How Were You Affected By The Market Turmoil?

[Dhondy]

Overblown? I'd say. A couple of banks fail on either side of the Atlantic, and suddenly it's apocalypse. Gold crosses $1000, oil hitting the roof, bank stocks taking a hammering, the Swiss Franc breaking parity with the dollar, it's all hands to the pump, it seems. Certainly, you didn't have to be one of the greatest students of the Great Depression, as Ben Bernanke is, to see this coming. People's indebtedness can only reach a certain ceiling, and clearly that level had been reached. In the Anglo-Saxon world on either side of the pond, people were house shopping like you go and buy a pack of fags in the supermarket- "Ohh, shall we go for the one that costs half a million, or the one that needs a bit of work down the road with the swimming pool?" Property bubbles built up throughtout Europe in places as far afield as Spain and Ireland, fulled by the willingness of banks to lend and lend. Although the riskiest of such lending took place in the States, nobody was immune. Here in the UK, the highest mortagage you could be lent is three times the multiple of your annual income. People were getting away with six-seven times their salaries. But has the reaction to the inevitable unravelling of such trades been over the top? If the worst comes to the worst, and America does enter recession, given its high productivity, the very high levels of investment by its companies, and the boost to the exporters through the now long suffering weak dollar, the downturn is likely to be very short. America will be hiring again, come the fall. Only, people will be wiser, save more and look at their affordability before they put down deposits on houses. Surely, that can't be such a bad thing? Here in the UK, talks of 10,000 people losing their jobs in the City is already looking like an overestimate- the latest figure is closer to 5,000. Retail sales have shown a rise in February, unemployment has just hit the lowest level in a generation, inflation is at 2.5%, and despite showing a rise, is piffling, compared with bad old 1992, when the UK was thrown out of the ERM, and Britain's export sector, albeit leaner than before, is booming despite a strong sterling, because only the fittest have survived. Did you feel the cold breath of recession or redundancy? Were your investments at risk at any point during this market upheaval? Were you one of those who paid over the odds for your dream house? I don't expect answers on a public forum, but if the answers to any of the above was "Yes", whatever you do, don't listen to the pundits. The doomsday secenarios are way oversubscribed at the moment, but I reckon that this storm will blow over very soon.

[Lurker]

The doomsday secenarios are way oversubscribed at the moment' date=' but I reckon that this storm will blow over very soon.[/quote'] I am not so optimistic that this is going to get blown anytime soon. Something is terribly wrong with the very basics of Finance and amazingly enough it has flown right under the radar. Case in point Service industry. This industry is one of the only industry that continues to make profit. But Services in themselves do NOT generate any income. It only mooches off a Producer and sells to the consumers. When a stock broker starts making more money than an Industrialist, and a consumer, then something is fundamentally wrong here. Wrong because Industraliast is putting pretty much all he has at the table while consumer will spend his hard earned cash to get it. The broker will neither spend money on a product, nor any to buy it and still may come out making the biggest profit!! This is exactly what finance companies are doing. They are putting in minimum and generating maximum and when they do put in their own money they come out a cropper. I mean these are Wall Street guys, the best and the brighest, how could they possibly get it so wrong? Coming back to service industry. Take a look at how IT & ITES operates. I have no qualm in accepting that I am an overpaid consultant. Atleast I am honest about it. How can I reconcile the fact that there are people who are putting in more work, and effort, and make half the money I do? IT folks easily make twice the salary than average Joe and that has pushed the price everywhere. And for all of these IT folks are expense for a company, we dont generate any revenue in the first place! Somethings got to give. xxx

[Gambit]

I think you are triviliasing the Meltdown. Why so many economists are astounded is because of the impact the housing market in the US(one part of the world) has had on so many markets throughout the world. What people have realised is that given the coupling and intricate integration of markets in the developed economies today, one just cannot have one economy to recede and the others to remain unaffected. This securitisation of loans stunt pulled by so many IBs further fuelled this mess and disseminated the loans as well as the risks associated with them throughout the globe. Banks and other fund simply didn't understand the risks they were undertaking. This was a big oversight. Big institutions like the NR in the UK, BS in the US, Agricole in France, Citi, MS, HSBC etc have either collapsed or taken massive massive hits. The only big economies that have come out relatively unscathed are the BRIC nations as they are not as coupled as, say the EU, with the US economy. Relatively speaking, exports to the US account for only a small %s of their GDPs. What these nations did right was to increase business amongst each other, within emerging economies market i.e. China to Russia, India to China etc. This has kind of insulated these economies from the crisis. The housing market is a massive one. It's worth $11 trillion. What the Fed is doing(injecting $200 Billion to ease the credit crunch) is effectively adding a few drops in the ocean. It simply won't stop the bleeding. Where is the money to compensate for the losses going to come from? The foreclosed houses as securities are basically worthless in the market today. Institutional investor are not going to touch the market with a bargepole for a long time. Their fingers have been badly singed. My understanding of economics is fairly basic(maybe people like sarchasm can shed some light here) but even so, I can't see the US and the European markets recovering from this soon.

