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alstry (36.06)

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September 10, 2008 – Comments (7)

Think about this for a second......NOBODY KNOWS what to believe any more in the financial markets.

We have a treasury secretary that tells us one week the the two largest companies in the world are well capitalized on the next week put them into conservetership.  We have CEOs telling us their banks don't neet capital only to raise billions a few hours later and dilute current shareholders.

We are told that the economy is fundementally strong while foreclosures are at record levels, the PE of the DOW is nil, unemployment is skyrocketing, and businees are failing while commericial vacancies are skyrocketing.

Some say buy and others say sell.  Some say inflation and others say deflation.  In the end, no one really knows because no one really can trust much of anything anymore. 

Trust has basically broken down......and this is what they call Moral Hazard.

So now, much of the world is "trusting" its finanicial system is solvent....or that government will step in and save them.....or this or that....but in the end do we really know anything when our treasury secretary is willing to testify in front of congress and say one thing and a few weeks later do the opposite????

What does this mean for the future....who the hell knows.....but we do know one thing......without knowing the truth....we really know nothing.

7 Comments – Post Your Own

#1) On September 10, 2008 at 12:11 PM, daayoo (< 20) wrote:

I know this much. If trust is now a fantasy then the reality is markets will continue to tumble!!

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#2) On September 10, 2008 at 12:34 PM, angusthermopylae (40.24) wrote:

I've heard the stock market criticized as one big Ponzi Scheme.  Everyone makes money until the music stops, and someone is left without a chair.

Hmmm...think I'll write an article on that.  It sounds like the music has stopped a little while ago and people are just beginning to notice.

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#3) On September 10, 2008 at 12:34 PM, BradAllenton (31.56) wrote:

The short answer is "you can't trust the powers that be so on rallies buy the DXD".  Hey that rymes,  "anybody want a peanut" lol

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#4) On September 10, 2008 at 12:40 PM, Andyman (94.81) wrote:

@august:

The problem with the Ponzi scheme analogy is that, in the scheme, no new value is actually being created, it's just constantly changing hands. In investing, the companies create value. New chairs are slowly being added as the music plays.

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#5) On September 10, 2008 at 1:09 PM, angusthermopylae (40.24) wrote:

hey4ndr3w,

I agree.  The primary difference is value added by the work of the company.  In the most basic sense, then, this value is returned to investors in the form of dividends.  In that case, buying a stock is a true "investment" by any definition:  You purchase part of a company, and you receive a continuing financial stream of money.

On the Motley sites, most articles push dividend stocks for Foolish investors.  I tend to agree overall, but I look at it as basically buying bonds.  The question becomes "Is the price I'm paying going to be justified by the dividend I'm getting?"

Where the Ponzi analogy is dead on, however, is where there is a premium above the dividend (for stocks that pay them) and where the stocks don't pay dividends at all.

Here, then, the price and market cap of the company reflect what everyone has put into the Scheme.  When the price goes too high (not justified by the financials of the company, or overshoots on good news), then more people are putting money into the Scheme.  When the price/market cap falls, it's because people are taking money out...just like a Ponzi, and those still holding stock are left to suffer.

As AWTLimited said, selling is just as important as buying.

Don't get me wrong--I'm not down on the market.  I just try to keep an very firm basis for what I'm dealing with.

I still think I'll write that article.  I think it leads to some specific buy/sell advice in this current situation.  (There has been some justified criticism that everyone's talking about macro-economics, but no one is putting for specific stock advice)

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#6) On September 10, 2008 at 2:22 PM, eldemonio (98.67) wrote:

Volatility equals weakness.  Inconsistency equals crappiness. 

Nobody ever says, "Yeah, he's a great golfer, he's just really inconsistent."  Likewise, who would ever say, "Sure, the market is strong, it just swings 300 points every other day?" 

My advice to other fools, take your money out of the market, invest in some guns, a big dog, and start hoarding aluminum cans.  

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#7) On September 10, 2008 at 2:24 PM, alstry (36.06) wrote:

Even Buffet DOESN"T Trust!!!!!!!!!!!!!!!!!!!!!!1


Berkshire tightens insurance for bank deposits


Wednesday September 10, 12:36 pm ET
By Ieva M. Augstums, AP Business Writer

 

Berkshire Hathaway subsidary in Kansas to stop insuring bank deposits above FDIC limit

CHARLOTTE, N.C. (AP) -- A Kansas company that is part of Warren Buffett's Berkshire Hathaway Inc. has stopped selling private bank deposit insurance above the amount guaranteed by the federal government, signaling that billionaire investor Buffett may be worried about future bank failures.Wag the Dog?? Report this comment

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