Imminent and severe market correction

[Real1ty]

Interesting how brty is conspicuous by his absence when the market is falling but suddenly becomes quite active as the market rises.

 

[Whiskers]

No doubt this was a racket

Yes, well... I just got home from a few drinks and dinner with friends and family when I thought I might check to see if my old sparring mate dhukka had returned serve yet... serve, raquet!

...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.

But. you make my point, dhukka. To assume the prices would never fall was irresponsible and reckless... the point I originaly made to qualify my 'normal operating' businesses. That was part of the problem for some. 'Normal' implies reasonable sustainable business practices.

I bet the employees working at these companies feel like real casualties.

Sure some of the employees are, as are many responsible home owners who suffered a bit extra hardship... but my original point was about business entities that had gone down and out... DEAD and gone. People haven't died... have they?

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?

Ancient history... not going there.

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

You have a lot to learn, particularly about people and dissabilities. Even totally blind people can think and reason out and function with their 'minds eye' better than many with two physical eyes. I'll let you in on a little secret, dhukka. Naa, you need to discover it for yourself to truly appreciate what you don't know.

The powers that be will do everything possible to avoid the type of meltdown many posters here think is imminent.
brty

Thanks for that line at this point in time brty... I said the same thing ages ago and some have PM'd me to the same effect rather than cop the wrath of ....

 

[Bushman]

Doc - are you in an advisory role?

Anyway that is what I am now gainfully employed to do. As you say, everyone is delaying projects as capital is scarce, interest costs are high and the immediate outlook is uncertain. We review property trusts and the thinking is why kick that project off today when you can wait until tomorrow.

Hey that is the prudent thing to do today and the impact of this will translate through to the real economy at some stage. However I believe what we are seeing is a crisis of confidence rather than a 'real' crisis for want of a better word. All the fundies I am talking to still want to buy property in key demographics to cash in on longer term trends. Its just why do it today when you know others aren't buy, leading to a softening of yields, leading to higher LVRs, leading to grumpy bankers, leading to asset sales, leading to unhappy investors...

But, and this is my view based on what I have seen , heard, read and thought about, this will be a shorter term 'manufactured' crisis which will give way to the longer term trends that have been fuelling growth - China, India, growth of Australia cities, world population explosion, resources, infrastructure, consolidation and the lenders who allow this to happen (once they come out of their caves that is). I don't want to go into it too much. It has been done to death on this thread on both sides of the coin. But that is the beauty of the current situation - no two will see eye to eye because there is just too much information out there! So therefore it is now a quesiton of making the right choice within your preferred time horizon. Happy hunting!

 

[Whiskers]

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

Well, brty beat me to the main point here, sassa. But referring to the cash flow problems for those (banks etc) on the loosing side... that issue is already being addressed.

The second point is about risk management... not just the worst case scenario, but the probabalities of a worst case scenario.

To that question I have previously emphasised the worst case scenario just won't happen as has, brty and thatheekret now points to the main reason why that risk is significantly more reduced into the future.

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 .

 

[Trembling Hand]

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.

This ain't true if a company defaults the zero sum game becomes one of loses all round. The margin or assets put up by both sides is gone in loses or to creditors. Not sure how you figure the counterparty only loses paper profit.


But in any case a fear of defaults is just as bad. If the :fan then banks take their bat & ball and go home. Markets disappear then companies fall over.

 

[refined silver]

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

You are talking about normal exchange traded derivatives such as options and futures.

All the mortgage CDOs SIVs etc etc ARE derivatives but they are over the counter derivatives or OTC derivatives, (the media has been careful to avoid using these words, as have industry spokesmen, instead preferring to use continually changing euphemisms such as "exotic financial instruments" etc.

These OTC derivatives (of different sorts) are all essentially private contracts between 2 parties. They are unregulated, not backed by a clearing house, without a market, and therefore unable to be valued accurately, they are unfunded, and depend on the balance sheet of the loser for performance of the contract. There are over $500 trillion of them.

If Company A cannot pay, company B on the other side cannot pay its bills which were the other side of the hedge taken with company A, thus the whole domino chain can fall apart if company A fails, as it is counterparty on so many other deals.

Wealth can most certainly be destroyed.

 

[dhukka]

Yes, well... I just got home from a few drinks and dinner with friends and family when I thought I might check to see if my old sparring mate dhukka had returned serve yet... serve, raquet!



