Dow 7000

Your Dow prediction included a date. That date came and went, and the stock market went up considerably. You changed your view to bullish. The stock market tanked afterwards.

Yes, we laughed at you. We're still laughing at you.

Ignoring comment by tech_guy.

Bit of a glory hole there, Steve. You might be blocking out his face, but you're still giving him the attention he wants.

tech_guy hasn't contributed anything to the board. stevejhx has a thumbs up in my book.

Steve, I'm a fan of yours, too - you always keep the debate lively. As to this thread title - more of my future downpayment money disappears into the black hole everyday, but I just got an incredible deal on a new lease in an awesome rent stabilized building, as long as our family stays gainfully employed I will be saving more money (100% in cash) to buy real estate later. How is everyone else feeling about their real estate buying aspirations? I've found the rental market has responded well to the pain in the larger world but the slow moving cruise ship that is the sales market is going to take a LONG time to come to its senses... hence my new lease signing.

So many bearish fanboys... Let me give you a tip. steve may be right about the direction RE is going (a coin flip has a 50% chance of being right) but his math and reasoning is all wrong. You don't want to be listening to him.

Seriously - look up his past Dow predictions. Laugh. Then find another bear who knows that they're talking about to become a fanboy of.

Well I'm nicely ensconced in a rental - my investments are a shambles like everybody else's, but they will recover within a year. Housing won't, and I wouldn't touch it until it starts to go back up again, which in Manhattan is many years from now.

I was thinking about moving instead of accepting the 1% increase my landlord wanted, but did the math and it behooves me to stay until I get the real discount next year. My advice: I have a lot of cash (one year's worth) & a few very nice 0% interest rate credit cards for the next 12 months to cover all my expenses. So like the rest of America I'm not spending anything: since I'm self-employed & though my business is doing well you never know, so if bankruptcy occurs - screw the credit card companies! :)

You know, some people criticize me & say I predicted something would occur on Tuesday & if it occurs on Wednesday they'll say I was wrong. They say I don't know what I'm talking about regarding property prices yet each time I put forth another respectable theory about how to look at them, I get back that I don't know what I'm talking about, the people to trust are real-estate agencies and executives and websites.

Well I have a book for them to read:

Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market (Paperback)

by David Lereah

http://www.amazon.com/Real-Estate-Boom-Will-Bust/dp/0385514352/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1226531107&sr=8-1

But I'm reading this one:

The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It (Hardcover)

by Robert J. Shiller

http://www.amazon.com/Subprime-Solution-Todays-Financial-Happened/dp/0691139296/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1226531181&sr=8-1

My posts always contain links to historic data and papers written by respected professionals. I don't quote what housemath.us says, and I quoted today the New York Times' buy vs. rent calculator just to throw some raw meat to the monsters: I don't believe that, either. I believe the historic data, and everything eventually returns to the mean.

If you want to listen to tech_guy = LICComment, I suggest you read the David Lereah book instead. At least he has a college education.

mrsbuffet, i do NOT recommend that you keep your savings in cash. after a big crash like we've had, now is the time to buy into equities. i am not saying they won't decline further--anyone who pretends to know the direction of the stock market in the short run is a fool. but the buy high, sell low strategy is always doomed. buy high, and refuse to buy low is almost as bad. the time to build up cash was before the crash. now is the time to put that cash to work.

happyrenter, some people are happier in cash.

happyrenter is 100% right. See, I told you there were bears who knew a thing or two about economics ;)

Ignoring comment by tech_guy.

Happyrenter your argument doesn't make sense. You correctly state that trying to time the market is foolish yet at the same time you say that the correct time to build up cash is before the crash.

Which is it: either you don't try to time the market or you do...

In any event, if someone is looking to buy real estate in the near term I think it's rather foolish to invest that cash in the stock market for the very reason that we have no idea of its behavior in the future. All bets are off if you are trying to build up some wealth over a longer time frame. But to the one correct point in your post, trying to time the market is a fool's game.

you know what, I like the audible with TARP. At least it shows leadership, decision making, and in fact from what I hear this was a likely possibility from when the TARP passed.

350Bln was already used for injections. Soon Paulson will have to ask for more funds. What would 350Bln do to buy distressed mbs? Nothing. Buying distressed MBS had problems written all over it:

1) the taxpayers will want attractive marks so as to increase the potential for profit, and decrease the risk of losses
2) to succeed and recapitalize, marks must not be too low as to destroy the banks anyway
3) its best if the market doesn't know how much distressed MBS may be purchased and when the buy will occur, so that valuations reflect the actual market for these securities without any expectations of a BIG BUY ORDER coming in, canceling out #1

There will be a 2nd TARP like rescue. Has to be. Citi has 1.18Trln of off balance sheet holdings alone. Things are getting worse, not better, and its spreading to alt-a and prime for some time now. $320Bln of alt-a securities are still on review for downgrade! Why are people still surprised?

This call was smart because it changed direction from what would have been wasted money! Maybe the rest of the funds can be better used, that is all that they know now. Troubling is how they plan to use the funds for consumer credit securities, proving that has heavily affected auto loans, credit cards, student loans, etc...which was the story all along!

Its a crappy situation, its going to get worse, but this was a good call.

happyrenter, I went all cash at about 13,000. I think the bottom will last for a good long time this time. If I thought there was a rat's ass chance of a v-shaped recession, I might concur with your analysis, although with little enthusiasm. There is simply no reason to worry about missing the upside right now. As long as this market continues to have this volatility, with swings of more than a couple of percentage points either way, I'm on the sidelines, happily. But I can't invest in individual stocks because of the employer, so my being limited to mutual funds could be affecting my opinion.

Noah, don't you think that hindsight is kind of frightening right now? Yes, I agree a Bushian resistance to changing any direction would be lousy, but don't you think the best and the brightest could've should've realized what a crappy plan it was?

fakeestate:

you need to learn the difference between investing and speculating. the reason to build up cash during the spring and summer was not because an investor could know that the market was headed into imminent decline. the reason to build up cash was that an honest appraisal of market fundamentals and business conditions demonstrated that equities were overvalued. like i said, betting on SHORT TERM market movements is a fool's game. making investment decisions based on macro- and micro- economic information is entirely different.

