Monday, March 02, 2009

1929 Was Different

Our present crisis is not taking effect the same way things happened in 1929. There are some distinct differences.

In 1929 the individual investor made up the stock market. When the investor pulled out, the market tanked drastically. In today’s market the individual investor is removed from the market, the fund managers invest the individual’s money. These people don’t really have to have a position in the fund. Closing out the fund would tend to eliminate their reason for employment. So why sell if you can collect a paycheck. Using this perspective, the drop in the Dow could be a slow and long burn to the bottom.

When the banks failed in 1931 it was due to a combination of stock and real estate loans. Those who made a lot of money in the stock market and real estate and got out of the market just in time, still got killed when the banks went bust. In today’s market, those that got out at the top get to keep their winnings. The FDIC will cover the bank losses. The gains and losses are real; somehow what the bank lost will be made “unreal” by reimbursing the depositor. Notice the winners keep their winnings and the losers get reimbursed and the government has saved the banking system. Why go to Vegas when you get a real deal with the bank? The net result is 50% inflation and now that house is worth what the bank says its worth. What a *$@#*%$ miracle!

The third thing that is different is the welfare system in place in 1929. There wasn’t one. Hurricane Katrina pretty much displayed how much of that city depended on government support. There is a very large welfare system that is a way of life for many in this country.

Fourth, in 1929 hardly anyone paid income taxes, the government was small. We can’t say the same today. Everyone pays taxes including the drug dealer (sales tax)

Fifth, there was no real national debt in 1929. There was no Social Security or Medicare system in place like there is today. There was no threat of bankruptcy from spending too much on social programs.

Sixth, the repeal of the 18th amendment Prohibition, in December of 1933, probably convince some people that the government was starting to move in the right direction. The peculiar thing is that this is the only amendment to ever be approved by state conventions, not state legislatures (Congress figured the legislatures wouldn’t let it pass for political reasons). Having a drink meant a lot; the severe cocaine abuse of that time had scared many lives. Today, we are starting to lose faith in government. The amounts being spent are ludicrous.

So to sum it all up, we are not going to pay back what we are spending in the name of necessity. For some reason everyone thinks that this spending will work. Ask one question: How does one spend their way out of bankruptcy? Isn’t there a point that people stop loaning money to this country and say no? It’s a little like storing cyanide capsules in the fridge so they won’t spoil. Nobody is going to argue with your reasoning. Who wants to be the first, to test one that hasn't been refrigerated?

65 comments:

Anonymous said...

Jim,
Correct. There are some more differences too.

Not many people owned homes.

People didn't have credit cards and other forms of consumer debt.

There weren't home equity loans.

We didn't have a trade deficit.

We had a manufacturing base.

All of these reasons make us a lot weaker and more crisis prone; thus, one could easily conclude that this collapse will be greater than the depression of the 30's.

AIM

Anonymous said...

Coming up in the next chapter...

EU banking totally collapses. Their only way out will be inflation.

US commercial real estate is starting its crash. It will be much worse than the residential crash (which will fall further) because the loans are bigger and more highly leveraged. Retail and office space is emptying and no one is going to move in to those vacant spaces.

No one has thought about farming. What will happen soon when farmers go to the bank to get their loan to launch their spring crops and the banks won't lend? Uh oh... farmers going out of business and food shortages... that's what will happen.

Our "leaders" won't be able to resolve or mitigate this titanic collapse.

The only thing you can do is:
1)put lots of nuts away for the winter; 2) work out how to keep creating income; and 3) prepare to launch your transition strategy when inflation really begins to kick in.

Jim in San Marcos said...

Hi AIM

I disagree many people owned many homes back in the 20's. My grandfather owned 5 homes in Florida that he lost in 1928.

The no money down, sign here, 5 year interest only loan was a big thing back in that time. It ruined 3,000 banks.

I agree that there were no credit cards, or equity loans, but GMAC started in the 1920's to get people to buy on the installment plan. And it is still around today.

I think that history bears you out when you say we had no trade deficit and we had a meager manufacturing base.

I share your conclusion that it will be worse than the depression of the 1930's. I am just at loss to figure out how far social unrest can ruin our way of life.

Sackerson said...

First class, Jim. Your first point about how collective investment distorts the operation of the market is significant, and I think you are right in predicting that the end result is the same, but slowed down. Also sovereign wealth funds may have a political/economic agenda that allows them to ignore investment losses.

Anonymous said...

