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  Quotations - Invest  
[Quote No.29037] Need Area: Money > Invest
"Towards the end of a business, economic and share market cycle, resources and especially energy including oil and petrol prices and inflation will rise and therefore as the purchasing power of the dollar falls, gold can be a good investment as it will rise as others buy it as a hedge against inflation." - Seymour@imagi-natives.com

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[Quote No.29038] Need Area: Money > Invest
"Towards the end of the business cycle, resources and energy - in particular oil will rise and this rise will effect share market sentiment through food and petrol price rises and the resulting effect on margins to most businesses and to consumers' disposable incomes. Value investors need to keep this in mind when thinking about the point of maximum pessimism which is a good time to buy. A number of things can effect the price of oil and petrol and therefore periods of extra pessimism in the market - including geo-political/war scares, supply problems and interruptions, inventory levels, increased northern hemisphere -US and European- use with summer [June/July] holiday transport and winter [Dec/Jan] heating needs, US hurricane season around the Gulf of Mexico, which is home to a quarter of U.S. crude production [the Atlantic hurricane season runs from June 1 to Nov. 30], etc." - Seymour@imagi-natives.com

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[Quote No.29045] Need Area: Money > Invest
"Unfortunately, the track record of individual investors with plain-vanilla mutual funds fails to inspire confidence. Actively managed mutual funds overwhelmingly fail to beat the market. In a well-structured study published in 2000, an investment manager, Robert Arnott, showed that over a two-decade period, excessive management fees and frantic portfolio trading reduce the chance that a mutual fund investor will beat the market to less than one in seven. Most mutual funds do not produce even minimally acceptable results because of the conflict between the mutual fund company's profit motive and the mutual fund manager‟s fiduciary responsibility. Mutual fund companies profit by gathering assets, charging high fees and churning portfolios. Mutual fund managers produce superior investment returns by limiting assets, assessing low fees and trading infrequently. In case after case, profits trump returns. The mutual fund manager abrogates fiduciary responsibility for personal gain." - David Swensen
Yale endowment Chief Investment Officer. From an op-ed piece for the New York Times, in 2005.
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[Quote No.29046] Need Area: Money > Invest
"Let Wall Street have a nightmare and the whole country has to help get them back in bed again. [as confidence in financial markets is critical to modern capitalism. Even though a 'moral hazard' is created, where excessive risk-taking is not fully punished, to not step in would hurt the country even more at least in the short term.]" - Will Rogers

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[Quote No.29047] Need Area: Money > Invest
"A free market is not a system designed to give people a free lunch. It's designed to make them better people - by rewarding them when they do the right thing and punishing them when they do the wrong thing." - Bill Bonner
Author, Founder of Agora Publishing and founder and editor of the financial newsletter, 'The Daily Reckoning'.
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[Quote No.29067] Need Area: Money > Invest
"Beware of the glib helper [advisor, financial planner, newsletter spruiker] who fills your head with fantasies while he fills his pockets with fees." - Warren Buffett
Highly successful value investor, Chairman of Berkshire Hathaway Inc. and one of the richest men in the world.
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[Quote No.29079] Need Area: Money > Invest
"The real threat you face is located east of one ear and west of the other. [because the real threats to any investor is not thinking things through clearly, making poor assumptions, and letting optimism and greed or pessimism and fear over-influence their judgments.]" - Rick Rule
Chairman of Global Resource Investments Ltd.
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[Quote No.29081] Need Area: Money > Invest
"Credit is to the economy what alcohol is to a cocktail bar – it sure gets things going, but it also sows the seed of destruction... From the Great Depression to Japan’s lost decade in the 1990s and the current crisis unfolding in New Zealand [in 2008], credit has had a crucial role to play in almost all the western world’s economic reversals over the past century. But what exactly are credit cycles and how do they unfold? 7:30 pm - Half-price cocktails before 9pm and an empty bar Willkommen, bienvenue, welcome to the Credit Cabaret. Like finding a bar early in the night with great cocktails at cheap prices, a credit cycle begins for a bunch of logical reasons: assets are cheap as a result of the previous bust; money is cheap because the reserve bank is trying to prime the economy; and businesses are starting to invest in anticipation of better times ahead. With opportunities to earn returns higher than the cost of debt, borrowing money makes sense and investment is exactly what the reserve bank is trying to encourage. 10:00 pm - The bar fills up and happy hour is over Passers-by notice the fun being had and join the party, prompting the bar owner to call an end to happy hour. It’s time for balance and, in the real economy, it’s time for what central bankers would term a ‘neutral stance’. Credit remains available at reasonable prices and opportunities still exist to invest and earn satisfactory returns. Meanwhile, the earlier investment is beginning to pay dividends in terms of economic growth and reduced unemployment. So far, things are unfolding just as the reserve bank intended. 1:00 am – Signs of excess begin to build The bar is now crowded and everyone’s having a great time. But the owner starts to notice a few signs of excess. He doesn’t want things to get out of control, so he decides to raise prices further, assuming this will encourage his patrons to drink less. He soon discovers, however, that his original patrons – looking for good, cheap cocktails – have already gone home. His bar is now full of people who are there because everyone else is, and most of them don’t care what he charges for the drinks. This is the crucial point in a credit cycle where reserve banks lose control. People begin buying assets simply because asset prices have been rising, not because they’re generating a return that is sufficient to cover the cost of credit. Rising prices are now the sole justification for borrowing. And those that are interested in yield start making riskier investments in order to achieve it – they start substituting bottles of Moët with Passion Pop. Rising prices have caused the average yield on genuinely safe assets to tumble, so investors start to look elsewhere and, as with any finance-related boom, there is no shortage of investment bankers willing to accommodate them. This stage of the cycle can become completely self-reinforcing. Higher asset prices enable access to more credit and more credit drives the prices of assets up further. As we’ve seen in the US housing market, it can go on like this for years. 4:00 am – The cocktails are doing more harm than good Crunch time arrives when the bar owner starts hearing police sirens on the street. For the reserve bank, the economy is overheating and inflation is taking off. It has no choice but to forcefully bring the party to an end with still higher interest rates. With assets generating low yields and interest rates high, someone needs to fund the difference. The burden proves too much for some and the most indebted participants begin to topple. 5:00 am – The sun comes up and the party is over While credit bubbles can build for years and even decades, they tend to end quickly. Once the drinks dry up, there’s nothing to keep the party alive. And credit cycles are just as self-reinforcing on the way down. Banks are highly leveraged – they typically lend $15 for every $1 of shareholders’ equity on the balance sheet. So, if a bank loses a dollar on a dumb loan at the height of the boom, that’s $15 it can’t lend elsewhere. A few losses therefore result in much larger reductions in available credit, and that, in turn, causes asset prices to fall further, creating further losses. Even businesses with sound prospects struggle to borrow money, which reduces investment, slows the economy and causes unemployment to rise. 12:00pm the next day – Headaches, panadol and a long lie down Everyone wakes up with a huge hangover and the reserve bank needs to administer some medicine. It slashes interest rates in a bid to revive the ailing economy. After a sustained period of ‘I told you so’s from the abstemious, swearing off alcohol from the mainstream revellers and rehabilitation programs for the worst offenders, it’s time for another night at the cabaret..." - Steve Johnson
Financial analyst and journalist with the fine Australian financial newsletter and website, 'The Intelligent Investor'.
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[Quote No.29086] Need Area: Money > Invest
"[Be careful in bear markets for 'sucker rallies' that look like the market has turned bullish but it is just an unjustified boost, and eventual collapse to even lower, from short traders covering their shorts, blind optimists, too-impatient value investors, and short-term traders.] In the four bear markets since 1973, rallies of 10 percent or more lasted an average of 54 days for a gain of 14.5 percent. In every case, the S&P 500 fell again, dropping an average of 21.5 percent over 114 days." - Birinyi Associates Inc. and Bespoke Investment Group LLC
Birinyi Associates Inc.- the Westport, Connecticut - based research and money management firm founded by Laszlo Birinyi, and Bespoke Investment Group LLC.- a Harrison, New York- based firm that manages money for wealthy investors and provides financial research to institutions.
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[Quote No.29096] Need Area: Money > Invest
"Value investors who look to buy when prices are low need 'cool heads and hard hats' to enable them to think clearly when others panic and enough cash and other income to survive extremely rough and often longer than expected financial shocks." - Seymour@imagi-natives.com

