Financial Crisis

[flying]

Some of your funniest posts:

Now if those posts aren't hilarious, you don't have a sense of humor.

Well glad to hear your at least saying funny. That means your unwinding a lil bit.

Here is another funny one for you.....I still stand behind those posts.

1) We have not seen bottom & they have restored zero faith.

(stock market propping not withstanding) I know you consider teh stock market the economy ...I do not.

2)If you own a suit you can join the three I mentioned...obviously

3) We have continued down...again except the casino the UE is worse.

4)Crime/theft is in fact up.

Good to see you smiling & your arteries will thank you later.

[flying]

so i am wondering if this kind of attitude could spread to

money owed to the IRS e.g after the big tax hikes coming in January 2011 ?

That would be fun and games

Actually it has & in no small quantities.

The attitude is not blatant but there due to circumstance.

There are so many unemployed now. Many have also already lost their UE benefits.

Others might be like me & work for themselves & never had any UE benefits.

These folks now have no *legal* income. They do not just lay down & die.

They work any way they can. They now work for cash they pay no tax. In many ways it is becoming better. You can now get your car fixed by one of the many unemployed mechanics at his house for a much better price albeit cash or trade.You can now get your house painted cheaper as there are so many unemployed painters. Same goes for many other deals available.

The next group do not work at all but have kids & live off the govt. for cash,food,housing & medical they also pay no tax.

Perhaps those that are left to pay will continue. But considering what the govt. are spending/creating & what they have coming in...I am not sure they can raise it anywhere near even anytime soon

Edited October 11, 2010 by flying

[midas]

Again Midas do not live in dream land.

Well Abrak i look forward to hearing what reply you receive from Obama and the likes

of Cass Sunstein and George Osborne after you have told THEM not to live in dream land

After all they are the ones who have these " ideas ".

But dont forget Kim Il-sung The Great Leader once had an idea - it

was called " The Juche Idea " and guess what ......it became a reality

[siamamerican]

Some of your funniest posts:

Now if those posts aren't hilarious, you don't have a sense of humor.

Well glad to hear your at least saying funny. That means your unwinding a lil bit.

Here is another funny one for you.....I still stand behind those posts.

1) We have not seen bottom & they have restored zero faith.

(stock market propping not withstanding) I know you consider teh stock market the economy ...I do not.

2)If you own a suit you can join the three I mentioned...obviously

3) We have continued down...again except the casino the UE is worse.

4)Crime/theft is in fact up.

Good to see you smiling & your arteries will thank you later.

Lets try to have a rationale discussion.

1) I don't consider the stock market the economy. It is a fairly acurate reflection, looking at its trends. It usually goes down before the overall economy bottoms and goes up before the economy does.

Since we hit bottom:

USA unemployment has grown to 10%-20%, depending how you look at it. NOT good but arguably better than the last bad recession we had in the 80's and much better than the "crash". Unemployment goes up during downturns and slowly recovers. Will it happen this time around? You and I don't know but I'll take the historical perspective. I don't think hippies are going to hit the streets with machine guns ( sorry just had have a little fun with that past post of yours).

Sovereign debt and debt in general has created havoc and will continue to do so in my opinion. Nations that borrow excessively need to feel real pain before they correct their ways. I don't think we have experienced enough pain to date.

Global corporate profits up substantially

Emerging markets earnings are soaring and are 25%+ of what they were pre-crisis

Property value declines have leveled off. I still think property is over valued throughout the world but that is another discussion

The general economic sentiment has improved greatly since the panic but not to the point where people are confident.

3. We have continued down? OK, I don't see it and it sure seems the world is on better footing than March 2009.

4. Crime is up. Don't get your point. Crime is up and........

What measurements do you use in determining we didn't reach a bottom sometime in 2009?

[flying]

Lets try to have a rationale discussion.

1) I don't consider the stock market the economy. It is a fairly acurate reflection, looking at its trends. It usually goes down before the overall economy bottoms and goes up before the economy does.

Since we hit bottom:

USA unemployment has grown to 10%-20%, depending how you look at it. NOT good but arguably better than the last bad recession we had in the 80's and much better than the "crash". Unemployment goes up during downturns and slowly recovers. Will it happen this time around? You and I don't know but I'll take the historical perspective. I don't think hippies are going to hit the streets with machine guns ( sorry just had have a little fun with that past post of yours).

Sovereign debt and debt in general has created havoc and will continue to do so in my opinion. Nations that borrow excessively need to feel real pain before they correct their ways. I don't think we have experienced enough pain to date.

Global corporate profits up substantially

Emerging markets earnings are soaring and are 25%+ of what they were pre-crisis

Property value declines have leveled off. I still think property is over valued throughout the world but that is another discussion

The general economic sentiment has improved greatly since the panic but not to the point where people are confident.

