I Need Some "Green Shoots" Words Of Encouragement

chimeer said:   Stop watching the news.

I got to agree with this post. I didn't watch for a few days because I was traveling. I got back this weekend. I checked today. Oil is down but otherwise it's exactly the same headlines as when I left. And while I was gone, I relaxed because I didn't realize the sky was falling.

brettdoyle said:   Warren Buffett invested billions into General Electric, Bank of America, and Goldman Sachs right as they went insolvent. Had the government not stepped in with the TARP tax payer bailouts, his investments would have gone to $0.
Buffett spent his money on GS and GE when an unprecedented federal bailout had became all but certainty. You seem to have no experience of the events surounding lehman failure--were you still in high school then? Btw he didn't invest in B of A.

Nycll, I think your materials plays are going to get hammered through earnings season here. I just new Alcoa was going to miss estimates today. I was just positive of it. I came very close to making a short term trade on that front today, but I don't day trade so I decided against it.

I just think most materials companies are going to be missing earnings this Q. I was bullish on that sector for over a year and a half, and now I just think its just has rough days ahead.

Good luck navigating Q3.

nycll said:   The materials have already been punished when the global growth started to look shaky. I don't have aa directly but I am looking to shave off 10% of my equity allocation.

Personally if I was buying materials which I'm not, but if I were I'd buy after earnings in each case. These guys are going to be missing earnings estimates and its pretty unreasonable to assume that they wont fall after missing them. So buy the ones that oversell on the earnings misses.

dshibb said:   nycll said:   The materials have already been punished when the global growth started to look shaky. I don't have aa directly but I am looking to shave off 10% of my equity allocation.

Personally if I was buying materials which I'm not, but if I were I'd buy after earnings in each case. These guys are going to be missing earnings estimates and its pretty unreasonable to assume that they wont fall after missing them. So buy the ones that oversell on the earnings misses.thank you for the idea but my goal is to come back to my target AA. I don't want to stay above my 50% equity allocation's comfort zone for two long. My recent addition has been in EM after the pretty big sell off. They have turned a nice profit and I will use this little rebound to sell some oil and material holdings.

Btw, what kind of genius blames the chinese government's haphazard effort at constraining the real estate bubble as "meddling in a booming property market"? Hilarious.

MaxRC said:   dshibb said:   
And up until very recently building was still continuing at high pace. In recent weeks a bunch of China's property developers have had their bonds trading at 70 cents on the dollar and falling in anticipation of massive defaults in the property sector. What has happened over the last year or so in China has grown increasingly scary. First they were prime borrowers from the state run banks. Then they were subprime borrowers. After being cut off from the state owned banks they floated billions of dollars in bonds to the international markets. That is now closed off. Then they went to China's trust banks paying interest between 35% and 90% a year to stay afloat. Since that spigot was turned off they've gone to underground banks with a minimum interest of 10% a month. CEO's are fleeing the country and their companies because they are on the verge of default. And since sales are slowing fast many of these developers will be forced into fire sales to try to meet their debt payments.

This is somewhat of a mis-characterization of what has happened in China. All of China's banks are centrally managed, and official state policy is passed down as mandates with little or notice. Add to this the habbit of China to make before-and-after decisions (eg, hence forth, all 4 wheel passenger vehicles shall have safety seat belts, regardless of make, model, or year), what has happened amounts to meddling by the state in an effort to cool the booming real estate market and to limit the amount of exposure the banks has to real estate debt.

The problem with this strategy is that the housing shortage in China continues, so there is a HUGE profit to be had. It is not uncommon for construction costs to be 1/10 to 1/20th of final retail price based on square footage. At these margins, even 120% annual interest doesn't really deter developers from seeking capital to fund development projects. The bond prices trading low signals investors' fear that the Chinese government will mandate some other policy that cause some developers to fail if they cannot adapt. The Chinese government has a habit of doing these types of things - picking winners and losers in the market.

