Wow, a first! Anyways, can look at this one of two ways, one is that the U.S. banks are not taking all the hit, and thus the reduction in their capital is less than it might have been. On the other hand, will big hits in China lead to a slowdown there (would obviously not be the only factor). China has clearly been the locomotive of world growth over the last few years, and if it is slowing...
If we do crash tomorrow, I hope everyone keeps their heads about them. This has been building up for a long time, and in the long run the best thing possible might be a good purging.
Not that it will be any fun to watch, even a bear like myself can't generate any enthusiasm for a global depression.
As I have been saying for a while, when it's all said and done, secrutization of mortgage assets is going to be shown as a good thing. The politicians and vested interests who are trying to profit off the crisis (like Jim Cramer and his bashing of the monolines (yes, I'm a monoline shareholder)) may not agree but in 10 years people will say it was a good thing. If US citizens or US businesses held all the risk, instead of it being sold to investors all over the world, USA would end up in a depression for sure. But as risk is spread across the world and investors able to tolerate risks, the damage isn't localized...
The Florida Banker's Association wants a "No Hats, No Hoods, No Sunglasses" policy for customers entering their banks.
Jeez, seems to me that a hat, sunglasses, a hood, and a Mac-10 are just a way to level the playing field when you sit down at a banker's desk these days...
OTOH, after this week is over, the bankers themselves might be slinking out under cover of hats, hoods, and sunglasses...
It's not a matter of taking the static losses and moving on. It's not like there is a certain dollar value of losses, and once those are accounted for we can get back to doing business.
It's a sign that all the profits and risk assesment and financial innovation over the last several years is all a fraud. The losses are a sign that growth we've experienced are an illusion. What do we go back to? We can't go back to the system that caused this.
It's like a dieter who realizes that the hard part isn't losing the 100lbs, it's the life change required once the fats gone to make sure you don't just gain it all back.
The world is in for a financial overhall regardless of current losses.
Eventually, foreign goverments may learn (at least for a while) that investing in American assets and currency has some risks. Don't we need over 1 billion per day from foreigners to fund our trade deficit? That has been mostly in treasury bonds. Americans may need to pay their own way for a while, unless we want to sell the whole country at fire sale prices.
The Florida Banker's Association wants a "No Hats, No Hoods, No Sunglasses" policy for customers entering their banks.
In the inner city that may be a concern, but out here in rural farm / ranch Florida, telling someone he has to remove his green Deere hat might not go over so well.
Like I said about 50 times over the past year, just wait until hedge funds shift their remaining leverage short. Nobody else here said it. Nobody in the MSM said it, either, that I heard.
But you'll be reading about it a lot in the days ahead. Joe 401(k) will not be happy to know big hedge funds were getting rich while he was going broke.
China has clearly been the locomotive of world growth over the last few years, and if it is slowing...
Oil over $50 a barrel significantly impacts growth in the emerging countries. The emerging countries want to emulate the U.S. growth but didn't realize it was based on cheap oil, the good news for them is that they do not have to build all the burbs and shopping malls put a
RV, ATV and 3 cars in every driveway to discover the hard truth.
Interesting comments at the Barber Shop on Saturday. Yes some of us still go to barber shops and read hunting magazines. Even that crowd is appreciating the current situation. Recognizng the loss of RE values and suggesting this is not the time to buy that new four wheel drive truck. Tough times coming.
securitization of mortgage assets is going to be shown as a good thing.
No question -- bundling and - of mortgages is a good thing, and is the essence of the GSE business model.
The problems came from the massive fraud perpetrated by the Wall Street Investment Banks and Bond Rating Agencies, in their slicing and dicing BBB and BBB- rated sub prime mortgage CDOs, and selling them as AAA rated securities. The problem is fraud and lack of transparency -- not securitization.
Kyle Bass called it the biggest bait and switch of all time -- he was far too kind to the perps in this scam. If these securities had been peddled by Chinese companies, their executives would have already been dispatched after a one day show trial -- the Chinese do not take kindly to abuse of the public trust.
@SV:"As I have been saying for a while, when it's all said and done, secrutization of mortgage assets is going to be shown as a good thing."
Securitization wasn't the problem in and of itself. It's the separation of risk from reward through loss of transparency and lack of regulation, which allowed bottom-feeders to poison the well with toxic waste unchallenged.
Had checks and balances been in place to enforce standards and remove unruly players, ensuring that the risk profile of an SIV was what it was assumed to be, things would be different now.
Instead, the bottom feeders were allowed to multiply like flesh-eating streptococcus, with the same ultimate consequences.
Until society has the wherewithal to identify and step on the necks of the sorts of people that made this possible, we're doomed to see it happen again. It's just a matter of looking for the next bubble now.
"If these securities had been peddled by Chinese companies, their executives would have already been dispatched after a one day show trial -- the Chinese do not take kindly to abuse of the public trust."
I'm hoping Singapore can buy up a few US companies just so they can cane our CEOs.
The other weekend I was at the hair salon, where kids, work and Britney are usually the topics of the hour. It was all about the economy. And specifically, openly wondering if a lot of friends and neighbors (in the general sense, not gossiping about anyone specific) really had all the money they appeared to have (for new houses, clothes, vacations, etc).
It is a small but telling turnaround when people are now openly questioning this "reality" when before they just aspired to the same.
"Americans may need to pay their own way for a while, unless we want to sell the whole country at fire sale prices."
We're probably going to see a combination of both. Struggling companies will sell pieces of themselves, of divest themeselves of subsidiaries or assets, to foreign interests. I saw Bank of America go through a cycle like this in the 80s:
1) Sell foreign subsidiaries; 2) sell domestic subsidiaries; 3) sell any odd assets sitting around (land, office buildings, a guest house in Japan for $30 Mill). Citi and the rest have added a new Step 1: sell hunks of themselves to any foreigners dumb enough to sign the papers. But the other steps will follow.
And yes, if the dollar cheapens enough it may be hard to find anybody foreign to buy our shiny treasuries except at south-of-the-border interest rates. That's one way to Whip Inflation Now.
I don't know--in the last three weeks short interest peaked and started down. Some of the relative strength in the Russell 2000 last week was probably shorts taking profits. One troublesome sign for longs showed up at options expiration on Friday. A lot of S&P (SPY) puts expired and were not rolled over, reducing downside hedging. I think that institutional/professional investors were too confident in the coming bounce and this has really backfired on them.
The question is whether big money invesors (mainly institutionals) will really sell the futures markets. You could argue that they already have, but with such leaveraged instruments as futures, we could see tremendous volatility. Any guesses on the VIX volatility index for Tuesday?
Is there any data or anecdotes that we can view that will show when such has happened?
The yen is a barometer for risk appetite. So, if the markets fall a lot faster than the yen rises, it means there is still liquidity available and it is being put short by hedgies. There's nothing to stop a hedge fund from borrowing yen and using them as collateral for shorts in futures/options/ProShares ETFs.
This rout is being driven by hedge funds to panic ordinary investors. When the panic is on, the hedge funds will start buying again, and this cycle may repeat several times. It's a hedge fund dream scenario, because they profit from volatility.
It's the sharks against the minnows. By the way, some hedge fund will be minnows and get eaten.
CK: "The problems came from the massive fraud perpetrated by the Wall Street Investment Banks and Bond Rating Agencies, in their slicing and dicing BBB and BBB- rated sub prime mortgage CDOs, and selling them as AAA rated securities. The problem is fraud and lack of transparency -- not securitization."
What fraud are you talking about? THe only fraud I can think of is borrowers lying on their income or some fake securities being sold or something like that. But claiming that re-packaged secruties is fraud is the dumbest thing ever. I mean, I'm no fan of rating agencies but rating agencies provide an OPINION. No one is forcing anyone to follow them or even use them.
The problem with some of you is that you, like Jim Cramer, wants to socialize risks while profitting from the upside. No one forced anyone to take the risk and buy the securities. Investors should do their homework and suffer the consequencies or get the profits.
CK: "Kyle Bass called it the biggest bait and switch of all time -- he was far too kind to the perps in this scam. If these securities had been peddled by Chinese companies, their executives would have already been dispatched after a one day show trial -- the Chinese do not take kindly to abuse of the public trust."
Obviously you don't believe in the free market. No one forced anyone to buy anything. Given the fact that you believe there was fraud, whereas I don't think there was, probably means that you'll never agree with me. Corrupt Chinese officials supposedly corrupt entrepreneurs and executives is not my idea of justice?
"Yes some of us still go to barber shops and read hunting magazines."
I just about spit out my coffee. I haven't been at a place like that in 40 years, but the hunting magazines brought it all back. Yeah, and well-thumbed copies of Argosy and Police Gazette.
OT,
However interesting I have been up puking since 3am and turned on Bloomberg. A cute little blond was handing over the desk to Julie Hyman about 5am. She was real sarcastic with Julie and said bad day for everyone but you I guess since your short the market. Now I have considered Hyman to be your typical cheerleader through this but I guess she does have a clue. Wonder if Bernacke is short?
"Watch out when the hedgies turn from support to shorting"
True enough, there may well be a massive shift to the short side, but then the 800 pound hedge fund, the U.S. Treasury, might just try a short squeeze.
Not disagreeing with you, rich, just pointing out the obvious: bear markets are volatile and somewhat more unpredictable (e.g., last August when the quants had to buy "weak" stocks and sell "strong" stocks).
For now, I'm staying out of this market, long or short. Watching is much better for my blood pressure.
I think that the "fraud" comments refer, at least in part, to the bond ratings agencies and investment brokers who sold financial securities. However, I agree that it should be "buyer beware." On the other hand, at least in retrospect, our country and the world would be a lot better off if the appropriate government agencies had weighed in against "nothing down" and "no doc" loans.
I would not bet against gold or silver over the next few months. There is a temporary unwind of hard metal positions to increase liquidity and cover losses. But the market may be flooded by paper money and inflation fears in the months ahead.
The Fed will fight deflation tooth and nail. Where can smart money hide if not in gold/silver?
We borrow $1-3 billion a day to fund our government.
I called my congressman and told him dont do any stimulus plan if you just plan on borrowing the 150 billion from the chinese. Do it only if you cut spending.
SivaramVelauthapillai, before you embarass yourself further, please make at least an an introductory study of the concepts of Adverse Selection and Moral Hazard. You really do sound like the most simplistic Reaganbot.
The question is when does it dawn on J6P that he plays by the rules (and keeps the system stable), while the hedgies exploit the stability for profit and think him a fool.
Kind of like the traders in Enron viewed the people in California as nothing but a bunch of losers who didn't "understand" that electricity is just a commodity.
You're all missing the obvious solution, simply follow thhe 'smart money' and buy whatever the Dubai and CIC buy. But you may want to wait a while... a long, long while.
Like I said about 50 times over the past year, just wait until hedge funds shift their remaining leverage short.
rich,
You are making the assumption that margin will be available to the hedge funds.
If deleveraging begins.. there will be a discontinuous fall in prices.. and I'd guess many hedge funds will get sucked under if they're sitting on any long term derivatives contracts.
Now, there's nothing to prevent some person to start up a new fund, ferret out some margin, go ultra short and try to strike it rich (no pun intended?).. but, I'd guess they'd need to be pretty nimble to not blow up.
One of the agreed ways to make money is to sell volatility as it's increasing.. not to buy it. So, any one smartypants running a hedge fund better be fairly right-on about the put/call selling he/she does.
I called my congressman and told him dont do any stimulus plan if you just plan on borrowing the 150 billion from the chinese. Do it only if you cut spending.
stealthwii | 01.21.08 - 11:28 am
Your congressman probably understood that as well as he understands Chinese.
"Cut spending....what is that?"
As of less than a minute ago, the DOW futures were down 520. Could we go down 1,000 in a day in the DOW with a real panic? Would the VIX go to 50 or would everyone agree that it's too late to buy crash insurance?
Analysts estimate that state-owned Bank of China ... may have to write off a fourth of the nearly $8 billion it holds in securities backed by U.S. subprime mortgages ...
Just remember that China executed the guy in charge of inspections after the pet food/toothpaste scandal. I wonder what is going to happen now.
A lot of peeps expecting to retire soon (or already retired) will be staring at their portfolio statements and will be looking for not 1, but 2 jobs so they can eat. Problem is, jobs might prove to be hard to find in the new post bust economy.
Would the VIX go to 50 or would everyone agree that it's too late to buy crash insurance?
BillD,
I'd guess trying to buy puts on SPX or VIX calls right now would be like trying to buy automobile insurance right after finding out the brakes in your car don't work.. and you're presently driving down an exceedingly steep mountain.. and the insurance company has OnStar in your car and knows your brakes are busted.
You could buy.. but you will get the worst deal possible.
The fraud was selling CDOs and SIVs backed by sub prime mortgages as AAA rated bonds.
Yes, we live in a buyer beware world -- but when the bond rating agencies and investment banks collude to sell garbage as AAA investment grade bonds, I call that fraud.
I believe in free market capitalism -- I also believe that unregulated free markets are a recipe for disaster.
Who would have thought of this? TSUNAMI is on us!!
"When a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well -- putting some $1.4 trillion of municipal bond securities at risk and more than $600 billion of structured finance securities at risk."
This could end up being one volatile week: can you imagine the Dow down 500+ tomorrow, and then AAPL beating earnings after the bell with good guidance? And I can't even fathom what an AAPL miss would lead to after a day like that.
Plus WACH and BAC.
Anyway, if the Dow is down 500+ tomorrow, I'm closing 75% of my short positions EOD and take a break for a day or two.
"Yes, we live in a buyer beware world -- but when the bond rating agencies and investment banks collude to sell garbage as AAA investment grade bonds, I call that fraud."
I gotta second that. These POS' ruined the credit markets and played a major role in the mania and now don't want to take responsibility for the collapse.
