Lets have a quick peek of the losers and the winners.
LOSERS
Lehman Brothers - >250 year-old finance giant that filed for bankruptcy on 15th September 2008. Interestingly, week before bankruptcy, one of the executives of Lehman Brothers had tried to seek help from Warren Buffett but failed to get response from him because Warren Buffett did not know how to retrieve the voicemail on his cellphone! Well, I doubted he would help since he only invests on safe bet.
Bernard Madoff - The mastermind of a $60 billion dollar ponzi scheme who claimed that the regulators had slipped past his nose two times despite numerous red flags.
Automobile - It is easier to rescue a burnt egg than GM, so get ready for GM Chapter 7 bankruptcy (true bankruptcy).
Last but not least, the middle to low income taxpayers, there is hardly any good to be expected for these groups, since the upper group comprises both the House and Senate, who decide the fate for us all. Here is the fact, losing 50% of upper class paycheck still beat us; they just have to live cheaper and we simply have to live in hell.
WINNERS
With only 4 years of experience in stock-trading, yet I have been wondering whether it is possible for anyone to win big in economic crash? Indeed, it does!
John Paulson - Winner of the winners. The biggest ever payday $3-$4 billion dollars in Wall Street in 2008 ($1 McChicken each for half of the world population). How did he do that? First of all, you can short (sell high first buy low later) a company but you can never short houses. Back in 2005, he knew the housing mortgages were too risky, so he and his team devised a complex tool to profit if the housing bubble bursts. It is known as Credit Default Swap (CDS), basically it is similar to the insurance you pay if the dealer gots Blackjack, except that in Blackjack it pays 2 to 1, in John Paulson's bet, it pays as much as 80 to 1, and his risk is basically 0%. Sound sweet isn't it? Too bad, we the common people will never be allow to access such complicated tool, it is only for Wallstreet.
Warren Buffett - an all-time winner except his win from 2008 crash wont be realized until many years later. But he is still a winner, with the monstrous size of capital he controls, he had been offered sweet deals by General Electric (GE) and Goldman Sachs (GS) that we again, the ordinary people will never get to taste the same privilege. He could have pocketed $4.1 billion profit on his original $5 billion investment in GS if he sells it today.
In conclusion, what works for them to be a winner usually never works for us. In other words, we are bound to be losers if we blindly follow their paths, because we lack the tools and capital so they are always ahead of us. Besides, most amateur investors lack patience, unlike John Paulson had waited 3 years to sell and Warren Buffett waited 3-5 years before he used his >$20 billions CASH for the right moment to buy. The key to be a winner, is discipline; be good in what you could do, and be certain in what you should do.
Monday, November 16, 2009
Sunday, November 15, 2009
The Recession 2007-2009
There are a few rotten eggs any farmer should have thrown away, instead, a genius invents a method to package the rotten eggs in nice wrappings, re-sell them with an unreasonable price to people who would not open the package until the rotten eggs smell really bad.
Here is a very brief summary of why so many people got their asses burnt.
When demands of housings by people-who-can-pay (prime) reached the limit, the purchasing power was extended to people-who-can-barely-pay (subprime). In order to finance the purchasing power for the subprime, the extended 'purcasing power' is nicely packaged as bonds (by any means possible to disguise the underlying risks) and sold to oversea or to any big companies including those are too big to know their own undermining operations (e.g. Lehman Brother). Now the rest of the equation is easy; when the subprime market was exhausted and it was time for them to pay up their monthly instalment, KaBoom! unleashed the "Financial Weapon of Mass Destruction" coined by infamous Warren Buffett. ONLY then the companies began to realize they were losing money as those subprime could hardly pay up. Oh yes, believe it, supposingly companies that filled with genius and geeks from Top-tier Universities should have predicted this. We cannot blame them though, because only the usual fews on the top whose decisions matter most (those received bonuses in millions $$).
"... I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want....", driven by Bush's speech in 2002, low interest rates as well as the hallucination of ever-increasing house price, more and more subprimes were encouraged to take the risk to buy houses without knowing they could hardly afford. As mentioned above, all those risks were mainly transferred to blinded oversea investors as bonds. Thus, the financial world just 'fall off the cliff' as the train lost its steam. First, banks relied heavily on housing failed, followed by companies invested in those banks. Last, the laid-off pathetic pools of which some are still confused how they got in the mess in the first place.
It is hard to finger-pointing of whom to blame, but it is easier to tell who are the losers and who are the winners of which I will discuss in my next blog.
Here is a very brief summary of why so many people got their asses burnt.
When demands of housings by people-who-can-pay (prime) reached the limit, the purchasing power was extended to people-who-can-barely-pay (subprime). In order to finance the purchasing power for the subprime, the extended 'purcasing power' is nicely packaged as bonds (by any means possible to disguise the underlying risks) and sold to oversea or to any big companies including those are too big to know their own undermining operations (e.g. Lehman Brother). Now the rest of the equation is easy; when the subprime market was exhausted and it was time for them to pay up their monthly instalment, KaBoom! unleashed the "Financial Weapon of Mass Destruction" coined by infamous Warren Buffett. ONLY then the companies began to realize they were losing money as those subprime could hardly pay up. Oh yes, believe it, supposingly companies that filled with genius and geeks from Top-tier Universities should have predicted this. We cannot blame them though, because only the usual fews on the top whose decisions matter most (those received bonuses in millions $$).
"... I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want....", driven by Bush's speech in 2002, low interest rates as well as the hallucination of ever-increasing house price, more and more subprimes were encouraged to take the risk to buy houses without knowing they could hardly afford. As mentioned above, all those risks were mainly transferred to blinded oversea investors as bonds. Thus, the financial world just 'fall off the cliff' as the train lost its steam. First, banks relied heavily on housing failed, followed by companies invested in those banks. Last, the laid-off pathetic pools of which some are still confused how they got in the mess in the first place.
It is hard to finger-pointing of whom to blame, but it is easier to tell who are the losers and who are the winners of which I will discuss in my next blog.
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