News What is wrong with the US economy? Part 2

[LowlyPion]

If this isn't the blow out bottom -678.91 down, if there's not panic in the street yet, the ride is going to get mighty bumpier.

 

[Astronuc]

At 4:07PM ET - Dow 30: 8,582.13 -675.97 (-7.30%) on Yahoo's site. Down 5582 (~39%) from a high a year ago.

All components ended up in the red.

 

[LowlyPion]

On a gloomier note Iceland has crashed completely.

British have frozen Icelandic assets.

 

[Gokul43201]

REYKJAVIK: People go bankrupt all the time. Companies do, too. But countries?

Iceland was on the verge of doing exactly that on Thursday as the government shut down the stock market and seized control of its last major independent bank. That brought trading in the country's currency to a halt, with foreign banks no longer willing to take Icelandic krona, even at fire-sale rates.

As the meltdown in the Icelandic financial system quickened, with the government seemingly powerless to do anything about it, analysts said there was probably only one realistic option left: for Iceland to be bailed out by the International Monetary Fund.

"Iceland is bankrupt," said Arsaell Valfells, a professor at the University of Iceland. "The Icelandic krona is history. The IMF has to come and rescue us."

http://www.iht.com/articles/2008/10/09/business/icebank.php

Back on the domestic front, let's see how Morgan Stanley comes out of this...

 

[Greg Bernhardt]

http://www.iht.com/articles/2008/10/09/business/icebank.php

Does this mean it's a good time to visit?

 

[Gokul43201]

Does this mean it's a good time to visit?

As long as you don't tell them you're American.

 

[Burnsys]

http://www.iht.com/articles/2008/10/09/business/icebank.php

Back on the domestic front, let's see how Morgan Stanley comes out of this...

Ohh noo. that makes me remember the Argentinian crisis in 2001, after following all the IMF recipes!.

 

[Gokul43201]

Next up: Pakistan?

Pakistan seeks US funding to avoid bankruptcy

Shaukat Tareen, the prime minister's finance adviser, and Shamshad Akhtar, the governor of the central bank, have traveled to Washington to secure a £6 billion American and British-backed lifeline.

Oil-rich Gulf states have been lined up to match Western funds with extra billions to ensure that the country, which until recently touted itself as the next Asian Tiger, avoids a balance of payments crisis.

http://www.telegraph.co.uk/news/wor...tan-seeks-US-funding-to-avoid-bankruptcy.html

 

[Borek]

Does this mean it's a good time to visit?

About an hour ago on CNN they said Iceland Board of Tourism (I have made this name up, but it was something similar) invites everyone. Banking was 25% of their economy, tourism about 5%, now that the banking exploded they hope to increase number of visitors. They have the infrastructure, they were just too expensive, but the króne (sp?) went down over 50% in the last 12 months, which makes them affordable. They will start soon with advertising and promotion somewhere on the east cost (Boston? NY? - sorry, from this side of Atlantic it doesn't matter much).

 

[LowlyPion]

Apparently the depth of the today's washout is a result of margin calls and hedge fund redemptions. And of course the absence of buyers.

 

[Astronuc]

I heard today that the ban on short selling has expired and Morgan Stanley was a victim.

What a difference a year makes
Commentary: Even with markets' sharp drop, don't panic

NEW YORK (MarketWatch) -- On Oct. 9, 2007, the Dow Jones Wilshire 5000 closed at 15,745.39, up 0.79% on the day. As it turned out, that was the very peak of the bull run that began five years earlier and propelled the index -- which tracks virtually every listed stock in the U.S. -- 133.45% higher on a total return basis.
. . . .

That was then. Wednesday, the DJ Wilshire 5000 closed at 9,900.70, down 1.25% on the day. On a total return basis that was 35.85% below the year-earlier level.

All size segments have been hit hard. The DJ Wilshire Large Cap Index of the 750 biggest stocks is off 34.98% in the past year, while the corresponding small-cap index, tracking 1,750 stocks, is down 37.00%. Micro-caps, which constitute the bottom 2,500 stocks of the 5,000 but account for only 1.15% of the market capitalization, were hammered 42.68%. All these declines are based on total return.

If we subtract 250 stocks each from the bottom of large caps and the top of small caps we get the same picture. The DJ Wilshire Mid-Cap Index of 500 stocks is down 37.25% for the year.

Let's put this past year into a broader context. For the past five years ended Wednesday, the annualized return for large caps was 1.42%, for mid-caps 2.80%, for small-caps 2.69% and for micro-caps a minus 2.22%. These returns are missing the first year of the deceased bull market but include this year's decline.

Except for micro-caps, the higher the earlier returns the larger this past year's losses. That's more evidence, if you need it, that markets (and market segments) tend to revert to average performance over time.
. . . .

Believe it or not there are opportunities out there. The question is what will grow well in the next several years?

