Collective unemployment insanity

[Kristofor]

Another 71,000 people lost their jobs yesterday, probably many more as companies announce earnings over the next couple weeks, and millions since the start of the recession.

Now, a fair number of those early losses were due to the housing bubble bursting, and cheating finance companies going belly-up. Those aren't "good" job losses, but they are probably at least rational at the large scale.

Now we're at the point where retailers, durable goods manufacturers, service industry, etc. companies are starting to cut their staffing due to the slowdown and increasing unemployment. While the cuts at any one company are good for that company over the next X quarters they adversely impact almost every other company in the market that just lost those employees as customers. Collectively they're all worse off for having made those cuts as the impact feeds back on itself.

How many people would take a 10% hit on their 401k so the companies whose stock went down didn't take the step of laying-off millions? I know I'd much rather have had a 10% drop than the 25%+ drop I've seen...

So, what if anything would be an effective way to address the issue? Appealing to the hearts and good will of CEOs is almost certainly a losing proposition. The concept of doing something for the general good is likely lost on someone making 500x what his/her workers make and driven by the goal of short term stock appreciation...

Are there other (more useful) ways to influence the behavior of companies on a market-wide level? Are there changes in the executive compensation systems, business regulations, tax code, etc. that would helpful in leading companies to make better decisions when evaluated across the economy?

[DUD]

I know that LOML has lost a bunch of Her 401k, and She can't afford it. She is close to

retirement age and losing $5k K a quarter is bad news. I don't know the answer, but 1

thing I believe, Don't give the CEO's a big bonus while they hurt the company. Bill

[master53yoda]

part of the problem is that most of the investing public ( us ) don't understand that the market takes a 65% correction before it resumes its upward movement.

Just prior to the correction and at the close of the correction the market will swing approximately 25% in the last 10% of the time involved in the last direction of movement.

That said any environmental actions taken to modify the opposing movement just extend the time needed for the movement and sometimes make it worse.

An example is Greenspans actions in the 02 and 03 of reducing both the cost of credit to the banks, and worse, the amount of money held by the banking system in reserve caused the real estate boom that moved the final stages of the market correction out 5 years and in likely hood making it worse then it naturally would have been. The excessive availability of money was addressed by an extreme loosening of the mortgage credit requirements and the development of ARMS which had to cause a collapse in the real estate market if and when the interest rate started to climb causing the readjustment of the arm mortgages, which is exactly what happened. People were also buying houses that were at the maximum mortgage limits that where possible and also many times getting 80/20 loans that removed the requirement of mortgage insurance that was common previously. People where buying homes that really had no business owning homes and had no idea how to manage money effectively.

With out greenspans interference in the economy the market would have dropped about 10% lower then it is now in 2003 and we would not be where we are now.

The real nasty problem that we face now is that if deinflation actually happens after you remove the effect of the fuel price spike and fall. It could cause a long term drop in the market that could be as much as the full 65% of of the 2008 highs instead of just the completion of the 2000 correction. If this happens we may not see a return to the 07 high for 10 to 15 years which will bring us into the drop that will happen when the baby boomers (us) must start removing money from our 401Ks and not adding to them which will reduce the influx of new money that started in the late 70s.

My method of dealing with the market is technical analysis which is operated by pulling out of the market when The price drops more then 8% returning to the market when the price goes back above the 150 day moving average. I also use some other technical analysis information that is beyond explanation here. Yearly returns for that last 20 years have been approximately 20%+ annualized. The advent of the index trusts in the last 10 years have made this far easier to attain then before as the need to invest in and track multiple individual stocks has been replaced by the index averages.

Think about how much time you spent learning your vocation and how much money you earn in that invocation. At our age we need to spend the time required to understand the money markets at as deep a level as we do our vocations because the next 30 to 40 years of our lives financial health will depend on doings so. Financial people by and large do not just leave there money sit in the market as they suggest that we do. Also the size of the mutual funds make them hard to mange at much better then the market can do, this does not really become an issue until you are dealing with more then 3 or $4 million. Then you would need to become a market maker as Warn Buffet driving the price of a stock up or down a few cents buy buying and selling multimillion share blocks in one day. These shifts normally don't truly affect the price of things in reality but generate a lot of short term money for those involved.

enough this is way to long

[cgallery]

Yearly returns for that last 20 years have been approximately 20%+ annualized.

