Posts Tagged ‘stock market crash’
Investors around the world, in preceding years, had enjoyed above-historical average returns on both asset classes, continued reaching for ever higher gains, and the financial services industry created a variety of complicated products to meet this demand. They demanded high returns without regard to risk. How many of you remember the 20% years in the mid 1990s.. It became expected/demanded to continue..
Regulators and investors alike showed a growing complacency toward risk. And these factors blended together into a dangerous cocktail of underlying conditions that were ripe for instability. This is why we are where we are at this point, except for the fact instead of Greed.. we have Fear…
There are enormous challenge facing federal officials charged with finding solutions and much pain to come… but with this we must remember there will be tremendous oppurtunities…in stocks.. distressed debt..real estate…With that said..we must be careful and not catch the proverbial falling knife…
I would like to hear ideas… on how to make money after the carnage stops…
What do you think?
capitalinvestor1836.blogspot.com
Derivatives traders were yesterday nervously picking their way through the wreckage of the Lehman Brothers bankruptcy in what was the biggest test to date of the unregulated $60 trillion (£35.4 trillion) credit default swaps market.
Investors who had placed bets on Lehman’s creditworthiness held an auction aimed at clarifying who owes what to whom after the investment bank went bust four weeks ago, and analysts believe that several hundreds of billions of dollars will change hands.
The auction set a price for Lehman bonds of 8.625 cents on the dollar. Financial firms that sold credit default swaps, therefore, owe 91.375 cents on the dollar – more than Wall Street had been factoring in. That figure increased nerves about whether everyone in the chain will actually be able to pay the amount that they owe, something that will become clear over the coming days. Participants said the auction went smoothly and efficiently.
How can a firesale be considered smooth and efficient? What do you think about this disaster in the making?
What will be the repercussions?
Let us know what you think… join the discussions on www.myinvestorsplace.com
1.Fact one Derivatives are roughly 10 times the value of the entire world’s output:
2.Derivatives operate outside of the grasp of governments, tax inspectors and regulators.
3.The domino effect which could be so enormous and scary
4. It is also impossible to establish their worth
5.Warren Buffett, the billionaire who made his money the old-fashioned way, called them “weapons of mass destruction.
What do you think??? What do you think we should do?
What suggestions do you have for this mess?
Please join our discussions on
Are Short Sellers to Blame for the Financial Crisis?
I have heard this question asked repeatedly… I find it an insult to ones intelligence to even state this.. There has to be a scape goat… Did the short sellers make the banks give loans to speculators that were not going to live in the houses.. Did the short sellers make the banks give loans to homeowners who neither had a job or credit? Did the short sellers make the banks give companies loan to buy other companies at over valued multiples with the hope of these overvalued companies to the next guy…
It is one thing to spread false rumours … which all know is wrong… but what is wrong about doing deep due diligence on a company…determining that their fundamentals are not in order…and taking a short position..? It is the same analysis one would do when buy stock in a company…
Short sellers borrow stock and sell it, essentially betting that the price of their target company will fall before they have to replace the borrowed shares. Now these investors are considered vultures, rumor mongers, cheats and criminals. Most have done nothing wrong but expose one of the largest frauds in our lifetime.
Bear Sterns and Lehman died because they were undercapitalized and made terrible leverage bets. Merrill’s own mismanagement was the cause of it’s demise. AIG is imploding due to it’s credit swaps and unregulated derivatives.
The Securities and Exchange Commission halted short selling of financial companies and Futures on the Standard & Poor’s 500 Index surged 2.9 percent following the announcement. U.S. equities staged the biggest rally in six years yesterday after the SEC stiffened other regulations aimed at curbing manipulative trading. The SEC said today that it will halt short selling of U.S. banks, insurance companies and securities firms through Oct. 2, while the Financial Services Authority in the U.K. banned short sales of financial shares for the rest of the year. How is this a free market???
Are markets only suppose to go…and when they fall… smart investors are not allowed to benefit.. Are we suppose to just lose money…and have the Govt bail us out???
Jim Chanos a great investor who first raised questions about Enron stated so perfectly
“We seem to have capitalism on the upside and socialism on the downside,”
That’s a pretty heady brew for country that holds itself out as a free market paragon.”
Nothing changes …short sellers were also victimized in 1929
Andrew Abraham
www. Myinvestorsplace.com
Come and Join us at Myinvestorsplace.com a social network site for investors to network…discuss.. post blogs…and learn…
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Nothing Ever Changes When Risks Are Ignored!
10 years ago this month Long-Term Capital Management hedge fund lost billions in a very short period of time. Shock Waves roiled around the worlds markets. Asian was imploding and Russia was defaulting. Then as now there was a government-initiated Wall Street-funded bailout for LTCM.
