All the negative news

[Munger]

here relating to deflation and economic uncertainty at the end of each year we have more fiat currency in the system. This is just how it is, and so regardless of interest rates there is more money supply in the economy.

 

 

This statement is wrong.  Study up on the difference between the monetary base and the money supply.  For further help, study up on the results of Japan's "money printing," which will bring you back the to the difference between the monetary base and the money supply.  And then go read up on a "balance sheet" recession and the implications for monetary policy.

 

 

Now the strongest most perfectly positioned franchises that have built their moats over decades are so well connected into the main artery of the economy so that they are able to grow the amount of currency they bring in year over year. Regardless of spending habits, over time mathematically there is more and more money in the system so naturally shares in enterprises earning a decent return of capital will always gravitate towards higher lows.

 

Sorry to be blunt but in the spirit of the real Mr. Munger -- this is more absolute crazy talk.

 

 

And to me we are in a terrible time, and there is blood on the streets.

 

You are entitled to feel what you feel.  Relative to other historical periods of stress, there is no blood in the streets, not even close and stocks are not priced as if there is blood in the streets.

 

Also, when I find a value play I always start buying it early because I want to get a feel for the stock

 

"getting a feel for the stock" -- this is more crazy talk.  But if you find a true value opportunity, you indeed should start buying regardless of the macro risks.

 

 

They will keep expanding their monetary base until things get better. And those who bet on that side will be the winners coming out of this.

 

I don't bet.  Good luck. 

 

 

I honestly don't have time for this type of discussion but wanted to give the courtesy of a response since you asked. 

 

What I have said and will always say is that if you have the opportunity to invest in a good business with a strong balance sheet at a high margin of safety, buy hand over fist regardless of the macro.  If the stock price goes down but the core business economics and balance sheet remain strong, buy more.  I don't believe the current market environment offers a sufficient margin of safety, on average.  And no, there is no blood in the streets.

 

Best to you and good luck! -- sincerely hope your approach proves profitable for you.

 

 

 

 

 

 

[tnp20]

So, here is my question:  why do so many board members (whom I respect so much for their comments and insights over the years), feel that now is not the time to buy?

 

This is my first post.

 

There are different themes of "blood on the streets". Some periods opportunities last weeks/months, whilst others last for years. The trick is to identify which theme we are in.

 

http://www.scribd.com/doc/34316183/T2-Partners-Presentation-7-13-10                 (look at Page 5/47)

 

Secondly, there is the concept of reversion to the mean. Generally if index/market spends much time above the long run average, it must spent good portion  below average to get to average. In this crisis we haven't fully gotten there......so more downside is yet to come.

 

CAPE and Q haven't gotten to bargain levels seen in previous crisis.....will it deny us that opportunity this time ? Probably not is the bet of the bears that are patiently waiting.

 

http://www.smithers.co.uk/page.php?id=34

 

 

[Viking]

I love the discussion. As per usual, I have a few thoughts:

 

1.) to state the obvious, we all have a different intellect, psychological makeup and personal situations. We need to remember this when filtering what others post. For a little more insight, my personal situation is most of my investments are held in RRSP so I have no tax considerations when deciding what to buy and when to sell. As well, my account is of sufficient size that I simply pay a (reasonable) quarterly fee and pay nothing to buy and sell individual positions. Capital preservation is paramount to me as I almost have enough (although I did quit my day job 5 years ago).

2.) most of my friends are fully invested and have no idea what they are invested in or why. Complacency is my read of where 'the market' is today. Yes, everyone is very nervous. I do not see blood in the streets. My friends were freaking out in March 2009.

3.) Regarding current markets, the Guru I would probably put at the top of list (FFH) has been reducing their equity exposure the past 6 months and in the past three months began reducing their corporate bond exposure and just increased their equity hedges to 90%. FFH obviously does not like what they see right now. I also enjoy reading John Hussman and he lays out very well why he feels stocks (in general) are not cheap. I would feel a little better about the economic situation if the number of unemployed in the US was doing better than it is (and, yes, I know it is a lagging indicator).

