SSF Stocks/Investments thread

[ProgMatinee]

Re: Anyone investing in stocks?

lol back down again today.

The economy is just not fundamentally sound. I'm not smart enough to understand why, or to really voice why I think it has flaws, but what I think is the biggest problem is this:

over diversification and spreading the ownership of businesses (to share the risk) is unhealthy for the market as a whole.

I'll try to explain. To many businesses are being run by temporary employees, and the companies themselves are owned by temporary owners.

When the shares of a business is spread across 10,000,000 different stock holders, who owns the business? Everyone? No one? Who cares about the business? Everyone? No one? Who is responsible for the business? Everyone? No one?

When businesses were family owned, you knew who cared about the business. You knew who was responsible for its success. Lets just talk about the restaraunt industry. Who will work super hard to make sure mom and pop on the corner succeed? Who reaps the rewards? What do they do with their profits? The actual owners who go out and spend their profits the way THEY believe is most beneficial.

Compare that to chains. Who manages the restaraunt, who battles for it to make it succeed? Some carpet baggers that don't care what the company is as long as they have a job. Then they distribute profits to uppermanagement or make bad investments. The stockholders/owners rarely see the profits.

Furthermore, the level of committment to succeed decreases as ownership and responsibility are spread thin. There is no survival instinct when the management can simply jump ship and find other employment.

The stockholders of a sinking ship jump off to the next thing as well.

The system has overgrown. Too many companies are run by stockholders with spread interests or worse, zero knowledge of the industry.

IMO the system has to back to more private ownership.

 

[karamazov80]

Re: Anyone investing in stocks?

Well, there's E*trade and Scottrade. Just take a look around at their fees and trading platform (some of these companies allow you to take a trial to see if you like it). I'm sure there are more these were just the first 2 I could think of.

Phenix mentioned two very good ones. Scottrade has some of the lowest fees if I recall ($7 each trade, $14 roundtrip - buy and sell), and they're platforms are very nice as well. There are other options out there that base your fees off of shares traded vs a flat fee off of one trade. If you trade a small amount of shares each trade, you may be better off looking for something that's priced accordingly.

Out of all of them, though, I prefer TD Ameritrade for their thinkorswim platform, StrategyDesk and live streaming of CNBC. I would highly advise setting up a paper (test) account in thinkorswim where you trade/test real time without putting your hard earned money on the line. Then with StrategyDesk, you can back test your strategies using triggers/algorithms provided, or you can write your own. It also has realtime alerts and automated trading, but that discussion can be for another day.

Thanks guys. I reckon with the market being low--now's the time to buy, so I'll probably invest a few hundred bucks soon!

I'll probably give that thinkorswin deal a look at some point before putting any real money into this.

 

[Avenger]

Re: Anyone investing in stocks?

Have a seat, and let uncle Avenger give you a little synopsis of where we're at.

The problem is debt. In housing, organizations like Countrywide slapped AAA ratings on crap loans, and sold them packaged to investors via Fannie and Freddie Mac, with government backing (GSE's). Investors are guaranteed protected on those loan packages with promise of a return on their money. Companies like AIG sold something called a credit default swap (CDS), where banks basically buy insurance on the bonds financing the loans, and in the event the loan goes sour, the principle is protected. If it doesn't AIG, makes money from the premiums, and they further pad their shareholders. Here was the scam that came about:

Bank of America has $1 million worth of loans it finances through Fannie Mac (government sponsored entity) guarantees. The loans are sold packaged to investors via exotic real-estate bonds, to free up the capital invested in them by BofA so they can re-loan that money quickly. The investors get a cut of the interest, and guarantees on their investment.

BofA insures the mortgage backed securities (loan packages) with AIG by buying credit default swaps. Goldman Sachs believes the quality of BofA's loan package is bad, and buys CDS's from AIG against BofA's loans, assuming the loans will go bad and AIG will have to pay out losses on them. Now, AIG will owe BofA and GS on the same set of loans, should they go bad. AIG thinks US housing is rock solid, and is in love with collecting payments to service that debt. What could go wrong?

When you insure homes or cars or lives, you can expect predictable trends. If you sell enough and price things right, you know that you'll always have more premiums coming in than payments going out. That's because there is low correlation between insurance triggering other adverse events. My death doesn't, generally, hasten your death. My house burning down doesn't increase the likelihood of your house burning down. Not so with bonds. Once some bonds start defaulting, other bonds are more likely to default. The risk increases exponentially.

