The Financial markets are on the verge of annihilation

edited August 2007 in The Economy
I have a feeling it is going to be a looooong weekend for anyone that is long on the market right now.

Sounds like the Europeans just had a nice wakeup call to all the crappy US mortgage backed debt they have been buying.

The Chinese woke up to the fact that the subprime crap that have been buying is worthless, and threatened to nuke the dollar if we try to pull anymore "tariff their exports" crap.

The carry trade is on the verge of unwinding.

The FED is pumping supposed "liquidity" into the market, but most of it has to be paid back on Monday... That is just going to delay the inevitable. Anyone buying into this market right now is a complete moron.

The housing market is a complete mess, Seattle right now is leading the nation in YOY increased inventory, but yet cranes are still building as fast as they can.

Anyone who still thinks this is going to be A-OK should be kicked in the balls as a nice friendly wake up.

This thing is unwinding faster than I thought it would, I feel crash-con 1 may be just around the corner.

Good night and good luck!
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Comments

  • Matthew wrote:
    I have a feeling it is going to be a looooong weekend for anyone that is long on the market right now.

    Sounds like the Europeans just had a nice wakeup call to all the crappy US mortgage backed debt they have been buying.

    The Chinese woke up to the fact that the subprime crap that have been buying is worthless, and threatened to nuke the dollar if we try to pull anymore "tariff their exports" crap.

    The carry trade is on the verge of unwinding.

    The FED is pumping supposed "liquidity" into the market, but most of it has to be paid back on Monday... That is just going to delay the inevitable. Anyone buying into this market right now is a complete moron.

    The housing market is a complete mess, Seattle right now is leading the nation in YOY increased inventory, but yet cranes are still building as fast as they can.

    Anyone who still thinks this is going to be A-OK should be kicked in the balls as a nice friendly wake up.

    This thing is unwinding faster than I thought it would, I feel crash-con 1 may be just around the corner.

    Good night and good luck!
    Second this! Esp. the kick in the balls part, because really, if they are stupid enough to think that the market is all okay, then they are going to get many kicks in the balls by other things in the not to distant future!
  • What does it mean for the Fed to be pumpng money into the market? Is that new created money? Do they buy stuff or just give it away? I really don't understand.
  • The banks are supposed to lend money to each other at the funds rate, which is now 5.25%. If a bank can't get money that it needs to stay liquid from another bank, the FED will issue a 'repo,' which is an overnight loan. The bank gives up collateral (in this case - mortgage backed securities). On monday, they have to pay it back, or the FED has to roll it into Tuesday.

    This works to keep banks liquid, but doesn't help insolvency, which is what is going on here and in Europe.

    The FED issuing 3 repos in a day is virtually unprecedented. They are in full panic mode, and there is a very good chance that a major bank is in deep trouble (which is cool, because I'm short just about all of them :D )

    The reason banks are insolvent is because they were buying CDOs that had a face value of several billion US Pesos, but we now know they are worthless. If you are holding $20B in CDOs, and your market cap is $15B, that's not good (unless you are short :D :D ).

    So, expect a fecal hurricane to center on New York this week. It will make Katrina look like a gentle summer breeze.

    Panic now. Beat the rush.

    PS. In case anyone is interested, we are on the verge of CRASH-CON 1.
  • Alan wrote:
    What does it mean for the Fed to be pumpng money into the market? Is that new created money? Do they buy stuff or just give it away? I really don't understand.

    Yeah, it means the Fed is directly buying securities which injects [new, instantly created] money directly into the market.

    An oversimplification: If there were 10 securities for sale and only 8 buyers, then you have a weak market. If the Fed buys 5 of those then the 8 buyers have to bid for the other 5, so this basically puts a bid under the market.

    Unfotunately, it can't solve the problem, just stop today's bleeding. The problem is that the whole housing industry depends on financing from either the banks holding the loans (but they know they are worthless given the risk/interest ratios, so why would they do that??) or being able to sell them to the MBS market. Without the now-lost AAA debt ratings (and the obvious default examples from Bear, etc), investors won't touch it with a ten-foot pole.

    So we have banks who won't do the loans without saleable debt and the debt isn't saleable unless the Fed is willing to do this EVERY DAY. And we have a few months of mortgages already in the pipeline needing financing. If those seize up, then instant boom. Crash-con-1, indeed. Either they will seize up, or the Fed keeps doing this and look out below for the dollar.

