Replies to This Discussion

Permalink Reply by Willie on March 16, 2009 at 12:09pm

I've heard good arguments for both scenarios. Some people think we will have a bear market bounce and then go back down to around 5,000. Other people think the economy is starting to pick up and will continue to see positive gains. That is why I am 50/50 and wanted to hear what other people think.

I just made a larger than usual investment. I am happy to invest in the low 7,000 range. I wish I had invested more in the 6,500 range, but I didn't have the money available. If the market goes up, then my investment will do well. If the market goes back down to the low 6,000 range, then I will invest more.

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Permalink Reply by lea on March 21, 2009 at 11:19am

I think if I was going to buy a $20,000 car and it dropped in price $12,000, I would be happy to make the purchase at that point instead of worrying if the price will be up or down a thousand dollars next week.

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Permalink Reply by James Scott on March 17, 2009 at 9:16am

I agree that it could go either way, but this recession has already lasted a long time and the government has done a lot to stimulate the economy. It also seems like consumer confidence and spending is on the rise. I'm hoping for a long-term recovery with no more huge drops, but the toxic mortgage assets are still out there and the rest of the world is struggling so we might see the global recession influencing our country. I guess I also can't make a guess one way or the other. That is one thing about the market that is very frustrating. You just never know.

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Permalink Reply by James Scott on March 24, 2009 at 1:44pm

The announcement by the Obama Administration about how they plan to remove the "toxic assets" from the banks sent the market up 500 points. I thought there would be some pull back and profit taking today, but the stock market is keeping most of the gains in place.

Still possible for the market to fall again, but with housing starts being better than expected and a few other encouraging signs, I think we are heading up.

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Permalink Reply by Willie on April 1, 2009 at 10:46am

I was on a different investment site yesterday and someone was telling the history of the Great Depression. There was a similar bounce in the market after a few years of recession and then the market totally bottomed out.

Of course history isn't the best indicator because many things are different. One thing that led to the market crash was a lowering of stimulus money being spent by the government along with a new law that restricted trade. This put a further stress on the economy and people lost confidence quickly.

I'm hoping that we have seen the bottom and are on our way back up, but history and some of the current problems such as the toxic mortgage assets and auto company troubles means we shouldn't think we are out of the woods just yet.

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Permalink Reply by Vitaly Indinko on April 2, 2009 at 5:14pm

I think what you have to be worried about more than anything is the amazing levels of debt we have. Our banking system, personal balance sheets and government all have historic levels of debt. When the party stops, as it has due to the credit crisis, all of that debt has to be unwound. People spend less, so companies make less, so they lay off people, so people spend less. If you look at total debt it dwarfs our GDP, so it's concerning that once you start that de-leveraging process, it's not clear how long it takes or what the long term consequences are.

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Permalink Reply by James Scott on April 3, 2009 at 10:08am

In addition to the government debt we already have, there also are a ton of unfunded liabilities such as medicare and social security for the baby boomers. This will soak up a lot of resources and further add to our debt. The replacement costs and veteran care from the wars in Iraq and Afghanistan will also add a huge financial strain.

One good thing is that the Democrats seem ready to tackle some of these problems and get us back in shape. The Republicans don't want government to exist (or at least beyond providing police and military protection) so that is why they spend like crazy each time they are in office. They want to load the government with lots of debt so it is paralyzed to do anything but wage wars.

The Obama Administration is trying to fix healthcare to lower the unfunded burden of caring for the baby boomers, trying to get us off foreign oil so we can stop borrowing so much money from China to pay Saudi Arabia and Venezuela, and trying to fund education so we will have a good source of ideas and business leaders into the future. At least we are now on track to solve some of the government debt problems and long term unfunded mandates (even though the debt is increasing as these problems get fixed) instead of digging the hole deeper as Bush was doing.

As far as consumer debt, the recession has caused many people to save like they have never saved before. This is allowing some people to lower their debt, while other people will have the money to make purchases once they get their confidence back.

Hopefully, the banks will sort out their toxic assets and new regulations will be put in place so insurance companies can't insure risky bets unless they can show they have the resources to pay off those bets if they go sour.

Still a tough situation, but I feel like we are now going in the right direction. It seems like the bear market bounce will only return to a steady downward trend if something really terrible happens.

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Permalink Reply by Vitaly Indinko on April 3, 2009 at 10:21am

Well I still think you haven't seen the bankruptcy shoe drop. So far companies haven't really been going out of business en masse. Imagine when some big companies go under and their debt winds up worthless. I can't imagine that we go through something like this without considerably more bankruptcy carnage.

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Permalink Reply by James Scott on April 3, 2009 at 3:49pm

I'm surprised there haven't been more companies going bankrupt. I'm also surprised at the amount of debt many companies are carrying. I don't think most people understand that big companies like AT&T and Verizon are carrying billions of dollars in debt. GM also had a lot of debt and that is one reason why the government has been proactive in managing that implosion. However, I agree that if numerous companies start to go bankrupt, all of their debt will put a huge stress on the economy and there won't be enough resources to handle it all. Let's hope the bankruptcy shoe drops slowly and not with both feet at the same time.

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