Very true. If you have cash, buy real estate (in extremely depressed amrkets). But be careful-there are lots of “Detroits” out there..where real estate will never come back.
I figure that depressed RE markets like California (provided it is near a major city), and Florida, will come back nicely.
Places like Buffalo NY, Detroit, Gary Indiana will continue to decline (ageing population, fleeing industries, inept local government) will never recover-at best, these places will stay even.
Now if Detroit could magically reinvent itself (honest city government, low tax rates,low crime rate) it might have a future..but thats as likely as $50/barrel oil.
Well, I’ve got a shit-ton of signs that say “APPLES 5 CENTS,” so I stand to earn quite a bit in franchise fees…
Even when such requirements are fulfilled, the game is stacked against the small player in certain ways.
A notable and often overlooked example of this (though inapplicable in today’s low interest environment) is interest (“rebate”) on short sale proceeds. To clarify how this works, let me work a specific example:
Suppose broker lends at 8% and pays interest of 4% on cash balances, or 3% on sequestered cash. Suppose Universal Widget pays 6% dividend. Suppose you borrow to buy Widget. You pay 8% interest, receive 6% dividend, so lose 2% net on the margined half of the stock if the stock price stays fixed, or gain 8% or lose 12% net if the price moves 10% during a year.
Now suppose you borrow stock and sell it. This should be conceptually just the opposite of the margined buy – instead of borrowing money and trading it for stock, you’re borrowing stock and trading it for money. (It is important to understand that both the stock and the money paid when you sell it are real, even though it wasn’t your stock to start.) You should receive 3% interest on the cash proceeds, but must pay the 6% dividend, so you net a 7% gain or 13% loss if the price moves 10% during the year.
Except you don’t if you’re a small investor, because no 3% “short rebate” is paid to you. The broker earns interest on your cash proceeds, but doesn’t pay it to you. Thus while the hedge fund needs the stock to drop 3% over the year for it to break even, you need the stock to drop 6% over the year just to break even. Yes, this is irrelevant with today’s interest rates, but in a normal interest environment this is enough to effectively make short sales irrational for the small investor.
Real estate might be a good investment if homes are at the bottom of the price drop and will go only up. I am not so sure that has been reached. If you buy a bunch of homes and they continue to go down , they will take you with them.
Who will survive a depression well? The rich. They are insulated from the danger of the economy. They can even go abroad if things get too ugly here.
I’ll outsell you 10-to-1 with my “HANDGUNS 5 DOLLARS”. Not that we’re in direct competition.*
(Don’t ask me where I got handguns for less than $5 and I won’t look too close at your suspiciously-cheap apples.)
*But I win anyway, because I also invested in a sign-printing business.
And in non-financial circles: “Those who cannot remember the past are condemned to repeat it.”
You should have been reading Krugman. I’m not sure he specifically predicted the great recession, but he sure was sounding the alert about the impact of the eventual deflation of the housing bubble if the Fed didn’t do anything to ease it down slowly. Which is something Greenspan refused to do, since it would have probably thrown the economy into a mild recession, and because he was ideologically blind to what was going on. Krugman apologized for not seeing the full picture, but he was more correct than a lot of people.
The continued low interest rates for Treasuries shows that the market does not agree. The only way to dig ourselves out of this mess is to have a growing economy that both naturally increases tax revenues and cuts spending on things like unemployment and welfare, and I hope allows us to raise taxes some without the usual suspects pitching a fit.
In my local paper this morning they published information on job growth or non-growth in the Bay Area. The tech sector is hiring like crazy - which I can testify as being true. However other segments are not, which is holding down the recovery. The worst one - government, which had the biggest absolute job loss of anyone. During a period of low growth that is stupid. Government should be making things better, not worse.
One reason the stimulus package didn’t perform as well as it should was that major cutbacks in state budgets meant it only added about 2% to GDP (based on a New Yorker column from a few weeks ago) which did not give the push it should have.
Well, yes; that’s pretty much what the “starve the beast” people have been pushing for for years.
No really- what does PTB mean?
Whoever they are, I don’t think there is a cabal specifically bent on causing a Depression per se. More like they don’t care if a Depression is the effect of their quest for profits.
I don’t know though- Romeny’s plan appears pretty stark with its massive cuts, a balanced budget amendment and obviously no tax increases. If he/They want a Depression that is a good start. And considering its seeming ignorance of both history and the current state of treasuries you gotta wonder.