Well fast forward 10 years and it seems the boys from LTCM have not learned their lesson regarding leverage. The same boys now run JWM Partners LLC. Their biggest hedge fund is down 26% in 2008. JWM lost more than one-fourth of their investor’s money, more than $300 million. What is ironic is that this group is comprised of some of the smartest in the investment world. Both Robert Merton and Myron Scholes, won the Nobel Prize for economic sciences while at LTCM. Computer algorithms were used while risk management and money management negated.
JWM sent out a letter to their investors with this quote
“Extraordinary times make life exceptionally interesting,”.
I find it so hard to believe neither they nor their investors learned from their prior blowup.
This is regardless they had an eight year profitable track record. Leverage is a great thing at times.. But the pendulum always swings both ways… almost like a guillotine. With all the lack of risk management from New York to London, struggling hedge funds and banks are unloading everything, from securities backed by mortgage debt to Japanese government bonds. Earlier this year Bear Stearns tried to fight for its life but was forced it to be sold to J.P. Morgan Chase & Co. for penitence. These are times patient investors will make fortunes once this all clears. Be patient.. Have a plan…manage the risks..
Andrew Abraham
My Investors Place
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Following In the Footsteps of An Economic Depression?
If history is ever a lesson we should learn from It., maybe just once. True there are always economic cycles but bubbles are formed mainly due to one reason “Cheap Money”. More so, bubbles only really become apparent in hindsight. What we are encountering is nothing more than panic & volatility from the drunken stupor from cheap money.
Just look at the volatility, the price for oil rose 25% in a single morning, up 30% in 4 days. Gold is up 23% in 8 days. The NASDAQ rose 100 points yesterday and closed at the low, -94 points – today.
In the early 1980s Japan was awash in both a real estate bubble and stock market bubble. The Japanese stock market went from a high of approximately 39,000 back in 1989 and today is approximately 12,000. A generation was lost and almost two decades have gone by and still no end of sight.
Hopefully we can learn from history not to repeat the mistakes that Japan did in the late 1980s and early 1990s.
When Japan’s stock- and property-market bubbles burst in the early1990s, lenders were left with trillions of yen in bad loans on their books. Various types of bailouts were attempted…but to no avail. Japan, the world’s second-largest economy vacillated during their banking crisis. Japan, procrastinated in writing down bad loans which unnecessarily increased overall costs in terms of asset-price declines. The problems of stagnate economic growth was exacerbated by bailouts intended to wring speculative excesses from the stock and real estate markets.
Real GDP in Japan grew at an average of roughly 1.5% yearly between 1991-1999.nations. It wasn’t until 1999 — two years after the collapse of Yamaichi Securities Co. — that the Japanese found the political will to use taxpayers’ money to begin bailing out their banking system. The Japanese Government efforts to revive economic growth have really met with little success and were further hampered in 2000 to 2001 by the slowing of the global economy.
The only way to wring the excesses out of a bubble is to let market forces enter. Let the banks that were not prudent fail instead of bailing them out. Sounds harsh, but in times like these harsh measures might be the answer if we look at history.
Our Fed is trying to play the activist and is attempting/trying to stem the tide. However the question is BAILING OUT THE BANKS the answer?
By acting quickly, Can the U.S. avoid repeating Japan’s Depression?
Andrew Abraham
My Investors Place
http://www.myinvestorsplace.com
capitalinvestor1836.blogspot.com
Flight to Quality –Flight to Warren Buffet His Berkshire Hathaway
How many of you purchased shares of BRKA (Berkshire Hathaway) when it was all over the news last November that shares were approx $150 dollars each. If you had purchased you would have seen your shares fall to a point in August of this year to approx $110 dollars a share, rather unsettling. However last week like a shooting star BRKA jumped to $147 dollars a share. Anyone can see this by just looking at a chart, but the point I want to make all of this volatility really does not matter in the long run. You are associating yourself with one of the most astute investors of all times.
This was accentuated by this week’s current activity of Mr. Buffett. He is buying shares of Goldman Sachs to the tune of $5 billion dollars. He is not buying just the basic shares but the preferred stock with a 10 percent dividend. Berkshire also gets warrants to buy $5 billion of common stock at $115 a share at any time in the next five years. The common stock closed yesterday at $125.05, providing Buffett with an instant paper profit of $437 million (Not a bad days pay for anyone including Mr. Buffett.). The last time Buffett invested on Wall Street was in 1987, when New York- based Salomon Inc. pleaded with him for a $700 million cash infusion to fend off an unwanted takeover. Buffet ever the value investor has picked up Goldman Sachs (GS) after its stock has dropped approx 42%.
It seems that Goldman was somewhat desperate and the cost to them, could be considered high.
What is the stamp of approval from Warren Buffett worth???
