Imminent and severe market correction

Whiskers · 5 November 2007

Fearing I might have under estimated the US credit crisis, I did a bit of postulating on the Gold thread earlier about just this (extracted from sassa's link above).

Best case, Citibank will not be extending vast amounts of credit any time
soon, nor will Bank of America or Countrywide Financial or any other major
American lending institution. Worst case? Don’t even ask.

This is where the real problems begin.

Without fresh credit, what will become of the American consumer? How will the
American consumer continue to over-leverage himself? And what will become of
the American economy without millions of over-leveraged consumers?

Play is safe, dear investor. Play it safe. These are not the days that will
reward investment heroism.

Is is conceivable that this is the beginning of the end of the asset-based credit system and 'natural' progression back to gold backed currencies and the birth of next economic powerhouse... China or Russia!

You guys are probably right in that the smart money is moving, because most of us have no idea of the exact scale of things but rely on the tone of announcements from the banks, treasurey and fed.

If people can't get credit or worse, the banks can't offer it, and noticing the numbers involved and the size of the injection last week when things were supposed to be going better, I'm now wondering whether Wall St will capitulate next week after people have had the weekend to think a bit more.

Geeez though, I just wish we didn't have to catch a cold every time the yanks sneeze.

Uncle Festivus · 5 November 2007

SevenFX said:
UF aren't the markets driven from D&G as the media puts it, AND relaity and facts as the company reports it...????

Think Kauri is just referencing creditable sources that paint the picture as they see it..

SevenFX

Yes, I was having a joke with Kauri. The perma-bulls don't like too much reality. Facts & reality will leave hope & ignorance in the gutter.

explod · 5 November 2007

Uncle Festivus said:
Yes, I was having a joke with Kauri. The perma-bulls don't like too much reality. Facts & reality will leave hope & ignorance in the gutter.

I think Uncle you will find quite a few converts to reality have come on board over the weekend. We have seen the dynamics unfold over the last few years which some say is guessing/hoping or gloom and doom.

The facts are now patently clear.

Kauri · 5 November 2007

Uncle Festivus said:
Yes, I was having a joke with Kauri. The perma-bulls don't like too much reality. Facts & reality will leave hope & ignorance in the gutter.

Hi UF,
I got the joke. .. just the D&G had me baffled.. not having a mobile phone I am not up with all these abbreviations...
Incidentally, I am niether a Bull nor a Bear... I just trade the trend as it is at the time.. things change too quickly for a shorter-term trader like me to take a longer-term stand... I think..
Cheers
.........Kauri

Uncle Festivus · 5 November 2007

Whiskers said:
If people can't get credit or worse, the banks can't offer it, and noticing the numbers involved and the size of the injection last week when things were supposed to be going better, I'm now wondering whether Wall St will capitulate next week after people have had the weekend to think a bit more.

Geeez though, I just wish we didn't have to catch a cold every time the yanks sneeze.

This is the problem, the constipated owl as Bill Gross put's it. If the bastions of capitalism eg the worlds biggest, and up till now, profitable banks can't fund their own balance sheet, let alone start to trust their money to borrowers, the US Titanic has just realised the true size of the iceberg it hit a few months ago.

Another sharp jolt to the financial sector came on Thursday when an analyst at CIBC World Markets predicted that global banking giant Citigroup Inc. may be forced to cut its dividend or take other steps to make up for a $30 billion capital shortfall. Shares of Citigroup lost about 7% for the session and the selling quickly spread into other banks and financial services stocks.

The wealth effect from rising real estate values has now dramatically reversed resulting in a growth recession already. It is only a matter of time before this infects the so called 'real' economy.

The scary part of all this is that property debt & values in other countries have risen at far greater rates than in the US, especially in the UK & Spain.

Credit has allowed our first world societies to live beyond our means in an artificial consumption binge which now looks to be resetting to the mean, but only after a vicious overcorrection via a global recession.

WASHINGTON (MarketWatch) -- Home buyers with the very best credit are still having a difficult time getting mortgages in California, raising concerns that the real estate market in the nation's most populous state could fall much further, sending home values spiraling lower and toppling the state's economy into recession.

The drop in home values could cost the typical homeowner as much as $200,000 in lost wealth, for a total hit of $2.6 trillion statewide.

"We could see rapid price declines," said Dean Baker, an economist with the Center for Economic and Policy Research, who's been warning about the housing bubble for years. "These are huge numbers," he said. "Consumption will fall off."

China will be next for a 'resetting'?

Kauri · 5 November 2007

Looking better (or worse) all the time...

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

November 5. Equity bourses look set to drop significantly today on the back of bad news on two fronts. The Citibank subprime write-downs has hit financial stocks hard and now H.K. stocks are expected to come under immense pressure as China tries to "pull the rug" from under the euphoric H.K. market. Over the w/e, China"s Securities and Regulatory Commission said it was considering controlling the volume of investment by mainland institutions in the H.K. market through the QDII program. Premier Wen backed up these comments by the CSRC and now the market is expecting big delays on its implementation. Given that the H.K. market is up nearly 40% since the program was announced back in August, the Hang Seng should come under immense pressure today. The AUD/USD is sitting just above its morning lows and as the day progresses, equity moves are expected to dictate its moves.

Awesomandy · 5 November 2007

Whiskers said:
Geeez though, I just wish we didn't have to catch a cold every time the yanks sneeze.

At the rate things are going, we won't have to worry about the yanks catching colds for much longer - watch out for Asia though.

explod · 5 November 2007

Awesomandy said:
At the rate things are going, we won't have to worry about the yanks catching colds for much longer - watch out for Asia though.

