Monday Message Board

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Mosquito the Rapist aka Bloodlust dvd It’s time once again for the Monday Message Board. Post your thoughts on any issue. Civilised discussion only. Please avoid snarks and trolling and strictly no coarse language.

I won’t have time for a while to post on the startling events on Wall Street over the weekend, but feel free to jump in and have your say.

47 thoughts on “Monday Message Board

  1. smiths,
    You missed out Northern Rock, a UK bank. Banks, like any other business, fail from time to time. In a very real way if they never failed that would be a very real problem. Lehman’s (and the others you mentioned and the ones you missed) were running unsustainable business models and / or had poor management. The whole point of the system is that, under those sorts of conditions they do fail. Others, with better management or business models then replace them. The falures of individuals within the system improves the system.
    Attempting to stop them failing (as the US government is doing with Fannie and Freddie) is the real problem. If there is no punishment for failure then there is no reward for success. This has been demonstrated time and again with systems that attempt to stop failures – from the policies of the US government that caused, extended the life and increased the depth of the 1929 depression to the stupidity of protectionist trade policies.
    Its why advice like observa’s above is broadly correct – if you want safety, spread your bets and accept that lower total returns are the likely result.

  2. cuh, don’t listen to them.

    your best investment is a remote property with a well and a windmill. put a high fence around it. fill the cellar with canned goods. learn to shoot and fish, if there’s any wildlife in the neighborhood.

    the current economic convulsions may be the end of capitalism, but if so, there is no plan b, and barbarism will be next. a good thing really. the only thing that can save the planet and you from looming eco-catastrophe is financial catastrophe and subsequent depopulation due to war, famine,and disease..

    remember where you got this tip, i may need a refuge as i haven’t got 500k loose.

  3. andrew this period since the 80’s hasnt been capitalism functioning as normal

    it has been fraud and wealth transfer on a massive scale

    i am all in favour of the failures of inefficient business’

    but thats not mainly whats happened, when glass steagall was repealed the green light was given for reckless activity,
    selling debt as assets is not capitalism, its alchemy,
    leveraging money at ratios of 30 or 40 to 1 is fraud

    you would do yourself more favours as a defender of classical liberal capitalism by attacking this period as the disgusting theft that it is

  4. Smiths words are wise. Invest in what you know and at the best price. As Buffet says Invest in your “circle of competence” and understand your limits.

  5. Clearly the legal right to collect on a debt is an asset, smiths. The issue is how much that asset is worth.

    BBB

  6. Steve, I asked a specific question about deposit insurance on a specific amount of money and got an excellent specific answer from Observa that is right in line with my own research – plus some extra tips. I’m more than comfortable taking Observa’s advice into account. Much more comfortable taking his/her advice into account than the appalling advice I have gotten from Aussie financial advisers who all have something to sell, in one way or another. If you wouldn’t do the same, that’s cool, but I have confidence in my own ability to filter advice – I did earn this money myself, after all. I’m just new to investing. Thanks for your concern.

    Observa, yes I am debt free and the $ is surplus to requirements. Thanks for checking.

    Al, I assume you’re joking but I actually think there is a small but real chance the “looming eco-catastrophe” with food and water wars etc could happen in my lifetime. But I don’t think there is a snowball’s chance in hell that a remote property in Australia would be a refuge if this happens – we have one of the most climate-fragile ecosystems in the world. Try growing veggies in baked dead dirt in a hotter remote Australia. I’d rather have my gold bars ready to immigrate somewhere more ecologically robust.

    But mainly, I’m analysing global companies to see who I want to buy when the market bottoms out. I think the most likely scenario is a 2 to 5 year global recession.

    Anyone have more tips for me? This is fun. Thanks guys.

  7. Flattery will get you everywhere CUH, whereas flatulence won’t help Joe #1 and those vegans much at all-

    “MELBOURNE: Scientists have discovered that going veggie could be bad for your brain-with those on a meat-free diet six times more likely to suffer brain shrinkage.

    Vegans and vegetarians are the most likely to be deficient because the best sources of the vitamin are meat, particularly liver, milk and fish. Vitamin B12 deficiency can also cause anaemia and inflammation of the nervous system. Yeast extracts are one of the few vegetarian foods which provide good levels of the vitamin.

    The link was discovered by Oxford University scientists who used memory tests, physical checks and brain scans to examine 107 people between the ages of 61 and 87.

    When the volunteers were retested five years later the medics found those with the lowest levels of vitamin B12 were also the most likely to have brain shrinkage. It confirms earlier research showing a link between brain atrophy and low levels of B12.”

    As for ‘Try growing veggies in baked dead dirt in a hotter remote Australia.’ there are some companies like PrimeAg set up to buy well watered land for just such a purpose (Google PrimeAg and read their announcements)They raised $300mill in $2 share offer last Dec and are well on their way with good management. They planned to spend 80% of the IPO on property purchases so at a current price around $1.34 might be worth a punt in troubled times for the medium term hold (at least 3 years as they’ve got that Qld dam water allocation in the bank now with recent rains) Keep an eye out for more of these food agribusinesses in future, with the carbon ETS fans effectively putting the world’s food in our tanks now.