Once BofA's and all the other crap loans start to go bad, the quality of other packages start to degrade, and AIG is in a world of hurt because they can't cover all the claims coming in. Let them eat cake you say? Not so fast there bud. Banks all over the world bought CDS protection from AIG. If AIG is not able to make good on that promise of payment, then every one of those banks has lost that protection. Overnight, the banks have to buy replacement coverage at much higher rates, because the risks now are much worse than they were when AIG sold most of these CDS contracts. Instantly, banks all over the world are worth less money.

Now, why the hell do you care about the worth of a bank? To cover that instantaneous loss, banks will lend out less money. That means other banks can't borrow to pay this new cost, and weaker banks might not have enough, and they'll collapse. That will further shrink the global pool of money.

This will likely spur a whole new round of CDS payouts-all those collapsed banks issue bonds that someone, somewhere sold CDS protection for. That new round of CDS payouts could cause another round of bank failures. Ratings agencies all the while are downgrading the credit of banks and governments, who then have to pay even more to insure their debts. That liquidity you heard Hank Paulson talk about a few years back, stops.

The GSE's (Fannie and Freddie) were nationalized because the also couldn't afford to pay out on their guarantees. Remember, they backed BofA's loans in the above example. You the taxpayer, got the bill to continue, to this day, covering their poor diligence on these loans. Now, don't hate on them entirely. Congress under Clinton, and since, had this dream of putting every American in a home under the assumption you can rely on property values. They deregulated the crap out of the industry so that people of lesser credit could still get a home loan, and made Fannie and Freddie the go-to organizations for insuring that dream comes true. So, they kind of had a whip to their backs from your elected officials.

The Federal Reserves big tool to stimulate liquidity is to auction government bonds (government debt). That basically dumps new money on the financial markets, and was termed so calmingly "Qantitative Easing" or QE, and QE2, or as I like to call it "money from thin air". As a side note, every time the Fed issues money from thin air, your savings account becomes that much less valuable as it dilutes the value of existing dollars, causing prices to go up (inflation). They've also dropped the interest rate to basically zero to allow banks and financial organizations to access the money at nearly no interest, so that they will hopefully loan it out, and not sit on it (like they did anyway). The banks do still have to pay that money back at some point. So, it's enough to say, cash flow is not our problem, and probably why inflation hasn't been a huge issue "yet". The Fed basically fired every bullet they've got. The low rates have the adverse effect of also making it not very profitable to make consumer loans. The interest rates a bank gets back, doesn't really justify the terrifying risk these days. So, they're not helping much there, and trying to wait it out like everyone else.

Now, how does this affect you? Millions of homes are in foreclosure because adjustable rate mortgages, and subprime loans defaulted. Housing inventories shot up, and overly inflated housing values crashed leaving even more homeowners in houses they can't afford and are worth less than they paid for them. On top of that millions of people have lost their jobs as businesses cut back on overhead, adding more to the credit woes, and increasing the cost of insuring debt even more. See how it goes on, and on, and on? Most small businesses rely on short term loans to make payroll. Those loans are now more expensive and harder to come by.

Larger companies that were intertwined with the banking industry, are managing their own losses and/or hoarding cash as the government works out the mess. There's no incentive to reinvest capital when you don't know how the government will regulate going forward or how much your expansion will cost, or even how long this crap will last, thus you do not hire. Currency valuation issues, commodity prices, debt servicing, you name it, there's 100 reasons not to do anything right now, and the consumer is tightening too, so demand for your product just isn't there. If you do not expand, there is no growth. If there is no growth, the economy slows down or retracts, causing (you guessed it) a recession.

Before this mess, I read the average household had $10k in credit card debt. The problem was, is, and always has been debt. And, the government's response to the problem thus far has been, more debt. With the recent S&P downgrade, it signals far less confidence in our ability as a nation to pay our debts, and our governments capability to work it out through the gridlock. Social security is a huge drag, so is medicare, and medical costs are in a constant state of increasing. Until the debt problem is fixed, we are in for difficult times. Bad debt was given out like candy, and the consumer (you and I) fell in love with credit, and bets were placed on the quality of the debt. When the piper stopped piping, we all got caught with our pants down. Time to pull them up.

 

[gibby]

Re: Anyone investing in stocks?

Good explanation by Avenger.

Just a couple of add-ons for fun...

The problem today on a macro level is not only debt, but the debt to GDP ratio, and why the S&P lowered the future credit rating of the US. This ratio (around 92% at YE2010) is already expected to increase to over 100% by the end of this year due to the existing budget, but if it is hampered by a slowing economy, it will only exacerbate the issue, which is what has people worried recently. As a note, this mark has only been breached two other times in history - WWII and 2008.

