Black Monday v 3.0 Today

[Slava]

As far as the US bringing down the whole world let me try to explain how some of this has happened:

A) The subprime mortgage issue. Basically the US lenders gave out mortgages very easily. Other countries do not lend their money this easily. Financial institutions around the globe bought up these securities. The idea is that these are asset-backed and secure. Some people around these parts also think that real-estate is foolproof..after all you just sell the property if you want the money, right!

B) With less people working and less people able to afford their mortgages, there are more defaults. This is why there are a lot of foreclosures and defaults. Because so many institutions bought so many of these mortgages the damage spreads.

C) Lending tightened up in the US, which causes less people in the US spending. When people are spending less demand ceases, and even the growth in Asia is not enough to off-set this loss of demand. With the world as globalized as it is, the ramifications spread quickly. This loss of demand is why the insulation of the oil and gas is precarious for Alberta and Canada....its still possible that we weather the storm well, but with the loss of demand its tough.

D) One of the reasons for a lot of quality stocks to be falling right now is also of note. With the banks and financial institutions having to search for liquidity (specifically through the summer and fall) they could not move their asset-backed holdings....the value was literally zero. In order to get some cash investors had to sell off good stocks. This is why companies like Manulife and Canadian Tire announced huge profits one week and then saw stock prices drop the next.

[Wookie]

Originally Posted by Slava

D) One of the reasons for a lot of quality stocks to be falling right now is also of note. With the banks and financial institutions having to search for liquidity (specifically through the summer and fall) they could not move their asset-backed holdings....the value was literally zero. In order to get some cash investors had to sell off good stocks. This is why companies like Manulife and Canadian Tire announced huge profits one week and then saw stock prices drop the next.

That's one I'm looking at buying a bunch of too!

[flylock shox]

As someone with no money, and no investments to speak of, I'm just enjoying the show. Can't wait to see what happens tomorrow. My guess: rich folks get richer (or acquire more assets anyway), po' folk get po'er.

[Regorium]

Well, futures were down over 5% until the Feds cut the interest rate.

Even then futures are down 2% in the Dow and 3% in Nasdaq. My tech stocks (all of which continually beat earnings) have been getting killed. Frustrating for me, as everyone always tells me to pick quality companies, and even when they beat, I'm losing money on them.

What are people's advice on doubling down on quality stocks? For example, Apple or RIMM have both beaten expectations with huge growth (caveat: I don't own either), but both have lost 20-25% of their value. Intel is another that's lost something like 30% of its value in the last 5 days, even though their profits were better than last year... Is it time to start bargain hunting yet?

[Flames89]

Intel looks good at anything below $19

[burn_this_city]

Whats everyone's thoughts on Bernanke slashing interests rates again??

[Cowperson]

Originally Posted by RougeUnderoos

Well you're in good company, because I don't think anyone actually knows how it all works.

It works on the basic principle of "fear and greed."

It's really beautiful man. Except the part where you periodically get killed.

There are times when it gets overbaked on both sides of that equation. In the end, it all makes sense.

I would also agree with the observation that the last month has been a "professional panic," with the common investor not really involved to any great extent . . . . those can be very short-lived. I think it was in 1999 the market fell 26% or so between July and the end of September and was back level again by December.

The USA is a mammoth presence in the global economy, in spite of the creation of "the consumptive habits of 600 million new Americans" in the last decade as a result of globalization, the description of a New York Times economist recently.

I'm not sure why anyone would think the USA doesn't matter. That's gradually changing but it's far from being a faded presence.

The big elephant in the room that could make everyone permanently poorer is the largely unknown size of derivative debt around the globe. A cave-in there could make the great depression look like a picnic. And so you should wonder why the professionals are panicking.

We should have a pool on whether or not the market finishes on the plus side today.

Have another nice day!!!

Cowperson

[return to the red]

Originally Posted by fotze

Weird, the stock I'm tracking isn't looking to bad at all. Still early though.

