Blood Bath On Wall Street:Chapter 2

[FaninAma]

So the Fed refused to cut the prime interest rate 2 weeks ago and now the plunge continues as the bad news from the home mortgage companies such as Country Wide continues to leak out. Now there is news that some large money markets are refusing to let investors withdraw their investments because of insuffucient available funds.

The Fed, and thus our economy, is between a rock and a hard place. On one hand, if they ease rates to increase liquidity the USD will fall like Chris Simms getting decleated by Dusty Dvoracek. On the other hand, if they don't the credit crunch in the home mortgage sector will continue to radiate out into all sectors of the economy starting with home builders and retail.

Personally, I think the Fed cares much more about the USD than it does about Joe 6 pack so my guess is they will not cut the prime rate until their is significant pain among US consumers.

The Fed and European Central Banks have already tried to increase liquidity by the use of massive temporary repos to the tune of about 350 billion dollars and it hasn't slowed down this mess. The Yen carry trade continues to unwind and even with the flight to quality(US Treasury Bonds) I think we will see the USD start to fall.

And who is the man culprit in all of this mess? The Hedge funds, the FED(especially the previous chairman and his easy money policies) and the greedy mortgage companies who lent money to unqualified home buyers. You could also put President Bush and the GOP in there because they ares supposed to be the fiscally sound political party and they have been spending like drunken sailors ever since they took office. And last but not least, the US consumer who is willing to put his own family's financial security at risk so he/she can buy the biggest and the latest products and keep up with the Jones' by buying much more house than they could afford. Choices and actions wreaking with irresponsibility all around

The one-two punch of the home mortgage/buying and retail sectors falling will be a very ominous development for our economy as well as the rest of the worldd since those 2 things are largely responsible for most of the growth and expansion of the world economies...especially the developing markets. At best we are probably looking at a recession.....at worst...well, who knows.

[royalfan5]

On the upside, the weak dollar is helping to narrow the trade deficit. Especially Ag exports. So that's good for me anyway.

[FaninAma]

On the upside, the weak dollar is helping to narrow the trade deficit. Especially Ag exports. So that's good for me anyway.

I think commodities may be the last safe heaven. In any bad recession they do as well as anything. People will always need food.The problem is if the fallout craters the emerging markets it may have repurcussions in even Ag exports.

I really think what will happen is that the Fed and the US/European Central banks will cut rates and flood the word in USDs and Euros. This will prop up prices but it will lead to inflation on a scale not ever seen before.

BTW, watch the 12,700 level for the DOW. If it breaks through there I think the FED will have an emergency meeting to lower interest rates. If they don't, the next level would be 11,000 and we haven't even seen the tip of the iceburg in terms of the sub-prime interest mess.

[Mjcpr]

You're not really a glass half-full kinda guy are you?

[Hamhock]

link to money markets refusing to allow fund withdrawal?

[royalfan5]

I think commodities may be the last safe heaven. In any bad recession they do as well as anything. People will always need food.The problem is if the fallout craters the emerging markets it may have repurcussions in even Ag exports.

I really think what will happen is that the Fed and the US/European Central banks will cut rates and flood the word in USDs and Euros. This will prop up prices but it will lead to inflation on a scale not ever seen before.

BTW, watch the 12,700 level for the DOW. If it breaks through there I think the FED will have an emergency meeting to lower interest rates. If they don't, the next level would be 11,000 and we haven't even seen the tip of the iceburg in terms of the sub-prime interest mess.
There's a reason I stuck with Agriculture. The droughts in developed markets is what is fueling the current export bulge, except for the wheat going to the Middle East. Everybody in the Northern Hemisphere but us has had a bad year, and the governments ethanol policy is going to push corn and beans hard over the next year. 2008 could be the bioenergy trainwreck that a lot of Ag economists have been waiting for. However, it will put a ton of cash in producers hands this year and next.

[Mjcpr]

There's a reason I stuck with Agriculture.

I think most of us just thought it was because you're a Nebraska hillbilly.

[FaninAma]

You're not really a glass half-full kinda guy are you?

LOL. The "half-full" mentality is a two-edged sword. On one hand it is beneficial is optimum market conditions. On the other, it allows you to be taken advantage of by the snakes in the stockbrokers offices selling their latest leveraged product. It is also the attitude that caused many home buyers to invest in risky sub-prime mortgages and ARMs to assume mortgages they could only hope to pay for if everything went perfectly in the economy.

And you could also refer to my sig.

BTW, I have been out of equities for over 4 weeks.

[TopDaugIn2000]

so in ENGRISH, what does this mean for ME?!?!?!

[Hamhock]

so in ENGRISH, what does this mean for ME?!?!?!


you should put more into your 401k. you can buy equities cheap.

[royalfan5]

so in ENGRISH, what does this mean for ME?!?!?!
I wouldn't go selling your new house for awhile. Also, don't plan on borrowing money against your house. If you have an ARM, you probably shouldn't have done that.

[TopDaugIn2000]

I have a fixed rate, and I'm overpaying by 100 or 200 each month to cut down on the time. Also, I don't plan on moving any time soon.