 

[CaptainQuasar]

I understand intellectually how a lot of this stuff works, but it's still pretty mind-boggling that the essential cause of this crisis is that we lost money that never existed in the first place... the monetized future earnings of defaulting mortgage holders, or assets that were bought or sold on margin / without sufficient reserves to back them, et cetera. And of course notional value, from market action over-valuing assets whose price got bid up and up.

⚛​

 

[Borek]

it's still pretty mind-boggling that the essential cause of this crisis is that we lost money that never existed in the first place...

Same feelings here.

 

[Astronuc]

It's virtual wealth - until it's transferred into cash - and a large amount of wealth has evaporated. Real property is still there however.

Over-leveraged on top of over-appreciated (or inflated) collateral. That it went on for as long as it did is mind-boggling.


LOS ANGELES (MarketWatch) -- Shares of Wachovia Corp. surged nearly 40% Thursday evening after Citigroup Inc. said it has ended negotiations to buy the bank.

Shares of Wells Fargo were down 0.9% at $27, while Citi shares were up 0.5% at $13.
Late-traded shares moved higher with bargain hunting set off by a massive regular-session slide that has left U.S. stocks at their lowest level in five years.

Morgan Stanley recovered 13% after the close in after-hours trading.

 

[Count Iblis]

It went one stage beyond this. The housing bubble (we could all know that it existed back in 2005, see here http://arxiv.org/abs/physics/0506027 ) led to the building of expensive homes, because that was were the money was for building developers. There are now many places where there are a lot of (in some cases half finished) expensive homes in poor areas where no one wants to live.

So, we are talking about real goods that have been produced for which the financial transaction was never completed. The building developers got their money via banks that gave mortgages to people who couldn't afford them. We are talking about a debt of the order of 10^12 dollars. This will be payed for by, say, 1 billion people (the US will buy part of it back, but the debt will be devalued in the process). So, it amounts to a loss of the order of $1000 per person, which will manifests itself in the form of inflation.

 

[jal]

I understand intellectually how a lot of this stuff works, but it's still pretty mind-boggling that the essential cause of this crisis is that we lost money that never existed in the first place... the monetized future earnings of defaulting mortgage holders, or assets that were bought or sold on margin / without sufficient reserves to back them, et cetera. And of course notional value, from market action over-valuing assets whose price got bid up and up.

⚛​

Keep the thought going ... The "managers" paid themselves real money from those over-valued assets and now there is a correction to find the value of those real assets.

Keep the new car example in mind.

 

[Astronuc]

MarketWatch - The last time GM traded at around $4.65 a share, a typical car sold for just over $3,000, gasoline cost 20 cents a gallon, a six-pack of Coke could be yours for 37 cents, and houses went for $16,000.


The house (on half an acre) in which I live now, first sold for about $6000 in the mid 50's, an in the mid 60's, it sold for about $16,000. I bought it for about $112,000 (including points) just less than two decades ago. I then spent another $100 K replacing just about everything but the frame and doubling the size. When I did the expansion, no contractor would touch it for less than $125 K, so we found a small remodeling company to do the work - add second story with new roof, replace old aluminum siding with new vinyl and insulation, double the electrical service, and replace doors and windows.

In our area, the new homes that have been built are usually more than $300 K. Builders acually prefer to build homes costing > $400 K or more. The problem is that young professionals, even couples cannot start out - because existing used home run $200 - 300 K. Only if a person or couple starts with a salary of $100 K, could they afford a home in this area - and that is ridiculous. The housing prices have only dropped about 10-15% locally - and they are still high as far as I'm concerned.

 

[Astronuc]

Illinois sheriff scolds banks for evictions of 'innocent' renters
http://www.cnn.com/2008/US/10/08/chicago.evictions/index.html

Another great American - Sheriff Dart!

CHICAGO, Illinois (CNN) -- An outraged sheriff in Illinois who refuses to evict "innocent" renters from foreclosed homes criticized mortgage companies Thursday and said the law should protect victims of the mortgage meltdown.

Sheriff Thomas J. Dart said earlier he is suspending foreclosure evictions in Cook County, which includes the city of Chicago.

The county had been on track to reach a record number of evictions, many because of mortgage foreclosures.

Many good tenants are suffering because building owners have fallen behind on their mortgage payments, he said Thursday on CNN's "American Morning."
. . . .

Mortgage companies are supposed to identify a building's occupants before asking for an eviction, but sheriff's deputies routinely find that the mortgage companies have not done so, Dart said.

"This is an example where the banking industry has not done any of the work they should do. It's a piece of paper to them," Dart said.

"These mortgage companies ... don't care who's in the building," Dart said Wednesday. "They simply want their money and don't care who gets hurt along the way.

"On top of it all, they want taxpayers to fund their investigative work for them. We're not going to do their jobs for them anymore. We're just not going to evict innocent tenants. It stops today."

