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post #1 of 44 (permalink) Old 10-18-2010, 08:54 AM Thread Starter
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The Great Deflation

The Great Deflation
Japan Goes From Dynamic to Disheartened
Hiro Komae for The New York Times

By MARTIN FACKLER
Published: October 16, 2010
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OSAKA, Japan — Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo — for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage.

Few nations in recent history have seen such a striking reversal of economic fortune as Japan. The original Asian success story, Japan rode one of the great speculative stock and property bubbles of all time in the 1980s to become the first Asian country to challenge the long dominance of the West.

But the bubbles popped in the late 1980s and early 1990s, and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money has reversed. For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.

Now, as the United States and other Western nations struggle to recover from a debt and property bubble of their own, a growing number of economists are pointing to Japan as a dark vision of the future. Even as the Federal Reserve chairman, Ben S. Bernanke, prepares a fresh round of unconventional measures to stimulate the economy, there are growing fears that the United States and many European economies could face a prolonged period of slow growth or even, in the worst case, deflation, something not seen on a sustained basis outside Japan since the Great Depression.

Many economists remain confident that the United States will avoid the stagnation of Japan, largely because of the greater responsiveness of the American political system and Americans’ greater tolerance for capitalism’s creative destruction. Japanese leaders at first denied the severity of their nation’s problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes, economists say.

“We’re not Japan,” said Robert E. Hall, a professor of economics at Stanford. “In America, the bet is still that we will somehow find ways to get people spending and investing again.”

Still, as political pressure builds to reduce federal spending and budget deficits, other economists are now warning of “Japanification” — of falling into the same deflationary trap of collapsed demand that occurs when consumers refuse to consume, corporations hold back on investments and banks sit on cash. It becomes a vicious, self-reinforcing cycle: as prices fall further and jobs disappear, consumers tighten their purse strings even more and companies cut back on spending and delay expansion plans.

“The U.S., the U.K., Spain, Ireland, they all are going through what Japan went through a decade or so ago,” said Richard Koo, chief economist at Nomura Securities who recently wrote a book about Japan’s lessons for the world. “Millions of individuals and companies see their balance sheets going underwater, so they are using their cash to pay down debt instead of borrowing and spending.”

Just as inflation scarred a generation of Americans, deflation has left a deep imprint on the Japanese, breeding generational tensions and a culture of pessimism, fatalism and reduced expectations. While Japan remains in many ways a prosperous society, it faces an increasingly grim situation, particularly outside the relative economic vibrancy of Tokyo, and its situation provides a possible glimpse into the future for the United States and Europe, should the most dire forecasts come to pass.

Scaled-Back Ambitions

The downsizing of Japan’s ambitions can be seen on the streets of Tokyo, where concrete “microhouses” have become popular among younger Japanese who cannot afford even the famously cramped housing of their parents, or lack the job security to take out a traditional multidecade loan.

These matchbox-size homes stand on plots of land barely large enough to park a sport utility vehicle, yet have three stories of closet-size bedrooms, suitcase-size closets and a tiny kitchen that properly belongs on a submarine.

“This is how to own a house even when you are uneasy about the future,” said Kimiyo Kondo, general manager at Zaus, a Tokyo-based company that builds microhouses.

For many people under 40, it is hard to grasp just how far this is from the 1980s, when a mighty — and threatening — “Japan Inc.” seemed ready to obliterate whole American industries, from automakers to supercomputers. With the Japanese stock market quadrupling and the yen rising to unimagined heights, Japan’s companies dominated global business, gobbling up trophy properties like Hollywood movie studios (Universal Studios and Columbia Pictures), famous golf courses (Pebble Beach) and iconic real estate (Rockefeller Center).

In 1991, economists were predicting that Japan would overtake the United States as the world’s largest economy by 2010. In fact, Japan’s economy remains the same size it was then: a gross domestic product of $5.7 trillion at current exchange rates. During the same period, the United States economy doubled in size to $14.7 trillion, and this year China overtook Japan to become the world’s No. 2 economy.

China has so thoroughly eclipsed Japan that few American intellectuals seem to bother with Japan now, and once crowded Japanese-language classes at American universities have emptied. Even Clyde V. Prestowitz, a former Reagan administration trade negotiator whose writings in the 1980s about Japan’s threat to the United States once stirred alarm in Washington, said he was now studying Chinese. “I hardly go to Japan anymore,” Mr. Prestowitz said.

The decline has been painful for the Japanese, with companies and individuals like Masato having lost the equivalent of trillions of dollars in the stock market, which is now just a quarter of its value in 1989, and in real estate, where the average price of a home is the same as it was in 1983. And the future looks even bleaker, as Japan faces the world’s largest government debt — around 200 percent of gross domestic product — a shrinking population and rising rates of poverty and suicide.

