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"implosion" of US economy

 
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Previously posted by Mark H in another thread:
"*I have friends claiming that the signs are pointing to a serious implosion of the US economy. I'm not convinced, but let's just say I'm hedging my bets."
I also have many friends who claim the same - could you please elaborate on these claims? I'd like to hear why they feel this way and what they advise people to do.
 
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The US economy NO
The I.T Sector Yes
Don't believe everything you read, how would they know!
 
Robin Davies
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I take that back! Only time will tell
 
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First look at the Dow during the Great Depression (you can also see the S&P 500. The crash wasn't monotonic. Everyone thought that when it started to pick up, things would turn around.
Then look at the Nikkei. It boomed during the 80s. Then it crashed. Again, not monotonically, however, there were hills and valleys.
Now look at the Dow and S&P 500. Did we really create that much value so quickly? I do believe value was created, but not as much as we think. Combine this with the globalization of certain industries leading to increased competition with the US (whether this is viable long term or not doesn't matter, money will be selected non-US endeavors in the short term), and the US is overpriced.
Some people are putting it all together as shown here.

I'm not 100% certain on this, but I am getting concerned about it. I'll be talking to my money manager about it on Tuesday.
--Mark
[ February 22, 2004: Message edited by: Mark Herschberg ]
 
Robin Davies
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If there is a great depression what does that mean in general in relation to houses and jobs?
 
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Hi,
Could it be because the dollar value constantly going down hill? You have to look at decades datat to see the effect.
Regards,
MCao
 
Mark Ju
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Mark,
Would it be too much to ask of you to share what your money manager says? I am also increasingly becoming aware of this and would like as much input as possible.
Thanks for the first post - I'm still sorting through it.
 
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I am also worried about if the current improvement is sustainable. Investors have been waiting for employment to pick up; but, ...... Countries in Asia are purchasing our bonds to keep our interest rate low. Are they going to do it indefinitely? I do not know.
 
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Mark,
Sorry to ask you such a rookie question, but since you are the genius around here.. what do you mean when you say "implosion of economy"?? Does it signal a depression?
 
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Originally posted by Paul McKenna:
Mark,
Sorry to ask you such a rookie question, but since you are the genius around here.. what do you mean when you say "implosion of economy"?? Does it signal a depression?


If there is an "implosion of economy" for the US, it will take everyone else down. I don't see it. I.e., no matter where you put your money, it will be screwed....
 
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Now look at the Dow and S&P 500. Did we really create that much value so quickly? I do believe value was created, but not as much as we think. Combine this with the globalization of certain industries leading to increased competition with the US (whether this is viable long term or not doesn't matter, money will be selected non-US endeavors in the short term), and the US is overpriced.


Mark, you are linking to charts which show the rises in absolute scale, not log scale. These charts exaggurate the most recent rises termendously. An example:
Let's say that a stock market began at an index of 1 70 years ago and doubled each decade for 70 years to a level of 128. Fully 50% of the increase occurs within the last decade and 75% within the past 20 years as shown by your charts while the equally impressive growth of the first 4 decades shows as virtually a flat line. Yet there was no change in the rate of growth at all.
Is the US market overpriced? Arguably yes on a historical scale. Particularly the Dow at a PE of 44+. On the other hand the market may be ignoring the results of recent earnings drops in anticipation of increased profits later. Labor productivity in the US has risen at double the rate of the 1970-1995 period since 1995, so there may be good reason to expect earnings to rise at a higher rate. Or not.
The scary thing to me is how many large companies have taken an enormous beating over the past few years. AT&T used to be the safest of investments. No longer. Worldcom and Enron went bust, Cisco dropped almost 80% of it's peak value, etc.
[ February 23, 2004: Message edited by: Don Stadler ]
 
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Originally posted by Robin Davies:
The US economy NO
The I.T Sector Yes
Don't believe everything you read, how would they know!