[Dhondy]

Lurker, if I read you right, you are saying that IT folks are consumers in the economy rather than producers. I'd say the same may apply to doctors. Are they dispensable then? In a way, I suppose we all are. However, wealth creation in the industry in not just confined to the industrialist (read, the manufacturer), but to the banks, who make profit through their lending, the financial consultants, who sell their expertise to those who need that knowledge, the B&B owners who put up tourists attracted to the burgeoning reputation of a country. As an IT consultant, you are responsible for maintaing the infrastructure that makes all this possible, and therefore I believe that your salary is appropriate to the market forces. In the future, you may have to work harder, and be more productive to earn the same wage, but that's not neccesarily a bad thing.

[Lurker]

Lurker, if I read you right, you are saying that IT folks are consumers in the economy rather than producers. I'd say the same may apply to doctors. Are they dispensable then?

The difference will lie in the roles played by Doctor and IT Dhondy. Doctors can provide service by themselves, IT can not. In the end IT is a facilitator and thats that. One can use MSN/Yahoo to chat/email and yes it definitely facilitates the communication but the world did survive with good old pen, paper and letter. If you are a Doctor in say a Finance company then yes you would be an expense. Afterall you dont generate any bottomline for the Finance company. However if you are a Doctor in a hospital/private institution/private practice/National Health etc then you are generating revenue for them. Similarly IT consultants working for an Arthur Anderson would be revenue for Accenture but an Accenture consultant doesnt work at his office, does he? Most likely he will be working for British Petroleum and charging by the hour. Most IT consultants, if not overwhelming majority, work on this Business model and they are ultimately expense.

However, wealth creation in the industry in not just confined to the industrialist (read, the manufacturer), but to the banks, who make profit through their lending, the financial consultants, who sell their expertise to those who need that knowledge, the B&B owners who put up tourists attracted to the burgeoning reputation of a country

I do agree that banks, financial consultants etc provide a service and hence should be paid for it. However my gripe is when these institutions become more powerful than the producers/consumers. Think it like this. If a patient goes to a Doctor and pays 50 dollars for his service what is the correct %age the insurance companies should receive out of it? I say at most 10%(5 dollars). I would be totally against anything more but the fact clearly are different. It is the same everywhere really. Artists make a CD, get 2 bucks off it(if that) and the CD is sold at 15$. Go figure. This middleman thing has escalated the price on every item. xxx

[Dhondy]

Gambo, I am not sure markets going ever upwards is such a good thing. Ultimately, companies should appreciate in value because of solid fundamentals, because a product the make is worth paying money for. When I see people paying close to the billion dollars for websites such as Bebo, I shiver. What's gone wrong with some people? The lessons of the dotcom crash surely haven't been forgotten so soon? People are terrified because of recessions because they entail job losses. Similarly, stock market crashes scare the hell out of punters because they have their pensions invested in them. Many others use shares as a saving vehicle. My answer to this is that, ultimately employment must be found in area where there is a demand for your skills. If you are working for a dotcom startup whose only capital is a few young kids logging on between semestars, then obviously you are walking on water. OTOH, improving your skills to the extent that a coroprate giant takes you on because you possess knowledge that nobody does- I'd say that's the sort of stuff people should aspire for. That's where knowledge deserves a decent wage, where services can proudly look at manufacturing and feel equal. Similarly, there's nothing wrong with your savings earning a 2%, 3% or a 5%, whatever the interest rates in your country are, through a fixed deposit. You'll never be a millionaire, but you'd never be out of pocket, or lose thousands at the whims of some rogue trader on the internet, as you would, if you took shortcuts.

[Dhondy]

So none of you modafokas have been affected by the financial crisis, I take it?:D Sat plush in your upholstered armchairs, counting your Swiss Francs, are you? While planning to buy Florida condos, selling at a third of the price they commanded a year ago? Maybe, even joining the royal family on a skiing trip at Klosters, while planning another hedge fund? Tell you what, you'd have to be a Ruskie to be happy and smiling through this lot, unless you are skint like me of course, in which case, you have nothing to lose. Putin's Russia is sitting on a third of world natural gas resources, around a seventh of the oil, and around 6% of coal resources. With oil breaching 100 dollars, no wonder the Nasser Hussain lookalike is looking increasingly smug with himself. Imagine, during the poor sod Yeltsin's last year in office, oil was changing hands at $12 a barrel. How times change! Turmoil in the Middle East has been a bonanza for this one country. As long as the oil prices remain high, Putin gives a toss as to what's going on in the financial markets. In fact, he is positively revelling in it, while bullying the hell out of the likes of BP just for the heck of it.