The sell of is gathering some momentum here and in Japan in trade since lunch.

I am thinking of liquidating, as to err on the side of caution may be the wiser move.

ithatheekret · 5 November 2007

explod said:
I am thinking of liquidating, as to err on the side of caution may be the wiser move.

Cash is King ...huh, as long as it's not Yen although the carry trade should strengthen that again soon, just in time for the BoJ to step in .........

I think the fait accompli in everyones minds is the reason for movements , margin lending facilities being polished up after a good drive.

One would have to contemplate that not enough heads have rolled in the financial sector ...... you know ...... the smart money crowd, they're smart alright, it's other peoples money they lose. I wonder if the block queue will lengthen sometime around March next year, one ponders that event ..... and still not a hint of blood from Asian Banks of any note.

Well if the markets are really scared (which I thought it generally was), we'll see if the shudders have hit here by Melbourne Cup Day run up, that's the next rate hike agenda and could turn todays 100 point meltdown into a 6300 shakeup, with anything near 5800 being a nasty prospect. In my mind this is what the market reacts to, that's the skeleton in the closest that really gives the markets teeth a rattling after the bad news bears have thrown their spookies about.
That's when it's like pulling teeth for the brokerage houses, even worse if they decide to upgrade the system for the futures market in the middle of the day or something silly like that. , now that's when cash automatically becomes King.

Whiskers · 5 November 2007

Not looking good for tomorrow. Hang Seng just slipped another 1% down 4.2% for the day. Dow futures slipping out.

nizar · 5 November 2007

ithatheekret said:
Well if the markets are really scared (which I thought it generally was), we'll see if the shudders have hit here by Melbourne Cup Day run up, that's the next rate hike agenda and could turn todays 100 point meltdown into a 6300 shakeup, with anything near 5800 being a nasty prospect.

Yeah, and 580 would be an even nastier prospect

nikki · 5 November 2007

hang seng drop linked to regulatory changes & i am not sure how much of it is linked to general scare re credit crunch.

5% drop is pretty spectacular. another 35% to go before it reaches the levels it was last week

Awesomandy · 5 November 2007

nikki said:
hang seng drop linked to regulatory changes & i am not sure how much of it is linked to general scare re credit crunch.

5% drop is pretty spectacular. another 35% to go before it reaches the levels it was last week

It's just giving up the extra gains from the regulatory changes a few months earlier, so... I guess we can think of that as just noise.

sassa · 5 November 2007

" I’ll admit that I am rather amazed that key financial stocks – including the financial guarantors, “money centre banks”, and Wall Street firms – were hammered yet the market maintained its composure. NASDAQ was actually up on the week, as major technology indexes added to their robust y-t-d gains. I’ll assume there is a confluence of great complacency and gamesmanship, with operators determined to play aggressively through year-end (bonuses and payouts).

I wouldn’t bet on the stock market holding 2007 gains for another eight weeks. The Credit meltdown is now moving too fast and furious. Importantly, confidence is faltering for the entire Credit insurance industry, including the mortgage insurers and the financial guarantors. This is a devastating blow for the securitization marketplace, already reeling from pricing, liquidity and trust issues. The Credit system has lurched to the edge of meltdown, while the economy hasn’t even as yet succumbed to recession. It's absolutely scary. Last week I wrote that subprime and the SIVs were “peanuts” in comparison to the CDO market. Well, the CDO marketplace is chump change compared to Credit Default Swaps and other over-the-counter (OTC) Credit derivatives that, by the way, have never been tested in a Credit or economic downturn. "
Extract from an article by Doug Noland at prudentbear.com.

Two new players on the field-credit default swaps and over-the-counter credit derivatives.
Can anybody give an account of these two?

ithatheekret · 6 November 2007

I have always considered credit derivatives as complex instruments purely devised to exchange risk between investors trading/investing in a market.
They are basically linked to some form of an underlying asset, be it a stock, commodity, forex or any tradable instrument within a market including interest rates. All it takes is for two parties to reach an agreement and then set the derivative in place. Then it is a matter of which party had the right value set for the asset.

sassa · 7 November 2007

sassa said:
" I’ll admit that I am rather amazed that key financial stocks – including the financial guarantors, “money centre banks”, and Wall Street firms – were hammered yet the market maintained its composure.

It seems that the positives being reported by the corporates outweigh any negatives.Better profits and stock valuations grab the investors' eyes more than any bad news(which is awash in the U.S. at the moment).
Yesterday's gain of over 100 points just before the end of trade was an attention grabber.I really wonder about this money flooding the markets-how much is financial leveraging?

Kauri · 7 November 2007

I realise that the Dow futures aren't that relevant at this time of the day, but someone has spooked them to the tune of 160 points odd...
Cheers
.........Kauri

alankew · 7 November 2007

This could be the reason http://money.cnn.com/2007/11/07/markets/markets_nyopen/index.htm

dj_420 · 7 November 2007

Yeah its not looking good, FTSE hammered, DOW coming off, I dont actually know why markets kept going up while oil was so high, prices like this are not good for any economy.... except maybe Saudi Arabia.

sassa · 7 November 2007

Kauri said:
I realise that the Dow futures aren't that relevant at this time of the day, but someone has spooked them to the tune of 160 points odd...
Cheers
.........Kauri

This would have an effect although the gentleman making the statement has since said that "his words were misconstrued."A serious thought even though it may have been slightly misreported.Words like this would make the markets unsteady.

Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted by wire services as saying China should shift more of its $1.43 trillion of currency reserves into "stronger currencies," such as the euro, to offset "weak" currencies like the dollar.
The euro rallied to a new record high of $1.4703.

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