Powers That Be
There are certain brokerages that will offer retail accounts a portion of the interest from short sales, but usually only for large positions. Single stock futures, traded at OneChicago, offer some unique benefitsfor both shorts and longs.
You assume that those in favor of austerity know that they are incorrect. Have you considered that they think they are correct? Have you even considered that they may be correct? FDR’s own Treasury Secretary did not believe government spending was working.
How do you know macroeconomists have a since of humor? They use decimal places.
There have been many studies done to estimate the multiplier of new spending. 1.5 is generally the highest result ever found. Most estimates are between .5 and 1.5. If the multiplier is below one than all of this government spending is destroying the economy and you are also lowering tax revenue increasing the cost of the spending. The risk of non-action if the multiplier is higher than one is a slower economy for a few years, the risk of action if the multiplier is lower than one is Greece.
Estimates from studies of multiplier generally make multipliers from tax cuts higher than from government spending. Christina Romer who was Chairman of Obama’s Council of Economic Advisers did a study with her husband that found the multiplier for tax cuts was twice as high as for government spending.
This is misleading in that it makes it appear as though Hoover’s belief in balanced budgets is incompatible with his being a big spender. This is not true he spend alot but he also believed in raising taxes to pay for that spending. In his first year the federal budget was 3 billion dollars. In his last year it was 4.5 billion dollars. Federal spending was increased by 50% during Hoover’s term. This was during a period of deflation so the actual increae in real terms was bigger. Hoover also raised top tax rates from 25% to 63%.
We are lucky in that we have Hoover’s bad example to learn from. I mean now nobody would be dumb enough to propose large increases government spending and huge tax hikes in the middle of a recession right?
Well, ultimately it comes down to ‘correct for whom’. Part of the point of asking who benefits from another Depression (is that word capitalized, in proper usage?) is to determine if people generally believe anyone benefits from it. If all the great minds of the 'dope had come in here and demonstrated, “Why, not a single person benefits from a Depression”, it would pretty much blow the hypothesis that depressions are something that humans may/do cause.
But the consensus seems to be that wealthy people benefit from a recession, if they are on-the-ball with their money. And wealthy people also happen to be the group in a position to make the kinds of decions that possibly could cause a depression.
Clearly. They may be correct in believing that another Depression would increase their power and profit in the long run. It’d screw all of us hoi polloi, but that they don’t really care is also part of they hypothesis.
People in a free country like ours may believe pretty much anything. In some matters, thinking does not make it so. I don’t think the reality of the effectiveness of the New Deal was altered by FDR’s Treasury Secretary’s beliefs.
Herman Cain believes in 9-9-9. I believe Rick Perry promotes some kind of flat tax. But since we’re talking about Mitt Romney, note that he ostensibly believes Mormon Doctrine states that God established the Constitution of the United States in order to found the LDS religion[sup]1[/sup]. What if it turns out Mormons benefit from another Depression? It is a potentially sound hypothesis. Mormons own a lot of gold. And inGold Faithful: Profiting from Paranoia with Precious Metals:
Maybe, if we get the tax code just ‘right’, that Mad Max-style apocalyptic hellscape (for the rest of us) isn’t that far out of reach. Yes, I’ve considered that they may be correct.
We aren’t anywhere near the condition of Greece, and with treasuries so low we aren’t going to get there anytime soon. And insofar as the real-world multiplier number probably cannot be known until after the fact, the risk that it is less than 1 is also pretty low.
Is that tax cuts for the rich vs. any kind of government spending, or what? If you can prove it with a cite I’d be enriched.
GlaxoSmithKline??
-XT
Is that really the consensus? And if so, does it mean anything other than this board is populated with people with a blind hatred of the rich? Is there any evidence that the wealthy prosper from a recession/depression?
Let’s take a look at the Forbes 500 in 2009when the most recent recession hit.
We’re not talking about a snapshot, but long-term. In '09 you coulda bought Ford at $2 a share. Who cares if your overall fortune declined 30%, by now your investments would have multiplied sixfold. And everything else goes back up again during the recovery.
Are you seriously suggesting that when the market falls 60%, then nearly 3 years later is still down 15% or so from its high, that rich people will do better than in non-recessionary times when the market averages an increase of 10% per year?
Evidence please.