Markets Since Lehman, Record Wednesday Losing Streak

Steve, what do you think about bailing out the auto makers? I'm no economist, know very little about all this really, but I'm thinking we should just hold our nose & do it!

automakers, CITI is at $6.40 a share! What the heck can they do about raising capital outside govt help here.

"What the heck can they do about raising capital outside govt help here."

Nothing. Nobody will give anyone money right now, and that's the problem. The reason the stock market is selling off so broadly is that it's the only source of money left for many people and companies. The financials are selling off because the government keeps on changing its mind about what it's going to do. It does not inspire confidence: Paulson begs and pleads that he needs $700 billion to purchase troubled assets, then instead invests $300 billion in "healthy" banks which are hoarding the money, then invests $40 billion into AIG to prevent it from going under, then says it's not going to buy troubled assets after all and isn't going to ask for more money.

What to do about the auto makers? I don't know. Most of this is their fault, but if they go bankrupt the Dow could fall to 5,000 because bankruptcy isn't widely understood. I believe it would cause a depression.

So - if they are given money it would have to be within the construct of a non-bankruptcy bankruptcy. The unions would have to agree to massive reductions in wages and benefits. Most of senior management would have to be fired. The Ford family would have to disgorge the 40% or so of the company they still own (which is who would benefit by rescuing them). There will have to be fuel efficiency standards. It won't be pretty.

But this actually requires a far more comprehensive restructuring of the US economy. The credit-card cowboy economics mentality that has reined since the days of Ronald Reagan are officially over. I believe you will soon see universal, single-payor health care, the re-regulation of the financial industry, a wholesale restructuring of the government. The answer to these problems are as radical as the problems themselves.

It is an entire social mentality that must change - no more living on credit.

Correlation does not imply causation. Just because Lehman failed at the same time that a ton of other companies did poorly does not mean Lehman caused them to do poorly. *MUCH* more likely is that an entirely separate event caused all of them to do poorly, and Lehman was hit worst of all.

I know you lost a ton of money in the stock market right around then steve, but throwing your anger at a convenient (but incorrect) cause won't help anything.

stevejhx: what you fail to realize is that if it wasn't Lehman it would have been something else.

You of all people should realize that the market was DESTINED to end this way...it doesn't matter what the catalyst was.

They would have had to let someone fail it just turned out to be Lehman.

Stop being a baby and grow up.

Steve, was Lehman the cause, or was Lehman on the the impacts of a severe credit contraction? You're basically saying the first house blown over in NoLa by Katrina on the way in from the Gulf caused the rest to fall. What is your attachment to Lehman? It makes no sense.

I agree with you, Steve, that the auto makers have brought this on themselves. The CEOs were in Washington today, begging for money, & were asked if they'd taken a commercial flight; of course, not a one had. I'm not sure that the fat cat Wall Streeters necessarily 'get' that they shouldn't be living like potentates, either.

"stevejhx: what you fail to realize is that if it wasn't Lehman it would have been something else."

Prove it.

Things can be unwound, and things can be allowed to crash.

"Stop being a baby and grow up."

Nothing babyish about it. It is simple fact. Look at any chart anywhere about anything, and tell me what happened after September 17. Then guess what "might" have happened.

The best thing that could happen for the auto makers, drdrd, is a prepackaged "we'll give you money if you get out of town" bankruptcy. Just my opinion.

Steve I normally think your posts are thoughtful. Are you honestly presenting a chart from a date as proof of causation? You are better than that. Then you are daring someone to disprove that opinion that you state as fact. Gimme an effing break. Stick to real estate chief. You can't find a reasonable person in the world who would pin the big leg down in the markets post Lehman, to Lehman.

"Are you honestly presenting a chart from a date as proof of causation?"

If I thought that Lehman wasn't a watershed, I wouldn't put it forward. But it was. But I'll entertain - if it wasn't show me JUST ONE chart from September 2008 onward that shows the opposite of what I'm saying.