3. We have continued down? OK, I don't see it and it sure seems the world is on better footing than March 2009.

4. Crime is up. Don't get your point. Crime is up and........

What measurements do you use in determining we didn't reach a bottom sometime in 2009?

Sure we can have discussions...

But I never claim to be the expert so dont later come back a year from now & dig this post up

Glad to hear you do not think the market is the economy but I disagree that it is even a good reflection.

Perhaps in days of old...even that I cannot say for sure.

But today the only reflection we see is the reflection of billions of dollars being given to certain players to....well play & make it all look rosy.

I am not saying that folks like you cannot run in & out & make a buck while it exists.

I just do not think it is any indicator of a healthy economy/country/world

As for property & sentiment leveling off I guess it depends on who is in your circle that you poll.

If a better footing means that we now are 13 trillion in the hole & the USD currency is falling faster than a stone well I will have to disagree again as that does not appear as a positive to me.

If it means folks have returned to meaningful work.. again I disagree.

If you mean UE is dropping... again I disagree & do not appreciate the fact that they purposely fudge the numbers.

The indicators I use are my eyes & ears..Things are not alive & well in middle class America.

As for crime is up and? ....and it will continue to get worse as more & more have less & less.

Of course all I have stated is my opinion & I never claim it as anyone's gospel.

We will all see what we will see in the next year or two.

I am sure we all hope for the best

Edited October 12, 2010 by flying

[teletiger]

Of course it wont quite seem as high as that because they will also predict the UK economy will buck this trend by growing at 2% real, implying a supercharged underlying growth rate.

"U.K. Economy `Slowed Considerably' in Third Quarter, BCC Says"

http://www.bloomberg.com/news/2010-10-11/u-k-economy-needs-forceful-steps-after-third-quarter-slowdown-brc-says.html

Hmm...They may need to rehire new Labour's spin doctors for this operation.

"Paging Dr Mandelson"......"Dr Peter Mandelson".

Regards.

[Naam]

Flying check your mail. have sent you a sat-photo of the 4 homes i built for me and some friends in FL stating, year built, cost price, price when sold in 2005 and present "Zillow" estimates.

[teletiger]

Can't you look at the bright side occasionally? No, he can't ... short the Universe.

Short the Universe "and beyond", Jman.

Is there an ETF for that?

OMG, have I just invented inter-dimensional CDO's? "Don't worry, you'll get paid back in your next life".

Regards.

[midas]

Of course I am talking about people who have already drained their bank accounts and have their money in other " forms " .

in other words extremely poor people who can't take a flight or rent a car because the IRS took their car or spend a weekend in a better accomodation than a single star motel... just to name a few restrictions? besides, what bearing would that have on the "financial crisis" or the folks who sit in the White House, Senate, Congress and the Honourable Gentlemen in Goldilocks Sucks et al?

Naam i am not sure i can agree with you on this issue

The website for US Tax Revolt 2010 seems to imply people who are even in a higher tax bracket than

those you refer to above have already thought of a novel way of getting around not paying the IRS ?

This refers to filling out a W-4 form which it seems allows the "taxpayer " to

claim exemption from all withholding taxes ?

" we hold out, by April 15th 2011 we file a tax extension and get six additional months to file. Some point along the way as a group we have to decide to hold'em or fold'em. Our desire is to never pay federal taxes again. When the Jeanie is out of the bottle, the Federal government will have a very hard time putting the tax paying citizens back in."

Maybe flying or someone else would know how it all works but it suggests there are some pretty determined people out there ?

http://ustaxrevolt2010.com/

[teletiger]

When the Jeanie is out of the bottle, the Federal government will have a very hard time putting the tax paying citizens back in."[/b][/i]

I would suggest that the immediate problem is to get the mortgage paying citizenry back into the bottle.

Regards.

[Naam]

"Naam i am not sure i can agree with you on this issue The website for US Tax Revolt 2010 seems to imply people who are even in a higher tax bracket than those you refer to above have already thought of a novel way of getting around not paying the IRS ?

i know that all kind of "legal" ways to cheat the IRS have been tried for decades. i also know none of them worked. the IRS is like a steam roller.

[Abrak]

Lets try to have a rationale discussion.

1) I don't consider the stock market the economy. It is a fairly acurate reflection, looking at its trends. It usually goes down before the overall economy bottoms and goes up before the economy does.

Since we hit bottom:

USA unemployment has grown to 10%-20%, depending how you look at it. NOT good but arguably better than the last bad recession we had in the 80's and much better than the "crash". Unemployment goes up during downturns and slowly recovers. Will it happen this time around? You and I don't know but I'll take the historical perspective. I don't think hippies are going to hit the streets with machine guns ( sorry just had have a little fun with that past post of yours).

