The official "ASX is tanking!" panic thread

[Julia]

Tyler, here's a good summary of the history leading up to the present situation, and following on from IF's post above.

Also, google "Moral Hazard".

http://www.smh.com.au/business/the-last-plan-failed-so-whats-the-plan-20110805-1iemc.html

 

[$20shoes]

A lot of these graphs cited from "Growth in a Time of Debt"
Carmen Reinhart and Kenneth Rogoff.

They illustrate that the ratio of debt to GDP growth takes a very dire turn for the USA when percentage wise we stay above 90% levels. OF course this is the crux: no GDP growth means they can't easily stimulate economic growth as a way of reducing their debt. Essentially, by reducing spending they are consequently forcing their economic growth to shrink. If their economy shrinks ( which it is) this will in turn cause their debt levels to grow relative to their economy.



this is really interesting - Gross External Debt as a % of GDP

 

[Nero64]

Talk about Deja vu Sept 2008. The sell off after the Bailout package got passed. Then Lehman Brothers. What will it be this time. Germany saying hang on we can't bail out Greece, Italy or Spain because we are screwed ourselves

I heard the super fund managers are only down -4% this month. I would be happy with that. :

I was shorting the AUD $ for about a month from 1.065 then lost trade after trade. Then took a position at 1.100. Then it went to 1.1080 and I decided to do a long trade after reading that some currency trader says there is little resistance to 1.140. This coincided with the high CPI and Westpac tipping a rate increase..lol. Then the RBA decision and in all this commotion I didn't have time to enter my previous short bias. Ahh the markets. I suppose it beats lottery tickets or the pokies?

That's the thing about the markets. You have the right ideas and you still get screwed. That's why I keep most of my money in the bank earning interest as a hedge.

If you have 20 years to wait yeah sure buy a Bluechip like BHP and CBA and sit it out.

To the original poster. You were crazy to buy RFE. It was riding on the coattails of ESG which was offered a takeover by STO. The excitement has gone for now. RFE will fall hard but might rise again but I would put my money on BOW before anything else in that sector. But hey I own DTE (The old AOE spin off) so your not the only one to get kicked in the face and then get your eyes poked out and then be spat on.

 

[trading_rookie]

I'm actually very surprised that no one knows the reason for the big sell-off. Even today's article in smh couldn't explain why, and papers usually come up with all sorts of reasons explaining market movement.

Ditto...but, if you caught the ANZ Chief economist Warren Hogan on Lateline tonight, he said the following which kinda sheds some light...


Well, the Australian financial markets are heavily influenced by what's going on in Europe and America, they always will be priced off the back of those markets. But our economy is all linked into Asia and so far those economies are doing very, very well.

Even though it sheds light...it still defies logic! If Italy defaults then our markets will tumble more, even though trade with them is insignificant (what? luxury items such as cars and fashion from their end) and I'm pretty sure none of our major banks have any exposure to them or any other EU country. Nope, it's just the fact that we're heavily influenced...our linked economy to Asia...well that's insignificant!!!

Of further interest were his comments re: those two 'influential' continents...

But look, you know, I think if this is going to get worse, if we're going to see the US move into recession, it's actually going to be because of problems in Europe. Europe is where the financial fragility is. The Americans have done a lot in the last two years to get their economy back in shape, to fix up bank balance sheets, to fix up the household balance sheet.

It's the Europeans where they haven't fixed up their banks, and of course their governments are in huge trouble, that this will get worse. And so we've got to watch that European situation closely.

 

[Aussiejeff]

ANZ Chief economist Warren Hogan on Lateline tonight, he said the following which kinda sheds some light...<snip> The Americans have done a lot in the last two years to get their economy back in shape, to fix up bank balance sheets, to fix up the household balance sheet. <snip>[/i]

Not too sure about that. Consider this damning data from BofA last night... http://www.bloomberg.com/news/2011-...ng-from-fannie-mae-for-mortgage-buybacks.html

BofA Says Loan Repurchase Costs May Exceed Previous Forecast

Bank of America Corp. (BAC), the lender that announced a $3 billion settlement with Fannie Mae and Freddie Mac this year, told investors that elevated claims from the firms may cost more than previously forecast.

New demands for refunds on soured loans from the two government-sponsored enterprises are coming “in numbers that were not expected based on historical experience,” the Charlotte, North Carolina-based bank said yesterday in its quarterly filing. Fannie Mae and Freddie Mac are being “more rigid” in resolving demands, said the bank, the worst performer today in the Dow Jones Industrial Average.