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[Quote No.29104] Need Area: Money > Invest
"[The share market and the fixed income market use many terms that most people are unfamiliar with. Below are some of the more common:]... ARM Adjustable rate mortgage. Mortgage whose interest rate is continuously adjusted, normally in reference to central bank rates (Reserve Bank rates in Australia)... ABCP Asset-backed commercial paper, used by companies and financial institutions to borrow liquidity. ABCPs typical have a maturity of between 90 and 180 days, but no more than 270 days... BPS bps Basis points. Unit equal to 1/100th of a percentage point. Frequently used to express percentage point changes less than 1... COFI Cost of funds index. A regional average of interest rates incurred by financial institutions, which in turn is used as a base for calculating variable rate loans... FEDERAL RESERVE DISTRICTS In the United States, there are 12 regional Federal Reserve Banks. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco... FED FUNDS FUTURES PRICING The owner of a Fed funds futures contract must deliver the interest paid on a principal amount of $5 million overnight Fed funds held for 30 days. The price of a Fed funds futures contract is 100 minus the average Fed funds rate during the contract month. For example, during a month when the fed funds rate averaged 6.5 per cent, the Fed funds futures contract would settle at 93.50... FRM Fixed-rate mortgage... IBs Interbank futures. Futures contracts that allow traders to take positions on interbank lending rates... LIBOR London Interbank Offered Rate. LIBOR is the reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London interbank market. LIBOR is fixed by the British Bankers' Association... M0 A narrow measure of money supply, including all physical currency plus accounts at the central bank that can be exchanged for physical currency. (NB: Each national economy has its own rules for measuring money supply)... M1 M0 money supply minus those portions held as reserves or plus the amount of money in demand accounts ('current' accounts). (NB: Each national economy has its own rules for measuring money supply)... M2 M1 plus most savings accounts, money market accounts, and small term deposits. (NB: Each national economy has its own rules for measuring money supply)... M3 The broadest measure of money supply – M2 plus large term deposits, institutional money market mutual fund balances), deposits of Eurodollars and repurchase agreements. (NB: Each national economy has its own rules for measuring money supply)... OMOs Open market operations. Generic term for monetary policy by which a central bank expands or contracts the amount of money in its national banking system by buying and selling financial instruments in the open market... SHORT END The short end is a part of the yield curve. Generally, the short end of the curve includes the yields from three months to two years. The LONG END includes the coupon-paying securities from three out to 30 years... SPREAD The difference between sell and buy price for a security, often expressed in basis points (bps). Also used to express that variation of one interest rate over a benchmark rate such as LIBOR... TAF Term Auction Facility. Monetary policy used by the Federal Reserve to help increase liquidity in the US credit markets... TICKS The minimum upward or downward movement in the price of an asset... TIPS Treasury Inflation Protected securities. TIPS that offer protection from inflation by automatically adjusting interest payments to the increasing consumer price index (CPI)... T.NOTE T.Note (also T-Note) Treasury notes. US government debt securities that have a fixed interest rate. They mature between one and 10 years. (Compare: Treasury bills, Treasury bonds, and Treasury Inflation Protected Securities (TIPS))... YIELD CURVE Displays the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency." - Will Krechting
financial journalist with the 'Business Spectator'.
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[Quote No.29105] Need Area: Money > Invest
"[When senior executives are part-paid by share options in a bull market they are extremely well paid. When the bull market eventually ends, as it always does with high inflation and high interest rates, senior executives, like all employees, attempt to get a pay raise to help them with the increased costs of living and meet, what they consider, fair renumeration for their contributions. This is problematic, as their increases in pay must be approved by share holders who have just suffered massive losses. The following article details this issue.] Eight months ago [Dec 2007] company executives would have been congratulating themselves on how clever and hard-working they had been to make themselves so rich. Unbeknownst to them, of course, the Great Bull Market was about to end, the rug pulled out from under it by the sub-prime crisis and the more general and destructive deflation of the Great Credit Bubble. For some, the bewilderment and financial pain would have been exacerbated by the calls on margin loans taken out to access some of the paper-based wealth they had accumulated through their executive share plans and incentive schemes, a practice that was far more pervasive than anyone could have imagined before the market melt-down. The bullmarket delivered remarkable rewards to senior executives as companies shifted the emphasis in remuneration to tax-effective share-based longterm incentives in an attempt to better align the interests of management with those of shareholders. [This point is debatable, according to Warren Buffett, highly successful value investor and Chairman of Berkshire Hathaway Inc, as it makes them more likely to be short term focussed -for example reducing necessary maintenance to improve recent earnings - to maximize the short term performance of the company and thereby the value of their options, rather than longterm focussed like most shareholders.] That was, of course, then. Shares issued in the past and still held – and most longterm schemes don’t vest the shares for at least three years – are worth on average nearly 30 per cent less than they were a year ago. While some might see this as an opportunity – shares issued in the next round of incentives will be nearly 30 per cent cheaper than they were a year ago – most executives don’t tend to regard their incentives as remuneration-at-risk. Naturally optimistic, they see them as delivering a minimum amount of value with unlimited upside. The circumstances create two sets of challenges for the non-executives who will have to deal with the fallout from the bear market in the next set of negotiations with their managements. The first is that most incentive schemes are based on relative performance – usually total shareholder returns relative to the overall market or, in the better schemes, a particular peer group – and therefore it is quite probable that the executives of any company that delivered above-median returns (lost less shareholder value than