[SoonerProphet]

i'm hoarding gold like a pirate.

[FaninAma]

I will find the link to the money market fund that held redemptions.

For my part, I think the most prudent thing to do is be in cash or government treasuries short term. And pay off your credit cards. :D

[Widescreen]

i'm hoarding gold like a ninja.

Take that!

[FaninAma]

The DOW just took out 12,700. This could be a total capitualtion day which might be a short term bottom. I personally think there is more downside left.

Gold, at least the physical, is holding up fairly well. The mining equities are getting hammered but I think they have seen their bottom today.

[SoonerBorn68]

...and we haven't even seen the tip of the iceburg in terms of the sub-prime interest mess.

I have. I've even seen the evil underbelly. We've been trying to find a loan through a mortgage broker & got caught up in all this mess. Twice the "programs" were pulled a day or so before the scheduled closing date.

[SoonerBorn68]

The upside for me is although I didn't get the loan I've got a pretty pile of cash saved up.

[FaninAma]

The upside for me is although I didn't get the loan I've got a pretty pile of cash saved up.

I would look at the bright side. You aren't involved in this mess and if you are patient you'll eventually be able to buy a lot more house for a lot less money, IMO.

[dolemitesooner]

so in ENGRISH, what does this mean for ME?!?!?!
**** thats what I said

[KABOOKIE]

I wouldn't go selling your new house for awhile.

OK there.


Also, don't plan on borrowing money against your house.

No problem there.


If you have an ARM, you probably shouldn't have done that.

****! I hope this **** settles out by 2010.

[yermom]

but the economy is growing and is better than it's ever been ;)

[NormanPride]

I would look at the bright side. You aren't involved in this mess and if you are patient you'll eventually be able to buy a lot more house for a lot less money, IMO.

How patient? We're looking to buy within the year. Of course, we're not going to go beyond our means...

[KABOOKIE]

but the economy is growing and is better than it's ever been ;)

No joke! I've put my money into opening a few payday cash advance stores. Buisness is booming!!

[royalfan5]

How patient? We're looking to buy within the year. Of course, we're not going to go beyond our means...
The real housing disaster shouldn't set until Feb. or March when the largest group of ARM's reset. That will probably induce firesales in some markets.

[Tulsa_Fireman]

That will probably induce firesales in some markets.

Mmmmmm. Cheap houses.

[OUinFLA]

link to money markets refusing to allow fund withdrawal?

I think it was last week.
It involved 3 rather large French funds that were heavily involved in the sub-prime lending market.
They froze the funds for deposits and withdrawals until "some form of stable liquidity became more normal".

I remember thinking at the time, that would surely pizzz me off if I were an investor in those funds.

Here's one of the articles about it.
Cnn News (http://money.cnn.com/2007/08/09/news/international/bnp_subprime.reut/index.htm)

[KABOOKIE]

Mmmmmm. Cheap houses.

:les: PAY ATTENTION!!! I HOPE YOU GOT BRUCE TYPE CASH TO BUY THAT HOUSE CUZ NO ONE IS GOING TO LOAN YER BROKE *** MONEY!!!

[OklahomaRed]

Cheap houses is one thing, you end up selling cheap, but turn around and buy cheap. It's a wash. What irritates me is that all of these rear ends are all tied at the hip, and your company pretty much forces you to put all of your "retirement" money in their 401K. Then their offerings are limited at best. You do what you can to diversify what you have it in, but when the market, which they are all inbred, goes down, EVERYTHING goes down. This has happened to me twice in 10 years where you go from being worth 10X to being worth 5X. I think it's just a big scheme by the government and corporations to keep everyone tied to their "slave" status of working for THE MAN. Get used to it. Unless your ancestors were smart enough to get in on the back side of "running the government" through all the various strings that have been set up. You are screwed to work your rear off and then retire on what little you were able to save despite their repeated raids on your savings. It's a racket. In the long run you are still probably better off at least owning something you can touch. The rest is just a game. :mad:

[Hamhock]

Cheap houses is one thing, you end up selling cheap, but turn around and buy cheap. It's a wash. What irritates me is that all of these rear ends are all tied at the hip, and your company pretty much forces you to put all of your "retirement" money in their 401K. Then their offerings are limited at best. You do what you can to diversify what you have it in, but when the market, which they are all inbred, goes down, EVERYTHING goes down. This has happened to me twice in 10 years where you go from being worth 10X to being worth 5X. I think it's just a big scheme by the government and corporations to keep everyone tied to their "slave" status of working for THE MAN. Get used to it. Unless your ancestors were smart enough to get in on the back side of "running the government" through all the various strings that have been set up. You are screwed to work your rear off and then retire on what little you were able to save despite their repeated raids on your savings. It's a racket. In the long run you are still probably better off at least owning something you can touch. The rest is just a game. :mad:

right on!! i totally agree. on top of all of that, you've got the damn government causing hurricanes. how is a person supposed to get ahead?

[OklahomaRed]

right on!! i totally agree. on top of all of that, you've got the damn government causing hurricanes. how is a person supposed to get ahead?