4.) Bottom line, based on our personal situation and risk tolerances we have to do what we think is the right thing because we think it is the right thing (and not because we think that is what Buffett or Watsa or Templeton would do in the same situation).

[rick_v]

In the interest of conserving your time I will make this short as well.

 

1) Putting your explanation of basic economic definitions aside, you have disregarded the fact that over time there is more money in the system which affects everything.

 

2) Hate to burst your bubble but you are not Charlie Munger, so saying my statement was crazy is not a sufficient answer. The bottom line is enterprises earning decent returns on capital deployed will always earn more money. And when central banks print more money the first ones to benefit are such businesses.

 

3) Again, making me feel that you are running a paper portfolio. In the real world when deploying a significant amount of capital you must actually get filled on your order. So when building a position it is imperative to get a "feel" for the stock and see if you can accumulate a decent position. Unless you are just trading multi-billion dollar companies in which case I don't see where the alpha is coming from.

 

I did not get a response to the most important talking point which was the fact that your basis for valuations and "blood on the streets" is based on the reading of historical material which may or may not put everything in context.  

 

Very disappointed with your response! I thought it would have more meat on it.

 

The funniest thing is, that I agree with the idea that prospects are grim but I have also been deploying capital for decades and know that it is quite frankly a terrible time right now in the world. Not saying things won't get worst, but they are definitely not good, or great... They are bad. And so naturally there are some good opportunities presenting themselves.

 

Good Luck to you too! We are up 12% on the year!

 

 

 

[frog03]

What are 3 of the top performers in the stock market in North America over the last 30+ years?  Buffett, Watsa, Sprott.

 

Buffett : His exposure to stocks as a percentage of assets is not super high

Watsa : Fully hedged

Sprott : 3/4 in precious metals and precious metal stocks, some shorting of financials/retailers/etc

 

In finance the majority is usually wrong, but these guys collectively are quite bearish at current market levels. I tend to be the same.  Valuations, especially for some mega caps are reasonnable, but the deleveraging from now is going to be ugly.

 

[Viking]

Hawks, here is a summary from Calculated Risk of what he sees coming the next little while (and he simply calls things the way he sees them... i.e. he is no doom and gloom guy although he certainly sounds like it in this post). What makes me nervous regarding the market in general is it is priced currently for good things to happen although it looks more likely that things are flat to getting worse. If things are flat then my read is the stock averages retreat. If things get worse (good chance) then the sell off gets worse.

 

What causes revolution is not poverty or treating people poorly; what causes revolutions are unmet expectations - when people expect something and they don't get it. My guess is this is also part of what causes the market averages to fall... when the economic news is worse  than what people are expecting.

 

http://www.calculatedriskblog.com/2010/08/more-negative-news-flow-coming.html

 

But as many have said... if you find something in your sweet spot then back up the truck!  

[Parsad]

Stocks bounced sooner, faster than I expected (and if truthful -- sooner, faster than virtually everyone else expected for that matter).

 

We were pretty close.  From our 2008 Annual Letter, written to partners during February 2009:

 

One final note on equity prices today. Just this week, the Dow Jones Index hit a 12-year low.  This has happened only two times before…from 1921-1932 and 1962-1974.  After 1932, the Dow was up +60% within two years.  After 1974, the Dow was up +70% within two years.

 

As horrible as the news feels these days, valuations for stocks are probably the most attractive we have seen in our investing life.  In many sectors, they are probably the cheapest we will see in our remaining lifetime.  Without a doubt, stocks and corporate bonds provide extraordinary value at the present time.  As investors, we could not be more ecstatic!

 

Now let me make one thing clear, because I've had to answer this question over and over since I said that I thought large-cap stocks provide considerable value.  In particular Munger, pay close attention to this:  I am not saying that stocks are as cheap as they were during the credit crisis, or that there is blood in the streets, or that stocks are as cheap as the Great Depression's bottom, or that the credit crisis' bottom was as low as the bottom during the Great Depression!   ;D

 

All I said was that large-cap stocks offer considerable value relative to the alternatives...treasuries, munis, corporate bonds, commodities, other categories of the stock market, emerging stocks.  And that particular stocks, many of which are large caps, are cheaper than they were during the credit crisis.  That's it!  I'm not saying that you should be fully invested, that you will make a killing from here, that stocks won't get cheaper, nothing of the sort.  Only that some large-cap stocks offer very good values.