half the market) will still be getting large awards of shares as rewards for their 'performance' even as shareholders are watching their savings being decimated. That won’t be an easy sell to shareholders at this year’s annual meetings. The other dilemma is that the executives will inevitably want to recover some of the value that has evaporated. They will want to inflate the amount of value received as compensation for what the market has taken from them. In the current environment we may also see a trend back to cash incentives, or an increase in short term cash-based incentives, or a jump in base salaries as the mechanisms for compensation for the erosion in value of previous longterm incentive grants. We may see more 'retention' payments. Or all of the above. Companies will also be tempted to fiddle with the hurdles in their schemes to make it easier and more rewarding for their executives to get their bonuses and de-link the rewards from sharemarket fluctuations. Boards are, in today’s circumstances, in an invidious position. They have to reconcile the expectations of unhappy shareholders who have, even in the good times, become increasingly rowdy on remuneration issues, with the aspirations of their senior managements. They would be mindful that they are trying to retain executives within a talent pool that is relatively small and competitive and in the most challenging and stressful environment faced by this generation of boards and managers. The boards can’t win. They can’t satisfy both shareholders and executives. The smart money, lots of it (whether scrip or cash) is on the executives. That will make for an interesting and testing season of annual meetings." - Stephen Bartholomeusz
Published in the 'Business Spectator', July 31st, 2008.
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[Quote No.29108] Need Area: Money > Invest
"[Business people as well as consumers take on too much debt and then things go wrong:] How could this be? What would cause seasoned businessmen to go so wrong? For once, the president of the United States of America seemed to have it right. He said Wall Street had gotten 'drunk.' The party got a little out of hand, he might have added. Some lamps got broken, and a fight broke out in the parking lot. And now the financiers needed to 'sober up,' continued the president. The metaphor is as good as any. But if we were filling out a police report, we'd still have some questions. We'd want to know who supplied the free booze...and why. No one asked us, but in the following paragraphs we provide the answer anyway. During the last two decades, the percentage of the U.S. economy devoted to consumer spending went up and up and up - from 67% of GDP to 72%, a huge increase. Consumers got a taste of excess spending - and they liked it. Then, they were urged to drink more by the same people who provided the alcohol - the feds. In a consumer economy, they reasoned, growth came from consumer spending. If consumers didn't spend enough, growth slowed. So, in order to boost GDP growth, it was sometimes necessary to 'stimulate' consumers to spend more - by giving them more of what they least needed, more Jim Beam-style credit. A particularly stimulating environment following the mini-recession of '02 produced a particularly thrilling party. The Fed knocked down its key rate to 1% - and left it there for a year. Extremely low lending rates caused house prices to soar. Consumers found that they were not only able to borrow against the inflated values of their houses, but to 'take out' equity, believing they would never have to put it back. As it developed, householders were able to borrow an additional $6.8 trillion, of which $4.2 trillion was spent on consumption. But everyone thought house prices would continue to go up. In today's news, for example, we discover that IndyMac - which just went broke - used mortgage finance models explicitly based on ever-rising house prices. The whole consumer economy functioned in much the same way as Wall Street. Profits were booked when sales were made - not when the item was paid for. Whether the consumer bought an eggbeater or a split-level in the suburbs, the salesman gave himself a bonus when the deal was signed. Someone else would have to worry about collecting! Case/Shiller report that house prices fell 15.8% in May, from a year before. Now, the collateral for mortgage finance is falling in price and buyers are not settling up as expected. (Of course, we haven't seen any real estate agents offer to give back their commissions or any appraisers returning their fees...) And now that the collateral is falling in price, the poor consumers are getting a little sore. Unless some new scam is found that will keep them spending money they don't have, they're going to have to cut back. In fact, as house prices go back whence they came, it seems likely that consumer spending as a portion of GDP will too. And guess what? If consumer spending were to go back to 67% of GDP, it would mean a drop of about $700 billion in spending per year - enough to wipe out all 'growth' completely." - Bill Bonner
Founder and editor of financial newsletter, 'The Daily Reckoning'. Quote from 31st July, 2008.
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[Quote No.29113] Need Area: Money > Invest
"Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market. [In the same way as you should not gamble with money you cannot afford to lose completely, you should not invest in the share market more than you can afford to see halve - at least temporarily - in a market bust.]" - Warren Buffett
Highly successful value investor, Chairman of Berkshire Hathaway Inc and one of the richest men in the world.
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[Quote No.29115] Need Area: Money > Invest
"We have all been there... Sitting at a bar, head in your hands, you're wondering how it happened. How could your favorite stock have fallen so far, so fast? It looked so promising months ago. But here you are, sick to your stomach over it. You're tempted to hang on to the stock and wait for it to rebound. You bought it at $30/share, and it is now $20/share. You want your money back. And it shouldn't take too long to make back that $10/share, right? A few good days in the market, and you'll be back to even... Not so fast. When it comes to 'recouping' losses, you have to look at the equation in a different way. It's human nature to look at the percentage of the loss and figure that is what the stock needs to increase by in order for you to break even. In this example, if you'd bought the stock at $30/share and it is now worth $20/share, you are sitting on a 30 percent loss. But in order to break even, and see your $20/share stock go back up to your purchase price of $30/share, it would have to appreciate by 50 percent. Ask yourself if that kind of climb is possible. If you don't think it is, it might be best to minimize your loss at 30 percent. There is nothing worse than watching a loss keep on growing while you hope and pray for a recovery." - Christian Hill

