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A crash like the one in 1929, a worldwide economic slump,

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raccoon Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-29-06 12:58 PM
Original message
A crash like the one in 1929, a worldwide economic slump,

I've been fearing that happening for years, and I still do.

Am I just a nervous nelly, waiting for the other shoe to drop? I know the US is in debt to the eyeballs, but as I've said, I've been thinking for years that the crash is gonna come.
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A HERETIC I AM Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-06-06 09:42 PM
Response to Original message
1. The 2nd great depression has been coming for more than 30 years....
and it isn't likely. Analysis Paralysis. Don't get caught up in it.

http://www.amazon.com/Crisis-Investing-Opportunities-Pr...

That book was written in 1980 and the Author was CONVINCED he was predicting something coming in the next few years.

The US Financial markets are much more regulated, much deeper, much more transparent and much more liquid than they were in 1929. Hell, more than they were in 1987.

Yes. You are a Nervous Nelly. Is everything rosy? Not by any means but we aren't on the brink of a depression either.
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tbyg52 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-08-07 06:25 PM
Response to Reply #1
2. What's your opinion
on hedge funds and PE groups that have been in the news lately?
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A HERETIC I AM Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Jul-09-07 05:06 PM
Response to Reply #2
3. I think they are have drawn more attention to themselves than they probably wanted!
Hedge Funds do exactly what the name implies: They hedge. Most are out of the reach of the average investor with some having minimum investment requirements of $100,000 and provable liquid net worth requirements of $1.5 million or more. For the most part, a hedge fund seeks a consistent return regardless of market direction. They often seek high yield fixed income instruments and can employ sophisticated options techniques as well as futures, derivatives, short sales of equities, arbitrage techniques, offsetting long and short positions, commodities trading and currency speculation.

The main troubles of late seem to have risen from the purchase of complex debt instruments like the "CDO" you may have heard about recently. The dangers occur when they (the CDO) is employed on a large scale because the instrument can be and often is highly speculative. If they stayed the hell out of the public markets, it might not matter that much but they don't and since most Hedge Funds have strict entry requirements for investors, they can take much more risk than say, a typical Mutual Fund. They can have an enormous effect on a particular segment - home loans, for instance - if billions are injected into a segment of a market that otherwise would not have attracted such large sums. Hedge funds are not going to go away but their appeal may very well diminish if the risk vs. reward gets to be too much, even for a very wealthy client.

Private Equity is also, just that - equity sources that are not publicly traded. Remember the movie "Pretty Woman"? The Richard Gere character ran what was essentially a PE type firm. Private Equity funds and firms have no obligation to disclose to the public their balance sheet. They are private, after all. Again though, just like Hedge Funds, they often purchase publicly traded companies and securities, and it seems the fashion of late (last 3 years or so) has been the high yield market provided by mortgage securities. To truly understand how and why these instruments have caused so many problems, it is important to understand how they are created in the first place. For simplicity, I am going to quote from the Wikipedia page on "Collateralized Mortgage Obligations"

http://en.wikipedia.org/wiki/Collateralized_mortgage_ob...
The most basic way a mortgage loan can be transformed into a bond suitable for purchase by an investor would simply to be to "split it". For example, a $300'000 30 year mortgage with an interest rate of 6.5% could be split into 300 1000 dollar bonds. These bonds would have a 30 year amortization, and an interest rate of 6.00% for example (with the remaining .50% going to the servicing company to send out the monthly bills and perform servicing work). However, this format of bond has various problems for various investors

Those problems are enumerated further in the linked article so i wont go into them here, suffice to say, the riskier the underlying mortgage, the riskier each and every one of those 30 bond issues mentioned above become. The higher the risk, the higher interest rate demanded by the market and thus the higher yield provided to the investor. Since the 2 major factors that drive markets are fear and greed, the search for ever higher yields fueled the availability of this "cheap money".

The other area in which PE firms cause concern is the "Leveraged Buyout" wherein the credit of the firm is used to borrow money to fund the purchase of a publicly traded company and hence, take it private. If you own the controlling majority of the shares of General Electric, for instance, the company is essentially yours to do with as you please. This is not always a bad thing. An example is the purchase of Detroit Diesel Corporation from General Motors in the late 80's by Roger Penske. GM was on the brink of closing the doors at DDC because they had about 10% or so of the heavy diesel engine market and they had notoriously leaky engines and antiquated designs. Penske removed that asset from GM's books, took it private and was able to turn it around so effectively that by 1993 initiated an IPO and put DDC on the New York Stock Exchange. By 2000, Mercedes Benz saw DDC as being so attractive they bought it. This exercise saved several thousand UAW jobs and turned what was a dinosaur of an engine company into a world leader in diesel technology. Roger Penske bought himself a 153' yacht in 2003. Personally, i think he deserves it.