But. you make my point, dhukka. To assume the prices would never fall was irresponsible and reckless... the point I originaly made to qualify my 'normal operating' businesses. That was part of the problem for some. 'Normal' implies reasonable sustainable business practices.

As I said, regardless of whether it was reasonable or sustainable, the assumption by those conducting the business was that it was sustainable. According to Nasim Taleb, author of the black swan, most businesses that were around 75 years ago are not today. I bet the vast majority that disappeared thought they had sustainable business models. Take a snap shot of the publicly listed companies on the stockmarket today, most of them won't be there 75 years from now but I bet most of them think they will be.

You original contention that there have only been a few casualties is patently false and the evidence is obvious for anyone who wants to open their eyes. You have simply tried to redefine the argument on your own terms to fit some narrow definition that bolsters your case.

Sure some of the employees are, as are many responsible home owners who suffered a bit extra hardship... but my original point was about business entities that had gone down and out... DEAD and gone. People haven't died... have they?

What a ridiculous line of reasoning, you really are struggling to come up with a sensible argument here.

Ancient history... not going there.

Pathetic, you won't go there because you know it makes perfect sense and you can't come up with a counter argument.

You have a lot to learn, particularly about people and dissabilities. Even totally blind people can think and reason out and function with their 'minds eye' better than many with two physical eyes. I'll let you in on a little secret, dhukka. Naa, you need to discover it for yourself to truly appreciate what you don't know.

Not from you I don't, I've got a big enough collection of bumper stickers already thanks.

 

[dhukka]

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,

Ever thought of changing your username to 'Mr Points out the obvious?'

 

[refined silver]

Hi,
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

They will do everything possible you are right. But unless you understand what that means it doesn't help, because every action will have side effects sometimes with the cure worse than the sickness.

There is a $500t derivative problem. If one big domino falls and its OTC derivatives hit the market, it will mean price discovery, which will then both 1) decimate the value of other similar derivs on other balance sheets, 2) decimate all its counterparties. In yesterday's testimony to Congress Bernanke essentially said this, as said if the Fed hadn't bailed out people so far, the counterparty risk would bring the whole system down.

This means the Fed monetising bankrupcy. This means MASSIVE money supply increase. It means better study the Weimar Republic to learn how to prepare.

The US has the Great Depression burned on its memory and wants to avoid this at all costs. In Germany in the Weimar Republic and two more currency failures. Without realising it, the US is choosing the Weimar model. There will be a new world order at the end of this.

 

[brty]

Hi,

Real1ty,

What a short memory you have. My first post was at the low for the financials, but don't let the facts get in the way of a good story.

Dhukka,

With some of the drivel that passes for knowledge on this thread, the bleedingly obvious needs to be stated.

For those who still don't want to get it, you only have to go and read the book Market Wizards for your answers. The parts I'm referring to are when JS asked the wizards their thoughts about the future for the economy,markets etc. Virtually all of them could see immediate huge problems with debt,deficits,America losing its leadership in the world etc, basically financial armageddon.

That was written 20 years ago, and after the recession of '89-91 their world continued. These were multimillionaires with vast information resources, but their view of the future was totally wrong.
Anyone here think they have better resources and are more accurate than those wizards in predicting the future???

I will hazard a guess that in 20 years time we will still be debating the COMING financial meltdown, because of the huge debt problems etc.
In the meantime there will be severe corrections, huge rises, recessions and booms, just like there always have been.

With the derivatives, if they are unwound slowly, there is not the huge losses to all. By the fed guaranteeing against bankruptcies, these can be unwound.

Yes there will be big losers, but there will also be big winners.

Despite what many have written in this thread, it is still a zero sum game, the money is not created nor destroyed by them.

bye

brty

 

[sassa]

Well, brty beat me to the main point here, sassa. But referring to the cash flow problems for those (banks etc) on the loosing side... that issue is already being addressed.

The second point is about risk management... not just the worst case scenario, but the probabalities of a worst case scenario.

To that question I have previously emphasised the worst case scenario just won't happen as has, brty and thatheekret now points to the main reason why that risk is significantly more reduced into the future.

" The market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfil their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall, but only after some defaults have occurred.
The biggest problem which all dealers have known about since Day 1 is that there is no way to hedge a CDS."
http://www.nakedcapitalism.com/2008/04/soros-lambasts-paulson-call-for.html

 

[Trembling Hand]

With the derivatives, if they are unwound slowly, there is not the huge losses to all. By the fed guaranteeing against bankruptcies, these can be unwound.