Please fill us all in on the best way to invest your money? I'm game. 401K's are about as profitable as just putting it under the matress. :texan:

[Beef]

I hate the free money my company gives me in my 401k.

[OklahomaRed]

I hate the free money my company gives me in my 401k.


I agree with the matching. I also like the fact that I put it in tax deferred. What I hate every time the market goes down that you net value takes a dive. I'm in it for the long haul. I just hope something is still there when I get ready to retire. You'll have to excuse my tirade. I'm taking $1,500 a day hits here the last week. :O

[Hamhock]

I agree with the matching. I also like the fact that I put it in tax deferred. What I hate every time the market goes down that you net value takes a dive. I'm in it for the long haul. I just hope something is still there when I get ready to retire. You'll have to excuse my tirade. I'm taking $1,500 a day hits here the last week. :O


IMO, if you are more than 15 years away from retirement, you should've even pay attention to what the market is doing.

$1,500 hit to what? a piece of paper? who cares what is happening to money you won't need for years? just think of how cheap you're buying equities.

edge out of equities as you get closer to retirement. until then, put on a helmet, put your head down, and go to work.

[Beef]

I have a 25 year investment window. It's not fun seeing these paper losses, but I'm in for the long haul so I'm not worrying.

[OUinFLA]

. until then, put on a helmet, put your head down, and go to work.

I prefer......
http://blog.minotaurcomputing.com/mp/wp-content/uploads/2007/04/tinfoil-hat.jpg

[OklahomaRed]

I have a 25 year investment window. It's not fun seeing these paper losses, but I'm in for the long haul so I'm not worrying.


I agree, and I still have about a 15 - 20 year investment window (deppending on how well my investments do), but it's not "paper losses". It's actual money that I could have taken (yes, I would have paid taxes on it and the company would not have matched 0.50 on the 1.00 on the first 6% - & yes, some companies probably have better or worse investment opportunities - I guess we could all go to work for the government), BUT I also could have taken the money and purchased land, a rent house, a lake house, a snow cone stand, or something else that may or may not have made me money. :pop:

[slickdawg]

I'm in a training class this week, I keep telling the instructor the dow is down xxx points, he's about to lose it.

[Petro-Sooner]

My 401K is about to start in October. Now I'm not investment savey at all. I lick rocks for a living. :texan: Someone explain this to me. I thought that I put money into this thing, the company matches X % of my salary. In 35 years or so when I retire I thought everything that had accumulated would be there to live on. About like a savings account. Am I wrong?

[OklahomaTuba]

401K's are about as profitable as just putting it under the matress. :texan:

You're saying I could get 18% ROI under my matress as well???

Damn, never knew that!

Now if I could just find that definition for compound interest.

:rolleyes:

[OklahomaTuba]

On the upside, the weak dollar is helping to narrow the trade deficit. Especially Ag exports. So that's good for me anyway.

Very good for me as well. Our factories are humming like crazy right now. Booked solid for the next 2 years.

We can't build stuff fast enough. And we can't hire people to build stuff fast enough either.

[FaninAma]

You need to look at the fundamentals of this market before you give the advice to hold, grin and bear it.

The USD is weak. Right now it is supported by foreign governaments purchasing our instruments of debt(bonds and other treasury instruments) That is unsustainable and eventually nobody will want our debt. The huge tidal wave of US consumerism has been fueled by cheap(and apparently risky) credit schemes. This free flow of credit has come to a screaching halt. So what is left to restart this economy and market? Our manufacturing base? Sorry, but that is now in China.

The only the Fed and government can do to keep this ponzi, credit scheme going is reinflate like Linda Lovelace on speed. And guess what happens then? Inflation and a much lower USD. Which would help exports if we had any manufacturing base. But we don't.

The problem with this economy is that it has no guts. It's an empty shell that gave the appearance of prosperity based on credit and consumer debt and that credit is now gone and the US consumer is tapped out.

To assume this market will keep performing like it has over the last 2 decades is, IMO, very naive. And the criticism of those who seem worried over the performance of their 401K's is very uninformed.

The smart money is out of the market. They got out by July. Only thye suckers are left holding the bag and the toxic waste they repackaged and resold in the mortgage market. And the dumb money includes Wall Street, especially the hedge fund managers.

[FaninAma]

Very good for me as well. Our factories are humming like crazy right now. Booked solid for the next 2 years.

We can't build stuff fast enough. And we can't hire people to build stuff fast enough either.

What do you build? A downturning economy sometimes causes people to cancel purchase plans. Don't assume just because everything is hunky-dory right now that your company is immune form a downturn in the economy. And to ridicule people because they're frustrated the equity markets(and thus their retirement accounts) have dropped 12% in a little over 2 weeks is assinine.

[OklahomaTuba]

The problem with this economy is that it has no guts. It's an empty sheel that gave the appearnce of prosperity based on credit and that credit is now gone.

When hasn't the US economy been based on this????

Demand is up for US goods. That's a pretty damn important fundamental you seem to be ignoring.

