What is wrong with the US economy?

[Astronuc]

Tax Break Used by Drug Makers Failed to Add Jobs
http://www.nytimes.com/2007/07/24/business/24drugtax.html
By ALEX BERENSON, NYTimes, July 32, 2007

Two years ago, when companies received a big tax break to bring home their offshore profits, the president and Congress justified it as a one-time tax amnesty that would create American jobs.

Drug makers were the biggest beneficiaries of the amnesty program, repatriating about $100 billion in foreign profits and paying only minimal taxes. But the companies did not create many jobs in return. Instead, since 2005 the American drug industry has laid off tens of thousands of workers in this country.

And now drug companies are once again using complex strategies, many of them demonstrably legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts.

In one popular accounting move, companies declare their foreign markets as far more profitable than their American businesses — even though drug prices are typically higher in the United States than anywhere else in the world.

. . . .

But hey, all those layoffs mean more profits!

 

[edward]

What is going on with the stock market? It doesn't make sense. We have a record high (above 14,000) a week ago, and now it takes a dive. The drop is attributed to financial problems associated with the housing market. But that problems isn't new. it has been in the news for several months. In the course of one week we have had opposite extremes in the so called "mood" of the market without any apparent change in existing conditions.

The U.S. stock market, which has shown great resilience this year despite mounting fears, is starting to buckle under the weight of the financial fallout caused by the housing bust and mortgage meltdown

http://www.usatoday.com/money/markets/2007-07-26-mart_N.htm

The record gains for the Dow and S&P came despite news of slowing retail sales, a burgeoning trade deficit and a declining housing market. News that Home Depot and Sears were forecasting weaker sales had pushed the stock market down 148 points Tuesday. Though the financial news didn't get substantially better over the next three days, the market still rebounded.

http://www.signonsandiego.com/news/business/20070714-9999-1n14stocks.html

 

[Astronuc]

Well, several leveraged buyouts are being reconsidered.

The aggregate debt is a concern.

According to the latest numbers, the economy is 'still recovering.'

Despite strong GDP, another down day
http://marketplace.publicradio.org/shows/2007/07/27/PM200707271.html

Nothing macro-economic changed between 4 yesterday afternoon in New York and 8:30 this morning in Washington. But the two numbers that were posted at those hours, they give you some pause — 311 points down on the Dow yesterday, gross domestic product up almost 3.5 percent this morning. Yes, the GDP number is what's called a lagging economic indicator. That is, it tells you what's already happened. But still somehow you'd have thought it would drive investors up today instead of down. Instead, the Dow gave up another 200 points.

http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8QL804O0&group=ap.online.headlines.business
By JEANNINE AVERSA - AP Economics Writer

The best barometer of the country's economic fitness _ gross domestic product _ increased at a 3.4 percent annual rate in the second quarter, the Commerce Department reported Friday.

Businesses regained their appetite to spend and sold more good overseas, contributing to the improved performance. Stronger government spending also helped out.

Individuals, however, took a breather as they coped with high gasoline prices and the ill effects of the housing slump, including spiking foreclosures and late mortgage payments. The sour housing market continued to weigh on the economy but not nearly as much as it had in previous quarters.

Economic growth in the first three months of the year had slowed to a near crawl of just 0.6 percent, the slowest in more than four years.

The economy is mixed. One big problem is the amount of borrowing by the government and consumers. There could come a time when the debt service exceeds the ability to repay.

 

[Gokul43201]

The market had been overvalued for several months now.

 

[russ_watters]

What is going on with the stock market? It doesn't make sense. We have a record high (above 14,000) a week ago, and now it takes a dive.

That should make perfect sense.

The dow, ytd: http://finance.google.com/finance?cid=983582&client=news
S&P: http://finance.google.com/finance?cid=626307&client=news

 

[Math Is Hard]

I don't know what's going on with the housing market in the rest of the U.S., but the 17,000+ foreclosures in California was pretty bad news. All that fairy tale financing, and now it's time to pay the piper.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-07-24T230626Z_01_N24251199_RTRIDST_0_PROPERTY-CALIFORNIA-FORECLOSURES.XML

 

[Astronuc]

What is going on with the stock market? It doesn't make sense. We have a record high (above 14,000) a week ago, and now it takes a dive. The drop is attributed to financial problems associated with the housing market. But that problems isn't new. it has been in the news for several months. In the course of one week we have had opposite extremes in the so called "mood" of the market without any apparent change in existing conditions.

Well it makes sense if one considers "irrational exhuberance", which still abounds, combined with speculative investing and ignoring the fundamentals.

