Table On-Topic Summary - 2-Sep-2002

A compilation of this board's financial/economic posts From 41331 to 41341

Post  41331  by  jcl22192       Reply

ferociousD: It is not necessary to change. Survival is not mandatory." -W. Edwards Deming

Post  41332  by  jcl22192       Reply

Any surprises here? Companies at risk http://www.safemoneyreport.com/specials/26810/bankruptcy_largest.asp

Post  41333  by  uponroof       Reply

ttalknet2... thanks for the articles on the dinar. I have read some previously and understand this proposal reaches back quite a few years. From your link which clearly demonstates gold as an intregal part of Arab culture and tradition: "...The Koran has explicit injunctions against usury of any form and prohibits "infidels" managing "Muslim" money. Similarly partnerships with non-Muslims outside Islamic judicial areas is discouraged. These prescriptions and prohibitions collapsed completely once petrodollar wealth flooded into Islamic states, where the beneficiaries soon repatriated it to the Western metropoles in order to earn a return..." uponroof- As Islamic fundamentalist positions gain favor throughout all arab nations, the US positions itself to relieve economic stress and perhaps access rich middle east reserves through a good old fashioned 'drummed up' war....Gold is certainly on the table as a very big card. Speaking of 'drummed up' http://www.lemetropolecafe.com/hemingway_table.cfm?cfid=353342&cftoken=99894749&pid=2460 An interesting compilation of issues responsible for driving world markets to various levels of noncontrol. What are we to assume is actually going on here????...you decide. ...and don't miss the quotes from Warburton on "it is inflation, but not as we know it": "Central banks are engaged in a desperate battle on two fronts" "What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other they incite investment banks (Citigroup, JPMorgan/Chase, Goldman Sachs et al) to bet against a rise in the prices of gold, oil, base metals soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value not only of the U.S. dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets." "It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks (Citigroup, JPMorgan/Chase, Goldman Sachs et al) have over-traded their capital (bases) so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices." ******** Good Luck Cheers

Post  41334  by  pacemakernj       Reply

Roof, Japan follow up: From IBD 9/3/02 Japan's economy grew a slim 0.5% in the April-June quarter, a 1.9% annual rate. The prior quarter's data were revised to a decline, meaning Japan's GDP shrank for four straight quarters. And the government warned there may be no growth for the rest of the year ending next March. Public spending grew, personal spending edged higher and business investment fell. As I said keep an eye on this with the Nikkei at 52 week lows this could lead to some trouble. Pace.

Post  41335  by  uponroof       Reply

pace...you're right on again. Japan is contolled by US fortunes. Our lack of consumer confidence translates to fewer exports from Japan, which is of course....the basket all their eggs are in. Hoo boy it's gonna be interesting to see how lasting confidence in the dollar and American equities saves the day for the currently drowning second largest economy on the planet. Hint: WAR! There is no magnificence such as the American war machine. Once on display (again) the world will bow in reverence, American consumers will feel like a new SUV, and all problems are solved...for the time being. Ahhh but consider what would happen to Japan if something went terribly wrong in this foregone conclusion of American military victory .Take your pick of numerous rogue attacks of mass destruction, or, political annihilation and exile at the hands of the global community. This war GW is picking has the potential to wreck global economies if not successful, as well as spark nuclear retaliation if successful. Not that I'm against quashing Sadaam and his agenda, just leery of how it's done in the context of the mess we're presently compromised by. Good Luck Cheers