[OklahomaTuba]

What do you build? A downturning economy sometimes causes people to cancel purchase plans. Don't assume just because everything is hunky-dory right now that your company is immune form a downturn in the economy. And to ridicule people because they're frustrated the equity markets(and thus their retirement accounts) have dropped 12% in a little over 2 weeks is assinine.

Very large capital equipment.

And yes, some orders my get canceled, but i'm not going to start suggesting we laying people off and shutting down machines because of some short-term hysteria and paranoia.

And if someone can't handle the occasional correction in the markets in their retirement account, they simply aren't investing for retirement correctly.

[1stTimeCaller]

until then, put on a helmet, put your head down, and go to work.


you sound like an exgirlfriend of mine.


Petro, put your 15% of you salary into the 401k your company offers. IIRC, they match 100% of your contributions up to 15% of your salary. You have one of the best 401k plans in America. That's unheard of outside of the hydrocarbon business.

All you gotta do is determine which 401k plan to have your money in. Talk to someone in HR if you need help. Or ask your Senior Treasury Analyst or whatever Alicia J's title is. She is blonde, has big boobs, is very pretty and is a good friend of mine.

[OklahomaTuba]

Link?

[FaninAma]

Very large capital equipment.

And yes, some orders my get canceled, but i'm not going to start suggesting we laying people off and shutting down machines because of some short-term hysteria and paranoia.

And if someone can't handle the occasional correction in the markets in their retirement account, they simply aren't investing for retirement correctly.

Your assumng that this is just a run-of-the-mill correction. And where did the conventional wisdom come from that it's always best to just buy and hold?

Don't look now but there are trillions of dollars in leveraged derivatives floating around this market. Is it likely that the whole mess will unwind right now? Hopefully not. Is it posible that it will if we start seeing the big banking and investment firms going belly up and they get squeezed in a credit crunch/margin call? Maybe.

My main point is that it's time for investors to educate themselves about this economy and the crap that the Fed, the US government and other Central Banks/Europena countries have been allowing the unethical financial industry to get away with.

Oh, BTW the fed just infused another 17 Billion in short term repos and the market just laughed and kept going down.

[JohnnyMack]

Gold, at least the physical, is holding up fairly well. The mining equities are getting hammered but I think they have seen their bottom today.

It's off $20 or about 3%.

[Beef]

The smart money is out of the market. They got out by July. Only thye suckers are left holding the bag and the toxic waste they repackaged and resold in the mortgage market. And the dumb money includes Wall Street, especially the hedge fund managers.
I guess I'm missing where my portfolio being up 10% from one year ago and collecting and reinvesting dividends is such a bad thing.

[FaninAma]

It's off $20 or about 3%.

But it is down less than the market over the last 2 weeks and it has gone up many times more than the market since 2001.

And I'm not saying that precious metals are a good place to be right now.

I don't know where a good place to be is. I think US treasury bonds(not corporate) are as good as any in the short term.

If the Fed decides they are going to rpint their way out of a recession or deflationary period then commodities(including gold) would not be a bad place to have some exposure.

[FaninAma]

I guess I'm missing where my portfolio being up 10% from one year ago and collecting and reinvesting dividends is such a bad thing.

It's not a bad thing but how far would you be up if you had gotten out, oh say, when the market lost 5%? How long will you hold in the current market? What is your tolerance for loss?

[FaninAma]

When hasn't the US economy been based on this????

Demand is up for US goods. That's a pretty damn important fundamental you seem to be ignoring.

Compared to what....last year? What's the US' trade deficit? Last I read it was down form 60-70 billion(with a b) per month to 50-60billion permonth. Wowie! That's quite a track record to be proud of and really a reason to be optimistic!:rolleyes: And I suspect most of the decrease has been due to export of commodities and agricultural products....not manufacturing products.

That's my whole point. There's not enough of a manufacturing industry base remaining in this country to take advantage of a lower USD. The USD has dropped about 40% since it's high under Clinton and our deficits are not much smaller.

The only thing a depreciating USD will do now is hurt the purchasing power of the American consumer and help us farmers and ranchers.

[Hamhock]

somebody tell me when it's time to plunge from my office window.

[yermom]

i'd say 5ish

then you can take out some more people ;)

[FaninAma]

somebody tell me when it's time to plunge from my office window.

What yermom said. Wait until there are some lawyer types or people wearing burnt orange below you.

Really no need to get depressed. Just realize that it might be tough sledding for awhile and to be ready to look at other investment options/strategies.

[OklahomaRed]

My 401K is about to start in October. Now I'm not investment savey at all. I lick rocks for a living. :texan: Someone explain this to me. I thought that I put money into this thing, the company matches X % of my salary. In 35 years or so when I retire I thought everything that had accumulated would be there to live on. About like a savings account. Am I wrong?