Smart investors sell high and buy low, not by trying to determine which way the markets will move, but by carefully considering business fundamentals. If a person needs cash within a few years, certainly that money should be kept in cash. But no one needs to buy real estate. Ever heard of renting? With equities beaten down 40%, with GE yielding 7.5% and Philip Morris International, owner of the world's most valuable brand (Marlboro) yielding 5.5% and growing at 20% a year, why in the world would anyone feel the "need" to buy real estate. Cheap equities are hanging from trees--pick them.

UD, I agree, the original TARP was dumb. But none of this is going to save diddlysquat. I think you know that housing prices have to fall dramatically to be in line with in incomes and rents, despite the claims of JuiceMan and tech_guy = LICComment. When you have an apartment they can't rent out at $6,500 a month but they want to sell for $1.8 million, you know things are out of whack.

$2,000 per square foot that 5 years ago would have gone for $800. Please.

Here's all they need to do: change bankruptcy law, allow owner-occupied real estate to be worked out. That will stop foreclosures, that will change the risk profile of granting new loans. Nothing else need be done. Not TARP or anything else. Then there won't be blighted neighborhoods, but new housing will be repriced. It won't be perfect, but it's better than all this crap.

Wanna save Detroit? Kick out all the people who run the place, along with Kwame whats-his-face the former mayor. Then give them money to fire people. That's it.

Nationalize health insurance. After gay marriage that's the next inevitable thing. Of course I'm biased.

Wanna save Wall Street? Re-regulate it, eliminate short-term bonuses for long-term risks, thereby preventing new asset bubbles.

All of this is a lot simpler than people think.

Oh yeah, Michigan can sell its water to California. That's what California wants.

aboutready:

whether or not we have a v-shaped recession is irrelevant to the question of a v-shaped market. I don't predict that we will have one, but neither do i predict that we wont. i can't possibly know that.

i am particularly perplexed by your argument that daily fluctuations lead you to stay on the sidelines. if you are investing for the long term why should it matter if the market gyrates on a daily basis? i've owned stocks that plummeted while i owned them, and then recovered and ultimately yielded me doubles or triples. so why should i care if they fell while i owned them?

let's assume that your only option is an s&p index. if you believe that the s&p index is undervalued, you should buy into it. if you believe it is overvalued, you should remain on the sidelines. don't concern yourself with trying to predict the direction of the market.

"Cheap equities are hanging from trees--pick them."

Agreed, but don't look for short-term improvement. Paulson can't speak a full sentence. Even if Obama turns out to be an idiot (which I doubt), at least he'll be clear about it.

Aboutready & Steve - 'but don't you think the best and the brightest could've should've realized what a crappy plan it was?', yes but who knows what was discussed behind closed doors. They sold the plan as necessary, they sold it as a way to increase lending, and they got it passed. Now, they are changing the game plan. We are in such unchartered waters here, there should be plenty of second guessing and changed decisions to make sure any actions are not wasteful or ineffective! Thats the key point here.

Steve is right, there are no silver bullets here and they cant stop home prices from falling, or force banks to lend. For all we know, the whole TARP-increase lending thing was bullshit, and this was just to inject the money into the banks because they couldnt do it in the open markets! I wouldnt be surprised!

Personally, they need to take advantage of the FACT that bank lending standards are much tighter, exotic loans are gone, and banks are sparing back lending. In this environment, where you need to be able to afford a property, change the tax code to entice speculative investors back in with a catch - THE HOME MUST BE OWNED FOR 5 YEARS.

An example: GRANT THE PRIMARY RESIDENCE TAX EXEMPTION BENEFIT TO INVESTMENT HOMEOWNERS IF THEY SELL THE PLACE AFTER A 5 YR HOLDING PERIOD. OTHERWISE IT IS THE REGULAR 1031 EXCHANGE TAX DEFERMENT ADVANTAGE ONLY.

That would bring qualified (because banks standards have tightened so much) investors back into the housing market and give them incentive to hold the property and not flip or resell the unit back into the supply for at least 5 years.

Thats a start!

Volatility keeps me on the sidelines because it is a sign of what I consider to be an unhealthy market. Generally I check my accounts every couple of months, and don't really think too heavily about it. I believe that there is little downside to not being in the market right now. I got out at a certain level. When I get back in, and I will, my cash will start from a much higher level than it would if I had left my money in the market for the entirety. To be honest, one of the main reasons I remain out is because I think earnings projections remain insane. So I guess I would think that an S&P index would be overvalued, as would emerging market funds, big caps, mid caps, etc. Certain individual dividend paying stocks might interest, but not many.

Regarding the v-shaped market, it is true that the market frequently diverges from economic recessions in terms of timing. I am fairly certain, although clearly this can only be an opinion, that given the fundamental problems we are facing that you'll not see the next secular bull rally roar to life. But that's the risk I'm willing to take. I don't necessarily think it's a bad investment decision.

BTW, so we are clear: The primary residence capital gains exemption code I refer to allows a single person to be exempt from taxes up to 250K on gains had if they lived in the property for 2 out of a 5 year period. Up to 500K on gains for married couple.

Extend this EXEMPTION to investors but keep them on the hook by making them hold the asset for 5 yrs minimum!

UD, investors already defer cg tax if they reinvest - it's homeowners who get screwed: the cg limitation, the $1 million mortgage limitation, the no bankruptcy rule, the AMT. Let's be clear once and for all whom the rules are written for: not the pretty-well-off like us, but the very-well-off.

Who'd screw you as soon as look at you.

