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Post by beachbumbob on Jun 12, 2006 15:27:11 GMT -6
3 plus weeks of market sell off....seems that hedge funds would have huge exposures that they need to cover...as well as the derivative market...so ya think there well be even a steeper immediate selloff as positions have to covered or what??
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Post by unlawflcombatnt on Jun 12, 2006 18:45:26 GMT -6
Bob,
Good questions. I don't have any good answers.
I think more people are starting to realize how poorly our economy is actually doing, especially investors. The Dow has dropped over 600 points in the last month, and over 460 points in the last 8 days.
Meanwhile, gold, silver, and other precious metals are also declining.
There is now another interest rate inversion between the 2-year and 10-year bond rate. It looks like there is some increase in bond investment, while stocks and precious metals are being sold off rapidly.
Investor's Business Daily has probably summed it up best. They say that investors are moving their money into cash. Which means there's no investment that looks good at present.
Consumer spending is heading for the cliff as well. During the last 4 consecutive quarters, personal spending has exceeded personal income. Also worth noting, is that with the last report from the Census Bureau, the gap between income and spending was revised upward, showing an even larger gap.
Our economy cannot be sustained on increased borrowing alone. Given an anticipated decline in home equity borrowing of over $130 billion, and essentially no increase in real wages, it portends an impending decline in consumer spending. This will bring a decline to our economy as well.
Apparently investors are thinking the same thing.
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Post by beachbumbob on Jun 13, 2006 18:36:04 GMT -6
I see the downtrend not peaking yet.....some big hedge funds have to bad shape and well have to sell off to cover their exposures in the derivatives....... that could be a major downward movement...
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Post by lc on Jun 14, 2006 8:44:58 GMT -6
BBB, Most of the derivatives are held by central banks, and are designed to cover exactly these kind of collapses in other investment sectors.
You do bring up an interesting point tho, both of you.
Sure bonds are gonna respond well to further increases in the short term rate, but why is the dollar up? It could be as Unlawful's source indicates that there are no good investment opps.
But really when it comes time to cover derivative liabilities you need cash. So in a time of rapid market movement cash becomes short in supply.
This could be something to pay a LOT of attention to as interest rates rise and the money supply contracts. What if the majority of derivatives contracts are written to demand US $ as the transactional currency? The dollar could become short in supply long term.
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Post by unlawflcombatnt on Jun 14, 2006 18:21:26 GMT -6
LC,
I think what you're saying makes a lot of sense. It would fit perfectly with the current situation where investors are pulling their cash out of the market, both in stocks and metals. So it would fit perfectly that investors are selling to get more cash to cover derivatives.
And if cash is in short supply, just as with any consumer good, it raises the price of cash. In this case the value of the dollar.
I also think a part of it is that investors don't trust any investments at present. And that distrust has extended to precious metals and non-precious metals. Investors would rather hold cash than any investments.
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Post by lc on Jun 14, 2006 21:57:57 GMT -6
Unlawful,
I could be old fashioned, or in a niche way of thinking. But for thousands of years precious metals have been the only real money. For that reason I just can't yet believe that investors would shy away from gold during a potential market crisis.
Something is driving the dollar up when the dollar should be headed south.
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Post by unlawflcombatnt on Jun 15, 2006 14:53:55 GMT -6
LC, I think gold will hold its value, and will go up again. However, I do think it was overvalued most recently when it went above $700/oz. The rapid rise seemed unrealistic. I think it will eventually go back above $700/oz., and probably higher. At the present I think those prices were unsustainably high. But I still believe it is the very best investment at present, and the very best investment to keep from losing money from inflation. Even at today's $570/oz., the increase in value over the last year has been tremendous. There are electronic transfer funds that trade gold. I don't know what fraction of gold trading is done that way. That certainly makes it quicker and easier to buy and sell (and speculate.) There are probably some other bizarre investment/trading avenues for gold as well. I think these new gold investment vehicles make it trade more like stocks than it did previously. Most people now buy gold without actually having it in their possession. So they don't really have any gold, they just have a paper claim to gold, just like a stock certificate. It seems like this would make it more volatile, and subject to more over-valuation, just like stocks and housing. I don't really know what's driving the dollar up either. It still seems to me like the desire of investors to hold on to cash, instead of stocks or commodities, would have an effect. Also, I noticed a new and rising buyer of U.S. debt -- Great Britain. From an earlier chart from the Treasury Dept (from 4-29-06) the posted information showed that in April 2005, Britain held $124 billion in U.S. Treasury securities. From that same posting, Britain held $250 billion by February 2006. Of course the U.S. Treasury Dept. has drastically changed all of those numbers since April. The current chart (from 6-15-06) shows Britain owning $58.8 billion in June of 2005, and owning $166.8 billion in April 2006. Below is a copy of the chart from the U.S. Treasury Dept. from 6-15-06. This can also be found at: www.ustreas.gov/tic/mfh.txtNotice that foreign holdings of U.S. Treasuries declined in April, from $2.081 trillion in March down to $2,066 trillion in April. That's the first monthly decline in foreign holdings that I've ever seen. Any thoughts on why the British have increased their U.S. Treasury holdings almost 200% in less than a year? Any thoughts on why the U.S. Treasury has changed it's previous statistics so drastically? Do they have this much trouble counting and verifying who they've sold securities to? Or are they just flat out lying for some reason?