Nope. It's more like you are the bank and you are loaning these banks and/or traded companies money to build, buy, or basically do business. Their payment back to you is whatever they are able to turn that money into. Your hope by investing in mutual funds, fortune 500 companies, metal markets, commodity markets, etc. is that they do good business and they are able to pay you your money back and then some. If you put your money in a money market (as I have a % of mine) then they pay you their current interest rate (which fluctuates) of 4 - 5%. You are betting that the stock market will perform better. What FaninAma is warning everyone about is that INSIDERS will start bailing out of the market when they see they are going to lose substantial dollars. This leaves the rest of us "let's wait 10 - 20 year" type investors holding the bag as they take their profits from their last round of short term investments, or even long term investments on their part. What always angers me is that (no matter what laws they pass to prevent Hillary Clinton type insider trading) ONLY the insiders get out fast enough to make money. Also, the way the 401K laws are set up, if you try to get out ahead of time before you take a bath, take your cash, and then reinvest in safer type commidties or even do a CD or money market while the market adjusts, you are penalized, unless your a certain age, etc. My point on stating that the market is mainly for the rich to keep getting richer and the little guy to assist them and they may decide to let you ride along, but only so far and then they will kick you to the curb if the markets get ugly because they have made bad investments or speculated with YOUR money. :rolleyes:

[Beef]

It's not a bad thing but how far would you be up if you had gotten out, oh say, when the market lost 5%? How long will you hold in the current market? What is your tolerance for loss?
I have a pretty high tolerance for risk. I haven't "lost" anything other than opportunities in other volatile markets since I haven't sold anything. After paying taxes and fees, the gains and expense to reinvest wouldn't be worth it to me. This is obviously a "to each his own" cliche statement time. I'm just in the market for the long term.

[OklahomaRed]

I understand the other side of the coin by looking at 5 year, 10 year, and 20 year histories of typical "small fry" investing. For the most part you are going to get better percentages in your 401K versus putting that money in the bank, or under the matress; however, it is still the rich that are moving the market, and effecting the market while speculating with your money that you basically loaned them. Tough call. I guess even under the matress, if the world economy gets bad enough, your money isn't going to be worth crap anyway. Thus the idea to purchase metals, land, real estate, or something that has tangible value. I guess if things were really really bad, then food (commodities) would be your best investment. It's legalized gambling. :D

[Beef]

I never saw "under my mattress" as an option to invest in my 401k. :mad: :P

Then at least my mattress would be getting some worthwhile action.

[OklahomaRed]

I never saw "under my mattress" as an option to invest in my 401k. :mad: :P

Then at least my mattress would be getting some worthwhile action.

Heh! :P Made me snicker.

Believe it or not, that's the way my grandpa invested. Old railroad worker who bought rent houses and stuck every dollar he made in an old railroad safe. There was some serious money in there when he died. I guess he avoided taxes on the cash and carry rent, which was something. You don't know how many times we've said, "Dang, if Grandpa would have just put that money in Coca-Cola or Wal-Mart, or something; we'd all be rich!" :D

[FaninAma]

I have a pretty high tolerance for risk. I haven't "lost" anything other than opportunities in other volatile markets since I haven't sold anything. After paying taxes and fees, the gains and expense to reinvest wouldn't be worth it to me. This is obviously a "to each his own" cliche statement time. I'm just in the market for the long term.

That's a fallacy. You have lost value in your investment compared to being in cash during this drop. I understand the sentiment of losing money through fees, etc but lets just suppose this is not the average correction. What if this is a deepening, collapsing morass of credit shortages resulting in a deep, deep fall in equity markets(20 % or more is the definition of a bear market). How long will you ride the missle down yelling, whooping and waving your cowboy hat like Slim Pickens did in Dr. Strangelove?

Not to worry though. The way the market rallied from 300 down in the last half hour tells me Mr. Benarke, the Fed chairman, will soon announce a Fed rate cut and all will be well with the world.

[Tear Down This Wall]

http://artfiles.art.com/images/-/Lynda-Carter---Wonder-Woman-Photograph-C10101726.jpeg

Obligatory Wonder Woman post

[jeremy885]

My Company's stock price chart would make for a good rollcoaster design :eek:

http://chart.finance.yahoo.com/c/1y/b/becn

[Tear Down This Wall]

http://www.elisteincartoons.com/wp-content/uploads/2007/07/mgmtacctg0205.JPG

[JohnnyMack]

Stocks rally. Only down 15 points. Put the tin foil hats up for now.

[Chuck Bao]

I’ve been through way too many stock market crashes to actually remember most of them and one major economic crash that I’ll will never forget.

A liquidity crisis is silly. There is way, way too much money floating around the world for a liquidity crisis. When you pay that high price at the pump, that money you pay is going somewhere. Petro dollars are huge.

Unwinding carry trade also seems silly to me. I still have trouble believing that somebody actually borrowed in yen and invested in dollars. My disbelief is that it’s not new money created from the transaction. Maybe I’m terribly mistaken but I still think that most of that is foreign currency earnings and the result of large trade surpluses.

If that’s the case, exactly where will this carry trade money go? Asia doesn’t want it. Everyone wants a cheap currency. Diverting those funds into another bubble credit market in Asia isn’t smart and Asian central banks are fighting against it. Korea followed Thailand in basically trying to get rid of unwanted foreign fund inflows.