I bought some more GE and NWL today. As for the Dow hitting 7k, it is a definite possibility. Out of all of my stock buys over the past month, the only one where I know I was greedy was FCX, which I bought at 31. That being said, if they can continue to pay out the dividend, it won't hurt at all, and I have no problem waiting 5 years to sell for my desired profit.
I have no idea when the bottom on this will come in, but I do think that the Dems are going to do everything they can to stimulate the heck out of this economy. I also think that Obama will not raise any taxes in 2009, he may let the Bush tax cuts expire in 2010, or he may do something different. In any event, when he comes out with the news that he won't raise taxes, watch the market jump like crazy for the mother of all bear market rallies. If I am wrong and he does raise taxes, watch this market dip below even 7k and unemployment crest over 12%.
Noah, I love your idea on extending the EXEMPTION. However, it is too intelligent and pro investment to ever be approved by a Democratic Congress.

investors defer, owners exempt

mh23--you believe that if the new President raises any taxes at all in 2009 unemployment will reach 12%? that seems a bit hyperbolic. unemployment may rise, but an increase in, say, the estate tax is unlikely to have a major impact on unemployment. wouldn't it be more accurate to say that if he raises certain taxes, or even better if he raises certain taxes by a certain amount, you believe unemployment will rise to a certain rate?

whether his tax policies will have an impact on the gyrations of the market in the short term, that i can't tell you.

Happyrenter- Sure. Let me be more clear. If Obama raises marginal tax rates, if he raises taxes on capital gains, if he raises taxes on dividends, that will have a negative impact on the overall economy which will translate into higher unemployment. AI have no interest in attempting to give more specific numbers on an informal chat board about real estate.

UD- I must have missed the defered part. If your suggestion is extending the exemption to an investor that owns and holds the real estate for 5 years, then I agree with you. If you meant something else, I missed it

that's a fair argument, mh, although i don't agree with it. but you did give a specific number--12%--which is what i called you on.

no you got it...sorry, bottle of wine talking here. disregard

Touche. Consider it an educated guess. It might be 11, it might be 13

and it might be nothing. i've never seen any evidence, for instance, that a relatively small increase in capital gains taxes has any impact whatsoever on employment rates.

Maybe. But it stands to reason that, if the government takes more money out of the hands of potential consumers, they may consume less, and then the people employed making the widgets that people might otherwise consume will have less widgets to make and they will be laid off. However, don't take my word for it. The President-elect has himself pledged to cut taxes on "95% of tax paying Americans" in an effort to stimulate the economy. If cutting taxes are expected to have that effect, I guess raising taxes would have...the opposite effect. Not to mention that when you lower capital gains taxes you collect more revenue because people are not discourage from investing by onerous taxes. That's the tricky thing about high taxes, sometimes they just don't work.

mh23: Arthur Laffer called. He wants his discredited theory back.

You mean Obama's theory. He is planning to cut taxes for 95% of taxpayers. The only issue is with those above 5%. Laffer supported Clinton and his tax cuts, particularly on capital gains...which generated more revenue for the government as well as contributing to more growth. How has that theory been discredited?

You mean Obama's theory. He is planning to cut taxes for 95% of taxpayers. The only issue is with those above 5%. Laffer supported Clinton and his tax cuts, particularly on capital gains...which generated more revenue for the government as well as contributing to more growth. How has that theory been discredited?

Just a personal anecdote: My gross household income is currently 1.1mm year. Average yearly consumption totals 330K a year. You better believe we are cutting the sh*t out of our consumption in fear of tax hikes. I have no freaking clue what we are going to be paying under the Obama tax plan but it sure as hell freaks me out and is putting the brakes on all major expendible consumption. If we cut our consumption by 100k a year do you think that is going to STIMULATE the NYC economy?

mrsbuffet, happyrenter is a theorist, he is not concerned with pesky, and obvious, reality. The reason why Obama did not reiterate his desire to raise taxes during his brief press conference last week, despite being asked a direct question, is because he knew it would have a devastating impact on the markets, and then on the economy at large.

"investors defer, owners exempt"

Then I don't get what you want. A deferral is fine, as long as I defer till I die.

Or put it in a trust.

"I also think that Obama will not raise any taxes in 2009, he may let the Bush tax cuts expire in 2010"

Agreed. No tax increases - it was Roosevelt's mistake in 1933.

Unemployment won't reach those levels - there is too much money in the system now.

As a Hillary supporter, I have to say that I am surprisingly pleased with Obama. I think it will be one of the most intelligent and competent administrations ever. What a nice change.

"My gross household income is currently 1.1mm year"

mrsbuffett - you just said you had signed a rent-stabilized lease. How is that possible with your income?

I'm thinking that you might be LICComment, too.

"no freaking clue"

I think that mrsbuffett is a guy. I've never heard a single woman in all my wife say "freaking clue," not even my grandmother, who beat up a nun.

"in all my wife say"

What a great Freudian slip on my part! LMAO!

Steve - Grant the primary residence cap gains exemption tax benefit to investors as well, in place of the 1031 deferment exchange there is now. The catch to qualify as an investor, is that you must sell the property after holding for at least 5 years. So, your an investor, you buy a place and rent it out for 5 years, then you sell.

You get a tax free exemption up to 250K for cap gains on the sale...no need to buy a like kind property, and exemption is far more sexy than deferring the taxes out until a later date. Get these speculators back in the market for the right reasons, and let the banks control quality as they are doing now and will continue as long as deflationary environment exists, books are toxic, and regulation about to come in that will further tighten the noose on fraudelent lending, appraisals, etc..

oops, this can be misinterpreted..."must sell the property after holding for at least 5 years"

I meant, the catch is that you must HOLD the property for min 5 years to qualify for this benefit. It can be used the entire 5 years as investment property

I don't know, UD. The capitalist in me would like to see all tax incentives toward specific behavior to end. Level the playing field. Why should housing be better than stocks or pinochle cards? Shouldn't be. They're just things. That, to me, is the best solution.