If you have a job where you can take your work home with you, you have a job that someone on the other side of the planet getting paid 20% of what you are being paid can take home with them. Such are the wonders of the Internet.
IT is getting much of the attention, but it's only one of the professions that are being moved overseas.
I note that a new corner may have been turned this weekend. Now I'm beginning to see news stories where some of the things we've been discussing here that have been overlooked up to now are being brought up. Foremost perhaps being that re-educating doesn't help if there's no use for the newly-acquired skills (and our cheaper competitors place as much or more emphasis on their own educations).


I lost a lot of respect for Alan Greenspan the other day. One of the things he stated was that we need more education, especially math skills. I guess that that little stint I did right before being laid off for 2 years involving solving 4 partial simultaneous differential equations (Black-Sholes forward interest rate projections) wasn't math-skilled enough.


It's not just our problem. Economists like to say that when the US catches cold, the rest of the world gets pneumonia. If our ability to export dollars dries up or the dollar deflates rapidly, the cheaper countries lose out both ways. First, because we are no longer buying, secondly because our workers will no longer be expensive relative to offshore labor. And, of course, all those dollars we exported won't be worth as much when it comes time for the offshoring destinations to spend their cash.
 
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Originally posted by Tim Holloway:
[QB]



I lost a lot of respect for Alan Greenspan the other day. One of the things he stated was that we need more education, especially math skills. I guess that that little stint I did right before being laid off for 2 years involving solving 4 partial simultaneous differential equations (Black-Sholes forward interest rate projections) wasn't math-skilled enough.


The theory I have heard concerning increase in math and science skills goes something like this:
For a while, those of us in technology have benefited from the aversion to math and science by the general population of the US. Because the majority of young people don't like the subject, few major in it in college. The creates a situation where there are few american engineers, which results in our receiving a higher starting salary than the average college graduate. The downside to this is that as our salaries have increased, the incentive to offshore or import foriegn workers has increased. If we get a larger percentage of American children and young people interested in, and comfortable with, math/science you will see a greater number of math/science/engineering majors in college, and as a result, a greater number of mathematicians, scientist, and engineers entering the marketplace. This would result in a greater supply of engineers, thus a lowering of the average starting salary of U.S. engineers closer to that of the average college graduate. This would decrease some of the incentive to offshore work to other countries.
I know people will argue that we will never be able to compete with the $5 an hour Senior Software engineer in bangalore. However, I have been hearing from friends of mine in India how everything is getting so expensive and salaries are skyrocketing for developers. These two factors, our salaries going down and their's going up, would slow the offshoring process. Furthermore, our salaries don't have to reach their's. We have some additional padding in that there is an increase in cost and decrease in efficiency when a project is being done 10,000 miles away, in a place with a 12 hour time difference. Even now, certain companies are begining to see the scars from being bitten on the ass by offshoring. I don't know if it will play out the way I said, but it may.
Jon

 
Mark Herschberg
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Hi folks,
I was interviewing at Wharton today and I'm writing from there, so this will be a brief response.

Originally posted by Robin Davies:

If there is a great depression what does that mean in general in relation to houses and jobs?


Bad for both.

Originally posted by Paul McKenna:

Sorry to ask you such a rookie question, but since you are the genius around here.. what do you mean when you say "implosion of economy"?? Does it signal a depression?


I'm no genius. :-p They are referring to deflation.

Originally posted by Eleison Zeitgeist:

If there is an "implosion of economy" for the US, it will take everyone else down. I don't see it. I.e., no matter where you put your money, it will be screwed....


Try shorting. :-)

Originally posted by Don Stadler:

Mark, you are linking to charts which show the rises in absolute scale, not log scale.


I'm quite aware of that. They don't, however, exaggerate anything. The numebrs are quite plain. Really it's more of a comparison to other crashes which is what scares me.

--Mark
 
Robin Davies
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John Mc Donald Quote
"We have some additional padding in that there is an increase in cost and decrease in efficiency when a project is being done 10,000 miles away, in a place with a 12 hour time difference. Even now, certain companies are begining to see the scars from being bitten on the ass by offshoring. I don't know if it will play out the way I said, but it may."

If a project is outsourced, it can be beneficial to many organisations, as it gives them the ability of having the project worked on in a 24 hour time frame!
 