Eff them...
i rode my bike into work just now on a crisp,beautiful sunny day here on the W. Coast. sort of surreal thinking about Asia crashing while enjoying the ride.
alot depends on what happens in Asia again tonite. if we see another big drop i think we could see an emergency rate cut from the Fed. last time when the Nikkei dropped over 800 last summer they stepped in the next day (day before OpEx) and cut the discount rate. i think there is some pent up downside pressure from Fri when i think the Dow was propped up going into the close to stem losses for option traders.
the potential energy stored up to the downside is immense and has fooled alot of ppl. it feels like to me we will slice thru some heavy support levels which will stimulate intervention. this will be considered disorderly by gov't. i still have >60% of my shorts in place from the last yr, a not so insubstantial amt.
i am not selling any of my gold or silver positions as i think there is going to be a rush to protect one's diminishing USD's as the Fed slashes rates. one needs to read Jeff Christians book Commodities Rising to understand gold. its not a simple matter of USD down, gold up or jewelry buying up, gold up, or inflation up gold up. its actually a complex interplay amongst a number of factors. he makes the pt that the dollar amt of futures trading in gold rivals that of treasuries and currency and greatly exceeds that of other commodities incl oil. in that sense gold acts like true money rather than just a commodity. why do u think our CB's still store gold? what we have here also is a fiat currency crisis as all gov't will eventually slash rates as we slide down the abyss. i actually think that maybe, just maybe, we as a global economy may be forced to go back on the gold std in some form or manner. somehow it will be tied to gigabytes or whatever but thats the only true solution to limit all the abuse thats gone on.
O Joe, gold may well go down to $500 short-term (that is what I've been banking on, that gold goes down with the broad market), at which point I will be moving every single cent, all now parked in SDS, into gold and gold-mining stocks/mutual funds.
Speaking of hedge funds, there was widespread concern last summer about a possible epidemic of withdrawals as the 9/15/07 redemption deadline approached. But that date apparently came and went without much drama. Are redemptions still a worry? TIA.
Bovespa down 7% this morning, while I have been short the emerging markets since Dec I don't like these big drops but the excess bull equity markets both here and abroad have been jacked by leverage so it can unwind very quickly.
Panic on the FTSE
Panic on the Nikkei 225
I wonder to myself
Could we ever see a gain again
Square mile pub stool you just sit down
I wonder to myself
Hopes may rise on a bailout
But can it stop the stock rout?
So you run on
To the safety of the bonds
But there's panic on the floors of Wall Street
Hang Seng, Bombay, Shanghai
I wonder to myself
Burn down Bernanke
Hang the blessed maestro
Because the nonsense they constantly say
I does nothing to help improve my life
Hang the blessed maestro
Because the nonsense they constantly say
As the ARMs reset they just mark down
Unpaid interest compounds
Hang the maestro hang the maestro hang the maestro
Hang the maestro, hang the maestroÂ…
wow, asian markets got punched in the nads coming into today. . . 3-5% almost across the board...
called my congressman and told him dont do any stimulus plan if you just plan on borrowing the 150 billion from the chinese. Do it only if you cut spending.
hokay Einstein, you cut $150B of spending and you get THREE MILLION PEOPLE unemployed ($150B divided by $50K/yr).
Government spending isn't the problem per se . . . (other than much of it is being wasted on unproductive or downright counterproductive enterprises) . . . the deficit is simply due to tax rates being too low.
Part of the reason home prices shot up in 2002-2003 was the tax cuts. An interesting dynamic that's going to affect the market next decade is the reversal of these cuts.
I agree with you that downside pressure on Fri was tempered by OpEx - I added to my position late Fri expecting this pressure to explode (implode?) on Tues - so far so good if you follow the futures, but it still a long time between now and Tues at 9:30AM, and who knows what the Fed may do.
barely,
I'm probably not as bearish as some, and since I'm trading ultrashort ETFs (TWM mostly), I don't believe it is that difficult to get in and out, though I imagine the premium over NAV will increase over the coming months.
Anyway, how often do you see days when the DOW is down 500+? I'm taking some profits and waiting for a bounce. IMO, its not that bad, YET. In other words, the information readily-available to the market should not result in DOW 10k YET. It will, but things don't look so bad right now, and there will be a major rally if there is a major crash this week.
Once people get a little comfortable again, it will be time to get back in on the short side b/c the whole cylce will start over again - FEB employment numbers will be poor, companies will start to guide down 2Q earnings, housing starts will continue to fall, rumors of more bank writedowns will come out, etc.
This is just how I see it anyway, I'm not promising I have the conviction to trade it this way. Given what I know, I wouldn't be able to forgive myself if I get caught on the long side on the day of a crash......
I have some longs too but I don't care if they go down 80%, I believe in their underlying value... what I'm thinking of next is to short the 2-year. Strip ot inflation and they give you negative yield. It's euphoria in the gvmt bond market.
Had to stop and just jibber. Exactly waht free market are you talking about? The ratings agencies do not offer "opinions". The are a gov't regulated cartel. Their ratings are written into laws like ERISA. Their are funds which are ordered at gun point to only hold x% of assets below say AAA. So when ratings agencies stamped AAA on toxic trash, it was fraud.
A quote from the article
We expect flat but volatile markets just as in the 1989-92 period
Does anybody speak english anymore? it's all the sales dialect of marketese. This is along the lines of "We are pleased to announce an increase in the weekly chocolate ration from 200 grams to one hundred grams."
Non-linear timekeeping is not susceptible to your frame of analysis...while it may indeed time out that way, like the man said, "Events dear boy, events."
i'm beginning to worry again about my money mkt funds at Fidelity where i keep my brokerage acct. saw another article this weekend about how the SEC requested docs from them and several others about exposure to SIV's. any ideas?
You are totally wrong. If the lend and hold model had never been superseded by originate and sell securitization, the loans would never have been made. When you make a loan knowing you are going to hold it on the books, you look the borrower in the eye, you demand to see his income taxes, you did deep. You also demand 20%, 30% down. If we had never digressed from this standard, all this debt never would have built up.
The feeling I get is people donÂ’t know how bad it is," says Sam Stovall, chief strategist at Standard & PoorÂ’s. "ThatÂ’s why we could see a day or two of counter-trend rally," which was briefly the case on Friday, when stocks opened sharply higher only to fall again.
Stovall says the market is entering a "typical pre-recessionary mode," citing statistics showing that the stock market has anticipated every one of the 11 recessions since WW II.
Playing that out, stocks typically fall from their high nine and a half months before the onset of a recession, bottoming out six months into the recession for an average decline of 26 percent from top to bottom.
Using that model, this time around, stocks have been falling since their Oct. 9 record high, a recession will start in July and the market will touch bottom in January 2009.
Going into FridayÂ’s trading, the S&P 500 was 14.8 percent below its high four months ago. Stovall is quick to admit that the current Street consensus says if the economy suffers a recession this time around, it probably began in December 2007, which doesn't entirely jibe with the historical pattern.
Stovall says the market's woes are more about the credit crunch than the Fed. "Will the Fed really be able to do enough, quickly enough to undo all the negatives?"
ING has an FDIC insured Orange savings account that pays 4+% interest right now -- no minimum balances, with up to six transfers out per month. I maxed out my HELOC and parked it there, as a hedge against the worst case scenario.
we are in a zone where traditional economic prescriptions are in effective.
Why?
because we don't make nearly as much, in America of what we consume, as we used to.
The 800 or 1600 dollar shot in the arm proposed by this failed president and our supine congress is just another white line on the mirror for our junkie economy.
The money might buy clothes, a few nights out, a plasma or what-every for many. some will pay down a bill...and others a down payment on a durable good.
but in the end we are forestalling the inevitable because our "import way over export", "70 plus percent consumer based economy" with a government that borrows over a billion a day... IS... TERMINAL...PERIOD!
the only way out of this mess is innovation, investment and inployment, (ha ha ha...copyright)...ie put people to work right here building the next.. best.. thing.
And what is that? Ah,simple; A 21st century energy and A 21st century transportation system.
unfortunately the free market is incapable of doing this alone. Government must provide the start-up then step back and turn private enterprise loose.
don't believe the private public part of this? check out the history of the building of the grand coulee dam...privateers failed over and over to manage a start up) or NASA (started by government and now, when it comes to launch ops really a Boeing subsidiary.
our government must launch an energy "Manhattan project" tomorrow or it is a permutation of a rhyme with 1929 for the great majority of us.
I don't know if that's enough. Maybe FFDIC or Tanta can weigh in on this, but if we all go and open as many sub-$100,000 FDIC-insured accounts, well, you know.... I mean, FDIC insurance is not predicated on everyone rushing in this manner. At the the gmnt. probably will take care of this at risk of losing people's confidence, but this is gonna cause problems.
How many people are really confident that a Fed rate cut tomorrow or next week will shore up the market? Isn't that just a little too obvious when cuts are already priced in to the treasuries? If we get a cut tomorrow, is the Fed supposed to give a big cut at their regular meeting in a week? I don't really see that the fed can do anything. The problem is that any effect of a cut over the next few months is purely psychological and that effect might just last for just a few minutes.
Anyway, if the Dow is down 500+ tomorrow, I'm closing 75% of my short positions EOD and take a break for a day or two.
dunham
I am, too. Because I'll already be up about 40% in January, and I've never had a month so good before. I want to retire richer than rich is now, and that means preserving capital.
Stop and think about it. What does January tell us?
This is gonna be a long, strong bear. And it's probably gonna be very volatile. Just think if you have several opportunities to cover your shorts at intervals and each time buy it back 10% higher? In a double short ETF, you can make a killing off volatility.
In the short and double-short ETFs, you can be as smart (or smarter) than a hedge fund and ride along with the hedge funds while they massacre Joe 401k.
I don't want to see Joe get massacred. But if he is, I want to be on the other side.
P.S. I always put in limit orders for short ETFs about 3-4% away from the market price. Lately, they always seem to hit, and often near the high/low of the day. You can make hundreds of dollars a day in SRS just buying and selling this way because it's so volatile.
I've never really been a fan of those ultrashort ETFs for well-known mathematical reasons; and I use derivatives anyway.
probert | 01.21.08 - 12:27 pm | #
probert,
Please elaborate, or point me to some links. I actually don't know the mathematical reasons.
A rate cut won't "shore up" the markets, but it might cause them to bounce higher for a few days. In which case, a lot of people will run for the exits and the downtrend will resume in earnest.
Contracts on London-based HSBC Holdings Plc, Europe's biggest bank, rose 9 basis points to 67 today, according to CMA Datavision. Frankfurt-based Deutsche Bank AG, Germany's biggest bank, rose 12 to 67, Paris-based BNP Paribas, France's largest bank, rose 9 to 56 and Zurich-based Credit Suisse Group rose 8 to 70.
ING has an FDIC insured Orange savings account that pays 4+% interest right now -- no minimum balances, with up to six transfers out per month. I maxed out my HELOC and parked it there
A negative carry trade in the same currency? Well I have to give you credit for being original.
BRANTW: "If the lend and hold model had never been superseded by originate and sell securitization, the loans would never have been made. When you make a loan knowing you are going to hold it on the books, you look the borrower in the eye, you demand to see his income taxes, you did deep. You also demand 20%, 30% down. If we had never digressed from this standard, all this debt never would have built up."
There is nothing wrong with offloading the mortgage assets to others. I agree with you that there would be slightly greater scrutiny if a bank held the assets than if an anonymous investor did. But that isn't the cause of the problems.
The cause is financing questionable mortgages (such as those with borrower fraud and stuff like that). The way I see it, investors would demand quite a bit of scrutiny before giving up their precious capital as well.
Think of it this way... If what you were saying were true, we never would have had the real estate crash in 1990, when a whole hoard of banks were wiped out. Recall that banks held the mortgages on their books back in the 80's and 90's so who come they blew up in 1990?
The stock market was in meltdown today as nearly £60billion was wiped off London shares.
A combination of poor economic figures and the worsening global credit crunch sent the FTSE 100 plunging.
At one stage the drop was the biggest since 9/11 in 2001, although the index of Britain's biggest companies later clawed back some of the losses. At lunchtime the Footsie was down 250.1 points to 5647.8.
That means the FTSE 100 has now fallen by around 10 per cent in the last 10 days, by around 15 per cent over the last month and is well on the way to being off 20 per cent since its most recent high of 6754 in July - before the world's banking system was sent spiralling.
It is also the worst start to the year for the stock market since records began in 1936. "I smell the acrid stench of fear and uncertainty," said markets commentator David Buik of BGC Partners. European markets also tumbled.
I don't think that the average duration and extent of the market downturn with a recession gives us much info. Before/during and after the last recession, the markets were off 40+%. Some recessions have seen only 12% declines that we already passed last week. There's a lot between 12-40%. The guestion is whether the current decline will lead to more and more individual and corporate credit collapses and margin calls as this unwinds, or will the markets and the Fed somehow regain confidence. We just don't know how bad the leverage will prove to be and that is scary or should be for those using the past to predict the future.
Word on the street is that Citi supposedly will be unloading/closing their auto loan division in AZ, I'm assuming the same for CA, FL & NV. Amazingly, Citi would fund any crappy loan at any kind of term. Absolutely shocking [/sarcasm]
I got into it with a lady over Citi at my local because she felt that they had done a kitchen sink(she was buying the dips(dipsomaniac?). I then had to explain to her:
*How much capital they've had to raise in the last 90 days
*Capital reserve ratios
*Every crappy bet they've made in the last 2 years
*The lack of a deal making environment(except for divestitures) going forward
*The amount of pier loans they're stuck with and how that reduces lending volume going forward
So the market crashes. Well nobody complained when it went up day after day after day. Blah.
We can't do anything until tomorrow, when it will be too late;-}
On the other hand, I guess I should enter some really low cover prices for my homebuilder shorts, as they will most likely freefall tomorrow no matter what.
The Chinese are starting to disengage from our economy, when your vendor cuts off your credit in a highly leveraged investment, you are dead.
I wonder who will get to do the BK for the USA? As for gold...well, it may drop in terms of yen or swiis francs...
So, right now Bloomberg quotes the yen at 105.88. It closed Friday at 106.68. It's a little stronger.
But based on the lock-step inverse pattern that has existed the past year betwen speculative stocks and yen, you would expect the yen to be at 102-103 today, given almost 5% down now on S&P futures.
This indicates to me that hedgies have access to liquidity and are using it short. Don't just think about the supply of liquidity. There's still plenty of supply in Japan. The yen strengthens mainly because demand for liquidity declines, as hedge funds pull in risk.
For example, go to the Fed’s H4.1 site, and check the numbers for January 4, 2007, and the latest. This shows that FCBs bought only $78.6 billion in Treasuries, and $235.4 billion in “Federal agencies”. Going back to January 5, 2006, FCB custodial holdings of “federal agencies” has increased $409 billion. In total FCB hold $836.9 billion of these so called “federal agencies”. What is the collateral and condition today of all this paper bought at the peak of the housing market? None too good I would imagine? I have come to conclusion that there is no transparency at all in this general “federal agency” account label.
