Apr

23

Lost Decade, by James Sogi

April 23, 2009 |

The last two real estate cycles took a decade each to play out. This one should not be much different. The last banking S/L crisis took a decade to shake out. This one is worse. In the 70's it took a decade for people to look at stocks again. I fear the same will happen this time. Wall Street itself has been gutted and the investment banks gone, the jobs are gone, many of the funds are gone. The stimulus will not necessarily trigger hyper inflation of consumer prices as some believe will happen as predicted by the expectations numbers. This is not to say there will not be many opportunities, because in each of the instances fortunes were built. The tactics and strategies will need to change. They have already in the equity market. I don't know them, but understand that the debt markets are very different, and are changing rapidly still. A big picture is necessary even for short term traders to avoid trouble.


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6 Comments so far

  1. douglas roberts dimick on April 23, 2009 11:00 am

    Over There, Being Here…

    Just so youall back home do not lose a sense of proportion (or relativity) within the US quagmire, please note that at least there is due process of law and a semblance of transparency…

    Most important, there is reciprocity — at least a system for all citizens to seek it.

    In three years in China, albeit now most worldwide losing at least 50% or their wealth, more than a consolation is what I come to hold to be the three truths elemental to the human endeavor…

    Freedom of religion
    Freedom of speech and press
    Freedom to petition and change the government

    Here in China, the Communist Party does what it pleases to whomever they please…

    I came across this old email to my Chinese girlfriend sent two months ago. She says I imagine things about China's political and economic systems.

    When I sent this article to her, the subject heading stated "Not Imagination."

    Be thankful (I hope) as you read and God Bless… dr

    Jailed Billionaires Show New Face of China as Markets Unravel

    By William Mellor
    Feb. 24 (Bloomberg) — If China’s richest man knew he was about to become the most prominent casualty of the country’s love-hate relationship with capitalism, he didn’t show it this past August.

    Huang Guangyu, a peasant’s son who became a billionaire by building Gome Electrical Appliances Holding Ltd. from scratch, outlined plans for continued expansion of the 800-store appliance chain. 

    Greaves hasn’t seen or spoken to Huang, 39, since. One morning in November, the dapper, baby-faced tycoon failed to turn up, along with his Maybach limousine, at Gome’s Beijing headquarters, where he normally worked such long hours that he had installed a double bed in the office adjacent to his own.

    Under Investigation

    On Nov. 24, the company halted trading in its shares on the Hong Kong exchange. Three days later, Beijing police disclosed that one of China’s most celebrated entrepreneurs was under investigation for share manipulation.

    […]

    As the new rich become the newly poor in China’s seesawing economy, the one thing that seems constant is the power of the state.

    – With reporting by John Liu in Shanghai and Cathy Chan in Hong Kong. Editor: Laura Colby 

    Full story here:

    http://www.bloomberg.com/apps/news?pid=20601109&sid=a3ZipCygZpsk&refer=home

  2. diego joachin on April 23, 2009 1:07 pm

    James Sogi: "The stimulus will not necessarily trigger hyper inflation of consumer prices as some believe will happen as predicted by the expectations numbers."

    There has been a debate about it in this blog: http://ca-bi.com/blackbox/?p=2239 (Spanish language).

  3. curmudgeon 4361 on April 23, 2009 1:20 pm

    A sobering message from Japan:

    April 23 (Bloomberg) — Japan’s struggle to rebuild growth during the 1990s suggests American consumers and companies face a “painful” period of retrenchment as the economy works out excesses created by a bubble, Bank of Japan Governor Masaaki Shirakawa said. Japan’s economy did not resume sustainable recovery until it brought down excessive levels of debt and productive capacity, and the same is true of the U.S., Shirakawa told the Japan Society in New York today. “This will be painful, but inescapable,” he said.

  4. Ken Drees on April 23, 2009 2:36 pm

    Analyst Rick Ackerman notes: In January 2008, early in the stock market collapse phase, domestic equity mutual funds were worth about $6.5 trillion. By February 2009, these mutual funds had fallen by half to $3.4 trillion. During that time, net redemptions totaled only 2%, or about $100 billion. The public held on during the decline, as mutual fund investors largely held pat.

    Ackerman believes “The fatal problem for that kind of optimism, is, in a word, capitulation, or rather, the absence of capitulation in a bear market that so far has been marked by more or less orderly declines the whole way down… So, do we infer that guys like Kudlow, Suze Orman, and CNBC’s talking heads actually believe this bear market will somehow be different from all others before it, with no exhaustion selling to carve out a durable low? We do not merely doubt this. We view such an outcome as very nearly impossible. This bear market will end, like every other bear market in history, with a wholesale dumping of stocks at prices that will make current values seem exorbitant in comparison.”

    End of Ackerman***

    I can say that most of the people I talk to are still holding and suffering the losses, some are now considering to just keep on holding since they are afraid that the market has turned around and don’t want to miss the economic recovery and sell too soon.

    One friend (the only one to do so) of mine just lightened his equity load (50% or more) after this 6 week bounce–he considers himself lucky.

    The public is deep in it and will go right down to the bottom and then puke up their shares.

    As Jim Sogi mentions: these jobs are gone, the earnings models are gone. The consumer is blown apart and it will take a long time for everything to rebuild–from classic public behavior via the stockmarket we are still in bear land.

    Obama may well represent the most classic bearish backdrop ever–a prevailing idea of “Hope” that things will improve, keeping the public invested. The equity, property, and debt bears may feast for years.

    Bear markets slide down a slope of hope, and since bear markets terminate through exhaustion and liquidations–our governmental policies seem bent towards prolonging any and all pain. The best that can be said is that bears beat the government and wipe out the 3 markets faster than government programs can delay it. Then rebuilding may start and the markets may sense a shift towards the north.

  5. lon evans on April 23, 2009 8:32 pm

    Mr. Sogi,

    From my reading of history, hyper-inflation is less an event triggered than a trigger utilized. Rather than an inescapable inevitability, such an occurrence seems more often the result of political expediency.

    As a dyed-in-the-wool iconoclast, I see little hope that our present Masters-Of-The-Universe are any less craven than those preceding them, those who eventuated this sorry spectacle. In fact, many seem to have not only weathered their catastrophic watch at the helm, but to have prospered in solidifying their positions at the wheel. I expect that the more unfortunate of these examples (Ken Lewis comes to mind) will soon enough find themselves piloting a dingy. Not that such an outcome will do us much good.

    We find ourselves adrift and in a state of sorry disrepair. Are our hearts to know an uplift from the measured thwop-thwop announcing an incoming cavalry of copters? Should we cue Wagner’s ‘The Ride of the Valkyries’ and sing the praises of jellied gasoline? Okay, admittedly over the top, but have we as a culture even began to honestly inquire as to the extent of our shared responsibility for this mess? I don’t see that we have. Instead, we chose to embrace the ideologies and agendas of those who would irresponsibly borrow our way out of a collapse eventuated by irresponsible borrowing.

    Do I see hyper-inflation in our future? You betcha!

    lon

  6. Craig Bowles on April 24, 2009 7:25 am

    The 18.3 year real estate cycle suggests improvement but sometimes the improvement is only less downside. Sure worked in 1991 when even the biggest optimists in real estate were getting down in the dumps.

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