    I suspect the Fed is willing to weaken the dollar, but not kill it. We like our global empire tax, after all.

    Keep in mind that we're only on month "8" in this chart, so the seizing up has only just begun since the finalized foreclosures are really only just getting started with the 6-or-so-month lags from reset to final default:

    reset.PNG

    Note also that hedge funds have some kind of withdrawal date advance notice for August 15, so you might see some vigorous selling this week. I've read/heard that the injections may be as much or more in anticipation of the Aug 15 carnarge than in response to this past week.
  • I have learned so much about economics and markets since I started watching this bubble...and the more I learn, the more frightening this whole thing is. Being a financial novice, I have absolutely no idea what to do to protect myself financially from all this. :cry:
  • I have learned so much about economics and markets since I started watching this bubble...and the more I learn, the more frightening this whole thing is. Being a financial novice, I have absolutely no idea what to do to protect myself financially from all this. :cry:

    If you don't want to play the short side with Eleua, at least be in cash.

    Denninger summarized his key advice today,I tend to agree with most of what he is saying
  • Being a financial novice, I have absolutely no idea what to do to protect myself financially from all this.

    Me too.

    I have about half of my money in stocks and mutual funds -- large companies, energy, health, and some international real estate.

    The other half is in cash.

    I'm worried about inflation. I figure if US hyper-inflation takes off the international real estate funds should do okay. The large companies I invest in have a large percentage of sales internationally.

    I have cash in case of a crash so that I can buy assets.

    I'm not crazy about gold at the moment. Gold increased in price along with housing. I think the super-liquidity in the market may have created a small gold bubble. If there is hyper-inflation, I think gold will do as well as the international real estate, but I think gold may crash along with everything else in a recession.
  • Easy. Invest in Top Ramen. It's cheap, and lasts forever!
  • Ignorance is bliss. Like Lake Hills Renter I've learned alot since I've started reading / participating on this blog. (Going from knowing virtually nothing to knowing a little is a 100% improvement!) Now I think I am aware enough to actually be more than a little concerned.

    I'm attempting to help my 84 year old mom with her investments and I'm struggling. Definite downward trend on alot of her investments EXCEPT a Fannie Mae note and a Federal Home Loan bond. They have actualy gone up a bit the last few weeks. I do not understand this!
  • edited August 2007
    ..
    With reference to DJO's post (above)-

    Mr. Denninger of Market Ticker advises:
    ....You do not want to be anywhere near bonds that are not US Treasuries and/or (maybe) Municipals. Period. If you have a money market or other "credit based" investment, you need to check right now what it actually holds, and if you see "asset backed" or "mortgage securities" or anything else like that in there, GET OUT.....

    Something (see below) that I just discovered about an investment owned by my mom. If anyone else is invested in Smith Barney Western Asset Money Market Fund Class A you may want to consider action. The following is quoted from the prospectus of the money market fund:
    Principal investment strategies

    Key investments

    .....The fund may invest in all types of money market instruments, including commercial paper, mortgage-backed and asset-backed securities, repurchase agreements and other short-term debt securities. These securities may pay interest at fixed, floating or adjustable rates. The fund limits foreign investments to issuers located in major industrialized countries...
    ...
  • deejayoh wrote:
    I have learned so much about economics and markets since I started watching this bubble...and the more I learn, the more frightening this whole thing is. Being a financial novice, I have absolutely no idea what to do to protect myself financially from all this. :cry:

    If you don't want to play the short side with Eleua, at least be in cash.

    Denninger summarized his key advice today,I tend to agree with most of what he is saying
    Have you been over there today? Man, it's like a feeding frenzy, the sharks are circling for tomorrow. I don't have the knowhow to short stocks and I think it's a little late for a novice to jump in the game and get "educated", but I wish those guys shorting the market the best of luck, I hope they all bring down the big brokerages and become millionares in the mean time, down with the white elite mofos!
  • in the mean time, down with the white elite mofos!

    Was that necessary?
  • Hey, I'm white, I can say it, those guys are in the good ole boy club. If you don't believe me, take a good hard look at the tops of the brokerage firms, any corporate firm, all white. Not to say that there is something wrong with being white, as being white myself, although a bit of prick at times, I think I'm a pretty okay dude. It's just an observation.
  • Sounds like some major overconfidence over there.