Tim Holloway
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Originally posted by Robin Davies:
John Mc Donald Quote
"We have some additional padding in that there is an increase in cost and decrease in efficiency when a project is being done 10,000 miles away, in a place with a 12 hour time difference. Even now, certain companies are begining to see the scars from being bitten on the ass by offshoring. I don't know if it will play out the way I said, but it may."

If a project is outsourced, it can be beneficial to many organisations, as it gives them the ability of having the project worked on in a 24 hour time frame!


Oh. Puh-LEASE! This is the old "code is like hamburger. The more people you have and the longer/faster you grind, the more comes out".
YOU CAN'T "HOT-BED" SOFTWARE!!!
Most of my "programming time" isn't even spent in front of a computer. The real solutions come when I'm still in bed or taking a shower. The typing-in and debugging may take the most "boss-visible" time, but until it all clicks in my head, I can't commit it to bits - I just end up tearing it apart and rebuilding it again.
 
Mark Herschberg
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Originally posted by Chris G Lee:

Would it be too much to ask of you to share what your money manager says? I am also increasingly becoming aware of this and would like as much input as possible.


They are bullish (looking at 8-9% market returns on average over the next 5-10 years). The guy noted that although the first order data is similar (e.g. stock prices, interests rates), the environment is different, specifically banking and finance regulartions. In both other cases there was little oversight. Granted, we live in an era of corporate scandals, but those are the exceptions, not the rule.
I've learned to trust these guys (and not trust my own investment instincts), so if they're somewhat bullish, so am I; or rather, so are my investments, even if I'm not. :-p
--Mark
 
Don Stadler
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Originally posted by Mark Herschberg:
Really it's more of a comparison to other crashes which is what scares me.


I read somewhere that analysts have successfully forecast 20 out of the last 3 stock market crashes.
If you put any credence into economic Long Wave theory then we ought to be at the beginning of a 30-year upturn about right now. The theory goes that a downturn began about 1920 and bottomed in 1946. That expansion crested in 1973 and it's been a down trend ever since.
The question is why this might be so. One guess is that that the downturn in 1973 marked the beginning of the trend moving production from the prosperous west into Asia and Eastern Europe. A turning point could come as these societies become rich and develop masses of consumers themselves as the US did after WWI and Japan did after WWII.
Such a development would dwarf anything happening in the US or Europe.
 
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Originally posted by Robin Davies:
[b]If a project is outsourced, it can be beneficial to many organisations, as it gives them the ability of having the project worked on in a 24 hour time frame!


You've never done software development, have you?
 
Robin Davies
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You obviously don't consider the vast range of projects, and the vast ranger of organisations. I did not say all! However you can bet that a percentage will find this of use. 24hours can mean people writing code half the time, and people testing etc that code!
 
Jon McDonald
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Originally posted by Robin Davies:
John Mc Donald Quote
"We have some additional padding in that there is an increase in cost and decrease in efficiency when a project is being done 10,000 miles away, in a place with a 12 hour time difference. Even now, certain companies are begining to see the scars from being bitten on the ass by offshoring. I don't know if it will play out the way I said, but it may."

Robin Davies Qoute
If a project is outsourced, it can be beneficial to many organisations, as it gives them the ability of having the project worked on in a 24 hour time frame!


A 24 hour time frame can cause major problems when the coders are working in one 8 hour block of that time frame, and the decision makers and users of the software are working in another. Problems that could be fixed in a matter of hours take days to solve. I've seen it way too many times before. The problems are magnified 10 fold when there is a single person acting as a liason between the 2 groups. I've seen situations where that liasion goes on vacation and some problem occurs with the system, and neither the liason, nor the programmers, can be contacted to resolve the problem. As a result the system must be shut down to prevent further problems.
The longer I do this (and I haven't been doing this for very long ) the more I realize how critical it is to have open communication channels between the developers of software and those who are requesting it. If I have a problem with the system, I need to be able to walk to your desk and talk to you about it, or at the very least, call you on the phone to give you a discription, not send an email to some guy who will pass the messege off to you 12 hours later, when you get to work.
This is not to say that some projects can't benefit from outsourcing. Definately, some can benefit. But not all projects. Few? Many? Most? I have no idea. But I suspect that it is less that the number being currently outsourced. Who knows? Hopefully, time will tell.
Jon
 
