Imminent and severe market correction

[tech/a]

Europes as sick as a dog.Even early in the piece.

Tonight's going to be interesting.
That capitulation that most wish to see---a shock bottom---looks imminent!

 

[explod]

That capitulation that most wish to see---a shock bottom---looks imminent!

I have not noted anyone wishing a servere market correction. It is a dreadful situation that is unfolding.

Is there some ill feeling against those who examine the fundamentals of markets and form the view that it is all going to get worse. On my take it will get very bad before it gets better, it is not my wish, just my view.

 

[davo8]

there is little to negligable sub-prime problems in Australia. Australian banks are well positioned, they are not trying to raise capital or cutting dividends. They are buy up,

This has little or nothing to do with sub-prime -- that was just a trigger.

There is a world-wide credit crunch. Everybody who has been making money out of selling debt is going to get hurt as the leverage unwinds. That means our banks and REITs too.

I sold ANZ at $26. It's $17. I'd buy it at about $12. Banks are a buy on a forward (not historical) P/E of around 8-10. They are not there yet.

This is NOT the bottom. [Repeat after me...this is NOT the bottom.]

 

[sassa]

Another big day coming for the Dow,Nasdaq and S&P.Futures are spiralling!!Financials to lead the way-JPMorgan beats analysts(love 'em) forecasts,Merril Lynch to report after market closes( and this will mean another boost for tomorrow's market).Nokia beat analysts' forecast as well as Coca Cola.Forget about any other figures coming out today(jobless etc).The market is hearing what it wants-positives.The Freddie,Fannie problem is passe-that was last Friday and Monday.
The Government sent a message to the shorters of the financials yesterday-get covered.They did-a great rally.
Nearly time to get fully back into the market with a deal of leverage to take advantage of the profits to come.
I think?I am not quite sure.

 

[pepperoni]

Another big day coming for the Dow,Nasdaq and S&P.Futures are spiralling!!Financials to lead the way-JPMorgan beats analysts(love 'em) forecasts,Merril Lynch to report after market closes( and this will mean another boost for tomorrow's market).Nokia beat analysts' forecast as well as Coca Cola.Forget about any other figures coming out today(jobless etc).The market is hearing what it wants-positives.The Freddie,Fannie problem is passe-that was last Friday and Monday.
The Government sent a message to the shorters of the financials yesterday-get covered.They did-a great rally.
Nearly time to get fully back into the market with a deal of leverage to take advantage of the profits to come.
I think?I am not quite sure.

We will get 50 more of these dead cat bounces if this irrational exuberance continues.

 

[sassa]

I should have read the signs-"Merril to report after the bell."Of course it would mean that the market rally could not stand a poor result being reported before the bell or during trading.To counteract this bad news,Citi reports BEFORE the bell tomorrow.No betting on their outcome(beat analysts' estimates).The fillip for another rally in the financials.Perhaps,the bottom has been reached.

 

[Bushman]

What a dog Merril's have proven to be. Could not happen to a 'nicer' organisation. What is it - another $4.6b write down with up to another $10b to go? Amazing. They are starting to sell the farm to stay afloat now- Bloomberg and their financial data arm. What bets they flog off Black Rock too. A bitter pill...

I am going to go out on a limb and say the JP Morgan result is more significant to sentiment as ML is a know CDO basket case? Citi will have the greatest impact on sentiment. Bottom is closer but the housing market will need to stabilise for this never ending bear/dead cat bounce cycle to end. What's it been now - 12 months since the intial July 07 sell down?

 

[explod]

Bottom is closer but the housing market will need to stabilise for this never ending bear/dead cat bounce cycle to end. What's it been now - 12 months since the intial July 07 sell down?

I wonder. The slow down in spending, higher unemployment, oil and its impact on airlines, travel, getting to work. Is not the worst still to be reported in the coming year or two in the US and elsewhere for that matter?

 

[explod]

And this from Jim Sinclair today as another cap off:-

Dear CIGAs,

DERIVATIVES, BANKS, AND BAILOUTS

We at Guild Investment Management have mentioned the problems with derivatives 31 times in the five years between 2003 and the present in our market commentaries, yet people did not listen. Now, many people call us who own bank stocks and banking related instruments wondering what to do. Our opinion is to sell into rallies U.S. banking related stocks. There is no reason to own banking stocks in this environment as the problems will continue for years. In the end, many equity shareholders will be wiped out.