Canadian stocks? I've been tracking mine today and regained about half of what they were down yesterday

[Top Shelf]

Yeah, the Dow has rallied after the rate-cut, now only down 106 points on the day. Scary to think what might have been if the Fed didn't slash .75

Also, the TSX looks like it is rallying pretty nicely as well, back up 448 points on the day.

Can you say roller coaster? It will be interesting to see how the rest of the day and the week play out

[I-Hate-Hulse]

Some Energy Trusts are looking decent now - with the slide in prices, some of these are yielding 7% - 9% now in distributions. Pick a good one and it might be a good place to park some cash.

[Canada 02]

Originally Posted by burn_this_city

Whats everyone's thoughts on Bernanke slashing interests rates again??

band aid on a bullet hole

the biggest problem on this side of the 49th is the housing market. Todays rate cut on short term treasuries will have no impact on long term mortgage rates, which are dictated by the long bond which in turn is dependent on the state of the economy, which clearly sucks right now

todays rate cut may have some effect on ARM's, but the market had already priced in a 50 basis point cut, so the extra quarter point will have a little but not significant impact. Really, if you can't afford a 8.5% ARM, will you be able to afford a 8.25% ARM if you previous rate was 4.5%?

[chummer]

Another problem is the US failing to take on their debt,it increases at 1.4 billion a day.

[Flames89]

I say it is welcome news, neccesary, helpful, but not a cure.

In regards to how the interest rate changes would help, I will post what I put int he Recession thread:


They drop the interest rate in an attempt to increase aggregate demand (increase consumer spending b/c people pay less interest and feel wealthier, business investment as businesses can increase leverage, exports via a lower dollar). This is a tool to manage an economy and stop it from slowing down to the point where it becomes negative (recession).

The one thing that is scaring everybody though is that it can result in inflation, as essentially there will be more money chasing the same number of products out there - which leads to higher prices. This fear is brought up by those that say we are in inflationary times already if we look at the price of oil and food.

In this regard, I think this inflation metric is now skewed in this day and age, as oil is not a commodity and since food has been used for energy, we are changing the inherent "use" of the product for which inflation was derived.

So good for the cut. It is needed and is a basic tool.


Heck, I think most of this recent crash was started because of good ol' George W. Bush thinking he can play the Fed and fix things. When he stated that their government would change their fiscal policy, the rest of the world showed how much faith they have in him by dumping. Essentially saying that "if that lunkhead thinks there may actually be a problem in America, then f-it, we are out of here cause that means 1) it is actually really bad and 2) we have no faith in his ability to help."

The Fed though is respected and by putting this through quickly they show they are nimble enough to respond to any "emergencies".


Essentially the cut just helps create a floor, and reassures investors. It softens the landing, and positions the economy for a recovery - though recession could still occur these monetary tools (Keynsian, no?) are there to help, not to be a cure.

Is this a panic move? No. Everyone knew already that the Fed was going to cut .5% next week. So this was already priced in. About 25% of investors thought that the movement was going to be .75%.

They moved quicker and sooner, but inline with their statements and market expectations - so I don't see it as "drastic". Hell, if George didn't open his untrustworthy yap last week the Fed may have been able to wait until their meeting next week.


This is a normal economic cycle. While shtty it is still a fact. Like the tech boom, when things go very well and there is lots of money people become lazy ans stupid. In that case, we had REDICULOUS companies getting IPO'ed and people buying shares. In this case, we have people receiving REDICULOUS mortgages, and general lending out of control to continue the wild ride.

It will take time to correct, and the only way to do so is to continue spur on the ol'bear of an economy until it can start jogging as quick as a bull. Fortunately, the Fed still has room to move/tools-in-their-kit.

[Slava]

The markets are really interesting at this point. I like to see the recovery...but honestly things are still downhill from here. The US economy has not magically healed this weekend.

[Cowperson]

Originally Posted by Slava

The markets are really interesting at this point. I like to see the recovery...but honestly things are still downhill from here. The US economy has not magically healed this weekend.