 

I do disagree with one point, and only hindsight will provide the answer with any certainty, is that we will not see the lows of March 2009 in North America.  I think Europe could face severe headwinds and Japan is in a very difficult position, but I don't think the United States itself is in quite the dire situation that many people are crying about.  

 

- Yes, they are in the midst of an enormous deleveraging process that could take years.  

- Yes, unemployment is at a level that affects consumer and business sentiment, and will take many years to get back to levels seen in 2006-2007.

- Yes, the US needs to get its fiscal house in order at every level...federal, state, municipal, consumer...and it won't happen without compromise and sacrifice.

- Yes, huge commercial losses are yet to come, and FNM and FRE will probably have to be nationalized or certain aspects of their business severely curtailed.

- Yes, housing has yet to stabilize.

 

But I think the US has done a much better job than Japan ever did at hacking away at the bad loans and restructuring financial institutions.  They will also work their way through the backlog of housing inventory faster than could be expected based on the massive amount of inventory they were originally dealt.  Corporations, the backbone of the economic system, are in better shape to handle future shocks to the system (which will come).  Interest rates eventually will have a stimulatory effect as the yield curve continues to flatten...banks will have to start to loosen up their lending...30 year mortgages will be cheaper than renting...buying homes will be cheaper than building from scratch...institutions, especially insurers and pension funds will have to reach for yield and will allocate their large cash pools into other asset classes, including equities and real estate.  

 

The economic cycle never ends...it just becomes contracted or protracted depending on the stress in the system.  Cheers!

[rick_v]

You know Munger I just went back to one of your first posts relating to Schiff and inflation. And again the funny thing is I couldn't agree with you more I just can't bring myself to understand how you believe that over a long period of time the money supply can mathematically contract and if we establish that as a fact, how you can bring yourself to make macro-trades through investing in equity securities?

 

Because basically you are saying that by and large the entire market is NOT attractive at this point in time because of the macro issues. And as a result you will NOT invest in equities until such time as the macro issues are cleared?

 

To me that just indicates you are trying to time the market one way or another. And btw you do realize you are paying about 20x for Ebay right?

 

Also this day of reckoning bs is a little dramatic! To be successful you need to be a little more optimistic!

[Viking]

Sanj, I love your optomism! Yes, history teaches (and Buffett too) that the US grinds its way through these hard times and we, in short order, see economic growth again (and stocks do well). At least when looking at things post WWII.

 

If we go back further, I think history teaches us something else: at certain times, things get really ugly for many year because (you can fill in the blank).

 

I wonder if we are not in the midst of something a little uglier that what we have seen post WWII. If so, I would expect to see the economic situation get ugly and for financial markets to also reflect this reality. The economic situation looks to be playing out (looks ugly). The government bond market is playing ball (ugly). Common stocks... recovery just around the corner???

 

I think we may be at another inflection point. Maybe not. Upside potential is not worth the downside risk... for me. For others, fill your boots and best of luck!!! 

[Parsad]

Hi Viking,

 

Things were pretty damn ugly from September 2008 to March 2009, yet the world didn't end.  When it comes to the US' future...I'm most definitely an optimist.  How can you not be?  The United States is the cradle of innovation...other countries may make it better, but the US makes it in the first place.  We've (even though I'm Canadian) been in worse places in the last twenty years...9/11 comes to mind...yet what did the US do?  The country completely united, not unlike us Canadians during the Winter Olympics, and that's a very powerful thing.  They will come out of this better and stronger!  Cheers!

[Parsad]

What are 3 of the top performers in the stock market in North America over the last 30+ years?  Buffett, Watsa, Sprott.