But perhaps the most noticeable impact here has been Japan’s crisis of confidence. Just two decades ago, this was a vibrant nation filled with energy and ambition, proud to the point of arrogance and eager to create a new economic order in Asia based on the yen. Today, those high-flying ambitions have been shelved, replaced by weariness and fear of the future, and an almost stifling air of resignation. Japan seems to have pulled into a shell, content to accept its slow fade from the global stage.

Its once voracious manufacturers now seem prepared to surrender industry after industry to hungry South Korean and Chinese rivals. Japanese consumers, who once flew by the planeload on flashy shopping trips to Manhattan and Paris, stay home more often now, saving their money for an uncertain future or setting new trends in frugality with discount brands like Uniqlo.

As living standards in this still wealthy nation slowly erode, a new frugality is apparent among a generation of young Japanese, who have known nothing but economic stagnation and deflation. They refuse to buy big-ticket items like cars or televisions, and fewer choose to study abroad in America.

Japan’s loss of gumption is most visible among its young men, who are widely derided as “herbivores” for lacking their elders’ willingness to toil for endless hours at the office, or even to succeed in romance, which many here blame, only half jokingly, for their country’s shrinking birthrate. “The Japanese used to be called economic animals,” said Mitsuo Ohashi, former chief executive officer of the chemicals giant Showa Denko. “But somewhere along the way, Japan lost its animal spirits.”

When asked in dozens of interviews about their nation’s decline, Japanese, from policy makers and corporate chieftains to shoppers on the street, repeatedly mention this startling loss of vitality. While Japan suffers from many problems, most prominently the rapid graying of its society, it is this decline of a once wealthy and dynamic nation into a deep social and cultural rut that is perhaps Japan’s most ominous lesson for the world today.

The classic explanation of the evils of deflation is that it makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. But in Japan, nearly a generation of deflation has had a much deeper effect, subconsciously coloring how the Japanese view the world. It has bred a deep pessimism about the future and a fear of taking risks that make people instinctively reluctant to spend or invest, driving down demand — and prices — even further.

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post #2 of 44 (permalink) Old 10-18-2010, 09:04 AM
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From Samurai to pussy cats in 20 years.

Yea, I don't buy it.
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post #3 of 44 (permalink) Old 10-18-2010, 09:05 AM
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From Samurai to pussy cats in 20 years.

Yea, I don't buy it.
Care to elaborate on exactly what it is that you're not buying?

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post #4 of 44 (permalink) Old 10-18-2010, 09:09 AM
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Care to elaborate on exactly what it is that you're not buying?
I just don't see an entire generation of people lacking any traits of their predecessors. The story makes it sound like this generation has no desire to make money or make Japan a better place. I think it is just a little too far fetched to one side.
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post #5 of 44 (permalink) Old 10-18-2010, 09:21 AM Thread Starter
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I just don't see an entire generation of people lacking any traits of their predecessors. The story makes it sound like this generation has no desire to make money or make Japan a better place. I think it is just a little too far fetched to one side.
It isn't far fetched. You are thinking their current state is the thing that is out of place. I think that their culture of the 1980s was the thing that was abnormal and they have now returned to a more normal economy. They haven't had much fight in them since that whole WWII thing ended so badly.

Of course, Japan had an incredible property bubble, like nothing we have ever seen here really. At one time the office space in Tokyo was leasing at $3000 psf per year. Even now in New York, 25 years later that is a very high rental rate. Also, Japan has a declining population, until their old folks die off and asset values decline further, there isn't going to be any growth. The article talks about how their stock market is worth 25% of what it was. Well guess what, that is still a bit high from what I see.

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post #6 of 44 (permalink) Old 10-18-2010, 09:34 AM
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It isn't far fetched. You are thinking their current state is the thing that is out of place. I think that their culture of the 1980s was the thing that was abnormal and they have now returned to a more normal economy. They haven't had much fight in them since that whole WWII thing ended so badly.

Of course, Japan had an incredible property bubble, like nothing we have ever seen here really. At one time the office space in Tokyo was leasing at $3000 psf per year. Even now in New York, 25 years later that is a very high rental rate. Also, Japan has a declining population, until their old folks die off and asset values decline further, there isn't going to be any growth. The article talks about how their stock market is worth 25% of what it was. Well guess what, that is still a bit high from what I see.
Yea, that statistic stuck out the most to me too. Your point is valid and I never thought about it that way. Obviously things were not what they seemed to be in the 80's.

Hopefully the Chinese follow in their footsteps.

Do they have any idea why their birth rate is the lowest in the world? I know the government pays people to reproduce as much as possible. I have even heard stories of plants shutting down, forcing the employees to go home. And hoping they go home to make babies.
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post #7 of 44 (permalink) Old 10-18-2010, 09:39 AM Thread Starter
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When it comes to their birth rate, one reason why it is low is that housing is unaffordable. Many young people can't afford a house in which to have a lot of kids. A big part of that is the real estate run up from the 1980s.