Many companies have low returns on investment, which does not support the relatively high stock prices in some/many cases.

What one has seen in the last two days are some people getting out quickly. They might come back in next week if the market moves up, or they'll stay out until the market goes down. It all depends on the news this weekend and next week.

 

[edward]

What one has seen in the last two days are some people getting out quickly. They might come back in next week if the market moves up, or they'll stay out until the market goes down. It all depends on the news this weekend and next week.

What I questioned was Why people would get in and out quiclky based on the same information that was available in both the short (1 week) up and the down cycle?

There has to be more to it than that. Computerized trading could be one aspect. As far as profit taking, it appears to be structured to take advantage of the average investor. What kind of a prolonged stable economy could be based on something that fickle, or perhaps corrupted?

Repeated profit taking by the big traders will suck the life out of the average investor and is no basis for long term prosperity of any company with stock traded on the market.

I see the increasingly irrational function of the market itself as a basis for concern. The whole thing has turned into one big casino. If it is true that traders are doing little more than making wagers based on whatever appears in the daily news, we could be in for a permanent decline triggered by a temporary situation.

 

[edward]

That should make perfect sense.

The dow, ytd: http://finance.google.com/finance?cid=983582&client=news
S&P: http://finance.google.com/finance?cid=626307&client=news

Ya sure perfect sense.

From your the link within your link:

During yesterday's stock-market meltdown, a number of pundits observed that markets around the globe were "re-pricing risk." In Wall Street jargon, that's a fancy way of describing a good old-fashioned panic attack.

http://www.forbes.com/finance/2007/07/27/turkcell-sadia-selloff-pf-ii-in_jc_0727soapbox_inl.html

For some reason, perfect sense and panic attack don't add up for me.

 

[turbo]

What I questioned was Why people would get in and out quiclky based on the same information that was available in both the short (1 week) up and the down cycle?

A lot of trading is automated, based on models designed to maximize short-term gains. We may have seen the predictable result of exceeding another "magic" number in the averages. If you're trading in volume, and your trading program sees a potential to lock in profits in what may be an over-valued stock, it may dump that stock, only to place "buy" orders on the same stock when its value plummets.

 

[Astronuc]

What I questioned was Why people would get in and out quiclky based on the same information that was available in both the short (1 week) up and the down cycle?

Not everyone has access to the same information, and often, many investors do not understand the fundamentals. One needs to one's homework when investing in equities.

There has to be more to it than that. Computerized trading could be one aspect. As far as profit taking, it appears to be structured to take advantage of the average investor. What kind of a prolonged stable economy could be based on something that fickle, or perhaps corrupted?

There is inherent instability in the economy, partly due to the stock market.

Repeated profit taking by the big traders will suck the life out of the average investor and is no basis for long term prosperity of any company with stock traded on the market.

I know a few people who have lost considerable money (e.g. 50-70% of investment for retirement) in the stock market. They nevertheless try to recover what they lost.

 

[russ_watters]

Ya sure perfect sense.

From your the link within your link:

For some reason, perfect sense and panic attack don't add up for me.

Why not? That's how the stock market works and has always worked. You break a lot of records one week, the next week people panic because you broke too many records and it goes back down. Next week, it'll go back up (not as far as it went down - that'll take a month, probably).

 

[russ_watters]

There is inherent instability in the economy, partly due to the stock market.

Can you explain what you mean by that?? I don't see that as being true at all. The wild swings of the stock market in the late '90s and early 2000s did almost nothing to affect the economy - it was one of the most stable periods of prolonged economic growth we've ever had. Even the recession that followed the crash was only barely a recession - it barely fit the definition after the numbers were revised a few months later.

If you are right, though, does that mean you think this drop - the worst week in 10 years - is going to cause a recession, a large rise in unemployment, etc.?

 

[russ_watters]

I know a few people who have lost considerable money (e.g. 50-70% of investment for retirement) in the stock market. They nevertheless try to recover what they lost.

There are even people (ie, some of those who worked for Enron), who lost virtually everything. Those, however, are people who broke Rule #2 of investing. For people who follow Rule #2, the stock market, over the long term, is easy money.

 

[edward]

Why not? That's how the stock market works and has always worked. You break a lot of records one week, the next week people panic because you broke too many records and it goes back down. Next week, it'll go back up (not as far as it went down - that'll take a month, probably).

What has been happening in the past few years is not how the stock market has always worked. There were occasional "black" days with significant losses, but for the most part gains came on much more slowly and so did the downs. Frequent highs and rapid corrections have never been the norm.

The real estate boom and bust didn't just happen on it's own. It is most probably the same people who ruined the real estate market who are now plying their methods in the stock market.