Post  41336  by  srudek       Reply

Maudlin ARTICLE on Home Prices, etc. Weaves in to his presentation on housing many of the issues I have previously raised. Must be monitoring my RB posts! ;-) ------------------------------ >To view in color or printer friendly .pdf >please visit www.2000wave.com > >The Weakest Link in Housing Prices >Is There Really A Bubble? >Should I Stay Or Should I Go? >The Implications of a Drop in Housing Prices >Where We Are Today >My New Web Site >Labor Day Fun > >By John Mauldin > >Housing, deflation, bonds, and the dollar are all inextricably >linked, if you connect the dots between numerous studies which have >come out in the past few weeks. We'll do that and more as we explore >the implications of even a small housing bubble and what it will >mean to you. > >I frequently get email from readers asking whether they should buy >or sell a house in a particular area. The short answer is, "I don't >know." Today I am going to give you the tools which will help you >answer this question for yourself. Plus, the analysis will have >implications for the rest of your investment portfolio. > >The Weakest Link in Housing Prices > >I came across a study by Dean Baker of the Center for Economic and >Policy Research ( http://www.cepr.net/ ). It was titled: "The Run-up >in Home Prices: Is It real or Is It Another Bubble?" While the CEPR >is clearly a left of center think tank, the basic data and analysis >in the study is rather straightforward and solid analysis. Baker was >kind enough to speak with me on his study and offer some further >insights. I think you will find his analysis very instructive. > >Baker shows that there is a strong long term connection between the >rise in the value of homes and inflation. Every other variable, such >as interest rates, demographics and income has a tenuous connection. >Over the long haul, the national average of the value of housing >rises in tandem with inflation. This makes a certain logical >symmetry, and thus I tend to give this relationship some credence. > >Home purchase prices have risen nearly 30% more than the rate of >inflation over just the last 7 years. This is a clear break with the >trend. This has increased the net worth of homeowners in the US by >$2.6 trillion dollars, compared to what would have happened if the >rise in homes had been in line with inflation. As we will see later, >this was a big reason for the growth of the economy in the 90's. > >For Baker, the implication is clear. Housing prices are likely to >come back to trend over time. Either this means falling home values, >or no rise in home prices as the trend in inflation catches up to >current home prices. > >There were a number of interesting findings in the study. I have >always assumed that part of the increase in the price of homes was >the willingness of buyers to devote a larger portion of their income >to housing. This was true in the 70's and 80's, but the growth in >the percentage of income devoted to housing in the 90's was quite >small. > >"Two thirds of the run-up in home prices is attributable to a rise >in the price of buying a home relative to the cost of renting a >home..... This is what would be expected if there is a housing >bubble, since it suggests that families are buying homes in large >part as an investment rather than primarily as a place to live. A >sharp slowdown in the rate of inflation in [the] rental cost index >in the last six months, and a record high rental vacancy rate, >suggests that demand for rental housing is lagging, which could >precipitate the collapse of the bubble." > >He examines the effect of collapse in housing prices back to trend. >It would likely drop housing prices somewhere between 11% and 22%. >This would destroy between $1.3 trillion and $2.6 trillion in >housing wealth. Since about 6 cents of each dollar increase in home >values shows up in consumer spending, this is likely to reduce >consumption by $80 to $160 billion, which is a huge drop. > >Finally, the home owner's equity to value is now near its all time >low of 55.2%. This will clearly get worse if home values drop. It >could go as low as 42%. This would have large implications for the >homebuilding industry. Baker estimates it would drop new home >building by $63 billion to $136 billion annually. Again, this is >another potentially huge drop in GDP. > >I asked him point blank, "When do you see this drop beginning?" He >pointed out that he thought stock prices were too high in 1998, but >they continued to rise. Picking a date for a bubble to begin >bursting is difficult, at best. > >Is There Really A Bubble? > >I argued a few weeks ago that housing prices are nearing their peak, >as the growth in personal incomes is a limiting factor in their >rise. You can only spend so much on housing. The study shows this to >be the case. > >For me, there is a clear implication that the drop in interest rates >has allowed home owners to buy more home for the same payment, and >they have done so, considering homes as an investment as well as >shelter. Homeowners (on the national average) are not really >spending a significantly higher percentage their income on housing > >Baker makes the case that interest rates do not explain the rise in >home values, as much sharper interest rate moves in the 80's did not >have anywhere near the same effect. > >At this point, I part company with Baker. I think a significant >portion of the rise in home values can be attributed to lower >mortgagee rates. While I agree with Baker that there is no seeming >historical connection between interest rates and home prices, I >think there is clearly a link in the last few years. There is a >natural limit to this, however, as mortgage rates can not go down >all that much more. > >Thus, I think we are close to the top in terms of the growth of >housing prices. When you couple this with Baker's connection between >inflation and home prices, there is the clear implication that we >are near the end of this rise, and the best we can hope for is to >stay where we are. > >Now, is this rise in home prices a bubble? If you do a comparison to >the tech bubble, as illustrated by the NASDAQ, it is not. Homes are >not overvalued by 4 times. > >But when you look at the leverage employed, the concern grows. A 10 >or 20% drop in home values would put a lot of home owners in a >negative equity position. A recession would increase unemployment, >and would result in an increase in the foreclosure rate. Think >Houston in the late 80's if you want to think of the worst possible >situation. > >Should I Stay Or Should I Go? > >Now, let's see if I can give you some ideas in thinking about your >home. Whether or not you are thinking about buying or selling, you >have friends or family who are, and this may be useful to pass on to >them. > >First, buying or selling a home should be part of an overall life >plan. If you don't know where you are going, how can you know what >path to take? No matter how good a deal a home might be, if it keeps >you from accomplishing your overall plans, owning a home could be a >problem. > >If you buy a home today, you must be prepared for the value of that >home to drop over the short-term. I would not buy a home with a view >to selling within a few years. The risk at this point in the cycle >is high that the value of your home could drop. If you plan to live >in that home for 10 years or more, then your risk is much less. > >While I have argued for years that we are dealing with deflationary >forces throughout the world, and a drop in the US housing market >would be a big deflationary force, I don't think that deflation will >be the ruling paradigm long-term. We will see a return to inflation. >If Baker is correct about the relationship between inflation and >home values, and there is much evidence to suggest he is, then over >time, even if your home suffers a temporary drop in value, it will >rise again. > >Is it unreasonable to think we could see 25-30% inflation over the >next 10-15 years? I don't think so. That is not much more than an >average of 2.5% a year. That level of inflation would bring home >prices at their current level "back to trend." > >Now, all real estate prices are local. You can go to Baker's study >and look at Appendix 1. You can see how much home prices have risen >in your state. Not all states and all areas have seen a strong rise >in home prices. If your area is growing, and likely to continue to >grow, and you have not seen a large growth in home values, then it >would be much safer to buy a home and expect to see it rise over >time. > >If you are thinking of buying a home as an investment, with some >regional exceptions, this might not be a good time if you have a >short term view. Right now, vacancies in rental property are at 9%, >which is quite high. The growth in the cost in renting is almost >nil. This is a limiting factor on the rise in home values, and >certainly on the cost of comparable rental property. > >If you can rent a home (on a monthly basis) in your area for a lot >less than you can buy it, especially with today's low mortgage >rates, that is a sign the price of homes in your area is getting >ready to stumble. > >If you are planning to retire in a few years, and are counting on >selling your home and using the profit as part of your retirement >plan, then you want to think about what would happen to those plans >if your home dropped in value. Baker points out that areas where >homes have appreciated the most will see the most drop in value. A >drop in the national value of homes of 10% could mean that some >areas see 30% or more. If that would put your retirement plans in >jeopardy, then you need to think whether or not you want to take >that risk. > >A serious recession, and it is highly likely we will see one this >decade, would put pressure on the ability of homeowners and renters >to pay. In Houston in the 80's, most people had jobs throughout the >local slowdown. But enough people were thrown out of work that >housing prices dropped precipitously for a few years, until the >local economy recovered. At one point, you could buy homes at >auction with your credit card. > >As an example, San Diego is one of the most desirable places to live >in the country. I love the area. Would an economic slowdown have an >effect on local prices? In San Diego County, 1 in every 5 renter >households spends at least 50% of its income on housing, and 13% of >homeowners spent at least half their income on their mortgage >payments in 2000. That is not a prescription for stable home prices >in a severe recession. If you own a home in San Diego that you >wanted to keep for the next 10-20 years, then I would not worry. If >you plan to sell within 2-3, then you should think about selling >now. > >I cannot urge you strongly enough to formalize your investment and >retirement plan, and to think through the implications of what part >your home plays in that plan. If your plans relies on the value in >your home, or on 5% annual growth in the value of your home over the >next 10 years, the data says your plan