    The futures are up 88 points for the dow right now. I doubt those punks will be dislodging the financial elites of this world any time soon. More likely, they'll just get their cockey asses handed to them.
  • The futures are up 88 points for the dow right now.

    Why not? BOJ just injected 600,000,000 yen.
  • Maybe so, maybe so, but somehow, I seriously doubt it and really I'm rubbing my hands in glee for their sake, I hope they all come out winners and the greedy, well, you probably have a good idea what I hope for them.
  • Eleua wrote:
    The futures are up 88 points for the dow right now.

    Why not? BOJ just injected 600,000,000 yen.
    I saw that! That is huge! Wonder what the FED will do tomorrow?
  • Wonder what the FED will do tomorrow?

    You need to ask?

    PRINT!!!!! It's the only card they have left to play, and it only works so long.

    GS has a fund in trouble. BSC is a wreck. CFC might get it's warehouse lines pulled and have to loan off what is left of their book. WM is in deep doo-doo, as nobody is buying their creative accounting anymore. WFC had to do a share buyback. DSL is an absolute disaster. Does C have enough MBS dreck to drain its entire balance sheet?

    OFHEO finally turned out the lights on any FNM related bailout, so say goodnight to CTX, BZH, KBH, TOL, and the rest of the builders.

    I may not get paid tomorrow, but the futures still have to get through Asia, Europe and whatever surprises await New York.
  • I know, I know, but really, it's a temporary fix.
  • Very temporary. I'm using this opportunity to get my parents out of their investments and my savings out of the US Peso.
  • Eleua, what are you moving your savings into?

    Second, the next week looks like an excellent time to short stocks on their dead cat bounces. For example, if the banks bounce on all the extra liquidity, great time to short them.

    One tip to novices out there trading options, it's a good idea to take longer terms than you think. If you want to short BSC at $110, taking the September option is riskier than the October option. If BSC drops to $95 in the next week, you can kill with either option, but if it goes back up to $120, you'd be better off with the October strike.
  • I'm still working on it. Canuck Bucks looks good for the short term, and then I'll start looking at others.

    Right now, the fecal hurricane will not spare very many. Canada isn't the answer, just it's not the problem at the moment.

    I'm not happy about any of this.
  • I bought some silver this weekend.

    I'm waiting for a capital crisis to take the metals down to bargain territory, but it's just hard to watch all this printing and not buy some. No sense keeping it in pesos.
  • One tip to novices out there trading options, it's a good idea to take longer terms than you think.

    Unfortunately, longer-term PUTs are often very expensive. Isn't it better to get shorter term PUTs that are closer to the money for the same price as the longer term ones?
  • sniglet wrote:
    One tip to novices out there trading options, it's a good idea to take longer terms than you think.

    Unfortunately, longer-term PUTs are often very expensive. Isn't it better to get shorter term PUTs that are closer to the money for the same price as the longer term ones?

    That really depends on how well you know what you're doing. Let's say the stock price doesn't move at all. You buy an option for $30 and it stays at $30 for a month. If you bought an option with a 3 week strike, your option loses a lot of value every day. If you bought one 6 months out, it only loses a little value each day.

    My point wasn't that it's cheaper to buy longer out, but rather that it's less risky. If you've done a lot of options, then you might do well with shorter terms, but if you are inexperienced, it can reduce risk to take a longer term.
  • Have to share this joke on a financial thread. A new Bernanke action figure. :)

    bernanke-helicopter.jpg
  • Anyone have Thornberg Mortgage (TMA) shorted? They're down 46% today. The CEO is on TV doing damage control.
  • Would put contracts with the $20 strike suffice?
  • Eleua wrote:
    Would put contracts with the $20 strike suffice?

    Ahhh, why is it taking so long to approve my account to buy options? :x
  • Perfectfire,

    Almost all brokers require that you read up on how options work.

    Keep in mind that you can lose money faster than you could possibly imagine when trading options. Try losing 65% of your position in one week. Perhaps $70K in a month is possible without even breaking a sweat.

    Do be careful. I've been at this for 9 years, and it still hurts when it moves against me.

    Last week, I lost $45K in two days. It happens. It can, and will, happen to you.

    Right now, there are a bunch of newbies that think they are bulletproof. They are going to get their taint stretched so far when this thing blows back, they will wish they stuck to mutual funds.

    Just be very careful.
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