China will follow in their footsteps in my opinion, you can see it already. Wages in China are rising at double digit rates every year. In the future it will be cheaper to manufacture things in India or Africa or wherever and that will be the end of China.
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post #8 of 44 (permalink) Old 10-18-2010, 09:45 AM
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What I find funny is the fall of japan is a road map of what not to do...like the spending on public projects. UK shows us another map of what not to do....

Yet the US is following them verbatim like the ideas we have are new and correct...or "different than the way they failed".

People who look for info, or "news", outside of the Bullshit you see on TV know and understand where we are headed. The 99% of the sheep population continue to be brainless idiots doing what the TV tells them to.

Until someone can get through to the masses and revitalize the national spirit of AMERICANS that rose in 1941, this country will be fucked for life!



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post #9 of 44 (permalink) Old 10-18-2010, 10:19 AM Thread Starter
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I understand the thinking but I have to disagree with it. For whatever reason, this country works. Maybe it is because we tolerate the ills of capitalism or because our society encourages innovation. Or maybe it is because we sit around and talk about things like this. No one has ever got rich by betting against this country and I don't think they ever will.
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post #10 of 44 (permalink) Old 10-18-2010, 11:29 AM
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I understand the thinking but I have to disagree with it. For whatever reason, this country works. Maybe it is because we tolerate the ills of capitalism or because our society encourages innovation. Or maybe it is because we sit around and talk about things like this. No one has ever got rich by betting against this country and I don't think they ever will.
Our laws regarding accounting record keeping and bankruptcy tend to let us forget about the negative influences on the economy. Eventually, that pile of bad debt is going to catch up to us. My research into foreclosed homes in Plano found that there are 1000's of empty homes in plano that have yet to be foreclosed on because the banks can't afford to foreclose on so many. It's a nightmare for them but that "shadow inventory" is going to hit the streets in 2 or 3 years and the housing market in Plano is going to take a serious shit as those homes hit the market at auction or for $0.50 on the dollar. There are literally 100's of homes in plano that have not had payments made for 6 to 12 months, yet the banks let the people stay in them as it's cheaper to have someone living there paying the utilities and upkeep.

That is why I am selling mine now.

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post #11 of 44 (permalink) Old 10-18-2010, 11:54 AM
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post #12 of 44 (permalink) Old 10-19-2010, 07:00 PM
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Until someone can get through to the masses and revitalize the national spirit of AMERICANS that rose in 1941, this country will be fucked for life!
i foresee a bloody and painful revival, where we all go without utilities for a long, long time.
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post #13 of 44 (permalink) Old 10-20-2010, 05:12 AM
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Our laws regarding accounting record keeping and bankruptcy tend to let us forget about the negative influences on the economy. Eventually, that pile of bad debt is going to catch up to us. My research into foreclosed homes in Plano found that there are 1000's of empty homes in plano that have yet to be foreclosed on because the banks can't afford to foreclose on so many. It's a nightmare for them but that "shadow inventory" is going to hit the streets in 2 or 3 years and the housing market in Plano is going to take a serious shit as those homes hit the market at auction or for $0.50 on the dollar. There are literally 100's of homes in plano that have not had payments made for 6 to 12 months, yet the banks let the people stay in them as it's cheaper to have someone living there paying the utilities and upkeep.

That is why I am selling mine now.

oh well.
I heard yesterday on the radio, that Bank of America is not halting foreclosures because they care about people, it is because they own too many properties and can't get rid of them fast enough. They lack the man power to get through everthing. They don't want too much supply on the market or it drives down the price and hurts their balance sheets. Give them a couple months and they will be back at it again.

I see us following in Japan's foots steps perfectly. We had a real estate bust and have a lost decade in our market too. SP500 down ~20% since 2000. People said it couldn't happen here.
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post #14 of 44 (permalink) Old 10-20-2010, 07:52 AM Thread Starter
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I heard yesterday on the radio, that Bank of America is not halting foreclosures because they care about people, it is because they own too many properties and can't get rid of them fast enough. They lack the man power to get through everthing. They don't want too much supply on the market or it drives down the price and hurts their balance sheets. Give them a couple months and they will be back at it again.

I see us following in Japan's foots steps perfectly. We had a real estate bust and have a lost decade in our market too. SP500 down ~20% since 2000. People said it couldn't happen here.
They weren't halting foreclosures because they "care about people". They halted foreclosures because they weren't sure if the chain of documents that gave them possession of the mortgages were correctly executed. It would represent a huge liability to them if they foreclosed on someone and didn't actually own the note. They have already restarted foreclosures in 28 states.
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post #15 of 44 (permalink) Old 10-20-2010, 08:48 AM
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They weren't halting foreclosures because they "care about people". They halted foreclosures because they weren't sure if the chain of documents that gave them possession of the mortgages were correctly executed. It would represent a huge liability to them if they foreclosed on someone and didn't actually own the note. They have already restarted foreclosures in 28 states.
I saw an article where a BofA "processor" was handling about 400 foreclosures A DAY! She held them in her hand just long enough to sign off on them.