may be in jeopardy. > >For the record, I sold my home a few years ago, and now rent. I >think both home prices and interest rates will come down from where >we are today. I will buy again, but because I want to own a home in >a particular area for the long term, and do not care about the up >and down values in the short term. Of course, I hope to wait for a >good value. > >The Implications of a Drop in Housing Prices > >Stephen Jen and Fatih Yilmaz, in the London branch of Morgan >Stanley, recently did a study on the "Asset and Monetary Conditions >Index and the US Dollar." They were trying to show what effect that >property values, interest rates, the stock market and the value of >the US dollar has on consumer demand. > >They make a few very important statements. First, by their >calculations, property wealth (the value of US homes) is more >important than stocks, interest rates or the value of the dollar >COMBINED in its effect on consumer spending. (Emphasis on the word >COMBINED!) > >Using an entirely different approach, they come to much the same >conclusions as Baker as to their concerns about the effect of a drop >in housing prices on the economy. Secondly, they worry that the >effect that property values, equities and interest rates have on >aggregate demand by consumers has already "maxed out." > >That leads them to the conclusion that the value of the dollar is in >doubt. Let me quote at length: > >"The fate of the US consumer depends, in part, on the outlook of the >property market. The risk profile for properties is two-sided. On >the one hand, if the long bond yield continues to be depressed, >reflecting dis-inflationary expectations, or from safe haven capital >flowing into US Treasuries, the property markets could be supported >longer than many people think, and, in turn, support consumption in >the US. On the other hand, property prices could also fall. We need >not go into too much detail on the familiar arguments, but only to >point out that if property prices experience a meaningful >correction, it would lead to a significant tightening in [the >conditions for growth] in the US. Since the other factors are >'maxed-out,' a correction in property prices could force the US to >re-consider its strong USD policy. We should underscore that we are >not suggesting that the US would explicitly adopt a weak USD policy; >this would be too dangerous for bonds and other assets. What we are >suggesting is that there could be a further softening in the >definition of the strong USD policy." > >The unwritten implication in the above analysis is that even if low >mortgage rates support the housing market for a longer period of >time, that sooner or later a reversal will come. > >Now, let's jump to Greg Weldon's latest letter, written from his >vacation. (Some people just can't rest.) He notes that the mean >price on new homes is down 5.4% in just two months, and the median >price is down over 8% in just the last two months. While sales have >risen over the past month, they are down from a year ago. > >Two months do not make a trend, but this price action bears >watching. > >Let's think through some of what we just read. The most important >factor which influences the growth in consumer spending is the value >of their homes. We are bumping up against the limits in the rise in >home values. According to Baker, even his most modest prediction of >a drop in home values would result in a recession and an increase in >unemployment by 0.75%. > >Baker paints it in stark terms: "At present, the economy is also >badly in need of the stimulus that would be created by increased net >exports. In the wake of the collapse of the stock market bubble, >investment spending has fallen by an amount equal to approximately >1.2 percent of GDP compared to its 2000 peak. With the collapse of >the housing bubble, housing construction is likely to fall back by >0.6 to 1.3 percentage points of GDP. If the savings rate were to >return to just 5 percent, approximately half its historic average, >then it would lead to a falloff in consumption equal to >approximately 2 percentage points of GDP. If the savings rate rose >back to its historic average (which would be desirable with so many >baby boomers nearing retirement), the falloff in consumption would >be close to 6 percentage points of GDP. The shift from a federal >budget surplus to a deficit is an important source of stimulus in >this situation, but there will be a need for considerably more >stimulus. Without a sharp reduction in the trade deficit, it is hard >to see how this can come about." > >I will leave aside his point about the stimulus from deficits for >another day, but he draws the same conclusion that the Morgan >Stanley study does. There will be a clear need in the near future >for a drop in the value of the dollar. This is apart from the >pressure on the dollar from the trade deficit. The two combined >will move the dollar down even more. > >I have been suggesting that investors look at investing in euros and >other foreign currencies since the early spring. You can buy a CD >in a foreign currency at a US bank based in St. Louis called >Everbank. Talk to Chuck Butler at 800-926-4922 and tell him I >suggested you call. He can send or email you information about their >offerings. The euro is back down below a dollar, in the $.98-.99 >range. I think $1.10 is very possible over the next year or so. >There are other analysts who see a much more dire drop in the >dollar, but considering how rapidly the rest of the world is slowing >down, especially Europe, it is hard to imagine a precipitous drop. >Still, a 10 % drop, plus interest, could be a nice investment, and I >don't think there is too much downside risk to investing in euros at >today's prices. > >A second implication of a drop in housing prices is a further drop >in long term bond rates. I predicted a drop in long term rates at >the beginning of the year, and since then my favorite long term bond >fund, the American Century Target 2025, is up over 14% and had >another very strong day as the yield on 30 year bonds dropped to >4.93%. 