Talk about Extremes

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snaggletooth's picture
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This is pretty extreme:
 
NYSE new highs/new lows 0/1146, Nasdaq new highs/new lows 0/701

norway401's picture
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Snags ...I was watching the C.B.C. Special Report last night with Brian Stewart. He was interviewing a Professor from University Of Toronto , School of Business. He was discussing the 700 Billion Plan in the U.S. and other plans going on throughout the globe.
He advises watch....The U.K has injected even more in to their banking system , watch the amount that will be injected by Belgium , Germany's government is now in the injecting cash to banks and interesting comment he thinks Spain maybe even more impacted than the above with their banks.
His theory in the EU no one regulatory body that governs Banking and that Banks from all countries have crossed respective national borders so the " liquidity " problem will spread throughout the whole EU.

anabuhabkuss's picture
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This is all pretty mind boggling to me. And all because we live ina  society of "sell,sell,sell" and "must buy,buy,buy....though I can not afford it".
 
Truly, this is yet another embarrassing moment in our history.

B24's picture
B24
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"Truly, this is yet another embarrassing moment in our history."
 
Plain and simple.  This is more proof that, as enticing as it is to manufacture investment vehicles, restricting mainstream investing to traditional asset classes (including real estate, commodities, anything with substance, etc.) is the only way to control the economy.  When companies are allowed to trade derivatives to the extent that they have (the market for ALL derivatives is larger than the broader markets), there is no way to limit downside.  Basically, the market has the potential to implode.  With traditional investments, at least your loss is limited to your investment.  If we were currently only concerned about the loss in subprime, mortgage-backed securities, we would be OK.  But it goes way, WAY beyond that.  The losses have been multiplied by huge factors due to credit default swaps (un-regulated, off-balance sheet debt insurance) and use of leverage.

snaggletooth's picture
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Sooo, do we hold all they way down to 6000?  What do we tell our clients then? 
 
At this point, I'm out of words.  Even the conservative accounts are hurting.  Crazy.

B24's picture
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You're right.  And the problem is, NOBODY has the answer.  My philosophy right now is that if my client's short-term money is protected (like 5 year's worth), then making knee-jerk changes in equities (and even bonds) is probably not wise.  It is not inconceivable to have a sustained 10-15% rally over the course of a day or two, and I don't want to lock in my clients' losses by being out of the market with their long-term money.  Even though that won't get them back to the proverbial "even", and the market will still be down, missing a rally like that would just be bad.  I feel that you just have to believe in the markets and ride this one out.  Otherwise, you are throwing in the towel and locking in losses (unless of course, you are the rare bird that knows when the market will recover).
Trust me (actually, don't), all it will take is a few big names to declare that the market is "recovering" and there will be some sort of huge rally from people diving back in (even if it's a BS rally).  So much of this is emotional now. 

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An irreverent Wall Street Blogby Bill Singer
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Of Wall Street, the Titanic, and the Britannic
Written: October 6, 2008

Many of my readers and members of the press have sought out my opinions about the current decline of Wall Street.  I have tried, and not always successfully, to find ways to explain some of the more complex issues that I see.  There is no simple explanation and no single cause to point at.  Nonetheless, there are some general themes that need to be brought to the public's attention, and I will try to explain my personal perspective, as follows:
Oh, They Built the Ship Titanic
About 100 years ago, the White Star Line built a line of cruise ships known as the Olympic-class.  The first to be built was the Olympic, which was retired in 1935. 
The second ship was the ill-famed Titanic. In 1912 it hit an iceberg and sunk, taking 1,517 lives.  The lore of this vessel is well known and likely need not be repeated; however, let me set forth just a few salient points:


  • it was the largest passenger ship of its day;
  • reputed to be state-of-the-art and virtually unsinkable;
  • it was equipped with the latest Marconi wireless radio; and
  • it carried more lifeboats than maritime code required.

Consider the following well-documented facts:

  • spotters saw the iceberg but the ship could not alter course in time--the warnings came too late for the rudder to be brought into play;
  • under maritime code the number of lifeboats were determined by the ship's tonnage and not passengers--hence, although the number of lifeboats exceeded the code, there were only enough seats for 52% of the passengers;
  • radio warnings of icebergs were sent to the Titanic by other ships, but its wireless operators were too busy handling passenger communication traffic to notify the bridge;
  • distress messages were sent but the nearest ships were hours away;
  • the Titanic was designed according to the most modern theories and utilized advanced construction techniques--but the hull and bulkheads failed, and construction methods were determined to be faulty, materials were found to be substandard.