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[Quote No.29132] Need Area: Money > Invest
"In the past, those who foolishly sought power [and money] by riding on the back of the tiger [buying into a falling sharemarket] ended up inside. [less powerful and wealthy.]" - John F. Kennedy

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[Quote No.29136] Need Area: Money > Invest
"The way to take advantage of a fire sale [in a share market or company bust] is to wait until after the building [price] has burned down. You don't run into it while it's still on fire. Unless you want be a hero, or get burned." - Seymour@imagi-natives.com

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[Quote No.29141] Need Area: Money > Invest
"[When trying to gauge the state of the consumer and thereby the economy, thinking about the income and especially the expenses helps:] Nevertheless, household debt burden is higher than it has been for years according to the Infochoice/Sheet report. It says that in 2007 the mortgage to wage ratio was 4.1 nationally, with a ratio of 4.5 in NSW [New South Wales] and 3.0 in Tasmania. Ten years ago the national figure was 3.1 and it was 3.7 in NSW and 2.1 in Tasmania." - Tony Boyd
Financial journalist. Quoted from the 'Business Spectator', 4th Aug, 2008.
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[Quote No.29142] Need Area: Money > Invest
"[In past business cycles, watching employment levels has been one way to determine where in the cycle the economy was. With the advent of more contract casual labour this is no longer the guide it used to be. Therefore determining appropriate interest rate levels and monetary policy from increasing inflation expectations and wage increases and the resulting unemployment as businesses cut back due to their increased wage costs and falling sales is much harder.] In just one week, money markets have gone from pricing in a rate increase to a 70 per cent chance of a cut in September. It has been the most dramatic shift in market sentiment in nearly a decade. Terry McCrann, writing in the Murdoch tabloids, said last week that a rate cut in September is now 'certain' – perhaps even by 0.5 per cent. That would be justified and prudent, in my view, but it would be an amazing event if 'rear-view' inflation and unemployment were both still between 4 and 4.5 per cent. On the other hand, if the Reserve Bank is still targeting the unemployment rate and worrying that labour market tightness will lead to persistent inflation, it will soon have to stop it. The workplace has changed completely since the last recession – especially in retailing. These days many retail workers don’t have jobs; they have shifts. When business is slow they get fewer shifts. They are still officially employed, but they make a lot less money. The same goes for Australia’s army of contractors and café operators. Starbucks’ announcement last month that it is closing 61 of its 84 Australian stores is a sign of things to come for cafes. But it’s not just closures that will be the problem. As coffee consumption falls, café incomes will be crimped, staff will get fewer shifts and owners will have to cut back spending elsewhere. And while the lower end of the workplace is having their shifts cut back, the top end is copping bonus shrinkage. Those whose bonuses are tied to share prices are already in trouble; those who have got used to nice annual bonuses based on sales and profit growth have got a pay cut coming. And the other big change since the last recession is the level of aggregate household debt. At the individual level this means that many people with variable incomes – contractors, casual retail workers, café owners, executives on low bases and high bonuses – have geared themselves to peak incomes because they thought it would last forever (or else they didn’t really think about it). As those incomes fall, even though they still have a job, desperation will set in. The cutback in non-essential spending from the new working poor will be more dramatic than we have ever seen. As a result we could be in for the first full employment recession in history as demand and output contract while everyone, apparently, still has a job." - Alan Kohler
Highly respected financial journalist. Quoted from the 'Business Spectator', 4th August, 2008.
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[Quote No.29143] Need Area: Money > Invest
"There's only one safe way to buy real estate as an investment. You first estimate how much gross income a property can produce. Then reduce this amount to allow for vacancy between tenants, to arrive at a realistic net rent. Then subtract all anticipated expenses from the net rent to arrive at a Net Operating Income (NOI). Unless you can structure a deal that lets you buy with the NOI, it's not a good investment. It's that simple! If you're buying a home in which to live, your earned income should determine what you can afford under normal market conditions. Don't be enticed into buying a bigger home because you can get an interest-only loan or an ARM [adjustable rate mortgage] with a low introductory rate. By following this advice, you won't get in trouble..." - Mike Summey
Real estate investor and author
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[Quote No.29145] Need Area: Money > Invest
"In practical life the wisest and soundest people avoid speculation." - George Earle Buckle

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[Quote No.29153] Need Area: Money > Invest
"[Poem:]

Be not the first by which a new thing is tried,
Or the last to lay the old aside.