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Post by tatuma on Jun 19, 2006 13:21:52 GMT -6
I am looking back to the 70s when the first oil shock hit and the term stagflation was coined. What I do recall was that nobody was saving, but that is alread the general case in America. A $ saved was a $ devalued. People were borrowing like crazy, with the stategy of paying off the loans with inflato$s. this worked nicely for those of us who used that opportunity to buy our first houses. The dollar value of that house went from 35K to more than 85k in 6 years, but it was in the NC reasearch triangle that boomed right after our purchase. That investment sure helped in paying off the next house mortage very early.
As to where to put money now, well I have been have a rather disconnected discussion of this with my broker, who natch still gets a cut no matter what. They are still pushing realestate funds, with malls, offices, very diversified so how can ya lose?
My thinking is that the stock market will not crash, dramatically soon, with the international devaluation of the $ as it makes buying american companies a reasonable bet for foreign investors. so I figure that oversea $ may keep the market pumped for a while, but who knows?
Anybody have any other good ideas? I worry about having so much, that I cannot use very flexibly in TIAA-CREF, that I am afraid has a lot invested in derivatives and hedges! We all know these vehicles have never been tested under the present conditions with a major fiscal crisis.
My broker natch says they are a good safe way to protect my capital?
Very nervous in the NorthEast
TAT
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Post by unlawflcombatnt on Jun 19, 2006 14:28:14 GMT -6
Tatuma, LC and I are planning on starting a thread on the subject of what is a good investment at present. My opinion is that Gold is still about the safest bet. I don't trust any stocks at present, nor do I trust any brokers to give me honest information. Housing stocks, however, are clearly declining. That's pretty easy to document. In the last year, the Dow Jones Home Builder's Index has dropped from 1,100 to 650. Since April 2006 it's dropped from 900 down to 650. Housing stocks are definitely not something you want to hold on to. Below is a copy of a chart from Market Watch. DJ US Home Construction Index Below is the link to the above chart from BigCharts.MarketWatch.com Housing StocksIf you're broker is advising you to invest in housing, I'd like to know what he's basing his advice on. I really don't really know enough to advise anyone what they should invest in. But I do know enough to advise someone what not to invest in. And housing is one of those. It's definitely on the decline.
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Post by lc on Jun 19, 2006 21:58:10 GMT -6
Tat, I seriously doubt that the stock market is gonna crash. But you can't sue me if I am wrong.
I just dunno. First question: are you investing long term or short?
Second are you more concerned about hedging what you have or receiving a sustained annual return?
Third is this disposable income (LOL), discretionary investment funds or your retirement fund on which your livelihood will depend in your depends and cat food years?
The disturbing thing is that the dollar is up during times of apprehension. That is mitigated somewhat by the fact that it is possible that all durables are hugely overinflated at present.
But if people are turning to the dollar as a safe refuge in uncertain times....and forgoing commodities, gold, silver, more land and other currencies (like the Yuan), I can only believe this is a dream or a nightmare in the making.
Maybe all the durables are ballooned beyond realistic levels. Maybe a correction is in store. But frankly I just can't imagine hard assets being a bad place to stay in rough weather.
And Gold mining claims are still available cheap on e-bay.
Did i mention cat food futures? Lock in a price now?
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Post by tatuma on Jun 20, 2006 22:07:02 GMT -6
Hey LC!
I dont know why anyone is having trouble with this investment thing, it is childishly simple, all ya have to decide is the percentages to put into each segment of the diversification form, and just leave the rest to the brokers to find the right instruments for each segment. Piece of cake really! Why all the confusion? What could go worng?
Asset Allocation Name(s): Date: In Thousands (000)
Cash & Equivalents CD's US Fixed Income Intl. Fixed Income High Yield Bonds Convertible Bonds REITs Asset Allocation / Bal LC US Value S&P 500 / Core LC US Growth All Cap Core Aggressive Equity Mid Cap S/Mid Small Cap Global International Emerging Markets Managed Futures Hedge Funds Commodities Concentrated Equity Position I dont need income now, and have had a fairly aggressive growth posture before, which has been pretty effective even in down markets. Natch I am interested in not losing the nestegg, but obviously with inflation inevitably on the rise, capital appreciation still will be needed. I figure that whatever happens in 2008 taxes are going to rise big time, and it would be fair for capital gains taxes to be a part of that.
It is not unlikely, IMO, that the tax rates on withdrawls from IRA etc could be higher than the taxes I was avoiding by putting away pretax dollars, so even capital appreciation is no confidant hedge against that. Still those assests did compound, but will it be enough to maintain a reasonable standard of lliving?
Holding actual gold involves no broker fee either selling or buying, and capital gains dont really apply to bullion coins that you can actually spend. So taking away the fees, except storage, and capital gains tax make gold look even more attractive to me. Fiat gold has all of those disadvantages, fees and capital gains. Seems like a no brainer to me. I cant understand why brokers dont see things this clearly!!
Unfortunately I dont see any way of moving funds from TIA CREF into gold, but I am sure looking for ways to minimize the amounts in hedges and derivatives, no matter how sure they seem to be that this protects from all eventualitie. I just dont buy it in a fiscal crisis, the like of which we have never seen, yet...
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Post by lc on Jun 21, 2006 9:35:16 GMT -6
Tat,
T bills have to be seriously considered, hard assets can't really be predicted at this point, Property is too expensive, stocks too risky but don't appear to be overvalued, derivatives, options all that could implode, hedge funds might actually be one of the best opps today, but how can you tell? That's a crap shoot.
Pick your best port in a storm. Evaluate what you trust the most and the least.
I can't think of any investment at all that sounds like it is gonna keep up with the ravenges of inflation at an acceptable risk.
Would you like to start a new thread on the topic and see if any fresh ideas get introduced?
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