 

Buffett : His exposure to stocks as a percentage of assets is not super high

Watsa : Fully hedged

Sprott : 3/4 in precious metals and precious metal stocks, some shorting of financials/retailers/etc

 

Buffett just completed the largest equity purchase in Berkshire history - Burlington Northern Santa Fe!  Yes, he took it private, but he still paid market prices.

 

Prem just finished buying all of his public subsidiaries at market prices.  Again, they are private now and their valuation is not open to the whims of Mr. Market, but he still paid market prices and the long-term outcome of his investment is completely predicated on the price he paid.

 

Sprott - Well, he's just nuts!  Incidentally, outside of his hedge fund which was hedged, didn't all of his other funds get absolutely killed when commodity markets corrected back in 2008?  I think they were all down a minimum of 35%, and all the way up to 65% in 2008.  Cheers!

 

[benhacker]

On this topic, I feel kind of like Sanj is speaking what I would say if I would have written something.  Both on the Sprott, and the general macro theme we have been discussing.

 

As a fellow money manager I know says, "just make money".  The differences of opinion are less important than our real portfolio actions and there are many ways to skin a cat.  Although he's 40+% cash... so... ;-)

 

Don't dwell too much here, focus on a margin of safety with an eye to history, and a penchant to believe the unthinkable can happen... but after that, buy cheap stocks.

 

That's my take at least.

 

Ben

[Uccmal]

Hawks, I am glad you posted this.  I am not one for predictions on the market.  I haven't seen Buffett or Watsa stop buying companies or stock during this recent nascent recovery.  We have watched markets go sideways for 13 years or something like that.  During that time I have increased my net worth by about 15x from the money I initially put in.

 

I was investing every single day through the November and March crashes in 08/09.  I found I just had to bite my tongue and buy.  It was not an easy thing to do.  Going against the tide never is.

 

I am just old enough to remember 1973-74 when OPEC was putting the squeeze on and the US was done for, for all time.  That was the most active period of Buffett's public market investing ever.  I lived through a brutal recession in the early 1980s when the "cheery consensus" was penned, I believe.  Unemployment in Canada reached in the low teens for two or three years.  I lived through the ceding of the world economy to Japan and the notion that we have got to learn the Japanese way.  more to come...

 

 

 

 

[Uccmal]

Consumers in the US are retrenching.  Corporations have already been hoarding cash.  The market acts as a discounting machine, discounting events 3 to 6 months ahead.  If you looked at the action yesterday the housing numbers were worse than even the worst prognosticator, and the markets barely budged.  This indicates to me that all the bad news has been priced in.  The US will continue its retrenching and there will be more pain coming but the collective will deleverage over time, and it will end.  

 

Its very easy to get caught up in the numbers of 1 T this and 6 T that, and we forget that the US government would collect Trillions in taxes from a market rise that only puts us part way back to July 2007.  Same for corporate taxes on those fantastic profits.

 

Parsad, myself, and others have been buying large caps from the US, a number of which sport higher CASH dividends than I can borrow at.  The masses are buying bonds which has led to a virtually unprecedented rally in bonds.  In the economic cycle bonds rally before stocks.  Sanj. and ouselves (buyers) are likely early but unlikely wrong.  As for deep values, if one is waiting to get JNJ at a lower price when it sports a 3.5% dividend that will not get cut, good luck!  

 

I figure we will be looking back on this time as a time of great deals and those who missed it will be still bemoaning that there are no deals.  I for one cant predict if markets will go lower by 10% or 20% or higher by 50% in the coming year but it wont matter a damn if I get lucky and buy JNJ below 50 rather than 57.50 when it is above 100 down the road and paying me 15% on my purchase price every year.

 

 

[Guest misterstockwell]

I think apathy rules in this day and age. The stock market is frowned upon, and rightly so. The everyday investor, the baby boomer crowd, has zero interest in stocks. The market is messed up, with the machines at the helm. There isn't blood in the streets--the streets are empty. Money is pulling out of equities and flooding into bonds. There is no trust in Wall Street because the game is rigged. Throw in a plethora of macro issues and you have a market of disinterest. People are saving, not investing. That can go on till the street(Wall Street) bleeds. That will be the time to buy with vigor.

