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RobH4413 01-23-2008 09:37 AM

Economy and that scary "R" word
 
[URL="http://www.reuters.com/article/usMktRpt/idUSN2360738520080123"]US STOCKS-Recession worries, Apple weigh on futures | Markets | U.S. | Reuters[/URL]

"On Tuesday, recession worries pushed U.S. stocks lower, but the decline was shallower than feared as an emergency interest-rate cut by the Federal Reserve helped stabilize global markets after a two-day rout."

In the first few minutes that the market is open today the DOW is already down 252 (I had to adjust almost 50 points since I started this thread). I've got two questions

1) Where is the bottom?
2) Which Presidential canidate has the best economic growth plan?

I've heard that the Fed Reserve needs to cut the rates more...

Thoughts?

mheisig 01-23-2008 09:59 AM

Re: Economy and that scary "R" word
 
[QUOTE=RobH4413;411117][URL="http://www.reuters.com/article/usMktRpt/idUSN2360738520080123"]US STOCKS-Recession worries, Apple weigh on futures | Markets | U.S. | Reuters[/URL]

"On Tuesday, recession worries pushed U.S. stocks lower, but the decline was shallower than feared as an emergency interest-rate cut by the Federal Reserve helped stabilize global markets after a two-day rout."

In the first few minutes that the market is open today the DOW is already down 252 (I had to adjust almost 50 points since I started this thread). I've got two questions

1) Where is the bottom?
2) Which Presidential canidate has the best economic growth plan?

I've heard that the Fed Reserve needs to cut the rates more...

Thoughts?[/QUOTE]

Don't lost your mind and panic. A recession is an excellent buying opportunity.

Benjamin Graham always said that a strong bull market should be a much greater cause for concern than a bear market or a recession. A recession just means prices go lower which is a great time to buy. While everyone else is panicking, buy, buy, buy and ride the thing out (assuming you don't need particularly liquid assets over the next 3-5 years.)

Call me crazy, but personally I'm excited. No house, no mortgage (I rent), so I'm waiting for the interest rates and home values to take a big dip, at which point I can buy. Meanwhile I'll look for undervalued stocks as the market takes a dive.

Six months living expenses in cash is also a smart thing to have on hand.

Schneed10 01-23-2008 10:01 AM

Re: Economy and that scary "R" word
 
Any candidate planning to roll back the Bush tax cuts will push the economy further into recession. Taking money out of the hands of people, even if they are the rich, will hinder their ability to spend (hurting retail), hinder their ability to invest (hurting the financial companies), and hinder their ability to hire people to the extent they run small businesses.

Increasing taxes will always create higher unemployment. It's practically a law of physics in economics. Higher taxes takes money out of the economy, so businesses tighten their belts. They lay people off or put hiring freezes in place.

Yes, the Fed will continue to ease the Fed Funds rate. If you'll remember in 2002, the Fed took the rate all the way down to 1% and maybe even below, if my memory serves. They'll continue to go lower as time goes on. This will help the stock market.

As for a bottom in the stock market, really hard to say. If I knew, I'd be a rich rich man. Some think the fears have already been priced into the market, and we're kind of close to a bottom already. Others think the credit crunch is going to take tons of money out of the market as lenders refuse to lend to folks with marginal credit, banks foreclose on mortgages, etcetera. We'll see.

mheisig 01-23-2008 10:09 AM

Re: Economy and that scary "R" word
 
Kevin Hassett of the American Enterprise Institute had an interesting checklist of sorts in the Washington Post, well worth a read:

[QUOTE]1. We're already in a recession. The truth is, nobody knows. It takes a while for the data to come in. By the time the National Bureau of Economic Research announced the 1991 recession, it was already over.

2. The stock market tanks during recessions. Actually, stocks usually drop before a recession. Then, the market tends to look ahead and starts responding favorably to the expected end of a recession.

3. Recessions used to be a lot worse. For the most part, recessions before World War I and since World War II have been just about equally severe. As for duration, the average recession since World War II has lasted about a year.

4. Recessions are bad for your health. The reality: Americans get healthier as the economy gets worse. With more free time and less money on their hands, people tend to consume less tobacco, exercise more, prepare healthier meals, and lose weight.

5. There is a regular "business cycle." The truth: Economic fluctuations are anything but regular. In the nine recessions since 1949, the shortest time between two recessions was only nine months. The longest period between two recessions was almost ten years.[/QUOTE]

If you're worried about the market, keep in mind that prices will almost certainly be higher five years from now. If you look at your "stock money" as "five year money," 95% of the time, stocks' five year average annual returns fall between -0.8% and 26.0%.

Schneed10 01-23-2008 10:14 AM

Re: Economy and that scary "R" word
 
[quote=mheisig;411142]Kevin Hassett of the American Enterprise Institute had an interesting checklist of sorts in the Washington Post, well worth a read:



If you're worried about the market, keep in mind that prices will almost certainly be higher five years from now. If you look at your "stock money" as "five year money," 95% of the time, stocks' five year average annual returns fall between -0.8% and 26.0%.[/quote]

I agree with this.

