Stock Market

Aliantha · 08-16-2007, 11:22 PM

Of course that's true Bruce. I think we all know people who've mortgaged themselves way higher than they should have, and there are some very attractive mortgages out there but when you do your homework you realise the whole scheme is a house of cards (almost literally).

The problem is that those mortgage companies are financed by major banks who're going to feel the pinch when the direct mortgager folds because their credit ridden clients can't pay their bills.

This in turn is going to push interest rates up for more stable borrowers who will then not have the money to invest in other items which is what drives the economy.

I predict that the knock on or trickle up effect will be a lot higher than some of our other members here seem to think.

tw · 08-17-2007, 12:20 AM

What makes me nervous is when so many say this is only a correction. Well even a stock market crash is a correction.

For example, Citibank apparently made massive bets and is now exposed for a problem that amounts to $billions. Many hedge funds have been bailed out quietly on the order of many $billions by their holding companies that were once considered 'protected' by financial circuit breakers. Even Goldman Sachs is taking a beating.

Meanwhile, dollars are in massive amounts overseas. No one is quite sure how large those numbers really are. Those dollars are held in assets such as bonds. What is this problem mostly appearing in? Bond markets. What happened if those other nations decide to cut their losses due to a sharply failing dollar - start selling bonds which are financing the American government at about $2 or $3billion per day? Does that number open any eyes? Who has the most American bonds? China - on the order estimated in the $trillions. Remember an earlier post - the actualy amount of currency in all demoninations throughout the world is about $5.7 trillion.

Already central banks have been spending untold $billions trying to maintain liquidity. Capital assets once used as collateral for so many speculative loans is suddenly becoming worth far less than original market value estimates.

Appreciate the problem facing the Federal Reserve. Inflation is threatening. Therefore interest rates must remain same or increase. But the liquidity crunch means the Fed must lower interest rates. A nation that was using finance games to keep the housing and auto markets going (because other market sectors were not doing as well) means the Fed has lost significant manuevering room.

No, I don't believe we are in for a major crash. But when more people say this is not a problem then a worse downturn results. The problem: nobody really knows how much 'rot' is out there in the finance markets. Hedge funds and other risk diversification tools really have unknown value when things get this uncertain. Nobody is really admitting it. But the amount of bailouts appears to be much more massive than is really being reported. A problem that will not appear in corporate balance sheets typically more like for four years later.

Stock market crash was 1929. When did the resulting recession occur? More like 1933/4.

slang · 08-17-2007, 02:53 AM

Quote:

Originally Posted by Aliantha

I predict that the knock on or trickle up effect will be a lot higher than some of our other members here seem to think.

That seems almost certain in my mind. We are all fuct until Hillary rides into office to change everything for the better.

TheMercenary · 08-17-2007, 08:48 AM

Quote:

Originally Posted by slang

...until Hillary rides into office to change everything for the better.

HA!

Griff · 08-17-2007, 11:33 AM

Hmmm... we're in a bad place because of easy credit, so we'll fix it by making more money available. Got it, as you were.

lookout123 · 08-17-2007, 12:28 PM

Is it going to crash? That depends on your definition of crash. If you mean people running around making foolish decisions in a panic while watching well known entertainers (who do more entertaining than legitimate financial advising) scream and yell that the sky is falling and they will need to burn their houses down to get their money out...

Yep, we are already there.

If you mean a catastrophic downturn that leads to widescale corporate bankruptcies, bread lines around the block, and a massive flow of newly homeless people asking you for change... Probably not.

A lot of folks bought houses they shouldn't have. Did mortgage brokers assist them in their stupidity? Yep. Were some of the mortgage brokers participating in illegal activities to generate approvals? Yep, a few of them. Is it all just a big scam pulled on unwitting victims? No. Scratch that - HELL NO. If a person could look around and see that rates were at historic lows and they were stretching themselves thin to fit into the biggest ARM payment they could handle, well, maybe they deserve to be taught a very painful lesson. Markets have a very effective way of returning to averages and people never seem to learn. Most of the folks I meet who are seriously pinched because of the rates are the exact same folks who were screaming about the "unexpected" collapse of the tech boom a few years back. Get over it. A fool and his money... you know the rest.