Let the mortgage companies foreclose and then negotiate with the renter of the property to rent or rent-to-own. Don't be throwing innocent people of their home!

In 1999, Cook County had 12,935 mortgage foreclosure cases;
in 2006, 18,916 cases were filed, and
in 2007, 32,269 were filed, and
in 2008, as many as 43,000 may be filed. See the trend.

Certainly by 2007, there were signs that something was very wrong. That was the time to take action - and not wait until the situation spun out of control. Actually, back in 2006 there were signs that the economy was problematic.

 

[Art]

As long as you don't tell them you're American.

Or British seeing as how Gordon Brown today used anti-terrorism laws to seize all of Landsbanki's assets in the UK. Seems the Icelandic gov't were not impressed by the implication.

 

[Astronuc]

So out of touch have the Bush administration and Congress been about the economy.

The Nation's Fiscal Outlook
http://www.whitehouse.gov/omb/budget/fy2008/outlook.html

For 2006, tax receipts of $2.4 trillion were 11.8 percent greater than in 2005, and in 2005 receipts were 14.5 percent higher than in 2004. Each year constituted record receipts and together made for the highest two-year percentage growth in receipts in the past 25 years. The Budget conservatively projects future revenue growth that averages 5.4 percent over the next six years, about equal to the projected overall growth in the economy.

Bush, his administration and congress are so far off - it's criminally negligent.

Building a Strong Economy - http://www.whitehouse.gov/omb/budget/fy2008/economy.html

http://www.whitehouse.gov/omb/budget/fy2008/budget.html

http://www.whitehouse.gov/omb/budget/fy2008/summarytables.html

 Amount in $billions                  
Budget Totals:    2006   2007   2008   2009   2010   2011    2012                      
      Receipts   2,407  2,540  2,662  2,798  2,955  3,104   3,307 
       Outlays   2,655  2,784  2,902  2,985  3,049  3,157   3,246 
Def(–)/Surpl(+)   −248   −244   −239   −187    −94    −54     +61

The outlays for FY2008 were closer to $3,100 billion and maybe more like $3.2 trillion. I don't know if the numbers reflect supplemental spending or the $200 billion for Fannie Mae or Freddie Mac.

Not sure when this was - but it's probably 2007 for FY2008.
http://www.heritage.org/research/budget/upload/omnibus_gimmicks.pdf

Looking at those numbers, and what the bailout will do, there is no way the government is going to realize a balanced budget any time soon. Many states are showing substantial deficits this year.

Earmarks $16-20 billion out of $2.66 trillion (budgeted FY2008), or $3.1+ trillion spent (>$400 billion deficit).
http://www.cagw.org/site/PageServer?pagename=reports_pigbook2008

In fiscal year 2008, Congress stuffed 11,610 projects (the second highest total ever) into the 12 appropriations bills worth $17.2 billion. The 11,610 projects represent a 337 percent increase over the 2,658 projects in fiscal year 2007. The $17.2 billion is a 30 percent increase over the fiscal year 2007 total of $13.2 billion. Only the Defense and Homeland Security bills included earmarks in fiscal year 2007, so comparisons of other bills are made between fiscal years 2008 and 2006. Total pork identified by CAGW since 1991 adds up to $271 billion.

 

[LowlyPion]

Nikkei - closed down nearly 10%

FTSE and Dax opened down 10%

 

[Astronuc]

.N225    Nikkei Stock Average 225       2:00am EDT   8,276.43   -881.06  -9.62% 
.HSI     Hang Seng Index                4:10am EDT  14,796.90 -1,146.37  -7.19% 
.AORD    ASX All Ordinaries Index       3:55am EDT   3,939.50   -351.80  -8.20% 
.SSEC    Shanghai Composite Index       3:16am EDT   2,000.57    -74.01  -3.57% 
.BSESN   Bombay SE Sensitive Index      6:10am EDT  10,527.80   -800.51  -7.07% 

HK shares at 3-yr low; worst weekly loss in 11 yrs (since Asia crisis of the 90's)


.FTSE    FTSE 100 Index                 7:06am EDT   3,999.91   -313.89  -7.28% 
.FTMC    FTSE 250 Index                 7:05am EDT   6,740.65   -438.78  -6.11% 
.FTT1X   FTSE techMARK 100 Index        7:06am EDT   1,173.01    -72.19  -5.80% 
.GDAXI   DAX Index                      6:51am EDT   4,491.67   -395.33  -8.09% 
.FCHI    CAC 40 Index                   6:51am EDT   3,191.63   -251.07  -7.29% 
.SSMI    SMI Index                      6:36am EDT   5,331.61   -467.23  -8.06% 
.MIBTEL  Italian Mibtel Index           7:06am EDT  15,310.00 -1,209.00  -7.32% 
.SMSI    Madrid General Index           6:46am EDT     979.25    -86.85  -8.15% 
.OMXSPI  OMX Stockholm All Share Index  7:05am EDT     196.52    -12.03  -5.77% 
.OMXHPI  OMX Helsinki All Share Index   7:05am EDT   5,691.88   -360.18  -5.95% 
.OMXC20  OMX Copenhagen 20 Index        7:05am EDT     282.88    -16.18  -5.41% 
.OSEAX   Oslo Exchange All-share Index  6:51am EDT     292.31    -18.42  -5.93% 

STOXX50E DJ Euro Stoxx 50 ETF           6:22am EDT      24.10     -3.19 -11.69%

Values in local currency or basis.

