ttm, have had a quick look over your posts, and it's all good stuff. you are following the right leads, you're seeing the big picture ... but what are 'you' actually looking for? have a glass of wine with me so let's see what comes out of it ... excuse the grammar.
You are making good statements of fact that should wake people up to the reality of what's going on ... if they don't already know it. but what are 'you' after? cause and effect?
the 60 mins report explains everything as it happened, and is on the money (or rather the lack of it). even the point of banks and equity markets packaging the sub-prime debt up and selling it. How about poor Johnny homeowner who didn't understand what it meant to sign up to a $400,00 homeloan?
priceless! pig's rear end they didn't understand what they were doing - the owners, the banks, the estate agents. EVERYONE understood, and it was allowed to propagate. As early as late 2006 many educated people were warning of the debt crisis because of this. but all this debt became a commodity in itself - so they traded it. It's not even OK if the asset value increases - it's all just plain wrong to issue unsecured finance against assets subject to market values. It's called leveraging and is fine (even necessary) in manageable doses. Gearing and overgearing and economy is what it comes down to - the asset backing value in the background gets less and less to the point your economy becomes worthless. Hey presto, welcome to 2008.
so you might be after what the market is going to do ... well many $64 dollar questions there. If you find the answers, can you email them to me? I'd be greatful.
The DOW - is an index of 30 companies. If it appears unaffected by direct corolation then it is because those 30 companies have so far been insulated from the fallout. How and why is F/A (fundamental analysis) of market share, and income streams.
Most of the DOW co's are obviously nothing to do with housing at all ... plus it's a market cap weighted calc, so ordered from decreasing market cap tells you which ones most likely lead that index. Being 30 large organisations won't be hard to work out these percentages. Understanding indexes takes a bit of work, but they are simple enough to break down and follow. Indexes are not ETF's (make this distinction) - ETF's are completely different and are a form of derivative typically tied to a commodity price or group of companies.
You can do the same for SPX (S&P500), etc. If they are affected at all, it's because of a direct correlation to the incomes, credit rating or financing of those organisations. As for the broader market, you bet individual organisations have come close to penny shares, if not gone into receivership. Are these flag flying index companies? Doubt it - as body mass and a good legal team makes sure they deflect the immediate liabilites to remain well kept in 'appearances'. Behind the scenes, there is no stopping the debt disease spreading amongst those infected or have been contaminated.
Look no further than our (Aust) banks last year around November when the sub-prime news broke in Australia. Why else do you think BANK foreclosures followed housing foreclosures ... accumulating debt. No debt repayment, no income for the banks.
You should know fulll well trade is the key to paying off any debt. Trade = income, income = profit, profit = debt reduction. Simple economics 101. If any organisation can't manage that, they are history. Debt is ONLY EVER ABOUT servicing that debt. If you don;t have sufficient reserves to keep it managed, it takes over. Compounding interest on debt literally is a killer.
Same on a personal level, employment = income, income = disposable income (hopefully) = debt repayment.
The structural problems is what you need to look at. Structurally, their is no personal attachment of this debt, which is why families walk out and remove themselves from the liability. COMPLETELY different to Australia, where you personally remain liable for the $350,000 debt until you die, or file bankruptcy. This single point of failure in the US is paramount - look at available housing stock. Housing debt in the US in tangibly linked to the street address only, and doesn;t follow Johnny homeowner.
Warren Buffet invests in a company that makes pre-fab homes (cheap, affordable) - even they are feeling the pinch from the fallout. WB thought it might last 6-9 months back in Feb09 - hahahaha, even WB gets it wrong.
So the housing sector is pretty much shagged. New homes, resale etc are all affected. Will take many years to recover to any respectible values IMO. One option is to 'monetise' this debt. It's only a papaer loss until you sell all these defaults i.e. get rid of them by sale or auction.
On the bigger picture, while it might be a $trillion or so, it's still pennies and dimes to the gross mismanagement of global financing market and total debt facilities. As the ripple effect of the housing sector fails, small businesses disappear becuase of the bank foreclosures - Johnny homeowner no longer has a job, and consumer spending is about 70% of the base of the economic pyramid.
A huge part of the problem was and is Johnny homeowner. He was handed everything on a platter without liability. The house of cards has never been more appropriate.
Now it's a $10 $trillion house of cards ... and it really was just the beginning. We hope we are seeing the end of it, but I doubt it. All this has a negative impact on the value of the USD because the currency marks its value against key US economic indicators. The problem with most of these indicators nowadays is you have to get on your hands and knees to read most of them ... except for unemployment - that one is at eye level. Fiat currency printing is one immediate solution that has enormous deflationary effects on it's value. Zimbabwe is consistently referred to in the same breath as the US nowdays.
But that's the US - what about the rest of the world? China was going gangbusters, India's now looking for more coal, OECD reckons most are well upside the J curve of recovery. Japan is badly affected by the sub-prime - bought into it hook line and sinker. It's a debt cycle, that now has enormous momentum behind it. Some say it's a bigger picture of value corrections long overdue. Trading our way out of it is the only answer. Printing fiat currency (paper money) masks the problem - which might be why the stock market is at present values. (not so amazing what a few $trillion dollars injected into the right place can do)
Australia's terms of trade are reasonably healthy, but our debt is climbing and tightening around our neck also. Like the US, when it becomes unable to be serviced (as a % of GDP), and payment defaults start to occur, our dollar will become worthless in the same way.
All this affects stocks differently - not universally, unless it's a universal mechanism (which finance is, but the investment banks are not). Some stocks like a strong dollar (importers, consumers), some like a weak dollar (tourism, exporters). But I need another bottle of wine for that ...
