Re: Are You Economically Scared?
queer:
elmo is probably a better bet than economists if you ask me, rv.
every economist claims to understand everything about the current economic situation until this very instant (although each one would give you a different picture). but if you ask them where things are headed next, the only certainty is that they are all wrong. :\
economists have hugeass blindspots. the economy today is quite complex, has so many variables and swings to every tiny political crisis, none of which is quantized into any economical argument any more than elmo’s handwaving. ceo1, are you seriously an economist pal?
Southie:
I think AMR bankruptcy is not very relevant. The Airline industry is a very poorly run industry, always negative cash flow - and regularly moving in and out of bankruptcy.
The picture is bleak in Europe. Banks could be exposed to lot of bad sovereign debt from Italy, Portugal Greece Spain, Ireland. As Yasdi posted today in another thread, things are getting bleaker. Italian bonds now yield 7.5-8% (high yield indicate poor credit quality). Greek bond yields are through the roof. So to get a feel for economy of each country, google their respective bond yieldsm and you shold get as good a picture as Elmo or any other economist can provide.
US treasury yields are ~ 2.8% for 10-year. So people are rushing to perceived safety of US govt bonds.
If Greece defaults, that can lead to chain reaction. Banks with exposure to Greece sovereign debt will suffer. They will led less to industry - leads to slowdown.
No one can predict with certainty what will happen.
Southie:
A poor economy is obviously tough on those who have lost their jobs. It can be very traumatic - having grown up in a similar situation, I can relate.
However, OP also asked if this can make one lose confidence in one’s investments. One should not confuse state of economy with future potential returns on one’s investments. Most times, buying in the teeth of a recession ensures high future returns, because asset prices have been knocked down already to below fair value.
Hence, if one’s asset allocation is sound, one should stick to routine investments of fixed amounts with the same allocation rations among each asset class. Keep it simple is a policy that will win out in the long run.
Southie:
Market up another 3 pct today - up 6 pct in last 3 days. Folks need to be able to separate state of economy from potential future returns - at best not much correlation, at worst, inversely correlated.
Make that up 4.3% today - up 7.3% in last 3 days. This is a demonstration of why one should not pay to much attention to macro or micro (whatever that means) economic factors while making investment decisions. If price is fair or below fair value. If price is significantly above fair value, lighten up a bit.
Japan’s problems are unique, IMO. Their aging population means less people supporting more old folks. I agree that US demography is also heading in that direction. But US does have an immigration policy geared towards addressing this very issue - so as the need arises, I suspect more immigrants will be allowed in to support the aging population.
Another main difference, Japan’s stock market circa 1986 was at a price to earnings ratio of about 90!! Now, P/E of 15 is reasonable assuming say 6% earnings growth and a 4% dividend yield. So it was > 6X overvalued since the dividen yield must have been south of 1%. Also, I assume the earnings going forward rose probably at 3% annualized rate, not 6. So it would take 72/3 = 24 years for earnings to double. So after 24 years (ie 2010), P/E still high at 40 (80/2) if price stays flat. Still way overvalued. From memory, I think Nikkei was at say 25000 then. Now it is at ~ 8300, or a factor of 3 lower. So what is the current P/E? It is 40/3 = 13.3.
I believe Nikkei P/E is very close to my back of the envelop calcs above.
Long story short, if you pay nosebleed levels for an asset, you are guaranteed poor returns. And vice versa.
Fear in government is not going to keep stock prices down too long. Eventually earnings and dividends drive stock market prices.
Warren Buffet does not even consider economic conditions when he buys (or rarely sells) a stock - he just considers if stock is selling at below fair value.
Assuming prices remained flat, and earnings g
Queer and Southie uncle has made the best comments in my opinion…and we did have an economic update at work due to the field I work in, and everything that Southie uncle said is what we got for our info too…just coz the US market is not doing well NOW does not mean that there is no more potential..NOW is actually the time to invest more in the US..as far as I know we are buying more stock in the US right now than ever before…STAY DIVERSIFIED!!!