Bank of America declined 2.4 percent to $8.62 at 10:55 a.m. in New York Stock Exchange composite trading, extending yesterday’s 7.4 percent plunge. The company has dropped 35 percent this year through yesterday, dogged by concerns that mortgage expenses and a stagnating U.S. economy will crimp profit and force Bank of America to bolster its capital by selling new shares.

Fannie Mae faces its own pressures, with the mortgage finance company reporting a $2.9 billion second-quarter loss today and asking for another $5.1 billion in federal aid. The firm, which was seized by the government in 2008 to save it from insolvency, has drawn $104.8 billion in aid from the U.S. Treasury.

Bank of America warned investors yesterday that if it fails to get court approval on the deal, the $14 billion in second- quarter provisions for repurchase costs from institutional investors “could be insufficient” and its costs could balloon. The firm already expects $5 billion in additional costs from repurchase demands from non-GSE mortgage buyers.

The “ultimate resolution” of the firm’s housing-market liabilities “could have a material adverse effect on our cash flows, financial condition and results of operations,” the bank said.

Sounds a tad ominous for my liking. The continuing, expanding profligacy of the likes of BofA, Fanny Mae & Freddie Mac in chewing up US taxpayer dollars is astounding.

 

[doctorj]

Even though it sheds light...it still defies logic!

For all the might and power of the Australian economy, it accounts for less than 1% of Global GDP. The EU accounts for around 26% of global GDP and the US around 23%.

If people in the US and Europe don't shop as much in Walmart and Asda and they stop buying their big screen TVs etc, Japan and China stop buying Australia's rocks. Everything is interconnected and with only 22mm people, Australia is particularly dependant on the health of the global economy.

 

[notting]

A good level headed fundamental explanation.
http://finance.fortune.cnn.com/2011/08/04/the-real-reason-why-stocks-are-tanking/?iid=Popular

 

[Tyler Durden]

Tyler, here's a good summary of the history leading up to the present situation, and following on from IF's post above.

Also, google "Moral Hazard".

http://www.smh.com.au/business/the-last-plan-failed-so-whats-the-plan-20110805-1iemc.html

Thanks for the article. The problem I find with articles similar to these is that a lot of it is based on hindsight, a bit like "I told you so" and "I knew this was coming because of x, y and z".

 

[nulla nulla]

For all the might and power of the Australian economy, it accounts for less than 1% of Global GDP. The EU accounts for around 26% of global GDP and the US around 23%.

If people in the US and Europe don't shop as much in Walmart and Asda and they stop buying their big screen TVs etc, Japan and China stop buying Australia's rocks. Everything is interconnected and with only 22mm people, Australia is particularly dependant on the health of the global economy.

China and India aren't just buying our rocks so they can export it back to us. They are emerging nations trying to cater for domestic demand and our rocks are going into buildings, infrastructure and power generation. Fortunately we have what is needed whether their economies tighten or otherwise.

 

[Julia]

Thanks for the article. The problem I find with articles similar to these is that a lot of it is based on hindsight, a bit like "I told you so" and "I knew this was coming because of x, y and z".

But everything that is said in that article was apparent as it was happening, not just after it happened. That's the point I'm trying to make. i.e. if you were following what was happening in Europe and in the US since the start of the GFC you'd have understood that the constant replacing of the bandaids would eventually expose the gaping wound.

 

[Smurf1976]

China and India aren't just buying our rocks so they can export it back to us. They are emerging nations trying to cater for domestic demand and our rocks are going into buildings, infrastructure and power generation. Fortunately we have what is needed whether their economies tighten or otherwise.

Markets are made at the margin.

If demand drops, say, 10% then (1) volume of rocks needed will drop 10% and (2) price per rock will drop far more than 10%.

It's entirely plausible that we see a 5 - 10% reduction in export volumes for iron ore, coal etc and a 50% drop in price. If that happens then Australia has a problem.

Note what happened with oil in 2008. Demand dropped less than 5%. Price plunged almost 80% from high to low and as of 2011 still hadn't reached previous highs. And that's oil - a commodity somewhat more scarce than coal or iron ore.