Sovereign debt and debt in general has created havoc and will continue to do so in my opinion. Nations that borrow excessively need to feel real pain before they correct their ways. I don't think we have experienced enough pain to date.

Global corporate profits up substantially

Emerging markets earnings are soaring and are 25%+ of what they were pre-crisis

Property value declines have leveled off. I still think property is over valued throughout the world but that is another discussion

The general economic sentiment has improved greatly since the panic but not to the point where people are confident.

3. We have continued down? OK, I don't see it and it sure seems the world is on better footing than March 2009.

4. Crime is up. Don't get your point. Crime is up and........

What measurements do you use in determining we didn't reach a bottom sometime in 2009?

Always happy to hear from an optimist and I do think it has been the right side of the curve. I particularly agree with your comments about corporate profitability being significant.

I do however think you are totally wrong about the unemployment situation. If you look at the chart below you can see the underlying problem is structural rather than cyclical. It shows how long 'employment' takes to recover during a recession. The longest period being the 2000 recession, the next longest the 1990 recession and the third longest was 1981. History is definitely not on your side.

Oh and BTW try sending interest rates to 15% like in 1981 and see what happens to unemployment.

And that is the point and you know it. Anyone is perfectly entitled to take the view that any recovery based on lowering interest rates to practically zero and running up 10% fiscal deficits is not really a recovery of much at all.

[Abrak]

"Naam i am not sure i can agree with you on this issue The website for US Tax Revolt 2010 seems to imply people who are even in a higher tax bracket than those you refer to above have already thought of a novel way of getting around not paying the IRS ?

i know that all kind of "legal" ways to cheat the IRS have been tried for decades. i also know none of them worked. the IRS is like a steam roller.

Oh well I guess as the US decided it wouldnt pay interest on its debt some time ago, it wouldnt take long before people started to think they didnt have to pay tax.

What is really cool is that the CBO is currently forecasting that individual income tax receipts are going to grow 33% next year (it wont make much of a dent in the deficit though).

Please stop paying so that you can stop pretending you are. Total individual income taxes last year were US$945bn and your fiscal deficit was US$1.4trn. So honestly it isnt going to make a whole heap of difference if you all stopped paying tax apart from countries that generate profits might wake up and learn they shouldnt waste them on financing you..

Any sensible question a US citizen might decide to ask is why corporates apparently pay next to no tax. Actually corporate tax is forecast to double over the next 3 years but it is no more than an accounting adjustment in real terms so it doesnt really matter.

Edited October 12, 2010 by Abrak

[midas]

Lets try to have a rationale discussion.

1) I don't consider the stock market the economy. It is a fairly acurate reflection, looking at its trends. It usually goes down before the overall economy bottoms and goes up before the economy does.

Since we hit bottom:

USA unemployment has grown to 10%-20%, depending how you look at it. NOT good but arguably better than the last bad recession we had in the 80's and much better than the "crash". Unemployment goes up during downturns and slowly recovers. Will it happen this time around? You and I don't know but I'll take the historical perspective. I don't think hippies are going to hit the streets with machine guns ( sorry just had have a little fun with that past post of yours).

Sovereign debt and debt in general has created havoc and will continue to do so in my opinion. Nations that borrow excessively need to feel real pain before they correct their ways. I don't think we have experienced enough pain to date.

Global corporate profits up substantially

Emerging markets earnings are soaring and are 25%+ of what they were pre-crisis

Property value declines have leveled off. I still think property is over valued throughout the world but that is another discussion

The general economic sentiment has improved greatly since the panic but not to the point where people are confident.

3. We have continued down? OK, I don't see it and it sure seems the world is on better footing than March 2009.

4. Crime is up. Don't get your point. Crime is up and........

What measurements do you use in determining we didn't reach a bottom sometime in 2009?

Always happy to hear from an optimist and I do think it has been the right side of the curve. I particularly agree with your comments about corporate profitability being significant.

I do however think you are totally wrong about the unemployment situation. If you look at the chart below you can see the underlying problem is structural rather than cyclical.

And what about pensions ? No one talks about the structural problem of pensions ?

I read this passage :-

" Let's say that a California firefighter retires at age 50 making $125,000 a year. He'd retire with a pension of approximately $94,000 per year. It would take about 19 firefighters making $50,000 per year and putting 10 percent of their salaries (which is on the high end because many firefighters put in nothing) into the pension to pay for one year of that retired firefighter's pension.

Now, when those 19 firefighters retire, it will take approximately another 352 firefighters making $50,000 per year and putting 10 percent of their salaries into the pension to pay for just one year of each of the retired firefighters' pensions.

Clearly it's unsustainable. It only works for one generation and the generation that's about to get screwed is starting to realize that. "

Edited October 12, 2010 by midas

[AlexLah]

This whole title issue will be the start of the final meltdown of the US economy unless OB will sign some kind of rule that will help the bankers to avoid court cases in whatever way.

