housing crisis causes - again!

[Larry Blanchard]

Perhaps this quote from the Congressional Research Service might clarify things somewhat, although I doubt it:

"Imprudent lending certainly played a role, but subprime loans (about $1-1.5 trillion at the peak) were a relatively small part of the overall U.S. mortgage market (about $11 trillion) and of total credit market debt outstanding (about $50 trillion)."

You might question the bias of the report, but the numbers seem accurate.

Or how about this quote from the NY Times:

"There is a reason that Peter Wallison?s ?passion? to rewrite the history of the 2008 financial crisis is a ?lonely quest? (?A Crusader Against the Common View of the Financial Crisis,? by William D. Cohan, Street Scene column, nytimes.com, March 12). The evidence presented by the Financial Crisis Inquiry Commission contradicts his revisionist view of the crisis. All nine of his fellow commissioners ? five Democrats, three Republicans and one independent ? rejected his theory that government housing policies were the primary cause of the crisis.

The data shows that Fannie Mae and Freddie Mac followed, rather than led, Wall Street in expanding subprime lending. Delinquency rates for loans purchased or securitized by Fannie and Freddie were dramatically lower than for mortgages securitized by Wall Street. And Fannie and Freddie mortgage securities, with their implicit government backing, undisputedly did not cause the losses that cascaded through the big Wall Street financial firms." I realize none of this will effect an opinion change in those who prefer their opinions to facts, so I'll leave the subject with this post, at least for now.

[Keith Nuttle]

While the press talked about derivatives, and blamed then for the crash in the 10 days after September 28, 2008,most of those Derivatives were based on government back home loans. When pelosi reneged on those home loans on the 28th, the market fell apart and ended up loosing nearly 50% of its high in the early part of 2008.

Since that time period the economy has been in a constant state of turmoil, as seen with the fact the the DOW has been on the decline more than a year and a half.

This can be seen in the declining number of people in the "Middle Class" as they loose their jobs and are forced into low paying jobs. Even though the population has increased there are less people in the work force than there were in 2008.

The solution to the Depression that we have been in for last 7 years is to elect a president that will work with industry instead of doing every thing he can to destroy industry.

Stimulating the economy and encourage industry is the only way to create jobs. Paying people welfare will only create more welfare recipients.

[Leon]

?? Since 2008 the Dow has risen more than 100% from a low of about 7500 to 17790 4 months ago. And we were way past due for a correction. The previous correction was in the middle of 2011. But this is not unusual and pretty much how the market operates. It is more helpful if you look at the market through moving averages. The Dow certainly has not been on the decline for the last 18 months but has given up what it has gained in that period. In October the Dow was up around 8% from 18 months ago.

FWIW I think you can attribute the falling oil prices to the recent drop in the market. Investors start pulling out when oil companies show a continued loss each quarter and oil job losses affect other business.

I agree with the declining middle class.

[Keith Nuttle]

The DOW market reached a high of about 14000 in Sept 2007. Based on the market trend from about 1975 through Sept 2008 the market should be in the range of 23000 to 24000, projected, based on the trend line of this period. It is currently only 16400. This is less than 2% per year. Normal growth rate for the is about 3% (Both calculation compound interest per annum.)

If you look at the same trend line for the market from November 2014 the market was about 17800. The general trend line for the market has had a downward slope since that date, with normal daily variation.

Here is the data to make the calculations.

Trend lines are all calculated based on the linear regression methods.

Regardless of what we are being feed our economy is a mess.

[woodchucker]

Before the 80s normal growth was pretty small. I agree our economy is a mess and we the middle are being squeezed out financially , legally, and every other way.

When I look at that link you provided, here is a clear upward trend for

5 years. When I look at 1yr it's been relatively stable, with a huge drop on Aug 21 2015 and a climb back Sept 28 2015 (not to previous levels though).

Our political system is in shambles. There is only right and left, no middle. I think that's why everything is a mess. It used to be balanced and a middle was reached. Now its my way or the highway.. meaning no negotiations and bad policy because it's not balanced.

If a conservative and a liberal were to negotiate, they would come up with a fair compromise somewhere in the middle, and that would not be so bad. But something happened in the 80s and 90s that changed the way the US congress works. Maybe at a local level too. The republicans became too religious and conservative based, and the liberal too; save everyone, provide for everyone.

If only they learned to negotiate again. The country would be somewhere in the middle, rather than being torn apart by both extremes. And we would have fiscal responsibility.

[J. Clarke]

What is the "DOW market"? Is that anything like the "Dow Jones Industrial Average"?

Do not try to apply compound interest theory to the Dow. It is an average of the price of 30 stocks, which stocks change periodically, with the average divided by an arbitrary number whose sole purpose is to prevent a change in the numerical value of the index when one stock is replaced by another of a different value or one of the index stocks splits.

Any calculation you perform involving the DJIA must address the changes in the divisor, which is now roughly 1/10 of what it was in 1975.

Further, the index stocks change regularly--only 5 of the current index stocks were part of the DJIA in 1975.

[Bill]

Since this "arbitrary number" is surely chosen to provide continuity--I fail to see why considering compound interest theory is an incorrect measurement of it's change. It may be more relevant to bear in mind that the index is made up of companies which have been hand-picked and are updated by an entity with incentives to make the stock market look attractive to investors. That said, I still don't see why (you think) one shouldn't use the index as a measurement stick.

[Leon]

Could Be, There are several Dow's not just the Industrial Average.

Looks like 6

[J. Clarke]

Because the dow does not move strictly in proportion to an exponent.

[Keith Nuttle]

Read TRENDLINE, not the daily closing of the DOW. The Compound interest calculation can be applied to the slope of the trendline. The linear regression calculation gives a slope that can be represented by linear line that is the best fit for the numbers in the database. There are additional calculated values from the data that measures the accuracy of the line. One being the coefficient of correlation.

The trendline is calculated by linear regression and can only predict what may be in the future. It can not predict the daily closing values of the DOW.

If you have three or more numbers you can calculate the trend line. I follow the trendlines for closing for 30, 60, 90 and 180 days. They tell a lot about what the market is doing.

[Bill]

Nothing personal, but that's a "terrible" answer. I think this is not your thing.

[J. Clarke]

When the divisor goes through a full order of magnitude change, you can't just look at the result and say "well the market's going up" or "the market's going down". The market could be absolutely flat and it could be the divisor changing. Or the market could be going down and the divisor could be going down faster. Or the market could be going up and the divisor going up faster.

If you can come up with a function for the divisor and apply that in your model, then you can in principle apply compound interest theory but simply saying "the compound interest rate was 2 percent when it should have been 3 percent" is very naive.

[Bill]

The fact that you are using the word "should" is indicative of my earlier comment. The index tells you about the past. You can bring in macroeconomics and technical analysis to increase the complexity of your explanation, but at the end of the day, the index tells you about the past. You could use macroeconomics and technical analysis, along with the index, to perhaps improve your investing performance. Diversity is your friend.

[J. Clarke]

Now we're going to argue about "should". Except we aren't.

[Bill]

Thank you. In the meantime, maybe read up on macroeconomics and technical analysis. It will help you "make sense" of your favorite index, far better than that "divisor" you referred to.

[Markem]

Greed is the only absolutely true answer to the subject.