It looks like Indonesia and Pakistan closed their stock exchanges again. Pakistan is in dire straits due to low foreign reserves.

Futures on the US markets are down at least 2.2% suggesting lower starting point. Dow would probably be down around 8200 - and could drop below 8000, or about a 500-600 point drop - especially if GE reports sharply reduced earnings or losses.

* On the companies front, General Electric (GE.N), bellwether for the U.S. economy, is due to report results. The company lowered its third-quarter outlook on Sept. 25.

* U.S stocks plummeted on Thursday as investors bet recent moves by authorities worldwide to thaw frozen credit markets would not be enough to avert a global recession. Japan's Nikkei (.N225) plunged 9.6 percent on Friday, while European stocks sank by more than 10 percent before paring losses.

* Commodity stocks are set to slide, with crude prices tumbling more than 5 percent to trade below $82 a barrel and metals prices registering steep losses. (Reporting by Atul Prakash; Editing by Quentin Bryar)

The current situtation is much more severe that the dot.com bust since the failure (loss of value) is pervasive across the economy, and this time the financial engine that would drive the recovery is damaged.


http://www.reuters.com/article/newsOne/idUSTRE4989IJ20081009

Lost, but hardly forgotten. From the tech boom and bust to the September 11 attacks to the easy money days that created the housing bubble and subsequent credit crisis, it has been a whiplash of a decade.

And while stocks are back to where they started in terms of the levels of the Dow and the benchmark S&P 500, total return -- including returns from dividends -- is still up, though if the market continues dropping at this rate, it will soon be negative.

Many companies will have to pare or eliminate dividends in the short term.

For those investing in equities - look for EPS and dividends of at least 4-5%, if not greater. Select stocks that have lost the least amount of value in the past week, month, quarter, year.

 

[Art]

I wonder how much more the markets will fall before investors start snapping up bargains?

The most vulnerable sectors are (and should be) finance, commodities and property, all of which saw their stock price rise way beyond what their fundamentals justified, but the other sectors seem to have been victims mainly of collateral damage and so it is there I would expect to see a recovery begin as investors begin to evaluate these companies' values more rationally. Maybe within the next week?

Meanwhile a recession in the real economy in the US seems unavoidable now.

You know things must be really bad when even Russ has stopped telling everyone the fundamentals of the economy are strong

 

[Jimmy Snyder]

Just over a year ago, under Bush's wise stewardship, the S&P index went to $1565.15, a record high. However, fears of an Obama Presidency have caused weakness in this and several other indices. Indeed, the S&P index has fallen some 40% from its high, to $909.92 and it looks like it will fall further today. I am not much of a stock investor, but I do have a small portion of my money in a stock which miraculously was in the black until yesterday. Now I too have a slight dent in my retirement account. Today I will start buying small amounts of an S&P index fund, perhaps 5% of my retirement money and again each day for the next 20. I figure the market, if it recovers at all, will probably recover to around where it is now, perhaps slightly higher. But I am already 40% ahead of the game, and even if the S&P goes to $0, I will still be 40% ahead of everyone else.

I believe the current situation is called 'blood in the streets'.

 

[Art]

Just over a year ago, under Bush's wise stewardship, the S&P index went to $1565.15, a record high. However, fears of an Obama Presidency have caused weakness in this and several other indices.

Nice one!

 

[Astronuc]

The most vulnerable sectors are (and should be) finance, commodities and property, all of which saw their stock price rise way beyond what their fundamentals justified, but the other sectors seem to have been victims mainly of collateral damage and so it is there I would expect to see a recovery begin as investors begin to evaluate these companies' values more rationally. Maybe within the next week?

Possibly. Two problems - 1) the magnitude or breadth of economic downturn - it's global, not just US, EU or Asia - it's everywhere, and 2) the consumers have been hit hard, and they really can't leverage anymore.

Meanwhile a recession in the real economy in the US seems unavoidable now.

Look on the bright side - we might just skip the recession and slip into a shallow depression. The government or the economy simply cannot borrow and spend its way out of this mess - because that will make it worse. A fundamental restructuring is in order.