Take care!

Alex

.

and I referred to you as irrelevant. The title issue is now are going to going to cause the final melt down. I'm furiously selling all my equity positions as I type. THANK YOU!

Good!

As I said unless congress tries to sneak in some bill that resolve this issue in favor of the banks and those MBS investors, the system will brake down while exposing this fraud.

This thread is not about how to invest, it is about something else.

Your investment ideas might be more useful in the who is back in the stock market Fred.

[siamamerican]

I do however think you are totally wrong about the unemployment situation. If you look at the chart below you can see the underlying problem is structural rather than cyclical. It shows how long 'employment' takes to recover during a recession. The longest period being the 2000 recession, the next longest the 1990 recession and the third longest was 1981. History is definitely not on your side.

Oh and BTW try sending interest rates to 15% like in 1981 and see what happens to unemployment.

And that is the point and you know it. Anyone is perfectly entitled to take the view that any recovery based on lowering interest rates to practically zero and running up 10% fiscal deficits is not really a recovery of much at all.

Looked at the chart and you're right, unemployment could derail this recovery. My point was that we a hit the bottom in an economic sense in 2009 and never claimed unemployment wasn't a problem because it is. Is it worse than the other recessions/depressions I mentioned. Yes and no depending on how you look at the numbers. It's bad anyway you look at it.

Back to my point. In my opinion, the US and the rest of the world, hit a bottom in 2009. From your last paragraph above, I conclude you feel we haven't reached a bottom. I guess time will tell if you're correct. I've not only expressed in the past that I felt we hit a bottom in 2009 but also invested likewise. I'm back to being a longterm "Graham" value investor and added my last equity positions in June-August this year.

As you mentioned many times on this forum, it is hard to predict the future and I agree. I do think there are higher probabilities of certain outcomes. Right now I feel there is much higher probability that my equity investments will be up substantially in 5 years, compared to being down.

[flying]

Flying check your mail. have sent you a sat-photo of the 4 homes i built for me and some friends in FL stating, year built, cost price, price when sold in 2005 and present "Zillow" estimates.

I saw that thanks.

You know I use to say Zillow rightfully rhymed with pillow because

they were dreaming if they thought their prices were obtainable.

But now I look & see they are quite accurate for what I see here.

I looked at an older home I built way back in 1985 & sold in 2007

The price Zillow shows was pretty close to what it would *maybe* go for if it sold today.

Still I would say Zillow is high by 25k. But they use to be unreasonably high.

But these prices are now 35-40% less than they were at the end of 2007

Edited October 12, 2010 by flying

[flying]

News here just reported QE2 full speed ahead as per FED meeting minutes

http://www.federalreserve.gov/moneta...es20100921.pdf

Edited October 12, 2010 by flying

[Abrak]

And what about pensions ? No one talks about the structural problem of pensions ?

I read this passage :-

" Let's say that a California firefighter retires at age 50 making $125,000 a year. He'd retire with a pension of approximately $94,000 per year. It would take about 19 firefighters making $50,000 per year and putting 10 percent of their salaries (which is on the high end because many firefighters put in nothing) into the pension to pay for one year of that retired firefighter's pension.

Now, when those 19 firefighters retire, it will take approximately another 352 firefighters making $50,000 per year and putting 10 percent of their salaries into the pension to pay for just one year of each of the retired firefighters' pensions.

Clearly it's unsustainable. It only works for one generation and the generation that's about to get screwed is starting to realize that. "

Midas,

Everyone talks about the structural problems about pensions and medicare. It is just about how big of a structural problem there is.

If anyone believes that any economy will provide them the pension they are currently promised you are simply delusional. It is not in fact as big a problem as you might imagine. In fact if you try to imagine it as a problem then you realize it is unsolvable on the basis that people will live longer and require more medicare virtually ad infinitum so that essentially if you wish to project long enough current schemes they will add up to more than the total income of the working population.

Essentially pensions and medicare are known as 'contingent liabilities' which is why they dont appear on a balance sheet because their future payment is 100% dependent on the Government actually paying them which they clearly cannot and will not. The fact that it is unsustainable is simply a fact. You only get screwed if you happen to believe one thing while the reality will be very different. With contingent liabilities, Greece's public sector debt is approximately 800% of GDP. To call this a problem is clearly not realistic unless you believe that competing for the 100m at the Olympics with only one leg is a problem.

And a 'pension' isnt even a contingent liability beacause that implies that there are circumstances whereby this liability might have to be paid (say like a derivative.) A pension liability is solely at the discretion of the

Government which will decide whether it can possibly afford it. Based on the last couple of years, I would assume that if you are under the age of 40, that you will receive no pension whatsoever. Or you can assume you are going to be taxed to high hel_l over the next 30 years in which case you might end up with something but it really doesnt make much difference on a discounted cash flow basis.