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post #16 of 44 (permalink) Old 10-20-2010, 08:51 AM
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They weren't halting foreclosures because they "care about people". They halted foreclosures because they weren't sure if the chain of documents that gave them possession of the mortgages were correctly executed. It would represent a huge liability to them if they foreclosed on someone and didn't actually own the note. They have already restarted foreclosures in 28 states.
Actually, BOA is about to be sued by investors because they are not foreclosing fast enough. There are investors that bought mortgage back securities that are not receiving income payment while dead beats sit in a house not paying the mortgage.

Quote:
Countrywide hasn’t met its contractual obligations as a servicer because it hasn’t asked for loan repurchases, is failing to keep adequate records, and is taking too long with foreclosures, Patrick said. The delays stem from missing documents, process mistakes and insufficient staffing to evaluate borrowers seeking loan modifications, she said.

If Countrywide doesn’t correct the servicing problems within a few months, her clients could have the right to pursue legal action against Bank of America, Bank of New York or both, she said. “None of the bondholders are opposed to modifications for deserving borrowers, but you’ve got to get it done” in a timely fashion, she added.
http://www.businessweek.com/news/201...or-relief.html

They will say anything to not increase the foreclosure rate and dump houses on the market. Which I hope BOA gets sued so that the housing market tanks again. I need some more rental properties.
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post #17 of 44 (permalink) Old 10-20-2010, 08:53 AM
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They weren't halting foreclosures because they "care about people". They halted foreclosures because they weren't sure if the chain of documents that gave them possession of the mortgages were correctly executed. It would represent a huge liability to them if they foreclosed on someone and didn't actually own the note. They have already restarted foreclosures in 28 states.
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I saw an article where a BofA "processor" was handling about 400 foreclosures A DAY! She held them in her hand just long enough to sign off on them.
Quiet you two.

yea, you both are right. The story about the processor came out a couple of weeks ago.
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post #18 of 44 (permalink) Old 10-20-2010, 09:34 AM Thread Starter
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Actually, BOA is about to be sued by investors because they are not foreclosing fast enough. There are investors that bought mortgage back securities that are not receiving income payment while dead beats sit in a house not paying the mortgage.

http://www.businessweek.com/news/201...or-relief.html

They will say anything to not increase the foreclosure rate and dump houses on the market. Which I hope BOA gets sued so that the housing market tanks again. I need some more rental properties.
I really hate to point out the obvious but why would B of A care about the foreclosure rate when it is the investors of the bonds that take the loss on foreclosures and not B of A? They are just servicing these loans, which includes managing the foreclosure process. Do you actually understand how CMBS servicing works?

And of course the lawyer for these assholes is going to say that B of A isn't servicing the loans properly, that is the only leg they have to stand on when it comes to getting B of A to buy back the loans. What else are they going to do, cry about buying shitty bonds and taking a hit? They would get laughed at.

If they think they have a fucking chance, they should bring it. They don't have jack shit.
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post #19 of 44 (permalink) Old 10-20-2010, 03:02 PM
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I really hate to point out the obvious but why would B of A care about the foreclosure rate when it is the investors of the bonds that take the loss on foreclosures and not B of A? They are just servicing these loans, which includes managing the foreclosure process. Do you actually understand how CMBS servicing works?
If they are not foreclosing on loans and letting people sit in the houses, then they are no doing their job. Can you understand that?
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post #20 of 44 (permalink) Old 10-20-2010, 03:34 PM
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No one has ever got rich by betting against this country and I don't think they ever will.

GS made a killing betting against this country in suprime in 2007.

But I guess you could argue they are already rich.


Paul Tudor Jones tripled his fund on black monday in 1987 betting against this country.



And if I do recall some clown posted this about 2 years ago and got laughed at by the sheep.



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Why is he my buddy ? I am voting for a republican, just not mccain.
Please do as fed will eventually cut to zero and the US ends up just like japan did. Credit bubble is gone and the gdp will no longer be fuel by carefree spending of borrowed money. Throw in baby boomer redemptions and watch as the stock market trades in a narrow flat range. It will be take 5-10 years before you see the S&P at 1500 again.

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post #21 of 44 (permalink) Old 10-21-2010, 04:16 AM Thread Starter
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If they are not foreclosing on loans and letting people sit in the houses, then they are no doing their job. Can you understand that?
And of course you heard that from the attorney of someone who wants them to buy some non-performing bonds back. I bet when you go to the car stealership and they tell you that you need an oil change at 3k miles you fall for that one too.

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post #22 of 44 (permalink) Old 10-21-2010, 04:21 AM Thread Starter
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GS made a killing betting against this country in suprime in 2007.

But I guess you could argue they are already rich.


