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Old 09-30-2008, 09:14 PM   #15
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DOW up 491pts with a little after hours trading. This is like an old wooden roller coaster ride!
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Old 09-30-2008, 10:43 PM   #16
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We were up early, took the boat to her winter storage yard, then hard driving to get back to the house, so we heard no news until after the markets had closed. Peter is shouting at the TV, "This makes no sense!" Gold down, oil up, Dow up, dollar rose against the Euro. What is going on?

Bah! Stuff it all in the mattress!
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Old 10-01-2008, 04:18 AM   #17
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Originally Posted by Nausikaa View Post
On the other hand, if the value of the Euro increases as a result then there is a chance that the poorer countries will experience greater exports to Europe.

Hopefully, the market will soon find a balance, which would be best for everybody. What annoys me greatly with the current situation is that we (ordinary folks everywhere) will be bearing the cost of bailing out the bankrupt corporates whilst the people who are responsible for this will probably end up with 'golden handshakes' or fat pensions. There is no justice out there!

Aye // Stephen
I have a few "issues" with all the talk going on about how the little guy is innocent in all this. Let me vent a little here.

Stephen, truly, this is a complex economic issue that really can't be simplified down to ordinary folks bearing the cost of bailing out bankrupt corporates and people responsible ending up w/fat pension, etc. As a matter of fact its all the "ordinary folks" who are driving this train right off a cliff. And what is "bearing the cost" when the economy is like the ocean tides--remember the phrase that "a rising tide floats all boats?" well, we're in it together and we should get out of it together, IMHO.

A quickly written ramble of my opinion of "the start" of this crisis--

Here in the USA, we saw huge investment from US investors and those abroad in the 1990's go into the internet boom/bubble. With an expanding economy, we were beyond full employment for many years of the late 90's and early 2000's. Venture capitalists and others used to high-risk were seeing their money double in less than a year. People were spending, spending, spending. Lots of money running around looking for places to "invest" and then came the dot-com bust. Suddenly that money chasing good tech investments had to "go somewhere" and where did it go? Real estate here in the USA and abroad. Further, 9/11 happened and the US economy was very shaky. The administration didn't want to see us go into a recession. So, what did the US do? the Fed lowered interest rates. They were dramatically lowered between 2002 and 2005. Money was "cheap" and banks, credit card companies, etc were looking for people to lend to. People, "ordinary folks" who shouldn't be borrowing so much borrowed lots of money. They cashed out the equity in their houses, they bought cars, SUV's, took vacations, etc, etc, etc. These "ordinary folks" spent a lot of money and kept the economy moving along. Further, many folks with lots of cash bought real estate--including those ordinary folks who couldn't necessarily afford to buy "up" or to buy a second home. But it happened and real estate prices kept going up. Further, municipal governments were able to use the tax revenues to fix roads, build schools, plan capital improvements (based on projected future taxes) and go to Wall Street to borrow money (issue muni-bonds) based on these things.

What was a bit different about all this lending was that it was asset backed (based on the value of the real estate or other asset) and not really credit backed--so numerous "ordinary folks" who shouldn't have gotten these big loans--did get loans. Along with this, we see that credit card companies and mortgage originators ... (ordinary people, some are mortgage brokers who have their own businesses processing mortgages and are paid a fee for doing this "up front" work but who don't work for the bank lending the money...these aren't fat cats, these aren't wealthy bank presidents on Wall Street--these are regular people...little old ladies in tennis shoes who work in customer service at the credit card company, etc) ... "helped" people get those mortgages and cash advances on their credit cards or increased credit limits; new companies began to lend and package loans to be sold "up the chain" to other investors--from retirement funds, hedge funds, investment banks, etc, everyone bought "asset acked securities" thinking they were "normal and safe" and the shareholders of all those companies (shareholders are "ordinary folks" like you and me) were happily benefiting from the investments their companies were making. In particular, retirement funds were trying desperately to keep high return on equity that they'd seen with stock investing in the 1990's and the retirees were demanding high returns, too. All these..."ordinary folk" contributed to the problem of adding pressure for their fund manager to perform--if someone managing a fund wasn't doing as well as others, well, he/she would be losing his/her job. Ordinary folks have a way of putting pressure on everyone along the way--from the customer service rep to the president of the USA.