This is a confidence crisis. It’s not so much what a particular financial institution invests in a particular form of assets, it’s what their counterparties invest in assets and their counterparties’ counterparties. The whole issue is now about how long it will take to determine the extent of the damage and who exactly will be credit risks. If the next adjustment for ARM is next year, it may take time, as most of the holders of mortgage-backed securities won’t dump their securities in the market, rightly so, and take the immediate loss. I think that this prolonged uncertainty is one of the major reasons that the market is spooked so much.

Hedge funds are evil. They skirt the regulatory environment and their move outside their original hedging and locking in short-term profits is part of their downfall. The major reason, though, is their lack of discipline. In fact, mass herd instinct is leading more to volatility rather than improving market efficiency.

Markets always try to find an equilibrium, although it always overshoots. Lack of transparency is the key issue.

The US market is too important for the rest of the world to let collapse. Besides, the US currency is still the major global currency.

Asian stock markets are getting hammered much more than the US.

Smart people make the silliest mistakes.

I am terribly ashamed that my last market strategy report in mid-July and my buy recommendation. I should be fired.

[FaninAma]

A liquidity crisis is silly. There is way, way too much money floating around the world for a liquidity crisis. When you pay that high price at the pump, that money you pay is going somewhere. Petro dollars are huge

It's not silly. What is silly is not understanding that all of the liquidity was built on the backs of leveraged mortgages, consumer debt and government borrowing. In other words it's all paper liquidity based on debt. Oil and other commodities have gone up in price due to all of this artificially created liquidity(ie debt). It's called inflation.

The problem is that to continue this type of liquidity borrowers have to be able to roll-over the debt, they have to keep finding others to take the debt off their hands. That's what happened with the hedge funds. They leveraged the debt they purchased(ie borrowed against the poor risk mortgages) and now nobody wants to buy or take the mortgages off their hand and the people who sold them assets based on the borrowed money are demanding payment but there is nothing the hedge funds can use to pay their obligations. This is the basis of leveraged stock purchases.

So now the hedge funds are selling stocks to come up with money to try and pay their debts. If the exposure of the major investment firms is limited then the crisis will blow over. If it is as large as some seem to think then we've only just started to see the panic and sell-off. And as the credit crunch gets passed back up the line to all the firms with exposure to the leveraged toxic mortgages these firms will also sell assets(stocks, etc) to raise capital and improve liquidity. So the shock waves may be small or they may be large and may be reverberating through the investment community and economy for a long time.

The bottom line is that you cannot create prosperity from massive debt accumulation. At some point the debt pyramid collapses as do all ponzi schemes. The Fed, the US government, the housing industry and the greedy hedge fund managers have been trying to do just that.

Make no mistake about it, there is a liquidity crisis due to overleveraging byWall Street and consumer debt fatigue. I do fully expect the FED to step in and provide more cheap money so the exposed firms can borrow their way out of trouble.

[Chuck Bao]

It's not silly. What is silly is not understanding that all of the liquidity was built on the backs of leveraged mortgages, consumer debt and government borrowing. In other words it's all paper liquidity based on debt. Oil and other commodities have gone up in price due to all of this artificially created liquidity(ie debt). It's called inflation.

The problem is that to continue this type of liquidity borrowers have to be able to roll-over the debt, they have to keep finding others to take the debt off their hands. That's what happened with the hedge funds. They leveraged the debt they purchased(ie borrowed against the poor risk mortgages) and now nobody wants to buy or take the mortgages off their hand and the people who sold them assets based on the borrowed money are demanding payment but there is nothing the hedge funds can use to pay their obligations. This is the basis of leveraged stock purchases.

So now the hedge funds are selling stocks to come up with money to try and pay their debts. If the exposure of the major investment firms is limited then the crisis will blow over. If it is as large as some seem to think then we've only just started to see the panic and sell-off. And as the credit crunch gets passed back up the line to ll the frims with exposure to the leveraged toxic mortgages these firms will also sell assets(stocks, etc) to raise capital and improve liquidity. So the shock waves nay be small or they may be large and may be reverberating through the investment community and economy for a long time.

The bottom line is that you cannot create properity from massive debt accumulation. At some point the debt pyramid collapses as do all ponzi schemes. The Fed, the US governement, the housing industry and the greedy hedge fund managers have been trying to do just that.

Make no mistake about it, there is a liquidity crisis due to overleveraging byWall Street and consumer debt fatigue. I do fully expect the FED to step in and provide more cheap money so the exposed firms can borrow their way out of trouble.

With all due respect, I disagree. The affordability of servicing that consumer or mortgage debt is based on interest rates and the overall economic conditions. The consensus in the market is that US interest rates will be cut to perserve US economic growth and stability with the system.

Lower interest rates will result in a further decline in the US dollar and that is not bad news, except for inflation. As most internationally traded goods are still priced in US dollars, it will take time for this inflation to be gradually factored in.

There is still like a ****load of money floating around the world looking for the best possible place for a return.

They were having fights on CNBC about whether the fed already had a "synthetic policy rate cut". In my opinion, that's just symtomatic of the flight to quality and the money in the system. It will take time for the market to adjust to the new risk and return ratios and real money to float down to segments that will have bear much higher risks under the new scenario.