 

[Smurf1976]

But everything that is said in that article was apparent as it was happening, not just after it happened. That's the point I'm trying to make. i.e. if you were following what was happening in Europe and in the US since the start of the GFC you'd have understood that the constant replacing of the bandaids would eventually expose the gaping wound.

Agreed and you could go back further than that.

I remember having discussions about the future of General Motors circa 2002 as it seemed rather obvious (to me at least) back then that they were doomed and a few financial commentators had made the same observation. 6 years later the inevitable happened and GM, which I now call Government Motors since that's basically what it became, ran into serious trouble.

All this stuff is a bit like seeing someone fairly young and with little driving experience driving a performance car, accelerating as fast as they can the moment the light turns green and weaving in and out of traffic for no real reason. Anyone with a reasonable amount of driving experience knows the likely outcome of that one, the only questions being when, where and with what consequences. That there will be a crash is virtually guaranteed. It's the same with out of control economics - it ends in disaster at some point...

 

[Intrinsic Value]

It is not like this was unpredictable.

What happened yesterday has been on the cards for quite a while.

The debt thing has been hanging around like a millstone for the last couple of years.

And it is probably going to get a little worse yet.

I have heard many fund managers saying how they have most of the clients funds in cash so they were aware what was likely to happen and are now poised to reap the benefits.

The old cliche is true thou you should be buying when everyone is selling but make sure what you are buying is quality business with strong balance, prospects etc

 

[Wysiwyg]

It is not like this was unpredictable.

What happened yesterday has been on the cards for quite a while.

The debt thing has been hanging around like a millstone for the last couple of years.

A credit rating downgrade surprised me. Apparently (ABC news) the downgrading could been avoided had they acted earlier on raising the debt level.

The old cliche is true thou you should be buying when everyone is selling but make sure what you are buying is quality business with strong balance, prospects etc

Yes but when to buy the quality companies is the tricky bit. Hard to see any light at the end of the tunnel right now.

 

[Intrinsic Value]

A credit rating downgrade surprised me. Apparently (ABC news) the downgrading could been avoided had they acted earlier on raising the debt level.

Yes but when to buy the quality companies is the tricky bit. Hard to see any light at the end of the tunnel right now.

Very hard to pick the absolute bottom.

Plenty out there right now screaming value, value , value.

You don't have to empty the til.

Alternatively wait until you see the first signs of upward movement.

 

[LifeChoices]

Thanks for the article. The problem I find with articles similar to these is that a lot of it is based on hindsight, a bit like "I told you so" and "I knew this was coming because of x, y and z".

You may want to watch Inside Job.

Anyone who hasn't seen it should watch this well made documentary about the GFC.

 

[sails]

Very hard to pick the absolute bottom.

Plenty out there right now screaming value, value , value.

You don't have to empty the til.

Alternatively wait until you see the first signs of upward movement.

In my experience, when they are screaming "value", the bottom is usually not in.

However, when there is absolute despair, the media are alarmingly reporting there is more down to go, most on the forums are negative AND it is emotionally very difficult to click the BUY button - then there is a better chance the bottom is in. But it does take practice to get the feel of it...

 

[Wysiwyg]

However, when there is absolute despair, the media are alarmingly reporting there is more down to go, most on the forums are negative ...

These three things are happening now so maybe the worst is over. When television commentators are talking up a further significant correction then I am suspicious. I don't particularly like to be feared into selling.

 

[tech/a]

With the US losing it's AAA rating and interest rates on the move for housing cars cards and anything else they can get their hands on.
We are
NO WHERE NEAR the bottom.

If your not short you should be completely out of the market.

BOTH EUROPE AND THE US are in massive trouble.

DON'T underestimate the significance of the current World economics.

 

[Uncle Festivus]

In my experience, when they are screaming "value", the bottom is usually not in.

However, when there is absolute despair, the media are alarmingly reporting there is more down to go, most on the forums are negative AND it is emotionally very difficult to click the BUY button - then there is a better chance the bottom is in. But it does take practice to get the feel of it...

Yes, as painful as it was for some I don't think we are anywhere near the bottom. Just too many people still think there are bargains to be had.

I sold sold my complete portfolio several months ago and still sitting in cash getting 6% at call, just patiently waiting for the right time, which could be months yet - I'm talking real bargains like CBA less than $20 etc.

I have found that it's the quality of trade not the quantity so you/we must resist the urge to be part of the game and learn patience.

In the meantime, leveraged shorting of the rallies does it for me, and only using a fraction of my funds to play with.