Stock Market

[JeffDFD]

What do you think the options are? How about the likelihood of any of them happening?

[ExPatriatePen]

The probable configuration of the EU and the Euro membership in five years is going to be something that no one is talking about right now.

It's not going to be as simple as "Throw Greece out" or "Germany and France opt out". It's going to be a two tier system or some type of fiscal arrangement (as opposed to the current monetary only arrangement).

It's going to take some real imagination and thinking "out of the box" to use a shop worn phrase.

They didn't really think it through when they set this up 12 years ago, you can't have a monetary union without some kind of fiscal control.

I said it this past summer/fall and I'll say it again. Keep a close close close watch on Italian 10 year bonds. That's the barometer right now.

[itissteeltime]

Euro is at a 16 month low versus USD. Talks this morning of S&P downgrading a number of eurozone economies (including France). Expect USD to continue to gain ground.

[ExPatriatePen]

Anyone thinking about a European vacation, I'd Recommend exchanging dollars for euros at this level (maybe average in here).

A trip to Greece right now is really a pretty good deal.

[KennyTheKangaroo]

this is somewhat of a tangent but not really:

investing is real estate is a great way to not make money

[ExPatriatePen]

this is somewhat of a tangent but not really:

investing is real estate is a great way to not make money

And yet, if you had invested in Key West Rental property at this time (Jan) last year, you'd have already made a return of 25% on your investment. And that's in one of the worst real estate markets (Florida) in the nation.

You have to remember all real estate is local.

There are good deals to be had out there, it's just not the same market as 2003-2006, and it probably never will be again.

[ExPatriatePen]

Rumors are never something you want to trade "large" on... but I'm hearing of a rampant rumor running through Wall St that there are going to be some further sovereign debt downgrades this weekend.

[ExPatriatePen]

Shutterly is currently trading at around $23 (SFLY)

Watch this baby drop like a lead balloon.

[JeffDFD]

Rumors are never something you want to trade "large" on... but I'm hearing of a rampant rumor running through Wall St that there are going to be some further sovereign debt downgrades this weekend.

France just #1 you are saying?

If sovereign debt was graded on a curve it would all be ok...

[ExPatriatePen]

Rumors are never something you want to trade "large" on... but I'm hearing of a rampant rumor running through Wall St that there are going to be some further sovereign debt downgrades this weekend.

France just #1 you are saying?

If sovereign debt was graded on a curve it would all be ok...

Yeah... sounds like France is going down one "notch" and Spain and Portugal will be downgraded two "notches".
Kinda old news though so I don't think the damage to the US markets (outside of some shaky financials) will be minimal.

[ExPatriatePen]

Tiiiiiiiiiiimmmmmmmmmmmmbbbbbbbbbbbbbeeeeeeeeerrrrrrrrrrrrrr!

[JeffDFD]

Tiiiiiiiiiiimmmmmmmmmmmmbbbbbbbbbbbbbeeeeeeeeerrrrrrrrrrrrrr!

http://money.cnn.com/2012/01/16/markets ... /index.htm" onclick="window.open(this.href);return false;

NEW YORK (CNNMoney) -- European stocks closed slightly higher Monday, shrugging off Standard & Poor's downgrade of nine eurozone governments.

Interesting

[ExPatriatePen]

Tiiiiiiiiiiimmmmmmmmmmmmbbbbbbbbbbbbbeeeeeeeeerrrrrrrrrrrrrr!

http://money.cnn.com/2012/01/16/markets ... /index.htm" onclick="window.open(this.href);return false;

NEW YORK (CNNMoney) -- European stocks closed slightly higher Monday, shrugging off Standard & Poor's downgrade of nine eurozone governments.

Interesting

Very, I'm up early today because I'm closely monitoring the European opening of the markets.

I think the markets are experiencing a delayed response to the news.

I still expect to see the S&P retest 1,200.