You kant.

stevejhx-I agree with most of your posts and also agree Lehman going under broke the camels back but this house of cards sooner or later was destined to collapse. This is massive fraud on all levels of Wall Street so let the de-leveraging begin. You can't take a trillion dollars, borrow 70 trillion against it then loan out 73 trillion and expect that kind of leverage not to unravel.This was the bigest Ponzi scheme in history, one that is holding up the entire private global banking system.The dreaded cascade of cross-defaults begins, until nearly every major investment bank and commercial bank is unable to meet its obligations. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing. They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services.The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that's 1,000 trillion dollars. Scary!

stevejhx
about 7 hours ago
ignore this person
report abuse So that everyone knows why I rail against the Lehman bankruptcy, and why I believe it caused most of this mess:

uh yeah, its all Lehman. Otherwise there was nothing wrong. What a moron - my 8th grade English teacher would describe what you have with your long-ass posts of sour grapes as verbal diarrhea

Steve, those charts don't prove causation. Do you know what causation is? Lehman was a casualty of this, not the cause of this. In this case, the "confounding factor" was basically many banks skirting capital requirements by selling insurance policies against the bonds they sold...or more general, years of overleveraging of companies, investors, individuals, etc, etc, etc.

From Wikipedia, the free encyclopedia
In statistics, a spurious relationship (or, sometimes, spurious correlation) is a mathematical relationship in which two occurrences have no causal connection, yet it may be inferred that they do, due to a certain third, unseen factor (referred to as a "confounding factor" or "lurking variable"). The spurious relationship gives an impression of a worthy link between two groups that is invalid when objectively examined.
The misleading correlation between two variables is produced through the operation of a third causal variable. In other words we find a correlation between A and B. So we have three possible relationships:
A causes B,
B causes A,
OR
C causes both A and B.
The last is a spurious correlation. It is therefore often said that "Correlation does not imply causation".

Lehman's debts were at least $668.6 billion, that's why they walked away from this guys. Almost as big as the who $700 Billion Tarp.

Lehman's debts were at least $668.6 billion, that's why they walked away from these guys. Almost as big as the whole $700 Billion Tarp.
I should learn to spell

fix your iphone

steve: this is ridiculous...did u think that the real estate market was going to down by itself in some sort of perfect vacuum? you thought the bulls were wrong when they told you to be careful what you wished for?

your naivete (sp?) is absolutly breathtaking...I remember how when I opinied it was a good chance the S&P 500 would go down to 600 you countered that it was "unlikley" as a result of all the stimulus the central banks around the world were injecting. When we responded that if it that was true then real estate would be saved and also increase right along with stocks (which could still happen).

You cannot have a real estate downturn in ny without a downturn in stocks period....you don't get to pick a 50% downturn in real estate and then predict that stocks wont get obliterated ...it does not make sense.

it wasn't lehman it would have been something else...you 'd be blaming the failure to pass the 700 billion bailout...the government cannot save everything.

Stocks reflect the credit crunch and implications on global growth (now lack thereof). Real estate reflects stocks and the knock down effect on financial employment and the credit crunch implications on real estate lending availability. In another few months, we will have worked through the pool of buyers who irrationally and for whatever reason must buy now. Then god help real estate. The bonus money among the employed in finance this year is down 25% and its concentration among the 'stars' who already likely bought in 2004-2007. Yes, the S&P can go to 600 and that is the 35c on the dollar real estate scenario. Even if the S&P is rangebound here, that's the -50% real estate scenario.

"Otherwise there was nothing wrong."

Who said that? I said they made it worse.

"What a moron - my 8th grade English teacher would describe what you have with your long-ass posts of sour grapes as verbal diarrhea""

Glad you remember the 8th grade. Had you made it to the 9th, you would have been much more successful.

"did u think that the real estate market was going to down by itself in some sort of perfect vacuum? you thought the bulls were wrong when they told you to be careful what you wished for?"

No I didn't think it would be a "perfect vacuum." My argument is, was, and will be that the actions by Paulson actually made things worse, not better. Wiping out preferred shareholders of Fannie and Freddie closed off that route of recapitalization for banks everywhere. Not backstopping Lehman and unwinding its books (as they are doing with AIG and did with BSC), but rather letting it go under caused an absolute crisis of confidence, interest rates soared. Then claiming they NEEDED $700 billion to buy illiquid assets, then not using the money to buy illiquid assets, then claiming they really only need $300 billion - is just asinine.