Meanwhile - Prudential becomes latest insurer to warn (Reuters)
http://www.reuters.com/article/newsOne/idUSTRE4989I220081010

NEW YORK (Reuters) - Prudential Financial Inc is the latest major insurer to warn its quarterly profits would miss forecasts, as the shares of rivals were pummeled on concern they would need to raise capital.

The second-largest U.S. life insurer said on Thursday that third-quarter profit would be cut sharply by losses on poorly performing annuity and investment products and a charge for a legal settlement.

That followed recent profit warnings at U.S. life and property insurer Hartford Financial Services Group Inc and MetLife Inc, the largest life insurer in the United States.

The latter sold new shares at a discount on Wednesday to bolster its capital, raising $2 billion, while Hartford earlier this week received a $2.5 billion capital injection from Allianz SE, Europe's biggest insurer.

"Insurers made big investments in mortgage-related securities and are also big holders of stocks and bonds in financial firms that have been wiped out or badly damaged by the credit crisis, such as Lehman Brothers and Washington Mutual, said Alan Rambaldini, a life insurance analyst at investment research firm Morningstar.

"On top of that, bigger life insurers like Prudential get fees on the size of stock investments behind annuity products they sell to customers, which will drop sharply as the broader market plummets," he said.

'TRADING ON FEAR'

Among other life insurers, Lincoln National Corp, fell 35 percent to $18.31, Principal Financial Group Inc lost 27 percent to $15.79 a share and Unum Group fell 30 percent to $14.77.
. . . .

I think the key point is that a lot of potential wealth has ceased to exist, i.e. the economic potential is substantially degraded.

Cushioning the effect is the significant drop in crude oil prices - but that will dent the earnings of the oil companies.

 

[Astronuc]

GE profit drops in line with cut forecast
http://biz.yahoo.com/rb/081010/business_us_ge.html

The company said on Friday that net profit fell 22 percent, weighed down by a 33 percent drop at GE Capital. Those declines outstripped growth at its infrastructure arms, which were buoyed by solid demand for electricity-generating turbines and jet engines.

"We are on track to meet our September 25 revised guidance for the full year," said Chief Executive Jeff Immelt, in a statement. That guidance allows for a profit drop of up to 12 percent for the year.

The U.S. conglomerate posted earnings of $4.31 billion, or 43 cents per diluted share, down from $5.56 billion, or 54 cents per diluted share, a year earlier.

Perhaps GE will rebound. The question with regard to "solid demand" for tubines/generator and jet engines is whether or not that is based on backlog or that reflects new orders. If the purchases cannot be financed then orders may be deferred or cancelled. I received a report that indicated the power industry is going to be squeezed by the credit crunch - and complicated by the fact that people won't be able to pay their electric bill and there will be a reduced demand.

 

[Art]

Cushioning the effect is the significant drop in crude oil prices - but that will dent the earnings of the oil companies.

I'm not sure if lower oil prices are necessarily good for the US at the moment. There are pros and cons to lower oil prices. One big con is falling oil prices means other countries can reduce their dollar reserves which means the US will not be able to ship so many cheaply manufactured little green pieces of paper in return for hard goods and services.

 

[Count Iblis]

In the US the negative feedback loop works more efficiently because of lack of social security:

Rising unemployment leads to more people in the US defaulting on their mortgages which means more bad loans the banks have to deal with which leads to higher interests rates, which in turn makes it more difficult for companies to lend money and then you get even more unemployment.

 

[Astronuc]

In the US the negative feedback loop works more efficiently because of lack of social security:

Rising unemployment leads to more people in the US defaulting on their mortgages which means more bad loans the banks have to deal with which leads to higher interests rates, which in turn makes it more difficult for companies to lend money and then you get even more unemployment.

Well - it's the lack of savings that has contributed to the crisis. If people had one or two months of income in cash, that would make a big different. The problem is that people put their savings into their homes assuming that housing would continue to appreciate.

I noticed the Dow 30 industrials were down around 7800 (down about 8%) a while ago, but then rebounded - then dropped.

At 9:43AM ET: -1,006.43 (-10.87%) Dow Jones Industrial Average (^DJI)
The different numbers aren't consistent on the ticker.