The mortgage problems are big. They'll probably get bigger. We don't have widescale foreclosures ripping the economy apart. We have lenders who made bad decisions and are now sitting outside the risk exposure model that their business plan is built on. In a knee jerk reaction they've decided the response is to not lend. Oops. Now they don't have current fees coming in to generate revenue to keep investors happy. They will look at their books and realize that even though foreclosures are up, it still makes a very small portion of their portfolio, so they will open up loan programs slowly, allowing things to smooth out. It will not be overnight, but it will happen.

Yesterday we actually touched on the official definition of a "market correction", (a drop of 10% or more) but didn't close below that level. We are due. I have been telling everyone for a year to adjust portfolios for the rainy day in the future. It is all about your asset allocation. Those with good allocations didn't sustain large losses when the tech bubble collapsed because they understood the value of diversification. Those same people will ride this out as well. The loss from a missed opportunity is much less expensive than the loss of reaching too far.

One other thing. Turn off the news. These idiot talking heads only report that "The Dow tumbled 140 points today..." They don't explain that the Dow only represents 30 companies or that more importantly that a 140 drop(or rise) today is as insignificant today as a 20 point move fifteen years ago. Talk percentages, not points.

I'm watchful, but not panicky. I'm actually seeing some fantastic values out there too. And remember folks, Bulls make money, Bears make money, Pigs get slaughtered.

slang · 08-17-2007, 12:35 PM

Quote:

Originally Posted by TheMercenary

HA!

It's a scary thought, yes I know.

slang · 08-17-2007, 03:02 AM

Quote:

Originally Posted by tw

No, I don't believe we are in for a major crash. But when more people say this is not a problem then a worse downturn results.

What changes would you make to improve the US economy if you had the power to do so?

What events and policies would you un-do if you had the opportunity to go back in time?

08-16-2007, 11:22 PM	#1
Aliantha trying hard to be a better person Join Date: Jan 2006 Location: Brisbane, Australia Posts: 16,493	Of course that's true Bruce. I think we all know people who've mortgaged themselves way higher than they should have, and there are some very attractive mortgages out there but when you do your homework you realise the whole scheme is a house of cards (almost literally). The problem is that those mortgage companies are financed by major banks who're going to feel the pinch when the direct mortgager folds because their credit ridden clients can't pay their bills. This in turn is going to push interest rates up for more stable borrowers who will then not have the money to invest in other items which is what drives the economy. I predict that the knock on or trickle up effect will be a lot higher than some of our other members here seem to think. __________________ Kind words are the music of the world. F. W. Faber

08-17-2007, 11:33 AM	#5
Griff still says videotape Join Date: Feb 2001 Posts: 26,813	Hmmm... we're in a bad place because of easy credit, so we'll fix it by making more money available. Got it, as you were. __________________ If you would only recognize that life is hard, things would be so much easier for you. - Louis D. Brandeis