Jim,
I think I beg to differ on the amount of homes that were owned back in the 30's. I think a much larger percentage of Americans own homes now, the loss of which will add to the correction that we are having. Below are a few quotes:
AIM

While a far smaller percentage of Americans actually owned their homes back then, millions nonetheless lost both their jobs and the roofs over their heads." Feb 28, 2008 US NEWS AND WORLD REPORT

In 2005, nearly 69% of
households owned their own homes, a significant increase over the 64% ownership rates of a
decade ago. Since 1999, the most dramatic increases came for Hispanics, whose home ownership
grew to 49.5% or by 4 percentage points in 2005. White home ownership rates increased 2.2
percentage points since 1999 and were 72.7% in 2005. Over the same time period, rates increased
by 1.9 percentage points to 48.2% for blacks. Hispanic home ownership surpassed that of blacks
for the first time. ECONOMIC POLICY INSTITUTE 2006

The percentage of Americans that owned their homes in the 1930s was barely 40%. That's nearly 25% less than today's home ownership numbers. More people own their homes. RANTS AND RAVES MARCH 2009

Joseph Oppenheim said...

1929 Was Different<<<<<

100% correct! People always like to use the bogus phrase "history always repeats itself".

It never does, exactly. It simply is not possible, mathematically.

But, six differences, no, the actual amount of diferences is infinite.

That is precisely why it takes creative minds to best navigate this mess.

And, I do see the obstructionists being an obstacle to the creative, more pragmatic not ideological, thinking which is necessary. They have ensured this mess getting deeper and longer to resolve than necessary. And, this thinking is not just among many politicians, but among many people.

Just a couple of things, really big things which are different and none of the ideologues seem to want to mention - a) the 1918 influenza pandemic which killed over 500,000 mostly young adult Americans and about 20-100 million globally. You can nearly triple those amounts in today's terms. b) WWI. Both wounded this nation and the world quite a bit. The roaring 20s may have seemed great, but nowhere as solid as the economic prosperity leading up to this mess - real productivity and technology improvements which still can be used positively to reorganize our economy - new directions in energy, infrastucture, healthcare and education.

This thing could play out worse in many ways from the 30s-early 40s, but so, too, could it play out better in many ways. Most likely a combination, some things much worse and some things much better, and a whole lot in-between.

...Joseph

Jim in San Marcos said...

Hi Anon 8:28

If you look at home ownership in a different light, somebody owns every home in the USA. Whether is occupied by the owner really doesn't imply that much.

I would suggest that the lower home ownership you listed for the 1930's would indicate twice the speculation that we see in the present market.

This higher home ownership dream funded by Fannie and Freddie, today indicates that more homeowners participated in this bubble than in the one in 1930's.

The interesting thing about the 1920's was the 5 year interest only home loan with a balloon payment. Todays generations thinks that these interest only loans are something new.

History shows us what happened to them. In todays society, you can lose your home but you can still acquire shelter (rent). In the 1930's when you lost your home, you were on the streets.

I think that today's crisis is worse financially but without the physical hardship of the past. Todays homeowner is turned into a renter and that's not too bad, unless you happen to be a bank.

Jim in San Marcos said...

Hi Joseph

We've got front row seats. Let's hope it will turn out better.

Maybe instead of saying that "history repeats itself," we can surmise that there are valuable lessons to be learned from the mistakes of others.

Congress hasn't passed a law against stupidity, so hold on and enjoy the ride.

Anonymous said...

What are some suggestions for preparing for the upcoming inflation?
Will there be food shortages?

Anonymous said...

Jim,
Could it be that in the 30's only the well-to-do owned homes and they also owned additional homes as income properties? Only the wealthy were landlords. The average person couldn't afford a down payment and a mortgage (espec a 5 yr loan with a balloon at the end). Thus, maybe a large portion of the population were renters in apartments and rental homes?

Is it possible that because of the 30 year fixed mortgage... multiple periods of affordability... the boom of the last 50 years... the recent excessive credit... the relative ease in acquiring a home over these recent decades... etc. that we now have a higher percentage of homeowners? And the larger the number of homeowners, the larger the housing crash and wealth destruction there will be when a depression hits?

Joseph Oppenheim said...

Could it be that in the 30's only the well-to-do owned homes and they also owned additional homes as income properties? Only the wealthy were landlords.<<<<<

Baloney!

What was very common, especially in the NYC area, especially Brooklyn which was "the" classic working-class borough of NYC, were what were called "two-family homes". The owners would live in one part of the house, maybe upstairs and rent out the other part, maybe the downstairs. Plus, like Jim said, interest-only mortgages with balloon payments were typical. This setup was specifically targeted to new immigrant working-class families as a way to participate in the prosperity of the 20's, the rent covering much of the mortgage payments.

Much of this fell apart during the Depression.

By the way, for anyone interested, a wonderful snapshot of what 1930 was like, is the 1930 census, available on-line, easily searchable for all over the US. People were required to report the value of their home if they were an owner or the amount of rent if they were a renter. Plus, occupations and lots of other info.

Besides checking on one's family, one can look at a whole street, neighborhood, even famous people - like in Beverly Hills, etc. Want to see FDRs info? It is there. Basically everything, a wonderful snapshot of life in America at a very critical time in history.