   Date      Open      High      Low     Close         Volume    Adj Close* 
 9-Oct-08  9,261.69  9,522.77  8,523.27  8,579.19  8,285,670,400  8,579.19 
 8-Oct-08  9,437.23  9,778.04  9,042.97  9,258.10  8,716,329,600  9,258.10 
 7-Oct-08  9,955.42 10,205.04  9,391.67  9,447.11  7,069,209,600  9,447.11 
 6-Oct-08 10,322.52 10,322.52  9,503.10  9,955.50  7,956,020,000  9,955.50 
 3-Oct-08 10,483.96 10,844.69 10,261.75 10,325.38  6,716,120,000 10,325.38 
 2-Oct-08 10,825.54 10,843.10 10,368.08 10,482.85  6,285,640,000 10,482.85 
 1-Oct-08 10,847.40 11,022.06 10,495.99 10,831.07  5,782,130,000 10,831.07 
30-Sep-08 10,371.58 10,922.03 10,371.58 10,850.66  6,065,000,000 10,850.66 
29-Sep-08 11,139.62 11,139.62 10,266.76 10,365.45  7,305,060,000 10,365.45 
26-Sep-08 11,019.04 11,218.48 10,781.37 11,143.13  5,383,610,000 11,143.13 
25-Sep-08 10,827.17 11,206.05 10,799.77 11,022.06  5,877,640,000 11,022.06 
24-Sep-08 10,850.02 11,041.02 10,696.38 10,825.17  4,820,360,000 10,825.17 
23-Sep-08 11,015.69 11,214.65 10,763.77 10,854.17  5,185,730,000 10,854.17 
22-Sep-08 11,394.42 11,450.81 10,956.43 11,015.69  5,368,130,000 11,015.69 
19-Sep-08 11,027.51 11,415.48 11,027.51 11,388.44  9,387,169,600 11,388.44 
18-Sep-08 10,609.01 11,149.07 10,403.75 11,019.69 10,082,689,600 11,019.69 
17-Sep-08 11,056.58 11,068.87 10,521.81 10,609.66  9,431,870,400 10,609.66 
16-Sep-08 10,905.62 11,193.12 10,604.70 11,059.02  9,459,830,400 11,059.02 
15-Sep-08 11,416.37 11,416.37 10,849.85 10,917.51  8,279,510,400 10,917.51 
12-Sep-08 11,429.32 11,532.72 11,191.08 11,421.99  6,273,260,000 11,421.99 
11-Sep-08 11,264.44 11,461.15 11,018.72 11,433.71  6,869,249,600 11,433.71 
10-Sep-08 11,233.91 11,453.50 11,135.64 11,268.92  6,543,440,000 11,268.92 
 9-Sep-08 11,514.73 11,623.50 11,209.81 11,230.73  7,380,630,400 11,230.73 
 8-Sep-08 11,224.87 11,656.64 11,224.87 11,510.74  7,351,340,000 11,510.74 
 5-Sep-08 11,185.63 11,301.73 10,998.77 11,220.96  5,017,080,000 11,220.96

 

[LowlyPion]

DOW Down 500 and now positive 75

 

[Astronuc]

DOW Down 500 and now positive 75

It is so volatile that it is swinging either direction by several hundred points each minute.

At one point the actual value and the points dropped from yesterday's close did not coincide.

http://news.yahoo.com/s/ap/20081010/ap_on_bi_ge/world_markets

The latest woes in Europe came after the Dow Jones index in the U.S. closed 678.91 or, 7.3 percent lower, at 8,579.19, its first close below 9,000 in five years. The slide on the Dow was partly fueled by the decision of credit-rating agency Standard & Poor's to review its rating on General Motors Corp.

The Dow's seven-day decline of 20.9 percent is the largest since the seven-day plunge ending Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987 market crash that saw the Dow fall nearly 23 percent in a single day.

 

[LowlyPion]

It is so volatile that it is swinging either direction by several hundred points each minute.

At one point the actual value and the points dropped from yesterday's close did not coincide.

http://news.yahoo.com/s/ap/20081010/ap_on_bi_ge/world_markets

The original 500 point plunge looked like the kind of V bottom traders have been looking for. And yes the indicator looks positively spastic jumping about like it has after coming off the bottom.

With Bush speaking now, get a good grip on your undies.

 

[Astronuc]

Dow 30 range so far today: 7888.48 - 8664.81

 

[LowlyPion]

The Lehman Credit Default swaps have been priced today and the first prices are 9.75%, though the auction is not closed and may close a little higher.

Let's see 90% off of $400B. Gee a person could retire on that kind of money.

 

[OmCheeto]

Has anyone seen the following?

"How the markets really work" Bird and Fortune(2007)


It seems to be posted everywhere under various titles.
The exact date is difficult to pin down when this program aired.
The earliest posting I could find was October 20th, 2007

 

[LowlyPion]

DOW off 350... oops 320 ...296 ... now maybe a double bottom?

Or going lower?

 

[Art]

Crisis? What crisis?

In a further development, the value of City bonuses in the UK is expected to fall this year by 58%, according to the Centre for Economics and Business Research.

But it still forecasts that bonuses of about £3.5bn will be paid out

http://news.bbc.co.uk/2/hi/uk_news/politics/7662586.stm

This is what angers people and destroys public confidence in the markets. These clowns just don't get it!