Armed with all of the above findings, the third of the Olympic-class ships, the Britannic, was retrofitted. 
Question: Would you book passage on the Britannic?
Full Speed Ahead?
I believe that powerful market forces aligned to propagate a myth that "household names" (i.e., brokerage firms and banks that advertised on national television) were somehow more honest and safer than those lousy little mom-and-pop institutions that helped build your community and gave your parents the dollars to open and expand their businesses.  You were manipulated over recent years to associate smaller community banks and broker-dealers with pennystock hustlers and boiler-room fraudsters.  Humongous financial institutions made massive campaign contributions to favored politicos, who did their bidding.  Those large firms also used their influence throughout the regulatory structure to advance their goals at the expense of their smaller competitors.  I can't be polite about this: the regulators were either willing lackeys or clueless stooges.  
And, boy, did you lambs follow the Judas goats to slaughter. You bought in to the nonsense, whole hog.  
Bigger-is-better was the mantra and you sat by as they shuttered the little shops downtown and built the massive shopping center that sucked your local economy dry. Minimum wages. No benefits. No competition. Traffic congestion.  You got three t-shirts for $15, but the local mills closed and the hospital's emergency staff was overwhelmed with uninsured patients. 
They told you it was progress.  You understood, sort of--they said that we were evolving from a manufacturing economy to a service one. Sounded good to you. Sort of made sense. Then, oddly, the computer manufacturing jobs went overseas...but they also took the telecommunication service jobs. 
The local bank shuttered and the larger commercial replacement was spanking new, but when you asked for a small business loan, they were too big to be bothered with you.  You were thrilled when that financial superstore opened next door. Their television ads showed how they would show up at your kid's wedding and at your retirement party. They told you what you wanted to hear: double-digit returns, online investing, computerized portfolio modeling, and insured accounts. It's what they didn't tell you that came back to  hurt you.
They didn't tell you that the financial products they sold to you were ticking time bombs. They didn't tell you that the firm itself would soon collapse under the weight of its own foolish speculation. 
They didn't tell you that when you needed to raise $2 million to expand -- a sum that your former broker happily handled at his independent/regional firm -- that you were of no importance to them.  You must have missed the commercial where they just said "sorry, not interested in servicing local yokels."  Of course, they did raise the $30 million for your national competitor, who opened up a few blocks away and drove you out of business.  
Who hit what?
Let's at least agree on one historic fact: The iceberg did not seek out and attack the Titanic. No, the ship sailed into the iceberg.
The failure to promptly process many warnings and the willingness to sacrifice safety for speed put the ship on a deadly collision course.  Design flaws based upon false assumptions and deficient construction ultimately sunk the vessel. Inadequate safety standards--even if compliant with the letter of the law--prevented the saving of many lives. 
Much the same could be said of the wreckage of Wall Street. 
The world's markets sped full-speed ahead into the path of icebergs. But, not to worry, they chided us. Our state-of-the-art technology protects investors with layers of regulations and regulators. Our floors of computers  monitor trading and we will pounce on any anomalies.  For over three-quarters of a century, the post-Depression regulatory schema of the Federal Reserve, the SEC, the CFTC, the state regulators, and the Financial Industry Regulatory Authority (FINRA) prevent the ship of Wall Street from sinking--it might list to one side, but it would never sink. They told you that. They promised you that. You rested comfortably on that assurance.
Alas, Wall Street still ran smack dab into a killer iceberg. 
No regulator sounded the alarm until it was too late -- and now we are hearing the bells for "abandon ship." None of the vaunted new market architecture worked: the hulls and bulkheads are now flooding, and we see too few lifeboats.  And woe be we survivors in the icy waters if the Carpathia is the nearest boat.
How Ironic

    As asked earlier, knowing what you do about the Titanic, knowing that its younger sister ship was retrofitted after the famed sinking, would you book passage on the RMS Britannic?
    And as I now ask you, knowing all you do about the present market meltdown, knowing that the politicians and regulators who christened the flawed ship that is sinking are now trying to retrofit our markets, would you buy stock or bonds today? One Last Thing
    Financial panics such as our current situation are fraught with ironies.

    • Solutions are often sought from the selfsame experts who fueled the collapse with erroneous analyses.
    • Those who are adept at seeing a coming calamity may not be equally equipped to solve the problem--diagnosis and cure are two very different disciplines.
    • Even when financial regulators and financial institutions cause an economic collapse that burns down the house, society feels compelled to re-set the circuit breakers rather than rewire the house.

    In 1916, the Britannic became a hospital ship during World War I and hit a mine--and sunk within 55 minutes! What's the point? I don't really know--perhaps there isn't one. Still, makes you wonder.

    gvf's picture
    gvf
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    We're having a few lock-in losses today.  People are done with 'reason'.  I can't blame them, even though I disagree, you have to feel for them.  (I'm feeling for my own accounts too). 

    anabuhabkuss's picture
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    GD it Bill that blog was so full of assumptions, baseless theories and clutter that it's given me a f'n migrane. I can't believe I was subjected to read that.

    deekay's picture
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    anabuhabkuss wrote:GD it Bill that blog was so full of assumptions, baseless theories and clutter that it's given me a f'n migrane. I can't believe I was subjected to read that.
     
