Silent Archimedes

Posts Tagged ‘depression’

2008 Year in Review – Top 10 in Finance

Posted by silentarchimedes on December 22, 2008

Let’s get right to it.

10. Yahoo rejects Microsoft’s $45 billion takeover offer – February 11, 2008. This one has to rank as one of the most stupid business decisions ever. Since Yahoo practically started the internet search business back in the 1990s, they have quickly given up their dominant position to Google in the past ten years without a major fight. By the middle of 2007, Google had a 53.6% market share of the search engine business, versus Yahoo’s rapidly shrinking 19.9%. Microsoft’s $44.6 billion in cash and stock offer was literally a lifeboat and gave Yahoo the best chance for long-term survival. Yahoo rejected the offer and a later offer in May valued each Yahoo share price at $33. Yahoo’s share price had been languishing around $19 in recent years. Yahoo’s CEO and founder Jerry Yang demanded $37/shr! Eventually Microsoft got tired of Yahoo’s demands and pulled all negotiations off the table. What is Yahoo today, end of 2008? The share price is $13.03 and Yang was ousted in November. Although Microsoft still has lukewarm interest in Yahoo’s search business, the main opportunity for Yahoo has passed.

9. Housing prices continue to go down town – It’s amazing how so many analysts and normal people knew that the meteoric rise of housing prices was due to risky ARMs and other loans that were impractical and ticking time bombs. It’s amazing the federal government did not see this coming or chose to not do anything about it. Because of the dot com bust from a few years ago and the recession soon after, the Feds turned a blind eye and let free credit run rampant. The bomb went off in 2006, and median housing prices have gone on a free-fall from an inflation-adjusted high of $275,000 in 2005 to near $200,000 at the end of 2008. It will take a good while to sort this thing out. Housing prices are still historically high and with high unemployment rates, increasing foreclosures will continue to flood an already over-supplied realty market.

8. Unemployment rate – The United States has been pretty lucky in terms of unemployment rates for the past two decades or so. Ever since the recovery from the high inflation, 9.0+% unemployment rates of the early 1980s, the rate has stayed well below 8.0%. Since 1995, the rate has performed even better, only touching above 6.0% once during the short recession recovery in 2003. In January 2008, the rate was around 5.0% but had already been steadily rising throughout 2007. Since this January, the rate has put on the rocket boosters and is now at 6.7% nationally, with no signs of slowing down. Several states, such as Michigan (9.6%) and Rhode Island (9.3%) already have unemployments rates above 9.0%! Another five states have rates above 8.0%! Stats were from Nov 2008 and look to be higher when December stats come out.

7. What happened to the commodities bull market? – Oil, gold, silver, platinum and copper. All were at multi-decade highs in 2007 and even in 2008. Since then? Crude oil prices have dropped from $150+/bl to $37/bl! Most commodities lost more than half their values. Exchange-traded funds such as SLV, GSG, and XLE all dropped more than 50%. The one exception so far has been gold. Although gold prices have dropped from a high over $1000/oz, they have not dropped below $700/oz, and have recovered into the $800s since then. Gold is an unique commodity and it appears that it mostly trades as a safe-haven currency than a physical commodity. In looking at the chart of GLD (below), gold prices have solidly bottomed out at $70/shr and is looking like it will have a strong 2009.

SPDR Gold Shares (GLD) Performance since Jan 2007.

SPDR Gold Shares (GLD) performance since Jan 2007

6. Remember the $168 billion original stimulus package? – That amount seems so little nowadays especially when Obama is bandying around an $800B to $1 trillion stimulus package. Add to that the $750B bailout package given to financial companies and automobile companies. This is a year of bailouts and stimuluses and so far they have not helped the economy. Instead, the state of the economy is at its worst at the end of 2008. The expected package by Obama will be an early focus of the Obama administration. I think most people could use an extra few hundred dollars in their pockets.

Pixar's Mater - Help me!!!
Pixar’s Mater – Help me!!!

5. The survival of American automobile companiesGeneral Motors, Ford Motor Co. and Chrysler became the poster child of the current economic crisis hitting main street. On display was the millions of jobs, especially blue-collar jobs, in America at risk of disappearing due to the recent decades of mismanagement, overhead and foreign competition of the US auto industry. With the finance industry easily getting a $750B bailout, it seemed absurd that an industry that for decades represented hard working Americans and unions had to literally beg for a few billion dollars to survive. It was obvious where the attention of politicians were. Although Bush recently said that $18B of the $750B bailout would be immediately used to prop up GM and Chrysler, the long fought battle was wasted time and energy by the attention garnering and bureaucratic Congress.