That sounds great. But how do you know that it will work going forward?

[cgallery]

How many people would take a 10% hit on their 401k so the companies whose stock went down didn't take the step of laying-off millions? I know I'd much rather have had a 10% drop than the 25%+ drop I've seen...

I don't think 10% would do it.

But we do have unemployment insurance and welfare which are at least partly intended to buffer bumps in the economy. It works. People on unemployment/welfare spend a much larger percentage of their income than the rest of us. It keeps the economy from falling off a cliff.

[LCHIEN]

are you asking me to take a 10% hit on my 401K IN ADDITION TO THE 30-50% HIT I'VE ALREADY TAKEN???

[RAFlorida]

I started to post a rant agreeing

with everybody. But then, "Struggling Citigroup purchasing new jet" blew me away.
http://www.upi.com/Business_News/200...6171233003259/
Did hear through the news that they now refuse to accept the jet because some much flap over their buying spree.

[cgallery]

with everybody. But then, "Struggling Citigroup purchasing new jet" blew me away.
http://www.upi.com/Business_News/200...6171233003259/
Did hear through the news that they now refuse to accept the jet because some much flap over their buying spree.

I heard about the jet but I didn't read any of the stories. I wonder how long ago the jet was ordered. They aren't typically off-the-shelf items one orders and receives a few days later. If they ordered it before things really started to unravel, and there were substantial penalties to them walking away, I'd say take delivery.

[cgallery]

are you asking me to take a 10% hit on my 401K IN ADDITION TO THE 30-50% HIT I'VE ALREADY TAKEN???

So you're down to what, $10 million?

So in the long run, another 10% hit may not be so bad.

It can go to zero, you know.

[master53yoda]

are you asking me to take a 10% hit on my 401K IN ADDITION TO THE 30-50% HIT I'VE ALREADY TAKEN???

No I'm saying if you understood the way a free market works you would not have been in to take more then an 8% drop in the first place. What i didn't bring up is that I reverse my position not just get out. I lost 8% max then reversed and have now gained an additional 30% during the the last year in the same market that has fallen close to 50%.
The market patterns correct at 65% the same as it has always done and any natural wave pattern does including the waves in the ocean.

Look up the Fibonacci Number it is in any natural wave pattern whether its music, biorhythms or the stock market. The study of those patterns in the stock market are called Elliot waves.

Proper financial planning would allow you to be prepared to survive a 6 month to 1 year loss of income which would ride out most things such as a job loss.

We could always live in a socialist country where the government controls everything and then after a few years the demand exceeds the supply of everything down to the grocery store. Have a talk with anyone that has livid in the USSR if you want a comparison. A free market economy will always have down times, we just must be wise enough to plan to deal with them with savings, insurance etc.

[master53yoda]

So you're down to what, $10 million?

So in the long run, another 10% hit may not be so bad.

It can go to zero, you know.

If it did you and I would both be living in a cave and everything would be mute

[cgallery]

What i didn't bring up is that I reverse my position not just get out. I lost 8% max then reversed and have now gained an additional 30% during the the last year in the same market that has fallen close to 50%.

Wait, are you saying an 8% move is enough to change you from full long to full short? And how quickly does the swing need to occur in order to trigger your move? Looking back at the graphs over the last year or so, there have been some pretty rapid moves > 8%.

[cgallery]

If it did you and I would both be living in a cave and everything would be mute

As long as there is high-speed Internet...

[Kristofor]

No I'm saying if you understood the way a free market works you would not have been in to take more then an 8% drop in the first place. What i didn't bring up is that I reverse my position not just get out. I lost 8% max then reversed and have now gained an additional 30% during the the last year in the same market that has fallen close to 50%.
The market patterns correct at 65% the same as it has always done and any natural wave pattern does including the waves in the ocean.

Look up the Fibonacci Number it is in any natural wave pattern whether its music, biorhythms or the stock market. The study of those patterns in the stock market are called Elliot waves.