The markets have more and more been given the attributes of the human personality. Mood, cautious, and panic, are commonly heard. Every time some General in Iran passes gas the oil market gets nervous.

If a person exhibited repeated episodes of; elation to depression to panic in short periods of time they would be put on medication.

The stabliity of the markets are too vital to the economy to be allowed to operate like a casino full of mentally unstable money mongers.

 

[edward]

Not everyone has access to the same information, and often, many investors do not understand the fundamentals. One needs to one's homework when investing in equities.

A few years back when the buying and selling on the market could first became availabe online for individuals, I knew several people who made a lot of money. The market had not yet gone bizarre at that point.


It has become almost impossible for an individual to compete with the rapid technology that the larger investors can afford. What is now a wise choice one day is a poor choice the next. It seems like the only things that are now consistent is the irrationality of the market ,and buy low and sell high.

There is inherent instability in the economy, partly due to the stock market.

I definitely agree with that. The market is starting to resemble a drunken monkey on both steroids and methamphetamines.

I know a few people who have lost considerable money (e.g. 50-70% of investment for retirement) in the stock market. They nevertheless try to recover what they lost.

I know a few people in the same situation. Since it takes money to make money recovering ones losses is difficult.

One friend in particular had been using the services of one of the so called, financial advisors. He should have known better, but he got suckered in by tremendous gains early on, so he invested more and more. He eventually lost his entire life savings.

 

[Astronuc]

Can you explain what you mean by that?? I don't see that as being true at all. The wild swings of the stock market in the late '90s and early 2000s did almost nothing to affect the economy - it was one of the most stable periods of prolonged economic growth we've ever had. Even the recession that followed the crash was only barely a recession - it barely fit the definition after the numbers were revised a few months later.

The wild swings, especially the big drop, most certainly affected the economy. It meant that many companies did not have money to invest, and expansion plans by a number of companies were deferred or delayed. Since much of the 'virtual wealth' is in mutual companies which hold that wealth for retirement, it simply means that all those retirees will have less money on which rely during retirement. Much of the effect is distributed over decades.

If you are right, though, does that mean you think this drop - the worst week in 10 years - is going to cause a recession, a large rise in unemployment, etc.?

By itself no, but in conjunction with other factors like tightening credit, increasing debt (both government, commercial and private), increased energy costs, . . . . there will be an adverse effect on the economy.

From last week -

More Bad News from the Housing Sector
http://www.npr.org/templates/story/story.php?storyId=12389055
by Jim Zarroli and Michele Norris

All Things Considered, July 31, 2007 · Mortgage lender American Home Mortgage Investment Corp. says it can no longer fund home loans and may liquidate assets. The lender's survival is in doubt, and its shares plummeted about 90 percent Tuesday.

What are the ramifications on Wall Street?

American Home Mortgage Nears Bankruptcy
http://www.npr.org/templates/story/story.php?storyId=12418081
Morning Edition, August 1, 2007 · The mortgage lending giant American Home Mortgage is teetering on the brink of bankruptcy. The Long Island, N.Y.-based firm says its credit lines are cut off and it may have to liquidate assets. The company has been badly hurt by the downturn in the mortgage market.


Dow Dives as Wall Street Volatility Persists
http://www.npr.org/templates/story/story.php?storyId=12262799
by Jim Zarroli

All Things Considered, July 26, 2007 · The Dow tumbled sharply Thursday, evidence of investor nervousness about the housing market, rising oil prices and the prospect of tighter credit.

========================================================================
Volatility's the watchword
Stock prices gyrate on Wall Street, but investors' fears of renewed selling sparked by subprime jitters prove unwarranted.

GLOBAL MARKETS
Bulls sidelined
European and Asian stocks drop as credit-market jitters take a toll. Mining, bank shares get clipped.

Some top stories on Aug 1.
1. U.S. stock futures fall, but move off lows of the day
2. Asia tumbles on credit-market concerns, led by Macquarie
3. Voracious predator swimming in Street's waters
4. As American Home Mortgage falls, Wall Street banks are exposed
5. U.S. stock prices falter after stalled bid up
6. American Home plunges on bankruptcy concern

International stocks hit by credit-market jitters
Fed not seen in a hurry to offer help; banks, miners drop
By Steve Goldstein, MarketWatch
Last Update: 9:48 AM ET Aug 1, 2007

LONDON (MarketWatch) -- International stocks dropped on Wednesday as investors were again rattled by credit-market concerns, with a warning from the tenth-largest U.S. mortgage lender that it can't pay its creditors and another from Australia's Macquarie Bank of heavy losses in one of its funds providing the latest reasons for investor nervousness.