08-17-2007, 12:28 PM	#6
lookout123 changed his status to single Join Date: Apr 2004 Location: Right behind you. No, the other side. Posts: 10,308	Is it going to crash? That depends on your definition of crash. If you mean people running around making foolish decisions in a panic while watching well known entertainers (who do more entertaining than legitimate financial advising) scream and yell that the sky is falling and they will need to burn their houses down to get their money out... Yep, we are already there. If you mean a catastrophic downturn that leads to widescale corporate bankruptcies, bread lines around the block, and a massive flow of newly homeless people asking you for change... Probably not. A lot of folks bought houses they shouldn't have. Did mortgage brokers assist them in their stupidity? Yep. Were some of the mortgage brokers participating in illegal activities to generate approvals? Yep, a few of them. Is it all just a big scam pulled on unwitting victims? No. Scratch that - HELL NO. If a person could look around and see that rates were at historic lows and they were stretching themselves thin to fit into the biggest ARM payment they could handle, well, maybe they deserve to be taught a very painful lesson. Markets have a very effective way of returning to averages and people never seem to learn. Most of the folks I meet who are seriously pinched because of the rates are the exact same folks who were screaming about the "unexpected" collapse of the tech boom a few years back. Get over it. A fool and his money... you know the rest. The mortgage problems are big. They'll probably get bigger. We don't have widescale foreclosures ripping the economy apart. We have lenders who made bad decisions and are now sitting outside the risk exposure model that their business plan is built on. In a knee jerk reaction they've decided the response is to not lend. Oops. Now they don't have current fees coming in to generate revenue to keep investors happy. They will look at their books and realize that even though foreclosures are up, it still makes a very small portion of their portfolio, so they will open up loan programs slowly, allowing things to smooth out. It will not be overnight, but it will happen. Yesterday we actually touched on the official definition of a "market correction", (a drop of 10% or more) but didn't close below that level. We are due. I have been telling everyone for a year to adjust portfolios for the rainy day in the future. It is all about your asset allocation. Those with good allocations didn't sustain large losses when the tech bubble collapsed because they understood the value of diversification. Those same people will ride this out as well. The loss from a missed opportunity is much less expensive than the loss of reaching too far. One other thing. Turn off the news. These idiot talking heads only report that "The Dow tumbled 140 points today..." They don't explain that the Dow only represents 30 companies or that more importantly that a 140 drop(or rise) today is as insignificant today as a 20 point move fifteen years ago. Talk percentages, not points. I'm watchful, but not panicky. I'm actually seeing some fantastic values out there too. And remember folks, Bulls make money, Bears make money, Pigs get slaughtered. __________________ Getting knocked down is no sin, it's not getting back up that's the sin

08-17-2007, 12:20 AM	#2
tw Read? I only know how to write. Join Date: Jan 2001 Posts: 11,933	What makes me nervous is when so many say this is only a correction. Well even a stock market crash is a correction. For example, Citibank apparently made massive bets and is now exposed for a problem that amounts to $billions. Many hedge funds have been bailed out quietly on the order of many $billions by their holding companies that were once considered 'protected' by financial circuit breakers. Even Goldman Sachs is taking a beating. Meanwhile, dollars are in massive amounts overseas. No one is quite sure how large those numbers really are. Those dollars are held in assets such as bonds. What is this problem mostly appearing in? Bond markets. What happened if those other nations decide to cut their losses due to a sharply failing dollar - start selling bonds which are financing the American government at about $2 or $3billion per day? Does that number open any eyes? Who has the most American bonds? China - on the order estimated in the $trillions. Remember an earlier post - the actualy amount of currency in all demoninations throughout the world is about $5.7 trillion. Already central banks have been spending untold $billions trying to maintain liquidity. Capital assets once used as collateral for so many speculative loans is suddenly becoming worth far less than original market value estimates. Appreciate the problem facing the Federal Reserve. Inflation is threatening. Therefore interest rates must remain same or increase. But the liquidity crunch means the Fed must lower interest rates. A nation that was using finance games to keep the housing and auto markets going (because other market sectors were not doing as well) means the Fed has lost significant manuevering room. No, I don't believe we are in for a major crash. But when more people say this is not a problem then a worse downturn results. The problem: nobody really knows how much 'rot' is out there in the finance markets. Hedge funds and other risk diversification tools really have unknown value when things get this uncertain. Nobody is really admitting it. But the amount of bailouts appears to be much more massive than is really being reported. A problem that will not appear in corporate balance sheets typically more like for four years later. Stock market crash was 1929. When did the resulting recession occur? More like 1933/4.

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