The ongoing financial turmoil and financial discussion thread

[I-Hate-Hulse]

Originally Posted by MoneyGuy

Maybe so, but you should not be buying stocks or funds based on expected one- or two-day movements. Unless you're a day trader, which means you have bigger balls than I do.

That was my point. My value approach to investing is doing fata all in a situation like this other than sphincter flexing... I debated making a move yesterday but just wimped out on fears of a falling knife....

Fortune favors the bold....

[Claeren]

That is funny, I guess I am just more of a bear than you...

Commodities will continue to moderate/drop although I don't mind the Encana pick. It is way too soon to be buying into Canadian Banks unless you are an expert IMO, and Bank of America may well have bitten off more than they can chew and only time will tell I guess. Seems like gambling right now more than value investing?



Claeren.

[Finner]

Originally Posted by Claeren

That is funny, I guess I am just more of a bear than you...

Commodities will continue to moderate/drop although I don't mind the Encana pick. It is way too soon to be buying into Canadian Banks unless you are an expert IMO, and Bank of America may well have bitten off more than they can chew and only time will tell I guess. Seems like gambling right now more than value investing?



Claeren.

Actually I'm a huge bear on the current markets. In fact I hold puts on SPY (The S&P depository receipts). He asked for a long term hold though. Its basically impossible to get the right market timing when buying, so just buy when it seems kinda low, and hold for a few years. He will likely make money.

BAC is a high risk pick, agreed. But if they can weather this storm after getting a steal on Merrill Lynch, they can make a huge dent in market share in both banking and investment. Once this financial crisis is over I could easily see them returning to the 50's, not to mention you are getting an 8% dividend right now. If you are that concerned with risk, buy a 32.50 january 09 put with for every 100 shares and it will at least protect your downside.

With the Canadian banks, i'm not to concerned. I wouldn't buy BMO or CM right now, but TD and BNS seem like safe bets. I actually work for one of these banks. I might wait a few weeks to buy them though. If you can get TD at $55 and BNS at low 40's, you are getting a steal.

Commodities are never a bad bet with a growing global population, and china and india coming along as economic powers.

Anyways Phaneuthier is young, and the younger you are, the riskier you should be.

[Claeren]

Originally Posted by Finner

Actually I'm a huge bear on the current markets. In fact I hold puts on SPY (The S&P depository receipts). He asked for a long term hold though. Its basically impossible to get the right market timing when buying, so just buy when it seems kinda low, and hold for a few years. He will likely make money.

BAC is a high risk pick, agreed. But if they can weather this storm after getting a steal on Merrill Lynch, they can make a huge dent in market share in both banking and investment. Once this financial crisis is over I could easily see them returning to the 50's, not to mention you are getting an 8% dividend right now. If you are that concerned with risk, buy a 32.50 january 09 put with for every 100 shares and it will at least protect your downside.

With the Canadian banks, i'm not to concerned. I wouldn't buy BMO or CM right now, but TD and BNS seem like safe bets. I actually work for one of these banks. I might wait a few weeks to buy them though. If you can get TD at $55 and BNS at low 40's, you are getting a steal.

Commodities are never a bad bet with a growing global population, and china and india coming along as economic powers.

Anyways Phaneuthier is young, and the younger you are, the riskier you should be.

I agree with all of that. You have almost sold me on buying shares in BAC! I didn't realize they had that kind of dividend now (after their recent drop of course). And really the way the US government has been going it is not like they would let them fail now anyways?! haha

The long term prospects on the USD do make me nervous though. Probably more so than many people. I just don't see how they can keep it up in the face of all of this.



Claeren.

[Phanuthier]

Damn ...

[Devils'Advocate]

I haven't read this whole thread yet, so this may be an in-thread fata, but this is really pissing me off:
CEOs getting massive severance packages

These CEOs that lead these financial companies to absolute ruin are getting absolutely astounding severance packages. This 700 billion bailout package should be coming from the estates of those that made the stupid decisions that got the U.S. to point where it is. The average american taxpayer shouldn't be fleeced out of the homes *AND* their tax money so that these CEOs can gourge themselves on caviar for the rest of their lives.

[Nancy]

Originally Posted by Claeren

I agree with all of that. You have almost sold me on buying shares in BAC! I didn't realize they had that kind of dividend now (after their recent drop of course). And really the way the US government has been going it is not like they would let them fail now anyways?! haha

The long term prospects on the USD do make me nervous though. Probably more so than many people. I just don't see how they can keep it up in the face of all of this.



Claeren.

I concur. US Treasury bonds are quickly turning subprime themselves. I am surprised that the markets took the bail out as good news. To me, the move seemed so desparate, and I took it as a signal that things are a whole lot worse than it would seem... i.e. what do they know that we do not?

[Slava]

Originally Posted by Nancy

I concur. US Treasury bonds are quickly turning subprime themselves. I am surprised that the markets took the bail out as good news. To me, the move seemed so desparate, and I took it as a signal that things are a whole lot worse than it would seem... i.e. what do they know that we do not?