.....Joseph

Jim in San Marcos said...

Hi Anon 6:55

In the roaring 20's you didn't need much of a down payment. The Florida real estate boom that collapsed in 1926 was unlike anything imagined today. The railroads were limiting freight going South just so they could handle the passenger load.

You bought a binder on a property and you could triple your "investment" in just a day. They were literally selling swamp land. You hear references alluding to it today.

My grandfather had 5 houses in the Coral Gables area I believe. He gave all five back to the bank. The property taxes were probably more than the binder he put up for them. He was far from rich. My grandmother use to say, if he had a dollar, he would go play poker with the guys. My Dad in the 1960's drove me around that area and pointed out the houses that you could have bought in the 1930's for a hundred dollar bill. It didn't mean much at the time to me.

Back in the 1920's, the banks didn't write 30 year loans, they wrote 5 year loans, so you had to refinance the note when it came due. The trouble was, when it came due in the 1930's, the bank wasn't interested in renewing your loan, where in the past, it was assumed that they always would.

We will see wealth destruction, but the wealth destroyed is that of the depositors at the bank. The homeowner loses a house that he can't afford, which is no big deal. In 5 years time home prices will be affordable. That could mean prices go down or the minimum wage rises up to $150 per hour.

I agree this housing crash will be a lulu. This year and the next are the resets for the interest only loans.

The governments approach, to ameliorate the situation, is kind of like sticking your head in a loaded cannon and flicking your Bic for a better view. You think you know what you are doing.

Jim in San Marcos said...

Hi Joseph

You mention something quite fascinating, I was doing some family tree research on one of my great grand parents. If you know the approximate county and state, you can see the actual census data collected. It boggled my mind to see my grandfathers name in a 1890's census report filled out by a census taker's interview of my great grandfather.

Crashproofed said...

I'm In the Phoenix/Mesa Area. The Commercial R/E landscape meltdown is WELL underway. Cranes, scaffolding, dosers, heavy equipment, etc is all going home to bed with projects unfinished and fencing surrounding the specific area for hazard purposes. Im quite amazed its just starting/quitting. Its got to be the fallout from the Lehman bankruptcy specifically as well as retail numbers tanking, right Jim?
Crashproofed

Anonymous said...

The Phoenix area had a lot of heated investment and speculation going on. Hot areas like this are the ones that collapse the most. I am part owner in a luxury apartment in Phx and we are having a tough time with falling occupancy (renters are going into the "shadow market": luxury houses and condos at low rents that investors are desperately attempting to rent because they can't sell them and can't hold them). The commercial market is really going to tumble now due to retail crashing. Those defaults will make residential look like a picnic. You thought 2008 was tough? Fasten your seat belt for 2009... it's going to be a bumpy ride!

Anonymous said...

I know that Jim is big on tongue in cheek analogies and metaphors.

Re: US government, here goes...

It's like we are on a bus, hurtling down a bumpy mountain road that is just a few inches wider than the bus, and we're looking out the window—as we are precariously barreling down this cliffside road—at a drop of 10,000 feet. The bus driver is drunk, never took a driver's test and doesn't have a driver's license. Instead of slowing down to a crawl, in order to cautiously move around the potholes and bumps and make these hairpin dangerous turns, he's stepping on the accelerator with his eyes firmly fixed on the rear view mirror, not looking where he is going! He is ignoring all of our yelps of warning and danger and cries for help.

This guy is going to turn this bus into an airplane by driving us right off the damn cliff.

Joseph Oppenheim said...

Though this mess has further to go on the down side, some very interesting positive things are happening.

In any economic downturn it is wise to look at the areas which were first to collapse, and watch for indicators of bottoming there.

Plus, with all of the government stimulus, flooding markets with capital, there is bound to eventually be some general upturn, its duration all dependent on how long this "window" remains open where there is a global need for US government debt and how solid such a recovery turns out to be - actually putting people back to work, spending and returning tax revenues to the government, etc - a combination of short term and long term measures reinforcing each other - and inflation doesn't get too bad - some is OK, even healthy.

Since the US was the first nation to begin this collapse, since housing was the first section of the US economy to collapse, and since San Diego was perhaps the first US housing market to top out and begin the collapse, it is wise to look at these areas closely, bottom up.

So, I notice San Diego median housing seems to be bouncing around, up a little one week, down a little another, looking for a bottom.

Plus, when I look at other US housing markets (I watch HousingTracker.net) and I see many cities up during the last month or so. Probably foreclosures are tempting a lot of buyers, so some kind of bottom is opening. Plus, anecdotally, I see around the LA area, many Chinese investors are coming in to buy homes because they are so reasonable for them. Plus, I see in San Francisco, median home prices are up about 7% in the last month. I see San Francisco being a beneficiary of the administration's goals in restructuring the economy, rewarding science, new technology, education (many good to excellent colleges and universities which will benefit, there, etc).

