Imminent and severe market correction

chops_a_must said:

I think you have missed the point again Whiskers.

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How do you mean Chops?

The point I was making is that, while I haven't checked all the detail, I'm pretty confident that a lot of the subsidiaries have become or always been sacrifical cash cows for parent companies to take advantage of the excesses of the last few years... not necessairly true operating casualties.

Catastrophe over for the time being...

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Yes the worst is over or as I prefer to say it was not going to be as bad as many feared... but now there will be the usual big sigh of relief... look at todays headlines... and no doubt over-do the euphoria a bit, then a modest nervous nellies retrace probably around May in anxiety about the June quarter results before things start to settle into a new world bull.

Only professional investors have started to be desensitized to the bad news , it's whether they can stand it on the following quarters .

I was happy here we tested the lows , and have dragged out most of the exposed / ure , whether certain lenders can be renegotiated with at present is another thing market wise , on some issues I suppose .

But I would imagine any effects would be absorbed by side lined cash burning holes in pockets .

I do understand that it will take a few more years for the US to expose the rest of the housing market exposure , but we know that there , it's the unknown that could pop up that could see record lows on swaps etc. once again move , for a couple of good hits to get bat to ball on .

Someone called a DCB , I was thinking more of a DDCB for a retest .

ithatheekret said:

Only professional investors have started to be desensitized to the bad news , it's whether they can stand it on the following quarters .

I was happy here we tested the lows , and have dragged out most of the exposed / ure , whether certain lenders can be renegotiated with at present is another thing market wise , on some issues I suppose .

But I would imagine any effects would be absorbed by side lined cash burning holes in pockets .

I do understand that it will take a few more years for the US to expose the rest of the housing market exposure , but we know that there , it's the unknown that could pop up that could see record lows on swaps etc. once again move , for a couple of good hits to get bat to ball on .

Someone called a DCB , I was thinking more of a DDCB for a retest .

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"It's the economy stupid" now. As goeth Earnings and employment etc, so doth the SM. But that will take some quarters to start revealing itself.

(The biblical lingo looks really authoritative hey.)

Whiskers said:

Thanks for that dhukka, but I'm still not sure that they all represent 'real' casualities.

For example the Rupert Murdock's of the world are (in)famous for milking cash out of subsidiaries and hanging them out to struggle or die.

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Regardless of whether they fit your definition of 'real casualties' the fact is there have been significantly more than a handful of companies that went out of business in the last 12 months and thus your attempts to dress mutton up as lamb has again been shot full of holes.

wayneL said:

"It's the economy stupid" now. As goeth Earnings and employment etc, so doth the SM. But that will take some quarters to start revealing itself.

(The biblical lingo looks really authoritative hey.)

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SM?

kransky said:

SM?

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Stock Market

righto LOL

I think the market is getting ahead of itself... it thinks the economy is going to skirt a recession... and if that is the case then fine.. markets recover before recessions (or downturns) are over... but most likely more negative economic news is going to come in the next few weeks...

dhukka said:

Regardless of whether they fit your definition of 'real casualties' the fact is there have been significantly more than a handful of companies that went out of business in the last 12 months and thus your attempts to dress mutton up as lamb has again been shot full of holes.

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Hey dhukka I'm not dressing anything up. It is the companies (through their subsidiaries) who exploited the circumstances that caused the mess that dressed up the mutton as lamb.

To use your analogy, all I'm saying is that a lot, probably most of the wrecks left behind (old mutton) was always part of the instruments used to exploit the circumstances, rollout the cash, keep risk at arms length from the principals and disposable if the worst came to the worst.

Those sort of companies/funds were not 'normal' long term operating busineses. If they were they would have held onto the dodgy mortgages... albeit some still were holding more than they wanted too. That is why I don't count them as true/real operating casualties.

If you recall the thing that triggered the crisis, was that these entities were making knowingly wreckless loans, even preditory loans to bundle into packages and offload to someone else who offloaded them again. The whole purpose of the activity was to use a vehicle to make a quick buck.

Real casualties would be businesses not involved in the original raquet such as retail stores, general manufacturing, agriculture etc. I'm not aware of many busnisses not involved in the original raquet that were operating normally that have gone bust.

Your accounting is like a burgler getting hurt trying to make a fast getaway from a break-in and counting him and his injuries as a victim of crime.

You have to know which side of the law/ledger to account for things, dhukka.

Thats a new one on me... Halifax has been placed on(for mortgages) "withdrawl watch", following on from First direct.... hard times ahead for the UK homeowner/homeowner to be???

http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article3666670.ece

Cheers
...........Kauri

Whiskers said:

Hey dhukka I'm not dressing anything up. It is the companies (through their subsidiaries) who exploited the circumstances that caused the mess that dressed up the mutton as lamb.

To use your analogy, all I'm saying is that a lot, probably most of the wrecks left behind (old mutton) was always part of the instruments used to exploit the circumstances, rollout the cash, keep risk at arms length from the principals and disposable if the worst came to the worst.