To be honest I was surprised to see the bailout taken as such great news as well. I suppose that just shows why trying to predict the market is futile!

As far as the "what do they know that we do not" question that is the scariest part. The bailout shows a willingness for the US government to take on the whole cost from the sub-prime mess though, which is a terrifying thought. No one really knows how much bad debt is out there, or how long these things are going to take to unravel. So while the US committed to this bailout (which isn't actually committed to yet) they are almost writing a blank cheque in a sense. Its got to pound the US dollar, and I wonder if it is just prolonging the inevitable with JP Morgan and Morgan Stanley.

I say that the bailout isn't committed to yet because Bush has proposed this, but apparently the democrats aren't so sure. (That was buried in the paper though as most of the focus was on the bailout and 848 point rise). The Democrats agree that something has to be done fast, but weren't so sure that this was the way to go. Bush was tryig to sell this package all of yesterday though, so who knows which way this ends up. It could be a bleak day on the markets if that bailout falls through though!

[Claeren]

What does the government know that we do not?

The size of the derivatives market maybe? Many times bigger than the entire size of the world economy itself?


http://en.wikipedia.org/wiki/Derivat...e)#Controversy

• Derivatives typically have a large notional value. As such, there is the danger that their use could result in losses that the investor would be unable to compensate for. The possibility that this could lead to a chain reaction ensuing in an economic crisis, has been pointed out by legendary investor Warren Buffett in Berkshire Hathaway's annual report. Buffett called them 'financial weapons of mass destruction.' The problem with derivatives is that they control an increasingly larger notional amount of assets and this may lead to distortions in the real capital and equities markets. Investors begin to look at the derivatives markets to make a decision to buy or sell securities and so what was originally meant to be a market to transfer risk now becomes a leading indicator.
• Derivatives massively leverage the debt in an economy, making it ever more difficult for the underlying real economy to service its debt obligations and curtailing real economic activity, which can cause a recession or even depression.[4] Derivatives In the view of Marriner S. Eccles, U.S. Federal Reserve Chairman from November, 1934 to February, 1948, too high a level of debt was one of the primary causes of the 1920s-30s Great Depression.

Basically it ends up being one giant pyramid scheme (ponzi scheme more specifically) with the cash flow from one level paying for coverage at the next and so on until it all crashes down.


The fact that tax payers are on the hook for what basically amounted to 5-10 years of ever bigger bets (literally gambling) by greedy financial companies is disgusting and an affront to democracy IMO.


(I poking around I have found there are actually a surprisingly large number of websites/forum posters/people who have/had predicted this major financial crisis many years back based solely on concerns over the exponential growth in the derivatives market and the fundamental law that it must unravel one day. None of this is a surprise to any expert in derivatives who was not blinded by their own greed. But yeah, let the American taxpayer bail them all out...)



Claeren.

[Ronald Pagan]

Quite a sad turn of events in my opinion.

This bailout will only make the markets riskier. The Treasury and the Fed are proposing the largest transfer of wealth from public to private in the history of the United States. All to bailout bankers, banks, and investors that made increasingly risky investments.

Just mind-boggling how it got to this point. These banks should be allowed to fail, the next best option would be for the government to do what it did with AIG, take equity in the company in return for a loan. This proposal by Paulson essentially places all the bad debt on the government's books and absolves private actors. Completely disgusting.

[Slava]

Originally Posted by Ronald Pagan

Quite a sad turn of events in my opinion.

This bailout will only make the markets riskier. The Treasury and the Fed are proposing the largest transfer of wealth from public to private in the history of the United States. All to bailout bankers, banks, and investors that made increasingly risky investments.

Just mind-boggling how it got to this point. These banks should be allowed to fail, the next best option would be for the government to do what it did with AIG, take equity in the company in return for a loan. This proposal by Paulson essentially places all the bad debt on the government's books and absolves private actors. Completely disgusting.

WOW. I understand the sentiment that the government should not meddle in the markets, but that is seriously insane. To let the banks fail isn't just going to cost some rich people a few bucks, but a whole lot of people everything they own. You might want to re-think that approach.

[Ronald Pagan]

Sadly that's the only thing that will prevent another situation like this from happening again. Short term pain for long-term gain. As I say again, if you are prepared to enjoy the good times, you should be prepared to endure the hard times. If I was an american tax payer I would be outraged as I deliberately avoided the markets for fear of this type of reprisal. Apparently I should have jumped all in knowing that I was going to get bailed out: MORAL HAZARD.

And it's not as big of a problem as you seem to say it would be. Most of the major commercial banks have written off their bad debt and now relatively solvent. The risk taking banks that have not written off the debt and continue to package it in the hopes of a market upturn will be the ones to fail. Those are investment banks. Investment bank failures like Bear Stearns and Lehman have not hurt individual investors nearly as bad as a commercial bank.