Plus, commodities have been bottoming. Stocks are at a critical point, but it is too soon to say they aren't looking for a bottom rather than making a further sharp spike down - which is still possible.

I don't want to say the coast is clear, plus some major unforseen event(s) could happen, geopolitically or whatever. Heck, we just had a close call from some asteroid plowing almost head on to the planet.

Plus, the world is looking to the US for leadership and this new administration does have a solid popularity during its first two months, along with a vision, all taken together seems to be supported by most Americans and most world leaders and populations. Sentiment is important at turning points in financial markets. Simply, that is the way they work, on human emotion - at critical points.


....Joseph

Anonymous said...

Here's another analogy for what the government is doing.

Here you are, a student with your heart set on going to the most prestigious college in the country. You work really hard to maintain your A+ average and stay #1 on the Principal's Honor Roll, you're the president of your class, editor of the school newspaper, quarterback of the football team and involved in all sorts of extra-curricular activities involving leadership and contribution. You are grooming yourself for a successful future.
Then the Principal comes along and says that there are some students who have gotten themselves into various types of trouble and who have poor grades (mainly due to partying, not paying attention in class, not doing their homework, cheating on tests, skipping classes, smoking pot after school, etc.). So as a solution to prevent them from failing and not graduating and being accepted for college, the school is going to take a few grade points away from the students on the Honor Roll and distribute them evenly to the lesser fortunate students so that they can graduate.

Your 4.0 average is being reduced to 2.5 as of tomorrow. Thank you for your patriotic school attitude and willingness to help the less fortunate.

This president and our lawmakers are rewarding and subsidizing failure, criminality and greed... and punishing the honest, prudent, hard working citizen who is trying to make a future for his children.

I say bring out the guillotines. It's time for revolution and to bathe the tree of liberty in the blood of traitors.

You know it's really not the economic crash that is hurting us so badly. It is the gradual and continual loss of our freedoms and liberties.

I know that right now I could not stand up proudly and look Thomas Jefferson, Ben Franklin or Thomas Paine in the eye. I've let them down and allowed our republic to be usurped.

AIM

Anonymous said...

More reasons why 1929 was different:

Consumer debt was 170% of GDP in '29. It is now 350% of GDP.

US banks hold an estimated amount of derivatives above 100 trillion dollars.

We were a creditor nation then. Now we are the biggest debtor nation.

Can you say TOAST?

I knew you could.

AIM

Anonymous said...

Why will the insanity continue? Why will Obama run this country into the ground and make government bigger than ever, spending upwards of 50% of GDP? Why will we become a socialist nation like the degraded Scandinavian countries or France or England?

Because of all the leeches and parasites in this country. They form a large percentage of our population. And they vote.

OSR said...

At some point, when all those printed dollars hit the streets, the world/OPEC will refuse to use dollars as its reserve currency. That will be a bleak day, indeed.

Jim in San Marcos said...

Hi Crashproof

Surprisingly around here they are still doing a lot of construction. Can't quite figure it out. I see big earth movers at three sites while driving to work.

On the other hand, Sea Port Village in San Diego is going through some rough times. It is starting to fold up according to an article in the Sunday SD Tribune business section. Stores are closing their doors and going out of business.

It looks like we're just starting to see the commercial aspects of the mess surfacing

Jim in San Marcos said...

Hi Sackerson

Thank you for the ata boy. One thing to think about, who is going to implode first? I tend to think that the EU is about to become unglued. But at the rate we are trying to spend trillions, we could be first in line.

It doesn't look promising.

Jim in San Marcos said...

Hi Anon 8:38

Thank you for your input. A lot of the stuff you read here, will never make it to a newspaper. Your comments shed light on what is happening. Its much appreciated

Jim in San Marcos said...

Hi Anon 8:55

Humor is not easy to write, you spent some time on that, thank you for the laugh.

Take care.

Jim in San Marcos said...

Hi Inquiring Mind

I agree. We are Toast! Burnt Toast! The reason being, when the papers report that we are spending a trillion here a trillion there, no one has any comprehension of the concept of how much one trillion dollars is.

The average person thinks that the government will fix it and everything will be OK. Printing money doesn't pay the bills, when the rents due, your daughter better be very good looking!

Jim in San Marcos said...

Hi Anon 5:51

Obama isn't going to run the country into the ground--that has already happened and I don't think that you can really blame Congress or the President for this mess.

Obama wasn't a known commodity when I started writing this blog. So I don't think we can blame him for anything.

He does have executive powers as Top Cop to quell civil unrest. I think that we will see this part of the office of President come into our field of view very soon.

Thank you for your comments.

Jim in San Marcos said...

