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Starting at 8:30 p.m. ET: Larry Doyle’s Dollars and Sense “Central Station”

By Larry Doyle on February 13, 2009 at 8:15 PM in American Consumers, Banking Institutions, Economy

monte-carlo_train_station-f We will have a special Friday night 8:30pm-10″30pm. departure from Central Station.

The tracks remain steeply sloped with many curves along the way. With all eyes and ears and hearts focused on the wide range of developments in the economy, the markets, and the world of global finance we have added a few extra cars for the ride. Come early to make sure you get a good seat.

For newer riders, this is a Q/A forum/discussion on all financial issues. As we move along, we welcome any and all questions, comments, observations, and critiques of any and all economic issues from both a macro and micro level. We especially would welcome perspectives from overseas “travelers” as we are truly all in this ride together.

Don’t be bashful, grab a coffee, settle down, you’re amongst friends here. So much to talk about!! Stimulus bill, “bad bank”, interest rates, mortgage markets, municipal finance, employment report, global trade…….!!!!

For our newer riders, your conductor is not a professional financial planner but merely a Wall St. veteran who welcomes the opportunity to share his views and instincts on the economy, the markets, and world of global finance. All you will get are honest opinions and thoughtful advice.

While people are boarding, your conductor wants to take this opportunity to highlight our guest for tomorrow evening’s special guest on LD’s Dollars and Sense radio show on No Quarter radio.

MrX

Link?
MrX

Sorry, thought this was NQR radio.
LD

I should have been more explicit but this is a written online q/a forum about the economy and markets.
LD

we do have a sunday evening radio show on nqradio about the economy and markets….
fiscalliberal

LD – Geitner was certainly a disappointment given the Obama and media hype. However I wonder if the bailout which is possibly a combination of Off Book Securities and Credit Default Swaps is to big, even for the United states. Remember the Credit Defaut Swaps had a notional estimate of 60+ Trillion. Our GDP is 14 trillion.

Since the Credit Default Swaps are really insurance and totaly non regulated, why don’t we consider declaring them null and void and let the investors and owners of the debt equties slug it out bankrupcy style.

I know that this sounds simplistic, however something has to be done to move forward. Yes it will be brutal, but this death of a thousand cuts has been tried in Japan and they are still not in recovery mode.
LD

Fiscal,

The CDS situation is multi-pronged. There are many CDOs that are backed by collateral that is largely if not totally CDS contracts. These are deals that never should have been done.

There are actually a LOT of CDS contracts that can be “netted” and should between counterparties. I am not sure how quickly that a regulator will be able to execute an exchange that will handle and net this exposure.

CDS has been a huge profit center for Wall Street but they have created a tremendous amount of risk in the process.

Even though the CDS act like insurance they are not insurance and I do not think that they can be unilaterally decalred null and void if the two parties are viable entities. CDS was a good idea that was and has been abused.

I do not disagree that the approaches coming from Washington will merely prolong and ultimately exacerbate the current pain.
LD

In regard to Geithner and Obama as well, expectations FAR exceed any chance of delivering reasonable results.
fiscalliberal

Taking the issue further, could I speculate that the CDS problem with many if not most CDS contracts is that they are insolvent if exercied.

Just like auto insurance, things are great if you have no accident. However if there is a accident, the insurance company cannot pay up. So if I know that why would I continue paying in.

Is not the contract null and void and really not good faith business.

The US government is trying to prop up a insolvent business.
LD

CDS held by AIG, Citi, perhaps BofA would be effectively worthless without the government intervention.

Buying time in hopes of the economy turning and allowing revenues to accrue that will be used to writeoff the embedded losses does not make for much fun or much growth!!
beebop

LD …

I am really tired of watching the value of my investments tank. Seriously thinking about selling the balance of my securities and just sitting on cash. Any thoughts?
http://www.marklevinshow.com/ Seattle Moss

Hey LD..I would chime in but I have been driving all week.

When is the dollar going to drop so my Canadian business can pick up?
oowawa

Hi Larry,

In other threads I have seen people predicting a huge market drop when the markets open on Tuesday. The movements of the market are mysterious to me. When I think they should go up, they go down. When I think they should go down, they go up. They appear to jump around dramatically for no reason whatsover (though the pundits always manage to make up after-the-fact reasons for the sudden movements).

Anyway, I have a two part question for you. Is the 3 day weekend advantageous to the bulls or the bears in the light of this stimulus bill?

And, do you imagine we are going to see dramatic movement in the market on Tuesday? (Okay if you don’t specify a market direction, but a subtle hint would be cool.)
LD

Please understand that I am not a professional financial planner.

Not knowing your age, your employment situation, your mix of assets and liabilities, if I were merely to state yes sell or no do not sell it would be done outside the context of your entire situation.

That would be irresponsible on my part.

That said, I do think that we are in for a tough 2009. I do not think that the stimulus plan or the proposed Financial Stability plan proposed by Geithner will create benefits for the markets.