Paul Tudor Jones tripled his fund on black monday in 1987 betting against this country.



And if I do recall some clown posted this about 2 years ago and got laughed at by the sheep.
Those weren't bets against the resilience of this country.

That quote is awesome. I like this "narrow flat range" we have been trading in for two years. I can't believe you would quote that as evidence of anything.
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post #23 of 44 (permalink) Old 10-21-2010, 08:32 AM
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Those weren't bets against the resilience of this country.

That quote is awesome. I like this "narrow flat range" we have been trading in for two years. I can't believe you would quote that as evidence of anything.
When you selectively pick apart your posts to prove your point, it doesn't matter that the rest of it is wrong.

Two years later and he's still getting laughed at.

Got that screenshot of your trading history yet, Bullet?
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post #24 of 44 (permalink) Old 10-21-2010, 02:36 PM
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Those weren't bets against the resilience of this country.

That quote is awesome. I like this "narrow flat range" we have been trading in for two years. I can't believe you would quote that as evidence of anything.


think 1970 to 1980 type of range.

what have we done for the past year ?


Even for the past 2 year all we have done is traded above and below the median since election day.


And what have we done for the last 10 years besides trade in a range with very little return for long term stock holders.

3 more years to go to see about if I am wrong about 1500 holding, but where is the fresh money to take the market higher going to come from?

Have you checked out mutual fund redemption data lately ?



After 2 crashes in 10 years many will never return to the market out of fear. The younger generation is having trouble getting employed to be able to have extra money to even participate in the merry go round and with many boomers starting to retire soon, those that are left will be making redemptions that puts even more pressure on the market. Throw in increasing interest rates and you have a recipe for poor market performance.


What worries me after we trade 1220-1230 is there is a good chance we revert back to the low end of the range and if we break the previous low the S&P will trade 450-500 in a heart beat.

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post #25 of 44 (permalink) Old 10-21-2010, 02:44 PM
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And of course you heard that from the attorney of someone who wants them to buy some non-performing bonds back. I bet when you go to the car stealership and they tell you that you need an oil change at 3k miles you fall for that one too.
I will make it simple for you. You own a bond, you gave up money to receive an interest payment monthly. If they are not paying you an interest payment, would you at least want your capital back so that you can use it on another investment Or would you just sit there not receiving payments for months or a year?

I am not sure how to intelligently respond to that other part of your key banging.
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post #26 of 44 (permalink) Old 10-21-2010, 02:57 PM Thread Starter
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I will make it simple for you. You own a bond, you gave up money to receive an interest payment monthly. If they are not paying you an interest payment, would you at least want your capital back so that you can use it on another investment Or would you just sit there not receiving payments for months or a year?

I am not sure how to intelligently respond to that other part of your key banging.
LOL, this just gets better with every post.

If you buy a bond and it doesn't perform, that is your own fault. And yours only. That is because you are the one who is responsible for your own due diligence.

Now, if I bought a bond, it sucked and I thought I could con Bank of America into buying it back by saying they didn't service it correctly, then I would probably try to do that. Which is what is going on in this case. In the investment world these people don't have a case. Although it appears that in the circles of the Dave Ramsey fan club their case is iron clad.

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post #27 of 44 (permalink) Old 10-21-2010, 03:05 PM Thread Starter
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think 1970 to 1980 type of range.

what have we done for the past year ?


Even for the past 2 year all we have done is traded above and below the median since election day.


And what have we done for the last 10 years besides trade in a range with very little return for long term stock holders.

3 more years to go to see about if I am wrong about 1500 holding, but where is the fresh money to take the market higher going to come from?

Have you checked out mutual fund redemption data lately ?



After 2 crashes in 10 years many will never return to the market out of fear. The younger generation is having trouble getting employed to be able to have extra money to even participate in the merry go round and with many boomers starting to retire soon, those that are left will be making redemptions that puts even more pressure on the market. Throw in increasing interest rates and you have a recipe for poor market performance.


What worries me after we trade 1220-1230 is there is a good chance we revert back to the low end of the range and if we break the previous low the S&P will trade 450-500 in a heart beat.
We don't have any return over the last ten years because P/E ratios are declining. Go pick any blue chip and look at the multiples over the past decade. Prices are flat, earnings keep on going up. Eventually the market has to reflect those earnings in share prices. Not tomorrow or next week or next year but eventually. This has all happened before and it will all happen again.

You guys act like this is the first decade where the market has been flat. Off the top of my head I can tell you that it has happened twice before.
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post #28 of 44 (permalink) Old 10-21-2010, 04:21 PM
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LOL, this just gets better with every post.

If you buy a bond and it doesn't perform, that is your own fault. And yours only. That is because you are the one who is responsible for your own due diligence.
Ok, seeing how you don't understand how an asset backed securities works, there is something held of value for that bond. When they foreclose on the house the person get their money back from the foreclose. Just like when GM went bankrupt, the stock holders were wiped out and the bond holders got the assets.
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post #29 of 44 (permalink) Old 10-21-2010, 04:25 PM
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think 1970 to 1980 type of range.

what have we done for the past year ?