Hi OSR

I think that the real problem for OPEC, is what currency is really worth a damn? The answer is none. I suspect that the countries of the world will start using gold for commerce and trade.

What you do in your own country is one thing, but if the value of your currency affects other countries, they will find a way to protect the value of what they have sold you.

Look for drastic changes in the way world commerce operates.

Anonymous said...

Using the US definition of a trillion... I think the computation is that if you started in the year zero (aka: the birth of Jesus Christ) and spent 1 million dollars each and every day from that point forward, by the time you reached present time you would have only spent 733.2 billion dollars. You'd have to spend 1M per day for another 740 years or so to finally hit one trillon dollars.

That is scary.

Jim in San Marcos said...

Hi Anon 9:18

The scary thing is, Congress can spend it, at a rate that is beyond belief.

Of course, common sense says you can't spend what you don't have. But governments are different, or so the joke goes.

Anonymous said...

Yes, and what is incredulous is that the Fed has given over 1.9 trillion in credit recently and has refused to tell the American public who the borrowers are, the amounts and what the loan terms are.

Firstly, the government shouldn't be bailing anyone out. And by keeping it secret it is pouring salt on the wound... and rubbing it in.

And Obama's "stimulus" pgm is a spending program. Only less than 5% of it is actually of a stimulus nature. The democrats have used this financial emergency to push all of their agendas forward. The really suspicious point is that most all of this "stimulus" money isn't going to be spent or put into operation for anywhere from 2-4 years (it takes a lot of time to prepare large scale projects); so why did the bill have to get pushed through Congress overnite without giving the legislators time to read it over and study it?

Call it totalitarianism, kleptocracy, plutocracy or whatever you want... the "government" has taken over in full and the American public no longer have a say in what is being done.

AIM

Anonymous said...

We are losing more and more of our freedoms and liberties every day. It appears that the Dark Ages are going to descend upon America, freedom and liberty.

Where are Superman, Batman, Roy Rogers, Sky King, Thor, Zeus, Buddha, George Washington, Martin Luther, Lassie and all our other heroes when we need them the most?

Anonymous said...

our heroes lie within ourselves...

catholic girl

Anonymous said...

How right you are catholic girl. Now YOU are my hero.

Jim in San Marcos said...

Hi Anon 8:25

In a weird way we may be gaining some freedom. Everyone that bought a home at an unreal price became a slave to the bank. Obama is going to set them free. Kind of a strange parallel of history, Lincoln to Obama.

I tend to side with Catholic Girl, our greatness is from within each of us. Sadly if you are broke and homeless, you can't afford scruples or morals and that could be our downfall.

Anonymous said...

Our economic system has collapsed. Sad but not totally unprecedented. No system can last forever.

It's time for a redesigned system.

Before we can make serious progress on creating a newer, safer, and sounder system, we must work to ensure the current system's collapse will not trap all of us inside a cave. We haven't been cavemen for a long time, and I'm not sure we could survive very long.

Whatever measures are being taken now, they are done (hopefully) to ensure our continuing survival. They are costly, clumsy, and clunky. We do not have the luxury of time, however, to sculptor fine works of art. People will die, and will revolt violently, if government turns a blind eye to this crisis, like their Katrina (non)response.

I don't foresee this crisis causing large scale homelessness and hunger. We have plenty of shelter and food. Our military is strong enough to protect against external threats. We will weather this crisis okay at the physical level.

I do see astronomical wealth destruction. It will hit hard middle aged and old folks who are savers. Their retirement would consist of living on Social Security and food stamps. Not the most pleasant situation - but not exactly the end of the world either.

Anonymous said...

AIM should put down the Ron Paul Kool Aid.

If you want to live in a society, then that has a price...known as government. Get over it or go live on an island.

Jefferson and the founding fathers are dead. Their ideals were both good and bad. Quit worshiping them. The could not have conceived of the world as we know it.

Reigning in government will take time. But quit talking about revolution and guillotines...

No one wants to curtail the American spirit, entrepreneurs or capitalism...generally. Certainly not Obama...he's a University of Chicago guy...so are his advisors. But believers in the benefits of government see it as a means to an end. Not as evil.

It's not so much that government intrudes into our base freedoms; but it does take more money than it should. It does what it does with gross inefficiency.

The same could be said of America in general. Waste and inefficiency cost us dearly.

Cut that waste and we suddenly have more money to use to pay down the debt.

Jim in San Marcos said...

Hi 12:27

You need to lighten up a little. Give those 'roids some blood flow.

We're not getting out of this alive.

Joseph Oppenheim said...

If you want to live in a society, then that has a price...known as government. Get over it or go live on an island.<<<<

Well said, Anon 12:27.