    Not enough pictures for you?
     
    I don't know how you define "assumptions, baseless theories, and clutter" but I can assure you that Bill is spot on in his analysis.  Great read, Bill.  I've never been so sure about my decision to join my current firm than I am now.

    walking9's picture
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    It's just a dumb market, Bill.

    There is an endless line of Titanics, and Titanic captains and passengers.
     
    Might want to stick to the knitting.
     

    anabuhabkuss's picture
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    deekay wrote:anabuhabkuss wrote:GD it Bill that blog was so full of assumptions, baseless theories and clutter that it's given me a f'n migrane. I can't believe I was subjected to read that.
     
    Not enough pictures for you?
     
    I don't know how you define "assumptions, baseless theories, and clutter" but I can assure you that Bill is spot on in his analysis.  Great read, Bill.  I've never been so sure about my decision to join my current firm than I am now.No you can't. There is not one empirical evidence provided in the article. Just BS BS BS. BECAUSE there is nothing that suggests that employees working in smaller ships have a moral code embodied into their DNA. Greed, ignorance, and the need to make a buck at the expense of others does not discriminate against how big/small of a firm you work for. To suggest that people deserved this because they opted to go to F'n JPMorgan Chase, Merrill Lynch instead of a local bank is completely ignorant and if you choose to believe him than you're the tool.Look up a regional bank, Suntrust. Down 13% today. Go read why. There's my evidence. Show me how people rushing to credit unions, banks, mom and pop shows would have adverted this crisis (well, maybe not credit unions per se)?How many people actually think to themselves and question what kind of leverage and exposure a bank has? Did you honestly walk into a bank 5 years ago and ask "I wonder if their exposed to subprime mortgages" or go to Merrill Lynch asking "Gee I wonder if they sell Auction rate securities and sell securities backed by Subprime"? No. LEt me tell you another factoid: I have a friend who works at the border of Texas (south...near Corpus Christi and heading towards the island). Place is overrun with regional  B/d's and banks. You know what they shove down people's throats? Insurance products that will make them millions in 10 years. Why? Because the poeple do not know better and the regional needs to make a money to compete with big wigs. They have advertisements and billboards outside their shop pitching annuities that cap upside potential and pay the insurer a good check (forgte the name of this particular product). And, they get away with it because they can say: "MER, CIti are in it for the money. Buy my insurance product instead".The series of events taking place fall simply on bad business practice, regulation and uneducated consumers. These traits and the size of a company these people deal with are NOT mutually exclusive my friend. That is a fact unless, once again as I suggested, real evidence can be shown. The post is assumptive because of the notion that people walk around hoping to get 3 T shirts for $15 and thinking bigger is better. I mean, WTF. This is clutter, baseless and has nothing to do with anything happening today. Did Bill walk up to every person on the street, ask them what they thought? Was there a survey I am aware of? How many of you walked into a large bank because they were offering T-shirts? This is insulting and false and puts all blame solely on the consumer. But **** me and my need for pictures right? I'm supposed to believe that smaller competitors are not out to make a buck either? "Sorry, Mr Client, but if we accept your deposit we no longer qualify being a regional and thus must conform our business practice to unethically sell you this hur mortgage backed security/sell you a loan you don't need"

    deekay's picture
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    anabuhabkuss wrote: deekay wrote:anabuhabkuss wrote:GD it Bill that blog was so full of assumptions, baseless theories and clutter that it's given me a f'n migrane. I can't believe I was subjected to read that.
     
    Not enough pictures for you?
     
    I don't know how you define "assumptions, baseless theories, and clutter" but I can assure you that Bill is spot on in his analysis.  Great read, Bill.  I've never been so sure about my decision to join my current firm than I am now.No you can't. There is not one empirical evidence provided in the article. Just BS BS BS. BECAUSE there is nothing that suggests that employees working in smaller ships have a moral code embodied into their DNA. Greed, ignorance, and the need to make a buck at the expense of others does not discriminate against how big/small of a firm you work for. To suggest that people deserved this because they opted to go to F'n JPMorgan Chase, Merrill Lynch instead of a local bank is completely ignorant and if you choose to believe him than you're the tool.
     