Here's what I would do: All income taxed at a progressive rate (similar to today's). Full SS and Medicare for all earned income. Means test benefits. Unlimited 401(k) retirement savings. End double-taxation of dividends. End "qualified" dividends: all the same. Tax savings accounts and capital gains at the same rate. Same as income. I don't see the difference between "equity at risk" and "blood, sweat, tears, and toil." I think it's a ruse.

Once the playing field is leveled, then we'll see real investment where it will pay off, not where it will be rewarded.

Just my opinion.

Smart to just ignore techmonkey. He's already admitted he's a troll.... (and proven he's a putz)

This tired old anti-tax rhetoric is just so, I don't know, worn out. The President-elect is planning to lower taxes on 95% of the population and to raise taxes on, obviously, somewhere under 5%. The idea that any tax hike automatically leads to economic stagnation just doesn't conform to reality. Shifting the tax burden from those who need to utilize every last dollar to those who do not makes sense in economic terms, and it makes sense in social justice terms.

We have to pay our bills. Given the magnitude of the recession, I am comfortable running a significant deficit, but at some point we have to pay up. In the medium term and the long term spending is what determines taxation. If you want roads and bridges and cops and soldiers and air traffic control and environmental protection etc. etc. etc. then you need to pay taxes. Every tax cut can't be good for the economy, nor every tax increase bad for it.

Happyrenter, it is tax REVENUES that pays for the projects that you list, not taxes. The question is, what tax rate generates the most revenue. The answer is, in many cases, a lower one rather than a higher one (e.g. when Clinton lowered Cap Gains the US collected more revenue, under W the US government has collected record revenues despite the lower taxes). The problem we face today is that the Republicans spent Democrats, and in so doing, created this massive deficit that we are in. If we moderate government spending, and have a vibrant private sector with efficient tax rates, we will have more than enough money to pay for all of the projects that our Federal government needs to provide.

mh23, the data you cite on cap gains is completely false. when capital gains taxes are cut, the government generally collects more in CAPITAL GAINS taxes because individuals and businesses shift income into capital gains (easy to do: cut dividends, shift compensation schemes), but less in overall revenue. Understand the difference?

As for the Bush tax cuts, you need to compare apples to apples. It would be pretty shocking if tax receipts had declined over an 8 year period during which government spending nearly doubled. The question is not whether they grew, but whether they would have grown more, and with minimal economic impact, had taxes been higher. My impression is that every non-partisan observer agrees that taxes, particularly cap gains taxes and top marginal rates, have been too low during this period.

Can taxes be too low? Yes. When you run large structural deficits during a period of economic growth, you can cut spending, sure, but you should also raise taxes. The reason, of course, is so that you don't have to raise taxes when growth slows. There is certainly some tax rate at which increased taxes leads to decreased revenues. But with the lowest tax rate of any advanced nation, it would be quite hard to argue that we are anywhere near that point now.

I too am in the 1m range (and newly so, so I've been completely and utterly screwed by the Bush tax rates which inordinately taxed those in the $200-600K or so range). Am I unhappy that my taxes will be increased a moderate amount (back to the rates under that well-known socialist Clinton)? Yes and no. Obviously I'd love to keep my money. But I can certainly see how every dollar given back to the lower and middle classes will likely be spent in consumption. My additional dollars may or may not be used for the consumption of goods and services, and they may be used to pay for a trip to South Africa, not for an adequate supply of toilet paper and milk. We are rapidly approaching the point where many people cannot afford merely to live.

C'mon guys how can you NOT be dabbling in the market at these prices? Intel=$13.50, C is trading under 10 and LVS=5.10! RIO is 11.18 and the samll cap energies are a STEAL. Sure there is risk but these prices are so battered that I can't help myself. (I now understand my wife's obsession with a sale at Bergdorfs.) ALL the news coming out is bad besides WMT, which is my major holding, and this is just driving prices down more. The vast majority of these companys are not going to zero so my read is there is no better time to buy.

i pared 80% of my shorts and started niblling lat yesterday..Not C thoough,,,UYG, FCX, DRYS, SSO, DDM...lets see how it works. dont have full positions though. If we fall more Ill nibble more

i pared 80% of my shorts and started niblling lat yesterday..Not C thoough,,,UYG, FCX, DRYS, SSO, DDM...lets see how it works. dont have full positions though. If we fall more Ill nibble more

Happyrenter- I don't follow your argument, and in fact you may not even have an argument. Allow me to wrap this up as this discussion is becoming boring. Yes, we as a country need tax revenues, yes we need some type of taxation system to generate those revenues. The question becomes, what is the most efficient way to tax so that we generate the most revenue while at the same time have the least amount of drag on the private sector. Apparently Obama feels that our current rate is too high for 95% of the country, but not high enough for the top 5%. I am not sure that that is a cogent or helpful posture, but we shall see. What I do know, and I assume Obama does as well, is that if he raises taxes (income, cap gains, dividends) during a recession, he will exacerbate the problem. If you disagree with that assumption, then fine, we disagree. I do not agree that cap gains have been too low, nor do I believe that marginal rates are too low. I believe that spending has gotten out of control. Whether it is the war in Iraq, the new Medicare prescription drug plan, etc. the government is spending more than it has. The answer is not to tax more so that the government can spend more, the answer is to spend less. If you disagree, fine.

Stealth- I agree. I picked up some GE yesterday only to see another 9% drop today. I am tempted to add more, but I won't. Right now I love NWL and MHP. I don't know where they will be in a year, but if they don't go out of business, these stocks will easily double over the next five years or so.

just dipped below 8000; something to see

oh steve I am so flattered you think I'm a guy - and I'm a mommy, too! - but I used to work on a trading floor so I can talk the talk I guess - we're moving to the Caroline, which is rent stabilized until 2013. Isn't your building, (21 Chelsea?) like that, too? My understanding is that the management company can only increase the legal rent by 2.2% a year until then. Of course, I may be dead wrong and they will screw us into a ridiculous rent increase based on our income level, but I locked us in for two years, and who knows, maybe hubby will be unemployed and we'll be living on air by then anyway. Why would I lie about my household income - this is an anonymous message board? I am a fan of yours, steve, but you are one paranoid, dude!

