CNNMoney.com is reporting a doom-and-gloom scenario that highlights the chaos on Wall Street caused by banks’ fear of loss threatening to bring down the financial system.

We’re suffering the aftereffects of the collapse of a Tinker Bell financial market, one that depended heavily on borrowed money that has now vanished like pixie dust. Like Tink, the famous fairy from Peter Pan, this market could exist only as long as everyone agreed to believe in it.

So because it was convenient - and oh, so profitable! - players embraced fantasies like U.S. house prices never falling and cheap short-term money always being available. They created, bought, and sold, for huge profits, securities that almost no one understood. And they goosed their returns by borrowing vast amounts of money.

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How is this slowdown different from other slowdowns? Normally the economy goes bad first, creating financial problems. In this slowdown the markets are dragging down the economy - a crucial distinction, because markets are harder to fix than the economy.

A leading political economist, Allan Meltzer of Carnegie Mellon, calls it “an unusual situation, but not unprecedented.” When was the last time it happened in the U.S.? “In 1929,” he says. And it touched off the Great Depression.

We’re not going to paraphrase the entire article. We’d love to add some insightful KoolAidMan commentary, however the article speaks for itself echoing many of the statements that Drinking Is Believing has been providing since its inception.

So, after all this, we end up with the same old story. Whenever you see a financially driven boom and people tell you, “This time it’s different,” don’t listen. It’s never different. Sooner or later, the bubble pops, as it has now. And you and I end up paying for it.

Drinking is believing…

Financial Market, Credit, Kool-Aid, Investing, Economy, Stock Market | 1 Comment »

Wow! We’re finally back. After a severe bout of depression suffered after hearing so much negative news regarding our economy, the housing market, and international politics, the KoolAidMan finally decided it’s time to stop crying and hiding and write another post!

Yahoo news is reporting that the heavy dependence on the stock market for retirement is causing many people to worry.

With Americans relying more heavily than ever on the stock market to fund their retirements, Wall Street’s slide has some starting to worry they will struggle financially in old age.

Even worse, the housing crisis has reduced what employees are able to sock away, and some are even tapping their retirement money for everyday expenses like food and gasoline.

All this has reopened a debate over 401(k) retirement plans offered by many employers in the United States, which give employees responsibility to save for their own retirements and also some control over their investments.

Pension plans are nice, but at least with a 401(k) we have the option to decide what we want to invest in. How many pension plans have been burned are are still getting hammered because of some involvement in mortgage-backed securities? There are still problems on Wall Street and each day we’re learning more and more about them.

Of course, financial advisors, who make a living from giving people investment tips, say that the best strategy is still to hold one’s nose through the tough times and rest assured that, over the long-run, stocks tend to be the best performing assets.

“In times of market volatility, often the best move investors can make with their 401(k)s is to sit tight and do nothing at all,” said Greg McBride, senior financial analyst at Bankrate.com in North Palm Beach, Florida.

Historically speaking, that may be the case, but what does all that historic data mean when we’re experiencing a financial situation that has not ever been experienced before? Consider the explosion of the US housing market and all the cool little tricks that were played to circulate some cash through our economy. Top that with an economic explosion in the most populous country in the world and record energy prices and we’re entering some uncharted territory. Historically, the US economy has proven that it’s very tough and can recover well from any setbacks. Will the same hold true again, or is this time very different?

No matter what the outcome is, there’s no harm in minimizing personal debt and learning to live a healthy and happy life without spending too much money.

Kool-Aid, Investing, Economy | 1 Comment »

CNN reports that Citibank delivered its worst quarterly results in its history with a $9.8B loss.

The financial giant also announced a writedown of $18.1 billion related to soured mortgage investments and a 41 percent cut to its dividend. At the same time, it said it was receiving a $12.5 billion infusion from investors in Kuwait, Singapore and the state of New Jersey.

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Citi’s top line took a big hit. The company reported revenue of $7.2 billion for the quarter, down 70 percent from $23.8 billion a year earlier.

The results were far worse than forecast. Analysts had expected the company to report a loss of $1 a share on revenue of $10.64 billion, according to analysts surveyed by earnings tracker Thomson Financial.

Think about this for a moment: revenue for this quarter was down 70% since same period last year. Seventy percent is quite a large number.

Citigroup’s stock endured one of its worst annual performances on record last year and was the worst performing Dow component in 2007. Its shares finished the year down 47 percent.

It seems that some investors see this as an opportunity to get in near the bottom. Are things going to turn around for Citi (and the financial sector overall), or are there much deeper problems that have yet to surface?

Buckle up, for we have an interesting year ahead of us.

Financial Market, Kool-Aid, Investing, Stock Market | 1 Comment »

There have been many things going on in the financial markets here in the United States; the terms “Credit Crunch” and “Subprime Crisis” seems to be dominating the headlines. But what’s going on in the rest of the world? We’ve all been aware of a booming market in China with a growing middle class and increasing wages transforming the population and moving them up on the ladder of social status. Marketwatch is reporting that the IPO boom might be over, with investors losing the desire to get in on Chinese IPOs.

“Institutions seem to have gotten a bit cautious about valuations,” said Howard Gorges, vice chairman of South China Brokerage.
Recent IPOs to be delayed include one from China’s largest aluminum-foil maker, another from a motorcycle manufacturer and also an offering from a department-store operator.

“The underwriters are realizing that people can discriminate,” said Gorges. “Unless the price is right, i.e. lower, they (underwriters) may just figure that it is too risky.”

Is the China bubble about to burst, and if so, what effect will that have on the US economy? Perhaps the China bubble was fueled by the wealth debt created in the United States (by rising real estate values), which allowed millions of consumers to buy Chinese made goods which in turn caused Chinese business to soar.

Financial Market, Investing, Economy, Stock Market | No Comments »