  8. Woops, PrimeAg bottomed at $1.44, now trading at $1.52, but the initial subscribers have probably taken the major hit now. Could be some downside if rural land prices collapse naturally, but crop returns could ameliorate much of that.

  9. The thing about “once in a century” events is that if the media are to be believed they happen every decade or so.

    Personally I think the current financial crisis has pretty much bottomed out, especially here in Australia.

  10. Al Loomis, you forgot to specify “learn to shoot with a bow and arrow” (ammunition for guns won’t be available in that scenario, and it has a limited safe and/or reliable shelf life so it can’t easily be stockpiled in advance).

    The general investment advice I once heard was to split your portfolio roughly equally three ways, between foreign bonds, land in your own country (including your own home if you want), and investment in businesses about which you are personally knowledgeable in your own country so you can assess them directly – and rebalance the portfolio at least quarterly.

  11. Observa, I am currently researching silver, thanks for that. I disagree with you on the Aussie agribusinesses, tho. There was a recent BRW cover on agribusiness, which sparked a conversation with an economist friend of mine. He said that Australian farm land is extremely overvalued relative to agricultural yield and always has been. Food prices have to go much higher (possible of course) to justify these land prices. Has John Q ever weighed in on price of farmland?

  12. Personally I think the current financial crisis has pretty much bottomed out, especially here in Australia.

    i’ll hold you to that, as indeed i should be held to any predictions i might venture to make

  13. Consider the following. As gold and silver prices started to plummet on July 14th, surging physical demand for gold and silver continued to lead gold and silver prices markedly lower. For the first time in history, record demand in a commodity was helpless to stem plummeting prices and in fact, contributed to further price declines. In July, India bought 22 tonnes of gold. In August, according to Reuters, India increased its gold purchases by more than 350%, buying more than 100 tonnes of gold.

    This figure also represented a 56% increase in purchases when compared to purchases during the same month from a year prior. In Dubai, demand surged as well.

    “We are definitely witnessing a surge in demand for gold in Dubai and physical shortages have been reported by many dealers,� said Ian MacDonald, the Dubai Multi Commodity Center’s executive director for gold and precious metals. “We are also seeing demand being driven by currency concerns in the region as many investors perceive the precious metal as one of the few strong currencies.�

    Gold jewelry sales in Abu Dhabi soared 300 percent in volume and almost 250 percent in value in August from a year earlier after the metal dropped to nine-month lows, the emirate’s industry group said on Monday.

    “It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year,� Abu Dhabi Gold and Jewelry Group Chairman Tushar Patni told Reuters.“We had never expected (emphasis mine) that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday.�

    In the United States, the stories were the same. Many gold and silver bullion and coin dealers reported record sales in August and shortages of supply. I could quote fifty other stories similar to the ones above, but for the sake of brevity, I will not. Global sales of gold and silver would have to be at record levels in August for gold and silver prices to be pushed much higher for that month, and all preliminary indications are that global sales in August for gold and silver were indeed at record numbers. So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?

    http://seekingalpha.com/article/95496-the-law-of-supply-and-demand-is-dead-for-gold-and-silver

  14. That’s true as I ponted out CUH, but PrimeAg’s land values now reflect simply underlying asset backing. on that point they had just signed up drought property when those rains came. The question is what future dividend yield can you anticipate on that current share price now.

    WRT the safety of bank deposits here’s the rub from The Age today CUH-

    “GLOBAL markets were stunned by a Wall Street meltdown that forced investment bank Lehman Brothers to file for bankruptcy protection and broking giant Merrill Lynch to sell itself to Bank of America for about $US50 billion ($A61 billion) in a lightning transaction.

    As investors and bankers were assessing the implications of the dramatic reshaping of Wall Street, concerns remain over the fate of US insurance giant AIG, which balances on the brink of collapse.

    The Reserve Bank yesterday pumped more than $1.3 billion into Australia’s financial markets as a precautionary measure to keep liquidity levels up for local banks and is expected to make more funds available in its regular market operations this morning.”

    And here’s the PM with the usual soothing stuff-

    ‘PRIME Minister Kevin Rudd has warned that the global financial crisis has a long way to run.
    Mr Rudd said he had earlier today discussed the ongoing crisis with Treasury officials and the Reserve Bank in the wake of recent developments in financial markets.

    US investment banking giant Lehman Brothers was yesterday forced to file for bankruptcy as a result of the fallout from the global credit crunch.

    Mr Rudd told parliament today that the Federal Government was undertaking a number of concrete measures to combat the global financial crisis and protect the Australian economy.

    The Federal Government was supporting a push for greater transparency in global financial markets, a lack of which had in part gone to the heart of the credit crunch problem, Mr Rudd said.

    The government had also acted to boost liquidity in the Australian economy by expanding the government bond market to ensure that broader financial markets operate effectively, he said.