.. . . . or there may be nothing much wrong with it in the first place, or nothing as serious as the market is pricing in.

It's almost like we're talking ourselves into a recession. You keep repeating it enough maybe it'll happen.

Markets also typically rise at what might seem to be the worst moment, anticipating better times ahead.

It's a leading indicator, not necessarily a representation of today or yesterday, but rather the anticipation of what makes sense six months into the future.

I should get a (booby) prize for posting 10 minutes before the market open the heretical notion that we'd finish positive on the day.

Still a few hours to go though . . . .

As this appears to be a professional panic, however, I would expect the pro's to throw some more bodies out the windows in New York, maybe later today but more probably in a few days. They like to let things come off the matt and get you all comfy before they drill you again.

Cowperson

[RougeUnderoos]

Originally Posted by Cowperson

It's almost like we're talking ourselves into a recession. You keep repeating it enough maybe it'll happen.

In one article I read today (on BBC I think, I can't find the quote) some bigwig from Oppenheimer Funds said "this will be the worst post-war recession".

If I wasn't a few rungs below a "rank amateur" when it comes to this stuff, I might think the guy is either trying to make everyone else panic so he can make money off it or he's trying to cover his own ass.

EDIT: it's in here...
http://www.bi-me.com/main.php?id=16683&t=1&c=33&cg=4

Unfortunately they have no power to reverse what in my opinion is the worst post-war recession," said Michael Metz, chief investment strategist at Oppenheimer in New York.

[Cowperson]

Originally Posted by RougeUnderoos

In one article I read today (on BBC I think, I can't find the quote) some bigwig from Oppenheimer Funds said "this will be the worst post-war recession".

If I wasn't a few rungs below a "rank amateur" when it comes to this stuff, I might think the guy is either trying to make everyone else panic so he can make money off it or he's trying to cover his own ass.

EDIT: it's in here...
http://www.bi-me.com/main.php?id=16683&t=1&c=33&cg=4

Unfortunately they have no power to reverse what in my opinion is the worst post-war recession," said Michael Metz, chief investment strategist at Oppenheimer in New York.

It's just a sad fact of life that at any point in a market, you can find an expert thumping the table on one extreme and another guy thumping the table in favour of the other.

Coincidinkly, I happen to remember Michael Metz and confirmed my suspicions with a little googling. A paragraph on his history:

If you don't know Mr. Metz he was a regular on the TV circuit in the mid 1990's sounding the alarm that equities were overvalued. That may or may not have been true but the S+P 500 doubled in his face and he disappeared from the air waves. I thought he lost his job, but I was wrong and he surfaced again in the last couple of years to bring his dour message to new market participants.

http://randomroger.blogspot.com/2004...hael-metz.html

That was written in 2004 and the market is a lot higher today than it was in 2004.

Hey, maybe he finally hits the bullseye. Finally.

Cowperson

[Slava]

^ I do see your point here Cowperson...its the old self-fulfilling prophecy to some extent. But when you look at the economic indicators over the past two months there are some hard to ignore points there. I can't say that a recession must be the outcome here and I note that for sure.

That being said though; if the US doesn't have a recession it doesn't mean that they will have a fantastic economic year here...it means that they will only suffer less. This is not that heart-warming either!

[RougeUnderoos]

I just flipped on BBC news and the guy said "the Dow closed about 1% down today".

I really don't know what it means, but it doesn't sound all that bad.

[Cowperson]

Originally Posted by RougeUnderoos

I just flipped on BBC news and the guy said "the Dow closed about 1% down today".

I really don't know what it means, but it doesn't sound all that bad.

As far as these things go, this whole thing hasn't been "that bad," not compared to prior events.

A lot of wailing and headlines, but net . . . . negative 15.7% right now on the Dow and negative 16.9% on the S &P.

TSE was up 4.2% today. Now negative roughly 13% from the October high.

C'mon market!! Is that your best shot!!??? Bring it!! Hahaha . . . cough, cough, hack, hack . . . .

Cowperson