In reality, pensions will become an 'accidental living benefit'. In other words for a 40 year old it will kick in about 80 and then you can enjoy it for the remains of your life. BTW I do consider the French as delusional. Still it appears the US population wishes to stop paying taxes which is highly optimistic when they are not even being taxed, so I am not surprised that some people imagine problems when an unsolvable problem is not a problem at all.

[DoubtingThomas]

And what about pensions ? No one talks about the structural problem of pensions ?

I read this passage :-

" Let's say that a California firefighter retires at age 50 making $125,000 a year. He'd retire with a pension of approximately $94,000 per year. It would take about 19 firefighters making $50,000 per year and putting 10 percent of their salaries (which is on the high end because many firefighters put in nothing) into the pension to pay for one year of that retired firefighter's pension.

Now, when those 19 firefighters retire, it will take approximately another 352 firefighters making $50,000 per year and putting 10 percent of their salaries into the pension to pay for just one year of each of the retired firefighters' pensions.

Clearly it's unsustainable. It only works for one generation and the generation that's about to get screwed is starting to realize that. "

Midas,

Everyone talks about the structural problems about pensions and medicare. It is just about how big of a structural problem there is.

If anyone believes that any economy will provide them the pension they are currently promised you are simply delusional. It is not in fact as big a problem as you might imagine. In fact if you try to imagine it as a problem then you realize it is unsolvable on the basis that people will live longer and require more medicare virtually ad infinitum so that essentially if you wish to project long enough current schemes they will add up to more than the total income of the working population.

Essentially pensions and medicare are known as 'contingent liabilities' which is why they dont appear on a balance sheet because their future payment is 100% dependent on the Government actually paying them which they clearly cannot and will not. The fact that it is unsustainable is simply a fact. You only get screwed if you happen to believe one thing while the reality will be very different. With contingent liabilities, Greece's public sector debt is approximately 800% of GDP. To call this a problem is clearly not realistic unless you believe that competing for the 100m at the Olympics with only one leg is a problem.

And a 'pension' isnt even a contingent liability beacause that implies that there are circumstances whereby this liability might have to be paid (say like a derivative.) A pension liability is solely at the discretion of the

Government which will decide whether it can possibly afford it. Based on the last couple of years, I would assume that if you are under the age of 40, that you will receive no pension whatsoever. Or you can assume you are going to be taxed to high hel_l over the next 30 years in which case you might end up with something but it really doesnt make much difference on a discounted cash flow basis.

In reality, pensions will become an 'accidental living benefit'. In other words for a 40 year old it will kick in about 80 and then you can enjoy it for the remains of your life. BTW I do consider the French as delusional. Still it appears the US population wishes to stop paying taxes which is highly optimistic when they are not even being taxed, so I am not surprised that some people imagine problems when an unsolvable problem is not a problem at all.

Apologies if this has already been raised; this is an awfully long thread and I really don't have the time to wade through the whole lot.

The use of the term "contingent liability" amuses me, not because it is not accurate (by definition, Governments can do as they please and despite us all delusionally (new word I invented!) believing our Governments are democratic, we all really know they're not) bur because there is an assumption that a Givernment could successful renege on the liability. I'm not going to argue the numbers; it must be clear to all that the money is just not currently there. It must also be clear to all that it could be there, it just depends upon how your Government decides to spend it; preserving your freedom through invading Iraq or putting food on the plates of those who, in good faith contributed to N.I./Pensions or Social Security, depending upon where you're from. I don't know exact numbers because I don't go back far enough, but I can tell you that if you have worked in the US for the last 20 years in a good paying job (so you have paid maximum - it maxes out - social security) between you and your employer you have contributed over $200k. More savvy market players out there can run better numbers than me, but I did a quick fag packet (napkin) calculation, working on a number 2% below the average market return, and I come up with a value north of $400k. In other words, if me and my employer had, instead of giving that money to the Government had put it in, say, my 401K, it would today perhaps be worth $400k. In exchange for this, the Government currently pays me $1500 a month. Now I intend to live for a bloody long time, but you don't need to be a financial wizard to figure out I'm being screwed already.

All of which leads to what? Well, there are an awful lot of voters out there, say those over 45, who have paid an awful lot of money to Governments over the years and who expect their contract to be honored. I cannot see any Government stopping or even capping current or soon to be due payment, and soon is probably as long as 15 years. To do so would surely be political suicide. There are just too many of us; obviously, else the problem would be less!