JiaPei Jen
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originally posted by Jon
A 24 hour time frame can cause major problems when the coders are working in one 8 hour block of that time frame, and the decision makers and users of the software are working in another. Problems that could be fixed in a matter of hours take days to solve. I've seen it way too many times before. The problems are magnified 10 fold when there is a single person acting as a liason between the 2 groups. I've seen situations where that liasion goes on vacation and some problem occurs with the system, and neither the liason, nor the programmers, can be contacted to resolve the problem. As a result the system must be shut down to prevent further problems.
The longer I do this (and I haven't been doing this for very long ) the more I realize how critical it is to have open communication channels between the developers of software and those who are requesting it. If I have a problem with the system, I need to be able to walk to your desk and talk to you about it, or at the very least, call you on the phone to give you a discription, not send an email to some guy who will pass the messege off to you 12 hours later, when you get to work.


On Monday (Feb. 23), I had a chance to talk to the Manager of a software development company whose clients are B2B suppliers. What he told me is consistent with that of Jon's posting. The company tried offshoring to India in 2001 and 2002 but failed miserably. It ended up with costing the company more money. According to that particular manager, offshoring is worthwhile for very large scale projects only or for those multinationals that can afford to set up field offices (with business analysts, project designers/architects, ..., etc.) in the destination countries.
Of course, I do not intend to generalize the experience of one or two companies. We need a large sample before coming up with a sensible consensus.
 
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back to US economy.
I don't think that they are entering a downturn.
Somehow you manage to keep the capital and very-high-quality-brains influx high.
Lots of bright students from 3rd countries come to europe also for studying. But especially when it is about to start career the most intelligent of them seems to favour US.
All this is paired with a very flexible workforce. Much more than in Europe, where only IT, marketing and consultant people silently accept loan cuts of 30% cause of bad market situation.
There is a danger of much too low saving quota in the private sector. This might cause a panic some day, when 30% or so of US population realizes that they have debts too high to ever pay back. (don't know exact figures, but it seems to be a problem. Know that DaimlerChrysler have bought insurance against private debt panic in US).
If you look at world as a whole, I would consider this good year economically. China and India (lots of population) have high growth rates and for example South America seems to come back on growth track. Eastern Europe has solid growth rates.
I think that maybe this is the time that some of the poorer nations are really catching up in a sustainable way. This offers new business opportunities, but also excerts pressure on wages (except those in high management).
[ February 25, 2004: Message edited by: Axel Janssen ]
 
Eleison Zeitgeist
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Originally posted by Mark Herschberg:
Hi folks,
quote riginally posted by Eleison Zeitgeist:
If there is an "implosion of economy" for the US, it will take everyone else down. I don't see it. I.e., no matter where you put your money, it will be screwed....
Try shorting. :-)
--Mark


Regardless, if the economy goes bad, I think you will have a tough time shorting, i.e., I don't think "shorting" during the depression made anyone rich. Obviously, there may be some money made right before the depression. However, to predict it correctly would be IMHO, tantamount to picking the correct numbers for todays lottery (I don't believe in investing for the short time:-) Also, this is compounded by the fact that the duration, i.e., window of opportunity, for "the right time" is significately (sic) reduced because of today's efficient market place.
Which leaves only one true way of investing (IMHO), -- long term. Hence if all long term investings are bad; Ergo, your fuscked :-)
-Eleison
ps. took a few BASIC econ courses in college; what I could be saying could be Totallly wrong -- oh maybe pulled out of my *ss.. personally don't know which one... :-)
 
Mark Herschberg
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Now that I'm back and checking more regularly, let's please keep this thread on topic. 24 hour project teams are an interesting topic, but in a different thread.
--Mark
 
Mark Herschberg
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Originally posted by Eleison Zeitgeist:

Regardless, if the economy goes bad, I think you will have a tough time shorting...to predict it correctly would be IMHO, tantamount to picking the correct numbers for todays lottery.