Markets last week saw heavy losses as several bond deals couldn't get sold to investors, igniting concerns that a wave of private-equity interest that has helped stocks to rise for much of 2007 will come to a halt.

"It's a sentiment-driven market," said Peter Dixon, strategist at Commerzbank in London, noting the big gains in Europe on Tuesday followed by the sharp drop on Wednesday.

"There's no information that could justify this kind of volatility."

Markets Fall as Lender Woes Keep Mounting
http://www.nytimes.com/2007/08/04/business/04stox.html
By VIKAS BAJAJ, NYTimes, Aug 4, 2007

Stocks tumbled yesterday on fears that the worsening ills in the mortgage and debt markets could soon take a significant toll on consumers, businesses and the overall economy.

The latest decline capped a volatile two weeks on Wall Street in which the stock market has swung wildly from day to day, reflecting rising uncertainty about the outlook for markets and the risks plaguing the economy. The biggest moves lately have often occurred shortly before trading closed.

Locally IBM will be laying off 300 people, and during a recent trip, I heard someone mention that IBM is moving more jobs from the US to overseas locations, e.g. Brazil, Argentina, and possibly China.

 

[russ_watters]

The wild swings, especially the big drop, most certainly affected the economy. It meant that many companies did not have money to invest, and expansion plans by a number of companies were deferred or delayed. Since much of the 'virtual wealth' is in mutual companies which hold that wealth for retirement, it simply means that all those retirees will have less money on which rely during retirement. [snip]

By itself no, but in conjunction with other factors like tightening credit, increasing debt (both government, commercial and private), increased energy costs, . . . . there will be an adverse effect on the economy.

So... will this drop two weeks ago cause an immediate recession and jump in the unemployment rate or not? You seem to be saying both yes and no at the same time. Clearly, there is no panic on - the drops haven't continued. Heck, the Dow is still up 7% ytd and July wasn't even as bad a month as June! (down 197 vs 233 for June). It was actually only the third worst month we've had this year!

http://finance.google.com/finance?cid=983582&client=news

Much of the effect is distributed over decades.

Well that is exactly my point: these "wild swings" do nothing whatsoever to affect money that is invested over many decades. This little bout of volatility will be utterly forgotton in two months. It was a minor event, having no measurable impact on the economy (much less a lasting one).

 

[Astronuc]

Well that is exactly my point: these "wild swings" do nothing whatsoever to affect money that is invested over many decades. This little bout of volatility will be utterly forgotton in two months. It was a minor event, having no measurable impact on the economy (much less a lasting one).

And the evidence to support such a conjecture is? Actually, it might have a measurable effect (most only confidence and future spending) if one bothered to measure it, and that assumes one would have a reliable tool to measure such an effect. The economy is highly non-linear and stochastic with respect to a particular input.

And now - 13,270.68 (-387.18) yesterday (Aug 9).
First 4 minutes today (Aug 10) - 13,179.63 (-91.05)

The stock market is something of a barometer, and right now it's indicating worries about market liquidity. The US Federal Reserve may be forced to act (inject cash) if there is significant concerns about liquidity. The European and other central banks have already responded to an apparent crisis of confidence.

World markets shaken and stirred
http://marketplace.publicradio.org/shows/2007/08/10/AM200708101.html

The U.S. subprime mortgage crisis is now sending economic shockwaves around the globe. Major markets are dropping percentage points by the day, but will the fallout spill over and dampen overall economic growth? Debate is raging, Stephen Beard reports.

Scott Jagow: To say the world stock markets are rattled is an understatement. Fallout from the US subprime market is reaching around the globe. One analyst in London calls it an "all-around sense of panic." For the second straight day, European stocks are down a good 2 percent. Japan's Nikkei fell 400 points today, also about 2 percent. We're joined by our European correspondent Stephen Beard. Stephen, what's the mood like in London this morning?

Stephen Beard: Pretty worried I would say. I mean all the big European stock markets opened sharply lower. Bank shares were a particular casualty. So there is undoubtedly a growing fear that a credit crunch I son its way and that clearly would be very bad for stock markets.

. . .

Jagow: Well certainly Stephen over the last month we've had a lot of volatility and each day people seem to be indicating 'oh the markets are going to hang in there.' Today is there a different sense that this really could fall apart at the seams?

Beard: Well the argument is still raging. The optimists say that this is a market phenomenon, it'll be confined to the stock markets and the bond markets. Pessimists, however, say we're getting into dangerous territory here because banks are involved and if banks lose a great deal of money they'll become evermore reluctant to lend and that will hit economic growth.

