"Panic" on Wall Street

GrGr

Diamond Member
Sep 25, 2003
3,204
0
76
NEW YORK (MarketWatch) - Stocks plunged Thursday as anxiety about shaky credit markets and the troubled housing sector swept Wall Street, pushing the Dow Jones Industrial Average down nearly 400 points.

"We're seeing panic in the market today - you can almost cut the level of fear with a knife," said Al Goldman, chief market strategist at AG Edwards.

NYSE trading blocks in place

A lot of chickens are coming home to roost. The subprime mess destroying hedge funds, oil and energy no longer cheap, the Japanese election that looks to end carry trade, looming trade war with China that is changing direction and has stopped being the inflation sink, the dying dollar and inflation...
 

blackangst1

Lifer
Feb 23, 2005
22,902
2,359
126
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn
 

blackangst1

Lifer
Feb 23, 2005
22,902
2,359
126
Originally posted by: GrGr
You expect a 20 % drop in one day? heh

Well, in my ideal world ;) Of course with stops its impossible. In the meantime I'm waiting for a correction of about 20%. We have corrections about every 4-5 years and its been a little over 5 since the last one, so any time now.

I cant wait :)
 

GrGr

Diamond Member
Sep 25, 2003
3,204
0
76
Originally posted by: blackangst1
Originally posted by: GrGr
You expect a 20 % drop in one day? heh

Well, in my ideal world ;) Of course with stops its impossible. In the meantime I'm waiting for a correction of about 20%. We have corrections about every 4-5 years and its been a little over 5 since the last one, so any time now.

I cant wait :)

Well a correction is one thing. An epic crash quite another. The situation now is different from previously. This liquidity and debt bubble is far greater than before.

 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.
 

maddogchen

Diamond Member
Feb 17, 2004
8,903
2
76
i figured there would be a correction sometime. I thought that China's would come first though and drag us down.
 

senseamp

Lifer
Feb 5, 2006
35,787
6,197
126
We'll see what happens. One thing that pissed me off is I was waiting for my emerging market funds to go long term in 2 weeks so I could sell them and put that money into real estate short fund to double up. Well, today the real estate fund is up 5% and the emerging market fund is down 5+%, so I am not too happy. Not sure why we still make distinction between long term and short term cap gains. Seems to me that government shouldn't encourage one over the other.
I guess the right way to play it to lock in the prices while still waiting for gains to go long term would have been to buy calls on real estate short fund and puts on emerging markets, but I didn't think there would be this much volatility.
 

jrenz

Banned
Jan 11, 2006
1,788
0
0
Why do you say the world is ending when the market is down 300 points, but you say nothing when it's up 100, 200, or 300 over the course of a day or two?
 

GrGr

Diamond Member
Sep 25, 2003
3,204
0
76
Originally posted by: jrenz
Why do you say the world is ending when the market is down 300 points, but you say nothing when it's up 100, 200, or 300 over the course of a day or two?

You seriously do not know the difference between inflating and deflating bubbles?

 

Idontcare

Elite Member
Oct 10, 1999
21,110
59
91
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.
 

Rainsford

Lifer
Apr 25, 2001
17,515
0
0
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Well the wealth of the people who DIDN'T sell certainly took a hit. Owning 1000 shares of stock at $60 per share represents more wealth than owning 1000 shares of stock at $50 per share. Wealth is certainly both created and destroyed, I don't know what sort of financial tome you've been reading...
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Sorry I didn't qualify that some people's wealth got destroyed. Naturally this is a zero-sum game.
 

ScottMac

Moderator<br>Networking<br>Elite member
Mar 19, 2001
5,471
2
0
This is nothing. There's been discussion of a correction for weeks.

Most of my stocks went up, Apple went up 8.75(!) to 146.00 (and is still going up on off-hours trading). Some of my stocks went down a little (.05 -.25), and the ones that dropped the most (drillers / offshore services) just became a great opportunity to add at a discount. I'm guessing that oil will continue to go up for a while, that storms will hit the Gulf, and that there'll be some underwater pipeline maintenance. Good chance for an "up" there.

This (for me) was not a bad thing. It's really only bad if you're stupid enough to sell on the drop (unless you expect that it'll continue to drop for the next couple years).

This is just not a big deal. If it drops some more tomorrow, I'll buy some more. I'm pretty sure the futures are pointing up, at least a little, for tomorrow.

Offshore ETFs are a wunnerful thing too ....

Whatever.
 

JD50

Lifer
Sep 4, 2005
11,834
2,625
136
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Ummm...the wealth of the people that sold lower than they orignially bought the stock at got destroyed.