"I remember how when I opinied it was a good chance the S&P 500 would go down to 600 you countered that it was "unlikley" as a result of all the stimulus the central banks around the world were injecting. When we responded that if it that was true then real estate would be saved and also increase right along with stocks (which could still happen)."

That was given the circumstances at the time. At this point, since this administration has bungled everything else, I wouldn't doubt it one bit.

You cannot have a real estate downturn in ny without a downturn in stocks period....you don't get to pick a 50% downturn in real estate and then predict that stocks wont get obliterated ...it does not make sense.

"Steve I normally think your posts are thoughtful. Are you honestly presenting a chart from a date as proof of causation? You are better than that. Then you are daring someone to disprove that opinion that you state as fact. Gimme an effing break. Stick to real estate chief."

What a lot of you fail to realize is that steve's posts on real estate are no higher quality than this. They also pull random, disconnected, misunderstood facts, tie them together in a nonsensical way, steve will continue to insist that he supported his theory with iron-clad references, and will challenge anyone who states the obvious to "prove it".

Its just that when you like what he has to say (you're a sidelines buyer wanting prices to go down) you don't examine it that closely. Try it though, and you'll see for yourself.

Well I have to disagree tech_guy. I look at what the stock market has done, and find some of his rent/price ratios telling in terms of downside...As well, I agree with him that real estate as a levered vehicle, has at least as much to fear in a credit crunch as equities. Point taken though, I believe I am right on real estate and the market, so I am clearly more disposed to his real estate posts. That said, in fairness to me, there's nothing he's said on the real estate side that is not defensible. It may not prove right, but there is nothing to mirror his statements on Lehman in terms of its indefensibility and lack of corroboration from anyone on this board, or in any position of expertise.

"My argument is, was, and will be that the actions by Paulson actually made things worse, not better." Steve, I think it's pretty easy to fall into this trap of blaming a single event. I have to side with the "no proof of causation" camp here, because that is quite the reach. I think we're looking at the very real possibility of equities falling more than whatever happens to RE.

Bjw2103, stocks worldwide are down about 50% (53% with today!). On what basis can you call for real estate holding up better than -50% by 2010? I am curious, not baiting you. I have yet to hear the compelling argument against a 50%+ drop. Between employment, the budget breaking in Manhattan, the financial sector demise, hedge fund bonuses going from a lot to nil in 2008... I don't see it. -50% and its not even a historical low on a value/rent ratio, and that's on peak rents. Tell me why a $1.3mm two-bed isn't going to the $600s. I am dying to hear the defensible counterargument. There is only one - psychological anchoring, and its a flimsy one.

Rhino86, hold on - I did not say RE will definitely not fall 50%. But even if it does, the market is down more right now! And who knows if it's done yet? RE is way behind, and I was merely offering the possibility that it won't fully catch up. I don't engage in actual predictions on this board - they're silly and tend to be about ego more than anything - but I do like to discuss different scenarios and the discussion that follows.

agree with flmd and many others here - absurd beyond belief - add to that what I've already said: if RE goes down some 50% it is precisely because ALL NYers' income/portfolios plunge, not because only the wealthiest Wall Streeters lose their jobs/bonuses - steve, relax!

Bjw2103, predictions and the defense of same is what all the fun of this board is about. Who knows if the stock market bottoms here, 10-20-30% lower than here. On a simple multiples basis, there is precedence for all 3 and worse. As a man who bets for a living (or at least used to...), I find -50% as a prediction to sound much much more severe than it is. In other words, I would bet there. By the way, doesn't anyone know how to trade those Merc real estate futures? Are they commercial and residential blend? Is Manhattan specific available?

"I look at what the stock market has done, and find some of his rent/price ratios telling in terms of downside...As well, I agree with him that real estate as a levered vehicle, has at least as much to fear in a credit crunch as equities."