Nevertheless, something has to happen, and soon. I can think of quite a number of schemes that would work, but they ALL will have to involve a cut off age (i.e. anyone under this age will not get a Government pension), they ALL involve finding a way to meet the next (probably) 50 years commitment and they all involve the Government getting out of the game. The biggest problem with all Governments is that they are constituted of short timers, here today, gone tomorrow politicians who are, unless they're on the wrong end of a losing war, rarely held accountable for their screw-ups (except being voted out, bfd) and looking only to make themselves look good in the short term and line their pockets in the long term. This whole pension mess has been hanging out there, screamingly obviously on the horizon, for at least the past 30 years. But, the fly by night politicians only become aware of it when it might actually be an immediate problem during their tenure.

Those in their prime earning years should be pressing the Government to get their act in order, allow them to opt out of SS and put the money into 401K or equivalents instead. They might get screwed by the stock market, true, but the WILL get screwed by the Government.

[Abrak]

Looked at the chart and you're right, unemployment could derail this recovery. My point was that we a hit the bottom in an economic sense in 2009 and never claimed unemployment wasn't a problem because it is. Is it worse than the other recessions/depressions I mentioned. Yes and no depending on how you look at the numbers. It's bad anyway you look at it.

Back to my point. In my opinion, the US and the rest of the world, hit a bottom in 2009. From your last paragraph above, I conclude you feel we haven't reached a bottom. I guess time will tell if you're correct. I've not only expressed in the past that I felt we hit a bottom in 2009 but also invested likewise. I'm back to being a longterm "Graham" value investor and added my last equity positions in June-August this year.

As you mentioned many times on this forum, it is hard to predict the future and I agree. I do think there are higher probabilities of certain outcomes. Right now I feel there is much higher probability that my equity investments will be up substantially in 5 years, compared to being down.

Siamamerican,

I at no point said that you are not aware of the faults in the recovery we have seen.

As a long term investor in say equities you can look over the last 100 years and see that the median equity return is 10% based on a highly biased PE, yield and growth rate. The bias is created by the skewed payout ratio. The actual return on equities will tend to be the dividend yield plus growth rate or more accurately the FCF return on equities.

Any valuation that you care to put on equities will depend on your future real growth rate and your inflation rate (only if you care to base your discount rate on historic values) as opposed to considering real values in which case inflation essentially is irrelevent. All you can really tell about equities is that they are cheap relative to bonds unless you assume deflation of prices (or that interest rates can fall below zero.)

What it is very easy to do is to take the current risk free rate and justify equities or even speculating in distressed property. But the valuations that you see as attractive are very much dependent on those low interest rates (and to a lesser degree that inflation will remain positive.) You cannot make an absolute return argument unless you believe in significant real growth. From where I stand the natural assumption is no real growth and positive inflation, which is clearly bullish for equities. In fact it is fairly illogical not to be bullish of equities at the current moment on the basis that the FCF yield is high relative to risk free returns and nominal rates cannot fall below zero.

I genuinely have no idea how things are going to pan out. I basically trend towards no growth and positive inflation. Economies built on unrealistically lower interest rates and unrealistically high fiscal deficits, I find difficult to predict. Realistically they are unsustainably high whether the economy can grow over the next ten years is debatable rather than a foregone conclusion. Anyone who happens to believe that say US real GDP is unsustainably high is supported by the fact that the US is inherently cash flow negative.

I dont believe we will have a crisis to match March 2009. I do not believe that we will return to historic growth rates because they were not real. The big risk is inflation getting out of control because there is no way the economy can sustain a very significant rise in nominal rates.

By that I am assuming something of a conspiracy theory, inflation is forecast at no more than 2% over 10 years and I believe that equity valuations point lower. However if inflation was to reach 6% (and who is really to say it isnt there)_then you can basically throw everything out of the window although you will have made so much out of your equities by then you probably wont care.

To be honest if you take nominal rates low enough you can ramp any market you choose to, especially if you combine it with a bit of inflation. QE2 is a recipe to ramp markets by lowering interest rates and increasing inflation. To say there is anything much real happening is really optimistic. Really to believe in equities only takes a little faith that inflation will be positive and that real interest rates are not going to rise. To be honest I dont think your bet on equities is based around real growth as it isnt that sensitive in terms of FCF. I am willing to bet that you are essentially betting on inflation being positive which is a pretty good bet but doesnt tell you anything much in terms of the real growth rate.

So really your argument is slightly circular, if in fact what you are really betting on is positive inflation and low interest rates rather than positive real growth. And to be honest if you look at the parameters betting on positive rather than negative inflation seems a sensible worldview, betting on nominal interest rates remaining low (as in 10 year rates not exceeding 5%) seems a good call, I just dont feel that there is any real conviction to invest in equities on the basis of real growth.

What you see in equity prices (starting to happen) and in PM's to a large extent is a growing conviction in inflation (which you can also see in corporate profitability). And whatever the numbers tell you I think there is more conviction in inflation (or the lack of deflationary prices) than there is in any significant real growth.