You will also note that the "1929 was Different" post was incorrect in a very important point. In 1924, the first mutual fund was created, though they were called 'investment trusts' back then, and it were those funds which were the main reason for creating the stock market bubble leading up to 1929, by suckering in the little people - hoping to get rich. Not all too different from recently. Sure, there are differences - derivatives, etc. Plus, since we already had the Internet bubble a few years ago, some excesses (even companies totally disappearing) had already been taken out of the current stock market, otherwise this drop would have likely been from a much higher level.

....Joseph

Jim in San Marcos said...

Hi Joseph

I see you must have missed an earlier post of mine here is a Link. Mutual funds have been around since 1820.

It's probably a misnomer to label the Mutual funds of the 1920's, Investment Trusts. Investment Trust were more like a hedge fund today.

The open end mutual funds and investment trusts in the 1920's had about 7 billion in them, whereas the stock market of the time had about 89 billion in it.

The investment trusts were buying stock in one another.

An investment trust would start up with an offering of say 10 million in bonds and 10 million in stock, with only 25 percent of the stock sold to the public. They would take the 10 million and buy stocks traded in the market. Then the same people would start a new company that would do the same thing over again. 10 million in bonds and 10 million in stocks. This time though, they buy 3/4's of the stock in the first company paying for it with the bond money raise. Two small investment trust could be controlled by one bigger investment trust. And two of those could be owned by one even bigger one. A one dollar rise in the price of the stock bought at the bottom of this chain could easily return 50 times the original investment at the top.

The whole thing fell apart when stocks stopped rising. The trusts couldn't make the interest payments on the bonds they sold to finance the endeavor.

My link in that November 11th article is to a Time magazine piece written 1936.

Joseph Oppenheim said...

The investment trusts were buying stock in one another.<<<<

Don't be fooled, Jim, recent mutual funds essentially do the same thing, to varying degrees - creatively masking similarities many times.

For one, in a previous stock meltdown after the 1960's boom years, mutual funds commonly used what were called "letter stocks", shares of a company not available to the public, hence illiquid vehicles. I wouldn't be surprised at all if some of this is still going on, maybe even masked to some degree. If not, some other loophole.

Plus, many recent mutual funds, capitalizing on the popularity of hedge funds, created mutual funds mimicking hedge funds, using similar techniques.

Plus, one reason I don't trust mutual funds, is that I am sure fund families move securities between individual funds for their own purposes, not for the purposes of enhancing customer returns. It is just so obvious they could do it, so to assume they don't is just being naive.

Plus, money market mutual funds were exposed to be filled with all these "toxic assets", SIVs, CMOs, etc. That is why the government insured them after one fund "broke the buck", because many would have unwound, and maybe some still are beneath the surface.

Plus, it really is sneaky how mutual fund investors can't vote on proxies of the individual stocks in the funds. Sure, it would be too complex to make that possible, but the reality is that it is a setup for the mutual fund managers to vote. That's another reason I want no part of mutual funds.

Plus, much more.

....Joseph

Jim in San Marcos said...

Hi Joseph

I totally agree. Here is a Link to an article, I wrote in May 2007

I'm just pulling a number off of the top of my head, but I wouldn't be surprised if 90 percent of the mutual funds outside of the US go bankrupt before the year ends. They are under no regulation.

In the US, part of the shortcomings of mutual funds, is that the people in charge are salaried employees and/or on commission. Its a business and there is no real experience from past bear markets to guide them. Their inexperience could wipe you out.

The ones offshore seem to be very suspect.

Joseph Oppenheim said...

In the US, part of the shortcomings of mutual funds, is that the people in charge are salaried employees and/or on commission.<<<<

It's worse than that, Jim. Someone once asked me to check out the military 401K type of program they have, for them. So, when I called the number, it was just some probably minimum wage gal who recommended just some standard approach probably she just read from her likely ten-page training booklet. She couldn't undrstand at all, I was just interested in the safest, income-oriented vehicle. I told the person I know not to waste his time with the program. I suggested just Roth IRAs with FDIC insured CDs in them. There is a role for stocks, but not in tax-sheltered retirement funds, especially not mutual funds. Stocks have tax advantages all their own, which are wasted in retirement funds.

Plus, the average mutual fund underperforms stock averages. No thanks.

As for foreign funds being worse, I agree. As bad as US regulation and visibility is, elsewhere is worse. Plus, with all the negatives, at least Americans have a better chance at understanding the nooks and crannies, here. Plus, like I mentioned Pepsi stock before, at least I know what Doritos Chips taste like, etc. Whatever happens, I bet people will still want some of them, especially since they and other Pepsi products are as cheap a thrill as there is. Even for some who want to pay top price, rather than searching out bargains, using coupons, etc, they are still a cheap treat even at full retail price.

....Joseph

Anonymous said...