" - Alexander Pope

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[Quote No.29163] Need Area: Money > Invest
"Housing affordability moves in cycles. I should know - I've been writing about the 'crisis in affordability' on and off throughout my 30-plus years as an economic commentator. (One of the most important qualifications for being a commentator is just knowing that most things in the economy move in cycles.) The affordability of home ownership is a product of three factors: the price of homes, the level of incomes and the level of interest rates. Whenever the property market booms, house prices rise a lot faster than incomes and so affordability worsens. Property booms generally start at a time when interest rates are low. They reach a peak at a time when the rest of the economy is booming and the authorities start worrying about mounting inflation pressure. That's when the central bank acts to cool things down by raising interest rates. Initially, that makes affordability even worse. This is the point where people, having been sitting back gleefully watching the value of their home soar, start worrying about how their kids will ever afford a home of their own. Eventually, however, the authorities achieve - or, more usually, over-achieve - the desired slowing in the economy. They then start cutting interest rates, which improves affordability. But by then the property boom has turned to bust, the banks are more reluctant to lend and many people, being uncertain about hanging on to their jobs, are reluctant to take on the onerous commitment of a mortgage. In the good old days, house prices would stay pretty steady for a few years, allowing people's incomes to catch up and thereby further improving affordability. It was this pattern that entrenched the popular conviction that house prices never fall - although they always used to fall in real terms as inflation rolled on. But that pattern ended with the severe recession of the early 1990s, which saw house prices actually falling, not just marking time. And now, according to the more reliable figures produced by Australian Property Monitors, we see house prices falling in the three months to June in all capital cities bar Adelaide. In Sydney they fell by 2.1 per cent; in Melbourne, by 0.6 per cent. In the mining boom towns of Brisbane and Perth, they fell by 1.3 per cent and 2.8 per cent. In the two cities where prices rose highest, the softening has been greatest. Over the year to June, prices rose by just 1.1 per cent in Sydney and fell by 1.6 per cent in Perth. The bigger they are, the harder they fall. And since the past decade has seen by far the biggest property boom in memory, I won't be surprised to see prices fall back a fair way. Australian Property Monitors' prediction is that national house and unit prices will fall by 10 per cent over the coming year. This, of course, would do wonders for housing affordability - more than the falls in interest rates we can expect in coming months - even if few first home buyers are likely to take advantage of it until the economy turns back up. Still don't like the thought of falling house prices as the solution to affordability? Prices rose to such unprecedented levels relative to average incomes that only a significant fall in them could get affordability back on track. Falling house prices are, however, a two-edged sword. As homeowners perceive their wealth to be diminishing, this can encourage them to cut back their spending, contributing to the downturn. And were the fall in prices to be too precipitous it could give a lot of home owners - particularly those with big mortgages - a bad scare. I think people with negatively geared investment properties are particularly vulnerable. They've structured their investment to run at a cash loss in the hope that big capital gains will make it all worthwhile in the end. But when prices start falling, why hang on? Why not cut your losses and sell before prices fall further? Trouble is, the more investors who head for the exit, the more prices fall. It's possible that owner-occupiers who bought at the peak of the boom may find themselves facing 'negative equity' - owing more than their house is now worth. This is unlikely to induce them to sell up and crystallise their loss, however. Only if they lose their jobs and can't keep up their repayments are they likely to be forced out. I have a feeling that the next few years are not going to be terribly pleasant. Long before they're over, however, people will have stopped worrying about housing affordability." - Ross Gittins
Australian financial journalist. Published in the 'Sydney Morning Herald' newspaper, August 6, 2008.
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[Quote No.29170] Need Area: Money > Invest
"On the other hand, a severe recession in the indebted West as a result of tight credit would clearly reverse at least some of the run up in commodity prices that occurred during the 2004-2007 global boom. We would be left with China’s and India’s contribution to our terms of trade, which is considerable of course. Will China have a recession as well? Nobody knows, but inflation is growing and the post-Olympics Chinese economy is likely to deflate to at least some extent. But a new danger has now entered the picture: the collapse of the Doha round of GATT [General Agreement on Tariffs and Trade]. Trade Minister Simon Crean says, in effect, that the fat lady hasn’t sung and it might yet be revived, but it looks like a deceased parrot to me. In some ways it doesn’t matter much, and certainly the story barely saw out the 24-hour news cycle. The direct positive impact of the trade liberalisation talks in Geneva had been estimated at about 0.1 per cent of global GDP, so the fact that China and India insisted on continuing to restrict access to their agricultural markets, and that the US refused to stop subsidising its farmers, doesn’t seem like a big deal. But it’s worth recalling what happened in June 1930. That was when the US Government introduced the Smoot-Hawley Tariff Act, which raised duties on imports by up to 50 per cent. It was a declaration of economic war on America’s trading partners and the subsequent burst of protectionism contributed massively to the Great Depression. There were three things that made the 1930-33 recession Great: – adherence to the gold standard meant that the Federal Reserve put the currency before the economy and raised interest rates sharply to protect it in the middle of the downturn that had been sparked by the stockmarket crash. The result was 9000 US bank failures; – the Government had a smaller share of GDP and knew little about macroeconomics [in the form of Keynesian economic theory that believes the government should increase spending during recessions to make up for the loss of business and consumer spending], so there were none of the 'automatic fiscal stabilisers' we know and love today. It wasn’t until President Roosevelt’s New Deal initiatives between 1933 and 1938 that the conventional wisdom that Government should have a hands-off approach to the economy was ditched. – the Smoot-Hawley tariff. From 1929 to 1933 the volume of world trade fell by a third and did not recover its pre-depression levels until well after WW2 [World War II][Increasing outgoing international trade in a recession can be good because as the country's floating-rate currency falls to reflect its falling economic growth, the county's exported products become cheaper to foreign buyers which means more are sold and so exporters' profits rise. Also the falling currency makes imported products more expensive, without the sometimes unnecessarily heavy-handed imposition of tariffs or quotas, helping domestic competitors sell more.] I’m not suggesting that the collapse of the Doha trade negotiations is anything like the sudden clamp put on trade by countries reacting to America’s new protectionism in 1930, but it’s a melancholy echo of that time. The General Agreement on Tariffs and Trade [GATT] kicked off with the Annecy Round in 1947 and has resulted in 60 years of virtually continuous trade liberalisation. Until Doha there had been six successful rounds after Annecy – Torquay, Geneva, Dillon, Kennedy, Tokyo and Uruguay. Trade liberalisation is always difficult and controversial because the benefits are hard to see, take time and are spread thinly across a population, while the costs are immediate and usually hurt someone with political power. If GATT really has ended with the collapse of Doha, the future of world trade suddenly becomes less predictable. What is most worrying is that, as it did 78 years ago, protectionism is increasing just as the financial markets are in a funk and fiscal and monetary authorities are struggling to deal with the consequences." - Alan Kohler
Highly respected Australian financial journalist. Published in the 'Business Spectator', 7th August, 2008.
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[Quote No.29171] Need Area: Money > Invest
"[When an economy has been booming, company sales volume and margins will be unusually high. When the economy slows and becomes more average these volumes and margins will fall. Therefore one thing that value investors should watch closely are these sales volumes and margins as they along with company share prices will revert to their long time mean and often overshoot to be worse than normal. This is something that legendary value investor, Jeremy Grantham, keeps a very close eye on.] Their profit margins are the only profit margins in any group we look at anywhere that aren't measurably above average at all. Everything else, the profit margins are way over average globally, including emerging markets - very vulnerable, hugely mean-reverting." - Jeremy Grantham
legendary value investor and Chairman of Boston money management firm, Grantham Mayo Van Otterloo (GMO).
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[Quote No.29172] Need Area: Money > Invest
"In a busting market, besides the obviously too high p/e's and falling earnings, be particularly wary of write offs, write downs, provisions [for bad debt] and equity raisings [that dilute your share of the assets and earnings] which can easily drop the value of your shares from 10-50% in a day, as happened in 2008!" - Seymour@imagi-natives.com