Those sort of companies/funds were not 'normal' long term operating busineses. If they were they would have held onto the dodgy mortgages... albeit some still were holding more than they wanted too. That is why I don't count them as true/real operating casualties.

If you recall the thing that triggered the crisis, was that these entities were making knowingly wreckless loans, even preditory loans to bundle into packages and offload to someone else who offloaded them again. The whole purpose of the activity was to use a vehicle to make a quick buck.

Real casualties would be businesses not involved in the original raquet such as retail stores, general manufacturing, agriculture etc. I'm not aware of many busnisses not involved in the original raquet that were operating normally that have gone bust.

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No doubt this was a racket but the idea that they were just in it to make hay while the sun shone is false. However misguided, the assumption was that the sun would never go down.

Fitch Ratings admitted publicly that the assumptions underlying their ratings assumed that house prices would never fall. Again, however misguided this racket was, the vast majority were true believers.

To say that an independent mortgage broking company is not a 'real casualty' is nonsense. I bet the employees working at these companies feel like real casualties. Were internet companies with nothing but an idea, no business model and no revenues not real casualties of the dot com bubble? Were they not cashing in on a racket that was assumed to continue indefinitely?

Your accounting is like a burgler getting hurt trying to make a fast getaway from a break-in and counting him and his injuries as a victim of crime.

You have to know which side of the law/ledger to account for things, dhukka.

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Your accounting is being affected by your bad eye, it appears that you can only see the debits.

Well,there you go.Bernanke has 'fessed up.Unemployment to rise,no bottom to the housing market,hopes that major trading partners will help keep the U.S.economy afloat have faded,possibility of recession.
And the market fell slightly.Others(UBS et al)'fessing up made the market rise.
Is this a green light for the bears??A red light for the bulls?An amber light for both?

http://www.minyanville.com/articles/index.php?a=16528
"In fact, we've reached the point where banks and dealers in the financial system are forced to suck at the teat of the central bank credit machine in order to survive. Banks literally have no capital to support their declining asset values: the harder they suck at the teat, thus devaluing the dollar more and more, the more the collateral value declines. But even the teat isn't enough. Dealers and banks are having to raise longer term capital at egregious rates, thus diluting future earnings even more, and this despite record low treasury rates. Lehman (LEH) raised about $4 billion through a preferred stock offering at 8.5%. This may seem low relative to Citigroup (C) raising money at 13%, but in reality it is fairly comparable because the preferred is not tax deductible.

Yesterday some very large European dealers wrote off vast sums of debt. There will be more to come. But the market took it as the last write-down, just as it has in the past, and a vicious short covering rally ensued with the help of government hands behind the scenes. Desperation is everywhere. But don’t confuse a short covering rally in a bear market with a bottom in a bull market correction: the news will continue to get worse and the manufactured rallies will be fewer and fewer as deflation takes hold."

wayneL said:

"It's the economy stupid" now. As goeth Earnings and employment etc, so doth the SM. But that will take some quarters to start revealing itself.

(The biblical lingo looks really authoritative hey.)

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They could have a stack of bibles to quote from , not that it will make any difference .

Without growth , how can there be earnings of true substance ?

This will be revealed each quarter , for the financials that could look like the old thousand cut torture session . But ...... secretive margin facilities that have pumped stocks up , will now need a high performance pump to match the leaks in the market and economy . That's what happens when you place a bandaid on a gapping wound , it needs sutures and some timely coagulation , not the basic formation of coalesce tactics set in motion , in an attempt at cohesion . The only cohesion seen to date is a circling of wagons to fight off the onslaught .

Hi,

I love this thread, all the doom and gloom.

We have had a 'imminent and severe market correction' of 20%+ in many large stocks as well as the indices.

We are getting more and more bad news, yet the market may have already factored this in. The news coming out is not sinking the market anymore (not to the effect it was)

When I step into the real world, people are still shopping, they are buying houses, they are buying cars, they are investing, they are putting money into super. Basically the world as we know it is continuing.

The powers that be will do everything possible to avoid the type of meltdown many posters here think is imminent.
The probabilities lie in the market going higher in both the median and long term.

Go ahead and knock yourselves out being short the world, after all, someone has to take the otherside of the bet.

bye

brty

brty said:

Hi,
I love this thread, all the doom and gloom.
We are getting more and more bad news, yet the market may have already factored this in. The news coming out is not sinking the market anymore (not to the effect it was)
brty

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But has this been factored in yet.
"Before I get to tonights feature article, I wanted to clarify a few things from my previous post concerning JP Morgan, who now control nearly a $100 trillion derivative portfolio. While a trillion is truely a very large number, please keep in mind that World notional value of all derivatives is estimated to be $516 trillion. Now 1/5th of all world derivatives is under the control of just one entity, JP Morgan. That alone should send shivers up your financial spine for two important reasons: One is the fact that so much risk is concentrated with the trading expertise of just one firm. Look at what happened when geniuses managed Long-Term Capital Management or the super-quants at Bear Stearns. Second, since our Federal Reserve has made it clear that it intends to intervene and support major banks & financial centers, JP Morgan and their $100 trillion is a ticking timebomb that US taxpayers should not be unnecessarily exposed to.

