Showing posts with label 2007-2008 recession. Show all posts
Showing posts with label 2007-2008 recession. Show all posts

Monday 8 February 2016

The Best Video to comprehend how the Economic Machine Works.




Published on 22 Sep 2013
Economics 101 -- "How the Economic Machine Works."

Created by Ray Dalio this simple but not simplistic and easy to follow 30 minute, animated video answers the question, "How does the economy really work?" Based on Dalio's practical template for understanding the economy, which he developed over the course of his career, the video breaks down economic concepts like credit, deficits and interest rates, allowing viewers to learn the basic driving forces behind the economy, how economic policies work and why economic cycles occur.


To learn more about Economic Principles visit: http://www.economicprinciples.org.


[Also Available In Chinese] 经济这台机器是怎样运行的: http://www.youtube.com/watch?v=-ZbeYe...

Friday 20 September 2013

The End Of The American Dream - USA



The Middle class is defined as a set of people with these aspirations:

I want to own my own house
I want to live in a safe neighbourhood with good schools
I want to be able to put a bit of money away for taking a modest vacation every year.
I want a health insurance.
I want to be able to save a little for retirement.
I want to be able to send my kids to college.

These make up the "Middle class basket."


Big Question:  Are you doing the things that are most important in your life?




Wednesday 10 April 2013

Revisiting the Stock Market Crash Of 2008


Uploaded on 19 Dec 2008



Uploaded on 3 Mar 2011



Uploaded on 29 Sep 2008


Uploaded on 14 Dec 2011
The Financial Crisis of 2008 was an economic bubble that reached its limits and exploded. A bubble is simply where prices continue to rise beyond the true value. People buy, simply because they believe everybody else is going to buy. A bubble is based on speculation, expectation and ignorance. When these three elements collide it creates a crisis, which is often defined by irrational financial exuberance.

The causes of the economic crisis of 2008 are related to the Bush administration's attempt to finance the war in Iraq with, basically, inflation. The Federal Reserve cooperated by financing the Iraqi war, by essentially lending money to the American state. But printing new money out of thin air, actually devalues the national currency, this is called inflation. This cheap money went straight into the economy, particularly the residential housing market. As a consequence the demand for houses rose; and housing prices took off like a rocket in 2001. Thanks to inflation the prices further accelerated in 2004. More and more people took on mortgages based on cheap currency. The lenders then sold the mortgages as bundles to secondary investors, such as American banks. The American banks then sold their bundles to banks in other countries. This is how American debt spread around the world and became a real international financial crisis. European banks were selling and buying American mortgage as bundles. And all the while all of this was based on cheap money, with no value whatsoever behind it.

People expected housing prices to continue to rise, but the opposite happened. The steady decline began in 2005 and by 2007 the panic kicked in and house prices were crashing down. The collapse of the housing bubble dragged the secondary investors along with it. US debt had spread all around the world and the damage was truly on a global scale.

Sunday 25 July 2010

The 1929 & 2007 Bear Market Race to The Bottom

19 February 2010






We can always learn something from studying the past, but past performance is no guarantee of what is to come.

Well during Bull Market, there are bad weeks, and in Bear Markets there are good weeks.

http://www.gold-speculator.com/mark-lundeen/22558-bear-market-race-week-123-djia-market-volume-dividend-payout-yield-considerations.html

Thursday 22 July 2010

A tale of two depressions






To summarize: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column.

http://economistsview.typepad.com/economistsview/2009/04/a-tale-of-two-depressions.html

Wednesday 21 July 2010

The 2008 Stock Market Crash

Since the S&P 500 peaked in 2007, the stock market has plummeted a whopping 42% from the peak. The dot-com bubble deflated over several years, whereas the United States housing bubble has collapsed over a much shorter time period and has brought down with it the American banking system. Fear has run amuck, and the question is, has rational thought regarding value given way to irrational fears regarding market risks?

If one believes that the market is a somewhat random geometric series of cash flows that resembles exponential growth, then one should be able to identify peaks and troughs in the market by defining an “upper peak” and “lower trough” line.

The recent bear stock market has easily broken through the previous “lower trough” line and therefore savvy investors may now find substantial value in good stocks that have solid balance sheets and dividends that pay above safe investments like bonds. The following graph shows the S&P 500 and the upper and lower trading bands:




http://calgaryrealestatemarketblog.wordpress.com/2008/

Thursday 8 April 2010

Tempting But Investors Resisting Lure Of Cheap Stocks


PERSPECTIVE | 06 MARCH 2009
Tempting But Investors Resisting Lure Of Cheap Stocks


It is easy to forget about valuations especially in a super bear market where fear overwhelms common sense and logic. It is funny how we all chase after things that are expensive but shunning the same thing when it is cheap, and this can only be explained by the simple reason that we fear today’s seemingly low price will become even lower the next day.

