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Keep on Buying Like Crazy?

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May 05, 2009 – Comments (3)

I have my doubts about the economic "all clear" being sounded.

Read this for a less happy-happy joy joy perspective.

New research by the Federal Reserve and Boston University of credit spreads of 900 non-financial companies from 1990-2008 predicted changes in the economy 'phenomenally' well. Based on their initial research on low to medium risk corporate bonds with more than 15 years to maturity, the researchers went back to 1973 and found the analysis still worked well. With the massive widening of corporate bond spreads last fall, the researcher's model predicts the economy will lose another 7.8 million jobs by the end of 2009, and industrial production will fall another 17%. In the spirit of optimism, let's assume this 'phenomenal' model is off by 35%, due to the extreme nature of this credit crisis. That still results in another 5.1 million lost jobs, and an 11% drop in industrial production. In that scenario, the unemployment rate climbs to near 12.5%, the underemployment rate breaches 20%, and another 500,000-750,000 foreclosures result.

3 Comments – Post Your Own

#1) On May 05, 2009 at 8:28 AM, JFund (46.47) wrote:

I say buy when a companies when they sell at attractive prices regardless of economic speculation.  No one knows the direction of the economy.  That being said, buy like crazy when everything is selling at crazy prices.  I was buying like crazy when the S&P 500 was in the 600s. 

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#2) On May 05, 2009 at 8:44 AM, portefeuille (99.60) wrote:

A diffusion index will have a value above 50, when a plurality of respondents are positive, and below 50 when a majority are negative. If a diffusion index increases from 35 to 38, it represents a gain of 8.6%, while a rise to 46 from 45 is only a gain of 2.2%

Calculating the relative change of the diffusion index is highly irrelevant here (and almost always is).

(for background see here)

 

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#3) On May 05, 2009 at 9:36 AM, TDRH (99.67) wrote:

With rising unemployment and the implosion of retail real estate (GGP) my gut says one more leg down. 

The median Home price according to Case Schiller 20 city index has dropped to $146,000 in February, with current interest rates  and median income, this could be equilibrium.     The question remains if we will overshoot.

In my mind the issue still remains a shortage of qualified demand. 

Been wrong before, and appear to be wrong every day, but I do not believe the current market is supported by fundamentals and or anticipated future earnings.  I see a long L shape recovery over 2-3 years, not the dramatic V we have seen in the market since March.   '

 

 

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