"we're moving to the Caroline, which is rent stabilized until 2013. Isn't your building, (21 Chelsea?)"

No, it's not, though my former building the Westminster was. It's not "stabilized," per se: it's an 80/20 building, to which income limits don't apply.

"My understanding is that the management company can only increase the legal rent by 2.2% a year until then."

At the Westminster it was whatever the stabilization board defined. Honestly, I've received lower rent increases being in a nonstabilized building.

"Why would I lie about my household income - this is an anonymous message board?"

It didn't make sense until you explained what type of building you're in.

"I am a fan of yours, steve, but you are one paranoid, dude!"

No, but add that to your trader mouth, and what's a poor guy to think?

:)

My apologies, mrs. buffett!

aboutready, I agree that food prices are getting out of hand. I just paid $14 for 3 pounds of ground beef! I really hope that the tax increases do what they are supposed to and help families that are struggling in this city and across the country. I am ok with cutting back our household consumption, I'm looking at it as my patriotic duty to pay higher taxes, isn't that what Obama was saying, that the wealthy need to step up and give back to the rest? But to bring it back to real estate I am not going to take on a significant risk of buying an apartment in this market with my future income so uncertain. I think there are a lot of people out there like me who are just putting the brakes on, and let me tell you the rental market is very friendly right now compared to 2 years ago for those who are looking for family sized apartments.

Today was another wild day in the markets. I thought about buying some X at around 27, but decided against it. On the next drop down to 8200 or below, I will be buying more CAT, more MHP, more FCX, I will be starting a position in X, and I will think about maybe buying some AXP. What I like about this market is that it keeps giving value investors opportunities to build to or add positions. IT seems like 8k is the firewall, but of course that could all change, and if we break that, who knows where it ends. One thing I do feel confident about is that these are great times to buy certain companies at very attractive levels, provided that you have the patience and ability to wait several years to achieve your goals. Buy and hold is a deeply flawed strategy, but you do need to give your assets time to reach their potential...once they do, you sell them and then look for new opportunities. You do not watch them rise and rise only to watch them fall and fall. Buy low and sell high.

mh23, I enjoy your posts on the market (even if they don't really fit on this board). VERY tempted to buy BAC today when it dropped below 15, but I held off. WCG is also interesting, considering how it plummeted today.

I'd considering buying 2 things here - GOOG, BAC - but wait for a drop. They're the only thing I think will equal China in the near- to medium-term. GOOG because we're back to 2006 valuations and as hard as anybody tries, they've not yet come up with a better search engine or business model. BAC because it has pricing power, and the combination with MER will make it unbeatable.

I'd have to hold my breath on BAC, though, but since its common yields about 8% at this price level, it's worth the risk at 15.

The fact that Steve likes BAC makes me want to buy more. I started my position at 27, then I bought a nice amount more at the IPO at 22. I love it at these numbers, and will probably not be able to stop myself from buying more if it hits or breaks 15. I have no doubt that we will retrace the gains today. However, there could be a bit of a sustained rally leading into and post G20 meeting. I love MHP and NWL, and I definitely want to start a position in X. The truth is, based on my time-line, buying at 27 or 31 is not a big deal, but on principle I never buy stocks on a day when they go up a few percentage points, never mind 12%.

mh23--if you don't understand that taxation is composed of many different types of taxes, that each type has a different sort of economic impact, and that people can alter their behaviors in response to changes in the ratio of different tax rates, then you are correct, time to end the conversation.

be careful, everyone, with this "nibbling" on beaten down stocks. i am now fully invested again after a long time with a large cash position (I wish it had been larger, obviously) but you should evaluate equities the same way you evaluate real estate. Never, EVER, buy a stock simply because it has gone down. It can always go down further--just like you should never buy an apartment simply because the asking price has been reduced, or because someone else paid more for a similar apartment.

If you buy GE, make sure that you have confidence in the company as an ongoing concern and that you would be comfortable holding the stock for a period of years, if necessary. Don't simply buy it because it's gone down.

happyrenter. I understand this tax thing of which you speak...The fact is, you have no argument. You obviously think that raising INCOME AND CAP GAINS on the upper 5% of our taxpayers, often referred to as the investor class, will not have an impact on investing, consumption or the economy. I disagree. For example, people will "alter their behavior in response to changes in the ratio of different taxes", they will buy less and invest less. You may believe that that modification in behavior is stimulative, I do not.
As for your point on stocks, you are correct, except for the part where you say that you are now "fully invested", by not keeping some cash to deploy on further dips, you have deprived yourself of future buying opportunities. In essence, you have attempted to time the market, which is never a good idea.

well said happy renter

not so fast to 7000....huge afternoon rally today

Actually, mh23, it would be attempting to time the market to keep cash around for "future dips." That is, it requires an assumption that the market will HAVE future dips. I have no idea which way the market will go--it may never again be lower than it is today. My evaluation is that I can make a better return in equities, or, more accurately, in the specific equities I own, over a five-to-ten year time horizon, than I can in cash. My conviction is strong enough that it requires me to fully invest. I'm most definitely not attempting to time the market.

Since we've ended the conversation, I'll leave your totally mistaken characterization of my beliefs regarding taxation alone. Suffice it to say that you have, willfully or otherwize, completely misunderstood my position regarding tax policy.

read: otherwise

happyrenter. I concede that you are correct to the extent that there is a chance that the market may not go down from here, or whatever point you chose to get fully invested, and if that is the case then you are obvioulsy correct to be fully invested. I should have framed the argument that, by not having some cash around, you deprive yourself of future investment opportunities, be they residential real estate, commercial real estate, corporate bonds, stocks, muni's, etc. I have investments in all of the above, and am always looking for different opportunities to put capital to work. If you are someone that is only interested in stocks, then your strategy may well work.