I have some longs too but I don't care if they go down 80%, I believe in their underlying value... what I'm thinking of next is to short the 2-year. Strip ot inflation and they give you negative yield. It's euphoria in the gvmt bond market.
Interesting i was watching a show a cpl of nights ago, it wasnt manageing asia but something in China. China business leaders had decided among themselves that they were going to have to pull away from supply wal mart. the said wal mart was killing their manufacturing. that barbie manufacturer was getting 1 dollar while walmart sold for 20. and that a chinese entrepenure who manufactured socks decided that in feb marc pulling from walmart all together and sell under new name repackaged for smaller merican and asian markets. it was amazing that china's leading manufactures and entrepenuers both agreed that this year was the big pull out. That will kill walmarts numbers.... and make china more self sustaining and more liquid. One editor of entrepenure magazine was saying that america has 300 million and china has 1.5 billion that would like to buy barbies....with their capital and economy growing, they believe their downward momentum is caused by americas largest company pulling them down and the govt backed bonds...
very interesting...and it was subtitled so i understood completely!
CK: "The fraud was selling CDOs and SIVs backed by sub prime mortgages as AAA rated bonds... Yes, we live in a buyer beware world -- but when the bond rating agencies and investment banks collude to sell garbage as AAA investment grade bonds, I call that fraud."
You may call that fraud but it wouldn't fit most people's definition of fraud. I think the courts will rule on my side as well (i.e. rating agencies did not commit fraud).
You guys want to socialize the risk. That's what you are basically calling for. It's amazing, really, given that you are probably in favour of government intervention (which generally implies that you would want investors to bear the failure). I know it's fashionable right now to blame the rating agencies (or for those allied with Cramer, the monolines) but the fact of the matter is that the investors bear the risk. It's a basic element of a free market: the investor (especially equity investor) bears risk. Trying to offload the blame onto someone else is ridiculous.
CK: "I believe in free market capitalism -- I also believe that unregulated free markets are a recipe for disaster."
I am actually a free-market extremist but I think some regulation is ok. For example, I think the existence of the SEC is OK for the time being. But what most of you are calling for would have done nothing. Fannie and Freddie are heavily regulated but they are posting massive losses as well. Government is generally inefficient, dumb, and slow, so trying to "regulate the free markets" would have done nothing. I really don't know how you would have stopped this problem. We had a classic bubble and no government can prevent bubbles (just look how hard China, running a totalitarian government that can do anything at will, is trying to stop their real estate, stock market, and manufacturing bubbles and yet have failed for at least 2 years)...
But, sadly, it's going to be fashionable in the near future to pin the blame on some intermediary (like the rating agencies, monolines, hedge funds, etc) and regulate anything and everything.
Please elaborate, or point me to some links. I actually don't know the mathematical reasons.
There are no mathematical reasons. There's a myth that double short ETFs underperform because they compound losses on a daily basis. But they also compound gains on a daily basis, which offsets. Also, they often invest in futures contracts, which lets them bump return a bit with the yield on cash. Anyone who have owned both single short and corresponding double short ETFs for some time doesn't see any underperformance in double-short. If anything, double-shorts slightly outperform (on the upside and match on the downside.
There we go:
The pros and cons of various ways to short an index, including arguments against ultrashort ETFs, which basically amounts to capital base calculations.
Let's see, all the perma-bulls on this site have given up the ghost, and are probably lying in the fetal position in a dark closet, and the highly leveraged trend-following funds are undergoing a forced liquidation. Meanwhile, all the shorts and perma-bears are loudly congratulating themselves because they've almost gotten themselves back to only a small net negative after being dead wrong for most of the last two years. It must time for people who try to maintain some sort of value-oriented, unleveraged buy and hold perspective to start kicking the tires again.
Market technicians said it was now an almost sure bet that the Dow will slid below the milestone level after it broke through key support around 12,500 this week.
Even if the move is temporary, it still will rattle nerves.
Analysts say the 11,500-11,600 levels aren't out of the question as the levels where the index could test near-term support, but even at that base, there could yet be more downward impetus as capitulation fuels more selling.
The feeling I get is people donÂ’t know how bad it is," says Sam Stovall, chief strategist at Standard & PoorÂ’s. "ThatÂ’s why we could see a day or two of counter-trend rally," which was briefly the case on Friday, when stocks opened sharply higher only to fall again.
I think the S&P being down 6-7% tomorrow qualifies as a pretty good bloodletting. 11,000-11,500 was where I wanted to start kicking the tires, and it looks like I'll get that chance tomorrow. That being said, there's no financials on my buy list.
MOCK TURTLE: "I believe CK is right and SivaramVelauthapillai is in error...the on-book off-book SIV game played by the IBs was moral fraud if not illegal."
We'll know within an year won't we? The way things are going, the rating agencies are going to be raked over the coals and we'll see if it was indeed fraud.
MOCK TURTLE: "The fake insurance by the monolines when they had insufficient capitalization to cover the policies is moral fraud and may be legal fraud."
If you think it's legal fraud, start funding one of those legal firms that is preparing to launch lawsuits against the monolines. I don't think anyone has ever successfully sued any insurer--monoline or not--in the history of USA but we'll see.
MOCK TURTLE: "the house of cards built on selling the derivative of a derivative of a derivative...is highly deceptive and will result in litigation."
Yes, it will result in litigation--but not for the reasons you think. Instead of it being about fraud, it'll be about investors not accepting losses due to their risk they took. It'll be no worse than shareholders that sue companies because the stock price dropped 20% and they can't take a loss.
MOCK TURTLE: "And finally mixing in of BBB or less into the CDO and calling it all AAA just because the pain is spread around is just fraud plain and simple."
It may or may not be dumb but it's hardly fraud. The investor decides whether to purchase that AAA-rated asset vs another AAA-rated asset. Also, don't call it quits before the game is over. I personally am still not sure that CDOs will perform worse than direct RMBS. We'll know in about one year. CDOs may indeed lower risk because they are pooled assets (it's sort of like saying a mutual fund is safer than a stock).
MOCK TURTLE: "no one has plumbed the depths of this madness......... but we will."
Some will go down deep but for all the reasons. Instead of trying to figure out what caused the problems, it'll be a game of pinning the blame of someone else, and trying to get the government to give money to cover losses...
For instance, NR has been using an Enron style special purpose vehicle based offshore to store up to 75% of the loans it was making. This vehicle called Granite Holdings was buying up NRs loans at a discount and then repackaging them for sale to Wall Street as bond issues. So NR gets to profit today from loans extended but unpaid whilst Granite and its investors gets to hold onto the underlying assets and earn interest on them over the longer term. This is a typical example of structured finance whereby a financial institution profits by pocketing the difference between short and long term interest rates. The problem for the government and that big fat liar Alistair Darling is that although Granite is controlled by NR it remains an arms-length entity. This means that NRs creditors will not have legitimate claims on the assets it holds e.g the loans that the government credit is supposed to be secured against. Moreover, if Northern Rock were now to admit defeat and go into administration this would also cause credit ratings agencies to downgrade the Granite bonds potentially causing the government to have to come to the rescue of that as well.
Now the Guardian has done some digging and found out that the Charities Commission are not entirely happy about the fact that the tax breaks enjoyed by Granite seem to have been secured by its imaginary support for a small Downs Syndrome Charity. Yet according to NR this is standard practice in the world of structure finance.
"And at the heart of Granite's operations is a rather peculiar fact: on paper, at least, it had been set up to benefit charities, and in particular a small organisation for children with Down's Syndrome, and their families, which was being run from a semi-detached house on the outskirts of Newcastle.
The bank said the naming of a charity was a standard part of securitisation, the process which the bank had employed to raise funds through Granite. "Any notion of inappropriate use of the charity's name, or impression that the charity may be exploited, is entirely without substance," a spokesman said." Latest financial, market & economic news and analysis |
Business |
guardian.co.uk...
Yer oversimplifying - there are many here who are perma neither - it's just that a clear eyed assessment of current conditions results in a bearish outlook IMNSHO.
[Full disclosure - some bonds, mostly cash, long puts but wishing I had been less disciplined about limiting total exposure lol]
WFC is also a popular pick, but I think they are "hiding" something. I had a short on them at $32, but got stopped out, now they're at $26 and probably have more room to run down.
Turbo: I was in cash the past two years because I saw that the last 6 years of economic expansion was predominantly due to FOUR TRILLION of fraudulent consumer lending and more TRILLIONs of public-sector wastefulness like Medicare Part D and the eternal GWoT.
I didn't want any part of that house of cards. My cash will still be around to pick them up when we get back to what the fundamental values can support.
The combination of gross oversimplifications and acting like an unhumble king is not very helpful. some of us have had large portfolios of longs and shorts/puts and have made money on both sides despite being wrong on shorts for 3 years. The compounded return over the entire decade will speak for itself.
The Proshares doubleshort funds mainly hold swaps contracts.. just look at the prospectus.
They are leveraged about 2:1 (hence the "double short") by entering into swap agreements that say they will pay out the return of some index based on a notional amount 2x the cash on hand. The counterparty says it will pay out the decline to the proshares fund.
From what I could tell in the past.. you got about 1.8x return.. but it varies. I figure it's worth the vig since you don't have to bother with worrying about losing more than your initial investment.
Since these are swaps contracts.. there's a real concern about counterparty risk.
Wow, go to bed after the Nikkei tanking just to find the STOXX went with it and futures looking scary as hell. Nothing like ~5% down across the board to get people's attention.
OT - Paul Krugman compares the match of consumer confidence to the unemployment rate and the employment-to-population ratio (e-p ratio has a better match to confidence and has been falling since the late 90's, corresponding to the fall in consumer outlook).
OT: I'm watching a funny faux news infomercial right now made by Greenlight Financial. They are hustling FHA secure mortgages as a replacement for subprime. The show is called "Monthly Mortgage Report". I think I will refi now! I've got the green light! Can't wait for the FHA mortgage crisis.
RE: Ultrashort ETFs and their performance vs. their targets.
Well, here's one example -- SKF (Proshares US Financials Ultrashort) vs. .DJUSFN (Dow Jones US Financials Index). The DJUSFN is SKF's target, so if it is underperforming in the long run, this comparison should show it:
So, at least during periods of sustained weakness in the target index, SKF seems to do quite well relative to its stated goal of doubling the moves of the target.
There does seem to be some trend to underperformance during periods of lower relative volatility (compare YTD vs. 1m), but the fund has still managed to outperform at the 1 year point despite costs.
"I see nothing in the present situation that is either menacing or warrants pessimism . . . . I have every confidence that there will be a revival of activity in the spring, and that during this coming year [1930] the country will make steady progress."
Here's the bad news: Your loss of 70-90% on ABK is not the worst stock investment posted on Calculated Risk. That honor goes to Sebastian for his NEW purchase -- 100% loss.
Here's some good news: ABK can still catch NEW.
Here's more bad news: Sebastian took it like an adult. He owned up to his mistake. He didn't pester the rest of us with continued claims that NEW really was a good investment. He had the decency and maturity to drop the subject.
The short ETFs don't enter swaps if there's futures or options available. Why would they? That's just boilerplate disclosure.
That's bunk that the double shorts just deliver 1.8 the inverse, as estupido has shown. Just get in 'em and you will see over time. They track pretty well.
"This rout is being driven by hedge funds to panic ordinary investors. When the panic is on, the hedge funds will start buying again, and this cycle may repeat several times. It's a hedge fund dream scenario, because they profit from volatility."
rich, it's hugely optimistic to think that hedge funds are trying to panic JSP, are getting short and then will ride each wave up and down to rake in the profits. Only the first part of that sentence may be true.
This kind of thinking doesn't take into account all of the fictitious capital that has been destroyed and that is getting destroyed. Massive cascading cross defaults are now devouring everything and everybody in a clear death spiral. IMHO, there is a reason why some of the reliable currency and commodity structures (Yen carry trade, for example) don't seem to be operating and appear to have largely decoupled from past correlations. In the past, when the Yen fell hard, US markets would rally. When the dollar fell hard, gold and oil would rally. Now things aren't working as well.
My view is that we are perhaps weeks (or even days) away from a major market crash that will destroy almost all 401K's and JSP investment for many years to come. Good luck to the hedgies that try to engineer a rally after that. They'll just be throwing their money away as nobody will be there to take the other side of the trade, except maybe more hedge funds! LOL. When the snoke finally clears, people will get back to the basics of dividend investing.
There we go:
The pros and cons of various ways to short an index, including arguments against ultrashort ETFs, which basically amounts to capital base calculations.
That article misses some salient points, for instance, the shorting seems to come at no cost. Since when don't you have to pay margin interest on the short position? And what about covering dividend payments?
In other words, an investor who had simply shorted the QQQ (and had the guts to hang on as it more than tripled) would have lost less than 10%... um, at some point, this investor veered from gutsy to mindless. And he must have had a lot of money waiting around to use on all those margin calls...
Another point he misses, just as the ultrashort ETFs have a hard time recovering after an initial fall, if the move down in the index is sustained, any short-term pop up has a lessened effect negative effect on the ultrashort ETF.
His problem was he shorted way to early, not which way he shorted.
The ultrashort ETFs are not going to be double inverse yoy figures, they may move more or less than the underlying index would indicate. So what?
I have been asked to be a dinner speaker at a Chamber of Commerce ammual meeting tomorrow in a small Montana Town. They want to know how to take advantage of the fiancial turmoil to market themselves as a safe haven. What am I going to tell them after tomorrows market closes? Plant big vegetable gardens and bury their guns.
i agree with u. i think the vast amt of speculation in the mkts involve HF's, IB's, and wealthy investors. the avg JSP hasn't had the money to participate. much of this unwind is going to pit the former against one another as we've seen in Pauslon, Ackman, and GS. we could just blow right down thru much of the much bally hooed support levels. this is going to be fascinating
u r very presumptuous aren't u? as i've said loudly and many times on this site, i've been short and hold for over a yr. up 4x. not bragging but trying to illustrate what can be done on this side.
There must be a theoretical upper limit on how high something like SKF can go. Anybody has any idea what that would be or how to calculate it?
bZb | 01.21.08 - 1:34 pm
idoc, agreed. When the market finally bottoms, most hedge funds will be relegated to the scrap heap of history. Ironically, GS may go private AGAIN for pennies on the dollar.
The system resets and we do it all over again in 80 years (GDIII).
"This kind of thinking doesn't take into account all of the fictitious capital that has been destroyed and that is getting destroyed. Massive cascading cross defaults are now devouring everything and everybody in a clear death spiral."
