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.
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]
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.
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%.Even though it sheds light...it still defies logic!
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
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.
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.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".
Markets are made at the margin.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.
Agreed and you could go back further than that.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.
A credit rating downgrade surprised me. Apparently (ABC news) the downgrading could been avoided had they acted earlier on raising the debt level.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.
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.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
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.
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".
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.
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.However, when there is absolute despair, the media are alarmingly reporting there is more down to go, most on the forums are negative ...
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...
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