The Official Economics Discussion Thread

[Bugsy23]

Hello, and welcome to the Economics thread. I've created this topic to find individuals with a common real life interest in all aspects of the global economy, a topic that everyone across the globe can participate in.

Now, to give me a fair bit of credibility, I am a Finance major at Clark Atlanta University and at this moment I own two stocks of my own that both happen to be Chinese stocks traded on the New York Stock Exchange (NYSE): Noah Education Holdings (NED) and Qiao Xing Mobile Communication (QXM). Here's how they did today:

http://finance.yahoo.com/q?d=t&s=NED

NED 5.75 +0.37 (6.88%)
Open: 5.32
High: 5.85
Low: 5.30
52-Week Range: 4.81 - 23.70
Volume: 304,468

http://finance.yahoo.com/q?d=t&s=QXM

QXM 7.04 +0.04 (0.57%)
Open: 7.00
High: 7.19
Low: 6.94
52-Week Range: 6.67 - 15.48
Volume: 222,540

The links are so that you can keep up with my stocks every day if you wish. I also use Sharebuilder to do my investing.

This topic is for anyone with a viewpoint on the economy. This topic is open to people who would like to have a say so on where they stand with today's economy, people with questions or concerns on how the market works, important market updates, and just people who would like to keep us updated on their investing, whether it's investing in Stocks, Bonds, Mutual Funds, ETFs, Index Funds etc. I would like to learn more about the economy and the exchanges outside of the U.S. as well, so feel free to talk about what is going on in your country, whether it relates to the U.S. economy or not.

I am a bull by nature, and as Warren Buffet would say, "Be greedy when others are fearful." (Just my opinion)

 

[Bugsy23]

The stock market is extremely volatile because of the "credit crunch" and the housing bubble occuring right now. To sum it up, many of the banks are afraid to lend money because of bankruptcy and default, and therefore it is harder for many Americans to start businesses. Bond insurers are not raising enough capital to insure their bonds, and thus they keep defaulting. The result of this is felt mostly in the housing market, especially in Florida and California, where homeowners are being force to sell their homes or risk it being foreclosed. The problem is, they cannot sell their homes because no one can afford to buy them with the heightened interest rates, so prices are dropping nationwide up to 30%. Interest rates are have dropped significantly, but not enough to make up for the housing crisis right away. This also means that less houses are being built, which has a direct effect on publicly traded companies like Home Depot (HD: NYSE) and Lowes (LOW: NYSE), who are the leader providers in home improvement and construction. They are thus, trading near their 52-Week lows, and are at bargain prices.

Even if you are a conservative, and probably bearish when it comes to picking your stocks (meaning you believe the market will underperform), now is the time to jump on some of the hot deals running around.

Do you have a financial advisor? And may I ask what stocks are you investing in?

 

[Dragontamer]

Where can I learn about Mutual Funds? I keep getting vague descriptions of them when I ask google, so I'm guessing that this information is in a book somewhere? Or maybe I'm not looking up the right keywords?

I'm planning to build up my portfolio from the conservative side first. I think understand Bonds, CDs and money market well enough, but I've yet to find a good explanation / tutorial on Mutual Funds. Any links, books, or articles that you can point out for me? I figure the more I know about my options, the better...

 

[Bugsy23]

I am currently holding MSFT, which I bought originally at 30$, sold at 33$, then reinvested that money into MSFT again at the price of 29$. I believe it is now worth 28$, it fell a little because of the Yahoo! takeover announcement. The credit crunch really hurt BAC, a bank stock I am holding right now. That, I believe I bought at 49$, currently I am still holding it, at 43$. I also have a whole lot of GFACX, a mutual fund recommended to me by my bank's "financial advisor," the commission-hungry fellow he is. That I got at 36$ a share, now worth 31$ a share. I admit I've lost a couple hundred dollars overall on the stock market, but lesson learned, right?

I still know next to nothing about stock markets again, though, warning you. Silly of me, right?

I love MSFT! and I believe that if their 44.6B bid ever goes through with Yahoo (YHOO), although it with take a few months to settle the power issues between the two parties, it will rise again. Although they won't beat out Google (GOOG) when it comes to online advertising, they can compete more in the domestic and international market, as well as nearly monopolizing the email aspects of the internet (most people use Google only to search).

I believe Bank of America will bounce back being the #1 domestic bank and still the best of the breed in financials, so stick with it because it will pay off in the long term when the housing crisis is over.

