Understanding the current financial crisis

[Mike C]

If your sort of in the dark as to what is happening in the financial sector, read this article from the Washington Post. If you have financial investments, you may want to talk to you financial adviser or if you do your financial decision making on your own, restructure your portfolio and go defensive. Looks like 2008 is going to be very turbulent.

http://www.washingtonpost.com/wp-dyn/content/article/2007/12/04/AR2007120402186_pf.html

"It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one.
We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen. Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression. Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There's even a growing recognition that a recession is over the horizon.


But let me assure you, you ain't seen nothing, yet."

[TheRainman]

Mike C

The economy right now is the worst I've seen since I was a kid in the 70s. But as far as running to defensive stocks I would rather look for beaten down sound companies. Theres a lot of companies that already hit bottum or very close to it and will rebound with much better returns then what you would make with defensive stocks.

I personally would not start buying financials or retail type stocks yet but some of these commodities, techs, and consumer staple stocks are starting to look good.

I personally believe if you do start to buy some of these bargains I would buy them in small 1/3 lots at a time. Spread the risk out.

And if your a little more knowledgeable investor you can protect yourself with buying put options on the market or on certain stocks you feel are still coming down. I own some on the russell2000 and on carmax. I sold my tiffany's and whole foods recently.

I have seen post in the past talking about geron. It's down around its five year low. I recently bought a lot of that stock. I don't see much down side to that one.

One of the big reasons I think were getting close to the bottom is because of that article in the washington post. When everybody gets scared and sells thats a sign the bottom is near.

Now we haven't been seeing signs of that in the real estate market yet. I think were another year or two away. Although I have seen some news reports of people torching their homes.

[alpentalic]

Mike C

The economy right now is the worst I've seen since I was a kid in the 70s. But as far as running to defensive stocks I would rather look for beaten down sound companies. Theres a lot of companies that already hit bottum or very close to it and will rebound with much better returns then what you would make with defensive stocks.

I personally would not start buying financials or retail type stocks yet but some of these commodities, techs, and consumer staple stocks are starting to look good.

I personally believe if you do start to buy some of these bargains I would buy them in small 1/3 lots at a time. Spread the risk out.

One of the big reasons I think were getting close to the bottom is because of that article in the washington post. When everybody gets scared and sells thats a sign the bottom is near.

Echoing your sentiments, here's a pretty funny-yet-poignant skit on
"What Created the Subprime Mess" (http://www.break.com/index/how-we-got-into-the-subprime-mess.html) you might get a laugh out of.

I agree - while everyone is running to the hills like chicken little, the fact is now is the time to be doing your investment homework. There are some great deals on devalued company stock to be had, especially those that are in the eye of the lending crisis storm. Moody's (MCO) is a good one to read up on - share prices are heavily discounted but the company is solid and will weather the storm IMO.

[TheRainman]

Al

Very funny skit. Thanks for posting it.

The funny thing about it is that a lot of what he says is true. These big brokerage houses and financial companies don't know what their doing or recommending. A lot of the big brokerages had countrywide as a buy all the way down 50% before they put a hold or sell recommendation on it. How could that be? You watch financial show and they'll have analyst that recommend a company and the guy next to him will say its a bad buy. The real story is that they really don't do much work on looking at their recommendations. They get paid if they go up or down just them.

I know a guy who worked at a major brokerage that said he's only allowed to recommend stocks that are listed on a sheet his company gives him. The reason for this is to keep all the salesman portfolios the same so clients won't jump around to other brokers in the same company. So if god came down and told him a stock that was going to jump big time, he could not buy it for his client or he would be fired.

So if anyone don't have the time to do their own investing put your money into an index fund.

[Mike C]

Good clip...dry brit humor is always good for a laugh. Poor suckers over at Citibank are going to be getting axed in droves. Who came up with the idea of repackaging debt and tacking high ratings onto them in the first place? Any ideas? Did this go down one day at a huge conference call or over martinis and giblets after work one day?