In fact, the credit rating agencies should be ashamed of themselves for being so late. What good are they anyway?

I don't see it as a house of cards, at all. It's still going to be a very rough patch and many people are going to be hurt.

This is still small peanuts to the Asian economic crisis. In that mess, 60% of corporate loans went bad in Thailand. The entire wealth of a country of 60 million were wiped out after US-based hedge funds attacked the currency. At that time, they said that Thailand deserved it for allowing a bubble economy to form and for lack of transparency.

Oddly enough, the shoe is on the other foot now. And, the baht is strengthening back to Bt33/$, not really that far off of the pre-97 crisis level of Bt25/$. Who knows? It may go back to that level.

Asia is developing its own consumer markets and is increasingly becoming much less reliant on the US. Maybe that's part of the unwinding of the carry trade.

I don't want to disagree with you and I think it's useful to mention the clear warning signs to US investors.

[FaninAma]

Chuck,

I don't think we disagree that much. I think think the liquidity crisis is a short term occurence. I do disagree in your assessment of how much exposure the rest of Wall Street has.

The world is awash in dollars. If the Fed lowers the interest rate it will lower the the value of the dollar. Again, our opinions diverge here on what happens as the USD falls through it's current support level of 80. I think the price of commodities go through the roof, foreign investors dump our debt instruments(ie US Treasury Bonds) and the US consumer , who is already showingsigns of fatigue, will have to pay much more on their weekend shopping sprees to Wal Mart. Farm and ranch products will do well and they are still one of the few things the US has to export(beside technology and finacial services) so agricultural based businesses will do well.

Retailers will do poorly but the financial segment will probably bounce back......if the sub-prime fallout is limited. Real estate and the housing industry are going to suuuuuck for a long time.

If there is a huge collapse of debt in the financials then you can throw everything out of the window. Personally I am betting on the reinflation/lower dollar scenario. An all out deflationary scenario is good for no one.

[Chuck Bao]

I totally agree with you there, FaninAma. But my question, again, is where is all that money going to go?

Asia doesn't want it. Central banks in Asia can adopt some very draconian measures to keep it out, as Thailand has done since December last year and Korea is doing now.

I've been arguing for drastic interest rate cuts in Thailand for almost a year now to stop the inflows and currency from appreciating. So far this year, the Bank of Thailand has cut its repo rate by 175bps and that's still not enough.

The currency markets will find eventually find an equilibrium. The markets may overshoot and the side effects may be very damaging to the local and the global economies. That could take some of the pricing pressure off commodity prices. It's really tough to call, at this point.

[Hamhock]

if i had the time, energy, or care, I'd dig up a chart that shows how trying to time the market can hurt you.

it is a graph that shows the vast difference in long term accumulation if you miss just the top dozen or so big day gains in the market.

[Petro-Sooner]

. Petro dollars are huge.

Thats not the only thing. :texan: :cool: :eek: :twinkies:

[royalfan5]

Big Rally this morning after the Fed cut the discount rate 50 points.

[TopDaugIn2000]

what does that mean?

[royalfan5]

what does that mean?
If means cheaper money for banks borrowing directly from the Fed.

[FaninAma]

Not to worry though. The way the market rallied from 300 down in the last half hour tells me Mr. Benarke, the Fed chairman, will soon announce a Fed rate cut and all will be well with the world.

Uncle Ben comes to the rescue like we all knew he would. I don't think this 50 basis point cut is going to work. I think there will be several to follow thus allowing Benarke to live up to his nickname of "Helicopter" Ben....a name he earned when he said the Fed would drop baskets of dollars from a helicopter to insure liquidity.
http://www.fallstreet.com/aug1707w.php

The timing of this cut is a bit alarming, IMO. It shows signs of fear and panic on the Fed's part. How much do they know about the credit mess and hedge fund cesspool that we don't?

My point in this discussion is not to encourage investors to be market timers but to look at all investment options including commodities and to be aware of the fundamentals driving the market. I guarantee you would notice the price of gas increasing 20 %. Why would you ignore an oncoming market crisis that would cause your retirement count to decrease by 20%? Stay informed.

[FaninAma]

I just saw that the Japanese market was down over 800 points last night:eek: . The Fed had no other options but to lower the rate. The problem is that they will have to lower again and again. The dollar will crash through support at 80 and it will be an interesting world in investing.

The question is, what will the plunging USD do for equities? IMO it will be great for commodities and ag products. It will be bad for retailers. It is neutral for the financials because, although it saves them temporarily in the sub-prime mess, it doesn't clear the cloud completely.

In the meantime, look for Ben and the rest of the Fed to be visiting your neighborhood in the near future dropping wads of cash from low flying aircraft. :D

[JohnnyMack]

In the meantime, look for Ben and the rest of the Fed to be visiting your neighborhood in the near future dropping wads of cash from low flying aircraft. :D

Thank God! I just got the good faith estimate on the house I'm building and I can use all the help I can get.

[FaninAma]

The Dow dropping after a Fed cut would be a very bad sign.

[royalfan5]

The Dow dropping after a Fed cut would be a very bad sign.
Well the rally has certainly backed off. It could go negative by the end of the day at this rate.