GFACX is not available for me through Sharebuilder and I don't own any mutual funds, but I will do some research later on to learn more about it. Just note that even if financial advisors recommend something, learn how to read balance sheets and do your homework, specifically with cash flows. You need to know how your company is paying for its operations, and cash flows documents are the key. You will make more money if you understand what is going on yourself.

http://www.fool.com/school/basics/basics01.htm

That will help with learning what investing is overall.

http://www.moneychimp.com/articles/financials/cashflow.htm

This should help you learn more about cash flows.

 

[Bugsy23]

Where can I learn about Mutual Funds? I keep getting vague descriptions of them when I ask google, so I'm guessing that this information is in a book somewhere? Or maybe I'm not looking up the right keywords?

I'm planning to build up my portfolio from the conservative side first. I think understand Bonds, CDs and money market well enough, but I've yet to find a good explanation / tutorial on Mutual Funds. Any links, books, or articles that you can point out for me? I figure the more I know about my options, the better...

http://www.fool.com/school/basics/basics04.htm

That is a wonderful guide that has helped me understand mutual funds a bit more. Along with mutual funds, if you are playing it conservative to begin with, are ETFs (Exchange-Traded Funds). They are essentially a collection of stocks like a mutual fund, although they are priced intra-day instead of at the end of the day so that if your fund experiences a steep rise, you can sell or trade them for a profit. ETFs are better for younger individuals who are more daring in today's market, as mutual funds are geared more towards retirement.

 

[Bugsy23]

Hmm, ok, so next step: how do I go about finding things like cash flow documents...?

I've attended enough seminars and did enough of my own research to understand the concept that fool.com is trying to say, it's just when dealing with the nitty-gritty things like "cash flow documents" that I reveal my ignorance.

Your company website should have a copy of its latest financial statement, but if you cannot find it, www.secinfo.com is a good website.

You can type in the name of your company and they will give you a recap of their past fiscal quarters, along with gross profits, revenue, and a cash flow statement. There are other sites that can give you update information as well if you search for them.

 

[Aeolus]

The idea of attempting to read and understand a company's annual report before taking as many accounting and finance classes as I have is something I don't want to think about.

I'm not going to say that everyone needs to get a B.S. in accounting before they can understand financial statements... but I would definitely recommend reading over some accounting literature so that you can at least understand the theory behind a balance sheet and the statement of cash flows. Learning the basic terms (current/longterm asset/liability, common stock vs. preferred stock, cash/stock dividends/splits, etc. etc. etc. etc.) will get you a long way when trying to muddle through all the disclosures.

Also, there are so many more investment instruments than stocks and bonds that people simply ignore as being "too complex and risky for my taste." Properly staking a long or short position in a stock with a derivative security of the same underlying asset can hedge away the lion's share of the risk involved without diminishing your return. Money can be made in bear markets just the same as bull markets if you plan carefully and unwind your positions at the right time.

Money is so much fun... I defy anyone who says that being an accounting/finance major is boring!

 

[Bugsy23]

Yeah I have been trying to learn more about derivatives but the knowledge is fairly limited in my Calculus classes so do you know of any ways to learn about derivatives on my own or something that you may be able to teach me?

 

[Ouro]

I was hoping this was The Official Economics discussion thread. So we could talk about bonds (those whacky Mortgage-Back Bonds), Ben Barknanke and his new tax cuts, and possible solutions to the declining economic situation around the world.
Currently in Economics class (yes I'm still in high school!) we are looking at bonds. We have recently finished a course on Macro Economics and the Stock Market.
At the end of the quarter we are each going to get our share of our money for completing a certain project we were assigned. After that we have the option of purchasing stock and I have been eye balling Ford Motor Company. (symbol F). A couple of weeks ago I had the option to collect my 400+ dollars and heavily contemplated purchasing the Ford stock.
I believe at the time I could have purchased 80ish of them without the 5% transaction fee (they were going for about 5.25 I think). Given the receding American economy I figured stock prices would go even lower with all the dramaz but stock prices have gone up to about 6.60 today and I was wondering if I should purchase them sometime soon or wait for them to go lower. I figured since Im going to college in September Ill wait until the stocks get back to 9 bucks and sell them all to make an extra 240 plus my dividends? I haven't looked into Ford enough to know the prices of the different stocks. Guidance?

 

[Bugsy23]

This thread is about economics, and I'll change the title for you.

As for Ford (F), it's been steadily trading around its lows for a few months now, seeing as the housing crisis is cutting consumer spending, and because tax rebates are taking so long, people are less inclined to spend money on cars. Ford has tremendous debt and has profits in the negative, though it has decent cash flow and a decent gross margin trailing twelve months. Toyota is in the lead and I'm not sure if Ford can catch up, but it's worth a shot. I have a friend who owns shares of Ford, and he is thinking like you are in that it can only go up from here. Don't forget that Ford also owns the Detroit Lions, and they are making nothing from that, so with the lions could go the stock.