    Uhh...he's making more of a comment about the direction that these large companies took.  He's not necessarily bashing the FA or other employees.  There are a lot of investors who flocked to the big bd's because they like to say "I'm at Merrill/SB/Morgan..".  Part of that attraction is the mentality of "bigger = better".Look up a regional bank, Suntrust. Down 13% today. Go read why. There's my evidence. Show me how people rushing to credit unions, banks, mom and pop shows would have adverted this crisis (well, maybe not credit unions per se)?How many people actually think to themselves and question what kind of leverage and exposure a bank has? Did you honestly walk into a bank 5 years ago and ask "I wonder if their exposed to subprime mortgages" or go to Merrill Lynch asking "Gee I wonder if they sell Auction rate securities and sell securities backed by Subprime"? No.
     
    Of course they didn't.  Both firm and client can and should be held accountable.  Greed and ignorance played a big part.  Many of these products were invented as a way to make more profits/become bigger/etc.  They knew this stuff could blow up, but the firms ignored it or were too arrogant to deal with it.LEt me tell you another factoid: I have a friend who works at the border of Texas (south...near Corpus Christi and heading towards the island). Place is overrun with regional  B/d's and banks. You know what they shove down people's throats? Insurance products that will make them millions in 10 years. Why? Because the poeple do not know better and the regional needs to make a money to compete with big wigs. They have advertisements and billboards outside their shop pitching annuities that cap upside potential and pay the insurer a good check (forgte the name of this particular product). And, they get away with it because they can say: "MER, CIti are in it for the money. Buy my insurance product instead".
     
    I believe you are referring to equity indexed annuities.  These are designed for fixed annuity and CD buyers who are willing to take the risk of a smaller ROR for the potential of a higher ROR.  The product itself is not bad.  How it is sold is a different story.  I would make the argument that, given the level of scrutiny EIAs have received recently, compliance is stepping up their due diligence.
    Here's a newsflash, ana:  banks need to make a profit to survive.  If you can make a profit while doing good for your client, and pay the sales person in the process, that's a great thing.  Banks make 20-30% on a CD purchases.  But nobody seems to bat an eyelash when a bank CSR jams a client into one.
    The series of events taking place fall simply on bad business practice, regulation and uneducated consumers. These traits and the size of a company these people deal with are NOT mutually exclusive my friend. That is a fact unless, once again as I suggested, real evidence can be shown. The post is assumptive because of the notion that people walk around hoping to get 3 T shirts for $15 and thinking bigger is better. I mean, WTF. This is clutter, baseless and has nothing to do with anything happening today. Did Bill walk up to every person on the street, ask them what they thought? Was there a survey I am aware of?
     
    Holy crap, guy, how did you come up with this line?  He states from the beginning that this is a "theory".  This isn't based off empirical evidence or surveys or whatever.  This is from years of observation that, frankly, I agree with.  Many firms, big and small, care about profitability above all else.  Because the big firms have most of the assets, they hold a bigger responsibility in these problems.  Seriously, how hard is this to understand?How many of you walked into a large bank because they were offering T-shirts? This is insulting and false and puts all blame solely on the consumer. But **** me and my need for pictures right? I'm supposed to believe that smaller competitors are not out to make a buck either? "Sorry, Mr Client, but if we accept your deposit we no longer qualify being a regional and thus must conform our business practice to unethically sell you this hur mortgage backed security/sell you a loan you don't need"

    anabuhabkuss's picture
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    You know deekay, when you have a market as volatile as this one where 401ks are dropping, unemployment is rising and europe is on the verge of the same collapse, people want answers, not theories and observations that the majority of their peers 'might' think bigger is better and thus, as a result, we are where we are today.
     
    The time spent using metaphors and similies (judas, sheep,$15 T shirts I've never heard of)that do not further nor establish a point would have been better spent researching the facts.

    walking9's picture
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    Clients just want to hear your voice.
    I like the image of an endless stream of Titanics crashing into iceburgs - as the ex Texas fed chief said, when asked, will this happen again, dealing with " Kind of like going to the county fair a playing whack-a-mole."

    MinimumVariance's picture
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    It would be really helpful that when people start talking about derivatives that they know what they are talking about. I suggest for a starter that you at least distinguish between cash and physical settlement for a CDS. Many CDS's were created not to insure against default but to create non-investment like returns where there was no physical supply of such debt in quantities large enough to satisify demand of high yield buyers. And The quotes we hear about the size of the market being like $29328347646 trillion gazillion is based on counting the NOTIONAL principal amount with no netting of offsetting exposures.

    walking9's picture
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    The CDS debacle wasn't a big conspiracy, rather, a  failed market experiment in leverage. Insurance products are regulated at the state level, I'm not a big fan, but over the years I haven't heard about insurance products failing.
     
    The media has scared the **** out of everybody about everything, and that's fine with me, countering the overreactions is a fine niche to play in for so called work.

    gvf's picture
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    A short video of how CDS works and why we should be a bit scared until things get regulated:Credit Default Swaps:http://vimeo.com/1915392

    walking9's picture
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    Great video, GVF. Please keep 'em coming.

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