[Econ] Jim Rogers calls for abolishment of The Fed

[Soriak]

Gold (and other commodities) went down because the fed dropped the rate "only" by 75bp instead of the expected 100bp. The dollar also gained some because of that.

Stocks went up the day of the announcement and lost just about all those gains the following day. It's like a defibrillator - let's hope the patient doesn't die

[Gauss]

Originally Posted by Eomer

Yup. And that's why the average person shouldn't be actively trading with their investment money. They don't know what the fuck they're doing, and all too often just get on a bandwagon and end up losing their goddamn shirt, because by the time they do it's too late.

If you ever watched Seinfeld, it seems akin to that one episode where George acted exactly the opposite of however he would normally act on a date and ended up appearing irresistable to the woman he was seeing. Extending this analogy, whatever seems right must be 100% wrong

[Soriak]

Breaking News Alert
The New York Times
Friday, April 4, 2008 -- 8:44 AM ET
-----

U.S. Economy Shed 80,000 Jobs in March

U.S. employers cut payrolls for a third month in a row in the biggest monthly job decline in five years, government data showed.

Yeah, in a recession...

[GrobbeeTrull2.0]

So that's almost 200,000 since the beginning of 2008?

[chaos]

Over 200 actually, it was 76k in both January and February

[Scorpvenom]

We are not in a recession.....there is nothing to see here....Secretary Paulsons new plan will fix everything....

Market 'reforms' a gift to Wall St. - MSN Money

On a more serious note, I wouldn't be surprised if at least part of this recent rally is a result of people covering their shorts. Also, after a week of terrible news, the markets started the week going up a good deal and then in the past few days gained relatively small amounts all on some pretty terrible news! I'm loving this...people are falling into such a trap right now... (well not really loving this...) Things are so artifically inflated right now it isn't even funny...go go go Fed! Pump more tax payer money into the system and enjoy being granted more power if this proposal goes through!...

And for everyone who thinks I'm over reacting....today it was reported jobs declined by 80,000 in march (everyone expected a decline of 50,000) and the February job loss numbers were revised upwards by 13,000 to 76,000. I wonder if the March numbers will be revised later on too?! To add salt on the wound, UBS AG former president Luqman Arnold suggested the bank should break up and in the WSJ it was reported that UBS will write down about ~36 billion dollar due to bad mortgage bets (although msn money has this reported at 19 billion for the 1st quarter--I generally trust the WSJ though). Gold hovering around $900 actually might be a better bet than I previously thought....everything right now leads me to believe the dollar will continue to go down the shitter (and the recent rally in the dollar was just a minor blip on the radar of what will be known as a time of the dollar's long term decline)...something no one seems to be addressing or worrying about too much in the above proposal...

[Soriak]

I think the reason we see the moderate gains is that the bad news were expected. Even if some are a little worse than expected, others ended up a little better. For example, UBS share went up after they announced the new $20bn write-down and the stepping down of their CEO. The $40bn write-down is the total amount so far.

Arnold's "suggestion" is a rehash of what has been said for some time now, I don't know why it's getting so much press attention. I totally agree with splitting off the investment branch, though obviously not during this crisis when its value is at its lowest.

The only reason not to do it is that the salaries of CEOs and Chairmans tends to be 5x higher in investment banks than private banks that only do wealth management. As a shareholder, I couldn't care less about their salary, only the profit matters... and that is so far significantly higher without investment banking: UBS' wealth management pulled in $16bn profit last year (after paying billions in bonuses) and it's again on a record course. An economist here said they pull in about $6bn/year just from fees, basically risk free money.

The bank has been holding up pretty well though, they announced along with the write-down that they're going to put forward a request to shareholders to approve another $15bn infusion, the investor is already lined up. Their now former CEO seems to have pretty good connections, supposedly he got the investor. He also got the Singapore SWF and an unnamed Middle Eastern investor to put in the previous $15bn.

[Soriak]

If you look at the stock market though, this crisis didn't bring stocks down to where they were after 9/11 - far from it. The chart of an index fund covering the largest 100 Swiss companies, about 20% of this is made up of banking - should reflect the damage somewhat accurately:

The funny thing is the Chart in USD to the right - hehe, the magic of the exchange rate.