I didn't say he's 100% wrong. I've agreed with a lot of points that he's made. That said...

"in fairness to me, there's nothing he's said on the real estate side that is not defensible"

He claims the opportunity cost of buying should be calculated against the entire value of the purchase, not just the down payment. He is completely wrong about how the tax deduction works. He parrots "imputed rent" as if it supports his side of the argument, but he clearly doesn't understand it in the slightest. That term has a single meaning, and that meaning helps the buy side of the equation.

He's right a lot. He's also wrong a lot. Sometimes when he's wrong, its just as ridiculous as blaming Lehman for today's mess, or blaming that first destroyed home in New Orleans for the entire hurricane.

Ignoring comment by tech_guy except that, whatever his comment this time, I have posted my sources for all theories and data. tech_guy does nothing but parrot LICC (who he is) and make claims that are not borne out by anyone other than himself and his alter egos.

"RE is way behind"

It took 2 years from the 1987 stock market crash before it started to show up in Manhattan prices.

"I think it's pretty easy to fall into this trap of blaming a single event."

I repeat, I do not think a single event caused where we are today. I do think - and every chart bears me out - that a single event significantly exacerbated a process that was ongoing. Just look at what happened to interest rates, M1 and M2 before and after Lehman. The cause and effect is readily apparent.

Steve,
aprecio mucho tus comentarios y espero seguir leyendolos. Me parece que no vale la pena que reacciones ante gente como tech_guy. Es una pérdida de tiempo. En este sitio hay gente muy insoportable que lo usa para descargar sus agresiones y sus ganas de pelear. Me parece que es una pérdida de tu tiempo tanta explicación.

Y mimi, no te parece que esteban hace exactamente lo mismo que ellos (a veces)? Entiendes que al tipo de persona que siempre tiene que escribir "No hago caso al comentario de x" le ENCANTA "perder tanto tiempo"?

Am watching CSPAN House hearings on SBA. Many Reps are saying that Paulsen has had a huge hand in causing the fear, panic & illiquidity we have today: Screaming fire in a theater, locking the doors and ransoming $700 bil. Furthermore, Paulsen's & Bernake's lack of coherent policy exacerbates the situation.

So, although Wall St was a house of cards, the deleveraging has been seriously bungled.

So, what is/was worse? Wall St's house of cards or the bungled deleveraging? The patient was critical, but the doctors did medical malpractice, so which killed the patient, the illness or the malpractice?

Thus, Steve's statement about Lehman's bankruptcy & the S&P has it's merits. If regulators had handled the crisis better, we'd be in better shape today.

The risk of buying is on the whole purchase price because your downpayment can go negative, whereas a stock or bond investment cannot. I think Steve understands after tax cost vs. rent (which is a dividend, on the basis of the down payment). Frankly, real estate, given the leverage, is both the best and worst investment over time. That is why people who think you can buy 'anytime' and 'for personal reasons' are ignorant and playing with fire. A simple rent to purchase multiple is a decent guide.

> Frankly, real estate, given the leverage, is both the best and worst investment over time.

Anything with leverage is the best and worst investment over time.
;-)

"That is why people who think you can buy 'anytime' and 'for personal reasons' are ignorant and playing with fire. A simple rent to purchase multiple is a decent guide"

Well said.

I think part of the major problem is folks seeing the houses/apartments they live in as "investments". That cause the bubble, and that will cause the overcorrection.

Seeing them as investments is actually correct in my view, but chasing them when they are more expensive then renting and factoring in future appreciation to justify the investment...that's the disaster part. Emotion is also a bad reason, because life can change on you fast, and the 'joy of owning' means shit when you lose your job (and therefore your tax deduction) and you are forced to sell in a terrible market. My grandparents divorced in the late 1980s and the sales of their real estate were an absolute disaster. I mean the people who think you should average into stocks 'anytime' are also wrong. Why ever buy stocks above the average historical multiple (unless you are playing greater fool/momentum and plan to kick them out when the rollover)? The analogy is flipping real estate. Buying an apartment in 2004-2005 was a great trade if you sold in 2006 or 2007, but it was a shitty 'investment' if this plays out as I and many other expect.

