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Ghost
10-31-2008, 12:23 AM
A lot of the world's emerging markets have grown rapidly for years, fueled by U.S. over-consumption. Now that that is halting quickly, those emerging markets are getting clobbered.

The quote I heard tonight was that leveraged European exposure to those emerging market failures is 6 times the US's leveraged sub-prime exposure. I don't know squat about this, including whether it is true, but am curious if anyone is plugged into it.

txtaz
10-31-2008, 09:28 AM
"6 times"? Sounds a little high to me. Also these markets are no longer "emerging".

We have sold a lot of stock in our major corporations to other countries. Hence when we hurt, they hurt. However, I don't think the ratio is that high.

Da Taz

Ghost
10-31-2008, 11:03 AM
The number 6 struck me as high as well, but I have absolutely no basis to know whether it is true or not.

My understanding of their basic point was that a great deal of emerging overseas markets (some more mature than others) are almost totally dependent on the massive export of US wealth (aka, ouer over-consumption of imported goods). When we stop buying, they have nobody to sell to.

One implication would be that if you are looking to emerging markets as a safe haven (aka: "the US is dying, can I invest overseas where they are growing?"), it sounds like it is even sketchier than you might think, and highly tied to how we're doing.

boxy
10-31-2008, 06:07 PM
I'm not sure about the failure of emerging markets, but I was at a breakfast meeting last week were a CIBC Economist was the speaker, he said because of the way the money was leveraged, every $100,000 of SubPrime money defaulted on in the USA resulted in a $1,000,000 loss once it got to the Bank that held the last piece of paper. His thoughts were that they knew that the SubPrime market was in trouble, they just didn't know how many European Banks had bought paper from Mortgage Co's in the States and were therefore going to suffer.

txtaz
11-01-2008, 07:27 AM
Good point boxy. AND remember we have an estimated $70 trillion in bad debt held by US banks. How much were sold off to foreign investors as crappy securities no one will ever know.

Da Taz<---Still waiting for the buying season.

mike o
11-01-2008, 07:40 AM
7000 as the bottom?

txtaz
11-01-2008, 10:00 AM
7000 as the bottom?
That's my guess and to hit between January to March 2009. The real indicator will be the swings and the volume. Look for less than 100 point swing and volume at 100,000,000 or less for a few days.
The effects of the 4th quarter earnings, credit reports (holiday hangover) and weak retail sales will be over. Everyone will then start buying. Many stocks are already under valued however I want to maximize every dime I have. We have already lost 45% of market value and we will lose more.
Be smart, study and only invest what you can afford to lose.
Da Taz<---I'm going for Gazillion status so OB can take it all away.

boxy
11-01-2008, 10:54 AM
Good point boxy. AND remember we have an estimated $70 trillion in bad debt held by US banks. How much were sold off to foreign investors as crappy securities no one will ever know.
Da Taz<---Still waiting for the buying season.

He also spoke about the change (drop) in house prices in the States. He was explaining that they do not look at the total drop in prices YTD, but look at the rate of change month by month. While house prices overall have dropped significantly, the rate of change in some markets is now less than 0.5 %. Once the rate of change becomes 0% then prices will start to stabilize and re-grow. Our housing market should reach a 0% rate of change early in the first quarter. Some of your markets are close to a 0% rate of change now, some are going to take longer, and nothing is going to be truly clear until after the Election.

txtaz
11-01-2008, 11:14 AM
True boxy, However my opinion is that that is just one aspect of the market. The rate of change is dependant on jobs, earnings, sales, credit and interest rates (I could add more but you get the idea). It is an indicator and I think other indicators are more important. IMO the main indicators are jobs and earnings. Once this stabilizes the main markets are on the way back up and we will see it on the market when it stops being volatile.

Da Taz

Ghost
11-01-2008, 11:19 AM
7000 as the bottom?

This is interesting to me. One BIG thing I wonder about with this is the dollar, and how the Fed is mucking with it. Ultimately, I think the Fed's actions (both the massive and somewhat secret increase in the money supply mixed with the looming obligation on the taxpayer from the bailout) have to drive the dollar WAY WAY down. I just don't see how they can do anything but.

But down, relative to what? Many foreign currencies may be in trouble for a lot of reasons, including ties to our markets.

My thinking on this is that gold and other things will climb a lot again, and it's a question simply of when.

But I wonder what the market will do. Ultimately, I think things are going to get a lot messier than they are now. And I think the dollar is going to drop. So, it feels like a bit of a mixed bag to me. On the one hand, companies are going to take a real hit as things slow down. On the other, the dollar will buy a lot more right now than it probably will in 6 months or a year, when the Fed's actions really kick in, and thus stock prices will rise just based on the falling dollar.

Makes me think I might take some money and do a little stock shopping on companies I think will be here no matter what happens. Hmmmm...

boxy
11-01-2008, 11:33 AM
True boxy, However my opinion is that that is just one aspect of the market. The rate of change is dependant on jobs, earnings, sales, credit and interest rates (I could add more but you get the idea). It is an indicator and I think other indicators are more important. IMO the main indicators are jobs and earnings. Once this stabilizes the main markets are on the way back up and we will see it on the market when it stops being volatile.
Da Taz

True Taz, but he presented a graph (and as soon as I get it from my Mortgage Broker, I'll forward it to you) that showed historically increases in house prices have always followed income increases fairly closely,(with the exceptions of a few dips and gains here and there), until 2003/2004 when rate of increase of house prices jumped 25% above the rate of increase of household income. When the rate of increase of house prices matches the rate of increase of income you should start to see some stability.

Ghost
11-01-2008, 12:18 PM
True Taz, but he presented a graph (and as soon as I get it from my Mortgage Broker, I'll forward it to you) that showed historically increases in house prices have always followed income increases fairly closely,(with the exceptions of a few dips and gains here and there), until 2003/2004 when rate of increase of house prices jumped 25% above the rate of increase of household income. When the rate of increase of house prices matches the rate of increase of income you should start to see some stability.

Just like I think natural market forces will eventually push the dollar down a lot, I think natural market forces will eventually overcome the artifical setting of low interest rates.

If that happens, and interest rates go up considerably, that would push home prices further back down, in the same way that all the cheap and available money pushed the prices way up.

A falling dollar would be in opposition to this, however, pushing the prices up. Not sure what will win...hmmmmm.

txtaz
11-01-2008, 01:16 PM
historically increases in house prices have always followed income increases fairly closely
Absolutely, which is why earnings is one of my key indicators. However that does not paint a complete picture of where we are today. Let's say an individuals income goes up 10% and their ARM and credit card costs (not APR)go up by 20%. (Sound familiar, Bueller, Bueller?) Now let's factor in the cost of living. Today more income means you have less at the end of the day (in this situation).
I believe that you need to take everything into consideration. I've been in the market a long time and seen little things push it up or down. Right now we have too many negatives to overcome before a comeback.
Gost, In order for the value of the dollar to be relevant it must be traded with a different currency. So the value of your goodies at Wally World will still cost the same no matter what the value of the dollar is (same for your house). OK, there is a small effect but negligible unless you trade overseas or a world traveler or buying a $5million yacht in Italy...yada, yada, yada.
AND let's not forget the cost of rubber duckies imported from Asia. If the dollar increases by 20% against the world currencies, I can buy another dozen for RTSE's boat (and he has a bigger one to fill up). This leads into GNP and the dollar, but that's alot more to get into.
Da Taz<---7000 is my story and I'm sticking to it.