Exactly. The assets are booked as worth something. They are worthless. I wouldn't even think of burying guns right now. Although the vegetable garden isn't a bad idea.
Wow, so the mere suggestion of moving a modest percentage of my portfolio from treasuries, which now yield half of what I bought them at, to equities, which will be around 20% off their highs tomorrow, is a really radical idea Probert? And Misean, the only equities I kept over the past year were energy and commodity stocks I bought back in 1998 when that was considered a crazy idea. I used to find the comments on this site largely interesting and useful. Now it's just become a morass of end of the world types to commiserate on (with apologies to Tanta, Dryfly and many others who still have an informative perspective).
The pros and cons of various ways to short an index, including arguments against ultrashort ETFs, which basically amounts to capital base calculations.
probert,
Maybe there is a mathematical reason why the Ultrashorts don't have returns as good, but, if there is, this guy hasn't found it. His own math is wrong. The example he uses involves a 20% move up in a stock, followed by a 20% down move. He argues that this leaves the stock right where it was at the start. This is incorrect, because the 20% down move is larger than the 20% up move. His example doesn't work.
I too have been considering the shortfunds and ultrashorts.
the last thing that's keeping my hand off the trigger:
I don't quite understand them fully yet. as they say, "never invest in something you don't fully understand".
that said, the only thing i've found that is of any worry is the swaps argument.
I also did digging a while ago and noted that the Proshares ultrashort funds had a fair amount of swaps.
counterparty risk is counterparty risk.
that said, there are a lot of places in our "economy" right now that seem to share counterparty risk right now IMO.
will the SWF's repeat the same mistake of the Japanese buying up US real estate back in the late 80's? don't see their investments doing too well so far with BX, C, MER, etc.
i think they will stop funding us soon if not right now. this means we will finally start seeing all the BK's we've been anticipating. my AFBIX will start catching up with all my other shorts.
Just wanted to weigh in with thanks for all the great info on SRS, SKF, et al. Will probably short TLT tomorrow.
Anybody have a view of whether there are any homebuilders that might still offer a reasonable? I've been watching NVR, which still seems to have way too much meat on its bones for what is about to hit.
Now it's just become a morass of end of the world types to commiserate on (with apologies to Tanta, Dryfly and many others who still have an informative perspective).
Turbo | 01.21.08 - 1:43 pm | #
Turbo - you are right to start thinking about what's next after the blood letting - but I think you want to wait for the blood letting first.
I could easily see DOW 9000 in fairly short order and I'm at least half LONG (not a short). I have the rest in cash & bonds so not 100% exposed.
But I agree there will be opportunity but I'm not going to be in a hurry until I feel I understand what's going on better.
One thing for sure if the dollar keeps falling though - plan to start looking real hard at domestic mid-cap manufacturing. Especially those in products that would benefit from pork barrel spending... I have to think about that one for a while.
I'm only 20% equities, 80% bonds, and planning on bumping that to maybe 50/50ish this week, so I think we're in about the same place - hardly the stuff of a raging bull, and no financials on my list. This strikes me as being more of a financial panic, though I also think we're in a mild recession now. Large cap industrials with little or no debt are where I'm fishing.
It's not surprising that investors relied on the rating agencies. My banker, the regional pension manager, the local estate planners & investment counselors do not understand the complex world of derivatives. Heck, a month ago, many living here amidst the cornfields didn't even know there was a monetary crisis brewing. I know this for a fact. Many sophisticated investors have been burned over the recent years. If government advisors & bankers do not understand it, how can you expect J6P to grok it. SV will diss regulation until he is the one taken to the cleaners.
Sounds like you're a quant on Wall Street... I'd worry less about what constitues fraud and more about your own job and the future of quant as a going concern..... Then again, Bangalore has lots of jobs....
I am also starting to kick some tires - mainly exporters who will benefit from the weak dollar. But I'm not ready to buy yet - markets tend to overshoot, and I don't think this has happened yet. Look at the multiple on the Russell 2000 - still higher than that on the S&P 500. This doesn't make any sense because bigger companies should ride out a recession easier than small ones. Also, I haven't seen many companies go into banktruptcy.
Also, I think there are several bubbles that have just been pricked (oil, gold, emerging markets). At this point, I still think it will be easier to make good returns on shorting these deflating bubbles than going long.
Okay - there shouldn't be so much confusion about the double ETF's (long or short) but there is. I'll make an attempt to clarify things.
The double short or double long ETF's are designed to return 2x the daily return or negative 2x the daily return of their benchmark index. In order to do this they enter into daily swaps trades to be either long or short twice the total assets of the fund that day. For example if the fund had assets of $1000 it would enter into a swap with exposure to $2000 of its index either long or short.
Swaps like futures don't have to be paid in full - therefore the balance of the fund is invested in cash or very liquid instruments like treasuries. The fund investments in treasuries is why many of the levered ETF's had income distributions this past December.
Going back to the significance of returning twice the daily return of the index (negative or positive). This means that you can't expect the 2x fund to return 20% for the year when the index returned 10%.
Hopefully a cut and paste from MS Works comes through formatted okay
\t1 to 1\t2 to 1\tNeg 2 to 1
\t$100.00\t$100.00\t$100.00
5.00%\t$105.00\t$110.00\t$90.00
10.00%\t$115.50\t$132.00\t$72.00
-25.00%\t$86.63\t$66.00\t$108.00
1.00%\t$87.49\t$67.32\t$105.84
-8.00%\t$80.49\t$56.55\t$122.77
2.50%\t$82.50\t$59.38\t$116.64
5.00%\t$86.63\t$65.31\t$104.97
10.00%\t$95.29\t$78.38\t$83.98
\t\t\t
\t-4.71%\t-21.62%\t-16.02%
The left column is the daily % change in the index. The other columns represent the daily share price based on that funds stated objective. The last row shows the percentage change from inception.
All,
So, at least during periods of sustained weakness in the target index, SKF seems to do quite well relative to its stated goal of doubling the moves of the target.
Exactly and I have no disagreement with that, this is totally true. The problem is if there's lots of dead cat bounces or straight-out market stupidities.
Turbo,
I value your posts very much, I have sometimes even searched haloscan comment pages for "Turbo". I just didn't like it that you sounded all cockained-up.
jg,
Way back at the start of the thread. Aren't shorts also a 2-way street? Who is going to allow the hedge funds to borrow stock when the market is looking like it is? Are other people really that stupid?
dennisdman or whatever you are calling yourself - I gave you the benefit of the doubt last week but now I can see that you are the worst kind of vermin, a blog spammer. Nobody here is interested in your bogus website that probably is either infected with the latest javascript virus or simply a tool for you to try to make money off of illegal and immoral behaviour.
I have logged your site's domain information, including the registrant, and it will be passed on to the FBI and/or other controlling authorities.
Exactly, this is the same thing I was saying about the FDIC. And it's the same thing that they did in the theoretical bird flu scenarios where everyone tries to run away from the large cities. Good luck being accepted into a village.
Given the carnage in the non-US markets today, will we have a universal margin call tonight?
Last Spring, there was one. The usual correlations went to hell and most of the hedges didn't work. The new correlation was liquid assets (large caps, gold, tec.) correlated to 1 as they were sold to meet margin calls.
I hope readers realize you are joking when you give advice on how to store Ammo.Modern Ammo is fine for at least 20 years if stored in a cool dry place.If you actually intend to bury it,I would recommend putting it in a sturdy plastic container along with some silica gel to absorb moisture and sealing it very well before depositing it in mother earths embrace.gear lube! come to san francisco if you want to see that used imaginatively.
How about mission equipment replacement like Abrams thingamajigs and Stryker watchamacallits.
Absolutely - the whole inventory over there is worn out - not even worth bringing home. It will all have to be replaced. I've been told that by industry folks & soldiers returning - double confirmation. It will cost many enormous amounts of money.
The system the government uses to appropriate money might indeed be considered "many enormous amounts of money"! Further, what the heck is enormous on the scale of what we've been seeing? billions hardly register, trillions I guess.
Wow, a first! Anyways, can look at this one of two ways, one is that the U.S. banks are not taking all the hit, and thus the reduction in their capital is less than it might have been. On the other hand, will big hits in China lead to a slowdown there (would obviously not be the only factor). China has clearly been the locomotive of world growth over the last few years, and if it is slowing...
If we do crash tomorrow, I hope everyone keeps their heads about them. This has been building up for a long time, and in the long run the best thing possible might be a good purging.
Not that it will be any fun to watch, even a bear like myself can't generate any enthusiasm for a global depression.
As I have been saying for a while, when it's all said and done, secrutization of mortgage assets is going to be shown as a good thing. The politicians and vested interests who are trying to profit off the crisis (like Jim Cramer and his bashing of the monolines (yes, I'm a monoline shareholder)) may not agree but in 10 years people will say it was a good thing. If US citizens or US businesses held all the risk, instead of it being sold to investors all over the world, USA would end up in a depression for sure. But as risk is spread across the world and investors able to tolerate risks, the damage isn't localized...
OT:
The Florida Banker's Association wants a "No Hats, No Hoods, No Sunglasses" policy for customers entering their banks.
Jeez, seems to me that a hat, sunglasses, a hood, and a Mac-10 are just a way to level the playing field when you sit down at a banker's desk these days...
OTOH, after this week is over, the bankers themselves might be slinking out under cover of hats, hoods, and sunglasses...
cd
It's not a matter of taking the static losses and moving on. It's not like there is a certain dollar value of losses, and once those are accounted for we can get back to doing business.
It's a sign that all the profits and risk assesment and financial innovation over the last several years is all a fraud. The losses are a sign that growth we've experienced are an illusion. What do we go back to? We can't go back to the system that caused this.
It's like a dieter who realizes that the hard part isn't losing the 100lbs, it's the life change required once the fats gone to make sure you don't just gain it all back.
The world is in for a financial overhall regardless of current losses.
Eventually, foreign goverments may learn (at least for a while) that investing in American assets and currency has some risks. Don't we need over 1 billion per day from foreigners to fund our trade deficit? That has been mostly in treasury bonds. Americans may need to pay their own way for a while, unless we want to sell the whole country at fire sale prices.
The Florida Banker's Association wants a "No Hats, No Hoods, No Sunglasses" policy for customers entering their banks.
In the inner city that may be a concern, but out here in rural farm / ranch Florida, telling someone he has to remove his green Deere hat might not go over so well.
Cash market would be the best cure for the US RE market, get rid of the GSE's, FHA and assorted gov't give away's.
Like I said about 50 times over the past year, just wait until hedge funds shift their remaining leverage short. Nobody else here said it. Nobody in the MSM said it, either, that I heard.
But you'll be reading about it a lot in the days ahead. Joe 401(k) will not be happy to know big hedge funds were getting rich while he was going broke.
China has clearly been the locomotive of world growth over the last few years, and if it is slowing...
Oil over $50 a barrel significantly impacts growth in the emerging countries. The emerging countries want to emulate the U.S. growth but didn't realize it was based on cheap oil, the good news for them is that they do not have to build all the burbs and shopping malls put a
RV, ATV and 3 cars in every driveway to discover the hard truth.
Interesting comments at the Barber Shop on Saturday. Yes some of us still go to barber shops and read hunting magazines. Even that crowd is appreciating the current situation. Recognizng the loss of RE values and suggesting this is not the time to buy that new four wheel drive truck. Tough times coming.
securitization of mortgage assets is going to be shown as a good thing.
No question -- bundling and - of mortgages is a good thing, and is the essence of the GSE business model.
The problems came from the massive fraud perpetrated by the Wall Street Investment Banks and Bond Rating Agencies, in their slicing and dicing BBB and BBB- rated sub prime mortgage CDOs, and selling them as AAA rated securities. The problem is fraud and lack of transparency -- not securitization.
Kyle Bass called it the biggest bait and switch of all time -- he was far too kind to the perps in this scam. If these securities had been peddled by Chinese companies, their executives would have already been dispatched after a one day show trial -- the Chinese do not take kindly to abuse of the public trust.
FT-alphaville Hayman's Capital subprime letter
==========
@SV:"As I have been saying for a while, when it's all said and done, secrutization of mortgage assets is going to be shown as a good thing."
Securitization wasn't the problem in and of itself. It's the separation of risk from reward through loss of transparency and lack of regulation, which allowed bottom-feeders to poison the well with toxic waste unchallenged.
Had checks and balances been in place to enforce standards and remove unruly players, ensuring that the risk profile of an SIV was what it was assumed to be, things would be different now.
Instead, the bottom feeders were allowed to multiply like flesh-eating streptococcus, with the same ultimate consequences.
Until society has the wherewithal to identify and step on the necks of the sorts of people that made this possible, we're doomed to see it happen again. It's just a matter of looking for the next bubble now.
Gold, anyone?
cd
rich, I agree with you, that nowhere else have I heard your statement, 'Watch out when the hedgies turn from support to shorting.'
Is there any data or anecdotes that we can view that will show when such has happened?
"If these securities had been peddled by Chinese companies, their executives would have already been dispatched after a one day show trial -- the Chinese do not take kindly to abuse of the public trust."
I'm hoping Singapore can buy up a few US companies just so they can cane our CEOs.
Re the Barber Shop:
The other weekend I was at the hair salon, where kids, work and Britney are usually the topics of the hour. It was all about the economy. And specifically, openly wondering if a lot of friends and neighbors (in the general sense, not gossiping about anyone specific) really had all the money they appeared to have (for new houses, clothes, vacations, etc).
It is a small but telling turnaround when people are now openly questioning this "reality" when before they just aspired to the same.
jg,
Besides Dow 7,000? Anyone - Buehler?
"Americans may need to pay their own way for a while, unless we want to sell the whole country at fire sale prices."
We're probably going to see a combination of both. Struggling companies will sell pieces of themselves, of divest themeselves of subsidiaries or assets, to foreign interests. I saw Bank of America go through a cycle like this in the 80s:
1) Sell foreign subsidiaries; 2) sell domestic subsidiaries; 3) sell any odd assets sitting around (land, office buildings, a guest house in Japan for $30 Mill). Citi and the rest have added a new Step 1: sell hunks of themselves to any foreigners dumb enough to sign the papers. But the other steps will follow.
And yes, if the dollar cheapens enough it may be hard to find anybody foreign to buy our shiny treasuries except at south-of-the-border interest rates. That's one way to Whip Inflation Now.
Rich, we heard ya, I remember your comments vividly in fact.