10 year rates have dropped to 4.14%. Since 30 year mortgages >are barely under 6%, and there is a strong link between mortgage >rates and 10 year Treasury bonds, it is likely we will see a further >drop in mortgage rates over the next few weeks, if the downward >pressure on interest rates continues. 15 year mortgage rates are now >at 5.36%. I wrote in 1998 we would see 5% rates, and we are getting >close. > >A drop in housing prices will inject very large deflationary >pressures into the US economy. The Fed will do what it can to help >rates go lower in an effort to forestall such an event. Either way, >through Federal Reserve "help" or natural deflationary forces, there >seems to be downward pressure on long term rates. This volatile >investment is not for the faint of heart, and not for a large >portion of your net worth. That being said, I think there is still a >nice potential profit in this market. > >Third, the Euro-dollar market is pricing in a rise in Federal >Reserve rates over the next year. Given the weakness of the economy, >and the fragility of the housing markets, I have trouble seeing >where Greenspan is going to raise rates. I wrote almost 18 months >ago that Greenspan had made the last interest rate increase of his >career. I still think that may be the case, unless he does not >retire in 2004. Just as I wrote last year, once again futures >traders can take this trade and bet against rate increases. I think >it will make money once again. > >Where We Are Today > >The economy still bumps along. The Chicago Purchasing Managers Index >was up sharply, suggesting that August saw a nice growth. Retail >sales are soft, but have not fallen off the table. All in all, we >are still in the Muddle Through Economy, and I think we will be, >until the scenario of falling house prices described above takes >place. This year? Next year? 2004? All I could do is guess, and your >guess is better than mine. I have to make mine in public and in >print. That almost guarantees it to be wrong. I don't like to guess. > >Will housing prices fall, and take the economy with it? I can make a >very plausible argument that housing prices will remain stable. I >gave you the argument above that they will drop. As regards to >buying or selling a house, I would suggest taking the conservative >approach. When any investment gets this far above long-term value >trends, it is generally not a good idea to jump in, unless there is >some fundamental shift in progress. While you can make a case for >buying a stock above trend as a momentum investment, since you can >buy or sell very quickly, homes cannot be traded quickly. When you >buy today, you should be prepared to be in that home for a long >time, or else be prepared to come to the table with cash when you >sell. > > > >Labor Day Fun > >Chapters from my new book, Absolute Returns, will be posted on my >web site next week. The important chapters on the case for a Secular >Bear Market continuing for the rest of this decade are finished, and >I PROMISE it will be out next week. I will give you the web address >in the next letter. I will also be in New York on September 23-24, >speaking at the IIR Fund of Hedge funds conference. I will have some >time available to meet with clients and potential clients. > >Labor Day at the Mauldin rented home means having lots of kids >everywhere, and that is always fun. If you are thinking about going >out, let me suggest seeing the movie, My Big Fat Greek Wedding, and >taking the family. This summer sleeper is really worth your time, >and will make you feel good when you walk out. My kids say it >reminds them of our family. > >Have a great weekend, and enjoy the fruits of your labor and the >love of your family. Both are sweet rewards. > >Your laboring under constant deadlines analyst, > >John Mauldin >John@2000wave.com > >Copyright 2002 John Mauldin. All Rights Reserved > >If you would like to reproduce any of John Mauldin's E-Letters you >must include the source of your quote and an email address >(John@2000wave.com) > >Please write to Wave@2000wave.com and inform us of any reproductions. >Please include where and when the copy will be reproduced. > >To subscribe to John Mauldin's E-Letter please click here: >http://www.2000wave.com/subscribe.asp > > > >John Mauldin is president of Millennium Wave Advisors, LLC, a >registered investment advisor. All material presented herein is >believed to be reliable but we cannot attest to its accuracy. >Investment recommendations may change and readers are urged to check >with their investment counselors before making any investment >decisions. Opinions expressed in these reports may change without >prior notice. John Mauldin and/or the staff at Millennium Wave >Investments may or may not have investments in any funds cited above. >Mauldin can be reached at 800-829-7273. > > > > > >_________________________________________________________________ >Send and receive Hotmail on your mobile device: http://mobile.msn.com