Then, it seems in the mid 2000's, we were seeing risks of inflation--and here comes the first domino (in my opinion) to fall that brought things down--the Fed began to raise interest rated quite a bit in 2005/2006. Those same rates they'd lowered to keep the economy moving--they raised to slow it down. Stupid move (in my opinion) because suddenly all those adjustable rate mortgages (which go up when rates increase) started going up along with many other things. Interest rates going up makes credit harder for everyone--small businesses who borrow for operating/expansion and large businesses alike. Well, the Fed succeeded in "slowing down" the economy with those increased interest rates and along with the slow down...ordinary people began to default on mortgages and credit card debt. And, other ordinary people who were shareholders in various banks or part of retirement funds and had demanded that their returns/dividends be high--well--suddenly all those asset backed (and mortgage backed) securities that had been providing great return on equity were very risky. I won't even go into the muni-bond investments--that's a whole 'nuther can of worms that we can't blame on the fat-cats.

Wall Street banks, investment banks, yes--they hold lots and lots of these worthless asset backed securities and their shareholders are demanding to know "how much" are they worth--and that expected losses be written off. And, all of the "worthlessness" of the securities comes down to a bunch of ordinary folks who aren't going to honor their commitments to pay the loans that they took out. And, a bunch of ordinary folks who can't keep up the spending because it was on credit cards so businesses are slowing down too. Yes, some of our problems are business defaults driven by interest rates; other aspects of the banking crisis include the massive short selling that has been going on driving vulnerable companies into the ground; we will probably see an investigation in the US into the change in the "up-tick rule" which the SEC got rid of in mid-July 2007 right before the stock markets began to unravel--and that is about the only thing that we can say with certainty that the ordinary folks didn't have much to do with.

Things are indeed a mess. But, please don't think that its solely because of a bunch of wealthy or privileged CEO's. Here in the US, I believe we can look at the self-centered greed of ordinary people as well as CEOs and political leaders--there are plenty of contributors to the crisis across the spectrum.

Bottom line, the "problem" can be attributed to many people in different roles in our society--lots of them plain old "ordinary folks." I just hope that the ordinary folks in the US begin to act like intelligent people by paying their bills and encouraging their elected officials in Washington to take action to mitigate effects of this economic crisis.
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Old 10-01-2008, 06:48 PM   #18
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Islandseeker,

In the past couple of months I have picked up the pace on boatwork. In 6 months she should be cruise ready, and ready for passages. A friend once told me. Man makes plans, and God laughs!!!!!!!!!!!!!!!!!
I'm looking at another year. That's if no emergencies come up. I can't wait till I can say 6 months left with confidence. I know somebody must be laughing at me, I bought a wood boat! lol! Good luck on the future progress 'imagine2frolic'.
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Old 10-02-2008, 12:32 AM   #19
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What is happening is turning everything sour for me. I am not in the market, but my business had just started to accelerate this year. It has dropped to zero.

I owned my home outright, and took 60% to open my business. The 40% left has dropped to around 15%. Thank goodness the boat is paid for. I am going to sit tight for 6 months. I will then make the decision to just go to sea, or hang on a little longer.....OUCHHHHHHH!
Imagine2frolic, we, like you, drew heavily on a home equity line of credit to start our business (2001) and were thankful for the hugely inflated prices of real estate which made it possible for us to start the business with a low interest rate loan like that.

We did get cold feet (the real estate market was "too hot" for our taste and risk evaluation) and sold the house in July 2006 at a good profit. We downsized the business so we could take the time to work on our cruising boat full time and take some time "off" to do some sailing. Things always take longer and cost more than you think, but for us, things are coming along ok.

I hope that your business continues to thrive and your boat is ready to go to sea so you have choices to do what you wish. Best of luck in all.
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Old 10-02-2008, 07:46 PM   #20
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Some perspective on the market...

30 Years

file_2_.png

Last 10 Years

file_1_.png

From October 1, 2007 to October 1, 2008, the market has declined over $4.7 Trillion in value.