Hard to tell what people lend credence/support to on comment threads. The silence can be deafening and frustratingly so.
I don't know--in the last three weeks short interest peaked and started down. Some of the relative strength in the Russell 2000 last week was probably shorts taking profits. One troublesome sign for longs showed up at options expiration on Friday. A lot of S&P (SPY) puts expired and were not rolled over, reducing downside hedging. I think that institutional/professional investors were too confident in the coming bounce and this has really backfired on them.
The question is whether big money invesors (mainly institutionals) will really sell the futures markets. You could argue that they already have, but with such leaveraged instruments as futures, we could see tremendous volatility. Any guesses on the VIX volatility index for Tuesday?
The yen is a barometer for risk appetite. So, if the markets fall a lot faster than the yen rises, it means there is still liquidity available and it is being put short by hedgies. There's nothing to stop a hedge fund from borrowing yen and using them as collateral for shorts in futures/options/ProShares ETFs.
This rout is being driven by hedge funds to panic ordinary investors. When the panic is on, the hedge funds will start buying again, and this cycle may repeat several times. It's a hedge fund dream scenario, because they profit from volatility.
It's the sharks against the minnows. By the way, some hedge fund will be minnows and get eaten.
CK: "The problems came from the massive fraud perpetrated by the Wall Street Investment Banks and Bond Rating Agencies, in their slicing and dicing BBB and BBB- rated sub prime mortgage CDOs, and selling them as AAA rated securities. The problem is fraud and lack of transparency -- not securitization."
What fraud are you talking about? THe only fraud I can think of is borrowers lying on their income or some fake securities being sold or something like that. But claiming that re-packaged secruties is fraud is the dumbest thing ever. I mean, I'm no fan of rating agencies but rating agencies provide an OPINION. No one is forcing anyone to follow them or even use them.
The problem with some of you is that you, like Jim Cramer, wants to socialize risks while profitting from the upside. No one forced anyone to take the risk and buy the securities. Investors should do their homework and suffer the consequencies or get the profits.
CK: "Kyle Bass called it the biggest bait and switch of all time -- he was far too kind to the perps in this scam. If these securities had been peddled by Chinese companies, their executives would have already been dispatched after a one day show trial -- the Chinese do not take kindly to abuse of the public trust."
Obviously you don't believe in the free market. No one forced anyone to buy anything. Given the fact that you believe there was fraud, whereas I don't think there was, probably means that you'll never agree with me. Corrupt Chinese officials supposedly corrupt entrepreneurs and executives is not my idea of justice?
"Yes some of us still go to barber shops and read hunting magazines."
I just about spit out my coffee. I haven't been at a place like that in 40 years, but the hunting magazines brought it all back. Yeah, and well-thumbed copies of Argosy and Police Gazette.
jg
No evidence but I bet 2002 Nasdaq.
OT,
However interesting I have been up puking since 3am and turned on Bloomberg. A cute little blond was handing over the desk to Julie Hyman about 5am. She was real sarcastic with Julie and said bad day for everyone but you I guess since your short the market. Now I have considered Hyman to be your typical cheerleader through this but I guess she does have a clue. Wonder if Bernacke is short?
SivaramVelauthapillai |
More Tard speak...
selling what has no value in distant lands pisses people off in said lands.
"Watch out when the hedgies turn from support to shorting"
True enough, there may well be a massive shift to the short side, but then the 800 pound hedge fund, the U.S. Treasury, might just try a short squeeze.
Not disagreeing with you, rich, just pointing out the obvious: bear markets are volatile and somewhat more unpredictable (e.g., last August when the quants had to buy "weak" stocks and sell "strong" stocks).
For now, I'm staying out of this market, long or short. Watching is much better for my blood pressure.
Gold, anyone?
cd
Circling the Drain
Gold's not doing exactly well her, either I guess. See you at $500.
O-Joe
A falling yen means risk appetite is rising. A strengthening yen means risk appetite is falling.
Be careful, because it's usually quoted as yen per dollar. So, a strengthening yen will be declining on the charts.
SivaramVelauthapillai writes:
"yes, I'm a monoline shareholder)"
Does that color your view in any way?
I think that the "fraud" comments refer, at least in part, to the bond ratings agencies and investment brokers who sold financial securities. However, I agree that it should be "buyer beware." On the other hand, at least in retrospect, our country and the world would be a lot better off if the appropriate government agencies had weighed in against "nothing down" and "no doc" loans.
Gold's not doing exactly well her (sic), either I guess. See you at $500.
If so, see you at Dow 4000.
You're a hoot, Joe
I would not bet against gold or silver over the next few months. There is a temporary unwind of hard metal positions to increase liquidity and cover losses. But the market may be flooded by paper money and inflation fears in the months ahead.
The Fed will fight deflation tooth and nail. Where can smart money hide if not in gold/silver?
"Gold's not doing exactly well her, either I guess. See you at $500."
I think a brick fell on your head. When CBs start monetizing debt, it's leaving the solar system.... so will prices of most items too.
We borrow $1-3 billion a day to fund our government.
I called my congressman and told him dont do any stimulus plan if you just plan on borrowing the 150 billion from the chinese. Do it only if you cut spending.
SivaramVelauthapillai, before you embarass yourself further, please make at least an an introductory study of the concepts of Adverse Selection and Moral Hazard. You really do sound like the most simplistic Reaganbot.
The question is when does it dawn on J6P that he plays by the rules (and keeps the system stable), while the hedgies exploit the stability for profit and think him a fool.
Kind of like the traders in Enron viewed the people in California as nothing but a bunch of losers who didn't "understand" that electricity is just a commodity.
You're all missing the obvious solution, simply follow thhe 'smart money' and buy whatever the Dubai and CIC buy. But you may want to wait a while... a long, long while.
Like I said about 50 times over the past year, just wait until hedge funds shift their remaining leverage short.
rich,
You are making the assumption that margin will be available to the hedge funds.
If deleveraging begins.. there will be a discontinuous fall in prices.. and I'd guess many hedge funds will get sucked under if they're sitting on any long term derivatives contracts.
Now, there's nothing to prevent some person to start up a new fund, ferret out some margin, go ultra short and try to strike it rich (no pun intended?).. but, I'd guess they'd need to be pretty nimble to not blow up.
One of the agreed ways to make money is to sell volatility as it's increasing.. not to buy it. So, any one smartypants running a hedge fund better be fairly right-on about the put/call selling he/she does.
I called my congressman and told him dont do any stimulus plan if you just plan on borrowing the 150 billion from the chinese. Do it only if you cut spending.
stealthwii | 01.21.08 - 11:28 am
Your congressman probably understood that as well as he understands Chinese.
"Cut spending....what is that?"
SV-
YOu are down 90% on ABK, quit talking your book.
As of less than a minute ago, the DOW futures were down 520. Could we go down 1,000 in a day in the DOW with a real panic? Would the VIX go to 50 or would everyone agree that it's too late to buy crash insurance?
Given the current market conditions, it seems the only 'investments' that look promising are:
1) shorting
2) put options
3) ultrashort ETFs
Summary of performance across the pond:
http://www.marketwatch.com/news/story/financials-freefall-societe-generale-bnp/story.aspx?guid={C1BF4ED4-51EE-43FE-BA34-CBC2B04D4E69}
Analysts estimate that state-owned Bank of China ... may have to write off a fourth of the nearly $8 billion it holds in securities backed by U.S. subprime mortgages ...
Just remember that China executed the guy in charge of inspections after the pet food/toothpaste scandal. I wonder what is going to happen now.
A lot of peeps expecting to retire soon (or already retired) will be staring at their portfolio statements and will be looking for not 1, but 2 jobs so they can eat. Problem is, jobs might prove to be hard to find in the new post bust economy.
Tough road ahead.
Would the VIX go to 50 or would everyone agree that it's too late to buy crash insurance?
BillD,
I'd guess trying to buy puts on SPX or VIX calls right now would be like trying to buy automobile insurance right after finding out the brakes in your car don't work.. and you're presently driving down an exceedingly steep mountain.. and the insurance company has OnStar in your car and knows your brakes are busted.
You could buy.. but you will get the worst deal possible.
SivaramVelauthapillai sez:
What fraud are you talking about?
You must be new here.
SV --
The fraud was selling CDOs and SIVs backed by sub prime mortgages as AAA rated bonds.
Yes, we live in a buyer beware world -- but when the bond rating agencies and investment banks collude to sell garbage as AAA investment grade bonds, I call that fraud.
I believe in free market capitalism -- I also believe that unregulated free markets are a recipe for disaster.
Who would have thought of this? TSUNAMI is on us!!
"When a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well -- putting some $1.4 trillion of municipal bond securities at risk and more than $600 billion of structured finance securities at risk."
All those predicting a crash tomorrow/this week may want to be wary of the earnings scheduled for this week:
US Earnings: Company Earnings Calendar - Yahoo! Finance
This could end up being one volatile week: can you imagine the Dow down 500+ tomorrow, and then AAPL beating earnings after the bell with good guidance? And I can't even fathom what an AAPL miss would lead to after a day like that.
Plus WACH and BAC.
Anyway, if the Dow is down 500+ tomorrow, I'm closing 75% of my short positions EOD and take a break for a day or two.
What is the average market correction during a severe recession?
"Yes, we live in a buyer beware world -- but when the bond rating agencies and investment banks collude to sell garbage as AAA investment grade bonds, I call that fraud."
I gotta second that. These POS' ruined the credit markets and played a major role in the mania and now don't want to take responsibility for the collapse.
Eff them...
i rode my bike into work just now on a crisp,beautiful sunny day here on the W. Coast. sort of surreal thinking about Asia crashing while enjoying the ride.
alot depends on what happens in Asia again tonite. if we see another big drop i think we could see an emergency rate cut from the Fed. last time when the Nikkei dropped over 800 last summer they stepped in the next day (day before OpEx) and cut the discount rate. i think there is some pent up downside pressure from Fri when i think the Dow was propped up going into the close to stem losses for option traders.
the potential energy stored up to the downside is immense and has fooled alot of ppl. it feels like to me we will slice thru some heavy support levels which will stimulate intervention. this will be considered disorderly by gov't. i still have >60% of my shorts in place from the last yr, a not so insubstantial amt.
i am not selling any of my gold or silver positions as i think there is going to be a rush to protect one's diminishing USD's as the Fed slashes rates. one needs to read Jeff Christians book Commodities Rising to understand gold. its not a simple matter of USD down, gold up or jewelry buying up, gold up, or inflation up gold up. its actually a complex interplay amongst a number of factors. he makes the pt that the dollar amt of futures trading in gold rivals that of treasuries and currency and greatly exceeds that of other commodities incl oil. in that sense gold acts like true money rather than just a commodity. why do u think our CB's still store gold? what we have here also is a fiat currency crisis as all gov't will eventually slash rates as we slide down the abyss. i actually think that maybe, just maybe, we as a global economy may be forced to go back on the gold std in some form or manner. somehow it will be tied to gigabytes or whatever but thats the only true solution to limit all the abuse thats gone on.
"Anyway, if the Dow is down 500+ tomorrow, I'm closing 75% of my short positions EOD and take a break for a day or two"
What's the rush? Are you expecting a rally for the rest of the year?
Just consider yourself lucky that you have shorts. They might be hard to get as the year grinds along.
O Joe, gold may well go down to $500 short-term (that is what I've been banking on, that gold goes down with the broad market), at which point I will be moving every single cent, all now parked in SDS, into gold and gold-mining stocks/mutual funds.
Burn, baby, burn!
I need to hear from Sebastion, Robyn and O-Joe.
Whatever they say, I will do the opposite and feel confident!
Speaking of hedge funds, there was widespread concern last summer about a possible epidemic of withdrawals as the 9/15/07 redemption deadline approached. But that date apparently came and went without much drama. Are redemptions still a worry? TIA.
Just consider yourself lucky that you have shorts. They might be hard to get as the year grinds along.
barely
exactly. i've not been able to get ahold of shares to short on a number of my favorites recently.
jg-gold mining stocks r already very cheap.
Bovespa down 7% this morning, while I have been short the emerging markets since Dec I don't like these big drops but the excess bull equity markets both here and abroad have been jacked by leverage so it can unwind very quickly.
cc,
when Sivram gives up on ABK I'm buying AGO calls.
Are redemptions still a worry? TIA.
Watson
not at all. they will be prohibited
Here's one for our friends across the pond:
Panic
Panic on the FTSE
Panic on the Nikkei 225
I wonder to myself
Could we ever see a gain again
Square mile pub stool you just sit down
I wonder to myself
Hopes may rise on a bailout
But can it stop the stock rout?
So you run on
To the safety of the bonds
But there's panic on the floors of Wall Street
Hang Seng, Bombay, Shanghai
I wonder to myself
Burn down Bernanke
Hang the blessed maestro
Because the nonsense they constantly say
I does nothing to help improve my life
Hang the blessed maestro
Because the nonsense they constantly say
As the ARMs reset they just mark down
Unpaid interest compounds
Hang the maestro hang the maestro hang the maestro
Hang the maestro, hang the maestroÂ…
REBear, best I recall the average market correction in a recession is 38%. Am looking for the citation.
TSX down 4.6% Anyone know what its correlation with the S&P, NYSE, etc. usually is?
for all u longs. u r screwed b/c we will probably see a huge gap down tomorrow.
wow, asian markets got punched in the nads coming into today. . . 3-5% almost across the board...
called my congressman and told him dont do any stimulus plan if you just plan on borrowing the 150 billion from the chinese. Do it only if you cut spending.
hokay Einstein, you cut $150B of spending and you get THREE MILLION PEOPLE unemployed ($150B divided by $50K/yr).
Government spending isn't the problem per se . . . (other than much of it is being wasted on unproductive or downright counterproductive enterprises) . . . the deficit is simply due to tax rates being too low.
Part of the reason home prices shot up in 2002-2003 was the tax cuts. An interesting dynamic that's going to affect the market next decade is the reversal of these cuts.
for all u longs. u r screwed b/c we will probably see a huge gap down tomorrow.
lol, what kind of comment is that? take it easy bro
Conjure Clock
11:59:04
...sure wish we could see how many people are reading CR right now.
I'm betting we are setting a record.