4. Bernard Madoff arrested on $50B Ponzi fraud scheme – When the $50 billion Ponzi fraud scheme by Bernard Madoff was revealed in early December, it was the main headline of major news websites for a mere few hours. Since then, as more details trickle out, the fraud continues to take a back seat to the macro-economic recession covering the globe. In any other year, the news of a legendary and consummate businessman (and a former NASDAQ chairman) being arrested for a fraud-scheme covering possibly the largest dollar amount in Wall Street history would ripple for weeks, if not months. However, with white collar crimes dominating the post-dot-com era (Enron, Worldcom, Martha Stewart, Tyco and the 2008 unraveling of the hedge fund industry), the public is now immune to financial fraud. Quite unfortunate. (See here for What is a Ponzi scheme)

Corporate bankruptcies on the rise in 2008.

Corporate bankruptcies on the rise in 2008.

3. Bankruptcies and those near it – It has been a sad year for many corporations as they head towards bankruptcy. Many of them well-known with years of solid profits. The list continues to grow and the impact of the recession on the consumer and his/her buying habits is only beginning. Circuit City, Linens ‘N Things, KB Toys, Frontier Airlines, Mrs. Field Cookies, Steve & Barry’s, Whitehall Jewelers, Mervyns, Sharper Image and Waffle House are some of the big name bankruptcies. And this list doesn’t even mention financial companies, which I discuss in #2. See this list for a more comprehensive list of corporate bankruptcies in 2008.

2. The demise of the hedge fund and mortgage finance industry – The derivatives market has become a multi-billion (if not, trillion) dollar investment industry that is complicated and largely misunderstood, even by the most astute financial advisors. Derivatives, as its name suggests, are investment products that are created off of actual traditional investment products. That means their intrinsic value is conjured up and their existence puts them closer to full-blown gambling. The current financial laws and oversight are not suited for such trading. Over the years hedge funds and derivatives took on more and more of the investment strategy of major financial corporations. Derivatives that were based on risky mortgages and insurance eventually collapsed as housing prices plummeted with lendees’ inability to pay the mortgages. The result has been a credit lockup unforeseen in decades. Major financial companies toppled and its effects are still not fully known. Major companies that totally collapsed include Bear Sterns, Lehman Brothers, Washington Mutual, ANB Financial, Fannie Mae, Freddie Mac, and AIG.  See this list for a more comprehensive list of financial collapses in 2008.

KBW Philadelphia Bank Index - Collapse since 2007

KBW Philadelphia Bank Index - performance since 2004

US Recessions since WWII (Courtesy of CNN)

U.S. Recessions since WWII (Courtesy of CNN)

1. Recession or Depression – Which leads to the number one financial news in 2008. Are we in a deep and difficult recession or a depression? In early December, it became official that the U.S. went into a recession in December 2007. To some analysts, this is good news because it means we are closer to coming out of it.  As you look at the chart on the right, most recessions last around one year. Based on the official Dec 2007 start date, historically we would already be on the tail end of the recession. However, to other analysts, this is bad news because the worst is yet to come, and we are already twelve months into it. With no light  seemingly at the end of the tunnel, these analysts portend a long recession. Bad news from around the world keep coming in and the bottom of the current economic crisis still has not occurred. Oil prices continue to drop, gold prices have since rebounded (bad for economy), and the dollar index has begun dropping again. Signs of major inflation on the horizon are evident, especially with the massive bailouts and the Feds lowering the overnight interest rate to its lowest level ever, 0%-0.25%.

The entire 2008 Top 10 in Finance is all bad news. Most of them have to do with the current economic crisis. The key hope is that the Bush administration is finally over and 2009 brings a more adept and intellectual administration that will do just about anything to get America out of the economic dump. An administration that seems focused on the middle class and job creation. However, with it comes more and more national debt and the mortgaging of the future. There seems to be no alternative. This will most likely lead to long-term inflation when countries such as China, India, Russia and other Asian countries continue their rise to redefine the existing  economic world order. This is not to say that the United States is doomed to be a second-bit player, as we know that is unlikely. However, the country needs to refocus on what made it a superpower in the first place, investments in technology, jobs, science, and innovation.

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Commentary: What’s next for gold, the Dollar, U.S. economy and inflation?

Posted by silentarchimedes on October 28, 2008

Gold, Gold, Gold

Gold, Gold, Gold

The economic turmoil the past two months has sent some very mixed signals to people who do not fully understand the commodities market cycles and global economic forces. The global economic train is now in the midst of a long and dark recession tunnel. The actions taken by the large economies of the world, such as the United States, and European countries, the past two months have made the average investor skittish and scared. They see stalwart financial companies like AIG, Wachovia, Washington Mutual and General Electric either crash and burn or bought out by other companies or halved in price.  Their 401Ks, Roth IRAs and other investment accounts tumbled. To make matters worse, they see high crude oil prices that had peaked above $140/barrel go on a crash dive to barely above $60. Wasn’t the global demand of oil, especially from China, India and other emerging markets suppose to keep gas prices above $4.00 for good? Now they are back well below $3.00. Other commodity prices, such as silver, copper and platinum followed suit. All tanked from multi-year highs just reached not long ago this year.