Why is marking money in a downturn any more difficult than in an up market? Fundamentally it's learning to value a company and then trading appropriately based on the differential between your value and the market value.
Sure, you can put your money in an index fund and earn the historical 10.5%, but that doesn't take any intelligence. You should be able to make just as much money in either market, it's just that making money in a down market is probably similar to beating the market in an up market.
--Mark
 
Tim Holloway
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He who sells what isn't his'n. Must pay for it or go to prison.

There's 2 reasons why short-selling isn't more popular.
People generally don't like the idea of profiting at an innocent person's expense. To make money on a short sale, you and another person are betting on a security/commodity, whatever. The other person sees the glass half-full and ready to get fuller, you see a hole in the glass. So someone's going to lose, unlike many other investment instruments where everyone wins.
The second reason is more objective. Referring back to the old investment chestnut I started this message with, when you sell something short, sooner or later the bill comes due. If the instrument in question hasn't dropped - or worse yet, has appreciated you get stuck with the bill, even if the security completely tanks the next week. And the potential loss is open-ended - it's the difference between what you got paid vs. what it's going to cost you to buy the actual item you're selling as of the date you purchase it. Which means it's a good thing to understand options and limit orders.
You can make money doing short sales, but it's not for the faint of heart or the irrationally exuberant. To do it best, you need to be pretty cold-blooded, well-informed, and willing to hedge.
Of course the big problem with attempting to make money even short-selling in a deflating economy is that if the currency itself devalues, your profits are just numbers without real purchasing benefits. And in finding safe havens to park the cash while it's waiting use.
 
Mark Herschberg
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Originally posted by Tim Holloway:

People generally don't like the idea of profiting at an innocent person's expense. To make money on a short sale, you and another person are betting on a security/commodity, whatever. The other person sees the glass half-full and ready to get fuller, you see a hole in the glass. So someone's going to lose, unlike many other investment instruments where everyone wins.


This reason is only a psychological one and objectively isn't accurate. You are not profiting on another persons loss; or rather, you are no more profiting on someone else's loss than with long positions.
Let's suppose there's a stock at $50. If I think it will go up to $60, I'll buy it. The owner could have made $10 but instead took the cash. He sold because either he thought it wouldn't go up, or felt the money in hand was more valuable. (More generally, he felt that his personal ROI was better with a different allocation, perhaps in a savings account, another stock, or even in buying a new dress for his wife.)
In a second case, let's consider someone buying stock off me. I think it's going to down. I want to sell it. Clearly I think there are better investment opportunities, and we'll assume for the sake of simplicity that I keep it in financial instruments (which is what most people do most of the time). What I am effectively saying by selling the stock is that there is more money to be made elsewhere and this is not a wise investment. The buying disagrees and is betting otherwise. Also note that the reason I'm selling could be personal, to alter my portfolio, perhaps to rebalance it, or change my risk exposure.
Now let's suppose there's another stock at $50. I sell it short to a guy at $49. We have the same information. He buys it for the same reason the man in the first example bought it, he thinks it will appreciate. He knows that it may not. He also knows that I don't think it will. If it appreciates, he's made money off me. It could go either way. Perhaps I am placing a fair bet. Likewise, perhaps I am doing it to alter my risk exposure, such as if I were hedging. Maybe I spotted an arbitrage opportunity.
The point I'm trying to make is that in each case, it may not really be a zero sum game. That happens to be the simplest way of looking at it.
Tim, I'm not saying you're being simple. Most people without training/experience probably do see it that way. I'm just saying that's not the only way to see it.
--Mark
 
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"Of course the big problem with attempting to make money even short-selling in a deflating economy is that if the currency itself devalues, your profits are just numbers without real purchasing benefits."
This is not entirely accurate. Deflation means cash is king. Deflation implies that the supply of money declines (usually destroyed by demand for money driven by debtors' need to service their massive obligations to lenders). For those interested in seeing the supply of money in action, please view the current and historical trend of our nation's total money stock here (straight from the federal reserve, itself):
http://research.stlouisfed.org/fred2/series/M2SL/
Now currencies can devalue relative to other currencies, as the USD is against other currencies now, but if deflation occurs you will be able to buy more goods and services with your money, whatever its denomination.
BTW, when I look at that fed link, the current trend tells me our money stock's growth rate is declining while the fed is taking unprecedented measure to increase it. If interest rates were not artificially low, I would venture to say that our money supply would be facing a real problem. Now there's a reason why interest rates may have been kept low in the face of such aberrantly high Q3 growth.
 