Certainly it is a matter of perspective - optimist or pessimist.

 

[russ_watters]

And the evidence to support such a conjecture is?

A quick look at a stock market graph with a 5 year timespan.

BTW, you are the one conjecturing that this will have an impact without providing any basis for it or even specifics about what you think the impact is.

Certainly it is a matter of perspective - optimist or pessimist.

No, it is a matter of prediction based on historical fact. You are quite simply saying things that are not true and making predictions that directly contradict how things have happened in the past.

Look at the graph! On it, you can see that there was a 5% "correction", as they call it, from March to April that took 6 weeks to recover from (as of today, the one we are having now equals it). Do you even remember it happening?

Take the crash of 2000, for another example. The Dow lost 38% of it's value in the 10th worst crash in the entire history of the stock market (by other measures, such as the Nasdaq, it was much, much worse). The effect? A barely measurable recession and a 2 percentage point increase in unemployment. Both of which are now a distant memory.

Might the correction point to a coming recession? Maybe - we do have recessions every 5-10 years, so we can expect one in the next 1-5 years or so. Is this correction a predictor of one? Certainly not as it stands now. A quick look over the last few years of stock market history shows one similar correction earlier this year, one much worse one last year, an extremely volatile 2005 with about half a dozen swings of 5% or more (do you remember that?), volatile again in 2004 with 4, 1 in 2003, a pretty negative year in 2002, etc. And in that time, we've had steady economic growth and steadily dropping unemployment.

Bottom line: We've had a dozen similar corrections during the current economic boom!

Your pessimism is just a latent way of thinking. It has no actual basis in the reality of our economic situation/system. There is inherrent short term instability in economic systems that makes such pessimism easy to justify internally, but it just doesn't fit the reality of how our system works.

 

[russ_watters]

One other thing - a big deal was made earlier about the effect these things have on soon-to-be retirees. My parents were ~55 in 2000 and lost by my guess somewhere between 20 and 40% of their retirement savings from 2000-2002. Was it a disaster? Did they panic? Were they afraid? No. They were midly annoyed, but their primary reaction appeared to be indifference. Why? Two years is a short time to lose half your wealth - but two years is also a short time to increase your wealth by 70%, which is what they did in the preceding two years. And in the next two years, they got it all back.

All in all, if you plan correctly and don't panic, the market is a great place to have your money.

 

[ShawnD]

One other thing - a big deal was made earlier about the effect these things have on soon-to-be retirees. My parents were ~55 in 2000 and lost by my guess somewhere between 20 and 40% of their retirement savings from 2000-2002. Was it a disaster? Did they panic? Were they afraid? No. They were midly annoyed, but their primary reaction appeared to be indifference. Why? Two years is a short time to lose half your wealth - but two years is also a short time to increase your wealth by 70%, which is what they did in the preceding two years. And in the next two years, they got it all back.

All in all, if you plan correctly and don't panic, the market is a great place to have your money.

That's basically true. My dad got my to invest in some index funds when I was very young, just so I could see how they work. They took a major hit around 2000, but I hung onto them ("only stupid people panic and sell at a loss, don't be stupid"). Eventually they recovered, and they're still up about 50% from when I started in 1997.
The market going down doesn't mean you're losing money; it just means you can't sell yet.

 

[edward]

I am still troubled by the volatility in the markets.

Down on Thursday:

By Tim Paradis, AP Business Writer | August 9, 2007

NEW YORK --Wall Street's deepening fears about a spreading credit crunch sent stocks plunging again Thursday, with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points. The catalyst for the market's latest skid: a French bank's announcement that it was freezing three funds that invested in U.S. subprime mortgages.

Back up on Friday.

The S&P 500 for its part has recovered the entirety of a 23-point decline and then some in a move that is no doubt prompting some short-covering activity. The Dow, meanwhile, has rallied all the way back from a 212-point deficit while the Nasdaq has said good-bye to a 53-point loss.

http://www.reuters.com/article/stockTickerBriefing/idUSSI2007081012325220070810

There has got to be a lot of computerized short term profit taking, that discourages long term investors. It sure spooks me anyway. The foreign markets seem to be even more concerned about the sub-prime loan situation than we are.

http://www.forbes.com/markets/feeds/afx/2007/08/09/afx4006760.html

For that matter there is nothing in the news or on google that looks encouraging.

http://www.google.com/search?hl=en&q=foreign+markets+down+subprime&btnG=Google+Search

http://news.google.com/news?hl=en&q=foreign+markets+down+subprime&um=1&sa=N&tab=wn

 

[Astronuc]

if you plan correctly and don't panic

Well, we agree on this. It is the planning part, which is key.