Post  41337  by  Decomposed       OT: Table ON TOPIC SUMMARY Sep 01, 2002

Post  41338  by  Decomposed       ot: Interesting. A day where, despite appearance

Post  41339  by  ferociousD       jcl22192-

Post  41340  by  pmcw       Reply

pace, Thanks for the heads up. On this VERY rare occasion, I find myself in total agreement with Cramer. Regards, pmcw

Post  41341  by  pacemakernj       Reply

Roof, follow up on war and the economy: "This war GW is picking has the potential to wreck global economies if not successful as well as spark nuclear retaliation if successful" I see no way out for the US. We are boxed in a corner and the only choice is to fight. We CANNOT allow Saddaam to get nukes. Can you imagine the price of oil if that happens. Anyone who thinks there is no difference between Iraq and North Korea, Pakistan, India, and even China is well delusional. The one difference is OIL! That's right black gold. IF he gets nukes the entire world economy imo will be subjected to, and held hostage by this regime. We simply cannot allow this to happen. I cannot understand why anyone does not see the danger of this. It is so simple it hurts. Just suppose we do nothing (never will happen) but let's go down that path. The world let's this guy acquire nukes. What happens then? Are we going to send our troops in then to be slaughtered? Well you say but if he uses them it would mean then end for him. Ok, but at what price? Suppose he created a nuclear winter in the middle east and wiped out everyone there and we could not get that oil out what would happen? I think GW understands this more than anyone else in the ENTIRE WORLD. I think the rest of the world is screwed up not GW. Make no mistake this guy IS NO Bill Clinton. (Thank God)! He's not into this appeasement garbage. I watched that Saudi ambassador yesterday on an interview say "can all the world be wrong when no one wants the US to go into Iraq and cause a regime change." Excuse me, YES! you are all wrong! Can you imagine if Saddaam is on the door step of Saudi Arabia staring down at a nuke who do you think will get the first phone call? Whose blood will be spilled then? I have had it with those Saudi's. BTW, did you see today that Russia has now passed Saudi Arabia in oil output. This is great news. As for war hey no one wants it but it will be a lot easier now. We must act to deter future aggression against us. We must as Rumsfeld says take the fight to the enemy. I do not take victory for granted but failure to act here will go down as one of the greatest single mistakes of all time, imo. I think GW is willing to risk EVERYTHING he's got on a successful conclusion. You know why, because the payoff will be huge. I think the Israel/PLO situation would be resolved in 3 months. Iran will go democratic. Which, btw, is why the Saudi's are so dead against this. They are afraid of democracy in the region. We must solve this issue, for own long term economic survivability. Resolving Saddaam is all part of the whole terror issue. We simply cannot spend $400 billion on defense forever. We must win this war fast and get on with the major issues that await us. If this issue gets resolved in 2-3 years or sooner. We will be able to focus our energies on the things that really matter. The world must join hands with the US. It is up to GW to make this case. But imo, this decision has been made and we will be in Baghdad by Christmas. But hang on to your hat because the sh## coming down is going to get pretty heavy. JMHO.