    “These are concrete measures we’ve taken in response to the advice provided to us from Treasury and others in the first six months of this year because upon taking office we were acutely conscience that this global financial crisis was not over, it had a long way to run,” Mr Rudd said.’

    Basically they’ll throw money at the banks to make sure the nervous nellies can take out their dough if they want to. When they find they can they’ll stick it back again. However that might mean a short run drop in interest on your funds, so you might want to lock in to some term deposits for 5-12 month tranches. Five years is the max, but that’s a long time and interest rates might spike again after this initial injection of cash, if the world economy continues south and lenders get scarce cf borrowers. Sooner or later the central banks(particularly the US Fed) have to stop printing money and then real interest rates could rise sharply when they do. The US Fed refusing to bail Lehmans is the recognition of that simple truth. They have to tread the fine line between providing suitable ongoing liquidity to avoid financial seizure and picking up much of the current structural insolvency. A very fine line now to be sure.

  15. this is what i reffered to the other day,

    from alan kohler today …

    Last night our time, many of those employees were leaving the flash Lehman Brothers building carrying cardboard boxes and glum expressions.

    The final indignity for them might be that creditors claw back last year’s $5.7 billion in bonuses. That’s right – Lehman paid an average of $US219,000 in bonuses to the staff in 2007, although of course they were massively towards to top, starting with CEO Dick Fuld.

    Total compensation at Lehman in 2007 was $9.5 billion, up from $8.5 billion in 2006. Sixty per cent of it was paid in bonuses.

    so in just the last two financial years they paid out $10.8 billion in bonus’

    capitalism?

  16. SAmiths – we now have falling oil prices; falling interest rates; declining unemployment and a lower Aussie dollar which will increase returns for exporters.

  17. “So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?”

    Well there’s at least two factors involved – a recovery in the value of the US dollar and a decline in inflationary expectations.

  18. “So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?”
    He’s not the only one wondering-
    http://www.atimes.com/atimes/Global_Economy/JI17Dj01.html
    However you’ll recall how all those financial derivatives and the bloated financial intermediation industry all looked hunky dory until the day the music died. Trading bullion futures can be like that until someone big stands in the market and demands delivery. That could mean a very eerie silence too.

  19. “we now have falling oil prices; falling interest rates; declining unemployment and a lower Aussie dollar which will increase returns for exporters.”

    With a 20% fall in the $AUD, that will no doubt protect commodity exporters from falling world prices. Those prices were quickly driven up when the ponzi scheme in asset prices due to past central bank profligacy broke suddenly. That was the signal for that funny money to go looking for value in commodities and commodity streams. As it did so it drove up prices until global demand was smashed and back they’ve come from their peaks. That 20% fall in the Aussie has not begun to be reflected in imported inflation yet, but it is on the runway now. As for employment, the latte/financial intermediation/service consumption economy was still booming even as manufacturing was declining. Cheap money fuelled the former but inevitably that would crucify the latter by crowding out manufacturing investment and competing for its inputs. Classic monetary induced boom and bust. Manufacturing always falls, even as the consumption sector is still rising, presaging the end of it all and given the length and depth of the monetary expansion, this one will rival the 1930s now. Even that well meaning Keynesian meddler Greenspan can smell it now and it’s a long way back to unwind all those monetary induced malinvestments.

    God only knows what central bankers world wide have been cooking up to cover their backsides recently. In that regard that US Mint stasis in gold reserves since 2006 is not a good look. It’s a reasonable question to ask- Have central bankers been playing locked door games with their traditional nemesis lately? Or in other words show us yer gold and prove it’s freehold chaps.

  20. On second thoughts, it’s probably all a bit academic now chaps-

    ‘THE Federal Reserve said today it was set to make a “large” injection of liquidity to help stressed financial markets, a move coming on the heels of similar actions by other central banks.

    The Federal Reserve Bank of New York made the announcement a day after the US central bank injected $70bn dollars into financial markets amid turmoil following the bankruptcy of Wall Street giant Lehman Brothers.

    The Fed “stands ready to arrange further operations later in the day, as needed,” the statement said.

    Earlier, the European Central Bank, Bank of England and central banks of Switzerland and Japan pumped pumped billions into the markets for a second day on Tuesday as it joined other central banks in trying to contain the fallout from the collapse of Lehman Brothers.

    The operations came after Lehman Brothers filed for bankruptcy protection on Monday and after fellow Wall Street giant Merrill Lynch was bought by Bank of America to prevent it suffering a similar fate.

    US insurance giant AIG was also reported to have sought a massive emergency loan to head off its own crisis.

    The events sent shockwaves through markets and prompted central banks to provide the extra liquidity to keep banks lending to each other and avert a wider freeze-up of the entire financial system.’

  21. casheduphippie

    on monday you asked what to do with your 500k

    i advised purchasing gold, it was US$770oz

    that would have bought you 643.5 ounces

    today it is US$8800z which would have netted you US$66,000

    in four days,

    i would like a 10% fantasy cut of the fantasy profit

    a cool US$6,600 for some random thoughts

    wouldnt it be lovely it was that easy

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