The market can be a great place to invest, but one has to invest wisely. How well one does also has to do when one gets in and then gets out.

The Dow 30 (INDU) did well mid '02 through '03, then went essentially flat through '04 to mid '06, and has again surged in the last year, and the return is reasonable. However, if one had invested in the Dow30 in '99/'00, then by early '06, the appreciation would have been essentially zero.

Certainly if one had invested in the INDU when it was around 8000, it would look really good at the moment.

There are great investments (which implies positive returns) and bad investments (which provide negative returns). I'd rather put money in the former. I prefer steady gains of 10-20%/yr.

Meanwhile - http://en.wikipedia.org/wiki/Subprime_mortgage_financial_crisis

Actually, it might have a measurable effect

I did not say that it will. On the contrary, I disagree with one's assertion that it necessarily will not.

And what is the measurable impact? Well the central banks took action that they would not otherwise.

The European Central Bank (ECB) injected €61 billion, and the US Federal Reserve System injected $68 billion into their respective banking systems on Friday, August 10, 2007 in order to calm their markets.

from the Wikipedia article.

 

[Astronuc]

Stocks close down again as credit worries remain
Countrywide Financial shares plunge 13% on worries lender may go bankrupt

SAN FRANCISCO (MarketWatch) -- Amgen Inc. (AMGN:Amgen Inc, AMGN50.59, -0.73, -1.4%) said late Wednesday it will cut 12% to 14% of its workforce, or 2,200 to 2,600 jobs, as part of a restructuring, and the biotech company cut its 2007 adjusted earnings forecast


Part of the problem - Credit crunch like bursting bubble
http://marketplace.publicradio.org/shows/2007/08/14/PM200708144.html

Greed followed by fear. Economists say the markets are propelled by this cycle.

and another problem
Foreclosed Homes Won't Sell in Some Markets
http://www.npr.org/templates/story/story.php?storyId=12806660


and yet other part of the problem is that some models implemented in automatic trading software (http://en.wikipedia.org/wiki/Quantitative_Analysis_Software_%28Finance%29 , or automated trading systems) can't deal with the current situation.

Blind to Trend, 'Quant' Funds Pay Heavy Price
http://online.wsj.com/article/SB118661841278192411.html

That was the lesson so far this month for many so-called quant hedge funds, whose trading is dictated by complex computer programs.

The markets' volatility of the past few weeks has taken a toll on many widely known funds for sophisticated investors, notably a once-highflying hedge fund at Wall Street's Goldman Sachs Group Inc.

Global Alpha, Goldman's widely known internal hedge fund, is now down about 16% for the year after a choppy July, when its performance fell about 8%, according to people briefed on the matter. The fund, based in New York, manages about $9 ...

Investors Brace for Wild Ride in Financial Markets
http://www.npr.org/templates/story/story.php?storyId=12732549


Markets trapped on wild ride
http://marketplace.publicradio.org/shows/2007/08/15/AM200708151.html

Uncertainty continues to plague stock markets here and around the world. And after an unusual profit warning from Wal-Mart yesterday, overseas investors are particularly concerned that American consumers are out of spending money.

Amid 'panic,' what's a portfolio worth?
http://marketplace.publicradio.org/shows/2007/08/14/PM200708142.html

Kai Ryssdal: Mattel shares gave up about 2.5 percent today. Could have been worse, given the rout on Wall Street. Investors threw in the towel early this morning after disappointing earnings news from Wal-Mart and Home Depot. That sowed fears consumer spending might be slowing down. Never a good thing, the analysts will tell you.

For the most part, though, it was the financial sector people were keeping an eye on. The big investment banks like Goldman Sachs and Bear Stearns. Everybody's waiting for the next shoe to drop as credit keeps getting tighter and tighter. And they didn't have to wait long today.

Although that thudding sound you might have heard came from an unlikely source. Sentinel Management Group, out of Northbrook, Ill. runs funds that handle trades out of the commodities futures markets. Or at least it did run those funds.

The group said today it's going to stop letting investors redeem their shares until what it called "the panic" is over. Echoing the news from BNP Paribas of last week, Sentinel's having trouble figuring out exactly what those shares might be worth.

Steven Miller tracks what's called the leveraged finance market for Standard & Poors. Steven, good to have you here.

. . . .

Miller: So when the new-issue market breaks down and seizes up like it is today, it's very hard to look at the new-issue market for a price. And therefore, it becomes enormously hard to value assets that have been outstanding for awhile.

Ryssdal: That's the function known as mark to market, right?