And before I am misunderstood, I agree with Stevejhx that residential real estate is not a good "investment", I meant that if you come across a primary or secondary residence that you always wanted at a price that is appealing, it is nice to have cash available to help to purchase such an asset.

oh no, mh23, i've had all kinds of crazy investments over the years--my best investment ever, by far, was in the two bars i own with a friend (all of you, if you ever have the opportunity to buy into a bar at a decent price, do it). i used to own residential real estate in manhattan--well, i owned my apartment--until i sold in 2007. i owned a lot of gold for a while, i invested in the art market, at one point I owned a ton of Korean corporate bonds. Right now, I find it hard to imagine that there are many investments out there with a better risk/reward ratio than US equities, but I'm sure there are some. I am not one to hold onto cash on the chance that something better will come along. When I see a good investment opportunity, I dive in. I'm single and 27, so what's the worst that can happen?

I wouldnt fall for this rally being THE ONE that proves the bottom is in. Stick with what works and that is sell into the rallies as they happen.

Did I call it or what? Dow up huge today - steve is the best contrarian indicator there is!

"sell into the rallies" is not a good strategy. sell when you think you can more productively deploy your capital either in cash or in another investment than you can by continuing to own whatever it is you are considering selling.

market-timing is not a good strategy for the do-it-yourself investor. unless you have a sophisticated quant model you are just highly unlikely to make good returns by jumping in and out of the market.

happyrenter. Sounds like you have the right attitude.

sell into rallies is not a good strategy in this market. Your kidding right. Happyrenter, hindsight is 20/20. its easy to say your all in after an 800 pt rally occurs. Its harder to say you are all in when we are actually down 300, after a 1200 pt fall in past 5-7 days.

PS, not that you would believe me, but im up 32% in the past 15 months by shorting the rallies and selling the rallies, covering on the selloffs, and nibbling on longs for a tradable bounce. The buy & hold 5 yr plan mantra (while great that you say this now all of a sudden) has proven to be a huge money loser for anyone sticking to that strategy over the past year or so. Ask spunky, or look back to conversations we had on this some 10-12 months ago.

I find it odd that all your investments happen to be so spot on. You buy real estate, sell the top. You buy gold, you sell the top. You buy art, your out before that market comes back to earth. But since we are getting into it here, tell me what is going to happen next from here on out BEFORE it happens!

Lets hear it. What is the next play? And dont tell me to buy stocks and hold for 5 years. If that is your strategy, than you must at least acknowledge that most people did that already from MUCH higher levels and are killed right now, likely down 40-50%, perhaps more if they were in the financials/homebuilders...

Not knocking you, just responding to your statement that selling into rallies is not a good strategy in this market. It has proven right for 15 months straight now, and this IS a traders market.

Like I said 7 hours ago when the markets were down and pressure was to downside:

"i pared 80% of my shorts and started niblling lat yesterday..Not C thoough,,,UYG, FCX, DRYS, SSO, DDM...lets see how it works. dont have full positions though. If we fall more Ill nibble more"

I did nibble more, and got out of the rest of my shorts when we were down 200..of course no one gets it perfectly right! Now, Im 75% filled with long positions (leaving 25% if we fell more, which didnt happen but I didnt chase either), and I sold 15% about 5 min before the close and bought back 100s of EEV at 79 that I sold at 104 earlier in the day. So, hopefully the rally holds, Im playing it that way, Ill scale down my longs and re-fill my shorts, slowly. This strategy has worked wonderfully in this market for anyone out there actively trading or taking on small positions to manage for short periods of time.

What I wont do is be 100% short at any given time, or 100% long at any given time. I have 50% of my money in short term CD's, and I own a gold position (from about 670 last year) with DEC puts to protect against deleveraging that was put on around the 890 level. I think gold falls before it runs up after the fed runs out of bullets with facilities and rate cuts and I think the dollar rally will reverse. I am also short the long end of the treasury curve. These are my thoughts on trading this market, I often tell people what I do here as I do it and BEFORE the market makes any reversal, and I seldom take risks that could wipe out all my gains. This market is very likely NOT bottomed yet and I think 2009 will be very tough on stocks in the beginning as unemployment rises, gdp is awful, and we see the after effects of credit paralysis and contraction. The effects globally are yet to ripen out either. Bear market bounces are fierce, fun, and usually short lived. You can quickly make 10-30% in a trade over the course of week or two. Saying NOT to sell into that is pretty ballsy in this environment, especially when you dont know when you might wake up and see a big company go bankrupt, a huge writedown come, a dividend get suspended by a major firm, a corporate warning from a major firm, share dilution, etc..clearly we have a few of these events yet to occur.

"not so fast to 7000....huge afternoon rally today"

I didn't say we were going to 7000 - necessarily. I just put the thought out there. Do I think this rally will hold beyond a few days? No. Do I think we have probably hit a short-term bottom? Yes. Medium-term - I don't know.

Today does not a trend make, but I would still be very cautious. And am.

urbandigs: I think you're glossing over an incredibly important point - distinguishing a short term rally from a genuine bull market. Maybe that's easy for you, but its certainly not easy for me (and most people). If you just blindly sell into every rally and buy on every drop, one day the stock market will leave you in the dust. You'll have sold on the first day of the real bull market, and won't be buying again until the next recession. How long would that be - 8 years or so on average?

mh23 - I am not sure you realize what would have to be happening for unemployment to hit 12% in a 12-15 month time period. We would all be in a world of hurt if that many people lost their jobs that quickly. We would be in such a downward spiral that would be extremely difficult to unravel. That is quite unlikely, although nothing is impossible.

Here is something interesting on the stock market and valuations. It argues what I've though for a while but never had the data to back up: stocks may look cheap but what will earnings do next year?