Take a look at General Motors if you're looking for domestic car companies, although it costs about 4 times as much. And remember, as Warren Buffet would say, "Be greedy when others are fearful."

And yeah, I would love to talk about Ben Bernanke and bonds.

http://www.cnbc.com/id/23369557/for/cnbc/

Do you think the constant cutting of rates will help the economy escape inflation?

 

[Aeolus]

ok haha, when I say "derivative security" it has nothing to do with the derivatives you take in calculus courses (rather you need extensive stat course to really understand them actually!) There are certain investment instruments called derivative securities because they aren't based on real assets (like a stock is a claim on equity or a bond is a debt claim), rather they are based on financial assets (the stocks themselves or commodities prices). Options and futures are examples of derivative securities.

I'm not really looking to post a lecture on financial derivatives here... but there is plenty of information available about how to use them to leverage investment positions to hedge risk without giving up a whole lot in terms of return. The problem is that when normal people look at derivative securities they see them as being too highly levered for their personal risk tolerance and forego buying them when really, when used correctly, they would eliminate a ton of risk.

 

[Bugsy23]

Ok I'll make sure to look into that and give some feedback...

And yeah kd8, it seems as if Ben is cutting rates in hopes that all of his problems will just go away, but high energy prices including Crude Oil hitting the $101 mark today is causing some to believe that our problems are far from over.

 

[Ouro]

Well Bugsy the Toyota and GM Stocks are a bit out of my price range. I was thinking of loading up on the Ford stock to make 2.50 to 3 bucks on each share. If I play it right I can get something like 250 bucks.

Recession check list:
High energy prices, check.
Housing crises, check.
Collapsing stock market, check.

Stagflation here we come!

Although I won't be able to discuss with you guys on a deep level I'll be stopping bye to see what you guys have to say. I've applied to the Economics programs at Colgate and John Bates so yipee.

 

[Surgo]

Well, you guys (bugsy) saw me talking in #smogon yesterday, so I guess I should post to say hi!

I honestly don't know much about the stock market and econometrics, but as you saw I have a pretty good grasp on economic theory.

Actually I wish I could change my major to economics but it's too late (I'm almost a senior).

This is just a layman's impression, but isn't the economy heavily influenced by consumer paranoia? With all the cuts by the feds, signaling that the economy is indeed in trouble, isn't it a catch-22 of sorts?

Yes. A lot of jobs like head of the federal reserve are basically to tell people to not worry, and everything will be okay, because it becomes a self-fulfilling prophecy in a way.

 

[Ouro]

So oil barrels hit an all time high yesterday. We are the right path to recession. Now unfortunately we will begin to feel the hurt. Farmers are reporting that the price of corn bushels. Not the corn us humans eat but the corn used for Ethanol and cattle feed. From what I understand this speculation will lead to the price of red meats to go up now instead of later. Anyone?

 

[Bugsy23]

Oil was hitting near $105 today which is destroying some of the airlines companies and with the gold push up near $1000, I believe Buffet got it right: The economy as we know it is in a recession. I say that because higher gold prices usually mean an economic slowdown, as gold is a safe way to hold on to your assets.

Also in other news, Apple (AAPL) is releasing a program on it's iPhones through iTunes that will allow the use of Microsoft Outlook among others. I'm in the process of buying a Blackberry because I like it more for business, but Apple could make a push in the right direction for competition with Research in Motion's (RIM) Blackberry 8800 and Curve series. What do you guys think?

 

[Ouro]

Well Apple mainly appeals to the masses with a "cool" factor a.k.a the commercials. With the technological developments I believe they can push technogeeks into a Mac craze. Unfortunately for many of the consumers, Apple products are far out of their budget, and given the current situation these developments wont do much for them.
Personally I am waiting for the Samsung F700 to hit stores around me. I'm hoping to purchase it at the same time I select my laptop for college. That is however situational. My brother and I are planning on getting an apartment together in Minnesotta if and when I get into Carleton. Unlike him I doubt I will be getting a scholarship so I'm thinking of starting my own laundry service in school.

 

[Bugsy23]

Laundry service eh? Sounds like a good idea, but how would you go about doing that?

 

[Ouro]

Laundry service eh? Sounds like a good idea, but how would you go about doing that?

My brother and I are getting an apartment. I'll post fliers around campus and agree to pick it up and drop it off. If gas goes up to 4 bucks then I'll just drop it and live off my parents?
Detergents will be acquired from places like BJ's (IDK what they have elsewhere)
Washing machines we will buy ourselves.

That or I hope I get promoted to a waiter.