[Guest broxburnboy]

 

Sprott - Well, he's just nuts!  Incidentally, outside of his hedge fund which was hedged, didn't all of his other funds get absolutely killed when commodity markets corrected back in 2008?  I think they were all down a minimum of 35%, and all the way up to 65% in 2008.  Cheers!

 

 

I have to take issue with this characterization of Eric Sprott:

 

Here is a link to their website showing the returns of their various funds:

http://www.sprott.com/priceperformance.aspx?id=15&t=2

 

Sprott has increased their assets under management over the last year by 25% and have hired some very qualified extra managers. In addition they have launched some new funds, most notably PHYS, the physical gold holdings fund, which has performed very well since the oversubscribed IPO. All this when most managers are experiencing net redemptions.

 

It's one thing to take issue with his macro views, but to label him "nuts" is more suitable  for a sound bite on Fox News, than an informed discussion.

 

Disclaimer: I own units in his Opportunities Hedge Fund, Precious Metals Fund and SII, the management company.

 

Cheers

[Guest longinvestor]

I think apathy rules in this day and age. The stock market is frowned upon, and rightly so. The everyday investor, the baby boomer crowd, has zero interest in stocks. The market is messed up, with the machines at the helm. There isn't blood in the streets--the streets are empty. Money is pulling out of equities and flooding into bonds. There is no trust in Wall Street because the game is rigged. Throw in a plethora of macro issues and you have a market of disinterest. People are saving, not investing. That can go on till the street(Wall Street) bleeds. That will be the time to buy with vigor.

But the same short term thinking which bought on the stock market bubble of the past 15-20 years still remains. I mean sooner rather than later the everyday investor will pile back into stocks because the wall street game everyone is playing is measured in "intraday" to a quarter at the most. If history is right, the crowd is seldom right and it is off their backs that value investors have made their money. It wont be different this time. Patience is a huge virtue always and being more patient than the crowd will pay.

[Munger]

and only hindsight will provide the answer with any certainty,

 

This statement could not be more true -- so let's keep in mind with regard to all responses.  Nothing personal here.

 

But I think the US has done a much better job than Japan ever did at hacking away at the bad loans and restructuring financial institutions.  They will also work their way through the backlog of housing inventory faster than could be expected based on the massive amount of inventory they were originally dealt.  Corporations, the backbone of the economic system, are in better shape to handle future shocks to the system (which will come).

 

The only reason why the economy stabilized was because the gov't expanded deficit spending to 14% of GDP (and continues to maintain) and the Fed employed large QE.  Otherwise the economy and the banks would have collapsed.  The underlying problems have not been fixed -- we were riding a sugar high that is now coming to an end.  If fact, if gov't spending was normalized and interest rates were normalized, the economy would collapase today.

 

 

Interest rates eventually will have a stimulatory effect as the yield curve continues to flatten...banks will have to start to loosen up their lending

 

This completely ignores the reality that we are in a balance sheet recession and those willing/able to BORROW essentially do not exist.  You can only lever up an income stream so far and we have reached max capacity -- a long time ago.  A misguided increase in borrowing will only lead to greater disaster down the road.  You don't solve a debt problem with more debt!!!!!

 

institutions, especially insurers and pension funds will have to reach for yield and will allocate their large cash pools into other asset classes, including equities and real estate.

 

This is simply the greater fool theory of investing.

 

Things were pretty damn ugly from September 2008 to March 2009, yet the world didn't end.

 

Headlines were bad but reality was not ugly -- peak to trough GDP decline of 1-2% is nothing compared to historical periods of stress.

 

9/11 comes to mind...yet what did the US do?

 

Lowered interest rates.  And this is the fundamental problem.  Over the past 30 years, whenever the US encountered any problems, the answer was to lower interest rates -- increasing leverage NOT for productive investment but for stock/real estate speculation and increased consumption, continually pulling forward future demand -- effectively nothing more than a ponzi scheme.  That game is over and the enormous debt levels still need to be paid.  The math is the math.