I agree that the housing market in China is pretty crazy compared to the US, but the housing shortage is real, and the Chinese are willing to forgo other spending in the name of housing, unlike Americans. Also, it is common for 3-4 generations of savings to be pooled to buy housing for the "only male child" of the family. So I doubt that the problem is at the consumer level as there is no shortage of demand and funds, which is why prices continue to grow. Now, there will be isolated incidents of corruption and waste, such as the videos examples posted in the OP. But those examples are most illustrative of the artificial counter-productive role that the Chinese government plays by meddling.

Anyway, this is my understanding of what's going on in terms of real estate developers in China. I'm open to learning more since I have some significant exposures there.

I'm sorry, but a lot of this is just crap.

First, the Chinese banks are government owned. Besides demands to always provide credit to other state owned and connected businesses the Chinese government doesn't decide centrally who should be provided credit and who shouldn't. The Chinese government will instead just demand more loans be made in total and they will promote bankers that have higher loan issuance than their peers. The Chinese government has also told the banks now to not loan to property developers and the municipal special funding vehicles, but since that sector is the one that has the most loan demand the incentive by the bankers to loan to the property sector is still high. So the bankers just shift their loans through the trust structures.

There isn't a housing shortage in China. What are you talking about? 90% of the public cannot afford anything bigger than a tiny shanty. These newly created apartments are being sold for $300-500k(Yes US Dollars) and the most an average Chinese could afford is about $40k. And instead of the housing of very poor property increasing they are blowing that up to make way for housing that is just out of the price range of the Chinese. Total vacancy is estimated at well above 30% and rising fast and in some cities its 70-80% vacant. Furthermore its not just residential property. There is currently enough commercial real estate to give every single man, woman, and child in China a 5 foot by 5 foot cubicle. There is no way that much commercial property is going to be put to use.

Its not other policy that is going to crash the property developers. Their are already reports spreading of property developers increasingly being worried of not being able to keep up cash flow. The ratings agencies determined that half of property developers would not be able to meet interest payments if housing sales dropped by 40%. Well the biggest week in Housing sales has been in the last couple weeks. Housing sales were down 35% and apparently many property developers are seriously reducing prices to meet cash flow. This whole issue is why the Chinese government had to move into buy more shares in their banks.

The Chinese population is not buying the property they can't even come close to affording it. Instead this property is being bought by speculators because bank deposits are earning way below inflation. The Chinese don't like the stock market and they can't invest outside of China. So many people that are stary eyed and have capital have driven their savings into real estate because its a real asset that is the only thing growing at a higher rate than inflation for the Chinese.

By the way, get the he!! out of your Chinese exposures. China's not just going to get hit by this they are going to get slammed by it and those that have exposure are going to get hurt badly.

Dshibb I guess the somewhat benign outcome of the european mess can be a green shoot, as the market has built in so much bad news. When China's indusrial production number came out ok, materials bounced back sharply--Rio was up 8% two days ago and down 4% yesterday. I am reducing my equities to 50%--which has been an ongoing process.

JaxFL, earnings this season isn't much different from previous ones: strong. There is no rule that says in a bad economy earnings must be bad.

nycll said:    But the real story is in the US. While it was feared a double dip recession is imminent (recession as defined by the mainstream economists), now that fear has greatly receded.What makes you say this nycll?

All the unusual activity and intervention out there complicates near-term prediction. But I expect a double-dip US recession will be recognized within the next year.

bindercarrie said:   OP, try reading The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl. Families were eating canned thistles and a fair portion of the children were dying. If that doesn't make you feel better about today, I don't know what will. I read it a few months ago, and I still feel lucky every time I hear bad economic news.

Linkazon
Feel lucky or fortunate living at current time vs the dust bowl is not the subject of finance. We are trying to grow the account balance or trying to avoid large losses.

nycll said:   bindercarrie said:   OP, try reading The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl. Families were eating canned thistles and a fair portion of the children were dying. If that doesn't make you feel better about today, I don't know what will. I read it a few months ago, and I still feel lucky every time I hear bad economic news.

Linkazon
Feel lucky or fortunate living at current time vs the dust bowl is not the subject of finance. We are trying to grow the account balance or trying to avoid large losses.