What happens when we get to 12:00:00??
probert
i include myself in that stmt as i bought some refineries the last couple of wks and promptly got my knuckles rapped.
idoc,
I agree with you that downside pressure on Fri was tempered by OpEx - I added to my position late Fri expecting this pressure to explode (implode?) on Tues - so far so good if you follow the futures, but it still a long time between now and Tues at 9:30AM, and who knows what the Fed may do.
barely,
I'm probably not as bearish as some, and since I'm trading ultrashort ETFs (TWM mostly), I don't believe it is that difficult to get in and out, though I imagine the premium over NAV will increase over the coming months.
Anyway, how often do you see days when the DOW is down 500+? I'm taking some profits and waiting for a bounce. IMO, its not that bad, YET. In other words, the information readily-available to the market should not result in DOW 10k YET. It will, but things don't look so bad right now, and there will be a major rally if there is a major crash this week.
Once people get a little comfortable again, it will be time to get back in on the short side b/c the whole cylce will start over again - FEB employment numbers will be poor, companies will start to guide down 2Q earnings, housing starts will continue to fall, rumors of more bank writedowns will come out, etc.
This is just how I see it anyway, I'm not promising I have the conviction to trade it this way. Given what I know, I wouldn't be able to forgive myself if I get caught on the long side on the day of a crash......
idoc,
I have some longs too but I don't care if they go down 80%, I believe in their underlying value... what I'm thinking of next is to short the 2-year. Strip ot inflation and they give you negative yield. It's euphoria in the gvmt bond market.
burnside ,
Thanks.
I love the smell of panic in the morning...it smells like...a buying opportunity...
SivaramVelauthapillai,
Had to stop and just jibber. Exactly waht free market are you talking about? The ratings agencies do not offer "opinions". The are a gov't regulated cartel. Their ratings are written into laws like ERISA. Their are funds which are ordered at gun point to only hold x% of assets below say AAA. So when ratings agencies stamped AAA on toxic trash, it was fraud.
Sheesh!
Cheers,
What happens when we get to 12:00:00
It appears we're safe for awhile. At 3 or 4 days to a week now between seconds, we should be well into the Hillary regime before the final collapse:)
A quote from the article
We expect flat but volatile markets just as in the 1989-92 period
Does anybody speak english anymore? it's all the sales dialect of marketese. This is along the lines of "We are pleased to announce an increase in the weekly chocolate ration from 200 grams to one hundred grams."
probert
that was exactly my question of yesterday. anyone know of a double short on UST's?
i also believe in the energy complex and i will hold my positions in those refiners for however long it takes. got em cheap.
The reason my 401K has been in cash since it started in mid-2006 is because of days like these.
I may have missed the run-up of 2H06, but as of now NAVs are back to January 2007.
FMC,
Non-linear timekeeping is not susceptible to your frame of analysis...while it may indeed time out that way, like the man said, "Events dear boy, events."
we should be well into the Hillary regime before the final collapse:)
Socalism and the hedgies and short sellers will get to pay for it, after all they will be the only one left to tax.
i'm beginning to worry again about my money mkt funds at Fidelity where i keep my brokerage acct. saw another article this weekend about how the SEC requested docs from them and several others about exposure to SIV's. any ideas?
What about a rate cut this afternoon? Probability getting greater-strike today while it could stop a drop tomorrow.
SivaramVelauthapillai ,
You are totally wrong. If the lend and hold model had never been superseded by originate and sell securitization, the loans would never have been made. When you make a loan knowing you are going to hold it on the books, you look the borrower in the eye, you demand to see his income taxes, you did deep. You also demand 20%, 30% down. If we had never digressed from this standard, all this debt never would have built up.
rebear here ya go....
The feeling I get is people donÂ’t know how bad it is," says Sam Stovall, chief strategist at Standard & PoorÂ’s. "ThatÂ’s why we could see a day or two of counter-trend rally," which was briefly the case on Friday, when stocks opened sharply higher only to fall again.
Stovall says the market is entering a "typical pre-recessionary mode," citing statistics showing that the stock market has anticipated every one of the 11 recessions since WW II.
Playing that out, stocks typically fall from their high nine and a half months before the onset of a recession, bottoming out six months into the recession for an average decline of 26 percent from top to bottom.
Using that model, this time around, stocks have been falling since their Oct. 9 record high, a recession will start in July and the market will touch bottom in January 2009.
Going into FridayÂ’s trading, the S&P 500 was 14.8 percent below its high four months ago. Stovall is quick to admit that the current Street consensus says if the economy suffers a recession this time around, it probably began in December 2007, which doesn't entirely jibe with the historical pattern.
Stovall says the market's woes are more about the credit crunch than the Fed. "Will the Fed really be able to do enough, quickly enough to undo all the negatives?"
idoc,
I've never really been a fan of those ultrashort ETFs for well-known mathematical reasons; and I use derivatives anyway.
idoc --
ING has an FDIC insured Orange savings account that pays 4+% interest right now -- no minimum balances, with up to six transfers out per month. I maxed out my HELOC and parked it there, as a hedge against the worst case scenario.
Any cash that is not FDIC insured is at risk.
Where is Conjure Bag's clock???!!!
Also, we could do with a "YIKES" label for this post.....
we are in a zone where traditional economic prescriptions are in effective.
Why?
because we don't make nearly as much, in America of what we consume, as we used to.
The 800 or 1600 dollar shot in the arm proposed by this failed president and our supine congress is just another white line on the mirror for our junkie economy.
The money might buy clothes, a few nights out, a plasma or what-every for many. some will pay down a bill...and others a down payment on a durable good.
but in the end we are forestalling the inevitable because our "import way over export", "70 plus percent consumer based economy" with a government that borrows over a billion a day... IS... TERMINAL...PERIOD!
the only way out of this mess is innovation, investment and inployment, (ha ha ha...copyright)...ie put people to work right here building the next.. best.. thing.
And what is that? Ah,simple; A 21st century energy and A 21st century transportation system.
unfortunately the free market is incapable of doing this alone. Government must provide the start-up then step back and turn private enterprise loose.
don't believe the private public part of this? check out the history of the building of the grand coulee dam...privateers failed over and over to manage a start up) or NASA (started by government and now, when it comes to launch ops really a Boeing subsidiary.
our government must launch an energy "Manhattan project" tomorrow or it is a permutation of a rhyme with 1929 for the great majority of us.
Any cash that is not FDIC insured is at risk.
I don't know if that's enough. Maybe FFDIC or Tanta can weigh in on this, but if we all go and open as many sub-$100,000 FDIC-insured accounts, well, you know.... I mean, FDIC insurance is not predicated on everyone rushing in this manner. At the the gmnt. probably will take care of this at risk of losing people's confidence, but this is gonna cause problems.
How many people are really confident that a Fed rate cut tomorrow or next week will shore up the market? Isn't that just a little too obvious when cuts are already priced in to the treasuries? If we get a cut tomorrow, is the Fed supposed to give a big cut at their regular meeting in a week? I don't really see that the fed can do anything. The problem is that any effect of a cut over the next few months is purely psychological and that effect might just last for just a few minutes.
I am, too. Because I'll already be up about 40% in January, and I've never had a month so good before. I want to retire richer than rich is now, and that means preserving capital.
Stop and think about it. What does January tell us?
This is gonna be a long, strong bear. And it's probably gonna be very volatile. Just think if you have several opportunities to cover your shorts at intervals and each time buy it back 10% higher? In a double short ETF, you can make a killing off volatility.
In the short and double-short ETFs, you can be as smart (or smarter) than a hedge fund and ride along with the hedge funds while they massacre Joe 401k.
I don't want to see Joe get massacred. But if he is, I want to be on the other side.
P.S. I always put in limit orders for short ETFs about 3-4% away from the market price. Lately, they always seem to hit, and often near the high/low of the day. You can make hundreds of dollars a day in SRS just buying and selling this way because it's so volatile.
"What happens when we get to 12:00:00??"
It's a new day, bro!
Bill
of course the cuts won't do anything. but some of greedy traders like to double dip an overdue bounce IF one is coming.
I've never really been a fan of those ultrashort ETFs for well-known mathematical reasons; and I use derivatives anyway.
probert | 01.21.08 - 12:27 pm | #
probert,
Please elaborate, or point me to some links. I actually don't know the mathematical reasons.
A rate cut won't "shore up" the markets, but it might cause them to bounce higher for a few days. In which case, a lot of people will run for the exits and the downtrend will resume in earnest.
Contracts on London-based HSBC Holdings Plc, Europe's biggest bank, rose 9 basis points to 67 today, according to CMA Datavision. Frankfurt-based Deutsche Bank AG, Germany's biggest bank, rose 12 to 67, Paris-based BNP Paribas, France's largest bank, rose 9 to 56 and Zurich-based Credit Suisse Group rose 8 to 70.
ING has an FDIC insured Orange savings account that pays 4+% interest right now -- no minimum balances, with up to six transfers out per month. I maxed out my HELOC and parked it there
A negative carry trade in the same currency? Well I have to give you credit for being original.
Or is that ING account in Euros?
probert,
Please elaborate, or point me to some links. I actually don't know the mathematical reasons.
I second that request. TIA.
BRANTW: "If the lend and hold model had never been superseded by originate and sell securitization, the loans would never have been made. When you make a loan knowing you are going to hold it on the books, you look the borrower in the eye, you demand to see his income taxes, you did deep. You also demand 20%, 30% down. If we had never digressed from this standard, all this debt never would have built up."
There is nothing wrong with offloading the mortgage assets to others. I agree with you that there would be slightly greater scrutiny if a bank held the assets than if an anonymous investor did. But that isn't the cause of the problems.
The cause is financing questionable mortgages (such as those with borrower fraud and stuff like that). The way I see it, investors would demand quite a bit of scrutiny before giving up their precious capital as well.
Think of it this way... If what you were saying were true, we never would have had the real estate crash in 1990, when a whole hoard of banks were wiped out. Recall that banks held the mortgages on their books back in the 80's and 90's so who come they blew up in 1990?
The stock market was in meltdown today as nearly £60billion was wiped off London shares.
A combination of poor economic figures and the worsening global credit crunch sent the FTSE 100 plunging.
At one stage the drop was the biggest since 9/11 in 2001, although the index of Britain's biggest companies later clawed back some of the losses. At lunchtime the Footsie was down 250.1 points to 5647.8.
That means the FTSE 100 has now fallen by around 10 per cent in the last 10 days, by around 15 per cent over the last month and is well on the way to being off 20 per cent since its most recent high of 6754 in July - before the world's banking system was sent spiralling.
It is also the worst start to the year for the stock market since records began in 1936. "I smell the acrid stench of fear and uncertainty," said markets commentator David Buik of BGC Partners. European markets also tumbled.
I don't think that the average duration and extent of the market downturn with a recession gives us much info. Before/during and after the last recession, the markets were off 40+%. Some recessions have seen only 12% declines that we already passed last week. There's a lot between 12-40%. The guestion is whether the current decline will lead to more and more individual and corporate credit collapses and margin calls as this unwinds, or will the markets and the Fed somehow regain confidence. We just don't know how bad the leverage will prove to be and that is scary or should be for those using the past to predict the future.
Word on the street is that Citi supposedly will be unloading/closing their auto loan division in AZ, I'm assuming the same for CA, FL & NV. Amazingly, Citi would fund any crappy loan at any kind of term. Absolutely shocking [/sarcasm]
I got into it with a lady over Citi at my local because she felt that they had done a kitchen sink(she was buying the dips(dipsomaniac?). I then had to explain to her:
*How much capital they've had to raise in the last 90 days
*Capital reserve ratios
*Every crappy bet they've made in the last 2 years
*The lack of a deal making environment(except for divestitures) going forward
*The amount of pier loans they're stuck with and how that reduces lending volume going forward
And the light bulb finally flickered on.
So the market crashes. Well nobody complained when it went up day after day after day. Blah.
We can't do anything until tomorrow, when it will be too late;-}
On the other hand, I guess I should enter some really low cover prices for my homebuilder shorts, as they will most likely freefall tomorrow no matter what.
The Chinese are starting to disengage from our economy, when your vendor cuts off your credit in a highly leveraged investment, you are dead.
I wonder who will get to do the BK for the USA? As for gold...well, it may drop in terms of yen or swiis francs...
Someday this war's gonna end.......
IMHO, if the Fed cuts tomorrow, that will signal FEAR! Even if there is a brief rally it will end poorly.
Cheers,
Hey anony, please cite and quote/italicize your c&p efforts. TIA.
SivaramVelauthapillai at 01.21.08 - 11:22 am | # questioned CKs observation that there was fraud.
I believe CK is right and SivaramVelauthapillai is in error.
the on-book off-book SIV game played by the IBs was moral fraud if not illegal.
The fake insurance by the monolines when they had insufficient capitalization to cover the policies is moral fraud and may be legal fraud.
the house of cards built on selling the derivative of a derivative of a derivative...is highly deceptive and will result in litigation.
And finally mixing in of BBB or less into the CDO and calling it all AAA just because the pain is spread around is just fraud plain and simple.
my understanding is that the monoline customers bought credit default swaps, securitized them and then sold derratives...this is a spaghetti mess.
no one has plumbed the depths of this madness......... but we will.
All,
I am now working on finding an online explanation & if I can't find, I'll explain on my own.
Stovall's 26% figure is the average loss for S&P 500 equities in recessions since WWII.
But that's useful, and better than 'best I recall'.
So, right now Bloomberg quotes the yen at 105.88. It closed Friday at 106.68. It's a little stronger.
But based on the lock-step inverse pattern that has existed the past year betwen speculative stocks and yen, you would expect the yen to be at 102-103 today, given almost 5% down now on S&P futures.
This indicates to me that hedgies have access to liquidity and are using it short. Don't just think about the supply of liquidity. There's still plenty of supply in Japan. The yen strengthens mainly because demand for liquidity declines, as hedge funds pull in risk.
Show Me the Money
Winter (Economic and Market) Watch » Show Me the Money
For example, go to the Fed’s H4.1 site, and check the numbers for January 4, 2007, and the latest. This shows that FCBs bought only $78.6 billion in Treasuries, and $235.4 billion in “Federal agencies”. Going back to January 5, 2006, FCB custodial holdings of “federal agencies” has increased $409 billion. In total FCB hold $836.9 billion of these so called “federal agencies”. What is the collateral and condition today of all this paper bought at the peak of the housing market? None too good I would imagine? I have come to conclusion that there is no transparency at all in this general “federal agency” account label.
I'm buying gold and silver tomorrow if things continue throughout the day.
Buy on the dips.
Cheers,
I have some longs too but I don't care if they go down 80%, I believe in their underlying value... what I'm thinking of next is to short the 2-year. Strip ot inflation and they give you negative yield. It's euphoria in the gvmt bond market.
