Could This FINALLY be Capitulation?

Question

The stock market dumped all over itself today and if it does not bounce back tomorrow (fingers crossed) we may actually be close to capitulation.

Once, if, that happens we will bounce a round for a while then the beginnings of a recovery will start to peek out of the rubble.

The stock market is always a leading indicator, the economy as a whole has at least six to nine turbulent months ahead.

Mark N.A · Answer

Bob - check the link I posted.

Buffett is buying _common stocks_ at _market prices_ for his personal portfolio.

Bob Hines · Answer

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I won't say that Buffett's buying is a negative but it is definitely not as good as what is being touted in the press.  Yes he did step in with a lot of cash for 2 companies, but he would only invest in Preferred shares, paying 10% interest along with warrants priced at currently low prices.  If Warren thought things were so great, why didn't he just buy the common stock?  Why did he demand the extra protection-in terms of the liquidation of the company-of Preferred status and the 10% yield.  If prices are this low and this is only a temporary situation, why not buy the common stock?  The price only has to move $2/share to make 10% for Warren which has been happening in a day or two.  Why did he want warrants (options) instead of flat out buying at the current prices if things were so great?  Also, if GE & GS, 2 of the best companies in the world, have to pay 10% to raise $$, what does that say about other companies and the state of current affairs?
                        
                        I just can't see this as the huge positive it is being made out to be.

Donna Pellegrino · Answer

I have to agree with Jennifer here.  Real Estate is ABSOLUTELY where you should be investing your money.  People will ALWAYS need a place to live wheather renters or buyers.  If you used your Self Directed IRA for investmenting in real estate, any capital gains tax could be avoided by dumping the money back into your IRA....now you've got more to work with and more to retire with.  A 1031 exchange is a good idea also...,the money just keeps working for you.  Pittsburgh never saw a bubble, it never will and that's why people invest their hard earned money here.

Mark N.A · Answer

I agree with you, Jennifer.  I can 'analyze' a real estate deal much better than a stock.

However, I just hope the day never comes when I have to go around collecting rent in fresh vegetables or possum skins or whatever my tenants have to barter as rent.

Jennifer Karlen · Answer

I get your point but guess I'm a the glass is half full type of person.

Real estate is something you can touch, feel, and even if everything is going bad around you - you still have something thats "real".

Mark N.A · Answer

Perhaps Warren Buffett senses a bottom as he is now buying stocks for his personal account.

Here is his op/ed piece in the NY Times:

http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&em&oref=slogin

One problem with real estate is that it is neither liquid nor transportable.  Meaning if you own rental property in a very socialist area they'll start raising your taxes and slapping on rent controls, and so forth.

In one of his books John Reed addressed this problem by stating that SFHs would be the best pick in such a scenario (as opposed to commercial) because homeowners constitute a much larger voting block than do commercial owners.

In any event, I'm glad Buffett is buying stocks because that's a better indication of a bottom to me than any Princeton-educated talking head opining on CNBC.

Bob Hines · Answer

I think Friday was a bottom, though probably not THE bottom.  I think we could actually see a rally between now and the end of the year-although I see this as a 'strengthen the strong, weaken the weak' rally where people harvest tax losses and offset long term gains in order to better position themselves through picking better investments or moving from individual stocks into indexes/mutual funds.  Many advisers look to harvest taxes at the end of the year once the capital gains/losses are known.  We have started to harvest losses already, nearly 3 months early (started in mid Sept) to take advantage of the down market and to try and lock in losses now before we move into a traditionally stronger time period.

I would recommend to those of you with taxable accounts to think about harvesting your taxes now-there are so many options out there right now that you can save $$ on taxes and still be in the exact same position.  I can sell VV and buy VLACX and take the tax loss and still be in the exact same underlying investment!  Next year if the market goes down, I can sell VLACX and buy VV for a tax loss.  Remember, it's only bad to sell at the low if you get out, if you sell some stocks and buy stocks back, you just saved some $$ on your tax bill while staying in the market.  And saving tax $$'s can really make this market easier to handle.

(Do you really think this is a vote Obama for higher taxes or McCain for lower taxes?  I think the only difference is which taxes get raised, by how much and how often based on how much we're in the hole already and we're sinking rapidly.  There's no way either of them will be able to lower taxes since the biggest federal expenses-military, social security & medicare are 'untouchable'.)

Account Closed · Answer

** As Obama raises the taxes on the highest income levels, the revenues coming into the Treasury will drop. They always do and they always will. **

Preach it, brutha!

It's just a game of tax cat-and-mouse.  The truly rich will use the Tax Code as aggressively as they must to avoid Nobama's tax ax.

Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands. --Judge Learned Hand

Account Closed · Answer

Next week will tell the story. The volume was about 3B shares today.

This could just be a dead cat bounce spread over the weekend or we could be wringing out the last of the miracle hoping holdouts.

The next trading day will give more clues. But, we have to see sustained buying over several days before things are going to stop getting worse.

Notice, I said nothing about when it will get better. The bleeding has to stop first, then the scab forms then eventually the scar.

One is for sure, next week will have a story to tell.