Even for the past 2 year all we have done is traded above and below the median since election day.


And what have we done for the last 10 years besides trade in a range with very little return for long term stock holders.

3 more years to go to see about if I am wrong about 1500 holding, but where is the fresh money to take the market higher going to come from?

Have you checked out mutual fund redemption data lately ?



After 2 crashes in 10 years many will never return to the market out of fear. The younger generation is having trouble getting employed to be able to have extra money to even participate in the merry go round and with many boomers starting to retire soon, those that are left will be making redemptions that puts even more pressure on the market. Throw in increasing interest rates and you have a recipe for poor market performance.


What worries me after we trade 1220-1230 is there is a good chance we revert back to the low end of the range and if we break the previous low the S&P will trade 450-500 in a heart beat.
Changing demographics will put a drag on the market too, as many baby boomers retire, they draw down their accounts. With increasing numbers of sellers in the market and if the younger people dont have jobs, money or the willingness to purchase, then the market cant continue.
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post #30 of 44 (permalink) Old 10-21-2010, 05:08 PM Thread Starter
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Ok, seeing how you don't understand how an asset backed securities works, there is something held of value for that bond. When they foreclose on the house the person get their money back from the foreclose. Just like when GM went bankrupt, the stock holders were wiped out and the bond holders got the assets.
No shit? I am glad you let me know how these instruments work! And no, the bondholders do not get their capital back. They get what is left of their capital back. Minus fees and charges after whatever the asset can be sold for. Sometimes that is nothing. That's what happens when a debtor stops paying or goes bankrupt. It takes forever to go through the process.

I'm glad you let me know that the bondholders from GM got the assets from the company.

That is news to me of course, since I am one of those bondholders. Actually I WILL get shares of stock in the new GM. Here it is, 16 months later and I still have nothing. That is what happens when you hold a bond and someone stops paying. It takes forever to get any of your capital back.

Why would CMBS be any different?
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post #31 of 44 (permalink) Old 10-21-2010, 06:32 PM
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We don't have any return over the last ten years because P/E ratios are declining. Go pick any blue chip and look at the multiples over the past decade. Prices are flat, earnings keep on going up. Eventually the market has to reflect those earnings in share prices. Not tomorrow or next week or next year but eventually. This has all happened before and it will all happen again.

You guys act like this is the first decade where the market has been flat. Off the top of my head I can tell you that it has happened twice before.


I'm not a fundie as only fear and greed control price and the sheep will reward junk and punish quality time and time again when given the chance and so will fund junkies chasing beta. So you think the market is undervalued right now ? From a fundie view I say that earnings have to increase greatly from where they are to justify the current pe or price has to fall. The way I see it is the FED has just prolonged the inevitable plunge to single digit pe by printing money but eventually we will get there. Look at the historic average.


Do you keep stop losses on any of your blue chips or do you just average in when we get years like 2008 ?
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When you pull in 20 million percent a year like BULLET, you have your share of 5 and 6 figure days!

GENUFLECT TO THE BULLET




FACTS ARE LIKE ACID TO THE SKIN OF REPUBLICONS
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post #32 of 44 (permalink) Old 10-21-2010, 07:02 PM Thread Starter
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I'm not a fundie as only fear and greed control price and the sheep will reward junk and punish quality time and time again when given the chance and so will fund junkies chasing beta. So you think the market is undervalued right now ? From a fundie view I say that earnings have to increase greatly from where they are to justify the current pe or price has to fall. The way I see it is the FED has just prolonged the inevitable plunge to single digit pe by printing money but eventually we will get there. Look at the historic average.


Do you keep stop losses on any of your blue chips or do you just average in when we get years like 2008 ?
I think the market is pretty close to where it should be right now.

We actually agree more than you would think. Fear, greed and bullshit determine price in my mind. But to me, fundamentals control relative pricing range on medium and large cap companies. That is why the market, at least in recent times hasn't traded on a 1 P/E or a 100 P/E. The historical average is around 17 and at times it has gone to 6 and others it has gone to 40 but that average is the average for a reason. In my opinion the earnings are the anchor that pulls everything back to a sane level, up or down.

With all that said, it can easily go crazy for a decade or more, as I said earlier, it has happened before and will certainly happen again. We know any stock can defy logic for years and I think the smaller the enterprise, the better the odds that a share will do just that. The times when the price goes crazy and people sell are the best, everything good is on sale.

I don't put stop losses on any of my stocks that are long term holders. Mainly because I don't believe they are going anywhere and when they move it tends to be pretty damn slowly. And yes, I do average down when the price is where I think it should be for a great return.
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post #33 of 44 (permalink) Old 10-21-2010, 07:19 PM
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I think the market is pretty close to where it should be right now.