However, contradicting this gloomy wave of news was the ‘strengthening’ of the U.S. dollar and the 30%-plus drop of gold prices. Gold was supposed to be seen as the safe haven when things go bad.  Well, now things are really bad so why is gold also dropping? And why is the dollar strengthening when the U.S. economy is tanking? How can this be? In the simplest explanation, although quite wrong and unsubstantiated, was that the commodity bubble had bursted. Gold dropped because the demand for commodities was over. Many people began believing this and even some gold bugs were confounded by what was going on.

Their is a very simple explanation for it, and all the reasons for the dollar strengthening and gold prices crashing are all temporary. As a matter of fact, it provides the best opportunity to buy gold in several years. The recession is in much deeper quicker than anyone thought. Many investors are being forced to sell even their safest haven assets in order to cover for their losses on the risky side, such as stocks, houses, hedging, etc. This includes the liquidation of gold. They do not want to do this but are forced to. This is a major factor in the instability on the down side of gold. Second, the safest non-gold haven for money is U.S. Treasuries. They are one of the only things that guarantee still a net positive return, albeit a small interest rate, at this juncture in the economy. Countries have no choice but to buy more Treasuries because the faith in other fiat currencies is still not strong enough since this is a global recession. This temporary strength in the dollar against other fiat currencies also has a downward push on gold prices and other commodity prices since they are all priced in the dollar. That means $100 now buys more gold than before.

The thing is these two actions are only temporary. These actions are only to save the global recession from a global depression right now. These are short-term reactions to a longer term problem. These actions are known as deleveraging. It is allowing the new economic state to take root. It is a finite process and will soon come to an end. Why? The federal reserve continues to pump lots of new unbacked dollars into the economy. And the $700 billion dollar bailout begins this week. The Feds announced that they will give the initial $125 billion dollars to nine banks. What does this all mean? INFLATION! And soon, HYPER-INFLATION. U.S. Treasuries will have no choice but to increase their interest rates in order for countries to continue buying them. Mortgage rates will rise, as they already are, even though recession takes root. The dollar will reverse trend and weaken due to inflationary pressures. More dollars will come home to roost from other countries. What does all this mean? Gold will rise, rise, rise.

Update 6:15pm: So the Dow Jones goes up 890 points (10.88%) today, with the NASDAQ and S&P500 posting similar percentage increases today. The two main reasons for such a historic rise (second largest point increase of Dow Jones ever) is due to bargain hunters and an expected interest rate cut by the Federal Reserve. Although the cut might help in the credit and liquidity crisis, this is another long-term inflationary signal. If Treasuries have lower interest rates, who will buy them? More Dollars will come back to America, which means a weaker dollar. Although this might help the current local minimum (credit and liquidity), the entire graph continues to head towards a weaker dollar and a continuation of the commodities bull market and a rise in gold prices.

Disclaimer: This is a commentary by an amateur investor and is not meant to be taken as professional advice.

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Book Review: Why Men Die First, How to Lengthen Your Lifespan

Posted by silentarchimedes on August 30, 2008

Author: Marianne J. Legato, M.D., F.A.C.P.

WHY I READ THIS BOOK

Why Men Die First

Why Men Die First

Dr. Marriane Legato

Dr. Marianne Legato

So after reading three books on the current economic downturn in America, it was time for a change of topic. I started going to the gym consistently again the past couple of months and a book on health seemed appropriate. It was actually by chance I came across this book on display at the campus library. Why Men Die First had just been released and was on display in the new book section. If you’re a  health conscious guy and you accidentally come across this book, chances are you do a double take and at least read the back cover; especially when it appends the title with How to Lengthen Your Lifespan. So I checked it out and it took two tries to get it done. You’ll see why in my review below.

THE AUTHOR: MARIANNE J. LEGATO

Dr. Legato is an internationally known women’s health specialist. Which makes it interesting that she wrote a book about men. However, she is also well known as the founder and director of the Partnership for Gender-Specific Medicine at Columbia University. The partnership is interested in research that produces a better understanding of the differences between men and women. It is also apparent that her observations of her dad throughout her life tremendously influenced this book. Her residency was in cardiology and branched out more into gender-specific medicine a few years later. She is also the author of Why Men Never Remember and Women Never Forget.