[Naam]

Flying check your mail. have sent you a sat-photo of the 4 homes i built for me and some friends in FL stating, year built, cost price, price when sold in 2005 and present "Zillow" estimates.

I saw that thanks.

You know I use to say Zillow rightfully rhymed with pillow because

they were dreaming if they thought their prices were obtainable.

But now I look & see they are quite accurate for what I see here.

I looked at an older home I built way back in 1985 & sold in 2007

The price Zillow shows was pretty close to what it would *maybe* go for if it sold today.

Still I would say Zillow is high by 25k. But they use to be unreasonably high.

But these prices are now 35-40% less than they were at the end of 2007

the Zillow price estimate is exactly 100,000 dollars below my cost price when i built in 1994. it's not only an assumption but i know that building material has gone up considerably since then. therefore i wonder how the construction industry is doing and whether waterfront lots took a hit too. just the lot would cost me a fortune in my home country!

[Naam]

I read this passage :-

" Let's say that a California firefighter retires at age 50 making $125,000 a year. He'd retire with a pension of approximately $94,000 per year. It would take about 19 firefighters making $50,000 per year and putting 10 percent of their salaries (which is on the high end because many firefighters put in nothing) into the pension to pay for one year of that retired firefighter's pension.

Now, when those 19 firefighters retire, it will take approximately another 352 firefighters making $50,000 per year and putting 10 percent of their salaries into the pension to pay for just one year of each of the retired firefighters' pensions.

Clearly it's unsustainable. It only works for one generation and the generation that's about to get screwed is starting to realize that. "

let's say it looks like complete bull to me that an average firefighter anywhere in the GNoE™ makes $125k a year.

[Abrak]

Everything I feel about the QE2 policy is summed by the Chicago Fed Chief....

…”The size of the employment gap, combined with the fact that inflation has been running below the level I consider consistent with long-term price stability, suggest that it would be desirable to increase monetary policy accommodation to boost aggregate demand. Inflation could stay below desirable levels for the foreseeable future. “

Now I know he is a lot smarter than me and I also know he has access to a lot more information that I have. But somewhere 'my gut feel' is that this guy is 'wrong'. Just plain 'wrong'.

I do my own analysis, reach my own conclusions and fully respect this guy is better informed and more intelligent than me but I still think he is 'wrong'. The 'employment gap' as a cyclical phenomenon does not fit with the data that clearly shows that the US economy has been consistently losing its power as an employment machine. It is not a cyclical phenomenon but a structural one.

In my view he misses a very salient point about the US economy. You essentially can take two views - one is that between 2000-2007 it didnt really grow it was an asset bubble fueled debt economy or that it grew in line with its long term historic average. And to be honest, I know that most people on this thread will agree with me, because it really amounts to common sense taking precedence over an illusion.

Look Greece didnt really grow at 4% real for a decade, everyone can face that reality. I read this guys comment and I despair. If I am wrong and there is no inflation and there is no growth because there is no inflation, then it doesnt matter a jot because I am not running the place. However if there is really no growth and inflation (or say least not deflation) then his economic policy is both disastrous and illogical.

I am perfectly happy if he proves me wrong which he should do. However I fear I am simply spouting common sense rather any real incite. The Fed has never admitted that their was a debt fueled asset bubble (output gaps and employment gaps) are simply assuming they never got anything wrong and that no underlying problem exists. Now I know that Siamamerican is a bull but I also know that he can see a debt fueled asset bubble growth story when he sees one. Anyway that is how I see the US and the concept that it has temporarily gone off its growth path is very optimistic.

And the real reason is that I think this guy is plain outright lying. I think there is no real evidence that inflation is below 2%. And certainly not below a level 'consistent with long term price stability.' I suspect the actual policy is to ramp inflation expectations and lower nominal interest rates. And this as a long term economic policy is equivalent to blowing your brains out.

[flying]

majority of building materials has been pretty tame in price increases over the years here.

the Zillow price estimate is exactly 100,000 dollars below my cost price when i built in 1994. it's not only an assumption but i know that building material has gone up considerably since then. therefore i wonder how the construction industry is doing and whether waterfront lots took a hit too. just the lot would cost me a fortune in my home country!

I can only say what is my personal experience but... Construction industry here is doing poorly for a couple of years now. With the exception of some commercial building.Residential builders have no work for the most part.

If someone wants a house they would be crazy not to look at the existing new & used inventory as it is over flowing.

The area you built in 94 may have had high costs associated with skilled labor? from my perspective building materials have not really moved all that much in many years. I am talking about standard wood home construction.

Of course anything with iron/steel has gone up. Same goes for copper piping of course.

But that aside the prices of the rest of the materials has not moved all that much.

But in my experience over the last 20-25 years here I have always said so.

To young folks I always say buy land when you can because at the end of the day that is what really changes. But remember I am a builder so my view is skewed.

