Dec

7

For years I have been an investor, always trying to see the positive and believing that free enterprise and capitalism is the path to prosperity. Work hard, save your money and invest in the stock market. I also believed that owning a beautiful home was a good investment as well. There was a time when America was the envy of the world. Now we are the fool. Our financial system as we know it is gone. Lehman, Bear Stearns, AIG, Fannie and Freddie, Merrill Lynch… gone. Citigroup would fail if not for the bailouts and the great Goldman reduced to a bank. Record layoffs, record foreclosures and trillions of dollars in 401(k) plans and savings wiped out in a year. Millions of lives have been destroyed. Why would anyone want to invest in this country that provides no healthcare, where the states are mostly bankrupt themselves and asking for money and can’t even make their unemployment payments to 10 million unemployed, where a bank will kick a family out in the street because a man lost his job and fell behind on a loan payment? We are the laughingstock of the world. Perhaps the market will rebound but why in G_d’s name anyone would want to invest in this country is a mystery. Substantial damage has been done and it will take years for confidence to return. Why leave your hard-earned dollars in a retirement account that can lose 6% in less than half an hour? Why buy a house that can lose 50% of its value in a year and then risk losing your downpayment and foreclosure when the average shelf life of a job is only three years? An elephant stampede Lobagola into stocks? Makes perfect sense — elephants have poor eyesight and fail to see what is immediately in front of them. In spite of the impressive Friday reversal and clearing of the 20 day moving average and IBD conviction that we are in a confirmed rally, this market isn’t finished until everyone is wiped out. They say the market foresees the future and rises six months in advance of a recovery. Who among us believes that the economy will recover six months from today? We are truly in uncharted waters and a drop of 40% from this level on the S&P would take us to the 50 year long term trendline. Perhaps then the risk reward ratio will favor investing in a country that doesn’t take care of its own people.


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7 Comments so far

  1. MDan on December 7, 2008 5:52 am

    If you take into account the low prices in the stock market, the economy does not have to recover 6 months from now. It is enough if it will stabilize, which will attract investors into buying good value companies. Of course, by the time it will stabilize, that information would have already been priced in.

    And so, the anticipation game continues.

  2. Steve Leslie on December 7, 2008 11:56 am

    Hopefully this post will instill some vigorous commentary as it is quite complex. In "Back to School" Dr. Barbey said "Mr. Melon, I only have one question"

    Thornton Melon sighs

    Dr Barbey "It is in 27 parts"

    Thornton Melon "I'd like to break you in 27 parts."

    Part of your answer will be in the fact that in the words of Dr. Bork esq. "We are slouching toward Gomorrah.

    The fact is that somewhere along the line, this country decided to move from free market capitalism toward socialism seeing government as a solution to problems rather than part of the problem. The classic confrontation began some would argue in 1932 with the New Deal and Keynesian economics. It was interrupted through the glory years post WWII and did not resurface until 1964 with "The Great Society." A failed attempt was made in 1977 by a weak Carter Administration and went into hibernation through Reagan and Bush. Clinton upon assuming office tried a frontal assault with "Hillary Care" in 1993 and this first attempt collapsed. Then it subtley took foothold in the late 1990's and through the 2000s with easy money and supported by groups like Rainbow Push Coalition, ACORN with culprits such as Raines, Gorelick et.al.

    Now this country is mired in a residential real estate market that is so overbuilt that it will take years to work off the inventory. Unemployment now approaches 8%, foreclosures are at all time highs, most of home sales are short sales and home prices continue to go down. Evictions are up because of inability to pay rents and mortgages.

    Now the Treasury and the Federal Reserve step in and are committed to pouring easy and free money into the system and print money until they run out of ink which will be long into the future. . Obama is planning a massive government funded public works program to offset unemployment. His administration proliferated with hold overs from Clinton's administration are crafting new and improved entitlements.

    Are we the laughing stock of the world. Hardly! Look to Europe. Their condition is far more moribund than ours. After all they have a longer history of socialism in place and more experience in destroying capitalism than we do.

    Will there be a quick solution to this malaise. Of course not. It took decades to get here. We will not get out of this in 6 months or a year. Of course, we could pick a fight with a country and start a war. That is always good for the economy, at least in the short run and that would change the landscape for a short time.