Another thing economists look at is the interest payments as a % to GDP. Most people will say that default should not occur until this is over 10%. The US currently resides at around 2%, and is expected to increase to 3% over the next 4 years. So, this is actually a case of not panicking, as we're a far ways off from default.

As for the crash of 2008, it can simply be stated that over consumption was one of the main issues that helped to start the crash. I would suggest reading Fault Lines by Rajan if you get a chance. It suggests some other points that are very interesting, but I won't share here as to tempt a political debate or rant.

And finally, if you're a conspiracy theorist, search on bear raiding. Some proclaim it caused the meltdown in 2008 and is possibly causing the battering of the banks today. I'm not completely sold, as this implies with it financial terrorism, but there is mounting evidence showing a form of collusion in the 2008 crash, and some are now questioning similar illegal activities over the past couple of days.

 

[Phenix]

Re: Anyone investing in stocks?

Well, one of the triggers to all of that happening with the credit was the Auction Rate Securities. A lot of companies were throwing their cash into these securities because they were short term (1 week) and had better rates than Money Market accounts. Around Aug-Sep 07 the market for these securities froze (nobody could sell them to get the cash) and companies had to either sell other investments or try to get some short term loans to pay their employees. Once they weren't able to pay their employees they started defaulting on their payments, and the employees started defaulting on their payments as well, and it all spiraled and started effecting everything.

Now, I don't remember what caused the Auction Rate Securities to freeze, but that was the first indication I saw before all of the layoffs, house repossessions, and decline of the economy.

 

[jonny88]

Re: Anyone investing in stocks?

I'm seriously thinking of investing 5 or 6 thousand in gold. You can't go wrong with gold these days. it is already up like $500 an ounce this year alone.

 

[Avenger]

Re: Anyone investing in stocks?

I'm seriously thinking of investing 5 or 6 thousand in gold. You can't go wrong with gold these days. it is already up like $500 an ounce this year alone.

I've watched gold fly up from under 1k an ounce. I'm not going to say don't buy it, but I would caution any investment that you can't afford to lose be it gold or stocks. Gold is being used as a safe haven. Some talking heads are predicting it going to 3k an ounce. But, at some point barring economic meltdown/apocalypse, that safe haven won't be needed. And, the government does not like precious metals eclipsing fiat currency. Take a look at a silver chart for this year. The government stepped in, and rained on their parade. So, there's risk for a commodities bubble burst too. I'd urge caution, even with gold and silver. My advice for anyone is to pay down debt, and invest after that at a comfortable level. Equities are volatile right now, and that debt is costing you interest every month, clockwork.

 

[Avenger]

Re: Anyone investing in stocks?

Good explanation by Avenger.

Just a couple of add-ons for fun...

The problem today on a macro level is not only debt, but the debt to GDP ratio, and why the S&P lowered the future credit rating of the US. This ratio (around 92% at YE2010) is already expected to increase to over 100% by the end of this year due to the existing budget, but if it is hampered by a slowing economy, it will only exacerbate the issue, which is what has people worried recently. As a note, this mark has only been breached two other times in history - WWII and 2008.

Another thing economists look at is the interest payments as a % to GDP. Most people will say that default should not occur until this is over 10%. The US currently resides at around 2%, and is expected to increase to 3% over the next 4 years. So, this is actually a case of not panicking, as we're a far ways off from default.

As for the crash of 2008, it can simply be stated that over consumption was one of the main issues that helped to start the crash. I would suggest reading Fault Lines by Rajan if you get a chance. It suggests some other points that are very interesting, but I won't share here as to tempt a political debate or rant.

And finally, if you're a conspiracy theorist, search on bear raiding. Some proclaim it caused the meltdown in 2008 and is possibly causing the battering of the banks today. I'm not completely sold, as this implies with it financial terrorism, but there is mounting evidence showing a form of collusion in the 2008 crash, and some are now questioning similar illegal activities over the past couple of days.

Man, government debt is a whole new ball of wax. I've been a student of the financial industry for the last few years compliments of our economic state, but my understanding of finance at the sovereign level is a bit more elementary. I do recall in economics class the concept of 100% GDP to debt was a warning sign. I know enough to acknowledge the economic policies of the government institutions that literally print and regulate the value of money itself are very different from the personal finances of a working person who has a bad job and not enough money.

 

[Phenix]

Re: Anyone investing in stocks?

If you're going to invest in gold, then be sure to buy actual coins/bars. Because if you go to a company that does gold investments, then you'll just be investing in gold related stocks and funds. That is, if you're looking at it for a safe haven. If you're just investing to invest and get some capital appreciation, then buy the funds.

 

[jonny88]

Re: Anyone investing in stocks?