 

And as a result you will NOT invest in equities until such time as the macro issues are cleared?

 

This statement is not true -- I will not invest until Mr. Market offers me a margin of safety that compenstates for the risks.  The macro issues will not clear for at least 10 years.  During that period, I fully expect to be investing aggressively in stocks at some point.

 

Best.

 

 

 

 

 

 

 

 

 

 

[watsa_is_a_randian_hero]

This is my first post on this...I tend to agree more with Parsad here...a little more optomistic.

 

Parsad brought up a good point - only twice in the last century have we hit a 12 year low...well we are still at the same DOW level as 11 years ago right now, so things aren't much better right now.

 

Here are some reasons I'm not entirely bearish:

 

-Ever since bush years / 2002 recession, average joe has not felt optimistic about economy...this is a long time (about 8 years) to pay for excess of tech years.

-Savings rates are back over 6%, this is causing drag on spending and creating deleveraging, but we are still treading water in terms of GDP

-Credit card debt is at 8 year low.  Credit card debt is same as it was 8 years ago - meanwhile CPI is up 20+% from then

-recent WSJ article: $2 trillion cash on S&P 500 balance sheet.  If this reverted to historical levels this could provide $500 billion in either capital investment, share buybacks, dividends, ect.  Who needs additional gov stimulus if you have $500 billion coming from S&P 500?  This doesnt include non-s&p 500 stocks - prob more like a trillion available.

-relatively low interest rates, investing is relative.  Long stocks short bonds?  Dow is yielding higher (2.7%) than US 10 year bond (2.6%), and has growth included.  Last time rates were low, in the 1950's, stocks averaged 10%/year for 15 years.

-Stocks are still below 1999 bubblicious peak

-Large-caps are relatively cheap.  Forward PE of S&P 500 is 12.9.  Using gordon growth model, and using earnings instead of actual div (to account for reinvestment feeding growth), and assuming equity investors demand a return of Long bond + 6% (9.7% currently), the model implies organic growth (prior to reinvestment growth) into perpetuity of 1.9%.  If nominal GDP growth in us long term will be 2%, stocks are priced just like the bond market with 0% long-term inflation expectations.

-Investors have negative sentiment towards stocks because of last 3 years.

-Corp america is running VERY lean after last few rough years.  Recession improved efficiencies.  Output, GDP is essentially the same with unemployment 5% higher.  We have 5% on sidelines and our factories, banks, engineers, law firms, ect are producing the same amount.

-Quantitative Easing will spur inflation.  Think ben dropping $ falling from a Sikorsky over compton.  First QE will put cash in insurers, pensions, mutual funds, and hedge fund's hands.  Then this cash will have to be invested in other financial assets.  At the margin, this will compress corporate bond spreads, push real estate and stock prices up, and then spur capital investment.

-economy can be sluggish or even shallow double dip and large-caps will still make money.  Especially banks.  Banks have already taken their loan losses.  They are making huge spreads right now with rates at 0%.  BV goes up each year; stocks have to follow.

-While recovery has been "jobless" to date, greenspan points out workweek is growing (companies using current employees longer rather than hiring), which is positive sign for economic activity.  Also, private sector is adding jobs strong; last few months job losses are due to gov cutting jobs (think census).

[Munger]

-Ever since bush years / 2002 recession, average joe has not felt optimistic about economy...this is a long time (about 8 years) to pay for excess of tech years.

 

Ahem -- during this period, we experienced the greatest housing boom/bubble in the history of the country.

 

 

-Credit card debt is at 8 year low.  Credit card debt is same as it was 8 years ago

 

On what measure???????  Regardless, unemployment is at 30 year highs.

 

 

-recent WSJ article: $2 trillion cash on S&P 500 balance sheet.

 

Let's talk about cash net of debt.

 

 

relatively low interest rates, investing is relative.

 

True if you follow the greater fool theory.  Value investing is ABSOLUTE, always and forever.

 

 

Quantitative Easing will spur inflation. 

 

Study up on a balance sheet recession. 