 

[chemisttree]

Just over a year ago, under Bush's wise stewardship, the S&P index went to $1565.15, a record high. However, fears of an Obama Presidency have caused weakness in this and several other indices. Indeed, the S&P index has fallen some 40% from its high, to $909.92 and it looks like it will fall further today. I am not much of a stock investor, but I do have a small portion of my money in a stock which miraculously was in the black until yesterday. Now I too have a slight dent in my retirement account. Today I will start buying small amounts of an S&P index fund, perhaps 5% of my retirement money and again each day for the next 20. I figure the market, if it recovers at all, will probably recover to around where it is now, perhaps slightly higher. But I am already 40% ahead of the game, and even if the S&P goes to $0, I will still be 40% ahead of everyone else.

I believe the current situation is called 'blood in the streets'.

Read http://articles.moneycentral.msn.com/Investing/SuperModels/poof-there-goes-an-american-dream.aspx" before you invest...

It's two weeks old but sadly seems to be coming to pass.

 

[Astronuc]

Read http://articles.moneycentral.msn.com/Investing/SuperModels/poof-there-goes-an-american-dream.aspx" before you invest...

It's two weeks old but sadly seems to be coming to pass.

From the article cited by chemisttree - about 3 weeks ago.

These institutions are likewise trying to figure out how much exposure they have to thrift Washington Mutual, which may find itself in bankruptcy court before the week is out. Insurance titan American International Group has also been a worry, but a government rescue announced Tuesday evening will likely keep it out of bankruptcy.

If American International Group can find the capital it needs, it will end the current panic. If it can't, look for more selling -- especially in Asia, says MSN Money's Jim Jubak.

Certainly Asian markets and economies are getting hit hard. An Japanese mid-sized insurer has declared bankruptcy.

This is part of the Dow's fall:
Goldman's Outlook Revised to Negative by Moody's, Stock Tumbles 15% to 52-week low - AP

This is some good news - but the deficit needs to disappear. The US needs to have a trade surplus.
August trade deficit falls to $59.1B - AP

Bush's speech of reassurance in the rose garden conjures images of Nero playing a violin while Rome burned. Bush still doesn't get - not that he ever did. They haven't yet addressed or admitted the fundamental problems, and no one knows for sure if the bailout will work as hoped.

 

[Greg Bernhardt]

Here is a comment made by someone on another message board that I think is interested and depressing.

It took me awhile to get what was going on...and you gave some good thoughts when we chat last. This is all crashing due to institutional liquidation so they can raise cash. Cash to cover their a$$es, not to buy back in...like you said.
It's going to end up more about who is NO LONGER in the market more than the shorts or what retail thinks. Suck enough liquidity out of the market and this is what you get...a hard and paper asset drain. Now imagine what will happen if/when the early and late majority of baby boomers pull their funds for retirement. This drain is going to remove much of the "money supply" in this country and in turn globally. There will be more damage to come from companies closing or tightning up, job loss etc...

 

[Astronuc]

I don't agree that the situation necessarily must go that way.

What we need is good, strong leadership, and for the majority of people not to panic - perhaps easier said than done. The cash is there - but it may not be enough to cover all current and future obligations. Printing more money doesn't work because inflation would blow up - Germany after WWI and before WWII.

Realize the production and the economic system is still there - production still occurs.

We've been drifting along the economic river have a nice time, and now we've hit white water. Hold on and don't fall out of the boat. If somebody falls out - pull them back in. Everybody will make it through to the next stretch of calm water.

 

[edward]

A closer look at credit default swaps.

As the government buys mortgage-backed securities from teetering financial institutions at less than face value prices, issuers of the credit default swaps could be liable for the difference.

That's troublesome enough, but it actually gets worse.

Buyers of credit default swap insurance are not required to own the underlying securities they are insuring.

In other words, the investor can buy insurance on a mortgage-backed security without having to buy the security itself. When that security turns sour, whoever is holding the credit default contract — whether they actually own the security or not — can demand payment for the face value of the security.

This has created a market in which speculators actually are betting that mortgage-backed securities will lose their value.

http://ap.google.com/article/ALeqM5hOsN_qL-c8hjW8BvU160ZYwhYB8AD93LSV480

Are we trying to put out a fire by dumping money on it? To hell with the speculators. most of them paid only a small percentage of the value of a security to get the insurance.

It appears to me that direct intervention with the homeowners struggling with mortgages would be a quicker way to snuff out the flames. The important thing is to do it now and not wait until a committee swayed by lobbyists makes the decision sometime next year.

Give people penalty free access to their 401 (k)'s. (This was in the original bail out plan.) This would help stop the bleeding among the middle class.

If people were allowed to roll their retirement plans into CD's and T Bills the government wouldn't have to borrow as much from foreign countries to finance the bail out.

OK so this does sound nutz...I'm just venting. My son's 401 (k) is down by over 40% and that's just through the end of September.

 

[mheslep]

The US needs to have a trade surplus.