How exactly can mere mortals short treasuries?
So, is this the historical point where the capitalists have clearly begun selling their enemies the rope that will be used to hang them?
Just checking.
allen,
Interesting i was watching a show a cpl of nights ago, it wasnt manageing asia but something in China. China business leaders had decided among themselves that they were going to have to pull away from supply wal mart. the said wal mart was killing their manufacturing. that barbie manufacturer was getting 1 dollar while walmart sold for 20. and that a chinese entrepenure who manufactured socks decided that in feb marc pulling from walmart all together and sell under new name repackaged for smaller merican and asian markets. it was amazing that china's leading manufactures and entrepenuers both agreed that this year was the big pull out. That will kill walmarts numbers.... and make china more self sustaining and more liquid. One editor of entrepenure magazine was saying that america has 300 million and china has 1.5 billion that would like to buy barbies....with their capital and economy growing, they believe their downward momentum is caused by americas largest company pulling them down and the govt backed bonds...
very interesting...and it was subtitled so i understood completely!
CK: "The fraud was selling CDOs and SIVs backed by sub prime mortgages as AAA rated bonds... Yes, we live in a buyer beware world -- but when the bond rating agencies and investment banks collude to sell garbage as AAA investment grade bonds, I call that fraud."
You may call that fraud but it wouldn't fit most people's definition of fraud. I think the courts will rule on my side as well (i.e. rating agencies did not commit fraud).
You guys want to socialize the risk. That's what you are basically calling for. It's amazing, really, given that you are probably in favour of government intervention (which generally implies that you would want investors to bear the failure). I know it's fashionable right now to blame the rating agencies (or for those allied with Cramer, the monolines) but the fact of the matter is that the investors bear the risk. It's a basic element of a free market: the investor (especially equity investor) bears risk. Trying to offload the blame onto someone else is ridiculous.
CK: "I believe in free market capitalism -- I also believe that unregulated free markets are a recipe for disaster."
I am actually a free-market extremist but I think some regulation is ok. For example, I think the existence of the SEC is OK for the time being. But what most of you are calling for would have done nothing. Fannie and Freddie are heavily regulated but they are posting massive losses as well. Government is generally inefficient, dumb, and slow, so trying to "regulate the free markets" would have done nothing. I really don't know how you would have stopped this problem. We had a classic bubble and no government can prevent bubbles (just look how hard China, running a totalitarian government that can do anything at will, is trying to stop their real estate, stock market, and manufacturing bubbles and yet have failed for at least 2 years)...
But, sadly, it's going to be fashionable in the near future to pin the blame on some intermediary (like the rating agencies, monolines, hedge funds, etc) and regulate anything and everything.
kicker
u can short the TLT long bond fund.
There are no mathematical reasons. There's a myth that double short ETFs underperform because they compound losses on a daily basis. But they also compound gains on a daily basis, which offsets. Also, they often invest in futures contracts, which lets them bump return a bit with the yield on cash. Anyone who have owned both single short and corresponding double short ETFs for some time doesn't see any underperformance in double-short. If anything, double-shorts slightly outperform (on the upside and match on the downside.
Re BBB securities packaged into AAAs.
This isn't as evil as it sounds.
Its all math. The problem is that the BBB rating was BS in the first place.
f frederson:
FTSE fall wipes £77bn off shares | The Sun |News|Sun Money
http://www.thisislondon.co.uk/news/article-23433407-details/Black+Monday+as+biggest+FTSE+crash+since+911+wipes+off+nearly+£60bn+in+shares/article.do
Stocks Plummet in Germany, Hong Kong and India in Global Rout - Bloomberg.com
There we go:
The pros and cons of various ways to short an index, including arguments against ultrashort ETFs, which basically amounts to capital base calculations.
How to Bet Against Tech
One word from Gaudia Ray:
WATERFALL
What happens when we get to 12:00:00??
crispy&cole | Homepage | 01.21.08 - 12:10 pm | #
Everybody gets a pony!
Let's see, all the perma-bulls on this site have given up the ghost, and are probably lying in the fetal position in a dark closet, and the highly leveraged trend-following funds are undergoing a forced liquidation. Meanwhile, all the shorts and perma-bears are loudly congratulating themselves because they've almost gotten themselves back to only a small net negative after being dead wrong for most of the last two years. It must time for people who try to maintain some sort of value-oriented, unleveraged buy and hold perspective to start kicking the tires again.
f frederson:
Bear Market Looms As Major Indexes Keep Falling - CNBC
Market technicians said it was now an almost sure bet that the Dow will slid below the milestone level after it broke through key support around 12,500 this week.
Even if the move is temporary, it still will rattle nerves.
Analysts say the 11,500-11,600 levels aren't out of the question as the levels where the index could test near-term support, but even at that base, there could yet be more downward impetus as capitulation fuels more selling.
Why Stock Market Selloff Is Likely to Continue - CNBC
People Don't Know"
The feeling I get is people donÂ’t know how bad it is," says Sam Stovall, chief strategist at Standard & PoorÂ’s. "ThatÂ’s why we could see a day or two of counter-trend rally," which was briefly the case on Friday, when stocks opened sharply higher only to fall again.
Turbo, Conjure and I will kick the tires AFTER the bloodletting, thank you.
This will all be contained. In my Ultrashorts. SDS, EEV, QID, TWM.
Tuesday will be pleasant.
wheels are fine, it's what's under the hood that is hosed.
And the dude looking to buy is 16 and is impressed by the shiny 'rims
I think the S&P being down 6-7% tomorrow qualifies as a pretty good bloodletting. 11,000-11,500 was where I wanted to start kicking the tires, and it looks like I'll get that chance tomorrow. That being said, there's no financials on my buy list.
MOCK TURTLE: "I believe CK is right and SivaramVelauthapillai is in error...the on-book off-book SIV game played by the IBs was moral fraud if not illegal."
We'll know within an year won't we? The way things are going, the rating agencies are going to be raked over the coals and we'll see if it was indeed fraud.
MOCK TURTLE: "The fake insurance by the monolines when they had insufficient capitalization to cover the policies is moral fraud and may be legal fraud."
If you think it's legal fraud, start funding one of those legal firms that is preparing to launch lawsuits against the monolines. I don't think anyone has ever successfully sued any insurer--monoline or not--in the history of USA but we'll see.
MOCK TURTLE: "the house of cards built on selling the derivative of a derivative of a derivative...is highly deceptive and will result in litigation."
Yes, it will result in litigation--but not for the reasons you think. Instead of it being about fraud, it'll be about investors not accepting losses due to their risk they took. It'll be no worse than shareholders that sue companies because the stock price dropped 20% and they can't take a loss.
MOCK TURTLE: "And finally mixing in of BBB or less into the CDO and calling it all AAA just because the pain is spread around is just fraud plain and simple."
It may or may not be dumb but it's hardly fraud. The investor decides whether to purchase that AAA-rated asset vs another AAA-rated asset. Also, don't call it quits before the game is over. I personally am still not sure that CDOs will perform worse than direct RMBS. We'll know in about one year. CDOs may indeed lower risk because they are pooled assets (it's sort of like saying a mutual fund is safer than a stock).
MOCK TURTLE: "no one has plumbed the depths of this madness......... but we will."
Some will go down deep but for all the reasons. Instead of trying to figure out what caused the problems, it'll be a game of pinning the blame of someone else, and trying to get the government to give money to cover losses...
Thanks for your thoughts...
UK Indymedia | 404 Error - Document Not Found...
For instance, NR has been using an Enron style special purpose vehicle based offshore to store up to 75% of the loans it was making. This vehicle called Granite Holdings was buying up NRs loans at a discount and then repackaging them for sale to Wall Street as bond issues. So NR gets to profit today from loans extended but unpaid whilst Granite and its investors gets to hold onto the underlying assets and earn interest on them over the longer term. This is a typical example of structured finance whereby a financial institution profits by pocketing the difference between short and long term interest rates. The problem for the government and that big fat liar Alistair Darling is that although Granite is controlled by NR it remains an arms-length entity. This means that NRs creditors will not have legitimate claims on the assets it holds e.g the loans that the government credit is supposed to be secured against. Moreover, if Northern Rock were now to admit defeat and go into administration this would also cause credit ratings agencies to downgrade the Granite bonds potentially causing the government to have to come to the rescue of that as well.
Now the Guardian has done some digging and found out that the Charities Commission are not entirely happy about the fact that the tax breaks enjoyed by Granite seem to have been secured by its imaginary support for a small Downs Syndrome Charity. Yet according to NR this is standard practice in the world of structure finance.
"And at the heart of Granite's operations is a rather peculiar fact: on paper, at least, it had been set up to benefit charities, and in particular a small organisation for children with Down's Syndrome, and their families, which was being run from a semi-detached house on the outskirts of Newcastle.
The bank said the naming of a charity was a standard part of securitisation, the process which the bank had employed to raise funds through Granite. "Any notion of inappropriate use of the charity's name, or impression that the charity may be exploited, is entirely without substance," a spokesman said."
Latest financial, market & economic news and analysis |
Business |
guardian.co.uk...
Turbo,
Yer oversimplifying - there are many here who are perma neither - it's just that a clear eyed assessment of current conditions results in a bearish outlook IMNSHO.
[Full disclosure - some bonds, mostly cash, long puts but wishing I had been less disciplined about limiting total exposure lol]
Turbo,
I think JPM might be interesting.
WFC is also a popular pick, but I think they are "hiding" something. I had a short on them at $32, but got stopped out, now they're at $26 and probably have more room to run down.
Turbo: I was in cash the past two years because I saw that the last 6 years of economic expansion was predominantly due to FOUR TRILLION of fraudulent consumer lending and more TRILLIONs of public-sector wastefulness like Medicare Part D and the eternal GWoT.
I didn't want any part of that house of cards. My cash will still be around to pick them up when we get back to what the fundamental values can support.
Turbo,
The combination of gross oversimplifications and acting like an unhumble king is not very helpful. some of us have had large portfolios of longs and shorts/puts and have made money on both sides despite being wrong on shorts for 3 years. The compounded return over the entire decade will speak for itself.
rich, idoc, probert..
The Proshares doubleshort funds mainly hold swaps contracts.. just look at the prospectus.
They are leveraged about 2:1 (hence the "double short") by entering into swap agreements that say they will pay out the return of some index based on a notional amount 2x the cash on hand. The counterparty says it will pay out the decline to the proshares fund.
From what I could tell in the past.. you got about 1.8x return.. but it varies. I figure it's worth the vig since you don't have to bother with worrying about losing more than your initial investment.
Since these are swaps contracts.. there's a real concern about counterparty risk.
Wow, go to bed after the Nikkei tanking just to find the STOXX went with it and futures looking scary as hell. Nothing like ~5% down across the board to get people's attention.
How exactly can mere mortals short treasuries?
Kicker | 01.21.08 - 12:50 pm
Sell 10yr Bond futures on the CBOT or buy a punch of puts.
OT - Paul Krugman compares the match of consumer confidence to the unemployment rate and the employment-to-population ratio (e-p ratio has a better match to confidence and has been falling since the late 90's, corresponding to the fall in consumer outlook).
Employment and confidence wonkery - Paul Krugman Blog - NYTimes.com
OT: I'm watching a funny faux news infomercial right now made by Greenlight Financial. They are hustling FHA secure mortgages as a replacement for subprime. The show is called "Monthly Mortgage Report". I think I will refi now! I've got the green light! Can't wait for the FHA mortgage crisis.
How long till we start hearing "the stock market always goes DOWN"? My guess 6-12 months.
RE: Ultrashort ETFs and their performance vs. their targets.
Well, here's one example -- SKF (Proshares US Financials Ultrashort) vs. .DJUSFN (Dow Jones US Financials Index). The DJUSFN is SKF's target, so if it is underperforming in the long run, this comparison should show it:
Dow Jones U.S. Financials Index - Google Finance
So, at least during periods of sustained weakness in the target index, SKF seems to do quite well relative to its stated goal of doubling the moves of the target.
Looking at various time periods:
------SKF---------DJUSFN----2*Inv(DJUSFN)
1d: +6.7% -1.73% +3.52%
5d: +17.25% -7.42% +16.02%
YTD: +29.80% -12.76% +29.25%
1m: +26.00% -11.77% +26.68%
3m: +49.53% -21.37% +54.35%
6m: +68.34% -27.39% +75.44%
1y: +88.98% -30.60% +88.18%
There does seem to be some trend to underperformance during periods of lower relative volatility (compare YTD vs. 1m), but the fund has still managed to outperform at the 1 year point despite costs.
Quotations from Treasury Secretary Mellon:
"I see nothing in the present situation that is either menacing or warrants pessimism . . . . I have every confidence that there will be a revival of activity in the spring, and that during this coming year [1930] the country will make steady progress."
"Liquidate labor, liquidate stocks, liquidate farmers."
"Here's a dime. Call up both of them!" [Mellon's response when Herbert Hoover asked for a nickel to call up a friend.]
Those roaring twenties liaise-faire economic policies worked out well, didn't they?
Now you know why Conjure is "bearish as hell" and has grown bear fangs.
Turbo,
BWAHAHAHHAHAHAHAHAHAHAHAHA!
Yep, that gold and silver position over the last 9 years sure didn't pay off.
BWAHAHAHAHAHAHAHAHAHAHAAHA!
Cheers,
SivaramVelauthapillai,
Here's the bad news: Your loss of 70-90% on ABK is not the worst stock investment posted on Calculated Risk. That honor goes to Sebastian for his NEW purchase -- 100% loss.
Here's some good news: ABK can still catch NEW.
Here's more bad news: Sebastian took it like an adult. He owned up to his mistake. He didn't pester the rest of us with continued claims that NEW really was a good investment. He had the decency and maturity to drop the subject.
The short ETFs don't enter swaps if there's futures or options available. Why would they? That's just boilerplate disclosure.
That's bunk that the double shorts just deliver 1.8 the inverse, as estupido has shown. Just get in 'em and you will see over time. They track pretty well.
"This rout is being driven by hedge funds to panic ordinary investors. When the panic is on, the hedge funds will start buying again, and this cycle may repeat several times. It's a hedge fund dream scenario, because they profit from volatility."
rich, it's hugely optimistic to think that hedge funds are trying to panic JSP, are getting short and then will ride each wave up and down to rake in the profits. Only the first part of that sentence may be true.