I found this article very interesting from Yahoo Finance:

From ClusterStock, Oct. 1, 2008:

Now that the government has been terrified into rubber-stamping the bailout, what happens now?

In our opinion, here's the most likely scenario:

Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan (JPM), Citi ©, Wells Fargo (WFC), and Bank of America (BAC) will stay. Goldman (GS) will probably stay. Morgan Stanley (MS) might stay. Everyone else in trouble could go. The government doesn't need to save all banks. It just needs to save some.

Within a month or two, Paulson buys $250 billion of worthless assets. He pays more than market value, but not an egregious amount more (because the public will be watching these early rounds). Over the next six months, he buys $700 billion of assets...and then he--or his successor--asks Congress for more money.

Confidence improves modestly, but banks continue to hoard capital and credit markets stay tight. Loans stay expensive and hard to get. This keeps pressure on the economy.

The credit crunch filters through to consumers: Credit cards, home equity loans, mortgages, car loans, etc., get more expensive, putting more pressure on consumers and forcing them to cut back further.

The economic news continues to get worse: American consumers continue to pull back, housing continues to fall (as of July, the year over year declines were still accelerating), companies begin to cut back, which leads to layoffs--which puts more pressure on consumers.

The global economy continues to weaken: Europe, Asia, and, eventually, emerging markets. This is already happen, and everyone else is later in the cycle than we are.

The stock market continues to fall, as corporate earnings come under increasing pressure and hope for an early 2009 recovery fades. Analysts are still expecting huge growth in S&P 500 earnings for next year. These estimates will get cut by at least a third.

The government enacts further measures to try to stop the fall in asset prices (stocks, houses)--including an expansion of the bailout plan--but these don't work. Governments always try to do this. They never succeed. All they do is delay the inevitable.

A new round of white-collar prosecutions send a new posse of corporate villains to jail. Some will be guilty. Some won't. All will be hated.

The government announces a new New Deal, finally investing in the country's infrastructure, in the hopes that this will stimulate the economy (which it will). Investments include broadband, green tech, wireless, physical infrastructure, et al.

Eventually, asset prices will bottom: Housing down 40% in real terms, the stock market down at least 50%. With luck, this will happen by early 2010, so the recovery can begin.

Warren Buffett loads the boat with stocks, but by that time, most people are too depressed (and poor) to follow him.

Unlike Japan, we finally force our banks to write down assets as far as they need to be written down...and then recapitalize them. This is what we should have done in the current bailout, but we'll get it right next time (we hope).

We gradually begin a long-term economic recovery, one in which consumers save a greater percentage of income, thrift and saving again become admirable qualities, we gradually begins to wean itself off international oil, and the bacchanalian decades of the 1990s and 2000s become an embarrassing memory.

The stock market finally begins a new, long-term bull market, in which stocks once again return 10%+ per year. Unfortunately, most Americans will be so sickened by the stock losses they've sustained since 2000 that they'll miss many years of it.
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Old 10-02-2008, 10:53 PM   #21
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I have a few "issues" with all the talk going on about how the little guy is innocent in all this. Let me vent a little here.

Stephen, truly, this is a complex economic issue that really can't be simplified down to ordinary folks bearing the cost of bailing out bankrupt corporates and people responsible ending up w/fat pension, etc. As a matter of fact its all the "ordinary folks" who are driving this train right off a cliff. And what is "bearing the cost" when the economy is like the ocean tides--remember the phrase that "a rising tide floats all boats?" well, we're in it together and we should get out of it together, IMHO.
Thanks for the wealth of information. Irrespective of this I feel that I, as an ordinary person, am having to carry the can for this. Why? because I was brought up by honest parents who believed in only buying what they could afford. They scrimped and saved for years until they could pay cash for their house. I did the same and never borrowed money, lived within my means and after years of hard work and saving was able to buy my own home and a boat. Now I find the value of my assets sinking due to the incompetence of so called experts who encouraged people who were not finance-savvy to borrow more than they could afford. Experts who neglected to explain why such words as negative equity even exist in the English language.