[JohnnyMack]

The Dow dropping after a Fed cut would be a very bad sign.

It's up 107 at this point.

[royalfan5]

It's up 107 at this point.
It was up 300 two hours ago.

[FaninAma]

It's up 107 at this point.

The day ain't over. If there still weren't a lot of the big investors looking to get out today the DJIA shoud be up 400, minimum.

And the all-imortant yen/USD ratio still stands below the important support level of 114. The Yen carry trade is as big of a part of the hedge fund collapse as is the subprime fiasco. I think the hedge funds that speculate in currency trades that exploit inherrent in equalities of the value of the currencies of different nations are called Quant funds. And as the Yen continues to improve in value these funds are also getting hammered which will lead to more selling to cover losses.

Again, how far does this mess reverberate back up the leverage/derivative pyramid? How much will the Fed have to lower to stop the implosion? It will be a fascinating 6 months watching the Fed try to wiggle their way out of the mess they created under Greenspan.

[JohnnyMack]

I think you should all just shut up until I close on my house. You've got some bad vibes kickin' in this thread and I don't care for it. I need positive thoughts here.

[yermom]

so you are chomping at the bit to get locked into an inflated price and a higher interest rate? ;)

now if you were in the process of selling...

[JohnnyMack]

I know. Soon as I lock in the rate'll go down half a point.

I hate you.

[OUinFLA]

I know. Soon as I lock in the rate'll go down half a point.

I hate you.

Don't invite him to your house warming.




like you're gonna have any money left to throw a party

[JohnnyMack]

Don't invite him to your house warming.




like you're gonna have any money left to throw a party

We're scheduled to move in the morning of the 1st. My party will be watching OU/UNT that night.

[1stTimeCaller]

can I have a key?

[colleyvillesooner]

dibs!

[JohnnyMack]

can I have a key?

Yes. I'll be mailing you a garage door opener and some keys.

[colleyvillesooner]

+161.36

[Ike]

So the sky is still standing?

[colleyvillesooner]

for now....

[FaninAma]

I think you should all just shut up until I close on my house. You've got some bad vibes kickin' in this thread and I don't care for it. I need positive thoughts here.

I assume you got a fixed rate.

It appears that some former home owners are just starting to realize how bad it can get:

Two years ago, William Stout lost his home in Allentown, Pa., to foreclosure when he could no longer make the payments on his $106,000 mortgage. Wells Fargo offered the two-bedroom house for sale on the courthouse steps. No bidders came forward. So Wells Fargo bought it for $1, county records show.

... Mr. Stout was relieved that his debt was wiped clean ...

But on July 9, they received a bill from the Internal Revenue Service for $34,603 in back taxes. The letter explained that the debt canceled by Wells Fargo upon foreclosure was subject to income taxes, as well as penalties and late fees. ...
...
Notices of unpaid taxes, unanticipated and little understood, will probably multiply as more people fall behind on their mortgages, said Ellen Harnick, senior policy counsel at the Center for Responsible Lending, a nonpartisan research and policy center in Durham, N.C.

Foreclosure is one way that beleaguered homeowners can fall into this tax trap. The other is when homeowners are forced to sell their homes for less than the value of the mortgage. If the lender forgives that difference, they are liable for income taxes on that amount.

The 1099 shortfall, as it is called, stems from an Internal Revenue Service policy that treats forgiven debt of all types as income even if the taxpayer has nothing tangible to show for it.

One other observation for Chuck B. What you are calling liquidity is, in a lot of cases, just instruments of debt that have assumed the same function as legal tender. Thus, there is a lot of "liquidity" out in the markets but a great percentage of it is instruments of debt that are being used as liquidity. The problem with this is if value of the debt(such as CDOs) suddenly changes you have a liquidity crisis on your hands.

I think that's what is happening now is that all instruments of debt are being revalued. If the new valuation comes in far below the original valuation then there will be a series of liquidity crisis as the different tiers of debt are reevaluated.

CDO's(sub-prime) based bonds go lower leading prime mortgage based bonds to be valued lower leading to AAA corporate bonds being valued lower and the cycle reaches all the way to the top meaning eventually US treasury bonds and the USD being valued lower. What this causes is less willingness of firms to buy or use this debt as payment or collateral while the revalued debt(bonds) will be required to pay higher and higher interest rates to attract buyers. Not a good scenario, IMO.

[JohnnyMack]

I assume you got a fixed rate.


I'm paying cash.

[FaninAma]

I'm paying cash.

Dude! You're my hero.

[JohnnyMack]

Dude! You're my hero.

Heh.

It's a good old fashioned 30 year note with a fixed rate. Nuthin' special.

[Chuck Bao]

Not much of a Blood Bath, yet.

It scares me how much liquidity is in the global system, how this is adding to volatility and setting up what I'm sure will be a huge boom and then equally huge bust in global equity markets.

Asian markets will be all like crazy tomorrow and I know I should be happy. It's just so hard calling markets these days.

[OCUDad]

It's just so hard calling markets these days.Oh, I don't know about that. FaninAma is doing a great job so far.