Eleison Zeitgeist
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Originally posted by Mark Herschberg:

This reason is only a psychological one and objectively isn't accurate. You are not profiting on another persons loss; or rather, you are no more profiting on someone else's loss than with long positions.
Let's suppose there's a stock at $50. If I think it will go up to $60, I'll buy it. The owner could have made $10 but instead took the cash. He sold because either he thought it wouldn't go up, or felt the money in hand was more valuable. (More generally, he felt that his personal ROI was better with a different allocation, perhaps in a savings account, another stock, or even in buying a new dress for his wife.)
In a second case, let's consider someone buying stock off me. I think it's going to down. I want to sell it. Clearly I think there are better investment opportunities, and we'll assume for the sake of simplicity that I keep it in financial instruments (which is what most people do most of the time). What I am effectively saying by selling the stock is that there is more money to be made elsewhere and this is not a wise investment. The buying disagrees and is betting otherwise. Also note that the reason I'm selling could be personal, to alter my portfolio, perhaps to rebalance it, or change my risk exposure.
Now let's suppose there's another stock at $50. I sell it short to a guy at $49. We have the same information. He buys it for the same reason the man in the first example bought it, he thinks it will appreciate. He knows that it may not. He also knows that I don't think it will. If it appreciates, he's made money off me. It could go either way. Perhaps I am placing a fair bet. Likewise, perhaps I am doing it to alter my risk exposure, such as if I were hedging. Maybe I spotted an arbitrage opportunity.
The point I'm trying to make is that in each case, it may not really be a zero sum game. That happens to be the simplest way of looking at it.
Tim, I'm not saying you're being simple. Most people without training/experience probably do see it that way. I'm just saying that's not the only way to see it.
--Mark


Just doesn't make sense. It riduculus. People, even with training, don't know when it is a good time to short, when it is a good time to buy -- LEGALLY; it's all a crap shot (NOBODY has been able to convince me otherwise - wrt short term investing).
For instance, when the economy is going down, you imply it might be a good time to short; however, people in general notice this and do the exact thing - the market will correct itself (almost instanteously in this tech filled world) to the point where the payoff of buying is equal to the risk of losing money. In a world were everyone has the same information, there are no free lunches ....
Also, if there are PROVEN methods (12 steps programs; vodoo magic spells, reading tea leaves, etc) of making money in a bad market; everybody and their mother would be on this program and making a kill, ie., there would be a lot of peopld getting rich of the stock market. However, this will never be the case because you cannot "wring blood from stone" -- a bad economy is exactly that, a cold hard "stone"...
In general, I've been fascinated by people and the stock market. Everyone who I've talked to had some "great" method for picking stocks. Some have made money. Some have lost money. All in all, it has seem like a crap shoot. This was very evident during the late nineties. Almost everyone was buying stocks... now, only a few. What ever happen to those "great" methods???
I'm not saying buying stocks is a bad idea. I just think that there is a lot of risk involved. How many "smart" people know about Enron, or worldcomm? How many people know aobut the bubble? Yet, some of these people were smart -- darest say? smarter than me in facets of investments.
It only gets worst in down economy. Odds of picking a good investment is low. It's not like in a good economy where numerous companies were producing products turning profit. Heck, mid-90's when the economy was roaring, you could have used any of the soo called "great" methods and made money (it's like going to a soritiy party -- odds of getting a date high if you are a guy:-) In a down economy, its like trying to find a girl in all boys catholic school... not very good.
-Eleison
 
Eleison Zeitgeist
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Originally posted by Bucky Dent:
"Of course the big problem with attempting to make money even short-selling in a deflating economy is that if the currency itself devalues, your profits are just numbers without real purchasing benefits."
This is not entirely accurate. Deflation means cash is king. .