"current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009 up 15% from 2008. Such estimates are outright silly and delusional. If EPS fall – as most likely – to a level of $60 then with a multiple (P/E ratio) of 12 the S&P500 index could fall to 720, i.e. about 20% below current levels; if the P/E falls to 10 – as possible in a severe recession, the S&P could be down to 600 or 35% below current levels. And in a very severe recession one cannot exclude that the EPS could fall as low as $50 in 2009 dragging the S&P500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%). Similar arguments can be made for global equities: a severe global recession implies further downside risks to global equities of the order of 20-30%.Thus, the recent rally in US and global equities was only a bear market sucker’s rally that is already fizzling out buried under a mountain of awful worse than expected macro, earnings and financial news"

tech-guy - great question. No one really knows and one thing we must understand is that this is no ordinary slowdown and no oridinary bear market. Most bear markets last around 12-18 months I believe. Also, stocks tend to rally BEFORE the recession proves to be over from the lagging, still deteriorating macro data. So jumping ahead to a hypothetical say 6 months from now, when we start seeing unemployment go from 7.5% to 8%, and stocks rally, maybe that is a hint...unemployment may continue to deteriorate to 8.5%, but stocks will have already turned.

With that said, I strongly believe this is a bear market and we are not at the halfway point. Rallies will be typical of bear market rallies, fierce, sharp, and short lived. Some may last a bit longer than a few weeks and result in short covering if they dont turn so quick, further extending the rally, but you can never time it perfectly! NEVER!

Pigs get slaughtered and if you do nibble, you need to know why you are nibbling. I use LIghtspeed trading system since 1998, and have been obsessively following stock patterns and trading ranges for 10 years now as a active day trader. Today, with bad news and 5 day selloff of about 1000 dow points, the stocks I follow started to seem tired. Bids were holding, and advertising few hundred shares to buy but were refreshing and loading up. market seemed like it wanted to rally, but as usualy, it gave way and fell. But still, stocks seemed to be nearing their bottoms. At this stage its a gut feeling for me after all these years staring at the screen of fast moving trades for 10 or so stocks that I follow given the market and what is moving. So I started nibbling with the idea that I had a few shorts left, and would buy more if we fell more. Of course the market can fall off a cliff against me, but I am only starting to buy at already distressed levels after a huge selloff, I never chase. Side effect of this is that you dont ever sell at the top and miss a good portion of the rally alot of the time. Thats ok, and discipline taught me to except this. In the end, you dont get caught buying a FCX at 33 after it just ran up from a low of 23. Instead, Ill watch it, see where it gets some buying support, and start nibbling at say 24, and then buy some more at 23, and 22. When it turns, I got 600s or whatever from dca of 22.60 or so. I start out buying 100s, and I buy 200s the next level down and 300s the next level down after that. Just an example. So, now I have 600s of fcx from like 22.85 or so. 600 Drys from like 9.40 or so, starting to nibble at 10.50. Etc..

If FCX goes to 28, Ill sell a 100, 29, a 100 more, 30, another 100. Then Ill try to hold the remaining 40-50% for a few more points. I never hit the top, but the strategy has worked for me well when used with discipline. The hardest part is knowing when to throw in the towel and dump the loser. I started trading FCX when it fell to 40, from like 110. I had a 36 stop out because it was broken at the point. I lost like 1300 on that trade, but since played it well. Im not always right. If something is broken, I usually stay away. Recently many stocks are broken so I have been buying DDM, SSO, and UYG when the selling seems tired to me after a huge selloff already, never at the late stages of a rally. Always after a selloff. So I started buying SSO around 25 or so. DDM around 30 or so. etc..

make sense?

I should add something very important as well, you must know where we are and where we came from! For example, 12 months ago when we were around Dow 13,000 or so, I knew we had major downside risk! So, I overweight my shorting focus and didnt really hold that many longs. Now we are down, so its very possible we have a nice bounce at some point, but it will be a shorting opp, I think. I think we will retest lows again, as KSPEAK says, earnings estimates are still way high. But after such a fierce selloff, the market is trading on emotion now, and margin calls, and deleveraging, so moves will be extreme. In this case, I pare down my shorts and longs altogether to say 60% of what I had on at DoW 13,000, because anything can happen. At DOW 13,000 I was fairly confident that the market would not bounce against me.

"make sense?"

No :) That's why I'm on the tech side, not the trading floor. My philosophy is that day-trading is for the most part a zero-sum game, and most of the money in that game is held by people who know the game better than me. People like you! Worse, there's a *LARGE* financial incentive for others to convince you that they play the game well (fund managers) even though statistically, most of them don't.

So, rather than try and play it and lose my pants, I stay out. Not really - I do enjoy talking about it and thinking about what I would do, but I don't put my money where my mouth is. Sometimes I'm right, sometimes I'm wrong.

Buy-and-hold isn't such a bad strategy for someone who doesn't have the knowledge (or time) to analyze the markets as well as you do. You mention it didn't do well over 5 years, but 5 years is a terrible time frame to analyze (house flipping was a great strategy for 5 years). Over 75 years, buy and hold has proven itself as a good (but not great) strategy. Best of all, it requires no time at all to implement.

tech-guy - what do you do on tech side? db work? website work? applications?

tech_guy = LICComment.

Apps - why do you ask?

tech_guy has claimed to do a lot of things, UD, claims he's a computer programmer AND simultaneously pays AMT AND lives in Long Island City. AND I'm just a secretary (who made several thousand dollars today typing).

Don't put much credence into what he says. His alter-ego, LICC, claims to have no technical skills, or demonstrable skills of any type, except free time and living under the staircase at 1313 Mockingbird Lane.

I never said I pay AMT (nor am I saying I don't - that's none of your business). I also never said I live in LIC - I've said many times that I live in Manhattan. You don't read so well, do you?