If the U.S. Fed, U.K. central bank, and other central banks continue to protect all of the institutions, all of the shareholders, and all the depositors, the crisis will actually be more prolonged and more difficult to come out of than if they let a lot of the smaller institutions go broke.

Thus far, it is obvious that the Fed and the U.S. and U.K. administrations want to make the government the lender of last resort and make it a world where mistakes are not punished. We go on record saying that this is a mistake...the example of Japan comes to mind.

The Japanese market peaked in 1990 at about 40,000 on the Nikkei 225 just as their banking crisis began. Japan did not confront their banking crisis. They kept a lot of 'zombie' banks alive and did not write off the bad loans. The banking system languished and the Japanese stock market bottomed down over 75% from its highs when it got to about 9,000 in 2003. Today it is still only at 13,000.

Is that what you would like to see in the U.S. and Europe? If so, then go ahead and continue with what looks to be the current Federal Reserve and U.S. Treasury strategy of keeping weak institutions operating 'as if' they were healthy and able to lend.

 

[tech/a]

XAO------ -45pts

Is it possible that we Aussies recognise a bulltrap!

 

[IFocus]

Funny just thinking haven't heard of the old favorite "Plunge Protection Team" for awhile maybe they finally run out of funds or were at best just a myth.

Tech the SPI isnt buying it today either......yet

 

[explod]

Funny just thinking haven't heard of the old favorite "Plunge Protection Team" for awhile maybe they finally run out of funds or were at best just a myth.

As old Sir Joh would say "Don't you worry about that" the Plunge Protection Team is alive and well, as in posts earlier today, timing the release of news after the market, and the suggestion they will have news for Monday before the market, and suppression of the gold and silver prices to protect the perception the US dollar is strong.

 

[pepperoni]

Doesnt matter if credit crisis is over or not ... the outlook is shocking on all fronts ... the market PE should be worse than average ... should be worse than what it is. Indefinitely.

 

[davo8]

Doesnt matter if credit crisis is over or not ... the outlook is shocking on all fronts ... the market PE should be worse than average ... should be worse than what it is. Indefinitely.

Absolutely. Credit crunch and consumer collapse hits everything. The worst is yet to come. Banks, builders, developers, big box retailers, malls, airlines, automotive, you name it.

Repeat after me: this is NOT the bottom.

 

[sassa]

The following is offered by someone I have tremendous respect for, someone who has run major trading operations on both sides of the Street. If there's a smarter fellow in finance, I have yet to meet him. You may not agree with his view but as I’ve learned over the last twenty years, it should definitely be respected.

Two Plus Two Equals Four

Financial companies are desperate for capital but their stock prices are so low that any issuance would be dilution death for the companies. The government is desperately trying to keep the financial system together. Add that up and you get the possibility of a great manipulation.

How would the government engineer a rally in financial stocks so that these companies can sell stock to raise capital at a reasonable or at least palatable dilution level?

It might go something like this. Since financial stocks are in such trouble they have heavy short interest; this is natural and well known and can be used to their advantage. A clever “berry” might think to introduce confusing rules that raise the cost of borrowing short stock and temporarily confuse shorts into covering and not shorting more. And this is precisely what the SEC did.

It seems innocuous to most folks, but it put stock loan desks and dealers in complete disarray. New short sellers could find no stock to borrow and many existing short sellers were forced to cover as the technical rules forced allocation of loans at much higher costs.

For example, the rebate rate on Fannie Mae (FNM) the day before the SEC announcement was 1%; the day after it was -5%. Many who were short the stock were forced to cover, thus driving the stock price up.

But this alone would only drive stock prices up so much. The clever berry needs a catalyst, one that would force panic buying into now truncated supply.

It just so happened that the new SEC rules came conveniently the day before many of these financial companies were to report earnings. If just some how these earnings were really good the match would be lit on the kindling.

So far banks have miraculously come through on their end of things. Wells Fargo (WFC) and JPMorgan (JPM) reported better than expected beaten down earnings. Things must be getting better just as the companies need capital.

What a coincidence.

But if you look at how the banks “beat” their earnings the coincidence becomes clear. WFC took the unprecedented step of extending charge-off acknowledgment from 120 days to 160 days. This allowed the bank to move less capital to loan loss reserves and report better than expected horrible earnings. And JPM was even more aggressive. It actually lowered its loan loss reserves quarter to quarter.