Now, as I mentioned, the value of my property is decreasing so I am paying, albeit in part, for this debarcle. I am, also through my taxes, probably going to face the prospect of financing bail-out plans for banks and mortgage houses too. And whilst I and others of my ilk are paying for other people's mistakes and incompetence, the top dogs in the finanance world, who had salaries far in excess of mine whilst they were committing their errors, are likely to be leaving their posts in shame but with golden handshakes which will far exceed any pension I will get.

Do not missunderstand me. I am not complaining about my lot in life. I am very satisfied with what I have achieved but I am extremely critical of the system and above all of the practice of rewarding those who have committed grave errors of judgement and exhibited proffessional incompetence whilst the man on the street, who fell offer for these confidence tricksters, now bears the costs.

You are correct though in stating that we are all in this togther, only I feel that I was press-ganged. I may have involuntarily taken the king's shilling but I don't have to like it.

Ayee // Stephen
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Old 10-03-2008, 12:51 AM   #22
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Another good read...Highlights of Warren Buffet's interview with Charlie Rose

Buffet repeats over and over that Bailout is a good idea only if we pay market value for the assets...unfortunately we will not be.

Link to video: http://www.charlierose.com/shows/2007/5/28...rom-may-10-2007

HIGHLIGHTS

Made GE investment decision yesterday after getting call in the morning.

Using cash now because good time to do so: others fearful

In my adult lifetime I've never seen people this fearful economically.

8% of bank deposits have been moved in last few weeks...and people are not wrong to be worried.

Weakness being felt at auto retailers, furniture retailers. But will get worse.

Rescue plan: Not perfect, but I'd rather be mostly right than precisely wrong.

$40 billion of Treasuries sold last week at yield of 1/20th of %. That's money shoved under mattress time.

Major institutions all want to deleverage. What seemed so easy to borrow against a year ago now seems like rat poison. Only one who can lever up is US government.

Basically the right things have been done, but no one saw tsunami coming.

Response has been ad hoc, but better that than nothing. And three months ago, Treasury would never have been able to get the power to stop. Now people understand.

What is in trouble here is American economy, not Wall Street. I don't like what's going on, but Wall Street shareholders got creamed. Justice won't be perfect. Can second guess forever, but this is Pearl Harbor. Don't spend weeks and weeks deciding everything--spring into action.

Never seen anything like this in his life.

--------------------------------------------------------------------------------

Depression is a possibility if this plan doesn't work. We've been in a recession by any definition. $20 trillion of houses, $20 trillion of stocks, both down dramatically. 95% of people worse off. That is bleeding into the real economy. That wave is just starting to hit. If every company keeps trying to deleverage...gets much worse. Unemployment will rise, but question is whether goes to 7% or 10-11%

I worry whether current Paulson plan enough. If you don't react to Pearl Harbor, every day goes by, gets worse.

Paulson best possible Treasury secretary. Right person. Sheila Bair, too (FDIC head). She's moved 8% of deposits in US in last 10 days. Great public servants. Right people to get job done. Need tools. Need money and flex.

NEED TO TIE TO MARKET PRICES. If they do this, they'll make money. I'd take 1% of that. Hedge funds are buying these assets for 15%-20% return. These assets will be worth more money over time. US government has very cheap borrowing costs.

Government will be investing, not spending. I'd love to do it, but just don't have $700 billion.

I don't think it would be crazy to have model on RFC (entity in Depression). Two things needed: 1) liquidity. 2) capital problem with some of the institutions. Feds did that in Depression. Problem today with RFC would be cumbersome process. Right now, commercial paper market drying up. RFC thing makes sense, but what is needed now is liquidity.

Any time I can help, give advice, happy to do that. That's why I'm here tonight.

--------------------------------------------------------------------------------

Derivatives killed AIG. Very tempting. No capital requirements. I said they were financial weapons of mass destruction, and they have been.

Biggest single cause: tremendous residential real-estate bubble. Human behavior leads to bubbles. Everyone believed prices were going to go up forever. Behaved foolishly. We leveraged up: 20% fall in value of $20 trillion asset. That's $4 trillion. That's a big deal. And it continues.