Now when you say water front lots.....Yes in some areas the price is down quite a bit but in comparison to their inflated prices only. They still have a ways to go...but that is my opinion & not advice.

Other areas that I look at the property prices have not yet fallen to where I would guess they will go. But if not distressed the owners seem ok with sitting on it for now.

[Naam]

"The area you built in 94 may have had high costs associated with skilled labor? from my perspective building materials have not really moved all that much in many years. I am talking about standard wood home construction."

lumber has gone up considerably, especially in the 90s (remember the Spotted Owl?). even if outside walls are built with concrete blocks for the inside walls and the roof structure (as opposed to other countries) a bundle of wood is necessary because the framers succeeded in rejecting steel posts.

[flying]

"The area you built in 94 may have had high costs associated with skilled labor? from my perspective building materials have not really moved all that much in many years. I am talking about standard wood home construction."

lumber has gone up considerably, especially in the 90s (remember the Spotted Owl?). even if outside walls are built with concrete blocks for the inside walls and the roof structure (as opposed to other countries) a bundle of wood is necessary because the framers succeeded in rejecting steel posts.

hahah Yes i remember that ruse very well as i complained about it back then.

But no in my neck of the woods (no pun ) I really have to say I still think it is not too bad.

Example you can still get nice untreated 2x4x8' for $2 each

Treated studs of course run more at $3.46 each

Some things like wood siding T1-11 style has gone up considerably I guess.

5/8'x4x9 is now $75 a sheet

Yet 3/4" x4x8 full face T&G underlay ply ( subflooring ) is only $36 a sheet odd eh? Considering the 3/4" is thicker & has T&G edges. Yet the T1-11 is weak considering the fake grooves for looks.... labor intense I guess is there claim.

A smart carpenter would use full thickness or non-grooved T1-11 with battens @ 16" o.c. to achieve the look & have a better building at a lower cost.

Beams like 4x8 say an 8 footer is $20.69 or roughly $2.50 a foot ...not bad all in all.

So yes it does go up but I feel for the 20+ years it has not really gone nuts at least here.

Maybe they import a lot from Canada? Not certain

[Abrak]

"The area you built in 94 may have had high costs associated with skilled labor? from my perspective building materials have not really moved all that much in many years. I am talking about standard wood home construction."

lumber has gone up considerably, especially in the 90s (remember the Spotted Owl?). even if outside walls are built with concrete blocks for the inside walls and the roof structure (as opposed to other countries) a bundle of wood is necessary because the framers succeeded in rejecting steel posts.

I am talking standard wood home construction? What is that supposed to mean? Building a standard wood home and having the internet is not consistent. You might have built a 'special' wood home but there really is no such thing as a standard wood home. No developer would actually build or sell a wood home.

If you have actually built a home out of wood then congratulations and I hope you dont get termites. I am sure it can be done very cheaply a bit like if you built a home out of corrugated iron. The reality is that the cost of build in US$ terms has essentially doubled over the past 12 years. You can argue over the fine details but that is a fair rule of thumb.

[midas]

I read this passage :-

" Let's say that a California firefighter retires at age 50 making $125,000 a year. He'd retire with a pension of approximately $94,000 per year. It would take about 19 firefighters making $50,000 per year and putting 10 percent of their salaries (which is on the high end because many firefighters put in nothing) into the pension to pay for one year of that retired firefighter's pension.

Now, when those 19 firefighters retire, it will take approximately another 352 firefighters making $50,000 per year and putting 10 percent of their salaries into the pension to pay for just one year of each of the retired firefighters' pensions.

Clearly it's unsustainable. It only works for one generation and the generation that's about to get screwed is starting to realize that. "

let's say it looks like complete bull to me that an average firefighter anywhere in the GNoE™ makes $125k a year.

see a list for yourself -the lowest " package " including " special compensation : whatever

that is - is $99,0000. The highest package is $270,000 for the Chief but a lot of others

on this list are around $150,000 not $125,000

Fire Department Salaries For 2009

http://elsegundoblog.blogspot.com/2010/07/fire-department-salaries-as-reported.html

Edited October 13, 2010 by midas

[flying]

I am talking standard wood home construction? What is that supposed to mean? Building a standard wood home and having the internet is not consistent. You might have built a 'special' wood home but there really is no such thing as a standard wood home. No developer would actually build or sell a wood home.

If you have actually built a home out of wood then congratulations and I hope you dont get termites. I am sure it can be done very cheaply a bit like if you built a home out of corrugated iron. The reality is that the cost of build in US$ terms has essentially doubled over the past 12 years. You can argue over the fine details but that is a fair rule of thumb.

:lol:

Your a funny guy

What is your building experience?

Most homes in the US are still built from wood.

While I own a condo & home ( both concrete ) in Thailand I do not live or work there.

Edited October 13, 2010 by flying