Urbandigs. I agree with some of what you say. Although I have never traded stocks before, as I have posted before, I have traded this market a bit and have made some nice money doing it. I know you were not referring to me when you criticized holding for 5 years, but I want to make one point in response. I use 5 years or more as a way of saying that you need to have the wherewithal to be patient and use time as an ally. To be sure, if this market runs up to 11k by January, I will sell everything and then reevaluate when it comes back down. That being said, while buy and hold is deeply flawed, having to wait 5 years or more for an investment to achieve its max potential is neither unreasonable nor is it necessarily a bad strategy if you believe in the number that you want.

no, wasnt talking to your comments. Buy & hold is just tough because emotion is involved and most people sell when the position goes against them and they cant stand to lose more money anymore. However, given where we were at Noon today, at DOW 7990, buying some stocks for a 5 yr strategy might at some point within that time frame pay off quite well. I just dont like to have a trading strategy set in stone. The world changes, so we must change around it. Thats all.

I agree completely. Nothing would make me happier to have all of my positions go up 50% form where I bought them tomorrow so I can sell them all.

Wow, I have new respect for you, Noah/Urbandigs. Not a bad strategy. Have to say that I was all-cash until Dow 9500. Went long, and then sold at Dow 7700 or thereabouts. Sold at the very frigging bottom. How's that for market timing? Have both made and lost money on real estate. Still net positive on our current place, though there's a very real possibility that that will go negative in the next year. Would love to sell, except as I've complained about before - never seen a rental I liked for our current mortgage payment.

techguy-

all my investments don't do well-not by a long shot. i made some money on gold, and then i lost some money. I struck it rich in Korean bonds, but I held on to Indian equities too long and lost all my gains. i quickly realized that i'm too emotional about art to be an art market investor, so i just own some stuff that i like. fortunately, i work in asset management for one of the smartest men in the business and do extremely careful research, which enables me to be right more often than i'm wrong. if i wasn't, i would buy vanguard index funds and call it a day.

but let's be clear: if your net-worth is up 30% over the last year, what are you doing selling real estate and running a dinky website? you should be running a $30 billion hedge fund. The market is down 40% and you are up 30%--that's a 70% outperformance. In fact, I believe you have outperformed every single one of the top 1,000 hedge funds in the entire world! incredible.

there are lots of gambling strategies that can work for a while, and day traders love to tell you how much money they make doing it. but you know what? they all seem to need to keep their day jobs. day trading doesn't "seem" like a zero sum game, it actually IS a zero sum game. buy-and-hold doesn't mean buy and stop paying attention for five years. it means invest with a five year horizon, and pay careful attention every single day to monitor your investment. if and when the stock surges to unsustainable levels, you sell. if business conditions worsen or the competitive environment or the management changes or whatever, you might have to consider selling.

the point is, you can make real money over many years as an investor. as a speculator or as a gambler, it's much much harder.

sorry, that comment was a response to urbandigs, not techguy.

ha - was an independant trader for 7 years with Tradescape, and been on my own doing start up things since. Never had a real job, kinda like the life. But I'll be heading back to hedge fund world in time. Doesnt seem like the industry is hiring now, or that attractive to get back in full time. My old trader buddies run their own funds. Always had a gambler mentality, and I got crushed in my early 20s, not trading, but taking the profits I made trading and putting into an Etrade account for a buy & hold and put all my money into csco, ibm, intc, ge, amgn, etc...got wrecked! Since then buy & hold wasnt for me as I thought even if market went down, I was diversified in best names.

Anyway, i trade small scale now with my own funds, 200K BP..I was trading with 2MIL BP back in the day. So very different now. Been studying macro, credit markets for past 3 years so that influences my trading as I tried to grasp the bigger picture. Always a learning experience. This market will change soon and wont be a traders market anymore, prob in another 6-8 months

besides, real estate has been great to me and I need to do something with urbandigs in some fashion after 3 years of doing it. Once an exit from UD is set, Ill get back to my real life

stevejhx "People laughed at my Dow 8000 prediction. We got there, came back, I saw some light at the end of the tunnel.

werent you ultralong the whole way in the U.S. and even in China and Brazil?

I would say 90% of the old traders didnt survive...even when the dot com daze were happening. I started in Asian crisis in June 1998. A great environment to learn, very tough. It is a zero sum game and discipline is very hard to maintain. Im not the trader I used to be though. I used to be in and out very fast, never holding positions, never looking at credit markets, or bond markets, or bigger picture. Now, I take in as much as I can and manage 5-6 small positions at any given time compared to what I used to do. Im not the gambler I used to be.

urbandigs, typical guy with no long-term value added to anyone or even himself.

how did we allow young people just to think they could survive in this world by playing ultra short term?

when the world is frothy I suppose, you can act this way but unfortunately the U.S. is going the way of this guy doing nothing, producing nothing, just all talk no value

allow me to let you all in on a little secret. the people who really make money do NOT talk about how they are making it. remember what the first rule of fight club is? yeah it's something like that...

when everyone starts emulating a particular strategy, it won't last for long. any moron with a buck and a computer can make a profit during a bull market, the people who continue to survive through the highs and lows are the real deal, and face it, none of them are running charities and they guard their trades with their lives.

anyone giving out investment advice to the general public is an unqualified poseur who is not actually making any substantial amount of money trading off his own advice (e.g. jim cramer, stevejhx, urbandigs), or simply trying to run a scam. you can call dow 5000, 7000, 8000, every multiple of 1000, -50% or whatever and be right x% of the time, but what does that prove? how does that benefit anyone or yourself?

with that, I urge everyone to analyze the primary sources themselves instead of following BS on the internet and make their own decisions. If the decision turns out to be wrong, at least you'll know who to blame.

gumball,

i essentially agree with you that giving out SPECIFIC investment advice is a good sign to any listener or reader that the advice should not be taken. but it is interesting that no less than warren buffett is very public about his investment strategy--has been for years--and this has certainly not prevented him from making a fortune. he would never say "buy GE," or "short gold," but he has no trouble advising people to get into equities. he was public about the dangers of derivatives and his belief that people should steer clear (although he has used them sparingly and effectively).

it is certainly true, though, that if it were easy to make outsized returns you would expect the highly educated, highly paid professionals who run the asset management industry to regularly earn outsized returns. since they do not, it seems highly suspect that do-it-yourself amateurs with trading strategies cribbed from internet sources are performing brilliantly.