If you're going to invest in gold, then be sure to buy actual coins/bars. Because if you go to a company that does gold investments, then you'll just be investing in gold related stocks and funds. That is, if you're looking at it for a safe haven. If you're just investing to invest and get some capital appreciation, then buy the funds.

l was thinking of just buying bars or coins. Now that you mention the funds, it is something l will look into to see what the difference might be.

 

[Sweet Rabbit]

Re: Anyone investing in stocks?

get ready for another down day

 

[Avenger]

Re: Anyone investing in stocks?

If you're going to invest in gold, then be sure to buy actual coins/bars. Because if you go to a company that does gold investments, then you'll just be investing in gold related stocks and funds. That is, if you're looking at it for a safe haven. If you're just investing to invest and get some capital appreciation, then buy the funds.

The funds are more liquid too. Easier to cash in on.

 

[devilof76]

Re: Anyone investing in stocks?

As for the crash of 2008, it can simply be stated that over consumption was one of the main issues that helped to start the crash.

Over-consumption or under-production?

 

[gibby]

Re: Anyone investing in stocks?

Man, government debt is a whole new ball of wax. I've been a student of the financial industry for the last few years compliments of our economic state, but my understanding of finance at the sovereign level is a bit more elementary. I do recall in economics class the concept of 100% GDP to debt was a warning sign. I know enough to acknowledge the economic policies of the government institutions that literally print and regulate the value of money itself are very different from the personal finances of a working person who has a bad job and not enough money.

They are different, and yet bound together by taxes and well..."political savvy of corporate America".
I need to leave it there. I want this thread to stay open so we can discuss stocks and such.

l was thinking of just buying bars or coins. Now that you mention the funds, it is something l will look into to see what the difference might be.

IF you're going to invest in gold and want something more liquid than gold bars, I would look into gold miners. Gold ETFs are nice as a trade, but like Phenix said, you will not hold gold at the end of the day.

Just a note - they just increased gold margin requirements this morning. It may cause a small correction in gold. May.

get ready for another down day

Come on ink, stay positive!

Strap on the seatbelts. Another wild day!

The funds are more liquid too. Easier to cash in on.

Agreed!

Over-consumption or under-production?

Over consumption in the early 2000's, which has now led to under -production and corporations to hold their cash.

We were the importing whore of the global economy early on, though.

 

[devilof76]

Re: Anyone investing in stocks?

I guess I don't understand. Could you explain overconsumption?

 

[karamazov80]

Re: Anyone investing in stocks?

I guess I don't understand. Could you explain overconsumption?

Sometimes pictures can say more than mere words can:

 

[intothevoid]

Re: Anyone investing in stocks?

I guess I don't understand. Could you explain overconsumption?

I guess you could call it over-consumption but the root cause of the start of the 2008 crash and the sovereign debt issues of today is simple

Spending beyond means.

2008 crash: US (and UK and a lot of other western countries) consumers 'bought' houses they could never afford due to irresponsible lending practices, based on a presumption that house prices can only go up. Wrong.

Similarly investment banks sold securities based on these mortgages to investors, after having fooled the useless rating agencies into believing their ratings were AAA, whereas in reality these were junk assets.

Ongoing 2011 crash: US (and again, UK, Spain, Ireland, Italy, Portugual, Greek, etc.) governments budgets are and have been out of control. Printing too much debt to fuel a spending spree be it on wars, bloated benefits, bank bailouts, what have you.

The problem thus like I said is simple - don't spend money you do not have.

And that clearly points to the one and only solution for the sovereign issues of today:
Massive cuts in spending (read: stop the wars and cut the benefits) + significant increases in revenues (read: higher taxes)

 

[devilof76]

Re: Anyone investing in stocks?

And that's why I posed underproduction as the problem. Money is only worth what can be bought with it, so in essence, the only real backing to any currency is the cash value of an economy. Ours were insufficiently backed. Our purchasing power was overvalued because our economies were not producing enough (services or goods; the distinction is academic) to support our spending.

 

[intothevoid]

Re: Anyone investing in stocks?

And that's why I posed underproduction as the problem. Money is only worth what can be bought with it, so in essence, the only real backing to any currency is the cash value of an economy. Ours were insufficiently backed. Our purchasing power was overvalued because our economies were not producing enough (services or goods; the distinction is academic) to support our spending.

You could look at it that way I suppose - end result is the same

 

[devilof76]

Re: Anyone investing in stocks?

Except that it shifts the blame to the people encouraging profligate spending, and away from the people who were generating the wealth which everyone was so eager to redistribute. From the second the tech crash happened (was that '99?), these governments could have taken their boot off the throat of the private sectors. Instead they kept squeezing, and now those chickens have come home to roost.