12:27 and Joseph have been very well programmed. They have slave mentalities. They can't picture an ideal scene so they are satisfied with the program they are being fed.
Defeatists. Effete. Just plain UNAMERICAN.

Jim in San Marcos said...

Hi Anon 4:55

For "slave mentalities," they seem to communicate very well without insulting anyone. I think if you lay off the airplane glue, you'd make more sense.

You can dissagree with someone, but it's rude to attack them for who you think they represent. You are the one that is unamerican by being against freedom to think and express your views.

Rob IN NS said...

Everyone is entitled to their opinions. Even Ron Paul, a rare politician who has principles, would agree to that.

Jim in San Marcos said...

Hi Rob

The odd thing is that so many people were picking on Ron Paul, I had to make a point of listening to him to see what he was all about.

I heard a discussion on one of the business channels the other day that made me wince. The speaker suggested that they limit Rush Limbaugh and some other pro Republican from speaking since it was sending the wrong message to the country in these troubled times.

I kind of makes you wonder if we are losing a concept or two here with this "solution" to all of our problems.

Anonymous said...

HEY! 12:27's original communication wasn't very nice or mannerly. I was just responding to that attack. My opinion is that he and Joseph are part of the problem not the solution. They are programmed. I'm entitled to my opinion too. They've lost the standard of rugged individualism, self-dependence, small government, etc. And as a further response to 12:27, if there was an undiscovered island (country) that I could move to and create a government that paralleled the ideas of Jefferson and our other framers (the people that 12:27 criticizes) and expanded as a republic to meet modern times... I would.

Anonymous said...

RON PAUL AND A FEW OTHERS IN CONGRESS ARE THE ONLY VOICE OF REASON. EVERYONE ELSE IS CORRUPT (BOUGHT AND PAID FOR) OR IGNORANT OF THE BASIC POINTS OF ECONOMICS AND SOCIOLOGY.

YOU WATCH... IN THE NOT TOO DISTANT FUTURE PEOPLE WILL RELISTEN TO RON PAUL'S CAMPAIGN SPEECHES AND SAY... "MY GOD, HE PREDICTED EVERYTHING THAT HAS HAPPENED AND HIS SOLUTIONS WERE THE RIGHT SOLUTIONS".

Shift said...

This stock market crash is doing no better than the great depression crash.

Check out the four-bears comparison chart:
http://dshort.com/charts/bears/four-bears-large.gif

These things take time to develop.

Shift said...

Anon 1:40:00,

CAP-LOCK IS CRUISE CONTROL FOR AWESOME!

HECK YEAH!

Rob in NS said...

Jim

1929 was indeed different. I suspect a much larger percentage of population knew what was coming and tried to prepare. As for Ron Paul I think he is one of the only politicians anywhere that has any integrity. That said he does not have all the answers to get out of this mess. He shouldn't be ignored as he is now but shouldn't be blindly followed either. On the other hand making a statement that anyone who listens to him is drinking "Kool-Aid" is over the top, so in that respect I'm in agreement with Anon 4:55.

Rob

Joseph Oppenheim said...

As for Ron Paul I think he is one of the only politicians anywhere that has any integrity.<<<<<

Sorry, Rob, there are plenty of respected economists who have legitimate pessimistic scenarios. Noriel Roubini and Harry Dent are two of several I respect and indeed want to listen to them. In fact, on CSPAN today, Michael Panzner's thinking was as good as any for a doomday scenario. Heck, my posts do indicate things are for sure to get worse. Plus, even worse due to the obstructionists who have shown up en masse.

But, Ron Paul is a total nutjob. Heck, a doctor who doesn't even accept evolution. I wouldn't trust the guy to be my doctor, much less anything else which involves science. And, yes, economics is a science, not a hard science, but a social science. Or, for that matter, I just wouldn't trust anyone who doesn't accept evolution for what they say on any serious subject.

That said, I do listen to him, because he provides laughs. Sure, once in a while he has some opinions I agree with, but there are others who present them from more solid mental processes.

Oh yeah, Ron Paul is a racist. Not a great foundation for rational thought, sorry.

....Joseph

Jim in San Marcos said...

Hi Rob and 1:36 AKA 4:45

I know who Rob is and Anon is everyone else. When I read the 4:45 remark I saw the rhetoric and thought that Richard Nixon had risen from the dead. There had to be a message in there somewhere! I gave serious thought to deleting it, but figured it better to answer it. My first comments to you were pretty much directed at anyone wanting to start a flame war.

Your second post was more informative and I agree, the people who have all the solutions are part of the problem. I think that anon 12:27 has some anger management issues. My jab at him about 'roids (hemorrhoids) maybe didn't register.

Last month I wrote something disagreeing with our governments approach to solving this mess and one poster called me a "white racist republican for not supporting Obama." I couldn't believe it. It wasn't worth answering, I deleted it. It's surprising how what is written can be interpreted so differently.