Rhino, very well said.

"The risk of buying is on the whole purchase price because your downpayment can go negative"

I'm not talking about risk. I'm talking about opportunity cost. There's a cost to tying my down payment up in an illiquid asset - I could be earning money investing it instead. The estimated monthly gain from that investment needs to be counted against the cost of buying.

"I think Steve understands after tax cost"

Think again. Its a long thread, but it shows just how little steve knows about the tax treatment of mortgage deductions:

http://www.streeteasy.com/nyc/talk/discussion/6009-same-apartment-for-rent-and-for-sale

I've never claimed that real estate isn't incredibly risky. I readily acknowledge that it is. If my financial stability would be adversely affected by losing my entire down payment, I wouldn't buy. Sure, I'd be sad, but I'll still be fine. In fact, my investments lost more than that over the last few months from the stock crash. I'm still doing fine :)

'chachos, estoy aqui traduciendo un insoportable formulario del gobierno; es cierto que me encanta joder a tech_guy / LICC y los demas como el/ellos. Por otra parte, gente como JuiceMan a veces puede oponer un buen argumento, y en tales casos yo me rindo.

"If regulators had handled the crisis better, we'd be in better shape today."

Therein lies my point. You cannot say the world will fall apart without $700 billion to do something, then a) not spend the $700 billion, and b) not spend it on what you said you were going to. You can't wipe out preferred shareholders and ask anyone else ever again to invest in preferred stock. You can't let a bank go bankrupt - it was a lesson (supposedly) learned in the Great Depression, which is why the FDIC was formed to begin with.

It is just sheer incompetence.

"It is just sheer incompetence." Agreed.

Are we going to get some competent regulators & if so, when, who & what should they do at this point?

Sorry, this question is too big & requires crystal balls.

I'm assuming we get usually reactionary regulation, fighting the last war...spending and printing money and I'm trying to decide how much to keep in gold.

gold: The biggest bubble of all times. Housing is an anthill compared to the mountain that is the gold bubble. It may not pop for decades, but when it does, that's a long way back down to the ground.

Tech_guy, I am increasingly convinced you don't know much of anything. How is gold at 700 the biggest bubble of all time? I also like your statement 'it may not pop for decades'. So your statement is about as useful as tits on a bull.

steve, the stats on your OP are nothing short of incredible. if you had told people a few days before Lehman went under that that would be the state of the world in 2 mos, you would have gotten laughed out of the room.

If anyone thought Lehman would cause this they could have shorted the shit out of the market. The reality is its a symptom not the cause.

i agree it was a symptom of the situation, but there is little doubt in my mind that it going under greatly exacerbated the situation and de-stabilized things.

Phooey.

My statement isn't meant for day trades. I only invest in index funds, and only for the long term. I know nothing about short term trades.

Long term, gold is worthless. Its value as jewelry is MUCH lower than its current price at 700. Its only valuable because other people think its valuable - its the biggest "greater fool" investment of all time. It has no use. No country of any importance uses it as money.

You can say I know nothing based on this belief. However, Warren Buffet agrees with me, and I'll take his support over yours any day. No offense - I know you'd also take his support over mine.

Buffet on gold: "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." In 1977 Buffett was also quoted as saying about stocks, gold, farmland, and inflation: "stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices."

http://en.wikipedia.org/wiki/Warren_Buffett (citation #42).

"If anyone thought Lehman would cause this they could have shorted the shit out of the market. The reality is its a symptom not the cause."

You phrase it wrong. It should read, "If anyone thought they would let Lehman fail they could have shorted the shit out of the market...."

Because you will read my post from the Friday before it failed & I was confident that all would work out. It was the following Monday that things started to go awry, and though I got out as fast as I could when it became obvious what was happening, it was too late.

"Are we going to get some competent regulators"

It seems like Obama is going to put together the most competent team forever. For a man I didn't originally support, I've been impressed.

"So your statement is about as useful as tits on a bull."

