The Stock Market

[I Heart Brewers]

I agree MJ, but my question is what is going to fuel growth? As you say, growth right now is being fueld by government stimulus, but when that is gone and jobs haven't picked up significantly we may be right back at the bottom. Which is pretty much where we are right now. I think the stock market is being driven by speculation a bit too much right now. I just don't see where growth is going to come from? Greener economies and energy perhaps?

[nodakfan17]

On a related note ...

 

I am going into my last semester of school and have just enough money to cover my tuition and living expenses. Right now, the funds that I have set aside for the Spring Semester are in a CD earning 0.65% APY. I locked into this rate in May and thought that it was poor at the time, but now CD rates are much lower. I lived very conservatively over the summer and saved most of the money that I earned at my internship. I intend on using it next summer to help with my relocation expenses. What type of very low risk investment will give me the largest return over a 6-month period? Current CD rates for that period are around 0.20% and T-Bill returns appear to be even lower.

 

Thanks in advance for any input. I apologize for taking this thread a little off track. I did not want to start a new thread solely for this question and I figured that my concerns were somewhat in line with the original posters'.

[Tailgat0r76]

Check out ally.com. They used to be GMAC and recently got a facelift. Their rates are really unbeatable. If you're okay with an online CD; a 6-month CD currently has a 1.65 APY.

[jschris]

I've used bankingmyway.com to research rates for different products. It's usually fairly accurate and updated.

 

I'm not sure where you live, nodak, but there are quite a few 6-month CDs in Wisconsin that are paying 2% or better. The credit union I work for has one at 1.7% APY if you have five services with us (1.45% if not). 0.20% is incredibly low. Our savings accounts here are better than that.

[nodakfan17]

I live in Grand Forks, North Dakota. The only major bank that we have in town is Wells Fargo (there are several small, regional banks too). That's where I've been buying CDs since I came to the U of ND. As I posted earlier, I thought that 0.65% APY was low when I set up my most recent CD. Now, I wish I could get that rate. For the relatively small amounts that I invest, 0.2% APY is not even worth a trip to the bank.

 

I'll have to check out some online rates. Thanks for the tip on ally.com. I've seen their new commercials on CNBC. Has anyone invested with them before? Would you recommend them to a friend?

[PeaveyFury]

As you say, growth right now is being fueld by government stimulus, but when that is gone and jobs haven't picked up significantly we may be right back at the bottom.

 

But aren't the numbers still something to the effect that only 15-20% of the stimulus money has actually been spent so far? There's quite a while still before that is gone.

[I Heart Brewers]

As you say, growth right now is being fueld by government stimulus, but when that is gone and jobs haven't picked up significantly we may be right back at the bottom.

 

But aren't the numbers still something to the effect that only 15-20% of the stimulus money has actually been spent so far? There's quite a while still before that is gone.

Sure, I'm not disagreeing with you and perhaps I should have said that spending is keeping us afloat or something to that effect, maybe not giving us real growth. The stimulus may last 4 months it may last a year. It is arguable how effective the remaining money will be and what it is being set aside for. Quite a bit is set aside for taxe cut purposes ($212 billion) and I 'm not sure how much that will spur consumer spending. That has always been debatable among economists.

 

But I guess my main point is that when the money is gone what will the US economy/businesses/entrepreneurs done with it? The only way to get the economy to grow is innovation and economies of scale related to it. I'm just curious as to where that will come from. My guess is the 'green economy' or US energy independence which could be the model for other established and emerging economies.

 

Speculation in the housing market saw us through the tech bubble burst, which was our last innovation boom. I just hope we create the next one as well.

[dadofandrew]

The estimates I've seen say only about 10% of the "stimulus" package has been spent.

[Tailgat0r76]

I live in Grand Forks, North Dakota. The only major bank that we have in town is Wells Fargo (there are several small, regional banks too). That's where I've been buying CDs since I came to the U of ND. As I posted earlier, I thought that 0.65% APY was low when I set up my most recent CD. Now, I wish I could get that rate. For the relatively small amounts that I invest, 0.2% APY is not even worth a trip to the bank.

 

I'll have to check out some online rates. Thanks for the tip on ally.com. I've seen their new commercials on CNBC. Has anyone invested with them before? Would you recommend them to a friend?

From what I've read on other forums and such, Ally is legit and just fine to work with. They're FDIC insured too so nothing to worry about there. No personal experience however. My local bank's checking account gives 1.5% APY, so no need at this point.