Proper financial planning would allow you to be prepared to survive a 6 month to 1 year loss of income which would ride out most things such as a job loss.

We could always live in a socialist country where the government controls everything and then after a few years the demand exceeds the supply of everything down to the grocery store. Have a talk with anyone that has livid in the USSR if you want a comparison. A free market economy will always have down times, we just must be wise enough to plan to deal with them with savings, insurance etc.

20% year over year? You could have kept Madof's funds solvent if you had been running them, they only needed 18%

I have dollars on hand to pay off the mortgage and car with cash left over (but nowhere near enough to retire at that point...) so I'm not really worried about how I'm personally going to survive. That said there are plenty of folks who aren't in that position and it's not really their "fault" in many cases. It sure feels like there is a lot of unneeded pain in the system right now.

The model you are proposing only works if a very small percentage of investors follow it... If everyone calls in sells their stocks when the market is down 8.0001% the price instantly collapses and the poor folks waking up later on the west coast may be down 50% before they can sell. At some point the prices should hit whatever the value of the underlying company assets are. Of course once those values increase enough to hit the threshold for everyone jumping back in the pool the price sky rockets until something cycles the process over again.

I'm not saying let's form the USSA, or that I want to lose another 10%. That was an illustration of the impact the layoffs were having on stock prices (pennies of earnings per share, not dollars). What I'm saying is that continually trying to cut staffing to address reduced revenues is great in a given company or industry as it leads to lean mean producing machines blah blah blah. However, when it's happening as a response to other companies cutting it can be a nasty feedback loop.

If there is a block that burns down in your town you will likely need less water tower capacity with the reduced usage, and if the damage is severe or widespread enough, it would likely result in a reduced need for police, fire services, building inspectors, tax assessors, etc.

But if there is a lightning started fire (housing and finance bubble burst) sweeping through your city (recession) and many blocks are threatend (companies/employees) as each one falls (bankruptcy / lowered earnings) we dump (layoffs/wage cuts) 1% of our firehoses (employees), sprinklers (physical plants), and water tower capacity (stores) to reflect reductions in projected need for fire suppression (our goods/services) the effect componds itself (Company A's projected revenues go down so they lay people off, then company B sees more unemployment as a sign their projected revenues will go down and cuts their staff as well leading Company A to realize it's worse than they projected and they cut again, etc.).

Eventually something makes the flames stop (productivity increases, technological innovation, war, etc.) and the process reverses. As blocks are rebuilt more equipment is needed, more building inspectors, firemen, cops, carpet cleaners, dog walkers, etc. are needed again as there is an expansion.

I agree with you Yoda that on average a free market tends to be more efficient in the long run and restrictions add friction to the system. In general less friction is better. But breaks add friction to an automobile system too. Using them makes it take longer to go anywhere, which is not a bad thing when you're going down a mountain or around a sharp curve. Sure it slows down progress but there's much less pain or fear in the process and fewer wrecks alongside the road.

Wow, way too long, sorry!

[master53yoda]

the volatility in the last year has been a little bit of a problem but once you hit the first 8% counter move early in the year it requires breaking the daily average before you would return to a long position. for retirement long term money I would not be trying to work with intraday moves. The charts I use are 180 minute charts with an overall move longer then one day. My system has tripped a couple times in the last year but losses are always limited to 8%. Look at QQQQ and SPY charts. The overall market is short but I feel getting close to the overall bottom. I am somewhat concerned that i have taken this completely out of the direction 0f this site and apologise for that. my main idea was not discussing trading methods because they are many but becoming as knowledgeable about the market as possible so that the cyclic nature of a free market system doesn't affect us so much.

Assessing the market is like assessing when to resharpen a saw blade there are many early signs that it is getting dull but many of us continue to run it and don't recognize the problem until after it stops performing and does damage to a project. Complaining about a failed market is similar to complaining about a blade that is causing problems and still using it.

The more knowledge we have the less mistakes and the quicker we will see the need for change. A site with much available knowledge is http://stockcharts.com/ I would suggest any interested to go there.