Agreed. However, IMHO, this would be analogous to eating steaking on the first days of the bad economy and eating crow on the rest (there would be no more available "good" investments deals left)..
-Eleison
 
Mark Herschberg
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Originally posted by Eleison Zeitgeist:

Just doesn't make sense. It riduculus. People, even with training, don't know when it is a good time to short, when it is a good time to buy


I don't think anyone said otherwise. I just commented that if you think the market is going down, you can make money by shorting. Tim and I were just debating whether making money on the short side is just as easy as on the long side.
--Mark
 
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Originally posted by Rob Aught:

You've never done software development, have you?


Neither have the managers who indeed think that they can outsource the development effort and get people working on the code 24/7.
During the day in the US, US programmers work on it.
When they go home the India (or Moscow, or Karachi) crew gets into the office over there, connects to the server and picks up where the US programmers left off.
Effectively they see programmers as shiftworkers who are too lazy to work nightshift so they take the logical step to get another team set up in another timezone.
Only after several failures do they realise it doesn't work and in response fire the most expensive of the programming teams which happens to be the US one.
 
Mark Herschberg
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Once again, we have plenty of threads on outsourcing in this forum, let's keep this thread on topic. It is ok to discuss outsourcing wrt to it's effect on the economy or the economy's effect on it. However, discussing the merrits (or lack thereof depending on your position) of outsourcing is out of scope.
--Mark
 
Mark Herschberg
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Originally posted by Chris G Lee:

Would it be too much to ask of you to share what your money manager says? I am also increasingly becoming aware of this and would like as much input as possible.


I was at the client conference last night. It's interesting to compare how their presentations differed over the years. In the early 90's they talked about how the picked stocks and how they were doing. In the late 90s, when value investing was underperforming the market, they talked about how despite only 25-35% returns, they were reall a smart investment and their clients shouldn't leave. After the crash, they talked about how they were protecing assests. This time they basically said, "it's hard to tell."
The firm shifted from a value strategy to a mixed value-growth strategy. The only real piece of information is that they see a shift from a value period to a growth period, sooner rather than later, but they obviously don't know exactly when or how big. This isn't any great secret. If you look at the data it seems pretty reasonable; and many other firms are taking similar poisitions.
--Mark
 
Eleison Zeitgeist
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Originally posted by Mark Herschberg:

I don't think anyone said otherwise. I just commented that if you think the market is going down, you can make money by shorting. Tim and I were just debating whether making money on the short side is just as easy as on the long side.
--Mark


Sorry about that Mark. I though you said that it was as easy making money in a bad market as in a good market. I guess you agree with my previous mesg that making money in a bad market sucks and basically if there is going to be an implosion of the economy, we're all fuscked :-)
-Eleison
 
Tim Holloway
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Actually, my observation on the psychology of short-selling isn't my opinion. I'm barfing back commentary heard long ago from investment professionals. I'm too lazy to analyze it properly, but I think it goes somethings like this: I sold stock in Company XYZ which is currently selling at $50/share. Joe Sucker pays $50+fees&commissions for the stock. A week later XYZ drops to $10 a share. I buy the stock at $10 and pass it along to Joe S.
Obviously if both Joe S. and I had the same knowledge, he'd be a complete idiot to buy a stock for $50 when by wating a week, he could've paid 10. About all that's good for is collecting a loss for tax purposes, and I've never heard such a practice recommended. Ergo, instead of being a friend and telling him about it, I've taken advantage of him. OTOH, a long sale can occur for many reasons, such as cutting losses, attempting to move cash to a better investment, or simply wanting to take profits. It's less clear that he's a loser.
Deflation. Maybe I used the wrong term here, since what I meant was deflation of the economy and devaluation of worth of the currency. A tale told to me by my German teacher comes to mind. During the dark days prior to Hitler's ascension in 1930s Germany, her father sold a wardrobe for about $1200 cash (well, actually it was in Marks and the number was something other, but take it as a reference point). That afternoon, he used that cash to buy a pound of bacon. All of it. Monetary inflation was so bad that people literally had to use wheelbarrows to carry cash at one point.
I'd be perfectly happy to debate with those who think they would find it enjoyable to come into work every morning to find their designs and code had been chewed to ribbons overnight by someone else (XP is supposed to work with people side by side, not offset by 12 hours), But start another thread to do it in.
Anyway, as regards investment and the economy, there you have my understanding on the matter. Except for the part where you're supposed to go out and buy gold. "Gold Bugs" haven't done all that well in the past 10 years or so.
 