 

EagleKeeper

Discussion Club Moderator<br>Elite Member
Staff member
Oct 30, 2000
42,589
5
0
Originally posted by: JD50
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Ummm...the wealth of the people that sold lower than they orignially bought the stock at got destroyed.
No one forced them to sell.

Until you sell, there is no actual loss. The funds are still tied up in paper.

 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: EagleKeeper
Originally posted by: JD50
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Ummm...the wealth of the people that sold lower than they orignially bought the stock at got destroyed.
No one forced them to sell.

Until you sell, there is no actual loss. The funds are still tied up in paper.


I guess nothing that we ever do with that paper wealth ever matters, like buying a house, car, or any other credit related issue. Nor will that "paper money" matter in the future.
 

smack Down

Diamond Member
Sep 10, 2005
4,507
0
0
Originally posted by: EagleKeeper
Originally posted by: JD50
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Ummm...the wealth of the people that sold lower than they orignially bought the stock at got destroyed.
No one forced them to sell.

Until you sell, there is no actual loss. The funds are still tied up in paper.

How do you know no one is forcing them to sell? Ever hear of margin calls?
 

ScottMac

Moderator<br>Networking<br>Elite member
Mar 19, 2001
5,471
2
0
Originally posted by: Rainsford
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Well the wealth of the people who DIDN'T sell certainly took a hit. Owning 1000 shares of stock at $60 per share represents more wealth than owning 1000 shares of stock at $50 per share. Wealth is certainly both created and destroyed, I don't know what sort of financial tome you've been reading...

It really depends on when they bought (what price). I got a bunch of Apple when it was under US$5.00 :D a few years ago... AAPL can go down another 141.00 and I'm still ahead of the game.

Chances are (i.e., historically) if you hold on to the stock (and it's decent stock), it'll keep going up. You don't lose any real value unless you cash out while it's down.

Bill Gates is, then isn't, then is, the riches guy on the planet (on paper) with the swing in stock prices.

This just isn't a big deal (other than a great buying opportunity).


 

heartsurgeon

Diamond Member
Aug 18, 2001
4,260
0
0
I've been in the stock market for 25 years...this is just a hiccup...

For all you kids out there...BUY SOME STOCKS!!!

diversify your portfolio (create you own mini-mutual fund)..that way you don't have to pay the mutual fund managers a penny..

use DRIPS to reinvest your earning..

watch the companies you own spin off subsidiaries (free stock!!)

your single greatest asset is time!! as a young person you don't value it, but is worth a fortune to you, if you invest early in life, and have your money grow for decades..

25 years ago, the DOW was between 1000 and 2000

now it's between 12,000 and 14,000

a few hundred points? no worries man...it's gonna takes a few thousand points off the DOW just to get me anxious....

gotta get back to fooling around with my home theater!!


 

dmcowen674

No Lifer
Oct 13, 1999
54,889
47
91
www.alienbabeltech.com
Originally posted by: EagleKeeper
Originally posted by: JD50
Originally posted by: Idontcare
Originally posted by: LegendKiller
Originally posted by: blackangst1
holy shit 2.25%!!!!!!!!!!!!!!!

I hope you dont think this is a big deal lol Let me know when we're down 20% so I can buy otherwise /yawn

2.25% is pretty large, considering the amount of wealth that just eliminated.

Realistically, this is only the beginning. A lot of people are worried about credit and I am not just talking about subprime mortgages.

What wealth just got eliminated? The people who sold extracted the wealth, it will go somewhere else now.

Wealth is neither created nor destroyed, but perception of wealth certainly is.

Ummm...the wealth of the people that sold lower than they orignially bought the stock at got destroyed.
No one forced them to sell.

Until you sell, there is no actual loss.

The funds are still tied up in paper.
Thanks for calling it what it is, rich man's monopoly game.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
Ron Insana on CNBC said there is 750 TRILLION dollars of financial derivatives around the world.

Lots of people all around the world have made lots of highly leveraged bets using these derivatives.

Right now, this looks just like a correction as some of these bad bet derivatives are being slowly unwound in what right now appears to be a slow and orderly manner.

Risk of a true financial crisis / meltdown occurs if some unforseen event triggers a rapid and massive forced unwinding of a great amount of bad bet highly leveraged derivative bets.
This is why knowledgeable guests on CNBC talked about true palpable fear today, especially in the bond markets. Right now the true extent of potential downside risk is just unknown and it seems like it is going to take more than just a day or two of massive volatility for it to work itself out of the system.