The good thing: We have household formation in this country. Inventory too big, but we can work it off.

Should people have known better? People should always know better. They don't get smarter about fear/greed. Can't stand to see neighbor getting rich. Three "i's": Innovators, imitators, idiots. Same with silly Internet valuations...went up every day.

With housing, if you think prices go up every year, if don't buy this year, will have to buy it next year. Everyone who has done it has been proven right. And someone willing to lend you money for free? Found money...

It pays off for a while. You can use leverage. You can do lots of smart things, but if you do one wrong thing, wipes you out. Because anything multiplied by zero is zero. Cinderella: At midnights, everyone turns to pumpkin and mice. But no one wants to leave party, and no clocks on the wall saying "almost twelve."

Confidence: Treasuries 1/20th of a %. Not buying because attractive yield. People buying because confident will get money back. Confidence in markets is like oxygen: when have it don't even think about it. When gone, can't think about anything else.

If doesn't work, turn the spigot. You don't want to be too little too late.

If people think it's too little, it's too little.

The one thing you have to is buy assets at market [which the government is not planning to do]. You don't want to have artificial prices being paid.

This country will be living better 10 years from now, 20 years from now. We had Depression, wars, oil shock, etc. All these terrible things, but we had 7 for 1 improvement in standard of living. We have great system. American workers so productive.

Same things happening around the world. Europe banks doing same. Beware of geeks bearing formulas.

--------------------------------------------------------------------------------

New Administration...

Recession is going to get worse. Things won't turn around in a couple of months. They will turn around. I don't know whether it's 6 months or 2 years. 6 months is best case. If we don't do things we should do, it will be 5 years.

We need to throw the resources at this. If we buy these assets intelligently. [a BIG IF]

I would hand a blank check to Hank Paulson... "Go invest it." I might ask him to put some money of his own up, too.

Trying to invest through 535 people is a tough job. Oversight good, but should be devoted almost entirely to question: Is this being done at market. Don't want government investing foolishly.

RFC: people knew what they were buying.

RTC is different...this was the stuff they inherited when thrifts went bankrupt. This is different. We're buying.

Markets aren't perfect. People go crazy. As long as have markets, will have excesses. Not going to change human animal, and human animal really doesn't get much smarter. People LOVE leverage when it's working.

Mark to market: I believe in it. In 1974-1975, we owned common stocks. We told shareholders what they were worth today. I thought "really worth much more." But not today. You get in a lot of trouble when you start putting fictitious numbers on value. You can explain you think will be worth a lot more, but once start putting phony figures into financial statements, you get in a lot of trouble. People want to make it worse.

I want to tell shareholders of Berkshire what it's all about. I explain in one case where I think figures calculated on our balance sheet is wrong. We do it way SEC wants and I explain. Shareholders can believe or not.

--------------------------------------------------------------------------------

China, Asia holding American debt...we have been consuming about $2 billion a day of goods/services above what we're producing. We send them paper in exchange. They can do lots with that, including buy our companies. They are going to own something for that. Every day, they own $2 billion more of American assets. I think that's bad.

We've been good on exports. 12% of GDP. That was 5% many years ago. This is not the most pressing problem right now. We are trading away pieces of country, which isn't good. But we are growing.

Dollar? Inflation is a likely consequence. We are in effect making a choice between future inflation and getting off the floor. We are likely to have more inflation in future.

Obama talking about another stimulus program. Do we need? What we need now is liquidity. But if there is another stimulus, should go to lower and middle class. I've never had it so good. Rest of country should get this one. One-fifth of households earn 21,000 a year or less. Imagine living on that. Push out $1,000 a person to those folks, it will get spent. It should come from guys like me.

15% capital gains tax...and no payroll tax on that. I've never had it so good. I think it's terrible for people to say that income from investments should be taxed at lower rate than income from labor. You're going to get the money from someone. So who? Me and you? Or guy who drives taxi getting me here. Over the years, they've taken less and less from a guy like me. Everyone likes to talk about how top 1% pay huge percentage of taxes. $900 billion is payroll taxes--that comes out of people in my office. Payroll tax is one-third of receipts of fed govt. That doesn't come from me.