Before selling anything though I would see if the markets hold the lows made on November 20th. Those lows are approxiamtely 3-4% from todays close. The market will likely test those levels but it will be interesting to see if investors come in and buy at those levels. I think it is prudent to watch that action than selling right here.

If the market does not hold those levels, that will be very problematic.

IMO, I think the market will not hold and will go down 10% from todays close.

Hope these thoughts help and that you can appreciate my perspective.
LD

beebop…i responded to your answer but answer is down a few spots.
LD

Seattle…the U.S dollar was breaking but then stabilized vs the Canadian dollar when Geithner and Obama ratcheted up the protectionist talk. Given that Canada’s economy is more of an export based economy the increased protectionist talk hurt the Canadian dollar vs the U.S dollar.

IMO, it will take a little time but the U.S dollar will weaken.
LD

The stimulus bill is being panned as a bill that will make a real difference for our economy in the short term.

I have no reason to think that we would have a MAJOR selloff but that is not to say that we couldn’t. I do think that we will retest the November 20th lows which are down app 4% from todays close. I have felt that for a while. Beyond that I also think we may very well test the lows made in the down back in 2003 which is right around the 7000 level. That would be a bout a 10% pullback from here.

We still have the auto situation, major problems with states, major problems with commercial real estate, unemployment that will increase by app another 2%….hard to be optimistic while I am merely trying to be pragmatic and realistic. I am not a pessimist by nature.

3 day weekends do not necessarily mean major moves on the following Tuesdays unless there is an unknown outcome from a major situation or an unknown development.

Most other threads seem to focus on short term and/or day trading. I try to focus on the bigger picture, and longer term.

Good questions.
oowawa

Thanks for the enlightening response, LD. I’ll try not to be a pessimist. I’ll just keep humming this tune to cheer myself up:

Freedom’s just another word for nothing-left-to-lose . . .
nymom

Is there an open thread anywhere? Don’t see it.

So I’d just like to say that I’m very disappointed in Kirsten Gillibrand for voting with the pack on the stimulus law.
Seattle Moss

If the dollar weakens only slightly then all my work will pay off with huge gains
typical.white.person

Congress voting on an 1100 page legislation, reminds you of the people who signed the I/O and Alt-A mortgages, eh?
typical.white.person

I should have said, voting on an 110 page legislation they never read.
LD

i think that will happen…the bond market sold off hard today despite equity market weakness simply due to the tremendous supply that will come to finance the growing deficit…
http://firefox AnnieCollier

I think you were right the first time…
socalannie

LD, what do you think of annuities for elderly people? My Mom is finally taking over hers & her husbands finances (he has dementia); he had lost quite a bit of their savings in stocks & bonds (with Merrill Lynch). Would annuities be a good place for them to invest their savings? Are they safe? Thanks!
TeakwoodKite

LD, so I get your meaning, Are you saying todays Bond Market sell-off is due to capital flight in earnest or selling before the Fed’s completely crowd out the market and get the last flight out?

Am I correct in thinking that these bonds are headed the way of the stock portfolio?

As an indicator guage goes, one can’t expect to flick the plate glass and expect it read any but empty. here comes 7500.

For the last man standing it appears his little piggy will have none.
LD

Teak….I think longer term bonds, primarily 10yr maturity to 30yr maturity sold off due to both those reasons. The reality of a massive deficit along with expectation that the U.S. dollar will likely weaken vs stronger currencies such as Swiss franc and japanese yen.

Many people do think that Treasury bonds will continue to sell off. Corporate bonds may hold in for a while but could sell off as they have already had a strong first 6 weeks of the year. Municipals have benefitted recently due to funding provided through this stimulus plan but many states still have huge funding issues.
LD

In purchasing an annuity, one takes the credit risk of the entity writing the contract. Typically annuities are written by insurance companies. Thus you need to be very careful about which insurance company you pick.

I am much more familiar with variable annuities.

Based on my understanding, these variable annuities are better investment vehicles for those with a longer term horizon. Returns accrue on a tax deferred basis.

Many variable annuities and annuities have very high expenses associated with them. The products are “more sold” than “bought” if you know what I mean.

I would think that a better area to look would be a high quality bond fund that pays a nice dividend.
With interest rates having backed up in a lot of sectors (corporates, municipals, Ginnie Maes (a govt guaranteed mortgage bond)) that those areas would be better. Additionally a “laddered” approach using govt bonds may also be prudent. “Laddering” means purchasing a string of maturities, such as 1yr, 2yr, 3yr, 5yr.

Hope that helps somewhat.
Lizzy

Sorry I missed the discussion last night. There were some very good comments. I saw a rather interesting bit on Bill Moyers last night. His guest was familiar with the IMF. The guest said that things happening in our economy now are similar to what he would expect to see in an emerging market economy. Because of the excessive political contributions of the major banks the government doesn’t have sufficient control of the situation. Could you do a post on this topic? Also now that the pork package is part of our lives could update information on it, especially the health care provisions. Thanks LD.
socalannie

Thanks LD!
LD

Just wrote a piece on this to be published later today or tomorrow, Legalized Bribery…