Who can you trust for investment advice?

The embedded video demonstrates how successful you would been if you followed Jim Cramer's investment advice to the letter, starting before the current declining economy.

The Roubini interview

I've been saying for sometime that the current administration has been downplaying the severity of the economic issues we're facing.  Embedded within this post is an interview conducted by Steve Paikin of The Agenda, a Canadian public affairs television show, featuring Nouriel Roubini, a professor at NYU.   In the interview, Roubini discusses the U.S. economic recession and is very candid about the economic outlook.   

Roubini argues that the current recession will not be short and shallow, as some economists have claimed, but it will be the worst recession we've seen since the Great Depression.  He goes on to talk about the financial sector and that we'll see the collapse of more financial institutions (e.g. Bear Stearns), and further price declines in the housing market.  Unfortunately, Roubini's proclamations of the impending financial crisis to come have earned him the name of Dr. Doom among some of his peers.

The full interview is about 30 minutes long (broken into 3 separate videos), but I encourage you to have a look.

Part 1 of 3


Part 2 of 3


Part 3 of 3

Stay ahead of it...

Lawrence, I agree with your recent entry about the R word (recession).

According to the definition of a recession (recession is defined to be a period of two quarters of negative GDP growth), and I think the average person realizes that we are in one.

The Bush administration seems to think if they do not admit the nation is in a recession that the rest of us will believe the same way, which would be good for the Republican Party in the coming election.

While a recession is bad for someone losing his or her job, if you are an investor, the Bush administration has handed you a nice gift for the next eight months.

How so?  Let me explain. The Federal Government and the Federal Reserve will do anything to keep the economy afloat until the November election, that means you can invest right now with little downside risk.

Caution 

After the November election no matter who wins the economy will get a lot worse for everyone, so take the next eight months to raise cash during the upward movements in the market you will then be able to reinvest that cash next year buying equities at much lower prices.



Disclaimer

The statements above are my personal opinions, and are not to used as a guide for your individual investment goals. Please do your own research, and determine for yourself whether or not action is required to protect your respective investments.

Bitten by the Bear (Part 2)

Following up on the "Bitten by the Bear" entry that I posted last week, I decided to post the video below which describes what happened to Bear Stearns.

Please watch the video below before reading "My Take".

My Take

I think Jim Cramer is a great investor, and he has a great sense of the financial markets. So what I'm attempting to illustrate here is this: if Jim Cramer can't see these things coming, then how can any of us mere mortals feel confident about the markets or the economy?

Bitten by the Bear...

It's official. Bear Stearns is being bought by JP Morgan for roughly $2/share (0.05473 shares of its stock for one share of Bear Stearns' stock). This is a huge win for JP Morgan; however, the big losers in this deal are Bear Stearns employees as most of their compensation is in the form of stock, which has fallen over 97% in the last few days as panicked investors fled the stock.  Literally, some of the employees were millionaires just days ago...

For more detailed information, look here

03/17 UPDATE #1: An estimated 7,000 jobs will be cut (approximately 50% of the current workforce at Bear Stearns)

03/17 UPDATE #2: Joe Lewis the second largest share holder (9.4%) in Bear Stearns has lost $1 billion!!!!

03/20 UPDATE #3: JP Morgan is offering (some) Bear Stearns employees bonuses to stay on and support the acquisition.

03/24 UPDATE #4: Bear Stearns stock climbs to $10/share; JP Morgan increases it's offer to $10/share for the acquisition for Bear.

The Effects may be felt Countrywide...

Many of you are already aware that Bank of America is acquiring Countrywide for a fraction of it's value.  I took some time to think about the ramifications of this, and here's my take:

The obvious

Bank of America is trying to salvage the recent $2 billion equity investment they made in Countrywide, whose stock has recently suffered as a result of the sub-prime fallout. For more detailed specifics, look here.

The tragedy

Many of the residents of the city of Simi Valley (where Countrywide's presence is dominant) are employed by Countrywide.  Thus, if Bank of America closes down those facilities (and they likely will), we could be looking at a devastating blow to that local economy.  First, home prices are likely to drop, as residents preemptively try to get out before the effects are fully felt.  Next, current residents (those who are Countrywide employees) will experience difficulty finding new employment, as job growth has been negative, and they will be competing against colleagues who share their plight.  Finally, foreclosures may follow as the unemployed residents are unable to make their mortgage payments.

The disclaimer

It is total speculation [on my part] that the city of Simi Valley may suffer a financial hardship as a result of the acquisition of Countrywide by Bank of America.  Please take the time to investigate and determine for yourselves if your investments there are in jeopardy.

We're watching you...

The CEO's of Countrywide, Merrill, and CITI Group are currently being investigated by the House Oversight Committee (Live on CNBC).  The committee is examining the high compensation packages of these CEO despite the loss that shareholders have suffered as a result of the falling stock prices due in part to sub-prime mortgage fallout.

It leaves a particularly sour taste in the mouths' of shareholders, when the CEO (of the company they have invested in) is dumping his shares as the stock price continues to plummet.

Friends, these are interesting times...

UPDATE #1: The issue at the heart of the investigation is why the CEO's sold millions (in some cases hundreds of millions) of dollars in stocks during a time when their companies were losing billions.

UPDATE #2: The source for the information presented below is the Committee on Oversight & Government Reform Memo

Countrywide

CEO Angelo Mozillo's 2007 Total Compensation: 

$143M

Countrywide's 2007 Losseses:

$1.6B in Write-Downs

Stock down by 90% 

CITI Group

 CEO Charles Prince's 2007 Total Compensation:

$10.4M Bonus

$28M Stock

CITI Group's 2007 Losses:

$18B in Write-Downs

Stock down by 48%

Merrill

Former CEO Stan O'Neal's 2007 Retirement Package:

$161M

Merrill's 2007 Losses:

$18B in Write-Downs

Stock down by 45%