We actually agree more than you would think. Fear, greed and bullshit determine price in my mind. But to me, fundamentals control relative pricing range on medium and large cap companies. That is why the market, at least in recent times hasn't traded on a 1 P/E or a 100 P/E. The historical average is around 17 and at times it has gone to 6 and others it has gone to 40 but that average is the average for a reason. In my opinion the earnings are the anchor that pulls everything back to a sane level, up or down.

With all that said, it can easily go crazy for a decade or more, as I said earlier, it has happened before and will certainly happen again. We know any stock can defy logic for years and I think the smaller the enterprise, the better the odds that a share will do just that. The times when the price goes crazy and people sell are the best, everything good is on sale.

I don't put stop losses on any of my stocks that are long term holders. Mainly because I don't believe they are going anywhere and when they move it tends to be pretty damn slowly. And yes, I do average down when the price is where I think it should be for a great return.




what is your timeframe on these long term holders ?

Do you have a puke point where you go to cash or just continue to add even if the market goes back to trade single digit pe's for years and the drag good companies down 50% with it ?



Historically the market seems to move in roughly 20 year cycles but most don't have the stomach to hold through the rough part of that time period.

How do you factor this into your future as you get older?

Just keep adding and collecting divi's regardless of price ?

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When you pull in 20 million percent a year like BULLET, you have your share of 5 and 6 figure days!

GENUFLECT TO THE BULLET




FACTS ARE LIKE ACID TO THE SKIN OF REPUBLICONS
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post #34 of 44 (permalink) Old 10-21-2010, 07:37 PM Thread Starter
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what is your timeframe on these long term holders ?

Do you have a puke point where you go to cash or just continue to add even if the market goes back to trade single digit pe's for years and the drag good companies down 50% with it ?



Historically the market seems to move in roughly 20 year cycles but most don't have the stomach to hold through the rough part of that time period.

How do you factor this into your future as you get older?

Just keep adding and collecting divi's regardless of price ?
I don't have a problem with holding through the shittiest of times because my portfolio that I trade with is a small part of my overall financial picture. I have several retirement accounts besides the trading account. My timeframe is pretty much forever on anything I buy at a good price. I plan on leaving it all to my children and actually retiring on my retirement savings.

When the market pukes and the good companies get drug down with the shit is when you buy the good companies. The good ones get punished just like everyone else, often for no good reason beyond a slight drop in earnings. You just have to know how to spot those good companies because the turds are the ones that don't make it through the downturns. Also, the biggest part of value investing is not the part where you gain value when the market does well, it is the part where you lose less value in the down years.

And you absolutely have to factor share price into everything. When I say I like a company, that statement includes a price. I like Coke $42 or less, I like Bank of America at $13 or less. I like Goldman Sachs at less than $150. All of those are nice companies that I have a lot of faith in but I'm not going to go out and pay just anything for them. Coke isn't a good buy right now at $61.50 and I would never touch it. Obviously you may have to wait years for some of these prices to come around but there is always one of them that you can buy.
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post #35 of 44 (permalink) Old 10-21-2010, 07:40 PM
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Ok, seeing how you don't understand how an asset backed securities works, there is something held of value for that bond. When they foreclose on the house the person get their money back from the foreclose. Just like when GM went bankrupt, the stock holders were wiped out and the bond holders got the assets.
This is chock-full of awesome!
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post #36 of 44 (permalink) Old 10-21-2010, 07:50 PM
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Ok, seeing how you don't understand how an asset backed securities works, there is something held of value for that bond. When they foreclose on the house the person get their money back from the foreclose. Just like when GM went bankrupt, the stock holders were wiped out and the bond holders got the assets.
Here's how it works in the event of Default.

Asset-backed securities lower their risk. In a worst-case scenario where the pool of assets performs very badly, "the owner of ABS (which is either the issuer, or the guarantor, or the re-modeler, or the guarantor of the last resort) might pay the price of bankruptcy rather than the originator." In case the originator or the issuer is made to pay the price of the same, it amounts to re-inventing of the lending practices, restructuring from other profitable avenues of the functioning of the originator as well as the norms of the issuance of the same and consolidation in the form of either merger or benchmarking (internal same sector, external different sector).


Meaning the Bank has no obligation to pay unless there is a material misrepresentation in the Contract that sold the ABS, or the paperwork of the Original Contract between the Borrower and the Originator.

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This is chock-full of awesome!
Because he was so wrong about the GM Bondholders? I know that's what caught my eye first.

*sigh*

How naive of him to think that Contract Law still applies in the Age of Obamessiah.