The list of financial companies where shorting regulations are being enforced/enhanced is precisely the banks and dealers (and FNM/Freddie Mac (FRE)) that have access to the Fed's balance sheet (dealers through the PDCF and FNM/FRE through the recently-allowed access to the discount window). So we can speculate on the nature of the ''coincidence'': Perhaps the Fed is getting worried about the value of all that collateral these dealers have posted to the Fed balance sheet and must boost the capital of these companies to protect that value.

And now on cue FRE, a $5 billion market capitalization company wants/needs to issue $10 billion in new stock? Doesn’t that sound a little crazy? Well get ready for others to do the same because the banking system needs capital desperately and the government is there to help

http://www.minyanville.com/articles/bears-asia-contagion-google-GOOG-wfc/index/a/18096

 

[sassa]

We have two of the largest and most important financial institutions writing off an additional 16.7 billion in writedowns. As of a few days ago and according to an on-screen graphic from Bloomberg total worldwide writedowns are now over $400 billion dollars. Most of those are from the US and Europe -- which leads me to wonder why Asia hasn't reported a lot of losses yet. Either they were smarter than the average bear or we have a wave of bad news from another continent on the way.

We have a government sponsored entity saying it is thinking about selling $10 billion in equity. This is on top of the Paulson plan which calls for an unlimited line of credit for these two companies in addition to letting the Treasury purchase Freddie and Fannie stock in the open market. Yet we are continually told the GSEs are in good shape. For a company that is in good shape, it sure looks like they are in desperate need of money.

And then there is Countrywide -- a company under federal investigation. We now know they were selling, well, crap. And that's a huge problem because a lot of the crap that Countrywide sold is backing up bonds in portfolios across the globe.

But over the last few days we've seen the financials rally because they're a great place to put money?

http://www.bonddad.blogspot.com/

 

[davo8]

Financial companies are desperate for capital but their stock prices are so low that any issuance would be dilution death for the companies. The government is desperately trying to keep the financial system together. Add that up and you get the possibility of a great manipulation.

This guy is spot on the money. The naked short rules and selective enforcement of regulation SHO are part of a plan to boost specific share prices ahead of a capital raising. Ingenious! I wish I'd thought of that.

Won't help them though. The lift is only temporary. Soon it'll be back to business as usual -- heading for the exits.

 

[explod]

This guy is spot on the money. The naked short rules and selective enforcement of regulation SHO are part of a plan to boost specific share prices ahead of a capital raising. Ingenious! I wish I'd thought of that.

Won't help them though. The lift is only temporary. Soon it'll be back to business as usual -- heading for the exits.

Yep, anything to get over the line for the next US Fed election. To keep it simple and safe, follow the lead within the gold thread.

Prescious metals have been so repressed that when they take off following the real collapse of the USdollar, it will be parabolic.

IMVVHO of course

 

[Whiskers]

This guy is spot on the money. The naked short rules and selective enforcement of regulation SHO are part of a plan to boost specific share prices ahead of a capital raising. Ingenious! I wish I'd thought of that.

Won't help them though. The lift is only temporary. Soon it'll be back to business as usual -- heading for the exits.

Two points davo8.

Wasn't the 'NO naked shorts rule' introduced about the time of the great depression and only lifted mid 2007 before it was selectively reintroduced again recently? It could be reasonably argued that lifting this rule exasabated the fallout from the sub-prime mortgage problem.

Secondly, I don't know what the numbers were last week... but I think it was the week before, Wall St firms had stopped borrowing from the Fed and Merchant Banks had also been cutting back in their 'emergency' borrowings.

Seems to me that a few people abused the relaxation of some of the rules and made a motza of a ballz-up for everyone... demonstarting that they cannot be trusted to do the right thing and forcing extra regulation right across the board.

 

[davo8]

Wasn't the 'NO naked shorts rule' introduced about the time of the great depression and only lifted mid 2007 before it was selectively reintroduced again recently? It could be reasonably argued that lifting this rule exasabated the fallout from the sub-prime mortgage problem.

1. It was the uptick rule that was lifted. Naked shorts are covered by regulation SHO which was not lifted but has been selectively enforced.

2. This is not a "sub-prime problem". This is a systemic problem of banks that sold debt to people who couldn't afford it and are now going down the toilet. These market manipulations are desperate measures to persuade people to buy new equity and keep the system together a bit longer.

The reality is that these institutions are worthless. The Bageholt rule says: wipe out equity, sack the managers, give the bond holders a haircut, protect the depositors, use the Fed to provide liquidity against a run. The Japanese rule says: bankers look after other bankers, the system looks after its own.

I wonder what will be the next disaster. This is NOT the bottom.