Fear is such a powerful weapon so much so that it can totally knock all sense out of us: We buy and sell at the wrong time and mistakes are often painful.

I remember writing about sentiment being a far important factor than fundamental analysis and/or technical analysis whenever fear grips investors. At this moment, although fear factor is not as high as it was back in October/November, investors have turned despondent and have almost given up hope with some even not bothering to watch the stock market because bad news and more bad news are being reported by the media on a daily and hourly basis.

Nightmare On Wall Street
Watching the DJIA in action was better than watching the famous horror epic “Nightmare on Elm Street”, as Wall Street played out its own version of a horror show.
During the fortnight, the Dow Jones Industrial Average (DJIA) shed about 800 points from 7,555 to 6,726, breaking the October low of 7,449 with the utmost ease and traded to a 12-year low. While there was no fresh spark that triggered the selling, investors just cannot wait to get out of the market – a sign of desperation and exasperation rolled into one.
At the same time, the Straits Times Index (STI) was a battlefield for the bulls and the bears who tried to slug it out in search of a direction. For most part of early-to-mid February, the STI traded sideways refusing to budge even when the US and regional bourses rallied or tanked, with the bears securing a decisive victory on 16 February when the STI went below 1,650 and then tested the next support at 1,570.
In the previous issue of Shares Investment, I mentioned that the STI could test 1,570 and may even overshoot this support if the DJIA were to fall below 7,450. On the other hand, I also mentioned that the STI could move to 1,750 if the DJIA were to go above 8,000 in the most bullish scenario. We were unfortunate that the former came true and the STI had indeed gone as low as 1,502 but had since rebounded on the same day to close at 1,544 on 4 March.
As a matter of fact, all the major regional indices including the Hang Seng Index, the Nikkei 225, the STI and the Shanghai Composite Index did not revisit the October lows while the US indices, the European indices as well as the Australian and Kiwi indices all fell below October levels.
Of all the indices, the Chinese stock market fared the best with a blockbuster 700-point gain from 1,700 to 2,400 from October to February. This phenomenon tells a tale, as it clearly highlights what the world thinks of the Chinese economy and, to a smaller extent, the Asian economies.

Can We Pin Our Hopes On China?
Most people hope that China can help us out of this rut, with the exception of a handful who thinks that their respective economies have the divine right to be the messiah that we have all been crying out for.
No matter who the messiah is, the sooner we get out of this rut, the better it is for everybody.
China is the only major growing economy and with a reserve of some US$1.45 trillion, has the ability to spend its way out of trouble while helping others along the way. Some signs of China being the first to get out of trouble have appeared in the form of the February Purchasing Manager’s Index rising to 49 from 45.3 a month ago. At its worst month in November, the PMI read just 38.8. This is a sign that its US$585 billion stimulus package may be working.
Also, Premier Wen’s remarks that surging loans, growth in retail sales in January, and an increase in electricity output and consumption from the middle of February are signs that government measures are working, which may aid in the first-half recovery of China’s economy.
Most importantly, export orders, which make up a huge chunk of China’s Gross Domestic Product (GDP), rose to 43.4 from 33.7 while employment rose for the first time in six months from 43 to 46.1.
According to reports, government officials have indicated that the authorities may pump in RMB8-10 trillion of “government-sponsored investment” while an expanded stimulus package has been rumoured to be on its way to speed up the recovery.
All these measures, together with the “encouragement” of more lending by banks to unfreeze the credit market, will to a big extent boost an economy that is already strong, in relative terms.