--------------------------------------------------------------------------------

Inflation/interest rates: For time being, not an issue. Get patient up and walking first. What we're doing will have inflation issues.

Someone needs to explain all this, get the message out. Takes real leadership. Roosevelt didn't print money. He restored confidence. You needed to jumpstart economy. Did not change overnight. Put in FDIC, etc.

Roosevelt: Only thing we have to fear is fear itself: The country works very well. When I was watching house vote, I wasn't afraid, but we are going through a very tough period. I did not think I would see a time when AIG wouldn't be able to write checks. Why even talk about not saving? They were hoping private sector would save it. And private sector tried...but couldn't get handle on problem. Kept getting bigger and bigger.

--------------------------------------------------------------------------------

An ounce of prevention worth a pound of cure. If we delayed it six months, we'd need a ton of cure. It would be crazy not to do this. It will NOT fix economy. Going to see crappy earnings, more unemployment, etc. But if we bottom out at 7% vs. 9% unemployment, that's 3 million people. Just think about that. You don't want to create that. You can't help some increase from this point. I don't want anyone to think that we can.

Once we rescucitate athlete, we can talk about regulation, etc. Can do later. We had good system. But then we went crazy on residential real estate.
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Old 10-03-2008, 09:30 PM   #23
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I tried to leave 4 years ago, but the wife wasn't ready to cross the Pacific, and wouldn't let me single-hand to go. Next year I tried to sell the house, because I knew it couldn't go on forever. She wouldn't let go of the house. So then I went back to work by opening my new business, and the bottom fell out...............sheets hit the fan!....ggggrrrrrrr

As always time will tell!
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Old 10-03-2008, 11:08 PM   #24
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And the news for today!!!! Even though the bailout passed today....

The 157pt sell-off left the Dow down 22.1% for the year and 27.1% from its high on Oct. 9, 2007. The S&P is down 25% for the year and 29.8% from its October 2007 high. The Nasdaq is down 26.6% for the year and 31.9% since Oct. 31, 2007.

Imagine....

A good friend of mine had an offer on his SoCal condo for $485K that his wife decided to turn down because she wanted $495K. He told me yesterday that he couldn't get $320 for it today. FYI, his wife only paid $180K for the place 7 years ago...it's all about greed.
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Old 10-03-2008, 11:42 PM   #25
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All together 52 equity markets globally lost $10.5 trillion dollars so far this year, according to Standard and Poor's today. September alone accounted for $4.1 trillion.

From Citywire: The US stock market, however, was September’s best performer as it only lost 9.29%. The developed markets – excluding the US – saw an overall fall of 14.80%, while emerging markets fell 18.76% – the worst single-month loss for over 10 years in the developing countries.
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Old 10-05-2008, 02:31 AM   #26
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And the news for today!!!! Even though the bailout passed today....

The 157pt sell-off left the Dow down 22.1% for the year and 27.1% from its high on Oct. 9, 2007. The S&P is down 25% for the year and 29.8% from its October 2007 high. The Nasdaq is down 26.6% for the year and 31.9% since Oct. 31, 2007.

Imagine....

A good friend of mine had an offer on his SoCal condo for $485K that his wife decided to turn down because she wanted $495K. He told me yesterday that he couldn't get $320 for it today. FYI, his wife only paid $180K for the place 7 years ago...it's all about greed.
Trim, I agree.

Greed is what is the root cause of ALL these current problems. My grand parents were farmers and they lived a very humble life, they did not play the "Keep up with the Jones'" game that I see happening all over America these days. Buying a new car every 2-3 years or less, cable tv, and all the latest gadgets every "has " to have the day the new models are released. The people that are caught up in this may not realize it but borrowing money is a risk to start with. The consumer has a responsibility to educate him/her self on the possiblity of things not working as they want it to. The signs of this fallout in the economy have been there for over 5 years, you just had to know where to look.
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Old 10-06-2008, 05:01 PM   #27
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Wow...Dow below 10,000 this morning....hold on folks this could be a sharp fall.
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Old 10-06-2008, 08:19 PM   #28
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9600 and falling....
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