[Scorpvenom]

Originally Posted by Soriak

I think the reason we see the moderate gains is that the bad news were expected. Even if some are a little worse than expected, others ended up a little better. For example, UBS share went up after they announced the new $20bn write-down and the stepping down of their CEO. The $40bn write-down is the total amount so far.

Good point that I should have hit on in my previous post. Generally, when bad news is expected and turns out not to be as bad as everyone predicted, stocks can and will often go up on that bad news, which baffles some people. However, the job loss #s for March were 30,000 higher than expected and JP Morgan reported on Friday that Citi should expect more large writedowns.

I think the reality of the situation is...there will be many more writedowns and while these companies internally probably have a decently accurate estimate of how much will be written down in the future, I don't think they are exactly being honest with shareholders and the general public. I think that really is the greater problem here. You really can't trust any of these companies to tell the truth. I personally think things are far worse than anyone is letting on and this will begin to come out more (earnings season is also here).

A few recent examples of some dishonest company actions, Alan Schwartz (Bear Stearns recent CEO) saying roughly that everything is fine at Bear...a few days later..Jp Morgans placed a $2 per share bid with backing from the Fed (which has subsequently risen to $10 per share and a few different terms with the Fed now due to much expressed outrage). Schwartz provided some reasons for why things "changed" in those few days (some may be moderately valid but it doesn't change what happened to the stock). Enron...need I say more? Many government run pension funds were heavily invested in Enron before its collapse and few if any outsiders saw what was happening with that company until it was too late. Worldcom? As someone who followed the company and saw it have several name changes before taking on the Worldcom name finally...these guys were the "golden boys" that could do no wrong. Everyone (and I mean everyone) wanted a piece of worldcom. No one expected what followed next....

I think the real lesson from all this is...you can't really trust any company completely and diversification is key, especially if you unknowingly are invested in a couple future Enrons, Worldcoms, or Bear Stearns. Diversification is really one of investors' few protections to building a sound portfolio, yet so many amateur and novice investors scoff at the idea. I only want to invest in 3 stocks, I want the fast and big money n0w! Diversify and trade for the long term....you'll be far more pleased with the results.

[Soriak]

Diversification is really one of investors' few protections to building a sound portfolio, yet so many amateur and novice investors scoff at the idea. I only want to invest in 3 stocks, I want the fast and big money n0w!

This can't be emphasized enough.

100% equity (all in a couple index funds, diversifying by country (50% domestic, 50% foreign is a good starting point) and by capitalization (Large and Small/Medium)) and the risk tolerance to temporarily see your net worth drop by as much 50% (less equity for people with heart problems But that means less return over time) is where it's at for individual investors not nearing retirement. Boring, but highly effective. Individual investors shouldn't be affected by this, not if they did their homework.

You really can't trust any of these companies to tell the truth.

The problem really is that the value of those risky holdings changes by the minute. When banks announce write-downs, they reflect the value (and with it the expected future value) at the end of a certain day... it's accurate until the next morning only. So it's true that it's not accurate by the time you read it in the paper, but it's not because anyone is lying.

They're required by law to value their holdings based on established accounting practices, I don't think there's any evidence they're violating those. It doesn't seem in their interest, you want to announce the write-downs as soon as possible along with everyone else. That way you're not going to lose customers to the competition, as they are in the same boat.


If we look at UBS for example, they held $70bn of such dodgy papers before this crisis. They've written down $40bn. In a year or two, it's entirely possible that not all of those $40bn are actually lost - the current valuation would mean that every single loan defaulted and the houses they were backed with lost over 50% of their value.

The current valuing seems overly cautious to me, but at this point that's not a bad thing. If it turns out the losses weren't so bad, they can once again announce record profits and everyone is happy

Alan Schwartz (Bear Stearns recent CEO) saying roughly that everything is fine at Bear...a few days later..Jp Morgans placed a $2 per share bid with backing from the Fed (which has subsequently risen to $10 per share and a few different terms with the Fed now due to much expressed outrage).