This kind of thinking doesn't take into account all of the fictitious capital that has been destroyed and that is getting destroyed. Massive cascading cross defaults are now devouring everything and everybody in a clear death spiral. IMHO, there is a reason why some of the reliable currency and commodity structures (Yen carry trade, for example) don't seem to be operating and appear to have largely decoupled from past correlations. In the past, when the Yen fell hard, US markets would rally. When the dollar fell hard, gold and oil would rally. Now things aren't working as well.
My view is that we are perhaps weeks (or even days) away from a major market crash that will destroy almost all 401K's and JSP investment for many years to come. Good luck to the hedgies that try to engineer a rally after that. They'll just be throwing their money away as nobody will be there to take the other side of the trade, except maybe more hedge funds! LOL. When the snoke finally clears, people will get back to the basics of dividend investing.
Winter (Economic and Market) Watch » Show Me the Money
There we go:
The pros and cons of various ways to short an index, including arguments against ultrashort ETFs, which basically amounts to capital base calculations.
Fool.com: Stock Investing Advice | Stock Research tech.aspx
probert
That article misses some salient points, for instance, the shorting seems to come at no cost. Since when don't you have to pay margin interest on the short position? And what about covering dividend payments?
In other words, an investor who had simply shorted the QQQ (and had the guts to hang on as it more than tripled) would have lost less than 10%... um, at some point, this investor veered from gutsy to mindless. And he must have had a lot of money waiting around to use on all those margin calls...
Another point he misses, just as the ultrashort ETFs have a hard time recovering after an initial fall, if the move down in the index is sustained, any short-term pop up has a lessened effect negative effect on the ultrashort ETF.
His problem was he shorted way to early, not which way he shorted.
The ultrashort ETFs are not going to be double inverse yoy figures, they may move more or less than the underlying index would indicate. So what?
I have been asked to be a dinner speaker at a Chamber of Commerce ammual meeting tomorrow in a small Montana Town. They want to know how to take advantage of the fiancial turmoil to market themselves as a safe haven. What am I going to tell them after tomorrows market closes? Plant big vegetable gardens and bury their guns.
Sorry, the dividend issue is obviously moot with an index.
But speaking of payouts, at least several of the ultrashort ETFs I'm in have had payouts.
edit above: annual meeting
Those roaring twenties liaise-faire economic policies worked out well, didn't they?
-ck- | 01.21.08 - 1:20 pm | #
What liaise-faire policies. Income tax? fed reserve? Whoo boy...such understanding.
Cheers,
Viewing with alarm,
I don't get the "bury their guns" part. Since when does unilaterally laying down your arms make you safer? You'll get laughed right out of Montana.
A question on short/double-short ETF's:
There must be a theoretical upper limit on how high something like SKF can go. Anybody has any idea what that would be or how to calculate it?
Darth Toll
i agree with u. i think the vast amt of speculation in the mkts involve HF's, IB's, and wealthy investors. the avg JSP hasn't had the money to participate. much of this unwind is going to pit the former against one another as we've seen in Pauslon, Ackman, and GS. we could just blow right down thru much of the much bally hooed support levels. this is going to be fascinating
Turbo
u r very presumptuous aren't u? as i've said loudly and many times on this site, i've been short and hold for over a yr. up 4x. not bragging but trying to illustrate what can be done on this side.
The short ETFs don't enter swaps if there's futures or options available. Why would they? That's just boilerplate disclosure.
rich,
While I agree that the returns are good enough to make it worthwhile... you really should download the proshares xls file of daily holdings.
The times I've looked at it.. the doubleshorts were holding 95% or more in swaps.
I don't get the "bury their guns" part.
tj & the bear | 01.21.08 - 1:34 pm | #
Burying weapons packed in heavy grease is a time-honored way to having a emergency supply that will survive nearly anything.
Bullets are trickier, as the powder gets damp.
There must be a theoretical upper limit on how high something like SKF can go. Anybody has any idea what that would be or how to calculate it?
bZb | 01.21.08 - 1:34 pm
657.
ok.. so it's a .csv
... but go here to download the daily holdings for all their funds.
Not sure why they won't break it down to make it easier to see.
idoc, agreed. When the market finally bottoms, most hedge funds will be relegated to the scrap heap of history. Ironically, GS may go private AGAIN for pennies on the dollar.
The system resets and we do it all over again in 80 years (GDIII).
Darth,
"This kind of thinking doesn't take into account all of the fictitious capital that has been destroyed and that is getting destroyed. Massive cascading cross defaults are now devouring everything and everybody in a clear death spiral."
Exactly. The assets are booked as worth something. They are worthless. I wouldn't even think of burying guns right now. Although the vegetable garden isn't a bad idea.
Cheers,
"Bullets are trickier, as the powder gets damp."
Conjure says, "Immerse them in containers filled with gear lube."
Wow, so the mere suggestion of moving a modest percentage of my portfolio from treasuries, which now yield half of what I bought them at, to equities, which will be around 20% off their highs tomorrow, is a really radical idea Probert? And Misean, the only equities I kept over the past year were energy and commodity stocks I bought back in 1998 when that was considered a crazy idea. I used to find the comments on this site largely interesting and useful. Now it's just become a morass of end of the world types to commiserate on (with apologies to Tanta, Dryfly and many others who still have an informative perspective).
The pros and cons of various ways to short an index, including arguments against ultrashort ETFs, which basically amounts to capital base calculations.
probert,
Maybe there is a mathematical reason why the Ultrashorts don't have returns as good, but, if there is, this guy hasn't found it. His own math is wrong. The example he uses involves a 20% move up in a stock, followed by a 20% down move. He argues that this leaves the stock right where it was at the start. This is incorrect, because the 20% down move is larger than the 20% up move. His example doesn't work.
I too have been considering the shortfunds and ultrashorts.
the last thing that's keeping my hand off the trigger:
I don't quite understand them fully yet. as they say, "never invest in something you don't fully understand".
that said, the only thing i've found that is of any worry is the swaps argument.
I also did digging a while ago and noted that the Proshares ultrashort funds had a fair amount of swaps.
counterparty risk is counterparty risk.
that said, there are a lot of places in our "economy" right now that seem to share counterparty risk right now IMO.
will the SWF's repeat the same mistake of the Japanese buying up US real estate back in the late 80's? don't see their investments doing too well so far with BX, C, MER, etc.
i think they will stop funding us soon if not right now. this means we will finally start seeing all the BK's we've been anticipating. my AFBIX will start catching up with all my other shorts.
Here's an example of how the Proshares UltraShort Real Estate fund is setup (from the .csv on daily holdings):
Cash =
$654,053,611.25
DJUSRE SWAPS =
$-1,311,754,347.23
That's it. So.. they have $0.654 billion in cash.. and they've entered into swaps contracts on the DJUSRE worth notional $1.311 billion.
So.. all of their 2:1 leveraging is done with swaps.
It's the same across the board. 98% or more of the notional amounts the funds are invested in are in swaps.
Now.. who are these contracts with.. I don't know.. but one should know what it is they're buying.
If the system melts like many think.. what are the odds the counterparties will go under? Just have your eyes open.
DCRogers, mp,
LOL! Now THAT'S my kind of thinking!
EVERYONE -- NEW THREAD
Too much good stuff to have to jump back and forth!
Conjure: Thanks for the good advice about the gear lube. Move up the clock.
Sivaram--
You said: "I don't think anyone has ever successfully sued any insurer--monoline or not--in the history of USA but we'll see. "
This is a non-sensical statement. Plaintiffs lawyers in the U.S. sue insurance companies every day and win judgments for their clients.
Turbo, Conjure and I will kick the tires AFTER the bloodletting, thank you.
mp | 01.21.08 - 1:01 pm | #
Ten four copy that mp...
Just wanted to weigh in with thanks for all the great info on SRS, SKF, et al. Will probably short TLT tomorrow.
Anybody have a view of whether there are any homebuilders that might still offer a reasonable? I've been watching NVR, which still seems to have way too much meat on its bones for what is about to hit.
Now it's just become a morass of end of the world types to commiserate on (with apologies to Tanta, Dryfly and many others who still have an informative perspective).
Turbo | 01.21.08 - 1:43 pm | #
Turbo - you are right to start thinking about what's next after the blood letting - but I think you want to wait for the blood letting first.
I could easily see DOW 9000 in fairly short order and I'm at least half LONG (not a short). I have the rest in cash & bonds so not 100% exposed.
But I agree there will be opportunity but I'm not going to be in a hurry until I feel I understand what's going on better.
One thing for sure if the dollar keeps falling though - plan to start looking real hard at domestic mid-cap manufacturing. Especially those in products that would benefit from pork barrel spending... I have to think about that one for a while.
Dryfly - Cheers.
I'm only 20% equities, 80% bonds, and planning on bumping that to maybe 50/50ish this week, so I think we're in about the same place - hardly the stuff of a raging bull, and no financials on my list. This strikes me as being more of a financial panic, though I also think we're in a mild recession now. Large cap industrials with little or no debt are where I'm fishing.
It's not surprising that investors relied on the rating agencies. My banker, the regional pension manager, the local estate planners & investment counselors do not understand the complex world of derivatives. Heck, a month ago, many living here amidst the cornfields didn't even know there was a monetary crisis brewing. I know this for a fact. Many sophisticated investors have been burned over the recent years. If government advisors & bankers do not understand it, how can you expect J6P to grok it. SV will diss regulation until he is the one taken to the cleaners.
SivaramVelauthapillai
Sounds like you're a quant on Wall Street... I'd worry less about what constitues fraud and more about your own job and the future of quant as a going concern..... Then again, Bangalore has lots of jobs....
I wonder if Kass will be buying financials "recklessly" tomorrow.
I don't care what anyone says. The H3 report is a four-alarm fire, and if the bond insurers evaporate, the whole system is screwed.
Turbo-
I am also starting to kick some tires - mainly exporters who will benefit from the weak dollar. But I'm not ready to buy yet - markets tend to overshoot, and I don't think this has happened yet. Look at the multiple on the Russell 2000 - still higher than that on the S&P 500. This doesn't make any sense because bigger companies should ride out a recession easier than small ones. Also, I haven't seen many companies go into banktruptcy.
Also, I think there are several bubbles that have just been pricked (oil, gold, emerging markets). At this point, I still think it will be easier to make good returns on shorting these deflating bubbles than going long.
Okay - there shouldn't be so much confusion about the double ETF's (long or short) but there is. I'll make an attempt to clarify things.
The double short or double long ETF's are designed to return 2x the daily return or negative 2x the daily return of their benchmark index. In order to do this they enter into daily swaps trades to be either long or short twice the total assets of the fund that day. For example if the fund had assets of $1000 it would enter into a swap with exposure to $2000 of its index either long or short.
Swaps like futures don't have to be paid in full - therefore the balance of the fund is invested in cash or very liquid instruments like treasuries. The fund investments in treasuries is why many of the levered ETF's had income distributions this past December.
Going back to the significance of returning twice the daily return of the index (negative or positive). This means that you can't expect the 2x fund to return 20% for the year when the index returned 10%.
Hopefully a cut and paste from MS Works comes through formatted okay
\t1 to 1\t2 to 1\tNeg 2 to 1
\t$100.00\t$100.00\t$100.00
5.00%\t$105.00\t$110.00\t$90.00
10.00%\t$115.50\t$132.00\t$72.00
-25.00%\t$86.63\t$66.00\t$108.00
1.00%\t$87.49\t$67.32\t$105.84
-8.00%\t$80.49\t$56.55\t$122.77
2.50%\t$82.50\t$59.38\t$116.64
5.00%\t$86.63\t$65.31\t$104.97
10.00%\t$95.29\t$78.38\t$83.98
\t\t\t
\t-4.71%\t-21.62%\t-16.02%
The left column is the daily % change in the index. The other columns represent the daily share price based on that funds stated objective. The last row shows the percentage change from inception.
Hopefully that made sense.
dryfly:
How about mission equipment replacement like Abrams thingamajigs and Stryker watchamacallits.
All,
So, at least during periods of sustained weakness in the target index, SKF seems to do quite well relative to its stated goal of doubling the moves of the target.
Exactly and I have no disagreement with that, this is totally true. The problem is if there's lots of dead cat bounces or straight-out market stupidities.
Turbo,
I value your posts very much, I have sometimes even searched haloscan comment pages for "Turbo". I just didn't like it that you sounded all cockained-up.
Cheers
Thanks, Mike in Long Island.
jg,
Way back at the start of the thread. Aren't shorts also a 2-way street? Who is going to allow the hedge funds to borrow stock when the market is looking like it is? Are other people really that stupid?
dennisdman or whatever you are calling yourself - I gave you the benefit of the doubt last week but now I can see that you are the worst kind of vermin, a blog spammer. Nobody here is interested in your bogus website that probably is either infected with the latest javascript virus or simply a tool for you to try to make money off of illegal and immoral behaviour.
I have logged your site's domain information, including the registrant, and it will be passed on to the FBI and/or other controlling authorities.
YLSP,
Exactly, this is the same thing I was saying about the FDIC. And it's the same thing that they did in the theoretical bird flu scenarios where everyone tries to run away from the large cities. Good luck being accepted into a village.
Given the carnage in the non-US markets today, will we have a universal margin call tonight?
Last Spring, there was one. The usual correlations went to hell and most of the hedges didn't work. The new correlation was liquid assets (large caps, gold, tec.) correlated to 1 as they were sold to meet margin calls.
Tomorrow should be interesting.
I hope readers realize you are joking when you give advice on how to store Ammo.Modern Ammo is fine for at least 20 years if stored in a cool dry place.If you actually intend to bury it,I would recommend putting it in a sturdy plastic container along with some silica gel to absorb moisture and sealing it very well before depositing it in mother earths embrace.gear lube! come to san francisco if you want to see that used imaginatively.
How about mission equipment replacement like Abrams thingamajigs and Stryker watchamacallits.
Absolutely - the whole inventory over there is worn out - not even worth bringing home. It will all have to be replaced. I've been told that by industry folks & soldiers returning - double confirmation. It will cost many enormous amounts of money.
It will cost many enormous amounts of money.
Damn it dryfly edit then publish!
It will cost an enormous amount of money.
The system the government uses to appropriate money might indeed be considered "many enormous amounts of money"! Further, what the heck is enormous on the scale of what we've been seeing? billions hardly register, trillions I guess.
There's a myth that double short ETFs underperform because they compound losses on a daily basis.
Tactical Flashlights
r c helicopter
video game