Last edited by sc281_99-0135; 10-21-2010 at 08:06 PM.
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post #37 of 44 (permalink) Old 10-21-2010, 08:08 PM
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Because he was so wrong about the GM Bondholders? I know that's what caught my eye first.
Now that you mention it, that was awesome as well.
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post #38 of 44 (permalink) Old 10-21-2010, 08:14 PM
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Now that you mention it, that was awesome as well.
Shocked that you didn't catch that...
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post #39 of 44 (permalink) Old 10-21-2010, 08:18 PM
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Shocked that you didn't catch that...
I saw it, the rest was just so awesome that it drowned it out initially.
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post #40 of 44 (permalink) Old 10-21-2010, 08:27 PM
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I saw it, the rest was just so awesome that it drowned it out initially.
That was my take, but in reverse. I saw the GM thing and laaaaughed. I didn't notice the 'schooling' he gave Al P on Asset Backed Securities until after reading it again.


Of course I could be just as wrong as he is. I haven't read into any of the ABS/CDO/CMBS stuff in quite a while...
Hell, The Gubment could've turned Contract Law regarding these on their heads by now seeing as GM set a precedent to do so....regardless of The Supreme Court telling Investors otherwise....
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post #41 of 44 (permalink) Old 10-21-2010, 08:31 PM
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That was my take, but in reverse. I saw the GM thing and laaaaughed. I didn't notice the 'schooling' he gave Al P on Asset Backed Securities until after reading it again.


Of course I could be just as wrong as he is. I haven't read into any of the ABS/CDO/CMBS stuff in quite a while...
Hell, The Gubment could've turned Contract Law regarding these on their heads by now seeing as GM set a precedent to do so....regardless of The Supreme Court telling Investors otherwise....
I did corporate restructuring for a while. Shit happens in the case of bankruptcy. Hell there are several different levels of claims among debt holders (fuck you mezzanine guys!) etc. You really have to dig into this shit to understand it. I had no idea that investing in bonds was risk free, hell I'll have to look into this!
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post #42 of 44 (permalink) Old 10-21-2010, 08:36 PM Thread Starter
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I did corporate restructuring for a while. Shit happens in the case of bankruptcy. Hell there are several different levels of claims among debt holders (fuck you mezzanine guys!) etc. You really have to dig into this shit to understand it. I had no idea that investing in bonds was risk free, hell I'll have to look into this!
You could make a killing too. lol I bought mine at $.125 on the dollar. Then I got a single interest payment that paid me about $.03 of that back. Then GM went under. The consensus seems to be that these bonds will yield about $.40 on the dollar worth of new stock. I guess we will see what happens though, I very well could get nothing or make a fabulous return!

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post #43 of 44 (permalink) Old 10-21-2010, 10:54 PM
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I don't have a problem with holding through the shittiest of times because my portfolio that I trade with is a small part of my overall financial picture. I have several retirement accounts besides the trading account. My timeframe is pretty much forever on anything I buy at a good price. I plan on leaving it all to my children and actually retiring on my retirement savings.

When the market pukes and the good companies get drug down with the shit is when you buy the good companies. The good ones get punished just like everyone else, often for no good reason beyond a slight drop in earnings. You just have to know how to spot those good companies because the turds are the ones that don't make it through the downturns. Also, the biggest part of value investing is not the part where you gain value when the market does well, it is the part where you lose less value in the down years.

And you absolutely have to factor share price into everything. When I say I like a company, that statement includes a price. I like Coke $42 or less, I like Bank of America at $13 or less. I like Goldman Sachs at less than $150. All of those are nice companies that I have a lot of faith in but I'm not going to go out and pay just anything for them. Coke isn't a good buy right now at $61.50 and I would never touch it. Obviously you may have to wait years for some of these prices to come around but there is always one of them that you can buy.


Why even go by price if you are a fundamental investor ?


Isn't pe a more important metric for deciding if it is cheap?

For KO to be under 42, s&P will have to trade below 700 again.

What I don't like about most of the blue chips is they are cash cows and no longer stars. Yes they are stable but most have already reached their pinnacle.
Hard to find new growth when they dominate the market and have saturated it.

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Quote:
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When you pull in 20 million percent a year like BULLET, you have your share of 5 and 6 figure days!

GENUFLECT TO THE BULLET




FACTS ARE LIKE ACID TO THE SKIN OF REPUBLICONS
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post #44 of 44 (permalink) Old 10-22-2010, 07:44 AM Thread Starter
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PE is just an indicator of which way the herd is going to me. It is like which way the wind is blowing. Just kind of a benchmark.

I care more about return on equity and the book value of the share that I am buying. I want to know what that share is going to do for me in the future. I have to know how much of those earnings are mine, how much belongs to the bank, how much will be paid in dividends and how much will be plowed back into the company.

You are right about Coke, it would take a disaster for it to go back to where it was in the last disaster.

I somewhat agree on the blue chips saturating the market. International expansion will have to be huge for most of them. It is all about emerging markets and acquisitions. There are about two billion Chinese and Indians out there and I am just guessing but I think they'll want a Coke and some toothpaste eventually. I'm willing to bet that they will anyway.
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