Yes there will be big losers, but there will also be big winners.

Despite what many have written in this thread, it is still a zero sum game, the money is not created nor destroyed by them.

WRONG a default in a derivative both sides lose.

 

[Real1ty]

Hi,

Real1ty,

What a short memory you have. My first post was at the low for the financials, but don't let the facts get in the way of a good story.

My memory is quite good actually.

While that was your first post, every post since then in this thread, including the one predicting a large correction, has been on days when the market is rising.

Hi all,

Bit of a no brainer, a rally has started. S&P up over 30 in overnight market, fed and other CB's offering great liquidity. The perma bears are about to get a fright.

Who would have thought it possible??

And no Real1ty, I'm not kidding myself at all.

bye

brty

At some point, probably soon, there will be a large correction to this move down. It has been one way traffic since November. Whether or not it is the ultimate market bottom is a moot point.

We should be very close to a tradeable rally, especially given the D+G in some of these threads.

bye

brty

Most agreed with you that there would be a bounce, including myself, but you only come back on here, as i stated, when the market is up.

Still waiting for the large correction....at some point, probably soon

 

[brty]

Real1ty,

every post since then in this thread, including the one predicting a large correction, has been on days when the market is rising.

Umm, your kidding. I wonder if it is because the market has been up most days since then. :

TH, If you are correct, could you please explain where the money has gone??
You know that it is zero sum game, the money goes somewhere, both sides cannot be losers unless the money goes somewhere else.

Granted that some may have spent theoretical profits they don't have, but that does not change the fact that the money is not destroyed.

bye

brty

 

[sassa]

Hi,

Sassa,

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

brty

brty,
My apologies.I missed your reply.I would like to think that I have a basic understanding of the various derivatives.Most replies to your posts seem to back up my assumption.
I must disagree that derivatives are a zero sum game.What if the counterparty files for bankruptcy leaving the holder with defaulted bonds?
Bonds in such bankruptcies are subject to what is known in legal circles as "cramdown,"whereby bondholders lose any voice in the outcome because there will not be enough residual value.The chances of total loss are very high.

 

[wayneL]

They will do everything possible you are right. But unless you understand what that means it doesn't help, because every action will have side effects sometimes with the cure worse than the sickness.

There is a $500t derivative problem. If one big domino falls and its OTC derivatives hit the market, it will mean price discovery, which will then both 1) decimate the value of other similar derivs on other balance sheets, 2) decimate all its counterparties. In yesterday's testimony to Congress Bernanke essentially said this, as said if the Fed hadn't bailed out people so far, the counterparty risk would bring the whole system down.

This means the Fed monetising bankrupcy. This means MASSIVE money supply increase. It means better study the Weimar Republic to learn how to prepare.

The US has the Great Depression burned on its memory and wants to avoid this at all costs. In Germany in the Weimar Republic and two more currency failures. Without realising it, the US is choosing the Weimar model. There will be a new world order at the end of this.

'zactly right.

The "powers" are not immune to The Law of Unintended Consequences. These clowns are just clowns like the rest of us after all. Too much intelligence is assigned to clowns in high positions in my opinion.

After all, there are a lot of us plebs, sitting at home in our pyjamas, with a 3 day growth and scratching our balls in front of a screen, foresaw this whole mess.

Not that we are that smart, but we do have different imperatives that let us see things differently.

 

[GreatPig]

we do have different imperatives that let us see things differently

Right, we're worried about our own money, not someone else's.

GP

 

[sassa]

Bayern LB(Germany's second largest bank) has just announced writedowns of $6.7b.This should be worth a 1-2% rise in European markets tonight as the bank has come clean.Shares to rise 6-8%?Not joking,if the market follows the script.

 

[BBand]

Hey Wayne,
You have a way with words - you just have to laugh

You can put everything into perspective in just a few well chosen lines

Keep up the good work

 

[wayneL]

Bayern LB(Germany's second largest bank) has just announced writedowns of $6.7b.This should be worth a 1-2% rise in European markets tonight as the bank has come clean.Shares to rise 6-8%?Not joking,if the market follows the script.

All we need now is a couple of high profile bankruptcies, say Citibank or similar, and it's new all time highs baby!

LOL

(NB, Why does "Nineteen Eighty Four" keep coming to mind?)