    Remember that even Mussolini had the trains run on time. And a broken watch is correct twice a day.

    sl

  3. Anonymous on December 7, 2008 12:22 pm

    A country that takes care of its own people? I should say be careful what you wish for or you just might receive it. All that we can want is a country who gives its people a chance to take care of themselves, and we have it. Whether or not those people are willing or able to do so is another story.

    Why should anyone want to invest in the U.S.? As implausible as the question is, I would think that the mere fact that such a question is asked is reason enough to consider doing so.

    Why buy a house that can lose 50% of its value in a year? One should stop and consider the rate of return that a buyer would demand on an investment that has the possibility of declining so far and so fast.

    Read the world events and then ask how bad a country it is that we live in where among our concerns are an unemployment rate south of 7%. I count myself as lucky to be living in the U.S. and would not trade it for the world. How much wealth has really been destroyed? If you bought stock last year, who sold it to you? Are we not looking at a transfer of wealth?

    Then again, we are not forced to live in this country and have the freedom to leave. Maybe somewhere that the government will take care of us at a tax rate that is appropriate is more apropos.

  4. Ronald Weber on December 7, 2008 12:24 pm

    Well then, what better alternative than the US do you suggest?
    Iceland? the UK? Perhaps a socialist Europe ?
    Europe has taken the opportunity to lecture the US on the benefits of big government and how smarter they are, but so far I don’t see what better model they have to offer.

    Finally, let’s be honest, do you really miss a Lehman, Bear or Merrill? I can understand being nostalgic about something that brought positive emotional value to society (i.e. the Beatles or the Sears catalog!) but please not these guys!

    And regarding “a Country that doesn’t take care of its own people”, I suggest you have a look toward Russia, China or most South-American countries, or may I suggest the outskirts of Manchester, Paris or Rome!

    Sorry for not being very “scientific” in my reply, but US-bashing has become such a national sport in Europe, Mrs and Mrs Everyday just enjoy blaming all their vows on the US, and the recent crisis has only reinforced their false beliefs!

    Now to my main point:
    Not so much mentioned in the headlines is the fact that China, Russia and most emerging markets are on their knees, I think that over time they will turn out to be the true victims of the current crisis, with no pension assets, no developed social net to take care of their “victims” and an almost exclusive dependence on exports (China) and commodities (Russia and the GCC). After getting a brief taste of Western consumerism China will have to go back to the factory floor, it will have to manufacture even cheaper than before and the US will pay them with a stronger dollar. Viewed from the US is it such a bad deal after all? No less than six months ago most headlines were expressing fear of China exporting inflation and affecting the price of “Western” meals!

  5. acetrader on December 8, 2008 11:34 am

    Unbelievable, this guy Evan! Come to Texas my friend, no real estate bubble, plenty of jobs (might have to learn a new trade) and the freedom to take responsibility for your own lot in life! As all the others have said… if not here, where?

    Life is beautiful and the U.S. is the greatest country (not perfect!) in the world!

  6. Rocky Humbert on December 8, 2008 1:49 pm

    I'll happily treat Mr. McKeown to a one-way economy ticket to his choice of Beijing, Mumbai or Paris — if he hands in his passport, renounces his citizenship and vows to never set foot in the USA again. (He is permitted to IM with Susan Sarandon, however.)

    There has always been a surfeit of people who would happily trade places with the Mr. McKeowns of the world — who want a chance at the American Dream — who are willing to work long hours (for low pay) for a better life for themselves and their children. My grandparents were two of those people, and even if the stock market declines another 50%, I'm still quite happy that they made the trip.

    p.s. Google hits on Nouriel Roubini appear to have peaked: 
    I posited some months ago that this would correlate with a cyclical turn in risk assets… we'll soon see if this prediction is validated.

  7. Dreamer on December 12, 2008 9:22 am

    I agree with Webber that the US is still one of the best places to live. Listen I live in the UK — the cost of living is sky high, there are no opportunities, it is overcrowded and and a generally grim place to live, the social fabric of society has broken down and violence and knife crime is rife. I would love the opportunity to live in the US — but no chance due to tight immigration rules - believe me I have investigated the visa options. And as for the comment that you can live anywhere in the world if one really wanted to this is NOT true, well only if you want to live under the radar — immigration, immigration.

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