Why? Needs to have? What do you propose are the consequences of not having one?

Bush's speech of reassurance in the rose garden conjures images of Nero playing a violin while Rome burned. Bush still doesn't get - not that he ever did. They haven't yet addressed or admitted the fundamental problems, and no one knows for sure if the bailout will work as hoped.

What are the the 'fundamental problems' then that have not been admitted, and how do recent actions by the Central banks/Treasury/Congress fall short of your prescription for addressing them?

 

[mheslep]

... To hell with the speculators. most of them paid only a small percentage of the value of a security to get the insurance.

It appears to me that direct intervention with the homeowners struggling with mortgages would be a quicker way to snuff out the flames. The important thing is to do it now and not wait until a committee swayed by lobbyists makes the decision sometime next year.

A large share of the home-owners are the speculators by exactly the mechanism prescribed - they paid only a small % of the value of the asset, or none at all in many cases.

 

[LowlyPion]

Are we trying to put out a fire by dumping money on it? To hell with the speculators. most of them paid only a small percentage of the value of a security to get the insurance.

Unfortunately the banks and insurance companies chasing juiced returns have impaired their balance sheets and they are the speculators as much as anything. This is apparently Icelandic banks' problem and a good part of the reason that governments are having to step into bail out the situation. Some reports put the CDSes at 63 Trillion. This needs to be unwound because apparently it is all leveraged and layered and interrelated. And there has been lots of abuse.

 

[Astronuc]

Why? Needs to have? What do you propose are the consequences of not having one?

Because that represents wealth/cash.

China has trade surplus with the US, and I believe Japan and others do to.


Where does the US Treasury borrow money? From China, Japan, EU countries.


We buy their products with borrowed money.


The US is living on a credit card. What happens with the interest can't be paid? Default? Then out the window goes full faith and credit of the US Treasury. Perhaps that's the plan.

 

[edward]

A large share of the home-owners are the speculators by exactly the mechanism prescribed - they paid only a small % of the value of the asset, or none at all in many cases.

Oranges and apples. How many home buyers intentionally bought a home with failure in mind?? How many home owners intentionally bought an over the counter insurance policy to speculate on another persons potential failure??

 

[jal]

It helps to get a prospective by reading what analyst from other countries are saying.
From this website http://www.bmonesbittburns.com/Economics/
Look at http://www.bmonesbittburns.com/economics/bottomline/20081010/bottomline.pdf
More Action—Crisis Intensifies
October 10, 2008
Dr. Sherry Cooper, Executive Vice President, Chief Economist
We are quickly ticking off the rescue actions I predicted early this week:
Coordinated rate cut—done and more to come
Direct capital infusion into healthy banks through preferred share investment by
Treasury—done in the U.K., likely the next step in the U.S.
Insure all U.S. bank deposits regardless of size. Denmark, Germany and Ireland have
already done so.
Guarantee interbank debt—done in the U.K. The U.S. Treasury might go as far as
guaranteeing all bank debt.
Accelerate the FDIC process to shut down insolvent banks or (better still) arrange
sales of insolvent banks with or without government assistance.
Loans to state governments, which in turn could make loans to local governments.
Treasury could purchase municipal bonds and insure state and local pension funds.
Government low-interest loans to household
G-7 finance ministers are meeting this weekend. Secretary Paulson is holding a press
conference at 6:45 PM tonight to discuss the outcome of today’s meeting. No doubt it
will be a busy weekend, with additional actions taken prior to the market open Asia Sunday
night. Watch out for another wild Monday.
After the election and (maybe even prior to the Inauguration) further actions will be taken:
A government housing bailout including subsidized loans to creditworthy delinquent
homeowners and government purchases and redevelopment of vacant housing.
Fiscal stimulus for the economy, including stepped up government spending for
infrastructure, alternative energy, education and health care.
Massive enhancement and restructuring of financial market regulation.
========
There is soooo much more info in the link … do read it.
=======
In passing, it looks like the gov. could guarantee all of the ill gotten gains of those who oppose gov. intervention.
How ironic.

 

[mheslep]

Because that represents wealth/cash.

China has trade surplus with the US, and I believe Japan and others do to.

I think this mistakes the symptom for the disease. Consider : trade rules aside for a moment, the US could simply pass a large tariff on imported goods to force the trade deficit to zero. To what effect? The cost of goods in the US would sky-rocket and the economy would likely tank as when this would tried w/ Smoot Hawley. So visibly, erasing the trade deficit does not necessarily represent 'wealth/cash.'

Where does the US Treasury borrow money? From China, Japan, EU countries.

We buy their products with borrowed money.

The US is living on a credit card. What happens with the interest can't be paid? Default? Then out the window goes full faith and credit of the US Treasury. Perhaps that's the plan.

You are referring here to deficit spending by the US government, not the international trade balance.