The downside to the LBO is when a company is purchased and split up for parts, basically and the employees and company name suffer.

LBO's aren't going to go away either but the recent headlines regarding both PE firms and Hedge Funds are likely to force Congress to ensure the SEC has the teeth to force more disclosure and financial reporting. Like i said at the top, they have brought more attention to themselves than they probably wanted, but this is a good thing for the markets in general.


Damn! That was rather long winded! Was there an opinion in there? In short, PE firms and Hedge Funds have their place but if their effect on the markets and economy at large becomes too great, they should be subject to exactly the same regulation everyone else has.

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rhett o rick Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 12:41 AM
Response to Reply #3
6. Yes but, what if you thought that a crash might be near, what would be good to weather
the crash? CD's? Gold? Gold funds? If brokerage houses fail will we loose our money?
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A HERETIC I AM Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 11:53 AM
Response to Reply #6
7. If you bought shares of Google through a broker and that broker failed, would your shares be
worthless? No. They would be if Google failed, but just because you have an account with and have bought shares through a brokerage firm does not put your holdings at any greater risk. Also it important to bear in mind that firms like Merrill Lynch, Morgan Stanley, AG Edwards and the other large names have been around for a VERY long time and have weathered storms before. They are not likely to disappear. (Morgan Stanley was formed in 1935, Merrill has been around since 1914 and AG Edwards since 1887 but has now merged with Wachovia Securities. Wachovia's history goes back to 1879. The recent difficulties experienced by E-Trade should be a warning to everyone using younger or newer firms.)

There are enough doomsayers on DU so i will leave the suggestions for panic allocations to them. The fact is, a well diversified, properly allocated portfolio that is in line with your time horizon and risk tolerance is going to serve you the best over time regardless of short term volatility.

if you thought that a crash might be near, what would be good to weather the crash? CD's? Gold? Gold funds?
My answer to that question is stated above and backed up by years and years of research by people a shitload smarter than i am. If your time horizon is 12 months or less then yes, i would suggest drawing down exposure to equities and increasing the cash and fixed income portion (Includes CD's, Treasuries, Investment rated Corporates, etc.) I personally do not see a "crash" coming - a crash having a dramatically different definition than "recession" or even "correction". But i am by no means an economist or an analyst, so my opinion is worth precisely what you just paid to read it. It is becoming increasingly obvious that an investor (That includes you and everyone else that has even the smallest 401(K) or IRA) should be looking overseas. It is no longer the US and the rest of the world. It is now the rest of the world and the rest of the world. If we have an economic slowdown in this country, do you think Brazil will stop trading with Japan? Do you think Germany will no longer do business with South Africa? India with Sweden? etc. If you are not exposed to an international "play", you stand to lose ground.

If you are considering investing in Gold, one must keep in mind that Gold is a commodity and commodities tend to be riskier investments as a class than equities and bonds. What if tensions in the Middle East ease considerably in the next two quarters and the saber rattling with Iran dies down? Oil and Gold will plummet. Gold was down $47 last week alone.


Take a look at the following link:

http://www.ski.org/Admin/RSPoole_grp/EBGrinnell/PDFs/20...

The chart on the first page of that document is known as a "Quilt Chart". What it shows is as important as what it does not show. What it doesn't show is a clearly definable pattern. In other words, the best way to achieve steady, positive results is to be allocated across all asset classes.

Find a Financial Professional in your area you can trust and seek help with these questions. That is quite frankly the best suggestion one could get.
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rhett o rick Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 11:51 PM
Response to Reply #7
8. Thanks very much for the response. As far as finding a financial professional I can trust
I am not sure how to do that. When my father died my mother trusted a Merril Lynch broker and he churned her portfolio for about 2 years before I found out. Not fond of financial professionals.
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Virginia Dare Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-08-07 08:33 AM
Response to Original message
4. We've still got over a year left of a Bush Presidency..
I wouldn't doubt it, as everything else he's touched has turned to crap. There is definitely way too much debt out there, something's got to give.
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CountAllVotes Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-07-07 04:41 PM
Response to Reply #4
5. you are right
that is why I got away from the stock market after * was selected. I knew things would go nowhere but I had no idea about a 9/11 attack or war for that matter.

Since this time I've been invested in CDs. I managed to snap up several at 5.25% when the rates were at 1% and am still holding them now as I bought them for a 5-year term.

5 years X 5.25% = close to 30% (given interest compounding).

The DOW's high was at 11,800 in 2000. Now it is at just over 13,000. That is only 1,300 point gain in 7 years (i.e. approx. 10% total; i.e. 1.5% per year). :think:

That is why I do not like the stock market. When you figure it all out (say 7 x 5.25%) you realize a return of probably close to 40% during the entire 7 years time period as of now, and best of all, there is no worry either.

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BlueCollar Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-13-08 04:54 AM
Response to Original message
9. Looks like time to kick this up...
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