To Shun Or To Buy?
Stocks across the board are looking cheap but buyers do not seem to be suitors as yet. If we were to talk about financial stocks, investors are worried that the contagion effect of a weak US financial system coupled with a weakening global economy may hit the three local banks even further in the next few quarters when non-performing loans start to grow. This is the main reason for the share price of the three banks being hammered.
If stocks were trading at 2X historical earnings, way below the net asset value, then what is stopping investors from jumping at this opportunity?
Flipping through Shares Investment has revealed that former darlings such as Celestial Nutrifoods (CEL) and China Hongxing (CHX) are both trading at 1.6X and 4X FY08 earnings, respectively. On a price to book basis, CEL is now trading 0.17X ($0.125 versus $0.732) while CHX trades at 0.34X ($0.10 versus $0.34).
Ridiculous? There are more such examples but these two companies deserve a closer look despite the troubles that investors believe they are in.
CEL continued to report growth in its net profit for FY08 but 4Q08 showed a profit decline primarily due to higher soybean prices despite higher selling prices. The point of contention now lies in the fact that its cash position (RMB811m) is lower than its debt (RMB1,225m) – a taboo in today’s market – arising from its convertible bonds that could be redeemed as early as 19 June this year. The market now speculates that CEL could follow in the footsteps of Ferrochina and become insolvent in the event that it fails to source for the funds that could allow the company to face redemption.
The more the share price falls, the higher the fear factor will become despite the management reassuring investors that it has several proposals on the table regarding the refinancing on the convertible bonds.
In the case of CHX, and also CEL, the failure to declare dividends for FY08 has also raised fears that both companies are in financial trouble. Although CHX also reported net profit growth for FY08 despite a profit decline in 4Q08, investors are concerned about its business model of providing advances to its distributors for running stores. The amount of RMB1.15b advanced to these distributors is feared to have been “lost” or “uncollectable” and hence the selloff in the share price of CHX.
The RMB1.15b aside, CHX still has RMB1.98b in cash, which translates into about a cash value of $0.149 per share – a premium of almost $0.05 per share over its last done price of $0.10. If an investor were to buy into this stock at $0.10, he would be covered by almost $0.15 in cash and getting the entire shoe/sports operation of CHX for nothing!
Of course the risks involved in buying these two stocks are high, especially if we were to consider the worst-case scenario. But if both companies were to pull through, the rewards could be high especially when CEL owns the hi-tech soybean zone in Daqing City as well as a biodiesel fuel ready for production in 1Q09 while CHX is one of the top five sports shoe brands in China.

Where Do We Go From Here?
A short-term rebound looks likely at the time of writing with the DJIA up more than 100 points 6,830 on 4 March. Should the DJIA not falter for the next two trading days, it is likely to test the resistance at 7,100 before it meets 7,450. While the former looks possible, the resistance at 7,450 looks quite out of reach for now.
Rallies for the past few weeks have been a flash in the pan and nothing more than that. The short-term target for the STI is at 1,570 followed by 1,600 and 1,650. Nothing has changed fundamentally and rebounds are still very much technical in nature and, thus, weakness should follow almost immediately.
Stay nimble and sell into rallies for now.


Comment:  Very good article except for the final sentence asking to "stay nimble and sell into rallies for now."  We all know what happened to the market after March 2009.

Sunday 6 December 2009

Global recession timeline

Global recession timeline


How did the credit crunch at the end of 2007 become a full financial meltdown by the middle of 2008, and finally turn into a global recession?

This interactive timeline highlights key dates in the financial collapse and helps you find the original reports of the events as they happened.

Click on an event on the timeline here:  http://news.bbc.co.uk/2/hi/business/8242825.stm



8 February 2007: HSBC WARNS OF SUBPRIME LOSSES

HSBC reveals huge losses at its US mortgage arm Household Finance due to subprime losses, in one of the first signs that the US housing market is turning sour, and that it could have a knock-on effect on the global financial sector.


2 April 2007: NEW CENTURY GOES BUST

New Century Financial, a leading subprime lender, files for bankruptcy. It is the first signal that something is seriously amiss at US mortgage lenders. Shares in other US mortgages banks like Countrywide come under pressure.


9 August 2007: CREDIT MARKETS FREEZE

Credit markets go into freefall after Paribas announces that two of its hedge funds are frozen due to "complete evaporation of liquidity" in asset backed security market. European Central Bank injects 170bn euros into the banking market and Fed lowers interest rates. Bank of England refuses to intervene in credit markets.


14 September 2007: RUN ON THE ROCK

Savers in beleaguered UK former building society Northern Rock begin withdrawing their savings after the BBC reveals the bank has received emergency financial support from the Bank of England. Northern Rock is in trouble as it was heavily reliant on the wholesale money market to fund its operations, and these markets have dried up.


17 March 2008: BEAR STEARNS RESCUE

US investment bank Bear Stearns is rescued by rival bank JP Morgan Chase after the US government provides a $30bn guarantee against its mounting losses. It is the first sign that, rather than easing, the financial crisis is getting worse but investors are relieved that US government prepared to act as lender of last resort.


7 September 2008: FANNIE MAE RESCUE

US government rescues giant mortgage lenders Fannie Mae and Freddie Mac, taking them into temporary public ownership after they reveal huge losses on the US subprime mortgage market. Their failure would have triggered a run on the dollar as many foreign governments had invested in their bonds, believing they were already guaranteed by the government.