Trying to figure out when it's wise to dump stocks and run to bonds or gold or cash, it's fruitless. Most of the time, you'll jump out of stocks AFTER the lion's share of the drop is done. And most of the time, you'll get back into stocks AFTER they've bounced back quite a bit.

You don't want to get out of stocks now, because you never know when they're going to bounce back up. You could miss out on that bounce.

Assuming you don't need the money for a number of years, just ride it out. It pays off in the end.

Schneed10 01-23-2008 10:15 AM

Re: Economy and that scary "R" word
 
That said, be diversified. Don't just own one or two stocks in a recession (or anytime for that matter). Own a mutual fund that invests in a bunch of stocks.

If one gets tanked by recession pressures, you won't lose your shirt.

hooskins 01-23-2008 11:18 AM

Re: Economy and that scary "R" word
 
The Fed already cut rates yesterday prior to opening, 3/4%. Although this is bad news bears for us, we are doing a bit better than some other markets which took 5-12% hits yesterday.

I hope their anticipation about our market is not a reality.

dmek25 01-23-2008 11:28 AM

Re: Economy and that scary "R" word
 
this president has done everything he could to weaken the American dollar. cutting the rate is another way. that's just trying to insert a quick stop gap on the economy. we need more jobs on American soil. NAFTA should be dropped into the nearest trash can. worse piece of legislation ever passed. more jobs = more spending. in turn strengthens the economy

Monkeydad 01-23-2008 11:46 AM

Re: Economy and that scary "R" word
 
[quote=dmek25;411198]this president has done everything he could to weaken the American dollar. [/quote]

Without his tax cuts, we'd be in FAR worse shape for the last 5 years.

Schneed10 01-23-2008 01:05 PM

Re: Economy and that scary "R" word
 
[quote=Buster;411211]Without his tax cuts, we'd be in FAR worse shape for the last 5 years.[/quote]

There is no doubt about this. Unemployment would have hit 7% instead of 5.5%. More jobs would have been outsourced overseas.

saden1 01-23-2008 01:55 PM

Re: Economy and that scary "R" word
 
Fuck the Bush tax cut, I wipe my ass with that measly $300 I got back. I'm getting screwed and I know it, how anyone else doesn't is beyond me. And when did we go from "the tax cut is wonderfully awesomely godsend" to "we would be in a far worse position without it???" Psst, the government is running in RED, what that means to you is that you're getting chickenfeed while the wealthy bleeds this country dry.

mheisig 01-23-2008 02:28 PM

Re: Economy and that scary "R" word
 
NAFTA [b]is[/b] the biggest turd of legislation ever. There, I've agreed with dmek for the first time ;)

Tax rebates ($300, $800, $1,600 whatever) seem like a good idea at first glance, but most economists agree that they are a pretty bad idea. Not to mention the fact that most people end up putting that rebate in savings instead of spending it, so the impact is negligible at best.

Schneed10 01-23-2008 03:10 PM

Re: Economy and that scary "R" word
 
[quote=saden1;411325][B]Fuck the Bush tax cut, I wipe my ass with that measly $300 I got back.[/B] I'm getting screwed and I know it, how anyone else doesn't is beyond me. And when did we go from "the tax cut is wonderfully awesomely godsend" to "we would be in a far worse position without it???" Psst, the government is running in RED, what that means to you is that you're getting chickenfeed while the wealthy bleeds this country dry.[/quote]

You're getting the tax [I]cuts[/I] and [I]tax[/I] rebates confused. The rebate was the one-time $300 check. Which I agree, amounts to a hill of beans in the long run.

However the tax cuts have been in place all along. We're all paying less taxes every pay period, especially the wealthy, because of the tax cuts. That is the move that made such a good impact on our economy.

saden1 01-23-2008 03:28 PM

Re: Economy and that scary "R" word
 
[quote=Schneed10;411406]You're getting the tax [I]cuts[/I] and [I]tax[/I] rebates confused. The rebate was the one-time $300 check. Which I agree, amounts to a hill of beans in the long run.

However the tax cuts have been in place all along. We're all paying less taxes every pay period, especially the wealthy, because of the tax cuts. That is the move that made such a good impact on our economy.[/quote]

How has it been good for the economy? We are spending more money than we generate. I'm no economist but my take is that you don't give a tax cut without a balanced budged and a surplus.

hooskins 01-23-2008 03:44 PM

Re: Economy and that scary "R" word
 
[quote=mheisig;411364]NAFTA [B]is[/B] the biggest turd of legislation ever. There, I've agreed with dmek for the first time ;)

Tax rebates ($300, $800, $1,600 whatever) seem like a good idea at first glance, but most economists agree that they are a pretty bad idea. Not to mention the fact that most people end up putting that rebate in savings instead of spending it, so the impact is negligible at best.[/quote]

Exactly there is no incentive to put that money back into the economy. A tax cut is better because you will have direct disposable income.


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