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[Quote No.29173] Need Area: Money > Invest
"To buy [low] when others are despondently selling and to sell [high] when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards." - Sir John Templeton
One of the world's most successful value share investors.
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[Quote No.29175] Need Area: Money > Invest
"Wilbur Ross is a multi-billionaire and legendary investor. He made his money by buying hated assets - like steel when nobody was touching it and Japanese banks when they were saddled with debt. (Sound familiar?) ...Mr. Ross is a confirmed contrarian who likes to run ahead of the Wall Street pack. He loves to buy when the market knocks down the prices of assets and companies he thinks will bounce back. Banks, insurance companies, mortgage companies, home builders, and some retail companies are the ones now getting killed by the market. If you think we'll have a thriving real estate market again (and it's only a matter of time), mortgage companies and home builders would be good investments. Choose the ones that have been punished unfairly by the market... that haven't sold off their revenue-producing assets... that have management who weren't reckless but simply got caught up in a falling market. In other words, you still have to do your homework and pick the best of the bunch. Because you have a little less money than Mr. Ross, instead of investing in these companies right away, keep an eye on them. When their share prices begin to go up, pounce. I want you to see the bottom rather than try to guess when it'll come. You'll be leaving only a little money on the table... and it's a much safer way to invest." - Andrew Gordon
contrarian investor
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[Quote No.29178] Need Area: Money > Invest
"Total debt to GDP reached 230% in 1931. Total debt probably peaked out a couple of years earlier, but by the '30s, GDP was falling, while the debt had yet to be liquidated - producing a record debt/GDP figure. Then, in the following correction, the ratio collapsed to 50% by the end of WWII. But the last quarter century has been a great time to be in the financial industry. Everybody wanted to borrow...or to lend. The debt to GDP figure shot back up to near 300%...as the financiers collected their millions in bonuses. But now [2008], another major correction is underway." - Bill Bonner
Founder and editor of financial newsletter, 'The Daily Reckoning'.
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[Quote No.29179] Need Area: Money > Invest
"Guessing is missing." - Dutch Proverb

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[Quote No.29187] Need Area: Money > Invest
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." - John Stuart Mill

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[Quote No.29205] Need Area: Money > Invest
"Value investors take advantage of good buying opportunities created in economic uncertainty, where basically sound but temporarily distressed assets investors have lost faith in, are selling for less than their long-term value. They sell when the conditions are exactly the opposite. This methodology helps value investors buy low and sell high." - Seymour@imagi-natives.com

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[Quote No.29206] Need Area: Money > Invest
"Prices go up. Then, they go down. That's the way it's been going for a long time. Housing prices are 'mean reverting,' as economists say. In fact, as we pointed out here, they're about the meanest reverters in the whole financial world. Houses, unlike dotcom stocks or paintings by Lucien Freud, are useful. They're bought by wage-earners to live in. So, they have to be priced at levels that the buyers can afford them. In fact, the average house-price has to be within the housing budget of the average house buyer; that's all there is to it. [which according to demographia.com is about 4-5 times the average wage in the area]" - Bill Bonner
Founder and editor of financial newsletter, 'The Daily Reckoning'.
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[Quote No.29212] Need Area: Money > Invest
"The trouble is, if you don't risk anything, you risk even more." - Erica Jong

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[Quote No.29219] Need Area: Money > Invest
"[There's a strong inverse correlation between home prices and mortgage defaults.] It's a feedback loop. Price declines lead to more defaults, which leads to more price declines [and increasing defaults lead to stricter bank lending criteria which further reduces demand and leads to still more price declines. But eventually, prices drop enough to attract more buyers, and inventories decline.]" - Lawrence Yun
chief economist for the National Association of Realtors [in America].
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[Quote No.29221] Need Area: Money > Invest
"It's Good to Know: The Positive Side of High Gas Prices It turns out that high gas prices aren't all bad. Deaths from traffic accidents have dropped by as much as 20 percent in some states [2008] compared to this time last year, according to the [US] National Safety Council. The death toll nationwide has dropped 9 percent. Researchers say that people have cut back on driving because of the expense, which means fewer accidents overall. The Arab oil embargo of the 1970s had a similar effect. [This drop in accidents goes towards improving the margins for car insurance companies and therefore the value of their shares!]" - Associated Press

