Depends on whether or not the "Plunge Protection Team" steps in. I know! It sounds real tin hat/conspiracy theorist, but I did just read this interesting article about it.
Could it actually be possible that such a team exists? Or are computers the ones making some of these sudden pushes in each direction?
The last day to file redemption requests was today. Now all the fund managers (of all types, not just hedge) know exactly how much money they have to come up with between now and the end of September, assuming a standard 45-day notice was required.
As no one is buying anything that involves mortgage backed security, the only thing these funds have left to sell is stocks. In a buyer's market, the price keeps dropping as more and more stock is being sold off to cover the payout demands.
With the hoarding of capital going on world-wide, individuals and institutions cashing out of anything with even a slight risk, no one is willing to loan each other money which leads directly to a credit crunch. Even banks that make mortgages are having to carry them on their own books, which ties up their reserve of capital. As they can't sell these as bonds, they are quickly draining themselves dry, ala Countywide.
As individuals and institutions shift to full capitol protection mode, they draw out all their liquid postions and dump the proceeds into safe harbors, like Treasuries. The weakens international stock prices and currencies, further reducing profits from sales, and drives down the yield on Treasuries as demand rises. Desperation will bring firesale prices and pandemonium.
And those elements combine to make the perfect storm we see now. The cycle repeats itself as each market opens around the world, like dominos on a circular staircase. It's not going to stop until the redemptions have been funded or there is nothing of value left to sell. At that point, those with capital will dive in to pick at the corpses, and we will begin rebuilding a shattered world economy.
I expect the next 45-days will draw a lot of comparisons to 1929-30.
Comments
Impossible! Bush said the fundamentals are good!!
And the Iraq war is going well too!
honestly, I may start to lose my faith in government.
Could it actually be possible that such a team exists? Or are computers the ones making some of these sudden pushes in each direction?
The answer was no, but we did today! --- DJI
...
As no one is buying anything that involves mortgage backed security, the only thing these funds have left to sell is stocks. In a buyer's market, the price keeps dropping as more and more stock is being sold off to cover the payout demands.
With the hoarding of capital going on world-wide, individuals and institutions cashing out of anything with even a slight risk, no one is willing to loan each other money which leads directly to a credit crunch. Even banks that make mortgages are having to carry them on their own books, which ties up their reserve of capital. As they can't sell these as bonds, they are quickly draining themselves dry, ala Countywide.
As individuals and institutions shift to full capitol protection mode, they draw out all their liquid postions and dump the proceeds into safe harbors, like Treasuries. The weakens international stock prices and currencies, further reducing profits from sales, and drives down the yield on Treasuries as demand rises. Desperation will bring firesale prices and pandemonium.
And those elements combine to make the perfect storm we see now. The cycle repeats itself as each market opens around the world, like dominos on a circular staircase. It's not going to stop until the redemptions have been funded or there is nothing of value left to sell. At that point, those with capital will dive in to pick at the corpses, and we will begin rebuilding a shattered world economy.
I expect the next 45-days will draw a lot of comparisons to 1929-30.
http://money.cnn.com/data/premarket/