15 September 2008: LEHMAN BROTHERS GOES BANKRUPT

US investment bank Lehman Brothers goes bankrupt after the US government refuses to bail it out. Merrill Lynch is bought by Bank of America after revealing it also is facing huge losses. Insurance firm AIG, which issued credit guarantees for subprime mortgages, is rescued the next day with an $85bn loan from US Treasury.


17 September 2008: LLOYDS TAKES OVER HBOS

Lloyds agrees a £12.2bn takeover of the ailing Halifax Bank of Scotland (HBOS), the UK's largest mortgage lender, after its shares plummet amid concerns over the firm's future. The UK government invokes a national interest clause to bypass competition law, as the new bank is responsible for close to one-third of the UK's savings and mortgage market.


3 October 2008: $700BN BAILOUT APPROVED BY CONGRESS

The biggest financial rescue in US history is approved after a gruelling debate in Congress, and initial defeat a week earlier. Republicans and Democrats alike were reluctant to bail out the banks with such large sums while ordinary citizens were suffering in the recession. Both presidential candidates endorse the bail-out.


13 October 2008: UK GOVERNMENT RESCUES RBS AND LLOYDS-HBOS

Two of the UK's major banks, RBS and HBOS, are in major trouble as financial markets collapse. Having merged with HBOS in September, Lloyds is hit by the huge debts built up by its new partner in the mortgage market, while RBS is struggling with its expensive merger with ABN-AMRO. The UK government injects £37bn to stabilise both banks.


16 December 2008: FED CUTS KEY RATE TO NEAR ZERO

The US central bank cuts its interest rate to 0 - 0.25% in an attempt to stem the deepening recession, and begins to consider a programme of quantitative easing to throw money into the economy to help make borrowing easier. It is the lowest interest in the history of the Fed.


14 February 2009: US CONGRESS PASSES $787BN STIMULUS

President Obama wins his first major victory in Congress as it passes a huge economic recovery plan aimed at preventing the US falling into recession as a result of the credit crunch. Much of the money will go to the states to prevent them laying off public sector workers, but some will be invested in infrastructure projects like roads, schools and green energy.


2 April 2009: G20 SUMMIT IN LONDON

World leaders pledge an additional $1.1 trillion to help emerging market countries and promise coordinated action to fight the slump and improve regulation. Gordon Brown emerges triumphant from a global summit, which he claims is a turning point in the crisis, and stock markets begin to revive. However, not all the money pledged is actually delivered.


22 April 2009: UK BUDGET REVEALS HUGE DEFICIT

The UK Chancellor Alistair Darling reveals that the credit crunch will lead to the largest budget deficit in UK financial history of £175bn, with total government debt set to double to £1 trillion by 2014. Mr Darling admits it will take two Parliaments, or 10 years to get the budget back to the position it was in before the credit crunch.



Well, what did you do with your portfolio of stocks during each of the above periods?

Lessons drawn from this crisis:

1. The recession was rather a long one. The start was when HSBC first announced the problems with US subprime loans in February 2007. However, the severity of the crisis was uncertain in the beginning. Our local Tan Teng Boo dismissed the subprime as of insignificant size to dent the financial market. However, he failed to predict the subsequent events. Those who took his advice endured the pain of the forthcoming severe downturn.

2. The crisis was better explained by reading financial articles of the US, UK, Australia and other countries. Those reading the local press were unlikely to get the whole big picture of the financial problems that subsequently unfolded. Reading widely gave a more balanced views. However, faced with uncertainties, there were conflicting views given by many "experts".

3. The local gneral election of March 08 did not affect the local market much despite the BN losing 5 states. Presumably, the economic and political risks were already factored in the index then.

4. The Lehman crisis brought a precipitous fall in the market. Those who panicked and sold after the fall would have fallen to the folly of the market - buying high and selling low - being driven by fear in a falling market. The better approach then would be to do nothing. So many a time, so much losses came about because one has to do something, when one would have been better to just do nothing. The braver and smarter ones actually bought into the market, though on hindsight, this was still 6 months too early.

5. It is difficult to time the market. It is better to be approximately right than to be exactly wrong. Warren Buffett was right when he asked people to buy in October 2008. To do likewise, one has to be wired appropriately - this is certainly possible through a deeper understanding of the market, the stocks and behavioural finance.

6. Buy and hold is a safe strategy for selected stocks.

7. The market is cyclical. After a downturn of 20% or more, the ghost of the 1929 prolonged Great Recession was resurrected causing fear to investors. This occured also in previous downturns. Just as the market cannot rise forever relentless, similarly, it cannot fall forever unabated. After a severe prolonged downturn, try to call the near-bottom if you can to pick up the underpriced valued stocks. Similarly, in a prolonged bull market, try to call the near-top to cash out of some of the overpriced stocks.