THE REVIEW

Prostate Exam

Prostate Exam

The chapters are organized in the stages of male life and describes the challenges and vulnerabilities of each stage. For example, the second chapter, Beginnings: Surviving the Womb and the First Weeks of Life describe how the female fetus has a much better chance of surviving until birth than the male fetus. Not just surviving, but being more developed and self-reliant at birth. Some of these chapters are already well-known, such as Men and Cancer, Sports: The Price Men Pay, and The Male Libido: Men and Sex. The chapter on cancer is pretty much what one would expect. Legato goes through the dangers of the cancers that men are most vulnerable to, prostate (image right, courtesy of Abbot Diagnostics), lung (mostly due to smoking), colon and testicular. She mixes stories of her experience as a doctor to show that men are afraid to get preventive exams. The stories are a nice addition to the typical scientific relay of information. However, the fact that the people she talks about are nameless, there’s not as much oomph to the stories. Also, there are so many stories because she has seen so many patients, that it also makes it a little detached. Her writing is easy to read and understand.  Each chapter is sectioned off into smaller topics and nicely labeled. However, in books like this, it’s hard to avoid using medical terms, such prostate specific antigen (PSA), adenomatosis polyposis coli (APC), and carcinoembryonic antigen (CEA).

Man and Sex

Men and Sex

There’s not much persuasion to get men to be a proactive and responsible person. The only methods are equating it to women going through gynecological exams, or the usual “catch it early and you’ll have a better chance to survive” saying. Another chapter is The Male Libido: Men and Sex. Pretty straightforward here as well. Men love sex. Men always think about sex. Men by nature are not meant to be monogamous. A lot of men have erectile dysfunction. Testosterone is both good and bad. The suggestions are also well-known. Use condoms. Be as monogamous as possible. Have regular exams if you are promiscuous.

Male Depression

Male Depression

I was more interested in the chapters that most men do not know about. The ones that don’t define the stereotypes of manhood. The silent killers. The two chapters that stick out with this in mind are Educating Boys: How Well are we Doing? and Male Depression: It’s Causes, Expression, and Treatment. Legato brings some interesting ideas from the field that most of us are not aware of. One suggestion is having gender specific education for children. In other words, all-boys classes and all-girls classes. Because boys mentally mature slower than girls, it might be a good idea to taylor teach each gender. The idea of depression and man is tough to understand. It is under-diagnosed due to the stigma that males should just work through it. However, more and more people are understanding that females deal with stress and challenges much better than males. Males are pretty unidirectional and goal-oriented that all other aspects of their lives are neglected. This was the most interesting chapter, that I wished it was longer. Maybe it shows how little male depression is known. However, the number of statistics used to convince the reader that males have issues with depression is probably a little overboard.

Since the second part of the title, How to Lengthen your Lifespan, is one of the reasons I picked up this book, I expected a long final chapter on what a man can do to, well, lengthen his lifespan. Maybe something of a checklist through life or a lifelong way of living that would help in having a more healthy and longer life. There was no such chapter. It seems that what the author had in mind for this part of the title was the little suggestions in the chapters and the small little boxes at the end of some of the chapters that ask you to keep some things in mind. Were the numerous statistics used throughout the book supposed to scare the reader into change? I must admit, as a guy reading this book, I skipped some of the statistics. That’s when I put the book down the first time. The statistics and some of the obvious stuff started boring me. The second time I picked up I finished it, but skimmed half the time.

THE VERDICT

Male Cardio Work

Male Cardio Work

This book is a nice start because it’s a book in a new genre about male vulnerabilities and gender-specific medicine, which I find very important to the survival of the male gender post-feminism. Legato mentions that what men need is something equivalent to the feminist movement. Men need to start realizing their own vulnerabilities and taking action before it’s too late. However, not enough suggestions are made. She mentions having a healthy diet and exercising, but she doesn’t go into detail about what to eat and how to exercise to increase lifespan. For example, she might have mentioned that doing cardio work is healthier than the more popular weighlifting. She mentions reducing stress and talking about personal problems to reduce the potential of depression. However, these are obvious suggestions and doesn’t offer any new insight into male longevity. The title of this book should simply be Why Men Die First. This is a why book and not a how book. Even as a why book, I found myself skipping several sections that either didn’t pertain to me or interest me, like Syphilis: The “Great Imitator” or Firemen (we know why firemen have dangerous jobs).

Overall, this book is a fun read for the most part. Too much in society has focused on women being the weaker gender. “Be a man!” “You throw like a girl!” “Stop being a pussy” “Men don’t cry!” “Being in touch with your feminine side” It’s time the scientific community see men as being vulnerable. In my experiences watching and talking to men and women, I must say, although women are more outwardly emotional, men seem to have a tough time being open-minded, patient, mentally strong and responsible. It’s time to openly discuss this. Or soon, as many people have alluded to, women will not need men! 🙂

6 out of 10 Male Mars Symbols

Rating: 6 out of 10 Male Symbols

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