[Bumper]

Interesting thread. I'll respond when i find time. This time the investors have no place to run. Stocks are falling, real estate is getting whacked. Oil & Gold cannot keep rising. Something's gotta give.

[cochise]

What do you think of this opinion? http://elainemeinelsupkis.typepad.com/money_matters/2008/03/elaine-meinel-5.html Makes simple sense...can it be so?

[Bumper]

The market meltdown has whacked me in quite a few ways. I have given up my year's worth of gains, in weeks. My 401K, my wife's, have been whacked. Many of my friend's homes have fallen to 3 year's lows. However, am hopeful that this is just a correction, not as deep a recession as the one witnessed early in the decade. In late 90s, the economy boomed based on bogus IT companies -- companies with no business model or fundamentals. There used to be a popular joke in the silicon valley that all you need to do, is to write up a business plan on a toilet paper & viola, you have your funding. An economy built on such flimsy companies was gonna fall anyways. And the fall was gonna be proportional to the rise (Nasdaq index has risen from 2500 to close to 5000 within one year, back then). The bubble burst eventually. The result was an IT meltdown, 1000s of IT workers laid off, 100s of companies shutdown. Sep 11 attacks, didnt help either. It only sent the struggling economy into further depression. Fortunately back then, the housing market was poised to take off & it did. Soaring rents, affordable interest rates & home prices, meant investors found a safe haven in housing. And now we are paying for the housing bubble. Unlike 'that' recession, neither the stock markets nor the housing industry is a safe haven for investors in current market conditions. To top it all, the Fed is forced to cut interest rates, further weakening the dollar, which is already at its all time lows vs the European currencies. Fortunately, this is not based on an industrial bubble, which means, many of us IT folks, dont have to be unduly worried about our jobs (hopefully!). But there will be an impact to both product & service companies. But am hopeful that most companies will come out of it. Personally i think this is a great time to invest in yourself. Go to school. Get a business degree or an auxillary qualification, that makes your skillset more compelling. I am gonna go to B-school & get an MBA. If you go by history, thats what most professionals did, during recessions. I am not worried about recessions. Booms & recessions are part of the economic cycles. The stock markets & real estate may go up & down many times, but over an extended period of time, the direction is UP. The markets will come back, stronger than ever before.

[Dhondy]

Thanks for that, Bumps. You make an excellent point about upgrading skills and knowledge, something I touched on earlier. The markets continue to be sombre. Let alone the US, people are predicting a recession here in the UK, despite the encouraging employment, inflation and export figures. Once the mood is down, it becomes a self fulfilling prophecy, where loss of confidence in banks and economies turn into a tailspin. I wish people would just stop talking the markets down.

[Ram]

Bumps, are you going to do a full-time MBA ?

[Bumper]

Bumps' date=' are you going to do a full-time MBA ?[/quote'] I am a bit old for full time. I'll be starting this Fall, at UCLA Anderson's FEMBA (part time)

[novpj]

OK I am a pessimist and believe that the worst is not over. Remember the most no. of mortgage resets are expected in summer i.e. more foreclosures on the way. For a thoughtful view on whats happening in the financial system right now - read Bill gross's article. He posts his investment outlook every month on PIMCO website. http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+March+2008.htm

[fineleg]

I am a bit old for full time. I'll be starting this Fall' date=' at UCLA Anderson's FEMBA (part time)[/quote'] Thats nice. Best of luck. I think its a wise decision to do it part time, though you'll have to juggle things, its a safer bet in today's seeda saada economy.

[THX_1138]

Investments took a plunge... but luckily the financial instrument i am invested in guarantees a minimum 6% growth in the even the market fails to sustain a similar growth. cant imagine what happened to the people who invested in instruments put forward by Bear Sterns, Credit Suisse etc etc.

[THX_1138]

check this out: [ame=

- Bird and Fortune - Subprime Crisis[/ame]

[retterimp]

are any of u guys full time traders or just investors?

[cochise]

YouTube - Bird and Fortune - Subprime Crisis

:hysterical: Many a true word said in jest...this is brilliant!

[THX_1138]

are any of u guys full time traders or just investors?

i dont trade... way to expensive, but i manage my aunt, mine and my dad's retirement funds in my spare time. usuall do a rebalancing every few weeks, but then again the portfolio is quite diverse and in one particular case, has a minimum growth guarantee, so i am rather relaxed in my approach. if you are intending on investing and trading full time, i would seriously discourage it unless you have considerable knowledge of forecasting mathematics and years of experience, and means to do terrific research. nonetheless, investing in a bloomberg machine might be a step in the right direction (if you choose to persist inspite of my warning). costs about 1100 a month for the service, but it is quite thorough, albeit at times a bit cluttered.