. . .

If Mark-to-market sounds familiar, think Enron.

More on Mark-to-market - http://en.wikipedia.org/wiki/Mark_to_market


If the Americans stop shopping, then panic
http://business.timesonline.co.uk/tol/business/columnists/article2260546.ece

The chief executive of Wal-Mart, H Lee Scott, yesterday delivered disturbing news from the aisles of America’s biggest retailer: “It is no secret that many customers are running out of money towards the end of the month,” he said. “The pay-cheque cycle is in fact more pronounced now than it ever has been.”

The collapse of sub-prime lending in the US has, so far, spooked corporate lenders, roiled the global equities markets and mortally wounded a handful of hedge funds.

In broader economic terms, though, its impact has so far been limited. On the eve of the recent ructions in world markets, the International Monetary Fund revised up its forecast for global growth to 5.2 per cent for 2007 and 2008.

But the reports from Bentonville, Arkansas, that the average US shopper is feeling the strain raise the worrying possibility that the credit crisis could yet leach into the real economy. After all, the American consumer remains the Charles Atlas of modern world economic growth: he holds it up. So, Mr Scott’s description of the mood in the malls of America – “US consumers continue to be under difficult pressure economically” – reinforced last month’s retail sales data and knocked more than 100 points off the Dow Jones industrial average in morning trading.

Inflation Slows in July, Output Gains
http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8R1IM700&group=ap.online.headlines.business

Consumer prices, which had been surging earlier in the year, edged up a tiny 0.1 percent last month, the smallest advance since prices were flat last November, the Labor Department reported Wednesday. Core inflation, which excludes volatile energy and food, was also well-behaved, rising by just 0.2 percent, the same as June.

Meanwhile, the Federal Reserve said that industrial output rose by 0.3 percent in July, following a 0.6 percent increase in June. The increase last month was led by a solid 0.6 percent increase in manufacturing, the second straight month that factory output has increased by this level.

Output in mining, which includes oil production, rose by 0.7 percent but output at the nation's utilities fell by 2.7 percent last month.

The increase in industrial output was in line with expectations. Analysts believe that U.S. factories, after being hit by a slowdown late last year, are starting to revive the economy in spite of continued troubles in the housing sector.

Two other reports Wednesday showed that housing remained under pressure. The National Association of Realtors said that home sales fell in 41 states in the second quarter, compared to the same period a year ago. The declines were led by drops of 41.3 percent in Florida and 37.5 percent in Nevada, two previously hot sales areas that have been hard hit by the current slump.

And the National Association of Home Builders said its monthly survey of builder confidence fell to 22 in August, its lowest level in more than 16 years, as rising problems in obtaining home loans dampened sales prospects.

Some apparent good news-

Deere Profit Rises 23 Percent in 3Q
Sara Lee 4Q Profit Soars on Strong Sales

But how much of Deere's profit is based on credit (leveraged purchases)?


The market may stabilize, or even recover somewhat as people look for bargains, and especially if the Fed lowers the interest rate.

But basically the economy is over-leveraged and thus is in a period of instability.

 

[Astronuc]

A Lot of Blame to Share in Subprime Sinkhole
http://www.npr.org/templates/story/story.php?storyId=12847198

All Things Considered, August 16, 2007 · Robert Siegel talks with Financial Times reporter Saskia Scholtes about the article "As Subprime Bites, U.S. Investigators Look for Culprits."

Scholtes, and colleague Brooke Masters, found fraud at myriad levels of the market, from borrowers who overstate their incomes, to fraudulent companies that offer help to lie about income, to lenders who don't bother to check, . . .

to other financial companies who bundled the mortgages into securites, which were sold to unsuspecting investors.

Unbelieveable!


As subprime bites, US investigators look for culprits
http://us.ft.com/ftgateway/superpage.ft?news_id=fto080820071539268198
By Brooke Masters and Saskia Scholtes
Wednesday Aug 8 2007 15:05

At the height of the US subprime lending boom, taking out a mortgage ??could not have been easier. Low credit score and history of bankruptcy? No problem. Income too low to qualify for a mortgage? Inflate what you earn on a "stated income" loan. Nervous that your lender might check up on your "stated income"? Visit www.verifyemployment.net.

For a $55 fee, the operators of this small California company will help you get a loan by employing you as an "independent contractor". They provide payslips as "proof" of income and, for an additional $25, they also man the telephones to give you a glowing reference should your lender need it.

But perhaps the most absurd aspect of the US subprime mortgage market in recent years is that lenders became so generous with credit provision for out-of-pocket borrowers that very few checks were ever made.