Anywho, as an alternative to Ford I found this company Coeur d'Alene Mines Corp. Stock prices are cheaper and given that Gold is at almost 1 grand an ounce I said why not invest in it? Now I know the price of gold isn't expected to go up but I'm expecting the stock of the company to do so.

Company Info:
CDE
http://finance.yahoo.com/q?s=CDE

I purchased it for my economics class simulator and I am hoping to get all 10 of my extra cumulative points with this stock. I just need it to get to $6.10 and I can slack off a bit.

 

[Swimrunner]

I know jack shit about how the stock market really works, but I'm very close to deciding to major in economics / business. I'm running through AP Economics right now, so you guys are miles ahead of me hah (sucks still being in high school in some ways).

 

[Bugsy23]

I like the move to CDE over F. CDE has much more potential long term although Ford has been a stable company for generations. And CDE focuses more in the silver field, which is hitting highs this year unseen since the 1980s silver boom. Good idea, and I hope it works well for you

I've also been looking to venture elsewhere, but I am giving my stocks time because I believe that they have more upside potential than downside (they can't really go much lower). NED was having problems because of "forgetting" to apply a lead sticker to one of its products. The product was recalled from all stores, and investors got scared and pulled out. That's when I went in at $6.66. It's in the low $5 range, but it's last statement led me to believe that the company is getting back on track and will regain its composure.

QXM is a bit more volatile, and Apple releasing its iPhone to the Chinese public could hurt, but those who cannot afford and iPhone will turn to either Nokia or QXM. Their balance sheet led me to believe that the company was being traded well belong its actual value, and when the next earnings report comes out I will share it with you to show you what I mean.

Good luck with silver however, and here's another silver company I had on my watch list a while back that you can investigate:

http://finance.yahoo.com/q?d=t&s=BEXP

 

[Dragontamer]

http://www.fool.com/school/basics/basics04.htm

That is a wonderful guide that has helped me understand mutual funds a bit more. Along with mutual funds, if you are playing it conservative to begin with, are ETFs (Exchange-Traded Funds). They are essentially a collection of stocks like a mutual fund, although they are priced intra-day instead of at the end of the day so that if your fund experiences a steep rise, you can sell or trade them for a profit. ETFs are better for younger individuals who are more daring in today's market, as mutual funds are geared more towards retirement.

BTW: thanks a lot for that post. After looking it over, I've gotten myself a sharebuilder account as well and am now looking for the right ETF. I'm kinda feeling a bit neutral on the index funds... but I'll most likely just buy some index eventually. When I get more money, I'll start looking into stocks.

Anyway, is it just me or do these brokers want to take as much monoey from you as possible? As much as I like the thought of $4 trades w/o subscription... ShareBuilder.com has an example of $50 investment each month... thats like... 8% commissions >_>.

Anyway... thanks for getting me started. Worst case, I'll just throw a few dozen bucks each month into the money market while thinking about ETFs. Just with all this "recession talk", I don't feel like purchasing anything. And when I start even thinking about shorting a stock (I don't plan to, I just think it), the markets go back up.

Bah, whatever. I'll take the advice of fool.com and do real research on these companies and buy the ones that look good... where do you find information on Cash Flows and all that report stuff?

I'm not really looking to post a lecture on financial derivatives here... but there is plenty of information available about how to use them to leverage investment positions to hedge risk without giving up a whole lot in terms of return. The problem is that when normal people look at derivative securities they see them as being too highly levered for their personal risk tolerance and forego buying them when really, when used correctly, they would eliminate a ton of risk.

Hmm, thats interesting. I'll be sure to look into the details of options and futures. I find it strange that you can lower overall risk by using those however... I thought options were among the riskiest things you could do? You can lose more money than you put down right?

 

[McGrrr]

The last 10 days:

1. Sterling hits record low against the Euro.
2. Alistair Darling announces budget that is the economics equivalent of pressing the snooze button when your alarm goes off.
3. Bank of England maintain a 5.25% base rate despite continued above target CPI.
4. Official US figures show a decline in consumer confidence and an unexpected 0.6% fall in aggregate February sales.
5. Anxious noises from across the Atlantic as the Dollar ploughs new depths.
6. Oil prices hit nominal record of $111 (still enormously lower in real terms than the 70s).
7. Bear Stearns declares insolvency.

Conclusion: OH NOs

If there is a silver lining to this week, then it can only be that US inflation has remained in line due to cheap energy and transportation prices. This gives the Fed some manouvrability; expect a 0.75% reduction in interest rates next Tuesday. Hopefully, Bear Stearns will find a buyer, or hedge funds will fall over like dominos.