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[Quote No.29237] Need Area: Money > Invest
"[In retirement, coping with bear markets, can be challenging. While each individual's situation is unique, here is some general advice to get you thinking before you visit your own advisor:] But if cutting back significantly on the amount of money withdrawn from their portfolios isn't an option, financial advisers offer another strategy: Keep annual withdrawal amounts constant rather than increasing them each year for inflation as originally planned. Also, advisers say, stay committed to equities. A common reaction among investors when times get tough is to bail out of stocks, making the mistake of assuming that the safest path in retirement - and a bear market in particular - is to minimize equity exposure. The rapid-fire 24/7 news about a weakening economy and tanking equity prices sends investors running for cover and selling out of stocks altogether. This is a bad move. Stocks have historically offered the best chance of outpacing inflation over the long run. Advisers say that moderate exposure to equities is recommended for diversification, growth potential, sustaining real income and providing a cushion to cover unexpected expenses during a 30-year retirement. Fahlund advises retirees to maintain at least 40% allocation in equities, even into their 80s, and keep no more than 30% of their assets in cash or short-term bonds." - Joshua Lipton
Financial journalist. Quote from article, 'Retiring Into The Bear', published 08.08.08.
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[Quote No.29240] Need Area: Money > Invest
"Historically speaking, asset and financial bubbles do not necessarily burst; they typically deflate—slowly, but inexorably, spreading throughout entire sectors and economies. Leading indicators—including loans to borrowers with questionable credit, the value of certain homes, default rates on consumer and residential loans, and the share price performance of financial and real estate businesses—have been the 'canaries in the coal mine' of what will be a more broadly felt contraction. But as is typical (think back to the 1987 market crash), many of the economic areas and indicators ultimately affected will signal this impact on only a lagging basis. In the current downturn [2008], such indicators include: - Consumer spending - Unemployment - Non-export manufacturing - Commercial real estate - Commodity prices While the above already reflect economic dislocation to a degree, we believe the worst is by no means behind us. The downwardly spiraling impact of these laggards on the leading indicators (such as housing and finance) will force further deterioration until a new, deleveraged economic equilibrium is achieved." - Daniel Alpert
Economist
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[Quote No.29241] Need Area: Money > Invest
"...recessions associated with credit crunches and house price busts are deeper and last longer than other recessions are... while the current [2008] slowdown may share some features with the onsets of typical U.S. and OECD recession, it is worse in some dimensions, particularly in terms of speed of credit contraction, drop in residential investment and decline in house prices. We therefore also compare the developments in credit and housing markets in the United States to date to those in the past episodes of credit contractions and house price declines. Tables 2B and 3B showed that such credit contraction (crunch) and house price decline (bust) episodes on average lasted 6 (10) and 8 (18) quarters, respectively. If these statistics, based on a large number of episodes, provide any guidance, they suggest that the adjustments of credit and housing markets in the United States are only in the early stages relative to historical norms and might still take a long time." - Stijn Claessens, M. Ayhan Kose and Marco E. Terrones
From 'What Happens During Recessions, Crunches and Busts?' - a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the 1960-2007 period. In particular... the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period.
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[Quote No.29244] Need Area: Money > Invest
"There are two ways you can invest: You can try to predict or you can react. We react. We look for stressed situations and buy if appropriate... Everyone thinks that Sears will be worthless; meanwhile, the store generates $50 billion in revenue, significant free cash flow and has tremendous assets. So the fear, or the prediction of the death of the consumer, has allowed us to react and buy a retailer like this one... [When investing] We start with this basis: The only thing you can spend is cash. We want companies that generate significant cash in most times. That is how we start. We don't care much about what they make, but we have to understand it. The balance sheet has to be strong; we want to make sure there are no tricks in the accounting. Then we try and kill the company. We think of all the ways the company can die, whether it's stupid management or overleveraged balance sheets. If we can't figure out a way to kill the company, and its generating good cash even in difficult times, then you have the beginning of a good investment. [We also look at management because] A bad person can cause you pain every time, no matter how good the company is. Management is important. They should have a paper trail of succeeding. [So strong free cash flows - that is, the amount of money that is possible to pull out of the business without hurting the franchise - solid assets and experienced, talented managers, just like Warren Buffett.]... he learned from Benjamin Graham. And others have learned from him. It's a simple formula. And it works." - Bruce Berkowitz
(1958 - ), CEO of Fairholme Capital Management in Miami, which oversees about $9 billion, most of it in the value-oriented no-load Fairholme Fund (FAIRX), of which Berkowitz himself is lead manager. The five-star, large-blend fund has clinched the No. 1 spot in its Morningstar category for the one, three and five-year periods. Through Aug. 12, 2008, Fairholme's five-year annualized return of 16.51% bests its peers by 7.54 percentage points.
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[Quote No.29245] Need Area: Money > Invest
"You know, the greatest company in the world at too high a price is nothing more than a speculation. Another company, whose prospects are looking a bit negative for the next year or two, at the right price, is a great investment." - Bruce Berkowitz
(1958 - ), CEO of Fairholme Capital Management in Miami, which oversees about $9 billion, most of it in the value-oriented no-load Fairholme Fund (FAIRX), of which Berkowitz himself is lead manager. The five-star, large-blend fund has clinched the No. 1 spot in its Morningstar category for the one, three and five-year periods. Through Aug. 12, 2008, Fairholme's five-year annualized return of 16.51% bests its peers by 7.54 percentage points.
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[Quote No.29246] Need Area: Money > Invest
"The key to us is that we try to ignore the crowd - that's our tag line. We don't pay a lot of attention to what everybody else is doing. When you ignore the crowd and go to the places that others won't, that is when you have a chance of getting a good price relative to what you're buying." - Bruce Berkowitz
(1958 - ), CEO of Fairholme Capital Management in Miami, which oversees about $9 billion, most of it in the value-oriented no-load Fairholme Fund (FAIRX), of which Berkowitz himself is lead manager. The five-star, large-blend fund has clinched the No. 1 spot in its Morningstar category for the one, three and five-year periods. Through Aug. 12, 2008, Fairholme's five-year annualized return of 16.51% bests its peers by 7.54 percentage points.
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[Quote No.29247] Need Area: Money > Invest
"Nihil est incertius volgo [Nothing is more uncertain than the (favour of the) crowd.]" - Cicero