[FVBrewerFan]

I think we've seen a natural uptick after having almost no growth for quite some time. Basically, business and individuals alike can't put off needed purchases forever. But consumer confidence is still relatively low, hints of higher inflation exist, and the banks are mortgage foreclosures are still a huge problem. Unemployment is still high, but as others have said that's always a trailing indicator.

 

The market was looking for any signs at all of a recovery, and that's what we got the 2nd quarter. I think the economy in general still has major issues, and stocks are up based on a little good news, and a little speculation. This whole thing (economy, stock market, jobs) is balancing on a thread, and could tip either way depending on a whole lot of factors.

 

So I started buying heavily as we started coming up from the bottom. I have sold off some positions recently after the run-up, buying some commodities, and keeping the rest in cash until the crsytal ball becomes clearer.

 

What I have learned in 20+ years of investing is dollar cost averaging is great for brokers and traders, but horrible for me.

[LouisEly]

Plenty of people are predicting a double-dip recession. Plenty of reasons for this - the main one being that we are not out of the mortgage mess by any means, and are predicted to hit the second wave now. Do a search on "IMF Mortgage Resets" and see what comes up (or check the Business Week issue from the last week of June); the subprime mess has come and gone but according to these sources the Alt-A arms don't peak until this fall and the prime ARMs don't peak until 2010, and the $ volume of those loans is just as much as the subprime market. The ARM loan resets aren't expected to decline until 2011, so it will be at least 2012 before the mortgage market starts looking up. Right now the uptick in housing sales are coming from foreclosures and short-sales, many of which are new homes that were built long ago but not sold and now are being picked up for 1/3rd of what they were listed for (because they have been looted for anything that could be stolen and/or never got finished).

 

The other thing is that the market typically declines in September and October, and when Q3 results start coming in October and disappoint, particularly with bank stocks, the prospects of a decline in the market are good. Personally, I have gotten out of all of the bank stocks I bought in Feb/March (at a handsome profit) and even though those stocks have gone up a little in the two weeks since I sold them, according to my sources in the near future I will be glad I sold. Bank of America is trading at 50x earnings, and they said when they announced Q2 earnings to be cautious because something like $5B in revenue was from selling off a European bank that was a one-time boost, and that barely put them in the black for Q2.

 

Edit - my area is skewed a bit, and I don't know what your areas look like, but in Redondo Beach, Manhattan Beach, and Hermosa Beach (total population of 100,000, maybe a little more) there are 250 residences for sale between $600K and $1.1M (the floor is $600K - anything under that is a condo or townhouse; Manhattan Beach properties generally start at $1M - anything less than that is a "fixer upper"). Look at wherever you live and what the median home price is and see how many homes are for sale in that price range relative to the population.

[nate82]

The reason why most stocks have soared lately is because they are showing a profit but these are false profits when you start to look into their books. You will notice that their expenses for employees is a lot lower than it was just one year ago. Layoffs and not hiring new people is a reason why some companies are showing a profit. I expect unemployment to continue where it is for the next two or three quarters at least. The majority of the stimulus won't hit until 2011 or 2012 depending on who you believe. This is also not taking into consideration that most of the stimulus money is pork spending and won't have a positive effect on the economy.

 

If you want to judge the economy I would look at is the GDP for the year. An interesting fact public debt accounted for 60.8% of GDP in 2007 that probably should have been a warning sign but these figures usually lag behind by a year or two and only are estimated.

[I Heart Brewers]

Yeah, but companies layoff people to offset lower revenue. It should be a net zero effect in theory. Larger profits now probably do mean a bump in sales compared to the past 15-18 months. That has definitely been the fact where I work.

 

The question we have is whether or not the increased revenue is sustainable or just a blip.

[nate82]

I don't believe this is sustainable right now and I'm not sure there is enough data yet to say if it will or will not be. We should get more of a picture of where the economy is going when we get the 4th quarter numbers of this year the holiday season being the key.

 

I'm going to be pessimistic on the economy and believe that we will see another holiday season like last year. Lots of discount deals but the retailers not really making much of a profit.

[Tailgat0r76]

I don't believe this is sustainable right now and I'm not sure there is enough data yet to say if it will or will not be. We should get more of a picture of where the economy is going when we get the 4th quarter numbers of this year the holiday season being the key.

 

I'm going to be pessimistic on the economy and believe that we will see another holiday season like last year. Lots of discount deals but the retailers not really making much of a profit.

I pretty much agree here. I've sold my aggressive stocks and headed into defensive stocks with good yields. Until I see revenues that are consistently on par with estimates or beating them, I'll be pretty bearish for the short-term. The EPS has been fine this year so far, but revenues are way down. Cost-cutting has saved most companies, and it'll be interesting to see where the earnings go when there is no more cost-cutting to be had.