I haven't felt this pessimistic in a while. I feel like the little guy is being 'set up'

[itissteeltime]

Euro rebounds on Germany's record month improvement in German business sentiment. The large picture moving forward still not looking good though, and I expect the euro to continue to fall.

[Fire0nice228]

I just sold out of copper (CU) at a 12% profit, will get back in if/when it goes below $29.50 and have put in a stop loss order on my F shares to protect profits.

EPP, I've read in the thread and you seem to be very knowledgeable about this whereas I am just starting out at investing. Why do you think there is this delayed reaction? All because of Germany? When I saw that there was downgrades I thought the bottom was about to fall out. I just read that Greece might not get their next payment, won't that drag everyone down further as well?

[ExPatriatePen]

I just sold out of copper (CU) at a 12% profit, will get back in if/when it goes below $29.50 and have put in a stop loss order on my F shares to protect profits.

EPP, I've read in the thread and you seem to be very knowledgeable about this whereas I am just starting out at investing. Why do you think there is this delayed reaction? All because of Germany? When I saw that there was downgrades I thought the bottom was about to fall out. I just read that Greece might not get their next payment, won't that drag everyone down further as well?

FO228... normally I have some pretty well thought out reasons for my strategies. This time, not so much. It's a really really strong gut feeling based on macro economic trends.

The fact is that the EU can't keep kicking the can down the road. Eventually the Bond Vigilantes come in and take their toll.
The EU hasn't really done anything to correct their issues. The structure is pretty much the same as it was in the fall of 2010 when the EU's problems first came to light. A short term uptick in German consumer sentiment and production numbers is just that, 'short term'.

How does this "news du Jour" alleviate the astronomical and unsustainable level of Sovereign debt visa-vis Greek GDP? How does this news reduce the totally unsustainable >7% yield on ten year Italian obligations? How does it address the virtual ponzi scheme where European financial institutions are propping up these governments to avoid massive defaults?

It doesn't.

The worst recent development is the growing trend of Hedge Funds who are buying massive amounts of CDS against the sovereign debt of Greece and then turning around and actually buying the bonds themselves? Why would they make bets both for and against a Greek default? Simple, because as bond holders they only need to purchase enough of that debt to stop a restructuring and force a default. Greek debt defaults and the CDS are now "in the money". When you get central banks trying to fight the market, they normally succeed at first and then they fail massively. Just ask George Soros.

I'm like a deer in the headlights right now. I'm terrified. You were right to sell your CU. Hold tight, if you must be in stocks stay in global consumer safe havens, PM, Heinz, Coke, etc... The time will come (maybe even later as soon as this time next year) to jump back in, but I'm so skeptical right now.

One last thing... you wonder why the markets aren't reacting to all of this? My take is that it's all ready "baked in". The smart money already knew this was coming, it was like a freight train sounding it's horn before a crossing. I just think that as it unfolds it becomes like a poker game. You had two Ace'ss (AA) Clubs and Spades. The flop showed a, let's say, 8-9-10 of hearts. Everyone stays in. The 'turn' uncovers a J of hearts. Now what? You can get beat by any 7 or a Q or any heart... do you fold (sell your stocks) or do you hang on? I think we're right before the 'turn' right now. When it all starts to fall apart (the equivalent of the J of Hearts) the weak stomachs will start to sell...

But what do I know? I'm just a econ/markets geek that uses finance as my personal "reality TV" type fix.

[Fire0nice228]

Thanks for great answer. I'm only 24 and very small fish of course. Of course I don't want to lose money, but I have plenty of time to recover if something catastrophic happens. I feel like I don't know enough about bonds to do anything. Still trying to sort it out.. The 10 year Italian yield 7% threshold is confusing to me, but I'm trying to learn. I held CU for several months and saw it go up to above 10% return and then slide all the way back down to almost my entry point, then back up again. I hope to play it for awhile and see if I can make anything with it. The cash will sit on the sidelines in the meantime I think. Same with F, I have averaged in and have some shares at 10.09, 10.91, and 11.71.. I've got the stop order in for my lot purchased @11.71.. If it drops to that I hope to get rid of and get them down somewhere in the 10 dollar range which I think is a good long term entry point for Ford. I was quite worried when F dipped down into sub 11.00 range since that last purchase had me in the hole quite a bit.