The Dow was off by 340 points but recovered by closing to only loose ~16 points. The NASDAQ and S&P500 also recovered. However they could all fall again over worries of unsecured mortgage debt and increased default rates.

 

[Astronuc]

After recovering last week, the Dow started this week downward again with a 280 point drop yesterday. It can recover if the Fed lowers interest rates.

However, of more significant concern:

Home prices fall record 3.2% nationally
Values down in 15 of 20 major cities, Case-Shiller finds

It marked the largest year-over-year decline ever recorded in the 20-year history of the Case-Shiller home price index. A year ago, home prices were rising at a 7.5% pace nationally.

"The pullback in the U.S. residential real-estate market is showing no signs of slowing down," said Robert Shiller, chief economist at MacroMarkets LLC, which computes the price index for S&P.

. . . .

Falling prices make it more difficult for homeowners to tap their home equity or refinance their mortgages. Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as a result of payment resets.
. . . .

Not a good sign.

 

[Jimmy Snyder]

Does this have any bearing?

U.S. poverty rate dips 0.3 percentage points.
www.msnbc.msn.com

 

[Astronuc]

Does this have any bearing?

U.S. poverty rate dips 0.3 percentage points.
www.msnbc.msn.com

That's good news for those who moved above the poverty line, but then I have to wonder by how much.

At the same time, many of those just above the poverty line do not have medical or dental insurance.

U.S. health insurance crisis getting worse
http://marketplace.publicradio.org/shows/2007/08/28/PM200708283.html

The U.S. Census Bureau has some good news and some bad news: There are slightly fewer Americans out of work, but there's also a sharp upturn in the number of people without health insurance.

Low prices come with low wages
http://marketplace.publicradio.org/shows/2007/08/29/AM200708292.html

Middle class still shrinking
http://marketplace.publicradio.org/shows/2007/08/28/AM200708287.html

Researchers predict that 2006 data will show a dwindling middle class when the census bureau releases its annual report on income, poverty and health insurance today. And that's bad news for folks above the $75,000 line too.

The US economy is doing well by some measures and poorly by others. It may be doing well, but from my vantage point, it's not good enough, and too many people have been left behind.


For the details see - http://www.census.gov/hhes/www/poverty/poverty.html
http://www.census.gov/hhes/www/hlthins/hlthin06.html

Household Income Rises, Poverty Rate Declines, Number of Uninsured Up (2006)
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/010583.html

 

[Jimmy Snyder]

Middle class still shrinking

And the poverty class shrinking too. Take heart, it sounds good to me.

 

[Jimmy Snyder]

Here's some historical figures on the poverty rate in the US.

http://www.census.gov/hhes/www/poverty/histpov/hstpov2.html

I note that the Bush era has shown steady deterioration while the Clinton era showed steady improvement. However when compared with historical data from the 50's and 60's, I see no cause for despair. Also, the past two years have shown improvement. The best year for poverty was 1973, a year in which financial news was quite dismal. It was the year of the oil shock.

Not all can be laid at the feet of 'them'. Apparently, being in a family reduces the rate by roughly 1.7 points. This is a huge percentage of the delta for the entire period from 1966 onwards. Forcing poor people to marry would be a good thing if it weren't such a bad thing. I'm sure there are other things the poor could do to set our minds at ease. For instance, in my opinion, we'd all be better off if they just voted.

 

[edward]

Does this have any bearing?

U.S. poverty rate dips 0.3 percentage points.
www.msnbc.msn.com

If even true that is too small of a change to make any significant difference. They didn't give any stats.

In recent years the Census Bureau has started using a new telephone based data collection method.

14 million children are still without health care and the working poor are still poor.

 

[Jimmy Snyder]

If even true that is too small of a change to make any significant difference. They didn't give any stats.

Those ARE stats. What amount of change would be significant?

 

[edward]

First Magnus Mortgage was based in Tucson. A week ago Friday they notified their 700 local employees to clean out their personal belongings and go home. They did the same with another 5,000 employees nationwide.

The company is unable to pay the final paychecks due, has some how tied up the 401 K's that people are in desperate need of, and they also canceled their medical coverage before the firings/layoffs making it impossible for former employees to buy COBRA policies.

Check out their web site:

http://www.firstmagnus.com/

 

[Jimmy Snyder]

Here are a couple of excepts from the site I gave, emphasis mine:

The nation’s poverty rate dropped last year, the first significant decline since President Bush took office.

In 2005, the poverty rate dipped from 12.7 percent to 12.6 percent, but Census officials said that change was statistically insignificant.

http://www.msnbc.msn.com/id/20476601/