Since I'm ignoring tech_guy I don't know what he said, but gold is a stupid thing: it has virtually no industrial uses that can't be fulfilled with copper or silver, and elemental gold is inert: great it doesn't rust, but it also means it's virtually impossible to combine with anything else.

Coal is actually worth more, even though there's more of it. At least you can burn the shit.

Stocks are electronic record of paper. They are a ponzi scheme, as dividends do not justify the value, and rarely are stocks taken out for cash. With all respect to Buffett, what is real is buying something at one price and selling it at a higher price. Further, gold has been a store of value for thousands of years...if you or Buffett think you can guess when that fallacy ends, you are wrong. Back on earth where mortals have to allocate assets, I like some gold, because I think politicians will do as they do and overreact and print money as fast they can to get out of this crisis, likely creating another crisis. What is gold? The real question is what is the US dollar? Hero worship is for sissies.

"gold has been a store of value for thousands of years...if you or Buffett think you can guess when that fallacy ends, you are wrong."

Adjusted for inflation, gold has not recovered its price since we got off the gold standard 40 years ago.

"Hero worship is for sissies."

What does that mean?

Steve - I am not talking about holding gold for 40 years. I think its worth owning here and I don't get caught up in high minded bullshit. My trade may be right or wrong, just like your emerging market stock trade was dead wrong. The jury is out on my trade.

Hero worship is for sissies means quoting a genius like Buffett (like tech_guy did) is basically pussified. Its not a true argument, its finding someone smart who agrees with you in lieu of a real argument.

And Steve, I think anyone would agree that what something is worth today is what someone will pay, so there is no debating gold vs. coal. If you want to put that spread trade on and wait till hell freezes over, good luck with that.

"just like your emerging market stock trade was dead wrong."

It was dead right for a long time. Too bad, that. More a result of deleveraging and risk aversion than the fundamentals, however, which is what messed me up.

"The jury is out on my trade."

The problem with gold is that more than other commodities or equities for that matter you can wake up in the morning and all the value is gone. It's happened before.

"I think anyone would agree that what something is worth today is what someone will pay"

I don't doubt that. But unless there is a fundamental reason why they are paying it, then I would be wary. Look at Manhattan real estate.

Or stocks.

Steve, here are a couple of truisms for you. Right and wrong in investing is making or losing money. No more or no less. You have no idea what the fundamentals are in the emerging markets. The sooner you admit that to yourself the better off you will be. Further, I will bet that my gold is not going away tomorrow or the next day. Also, yes definitionally something is worth today exactly what someone will pay today. Let that sink in. It is a fact. In fact, its what makes the NYC real estate discussion interesting, because we can only guess (unlike the other markets) what someone will pay today because most sellers would refuse that price. I can hit a button now and be out of my gold in one second. That's a fact. That is a fact, unlike your silly Lehman chart "facts".

Rhino, I find your statements incredibly contradictory. On real estate, you say:

"but chasing them when they are more expensive then renting and factoring in future appreciation to justify the investment...that's the disaster part"

On gold, you say:

"With all respect to Buffett, what is real is buying something at one price and selling it at a higher price."

Right now, gold is incredibly more expensive than what's justified by the consumption of it (mostly jewelry, to a much lesser extent, industry uses). You're buying it overvalued and justifying that purchase with future appreciation. You may very well get your greater fool, but its still a greater-fool investment.

"Further, gold has been a store of value for thousands of years"

If you regularly bought groceries in ancient Rome, you should absolutely have gold. On the flip side, if ancient Rome has little green pieces of paper with Caeser's face on them, and that was their store of value for the length of their empire, would you buy such pieces of paper today?

"Back on earth where mortals have to allocate assets, I like some gold, because I think politicians will do as they do and overreact and print money as fast they can to get out of this crisis, likely creating another crisis"

Agreed. What does that have to do with the intrinsic value of gold? Unless you think the crisis will be *so* bad that government backed currencies will collapse and the world will go back to using gold coins (or, the gold standard), in which case you're making a decent trade. I just disagree that the crisis will be that bad.

"What is gold? The real question is what is the US dollar?"