Mark Herschberg
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Originally posted by Eleison Zeitgeist:

Sorry about that Mark. I though you said that it was as easy making money in a bad market as in a good market. I guess you agree with my previous mesg that making money in a bad market sucks and basically if there is going to be an implosion of the economy, we're all fuscked :-)


No, you understsood me correctly and we disagreed. What I'm trying to say is the following.
There are always two values. The true value of the company (the price God would pay for it), and the current price. In a perfect market the two are the same, but the markets and information are imperfect. If you have information on the mispricing (assuming your model is closer to the true price than the market value) you can make money. It shouldn't make a difference either way.
The only asymmetry is that in a rising market you can make money without much knowledge, you just won't beat the market.

Originally posted by Tim Holloway:
Actually, my observation on the psychology of short-selling isn't my opinion. I'm barfing back commentary heard long ago from investment professionals. I'm too lazy to analyze it properly, but I think it goes somethings like this: I sold stock in Company XYZ which is currently selling at $50/share. Joe Sucker pays $50+fees&commissions for the stock. A week later XYZ drops to $10 a share. I buy the stock at $10 and pass it along to Joe S.
Obviously if both Joe S. and I had the same knowledge, he'd be a complete idiot to buy a stock for $50 when by wating a week, he could've paid 10.


Yes, obviously if you had the same knowledge. But remember that most people don't have the same knowledge. If you sold the stock and the next week it jumps to $100 a share you'd be an idiot. Even if you needed the money to pay off the mob, it would still be better to get a bridge loan for the week, since the interest on the loan is more than offset by the profit. (Remember that most trades are done with the intention of keeping the equity in the market.)

Originally posted by Tim Holloway:
About all that's good for is collecting a loss for tax purposes, and I've never heard such a practice recommended.


Both my father in the past and our money managers now do intentionally sell at a loss.
Suppose you by stock A at $110 and expect it to reach $180 in a year. At the end of the year it dropped to $100. Realistically you only expect it to go up to $110 in the next year for a 10% increase. You also see stock B which they expect to have a 20% ROI. Clearly the money should be moved.
But now suppose there no stock B, but instead stock C, also trading at $100 expecting a 10% increase this year. (We'll ignore fees in this example, but with sufficent extra increases, they can be ignored.) On the face of it, there is no difference between stock A and stock C. If you sell either at the end of the second year, you have the same amount of money. However, by selling A and investing in C, you can use the loss against your gains in year one.
There are likely more complex examples, but I'm sure the concept is similar.

--Mark
 
Eleison Zeitgeist
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Originally posted by Mark Herschberg:

...
The only asymmetry is that in a rising market you can make money without much knowledge, you just won't beat the market.
...
--Mark


Don't really understand your logic. You say that it is as easy to make money in a down economy as in a good economy. However, you then say that in a good economy "you can make money without much knowledge" -- meaning less work?, ergo easier to make money in a good economy than a bad??
Any case, your logic is giving me a headache. Lets agree to disagree and call it a day, @ least wrt me :-)
-Eleison
 
Matt Cao
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Hi,
I think Mark H's strategy also working legally. The difficulty is obtain the information. If Joe Sucker see the same information like Mark, Joe probably will not buy the stock from him. But if Joe is a deep pocket fella, he still wants to purchase at that price or lower toward the bottom. Money movement like roller coaster, what go up must come down, what been down must go up eventually.
Regards,
MCao
 
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