Most investors have been so shaken from recent events it is hard to find them under any rock. Now Goldman is planning to offer stock to the public (approx $2.5 billion dollars) as well as one of Japans largest banks Sumitomo Mitsui is considering investing.
So does this mean the credit crisis is over? Your guess is good as mine.
Still there are concerns present regarding Goldman. The leverage they manipulate is still large. For every dollar of shareholder equity, Goldman owned $23.70 of assets for every dollar of shareholder equity. That is 23.7 times but the leverage that regulators allow usually in the ball park of 20 times. Even with this said, in this environment is this too much leverage?
Time will tell and you will need to be patient with Mr. Buffett. In 1999 shares peaked at approximately $80,000 and then fell to $40,000 per share (unsettling). More so it took until 2004 to arrive back at $80,000. However long term investors have been amply rewarded exhibiting patience.
Andrew Abraham
My Investors Place
http://www.myinvestorsplace.com
capitalinvestor1836.blogspot.com
Banks Are Failing –How Do You Protect Yourself ?
The thought of this only several short years ago was not in anyone’s mind. Today from the UK to the States and beyond this fear is forefront in so many people.We have seen so far this year 13 bank failures, scared savers rushed to
withdraw their deposits. Each bank failure seems bigger. First there was Indy Mac and then last weeks Washington Mutual.
The largest bank failure yet!
While that number is still well below the number of financial institutions that went Bankrupt during the savings-and-loan crisis of the late 1980s and early 1990s, people are scared. To make matters worse approximately 117 banks are on the FDIC watch list currently. (You can check your banks ratings at Bankrate.com and BauerFinancial.com. As well you can go to the FDIC’s Web site, http://www.fdic.gov and research your bank. )
What really happens when a bank fails?
If another bank buys the bank, as was what transpired with J.P. Morgan Chase and their purchase of Washington Mutual, then it is business as usual. Customers of the failed bank can continue to carry on to write checks and withdraw their money usually without any interruption in service.
The issue arises when there is no buyer. This necessitates that the Federal Deposit Insurance Corp to come in and take over the financial institution. In the best scenario the FDIC will start mailing out checks to customers for their insured deposits within 48 hours. Those with amounts over the FDIC’s limits of $100,000 per person, per insured institution, will receive payments as the assets of the bank are sold. Some won’t get all their money back. If you have over the $100,000 there are steps you can do to protect yourself such as opening various joint accounts, retirement accounts and revocable trusts.
If you have a tremendous amount of money this too can be covered. You could deposit your money with a bank that participates in the Certificate of Deposit Account Registry Service, or CDARS. The deposit-placement service disperses the funds in individual CDs under $100,000 in member banks.
In theory this sounds fine as long as you do not have more than $100,000 per account, BUT the fact is that FDIC started the year with approx $53 billion dollars in the pool. Due to the insolvency so far this year this number is down and is in the $40 billion dollar range with only 13 bank failures so far.
Do the math!
There are approximately 117 banks on watch…How many of these need to fail in order that the pool of FDIC money is diminished.
If the cost of future bank failures exceeds the assets that the FDIC is holding, they have the option to draw on other resources to protect depositors. As well, the FDIC is looking at raising the rates that it charges the banks it insures as a way to bring in additional funds. The FDIC can also draw on lines of credit with the Treasury Department. This occurred in early 1991.
The fact is no one has yet to lose money with the FDIC’s program,
Hopefully this will continue in the coming years.
Andrew Abraham
My Investors Place – A social networking site for investors
http://www.myinvestorsplace.com
capitalinvestor1836.blogspot.com
$700 Hundred Billion for Arrows, Racetracks and Rum
In political terms the word sweetener is what is added to bills. Unfortunately for one of the most important issues in 2008 and maybe our life, these sweeteners are absolutely sickening. How many other special interest items slipped through and wasted our money.
How are people going to pay for medicine?
How are people going to pay to keep their homes?
How are people going to send their children to University?
We the American people are in a crisis of confidence, how can we trust Congress when they put their interests first. They resort to actions that are only for their own self-interest.
Really what does Arrows, Wool Research, Rum, Car racing tracks, Fisherman, and TV and Film producers have to do with our banking failure we are going through. It is an insult to anyone’s intelligence. More so… How can the Govt pass such an important bill in such a short period of time? It was like cramming for a test without studying. The implications to each and every one of us are GREAT! The national debt will be the highest on record since 1954. More so, every man women and child will be obligated to pay $37,000 to assist in tax reductions for Arrows…Rum… Film Producers…and even Car racing tracks.
What is the future of our country?
What is the future of our education system?
What is the future of our youth?
The saddest thing is what can we really do?… What choices do we really have?
What are our options?
Let’s talk about it
Andrew Abraham
My Investors Place
http://www.myinvestorsplace.com
capitalinvestor1836.blogspot.com
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