I can buy groceries with the US dollar. But that's besides the point - the US dollar may very well become worthless, but that doesn't suddenly create utility for gold (modulo the disaster scenario I mentioned above, of course). If you think the US dollar will collapse, go right ahead and buy commodities. But buy useful commodities. Oil, copper, food, timber - these all have intrinsic value, real utility. Gold doesn't.

Maybe I should clear things up. I am a trader. I don't care what the intrinic value of anything is. I believe something is worth what a buyer with cash at the ready will pay. Intrinsic value is a concept with almost too much interpretation to be useful in my view. Stocks may be worth 20x in a world with banks and worth 6x tomorrow in a world with no banks. Steves emerging market stocks can go down 50% in a month because sentiment changed.

PS: I can buy groceries on my debit card, with margin against my GLD etf.

"You have no idea what the fundamentals are in the emerging markets. The sooner you admit that to yourself the better off you will be."

Actually, I do, since I work with emerging markets every day.

"because we can only guess (unlike the other markets) what someone will pay today because most sellers would refuse that price."

Not so much. We have a pretty good idea of what is happening to disposable incomes here.

"I am a trader."

That is a good explanation, and also explains why you don't agree with Warren Buffett.

"Steves emerging market stocks can go down 50% in a month because sentiment changed."

Which they had before and always recovered - they'll be back.

Steve, you fall into the same trap as many. You are close to the emerging markets so you think you know the fundamentals. Then you buy them, get destroyed, and somehow still make the argument you are right. What is that? You are confirming either (1) the market doesn't trade on fundamentals or (2) you got the fundamentals wrong.

You misunderstand my comment on real estate. My comment is that so few transactions are happening that the real market clearing price is unknown.

I don't disagree with Buffett on anything. I disagree that gold needs to be useful in order to be a store of value.

Steve, arguing that emerging market stocks will come back is like buying a condo at the top and saying don't worry, in 20 years I'll be right. You are really inconsistent man.

I meant to say I don't disagree with Buffett on everything. I agree with him that US stocks are a good 10 year investment here.

"I disagree that gold needs to be useful in order to be a store of value."

There's nothing wrong with profiting off of a bubble, knowing that in the short term there is definitely a greater fool to take it off your hands. But why not call it for what it really is? Or if you really don't care, since you said you don't care at all about the intrinsic value, why so quick to jump down my throat (even throw out mild insults) when I call it a bubble?

You may very well make a ton of money trading gold before it pops. Maybe you'll even make more money on its zigzag down. But as I personally am not a trader, I won't buy anything that I can't justify with intrinsic value. I don't have that trading gift. That's why I'm tech_guy, not trader_guy.

I think gold being a store of value for thousands of year is different than a bubble. Also its off its peak by 30%, so I am less inclined to call it a bubble than you are. Frankly GLD is an easier way for me to short the US dollar. I think deflation is short lived when a spend happy government is scared, and will err on the side of printing more dollars than less.

"You are confirming either (1) the market doesn't trade on fundamentals"

That is what I am confirming. However, the fundamentals, since September 17, have changed radically.

"I disagree that gold needs to be useful in order to be a store of value."

Only if people believe it is. It is no more valuable than a fiat currency. If all the central banks in the world were to release their gold supplies today, it would fall to probably 50 cents an ounce.

"Steve, arguing that emerging market stocks will come back is like buying a condo at the top and saying don't worry, in 20 years I'll be right. You are really inconsistent man."

Nothing at all like that. Stock markets are highly liquid, so it makes no sense to compare price movements with illiquid real estate.

Emerging Powers Seen Taking Lead in Recovery

Article Tools Sponsored By
By TOM REDBURN
Published: November 19, 2008

BARCELONA, Spain — The United States may have plunged the world into a sharp economic downturn, but it will take the combined efforts of China and other emerging nations to lead the global economy out of what is likely to be a long and painful recession.

http://www.nytimes.com/2008/11/19/business/worldbusiness/19yuan.html?ref=business

The world is vastly different from what it used to be like.

