i sell all my stocks?

Ed, the US hasn't made its pennies out of copper in at least 20 years. I believe they're made of zinc, with a very very thin copper coating.

Ed - I'm aware of china pegging it's dollar. but as far as I'm aware, largest trading partner = Canada. Followed by China and then Mexico. Am I wrong?

 Canada                                 47.56           367.87

 China                                  34.34           246.29

 Mexico                                 31.55           227.46

 Japan                                  16.96           137.75

 Federal Republic of Germany            12.95            94.78

 United Kingdom                          8.57            70.94

 Korea, South                            6.78            55.28

 Taiwan                                  5.85            42.44

 France                                  5.49            45.56

 Brazil                                  4.55            32.36

 

Isn't the US dollar at something like a 20-year low against the Canadian dollar too? What difference are you trying to tease out?

Err. headers should be ||Country|| ||billions of dollars traded in August 07|| ||Billions 2007 to date||

Try 50 year! And a small distance from a historical record.

xpost

So it's like, the dollar is low by any measure.

Well, when your currency reaches parity with your largest trading partner - when it was 1=.65 a matter of years ago - it should really set off a good deal of reevaluation of the overall nature of business between the two. It's sort of causing chaos in Canada - many businesses no longer being able to compete on the merits of a weaker dollar alone, exports way down and all sorts of crazy pricing discrepancies setting off a tidal-wave of cross boarder shopping. it's the largest trade relationship in the world, if I'm not mistaken, and a sudden reversal of currency value I think should merit more evaluation.

Whatever subprime backed securities were on the bank's balance sheets when the shit hit the fan are being moved off the bank's balance sheets (but obviously, they're having to sell at a loss, which is what all these write downs are).

I don't think much has been moved off bank's balance sheets yet. The writedowns are just the banks writing down the market value of things that are still on their balance sheets. These markets have basically stopped trading since the credit crunch hit, so there's been little opportunity for banks to unload this stuff, and if they were forced to unload it, they'd certainly get even less than the marks they're putting on it now. In addition, there is the danger that banks will have to move even more of this stuff onto their balance sheets if some of the SIVs and conduits that they're backing fail to find financing.

This article from the FT says that there are good reasons to fear that worse is still to come for the banks:

Fall in ABX sparks fresh credit fears

xpost
well for me it seems that reaction in Canada = OMG OMG OMG
where as in the States = zuh?

another xpost

you know what. i don't know what my point was. i'm going back to the pot thread.

The writedowns are just the banks writing down the market value of things that are still on their balance sheets.

But with subprime, they haven't been able to do that because the market is so illiquid. Goldman explicitly stated in their earnings report that everything they couldn't value from the market, they sold.

Just to add, if some banks are holding them on their books, it's axiomatic to say that they must believe they're worth more than what they can sell them for, and that they've presumably priced in the fact that lots of people are going to start coming teaser rates into that valuation.

^^^Ach, meant to emphasise some, not banks.

testing

If there isn't a market price, the banks usually use models to come up with a price. That's what they call "Level 3" assets. Goldman may be one of the least exposed to subprime of the major banks, but they still had level 3 assets representing $72B at the end of their third quarter:

http://www.marketwatch.com/news/story/goldmanaug-level-3-asset-value/story.aspx?guid=%7BA5F0CE1D-4004-448D-967B-895CC8213FD6%7D

xpost- Banks may think they can get a better price if they wait, but that's a dangerous game when prices are falling.

(oops, please ignore that "testing" post)

you ever read that book about Long Term Capital Management o. nate ("When Genius Failed")?

Book rules.

Yes, I've read it. Good book.

Too bad more people haven't read it.

when you consider the people who were involved with LTCM, it's fucking frightening.

And my point being that illiquidity and exposure are pretty damn complicated issues at banks in a scary house of cards kind of way.

Yeah, they had a quant from GS quoted in the FT a while back saying how crazy the credit squeeze was, and how it shouldn't've happened in three universe lifetimes according to his models, and I thought dude, how can earth can you not've read that book (cause he clearly wouldn't've said that if he had)?

There was an entertaining polemic by Nassim Nicholas Taleb (author of Fooled by Randomness and The Black Swan) in the FT the other day about the models that generate these kinds of (unrealistic) predictions.

The pseudo-science hurting markets

I think he overstates his case a bit, but he does it with wit and is thought-provoking in a good way.

The dollar can fall against cents, and has been doing so very nicely in the last couple of weeks, the ECB having failed to take my suggestion that a tenth of a Euro be called a Euroling.

http://bigcharts.marketwatch.com/charts/big.chart?symb=aapl&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=609&style=320&time=8&freq=1&nosettings=1&rand=2167&mocktick=1&rand=5794

http://bigcharts.marketwatch.com/charts/big.chart?symb=rimm&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=50575&style=320&time=8&freq=1&nosettings=1&rand=2201&mocktick=1&rand=3796

http://bigcharts.marketwatch.com/charts/big.chart?symb=goog&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=1795093&style=320&time=8&freq=1&nosettings=1&rand=2361&mocktick=1&rand=7238

do you have a point

Wow! I guess there are a few bright spots (unfortunately not ones in my portfolio).

stocks be rocketing like fogdog.com

once did.

A few big tech stocks with compelling growth stories are doing well. I'm a bit pessimistic on where the broader market is heading though.

so am I, but I am usually wrong. It is sticking your neck out calling a crash when the DJIA is all of 5% off the alltime high. But it will be fun watching Jim Cramer forcing a smile and making picks on CNBC here in 5 minutes.

Wow- this just keeps getting uglier for Merrill:

Deals With Hedge Funds May Be Helping Merrill Delay Mortgage Losses

I came across an individual lawsuit plaintiff named Meryl Lynch yesterday.

i wish i knew more about this stuff and bought gold and google a few years ago

I have never had much capital to invest really but when I put $2000 into a international/developing markets mutual fund it was EXACTLY one month before a huge sell-off in that sector. So I do tend to call things a little early. OTOH, for a individual investor, I think calling a bear and hedging early is a lot wiser than believing a bull and buying late. Google, Rim and Apple all have nice narratives to their success and have been making headlines for years now, so it's no surprise amateurs are getting into it. "Hey, I use Google/an iPod/my BlackBerry every day! I should invest in these guys!"

moral for me as an investor (once I cover my recent debt injection) - if you want to invest in any sector, wait it out for a 12 month low. if it doesn't happen, you missed the boat, try again next year.

I usually make those decisions during the long holidays I take at my country house in the Algarves.

lolz. even if i ever have money i doubt i'd ever risk speculating on the market.