[edod]

Find someplace to research what you'd like to invest in. I like Morningstar; as I understand it they're analysts who are not also investment bankers, meaning they don't have much organized motive to give misleading advice. Personal maybe, but you shouldn't believe wholeheartedly anything (anywhere). It cost money to subscribe to such things though.

 

Another piece of advice from me and I'm very cynical, is to look at the stock market for what it really is--(and it can be argued with-in reason to be) a giant ponzi scheme. You have to be the one who gets in low and gets out before everybody else realizes they don't want to be in it either. And frankly, I wouldn't trust myself to pick a stock now. The bottom was between November and March. I have to agree with the others (and most other market observers out there) that the prices now are over-inflated on wishful thinking (fueled as noted above by false earnings). You have bailed out banks who claim to have a billion or so in profit, but they lost 3 billion in operations, but sold a part of the company for 4-5 bil and then claim profit for the quarter. They can only sell off parts of the company for so long and with every piece sold, they have one unit less possibly contributing to their profitablity in the future.

[PeaveyFury]

Crossed 10,000 on the Dow again today- just keeps chugging along!

[LouisEly]

Not for long. There is another wave of foreclosures coming. There has been a lot of activity on the MLS since the beginning of October, which is when I believe the moratorium on foreclosures was lifted. Either that or they wanted to wait until the 4th quarter so these didn't go on the books for the 3rd quarter results. Lots of new listings have come up in the areas I have been searching, many short-sales/REOs/bank owned.

[nate82]

I agree with LE here. But I still will be a buying mood I just don't expect the banking and financial sector to improve very much any time soon. With the Bank of America investigation and the AIG stuff still floating around. Rather risky right now to be in the financial and banking sectors. Hopefully the unemployment numbers will start to look better and that should give the market a big push but I'm bearish on the unemployment numbers improving more than 1% nationally.

[PeaveyFury]

Not for long.

 

But haven't the "experts" been saying that since May or June?

[Diskono]

Yeah...amidst all of the recession FUD, my 401k portfolio is up 31% YTD.

[homer]

If you own individual stocks, I'd probably look at selling and taking some profits now. Long term I still think the dollar will continue to devalue and we'll get into some serious inflation. Start looking at investing in gold, silver, and other commodities to hedge your bets.

[dadofandrew]

As a contrarian, I love the fact some still some say this is not a true rally...it's up 55% from it's low, what's it take to have a real rally?

 

I'll worry more when people start saying 15K is around the corner. Companies tightening their belts and cutting waste is fine with me. I don't see much of a "boom", but inflation is nil and unemployment will start downward slowly. The "bust" is over, GNP will be up in Q3, which just ended.

 

Foreclosures? So? Home values may go down a bit, but that only matters if you're buying or selling a house. The market is about earnings, and they look very good for well run companies.

[LouisEly]

Oh the market is definitely up 55% since it's low... but I cashed out late fall last year (not early enough but well before bottom) and poured the money back in in March, and the bank stocks I bought in March are up 400% so I sold. Like playing cards, knowing when to fold them is just as important as knowing when to hold them.

 

From an update I got - "Third quarter bank repossessions jumped 21 percent from the previous quarter due in large part to a surge in September. The jump in REOs, along with slight increases in default and auction notices, brought the third quarter total to the highest quarterly total on record."

 

Another update: "The celebration over the Dow hitting 10,000 is over, and now the hangover is kicking in. We're probably in the middle of a new Dow bubble... To add some perspective here, BreakingViews notes that the Dow crossed 4,000 in February of 1995. That was probably a reasonable level, considering that the economy was in its fourth year of expansion and stock prices were 50% above their peak before the 1987 crash, according to BreakingViews. So, if you increase the Dow by the corresponding increase in gross domestic product since then, the Dow should be just north of 7,800." While I believe 7800 is a bit low, I wouldn't be surprised to see it under 9000 by the middle of November and staying around 9000 for another year or so. 3rd quarter numbers may look nice, but 4th quarter numbers I think will disappoint and the Holiday shopping season will disappoint as well.

[And That]

Crossed 10,000 on the Dow again today- just keeps chugging along!

Sorry to resurrect this thread, but 3.5 months later, the Dow closed at just about 10,000 after a 2.6% selloff today and with jobs data coming tomorrow along with more bad economic news from Europe, it could end up under 10,000 very soon.

 

Still good for those that made significant investments last spring/summer, and the market even continued its roll in to the new year but overall it's been sideways since fall. Ah, the hazards of investing.