I believe it was these highly leveraged derivative bets that turned some bad subprime mortgages at Bearn Stearns hedge funds into totally worthless pieces of paper.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
The derivative bets didn't do anything to the subprime mortgages held by BS. They weren't holding derivatives, they were holding CDOs backed by low-rated portions of subprime mortgage bonds. When delinquencies and defaults skyrocketed for the mortgages, it ate into the equity tranches of the MBS, resulting in reduced credit enhancement, this resulted in downgrading or reduction in price of the bonds, creating the same for the CDOs, which essentially became wortheless.

There aren't 750T worth of derivatives. There is 750t of *notional value* of derivatives, which is a completely different subject. Using the notional to value derivatives is like using (StockPrices * #stocks covered) in an option contract to value a call or put. It's a decent way of seeing what is related to the derivative but it doesn't give the value of the actual derivative.

For example, if a futures contract to buy $1bn of corn at $10 a bushel is outstanding and when it settles it pays $10 net, was the contract worth $1bn, or was it worth $10?
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
I stick to mutual funds, so I don't know a lot about puts, calls, etc.

But if someone makes a bad 10 x leveraged $1 bet and is wrong, isn't his loss $10?

I thought at least one of those Bear Stearns hedge funds, where those mortgages were nominally marked at 100 on the books, were marked down to something like 70 when they actually had to sell them, and that it was the large leverage used in the fund that turned these " moderate" losses into completely worthless (like 3 cents on the dollar)??
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: mshan
I stick to mutual funds, so I don't know a lot about puts, calls, etc.

But if someone makes a bad 10 x leveraged $1 bet and is wrong, isn't his loss $10?

I thought at least one of those Bear Stearns hedge funds, where those mortgages were nominally marked at 100 on the books, were marked down to something like 70 when they actually had to sell them, and that it was the large leverage used in the fund that turned these " moderate" losses into completely worthless (like 3 cents on the dollar)??

It wasn't leverage, it was the fact that the pieces of these bonds were so subordinate in the actual MBS, then were pooled into CDO's, which then the hedge funds bought the lower subordination of.


Look at it this way. An MBS is structured with AAA bonds all of the way down to BBB, BB, B and an "equity" tranche which takes the first portion of losses.

Since it's sometimes hard to find people who want to take a single BB, B, or equity piece in a sub-prime MBS, they took a bunch of these pieces and stuck them in another structure, a CDO.

You take 10 of these subordinate pieces and stick them in a CDO and you do the same thing you did with the MBS, creating a AAA, AA, A, BBB, BB, B, and equity tranche.

So, essentially, you are taking the crappiest portion of a structure, sticking a bunch of them in another structure, then creating a super-crappy portion. Of course, this last portion pays massive % in interest, maybe 15-20%+. This type of return is attractive to hedge funds, who think that a CDO structure pooling protects them.

However, what happens if the crappy MBS subordinate pieces start going down the tubes and you hold a subordinate CDO piece too? You get a downgrade on the MBS, which results in a downgrade to the CDO, which has to be marked to market, resulting in losses.

Essentially you're doubling down on risk thinking the pooling nature of the structure will protect you while you reap a good return. Too bad these toxic waste junk bond tranches didn't have enough protection in them to guard against crappily underwritten mortgages.


Now you're seeing the rollup effect of this. Since nobody wants CDOs, nobody wants to buy subordinate pieces of MBS. Since you can't place sub pieces of MBS, you can't issue MBS unless you put a lot more enhancement in it (reducing the money the company gets out, tying up more capital that could otherwise be lent). That means that you can't underwrite as many mortgages, meaning that subprime borrowers with resetting arms are f'd. People think they'll be able to refi into more secure mortgages, but where are those going to go? People have already been burned once, so once those MBS pre-pay the banks refi'ing them need to hold them on balance sheet, draining capital that could otherwise be used to lend money to other people, spurring on capitalistic growth.

This also happens with CLOs, which are nothing more than less than perfect middle-market corporate debt bundled in pools. Most of this debt is created by LBOs. Since hundreds of billions of companies have been going private through LBO and since that market is limited to a small section of money (read high-net worth investors or private-equity, hedge funds, or large pension fund), your average joe-sixpack is taking the money he got from an LBO and sticks it back into the DJIA. More money chasing fewer stocks = price appreciation.

However, since CLOs are shutting down, LBOs are shutting down. Chrysler, Alliance Boots, First Data, and approx 300billion in LBO debt are starting to fall through. That means that the deals won't go through, meaning that the price-premiums baked into the stocks by the market is also going to deflate, causing repricing in the stock market, aka a correction (like today). Additionally, the i-banks can't spin the LBO bonds off, so they have to hold them, further reducing deployable capital, reducing economic growth.

So, essentially, the last 7 years has been fueled by debt and now the whole system ground to a halt. Oops.