If Greece doesnt get the next bailout payment, is that where you envision people running for the exits?

[KennyTheKangaroo]

fire, kenny the kangaroo suggests that its probably not a good idea to try and time the market with a stock like ford. a 24 year old is probably better off just buying and holding.

[Fire0nice228]

I'm not trying to time it with all of the shares.. 2/3 of it I am in at a price I like.. the last 1/3 I bought when they announced earnings and dividend hoping it would be big catalyst. After profit taking by others, euro news etc. the stock dropped back down I just want to play with that 1/3 of it. Ford is my buy and hold stock if/once I get that last 1/3 in at a better price.. or would you suggest just letting it ride? bad thing is that last 1/3 is about 40% of my holdings in F, so it really hurts the overall performance when it goes down. I got antsy..

I probably shouldnt play the timing thing like I'm planning on doing with CU, but I feel like since it pretty much moves with the market it will eventually come back up as long as I get back into it at a decent price. Like I think I said, I bought it, was up over 10% gains, watched it go back down under my entry point I believe, then back up to 10% again, all primarily on macro news. If I had sold the first time I was up I coulda bought back in, sold again, and the plan woulda worked great. Maybe I shouldn't be doing that and need talked out of it.. Thats probably 'dont do this 101' lol

[JeffDFD]

Carnival down around 14% (they are the parent company for that Italian cruise ship). Ouch. I cannot even begin to fathom the costs on something like a luxury cruise liner and everything on that boat. Death toll getting higher...captain sounds like he was an idiot...I wonder what insurance will cover. Lawsuit to come, certainly.

[KennyTheKangaroo]

there were a few articles in the WSJ about the impact of insurance on carnival. $30 million or $300 million was the deductible, perhaps. some of the liability insurance did not cover criminal charges.

[JeffDFD]

Things have been relatively calm and positive recently. No major swings. Great January. How long will this last?

[Tomas]

Things have been relatively calm and positive recently. No major swings. Great January. How long will this last?

The valuation guru Aswath Damodaran periodically runs his estimates for the Implied Equity (Market) Risk Premiums - i.e. the premiums (above long-term Treasuries) that investors currently require for their willingness to hold S&P 500. His calculations are explained on slides 47-58 in this document:
http://people.stern.nyu.edu/adamodar/pd ... cket1a.pdf" onclick="window.open(this.href);return false;

When you compare slide 48 (analysis of January 2008) and 52 (analysis of January 2012), it appears that the cash flows paid by S&P 500 (i.e. the valuation numerators) have returned to the pre-crisis levels. The only reason the index value is still well below is that the discount rates are still very high. In fact, it looks that right now we have the Implied Equity Premium that's near its historical maximum (the past Premium estimates are in the column "O" here: http://www.stern.nyu.edu/~adamodar/pc/d ... stimpl.xls" onclick="window.open(this.href);return false; ).

In other words - profitability is back, the low risk isn't (yet). However, since VIX has been on the decline lately (suggesting the overall decline in risk perceptions), the markets definitely have the potential to go up. (Of course, just IMO. With my prediction luck markets will be down 20% after several weeks ).

BTW, Damodaran recently unveiled his FREE valuation iPhone application called "uValue". It's pretty cool.

[columbia]

For those of you hoping for a FB IPO:

Harper's Magazine @harpers
Minimum amount by which Facebook is overvalued, according to a November study: $70,000,000,000 (Feb ’12) #HarpersIndex

[KennyTheKangaroo]

pretty harsh assesment of Facebook.