When you go to post a comment,you can select the Name/URL choice instead of Anonymous and type in what you want for a name. It makes it easier to follow as a reader.

Thank you for your comments

Rob in NS said...

Joseph

I'm speechless at the depth of your argument.

Rob

Jim in San Marcos said...

Joseph

You are out of line. No politics unless you want to bash both parties equally.

As for economists most of them didn't even see this mess coming. I did, which proves you didn't need a degree to figure out what would happen next.

You want to discuss sex politics or religion, you are wasting my time and everyone else reading this blog.

As for Ron Paul being a racist, you are way out of line again it is not relevant. Looking at your last name, Hitler was a racist and being white just wasn't good enough. Old Joe McCarthy set this nation on its ear calling loyal citizens communists. People who use terms like un-American, racist and being republican seem to have a political agenda. "You are either one of us or against us," I don't buy it.

I don't tolerate that view at all. Your next post could be your last.

Anonymous said...

It's the 19th amendment that needs repealing. Everything went to pot after the 19th amendment.

Jim in San Marcos said...

Hi Anon 9:33

If you're married, you sex life just got thrown out the window.

My wife votes all of the time, I have yet to win an election.

Anonymous said...

Politicians never have and never will solve our societal problems. They just keep making government larger and more complex and exacerbate our problems. With them, today's solution becomes tomorrow's problem. Politicians turned a correction and recession into a long term depression back in the 30's. They'll so it again this time. Obama's main speech writer is a 28 year old that studies FDR. When Obama speaks he sounds just like FDR.

Ron Paul is not your average politician. He has common sense. The majority of his cohort in Congress smirk at him... which just shows you how far off the mark they are. Look at the mess they've made of this country.

I don't appreciate these slights that I'm reading in this blog about him. If he had had some sway and influence on Congress over the last 10 years we wouldn't be in the mess we are now.

You denigraters and ridiculers of Ron Paul do because he is over your heads.

AIM said...

Sorry to say, but I must tell the truth, when I see Joseph's name at the top of the post I just skip over it an move onto the next one. I don't read this blog to get upset and frustrated, I read it to learn and hear valid insights and solutions.

AIM

Jim in San Marcos said...

Hi Anon 11:10

I agree, that's why I keep politics out of this blog. You can fault congressmen for their religious beliefs or sexual preferences, drug habits and the list goes on.

As a group they have our best interests at heart. They didn't get us into this mess, but I am afraid we will hold them accountable, it happened on their watch. A lot of them will not be re elected.

Thank you for your comments.

Rob in NS said...

I agree with Anon 11:10 when he says government is the cure to all our problems. Self reliance is the underlying theme to Ron Paul's ideals. It is a worthy goal. My grand parents on my Dad's side came from large families and they together raised 11 children in the depths of a depression. They taught me at a young age by example to be able to fend for oneself and rely on nobody. It was people like them that got us thru the last big D. Sadly I don't see many like them alive these days. We have grown accustomed to government fixing everything. I'm sure my grand dad didn't wait for hand out from government before tending the fields while trying to raise his family. The reason why government is so big now is because the majority of people on Wall Street and Main Street want it that way. Unfortunately if we reduce the size of government and it's programs it will directly impact a large percentage of population which have been raised for generations feeling a sense of entitlement that they can do nothing and still get by. They do not realize still that it is these policies which will doom them in the end. Right now it looks like it is free loaves of bread for everyone and bigger more elaborate circuses. I guess history does repeat itself it's just a matter of having the patience to wait about 2000 years.....

Rob

Rob in NS said...

I should have said isn't the cure but anyway......

AIM said...

I think Rob in NS is correct.

We can't complain about the growth of government and it movement towards more and more of a socialist state.

This is due to the mentality of the general populace which has been "trained" to receive fish instead of learning how to fish.

This "training" comes from our educational system, from TV, movies, magazines and books... of which the majority of them are on a continual downward spiral of degradation.

Our government is a reflection of the populace. Responsibility, self-reliance, integrity, character, and intelligence have been replaced by lower non-survival characteristics.

You can't have a strong democratic republic with a small efficient government and a prosperous nation based on weak human fundamentals.

These are the elements (along with violence) that have destroyed every past civilization.

AIM

Jim in San Marcos said...

Hi Aim

I believe that the immigrant base entering the country knows how to max out and make it. They are not spinning their wheels. Their kids are in the top of their class and grabbing the college scholarships. There might be some hope there.

I tend to agree with your rhetoric on the state of the nation. It is going down hill slowly.

I would like to recommend a book for you to read. It is called "The Tyranny of Words" by Stuart Chase it was written in 1938. It changed my life and the way I think immensely (it's about words and semantics). It is not a book for everyone, you have to be a thinker of sorts, and you seem to fit the mold.

Hope you like it.