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[Quote No.29257] Need Area: Money > Invest
"[Using GDP estimates to suggest an economy is not in recession is not an appropriate thing for investors as GDP is a lagging economic indicator and as such won't register a recession in most cases until it is almost over.]... if you're waiting as an investor for GDP to actually turn negative, you're going to miss a lot of action along the way [GDP when first reported in the fourth quarter of 2007 was a positive 0.6%. Now is has been revised to a negative 0.2%]. I think the best example is to just go back to Japan. They had a real estate bubble that turned bust and they had their own credit contraction back in the early 1990s. Guess what; Japan didn't post its first back-to-back contraction of real GDP [which is required by definition for a recession to be determined] until the second half of 1993. By the time the back-to-back negative that people seem to be waiting for happened, the Nikkei had already plunged 50%, the 10-year JGB yield rallied 300 basis points, and the Bank of Japan had cut the overnight rate 500 basis points, which said a thing or two about the efficacy of using the traditional monetary policy response of cutting interest rates into a credit contraction (as we're now finding out here in the US). The point is we can't make the assumption that we've avoided a recessionary condition in the economy, just because we have so far managed to avoid back-to-back quarters of negative GDP [which is required for a recession to be determined]. I'm just telling you as the economist that it is basically irrelevant. The only body that officially makes the call on the broad contours - when the recession started, when it ends, when the expansion starts, when it ends - is the National Bureau of Economic Research, the NBER. It's a very scientific process. It's not a gut check or a judgment call. We should actually be welcoming the recession call. When they make the determination - it's very interesting, by the way - when they make the announcement that the recession began, when they actually date it for us, traditionally we're a month away from the recession actually ending. The announcement, in fact, is going to be a rather cathartic event, something we should actually welcome happening, but so far they are still taking their sweet time in making the proclamation. The NBER relies on four different variables. 1) Employment The first is employment. Now I've told you before; employment is down seven months in a row. Does employment go in the GDP? The answer is no. Is it correlated? Yes. Does it help grow the business cycle? Of course. 2) Industrial production The next variable is industrial production. Does that go into GDP? The answer is no. Does it help grow the business cycle? The answer is yes. This is a number that comes from the Fed. The GDP comes from the Commerce Department. It's a very important variable. 3) Real personal income net government transfers The next variable, the third one, is real personal income excluding government transfers. This metric is now down four months in a row. Does personal income go into GDP? The answer is no; of course, it doesn't. GDP is all about spending. Personal income goes into gross domestic income, which is another chart of the national accounts. 4) Real sales activity The fourth variable and the only variable that actually feeds into GDP is real sales activity in manufacturing, retail and wholesale sectors. A Recession probably started in January [2008]. When I take a look at these four key indicators that define the broad contours of the business cycle [employment, production, income and spending], they all peaked and began to roll over sometime between October of last year [2007] and February of this year [2008]. I am convinced that when the NBER does make the final proclamation, it will tell us that a recession officially began in January [2008]. Of course, to any market person, this would make perfect sense, because of when the S&P 500 peaked. It did a double top into October, right when it usually does, before a recession begins. This recession won't end before mid-2009, in our view. Now I'm just giving you the rearview mirror. What's most important to you folks is let's look through the front window and see when this recession is going to end. The tea leaves that I'm reading at this point in time show that this recession is not ending any time before the mid part of 2009, which would mean that, if you're looking for, not the Mary Ann Bartels intermediate bottoms, but the fundamental bottom, I don't think you can expect to see it before February or March of next year [2009], if I'm correct on when this recession ends. Historically the S&P 500 troughs four months before the economy actually hits its bottom point." - David Rosenberg
the North American Economist for Merrill Lynch. Quoted in 2008.
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[Quote No.29258] Need Area: Money > Invest
"Sadly, the 'decoupling' thesis has little support in theory or in practice. Its proponents overlook the fact that during the past five years [2003-8] the U.S. economy grew faster than all the other G-7 economies. During that time, America's economy remained the principal generator of global aggregate demand, accounting for around one-fifth of global imports and 25 percent of global production. This evidence suggests that, as in the past, if the U.S. economy sneezes the rest of the world will catch a cold. ... A number of the shocks presently affecting the U.S. economy are global in nature, and are already slowing European and Japanese growth. The credit crunch flowing from America's subprime woes is causing a global increase in market interest rate spreads and a global tightening of bank lending standards. This is hardly surprising: almost half of all U.S. asset-backed subprime mortgage securities were distributed abroad. ... The 'decoupling' optimists are ever hopeful that China's rapid growth, together with the rest of Asia's emerging market economies, will offset any U.S. economic downturn. But they tend to forget that Asia is filled with export-dependent economies: in some countries, exports to the United States alone account for more than 10 percent of annual GDP. The 'decouplers' also forget how relatively small these Asian economies still are, at least in relation to the G-7 industrialized economies. Even the vaunted Chinese economy is barely 15 percent the size of the U.S. economy. [We are now late 2008 seeing the major -G7-economies of the world go into simultaneous recessions and in many of them elevated inflation as well, giving way to stagflation.]" - Desmond Lachman
Economist with the American Enterprise Institute. Quote from his paper, 'The Myth of Decoupling.', published January, 2008.
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[Quote No.29264] Need Area: Money > Invest
"[In times of easy credit, loose monetary policy and low interest rates many businesses as well as people borrow too much. There is an attitude of...] If you have an inefficient business, don't worry, just borrow more. [For example before 2008...] The endless availability of credit has been the wallpaper that has covered the cracks in many inefficient and badly run businesses. As long as you had some real estate and as long as those asset prices went up, more credit was available. [But in 2008 when the credit cycle turned, interest rates rose and lending standards tightened these businesses became insolvent.]" - Bill Fletcher
a partner at Australian national accounting firm Bentleys and the Queensland chairman of the Insolvency Practitioners Association of Australia
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[Quote No.29265] Need Area: Money > Invest
"It's [increased insolvencies and bankruptcies] part of the business cycle. We have had 12 good years. About every eight to 10 years you are supposed to get a weeding out. [- the business equivalent of evolution's process of natural selection]" - Martin Green
Australian insolvency specialist at GHK Green Krejci.
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[Quote No.29266] Need Area: Money > Invest
"[Two of the most important barometers of the retail market are - women's fashion and discount retailers. There is a hierarchy when it comes to what shoppers are willing to go without, when times get tough.] In general, women stop spending on their home and their men first. People always buy cosmetics; you always need a lipstick or your skin care. They won't buy a new TV or fridge or bed, and they will delay buying the new jumper for their husband." - Mark McInnes
chief executive of Australian department stores, David Jones.
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[Quote No.29267] Need Area: Money > Invest
"When considering the likely length and depth of the recessions that affect every economy regularly knowing the level of personal debt can be very useful. The consumer's balance sheet in 2008 looms as a problem. In Australia, personal debt is about 1.8 times income. This is close to the levels seen in Britain and New Zealand - two economies that have fallen under water in the past couple of months - and our indebtedness is well above the 1.4 ratio seen in America. During the retail recession in the early 1990s, households only spent 6.4 per cent of their income on interest payments. By 2008, interest payments make up 10.6 per cent of income. This is bound to have significant effects on the level of spending and therefore the depth and length of the coming recession." - Seymour@imagi-natives.com

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[Quote No.29268] Need Area: Money > Invest
"Since the time of Adam Smith, the 18th century Scot credited as the father of modern economics, it has generally been agreed that a number of pre-conditions need to be in place for markets to operate efficiently. These include: many buyers, many sellers; perfect information; and rational self-interest." - Ian Verrender
Financial Journalist
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