When I said that "experts" claim that 2% of any derivative trading portfolio notional value is truely at risk of loss, what they mean is that 2% is at risk during normal market volatility. If our current environment was low volatility and pretty much an all around "normal" market, then I would be only somewhat concerned. But perhaps the most important variable fed into derivative pricing models (such as Black-Scholes, etc) is volatility. Our current environment is anything but normal, volatility is well above normal. This means to me that the 2% loss figure is way understated.

But does this really matter? I mean if you shoot and kill someone with a 357 magnum pistol, does then stabbing them with a knife make them any more dead? If JP Morgan was already over-leveraged such that a "normal volatility environment" loss of their $84 trillion portfolio meant they could wipe out their entire assets of $1.24 trillion ($84T x 2% = $1.68T), then how much more damage will an extra $13.4 trillion do? ($97T x 2% = $1.94T) Hey, in finance, someone ends up having to pay for the loss. If a 2% event occurs, take $1.94T minus JPM assets of $1.24T and the Fed ends up forking over $700 billion! That is bad... but what if market volatility increases such that a 2.5% loss occurs, or even a 3% loss? In a 3% scenario the Fed's ante is $1.67 trillion.

Now that is really bad... but the worst is that the derivative portfolio is still not dead yet... derivatives are not dead until the contracts maturity date. A 2%-3% loss could occur on the short-term securities, but the longer-term securities that have not expired yet, still have potent toxic venom as they near maturity -- meaning that additional losses are still possible.

If you think you have a good grasp of the situation now, there is still more to contemplate. JP Morgan does not operate in a financial vacuum... there are thousands of counterparties that regularly trade derivative products with JPM. There are many banks and financial centers that trade derivative products similar to JP Morgan's. If JPM goes belly up, each of these partys are also vulnerable and it can cascade all the way down the financial food chain.

The Fed will have to throw in the towel somewhere... meanwhile, US taxpayers (and JPM employees) will suffer the consequences."
http://www.geocities.com/WallStreet/Exchange/9807/Charts/SP500/Outlook.htm

A Fairytale ...

Maybe the big derivatives players could get together (maybe at a Monaco Casino?) and make a "gentleman's agreement", whereby they gather in a circle and tear up each others derivatives IOU's, thereby cancelling out their combined debt and profit positions for no net gain, thereby ensuring the ongoing viability and security of the Worlds Stock Markets?

**POP**

Huh? Oh, wow ..... I had a dream.....


LOL


AJ

brty said:

Hi,


When I step into the real world, people are still shopping, they are buying houses, they are buying cars, they are investing, they are putting money into super. Basically the world as we know it is continuing.


brty

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Are you suggesting internet stock forums correspondents show a detachment from reality? Brty you are a bad cat!

It was 'imminent' and now it has been 'severe'. Those that sold locked in losses, those that held will be rewarded when the long term trends once more take over from the short term panic. Unless, off course, you had held financially engineered fluff in which case you are now sobbing into your beer glass.

The combination of the media and the internet will mean that this 'correction, and those in the future, will be more 'imminent' and more 'severe', but not necessarily as 'extended', as those in the past. Ditto the rallies. Sharpen those 'pencils' doomers, gloomers and optimists. Just don't look out the window!

With inflation running at 3% for , what the last ten years or so , let's call it ten for the equation .

Take out that C note and realise that $100 is now really only worth $73.89 .

Now repeat the equation for the next ten years .

Right now as we retest lows in sectors , long term investors that have horizons to match would be selecting certain stocks , but for myself when they call a recesssion and not the possibilities and the stocks are low enough to match all the asthetic attractives that should still be in place , as they are somewhat now , then will be a nice time to start accumulating .

We've had fun with the technicals , slapped them about a beauty , fundamentals have been attacked , but it still means selection is a key factor for myself .

When it get's to the stage I don't have enough money to buy everything I like , well then I will know the market is running smoothly . But I think a few things like regulation will shake out some cowboys , in a sector that is self regulated .......

Inflation has me concentrating on areas that can sustain growth under its effect .

Hi,

Sassa,

Do you understand derivatives? They are a zero sum game (negative including brokerage). For every buyer there is a seller.

If one institution loses vast sums of money, someone else makes it, it is not destroyed.

If company A loses $50b and company B is on the otherside of the contracts, company B wins.

If company A goes bust and cannot pay company B, company B has only lost the gains, it is not going to go bust.

If you are talking about the mortgage instruments they are not derivatives.

bye

brty

brty said:

When I step into the real world, people are still shopping, they are buying houses, they are buying cars, they are investing, they are putting money into super. Basically the world as we know it is continuing.

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Yes, consumers are still consuming... there's not much else consumers do.
What I'm seeing is companies suffering ever tightening cash flow, declining margins, companies cancelling IPOs, delaying investments and revising their forecasts downward.

Consumers aren't the story here in my opinion. It's the deleveraging thats the killer.

Maybe we're seen a short term low (wave A?) put in, but I suspect we've got a wave c to come once the flow on effects to the service sector and support industries plays out.