I'm not sure if he really was dishonest there. Bear Stearns was highly leveraged. So if they started getting calls on their own debt, they could have gone from "everything is fine" to bankruptcy in a matter of minutes.

I know of an individual investor who went from being a billionaire the day before 9/11 to bankruptcy a few days later. It's not that he didn't diversify, but he was leveraged and started getting margin calls. That's what you get for investing more money than you have and the market as a whole takes a dive.

[Scorpvenom]

The problem really is that the value of those risky holdings changes by the minute. When banks announce write-downs, they reflect the value (and with it the expected future value) at the end of a certain day... it's accurate until the next morning only. So it's true that it's not accurate by the time you read it in the paper, but it's not because anyone is lying.

They're required by law to value their holdings based on established accounting practices, I don't think there's any evidence they're violating those. It doesn't seem in their interest, you want to announce the write-downs as soon as possible along with everyone else. That way you're not going to lose customers to the competition, as they are in the same boat.


If we look at UBS for example, they held $70bn of such dodgy papers before this crisis. They've written down $40bn. In a year or two, it's entirely possible that not all of those $40bn are actually lost - the current valuation would mean that every single loan defaulted and the houses they were backed with lost over 50% of their value.

The current valuing seems overly cautious to me, but at this point that's not a bad thing. If it turns out the losses weren't so bad, they can once again announce record profits and everyone is happy

I agree with the first paragraph for the most part, however, I disagree a little bit with your conclusions at the end of your second paragraph. I'm not so sure they want to announce the writedowns as soon as possible. Announcing all the writedowns could lead to a major sell-off or a panic that I think many of these companies really want to avoid so I think they understate the actual writedowns along with everyone else. Concerning your third paragraph, I actually don't think they are being overly cautious, I think most are reporting less than they should, but I suppose there is no real way to know this for sure or argue this point. You have your opinion and I have mine.

I'm not saying they are violating accounting principles...with Sarbannes-Oxley and the fact that required accounting audits generally ensure accuracy (unless we have another arthur anderson / enron) companies generally are within the "rules." However..concerning accounting and GAAP, I've taken several accounting courses (i'm not a cpa) and know all too well how accounting can be used to manipulate and hide information and still be considered within the legal framework. IMO, this is a huge problem...things like "other expenses" or other fun nomenclature, deferring expenses or incurring them now, using different inventory methods to affect income taxes, reporting things as assets or revenue that should really be reported as expenses...it's amazing how accounting can play with the numbers in so many ways. While you can pour over a companies financials and their footnotes to said accounting sections, it is sometimes difficult to figure out exactly what is going on without doing much more investigating. Enron as I seem to recall had some fun with their "other expenses" sections and reporting revenue for things that should have really been expenses that was (at least some of it) entirely legal (obviously though, Enron orchestrated mass fraud as well).

I'm not sure if he really was dishonest there. Bear Stearns was highly leveraged. So if they started getting calls on their own debt, they could have gone from "everything is fine" to bankruptcy in a matter of minutes.

I know of an individual investor who went from being a billionaire the day before 9/11 to bankruptcy a few days later. It's not that he didn't diversify, but he was leveraged and started getting margin calls. That's what you get for investing more money than you have and the market as a whole takes a dive.

I personally think investing on margin turns out to be too risky (at least for me!). I've seen so many people lose their ass when they start getting margin calls. Your friend is just another story of so many examples. This and the overall highly leveraged nature of many hedge funds is a big reason that 2 of Bear Stearns hedge funds collapsed roughly 6 months ago.

[Soriak]

I don't know where else to post this, so I'm going to bump this thread. The fed wants tougher regulations on credit card companies. About time... Fed to Pursue Aggressive Checks on Credit Cards

The proposed regulations, which could be finalized by year's end, would label as "unfair or deceptive" practices that consumers have long complained about. That includes charging interest on debt that has been repaid and assessing late fees when consumers are not given a reasonable amount of time to make a payment. When different interest rates apply to different balances on one card, companies would be prohibited from applying a payment first to the balance with the lowest rate.