 

 

Banks have already taken their loan losses. 

 

Could not be further from the truth.

 

 

They are making huge spreads right now with rates at 0%.

 

Spreads in fact are declining.  And new regulation will hit profit margins hard over the next few years.

 

 

Also, private sector is adding jobs strong

 

In which country?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[watsa_is_a_randian_hero]

-Ever since bush years / 2002 recession, average joe has not felt optimistic about economy...this is a long time (about 8 years) to pay for excess of tech years.

 

Ahem -- during this period, we experienced the greatest housing boom/bubble in the history of the country.

 

I grew up in midwest (live in chicago now, cleveland originally).  There remained a sentiment that throughout it all, the recovery was jobless and only benefited rich.

 

 

-Credit card debt is at 8 year low.  Credit card debt is same as it was 8 years ago

 

On what measure?HuhHuh  Regardless, unemployment is at 30 year highs.

 

This is from an AP article yesterday.  I believe measure is average bank issued credit card debt per household.  Also, delinquency rates are down.

 

http://finance.yahoo.com/news/Credit-card-debt-drops-to-apf-3078079176.html?x=0&sec=topStories&pos=4&asset=&ccode=

 

relatively low interest rates, investing is relative.

 

True if you follow the greater fool theory.  Value investing is ABSOLUTE, always and forever.

 

I think you're wrong here.  Like I said above, last time (50's) we had rates this low, the following 15 years averaged 10%+ per year.

Quantitative Easing will spur inflation.

 

Study up on a balance sheet recession.  

 

You study up on it.  How many have there been?  Great sample size.  What do you think will happen if Ben buys back every treasury, and there are none left?  What do you think would happen if tax rates went to 0% and government just printed money.  At some point, fiscal/monetary stimulus has an effect at margin.

 

Also, private sector is adding jobs strong

 

In which country?

 

USA

 

http://www.marketwatch.com/story/us-private-sector-employment-increased-by-42000-jobs-in-july-according-to-adp-national-employment-report-2010-08-04?reflink=MW_news_stmp

 

 

I agree that there are a lot of reasons to be pessimistic, but there are also a lot to be optimistic that shouldn't be ignored.  Don't bury your head in sand like rosenburg and permabear crowd.  He is actually trying to claim no debt bubble right now in todays issue because you can't have a bubble in a risk free asset?

 

[rmitz]

I think apathy rules in this day and age. The stock market is frowned upon, and rightly so. The everyday investor, the baby boomer crowd, has zero interest in stocks. The market is messed up, with the machines at the helm. There isn't blood in the streets--the streets are empty. Money is pulling out of equities and flooding into bonds. There is no trust in Wall Street because the game is rigged. Throw in a plethora of macro issues and you have a market of disinterest. People are saving, not investing. That can go on till the street(Wall Street) bleeds. That will be the time to buy with vigor.

 

The thing I've been wondering, is: What's going to happen with those people who got burned in the stock market when they get burned in the bond market too?  Because of the way bond funds are structured, it's not like just holding long bonds and eventually getting your principal back.  The MTM loss will be psychologically shocking.

[watsa_is_a_randian_hero]

On what measure?HuhHuh  Regardless, unemployment is at 30 year highs.

 

Also - I look at the unemployment as a positive.  You have GDP at pre-recession levels.  And we have 5% higher unemployment.  Company's are producing the same amount with 5% less people working.  How is this not a positive for profits?  Companies are running lean and mean.  Once these people do go back to work (whether its a year or 5 years from now) it will just provide further boost to recovery.

[Sea Island]

rmitz- good question and what about the odd lot theory?

[Stove]

Yes, corporations are running lean and mean, with profit margins near their all-time highs.  And yet earnings for the S&P are projected to grow at something like 15% over the next year.  This implies either continued record profit margins, which I suppose is possible, or increased revenues without eroding margins.  Both of these conditions seem wildly optimsitic in my view.  Blood is not in the streets, not by a long shot.  However, I've been in 70% in cash for 6 months and my trigger finger is getting itchy.