[Ronald Pagan]

I should state that I am VERY skeptical of the benefits that increased regulation will have. In the medium-term new regulations will only make markets more inefficient. Besides, you cannot possibly hope to regulate financial markets effectively. The brilliant people that work them are so much further ahead than government regulators that the regulations will create a mere blip to avoiding this type of behavior. You cannot regulated greed, thankfully greed is what makes the markets tick and diverts capital to its most productive uses.

[Claeren]

There is a difference between nationalizing the banks and letting them fail.

I think he means nationalize them. In other words getting something in return for all of that tax payer money and making bond holders and/or investors of those companies pay the ENTIRE price.

If bond holders and investors learn that they lose everything if they accept high risk and/or poor advice then they will be more cautious in the future.



Fear of massive losses is a much better regulator of the market than new regulations.

No fear of losses will mean that no amount of regulations is enough.



Future moral hazard has to be avoided.


Claeren.

[Slava]

Originally Posted by Ronald Pagan

I should state that I am VERY skeptical of the benefits that increased regulation will have. In the medium-term new regulations will only make markets more inefficient. Besides, you cannot possibly hope to regulate financial markets effectively. The brilliant people that work them are so much further ahead than government regulators that the regulations will create a mere blip to avoiding this type of behavior. You cannot regulated greed, thankfully greed is what makes the markets tick and diverts capital to its most productive uses.

Well I suppose its a matter of opinion, but regulation is exactly whats needed here. Part of the entire issue here has been the ability to market these investments as being less risky and more certain than they really are. That is blatant fraud, and not the intent of how the markets are supposed to work!

Secondly, there is a school of thought including some brilliant minds that point to the fact that the market is in this predicament as the evidence that the markets are not efficient and must be regulated. Its not a question of regulating greed, but instead a point of stopping fraud.

Your point above about the cheaters being ahead of the regulators just doesn't apply here. We're not talking about doping in sport where its a hidden entity.

[Ronald Pagan]

I guess my question to you would be, how would you effectively regulate against this behaviour? Calling for more regulation is easy to do. Crafting the actual regulations so that work is another animal all together.

Financial managers would certainly disagree with you that it was basic fraud, from their perspective they thought that they were helping by creating complex financial instruments that would minimize risk. Many investment risk managers thought that they had moved beyond risk in the year prior to the bubble bursting. Fraud implies that people are purposefully misleading people for profit. But considering the staggering losses in the financial sector it would seem like this isn't the case. Many investment bankers have lost their shirts.

I agree with you about the markets being inefficient. Markets should not be experiencing this amount of concentrated boom-bust behaviour. Something is definetely wrong. I would trend to the opinion that the problem is too much government involvement in finance and loose monetary policy. If these banks and investors were allowed to fail then a considerably higher amount of priority would be placed on evaluating the financial instruments that people were buying into.

It seems absolutely assinine to me that there was such a gap in information for investors that they believed that sub-prime loans were going to be repaid. Would regulation actually fix this? Would regulators have known that these complicated securitized holdings were valueless? Doubtful. Markets should be able to respond to this risk much easier if, infact, investors knew that they were going to be on the hook for any potential losses.

[badnarik]

Originally Posted by Slava

Well I suppose its a matter of opinion, but regulation is exactly whats needed here. Part of the entire issue here has been the ability to market these investments as being less risky and more certain than they really are. That is blatant fraud, and not the intent of how the markets are supposed to work!

Secondly, there is a school of thought including some brilliant minds that point to the fact that the market is in this predicament as the evidence that the markets are not efficient and must be regulated. Its not a question of regulating greed, but instead a point of stopping fraud.

Your point above about the cheaters being ahead of the regulators just doesn't apply here. We're not talking about doping in sport where its a hidden entity.

Isn't the market inefficiency caused by the moral hazards that others have mentioned?

[Bagor]

Originally Posted by Devils'Advocate

I haven't read this whole thread yet, so this may be an in-thread fata, but this is really pissing me off:
CEOs getting massive severance packages

These CEOs that lead these financial companies to absolute ruin are getting absolutely astounding severance packages. This 700 billion bailout package should be coming from the estates of those that made the stupid decisions that got the U.S. to point where it is. The average american taxpayer shouldn't be fleeced out of the homes *AND* their tax money so that these CEOs can gourge themselves on caviar for the rest of their lives.

How does that work legally?

Their contract would have been with their old employers who went bust.

Is the government obliged to honour this as part of a rescue package? Do they inherit the contracts as well?

[Phanuthier]

There goes WaMu...

[Phanuthier]

Down goes corporate America...

http://www.bloomberg.com/apps/news?p...gfY&refer=home

Companies from Goodyear Tire & Rubber Co. and Duke Energy Corp.Gannett Co. and Caterpillar Inc. are being forced to tap emergency credit lines or pay more to borrow as investors flee even firms with few links to the subprime-mortgage debacle. to California Governor Arnold Schwarzenegger says his and other states may need emergency federal loans as funding dries up.

Not a fan of letting this bailout money go to big companies

Looks like Asia's getting slaughtered too
http://biz.yahoo.com/ap/081006/as_world_markets.html

Monday's just aren't a good day for the stock market