No Steve, mathematically buying and losing 50% in an emerging market ETF and claiming '20 year value' is the same as paying up for a condo 'for the long term'. Sorry man. It's different this time, are the four most expensive words in the dictionary. You found out the hard way. Decoupling is a load of bullshit. Find all the article you want. The emerging markets are down 65%. This does not mean they are a bad investment here. This does mean that they were a bad investment when you bought it. So hold them if you like, with the hopeful hope that they come back 10-15% a year. In 7 years you may be break even.

"Frankly GLD is an easier way for me to short the US dollar."

Rhino, you're NOT a trader, sorry. You can't be for gold and then want to short GLD.

Here is the chart for GLD:

http://www.bloomberg.com/apps/quote?ticker=gld%20etf

Not pretty.

I am buying gold as a proxy for shorting the dollar, which I can do. Steve, you are officially an ignorant ass. The different between us is I bought gold right around here, and you bought emerging market stocks at the top of the same kind of chart, but with a more drastic correction. Now eat them.

"I think gold being a store of value for thousands of year is different than a bubble"

Back when it was the accepted currency (or standard behind the accepted currency) it certainly did have intrinsic value. That's no longer the case today, however. The fundamentals changed, but the price didn't. That's the bubble.

"Also its off its peak by 30%, so I am less inclined to call it a bubble than you are"

A bunch of incredibly stupid dot-com's had incredibly stupid stock prices during the tech bubble. When they went down 30%, it was still a bubble.

We can argue till we are blue in the face about gold. If its higher when I sell it, I will have been right. All this other shit is nonsense. And this is from a Harvard BA, Wharton MBA, CFA, so really I don't need a review of theory from you people. The difference between me and Steve is that if I am wrong about gold to the tune of 10-15%, I'll sell it. I won't hold my emerging markets piece of shit stocks the whole 70% ride down insisting I am right.

"I am buying gold as a proxy for shorting the dollar, which I can do. Steve"

That you can do - it's not what you siad.

"you bought emerging market stocks at the top of the same kind of chart, but with a more drastic correction"

No, actually, I didn't. I had bought them several years ago, dumped them long ago, though I did reinvest (solely) in China.

"And this is from a Harvard BA, Wharton MBA, CFA, so really I don't need a review of theory from you people."

Yes - Lloyd Blankfein had his degrees & experience, too. And Warren Buffett was rejected from Harvard Business School (he went to Columbia).

CFA is not all too impressive. Wharton MBA is more impressive, but that makes you a Quant.

"I won't hold my emerging markets piece of shit stocks the whole 70% ride down insisting I am right."

Who did that?

I'm a quant? Not so. I don't know or care how much you lost in your emerging markets fund. Signing off now. Until we meet again.

"Signing off now."

Toodles!

Appealing to famous institutions is just grasping at straws. And, no offense (I don't consider you part of this bucket), but I've known a lot of stupid people who graduated Harvard.

Don't be so defensive. Our views aren't mutually exclusive. Its quite possible that this is the mother of all asset bubbles, *and* you could still make money trading it. I've been saying this all along - why is that so hard for you to accept? As a trader, you should learn to have less of an emotional connection to what you trade. If you can profit buying dog poo and reselling it (in paper form, not for real of course!) more power to you. But there's no need to call it anything other than dog poo.

"Frankly GLD is an easier way for me to short the US dollar."

"I am buying gold as a proxy for shorting the dollar, which I can do. Steve"

stevejhx - How are these comments not expressing the same concept?

Because I did not read what he wrote correctly - I originally read "GLD is easier for me than to short the US dollar."

My bad.

> but I've known a lot of stupid people who graduated Harvard.

Agreed. But I've known a LOT more who didn't graduate Harvard.

"But I've known a LOT more who didn't graduate Harvard."

You can't. They have one of the highest graduation rates around.

Except Bill Gates.

Steve... not too sharp...
You don't have to attend Harvard to not graduate from there.

Even if you were correcting in inferring that I was talking about matriculants, 3% of the folks who enter Harvard every year don't graduate. Thats more than a few...

"You don't have to attend Harvard to not graduate from there."

Oh, I get it.