Be the bid!

[DanS]

Honestly, Ben, I can't figure out what you're asking.

[Ben Kenobi]

Check your PMs. I'm just asking whether it is a correct assumption to include inflation adjusted figures in a deflationary environment.

[DanS]

Yes, of course. You would just be subtracting a negative inflation number -- meaning that it would be an addition to the nominal rate.

[Ben Kenobi]

Ok, thanks.

I appreciate you taking the time to answer my surely stupid question.

[notyoueither]

even though I was bearish more than most... IMO this should be turning around... but

a - I did not expect it to go so low so early... ie now two weeks straight going through all previous barriers without stopping
b - there is still at least one quarter to go until the worst is out... in Q3, it should be much better (unless something major screws things up again)...

I'll stand by my previous prediction of going into 6k range & going back to 8-9k by year end...

this drop is early though, so I hope it is not a sign of something that "markets" know and is not out yet... but I doubt it... for example emerging markets could be REALLY bad, which is not really fully out in the open yet, but I sort of doubt that it will come to it significantly affecting the expected recovery in US... that will be more of a Euro armageddon, and as much as that can affect US markets (probably a fair bit, but I don't think it can prolong the pain much in US itself)

The toboggan is just picking up speed.

The worst financial news is still coming.

[Agathon]

Better join the party before they get flooded with applications, eh?

[notyoueither]

I don't think it's going to go so far as to see countries going Marxist. A little social unrest perhaps, but there's not a lot the heirs of Lenin are going to be able to offer that modern welfare states don't trump.

[notyoueither]

I see some discussion of value, here and elsewhere. If I have it correctly, P/E and dividends are thought to be favourable.

The question I have for that is, are fundamental changes to the economy taken into account in those factors? I mean, you can't very well take historical earnings or dividends into account if the underlying profitability of the corporation has to be adjusted downwards.

Well, I suppose you can, but then you can also buy property in a bog to build your house on.

[Agathon]

I don't think it's going to go so far as to see countries going Marxist. A little social unrest perhaps, but there's not a lot the heirs of Lenin are going to be able to offer that modern welfare states don't trump.

I don't think so either. The Marxists have been in disarray for a long time, so they're in no position to do much. The people you have to worry about are those from the "other" side. They're the people who have been making all the noises, and if history is anything to go by, they will attract quite a lot of support from the middle and upper-middle classes, who can get quite authoritarian when they feel their position in society is threatened, as it is now.

You have a bunch of people who have paid a small fortune for educations that they were told would place them well above the norm in terms of income, and property investors who are now facing significant losses. I'm sure the prospect of going back to a 1960s style tax regime and a flattening of incomes have them rethinking their commitment to an open society. You just watch the "aspirationals" go septic once the bills have to be paid. Looking around it seems to me it has already started.

Overall, the winners will pretty much be India and China. The losers are our countries. About time too, as the West lost any sense of direction it had a long time ago.

[Agathon]

AIG is going to report a $60 billion dollar loss for the quarter. That beats AOL's record loss from 2002, and is the largest quarterly loss in history. AOL's was caused by a change in accounting rules and the TW merger, AIG's seems to be nothing more than pure fail and AIDS.

That's over a cool $100 billion they've lost in 5 quarters, most of it over the last year.

Doesn't the US government own 80% of the stock? Epic fail...

[notyoueither]

AIG will be an interesting test of the new market.

[Agathon]

abandoned post due to ****ed forum

[DanS]

I see some discussion of value, here and elsewhere. If I have it correctly, P/E and dividends are thought to be favourable.

The question I have for that is, are fundamental changes to the economy taken into account in those factors? I mean, you can't very well take historical earnings or dividends into account if the underlying profitability of the corporation has to be adjusted downwards.

Well, I suppose you can, but then you can also buy property in a bog to build your house on.

Yes, the profitability of these companies will be impaired in the short term (but not as much as you might expect in these circumstances). Long-term, profit as a percentage of the economy will revert to the mean. I and some others in this thread are playing a long-term game. We're buying our pieces of this long-term profit stream at favorable prices and favorable interest rates.

[notyoueither]

How much do you think profitability will be impaired, and for how long?

[DanS]

Short-term, profitability will be impaired substantially. Looking back at the S&P 500, 2008 earnings were down about 60% from 2007 levels (there are still a few companies yet to report 4Q, so that decrease could be larger). 2007 earnings were down about 19% from historically very high 2006 levels.

But companies threw the kitchen sink into write-offs with the 4Q 2008 earnings. Because of this, 2009 earnings are likely to rise substantially, even in this very tough environment. 2010 earnings should be reasonably good.