It does relate. Discussions include easy credit, bursting bubbles, failing banks, bank regulation, unemployment, and a wide-range of income groups and how they handled it. Eerily similar to the current climate, so if that doesn't relate, I don't know what does. Last I checked, it's never a bad idea to understand historical periods similar to your own, so as to garner some information that might coincide with your current goals.

SUCKISSTAPLES said:   There have been financial crises all over the world in the past 50-100-200 years , and somehow we are all just fine . This is a worrisome time but we will get through it like all previous generations .

And with any luck , some of us smarter ones stand to make a mint. For everyone else, there's no shame starting back at zero

so how do we do that?

nycll said:   Bump for jobless claims at 4 year low.

Bears will be bears though. The perma-bears are now coming up with new excuses to explain the improving economy. Some of the most often that I see are: The unemployment claims are low because people stop looking for work completely or the BLS manipulates statistics to ensure Obama's reelection. GDP is growing again because of "fake" demand created by government deficit spending. When the deficits stop, the economy will supposedly collapse. Stock market is up sharply from its lows in 2009 because of the Plunge Protection Team and Bernanke's printing press.

dshibb said:   
I'm sorry guys for posting such a downer post, but right now I'm hoping somebody out there has some good news I'm overlooking because I need it. I've always prided myself on being an optimist and more easily a bull than a bear, but I'm really struggling here and I need some help from the Fatwallet community.
How about the front page (www.wsj.com) for some green shoots?

Sorry but we're all out of green shoots. Only brown and yellow shoots left.

Faith in the system? They're running 40% in the red with each new Congress increasing spending over the last. They couldn't even sell all the debt if the Fed weren't monetizing it.

Go hard assets: energy, precious metals, food, and things you buy anyway (household supplies, etc). Don't forget to exercise your Second Amendment rights. When seconds count, the police are minutes away. Economic trouble makes a certain element desperate and crazy.

Not everything you buy has to stay in a portfolio. If the system enters the deeper degrees of gnarly then counterparty risk will become an increasing worry.

Toilet paper will probably outperform the Dow.

Investment prices are based on risk. The more risk, the greater the return. That is why China's investment returns have been so poor despite the rapid pace of its growth - anyone with a good business plan would easily make money due to the open market.

Stop fearing mayhem - it is good for the bottom line

nycll said:   oncelost said:   It is hard to put faith in anything positive taking place in an election year, but I guess faith in this system is the only thing that may keep it positive. Need some put-options to hedge for a semi-collapse, suggestions? A full collapse will never happen even if it really does; it will all be paper mache facade. What are some financial ways to prepare for an economic collapse? Are options/PM the only way? Also, what are the best type of investments/options during a war? All this stuff in Iran/Israel has me thinking.Based on faith? So the economy didn't create jobs in January? Oh wait, it did create 243k jobs which is 100k over consensus estimation.

There are plenty of ways to hedge the down side. But there is no free way if hedging. You will have to give up something in return for doomsday protection. I am just reallocating more equity exposture to cash. I mentioned to dshibb that I was in the process to move 10% off equity but guess what, after I did that the equity weighting has grown back somwhat!NYC - I think what he means is that he believes the administration is cooking the numbers. Rational people know that isn't the case, though history provides some examples of people with similar lines of thinking. Think Richard Nixon. He believed there was a Democrat/Jewish conspiracy in the bureau that was cooking the numbers against his political interests. It's not a new idea, but it is a loony one. Many people think the price of oil is somehow controlled by the president during election years too... And there's generally no convincing them otherwise.

svr411 said:   http://www.shadowstats.com/alternate_data/unemployment-charts

The notion that the numbers are real is laughable.
Why would anyone think shadow stats numbers on that chart are any more accurate than their inflation numbers?

kamalktk said:   svr411 said:   http://www.shadowstats.com/alternate_data/unemployment-charts

The notion that the numbers are real is laughable.
Why would anyone think shadow stats numbers on that chart are any more accurate than their inflation numbers?

Because Shadowstats:

1. Is run by an expert in economics
2. Has a history of being right
3. Uses the government's former unemployment methodology, before Clinton ordered the books be cooked

svr411 said:   
3. Uses the government's former unemployment methodology, before Clinton ordered the books be cooked link to back this claim up?