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Dow Tanks 680 to Below 9000; Investors Fleeing Mutual Funds

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On the one hand, I was mystified that the stock market was up in the morning session given that the money market seize up was not at all improved and several key measures had worsened overnight. I was wiling to accept the view that we might have an oversold bounce and saw several bloggers indicate they had gone long in the last three days. But even with my bearish predisposition, given that the mess in the debt markets is now starting to engulf the real economy, I am still perplexed with the pattern of the last two days, with a plus 350 point end of session fall yesterday, and a roughly 600 point plunge today in the final hour.

I have been told by Beltway insiders that the Paulson plan was pushed through with the fear-mongering argument that the Dow would fall 2000 to 3000 points if it was not passed. As of today’s close, the Dow is down over 2200 points from its level when the bill was signed into law. Heck of a job, Hankie.

The VIX, which is used as a proxy for volatility and market risk, climbed to a new record of 60. The yen fell below 100. Brent crude fell to $80 and change, while gold rose to $917 an ounce.

The normally evenhanded bond market commentator John Jansen looked for a trigger, as I did, found none, and sounded a somber note (hat tip reader John):

I have said this before and risk redundancy but more and more it seems likely that the resolution of this crisis will be an historic financial calamity. Each and every step which central banks and regulators have taken to resolve the crisis has been met with failure. In the beginning, the steps would produce some brief stability. In the last several days, the US Congress (belatedly) passed a bailout bill, the Federal Reserve has guaranteed commercial paper and in unprecedented coordination central banks around the globe slash base lending rates. Listen to the markets respond.

The market scoffs as Libor rises, stocks plummet and IBM is forced to pay usurious rates to borrow. There is no stability and no hiatus from the pain. It continues unabated in spite of the best efforts of dedicated people to solve it.

We are in the midst of an unfolding debacle. It is happening about us. I am not sure how or when it ends, but the end, when it arrives, will radically alter the way we live for a long time.

Whoever wins the US election and takes office in January will need prayers and divine intervention.

Update 6:00 PM. Theories are emerging as to triggers, One is Morgan Stanley, which fell 25% today. Second is MetLife, whose credit default swaps went into upfront payment mode today, meaning the market sees them as a distressed credit (we discussed general issue earlier today’ Matt D in comments contends it was a factor today). Third was the settlement of Lehman credit default swaps tomorrow, which has the potential to bring down firms that wrote guarantees and were not sufficiently hedged (we mentioned this a couple of times this week). However, that date should be no surprise. It seems odd that that might trigger end of session dumping when we did not see any new intelligence here. Back to the original post

From the Wall Street Journal:

The stock market’s collapse accelerated Thursday as bank lending remained stubbornly clogged and investors remained unwilling to hold anything except cash and government debt, no matter how tiny the returns for doing so.

The Dow Jones Industrial Average declined for a seventh straight day, plunging 678.91 points, or 7.3%, to 8579.19. Blue chips last dipped below the 9000 level five years ago. Thursday’s fall was the Dow’s third-worst all time in point terms and 11th worst in percentage terms. During its recent losing run, blue chips have fallen by a startling 20.9% and are down 39.4% from their record high, which was hit exactly one year ago.

“This is indiscriminate selling,” said trader Todd Salamone, of Schaeffer’s Investment Research, an analysis and asset-management firm in Cincinnati. “Not until there are massive improvements in the credit markets are we likely to see this really end.”

From Bloomberg:

U.S. stocks slid and the Dow Jones Industrial Average fell below 9,000 for the first time since 2003 as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis…

“People have lost faith in everything,” said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated Investors Inc. in New York. “We’re dealing with an investment community of atheists right now. Valuations no longer matter.”

The Standard & Poor’s 500 Index retreated for a seventh day, losing 75.02 points, or 7.6 percent, to 909.92 to cap its longest streak of daily declines since 1996. The Dow Jones Industrial Average declined 678.91, or 7.3 percent, to 8,579.19. The Nasdaq Composite Index decreased 5.5 percent to 1,645.12. Twenty stocks fell for each that rose on the New York Stock Exchange.

The S&P 500 extended its 2008 tumble to 38 percent, poised for its worst yearly performance since 1937, even as its valuation compared with estimated earnings is the cheapest versus reported earnings since 1985. The Dow’s 35 percent slide in 2008 puts it on course for its worst year since 1931.

“This is what happens when the contagion of fear spreads,” said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. “No one is paying attention to fundamentals. People are very, very scared. Ultimately investors decide to sell.”

All 10 industry groups in the S&P 500 tumbled at least 3.4 percent. Technology companies fell the least and led the market higher in early trading after International Business Machines Corp. posted higher-than-estimated profit and said the financial crisis will not hold up earnings. IBM rose as much as 5.3 percent in the morning before following the market lower and closing down 1.7 percent at $89.

Almost $900 billion was wiped off the value of U.S. equities today. About 2 billion shares changed hands on the NYSE, 42 percent more than the same time last week.

From another Bloomberg story (hat tip reader Saboor) on record investor flight from mutual funds:

Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened.

Shareholders took $43.5 billion from stock funds last month and $28.8 billion from bond funds, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.

“People are scared,” Conrad Gann, TrimTabs’ chief operating officer, said in an interview. “This market is different from what we’ve seen before.”

The five largest diversified U.S. stock fund managers, including Fidelity Investments and Vanguard Group Inc., posted an average 28 percent loss this year through Oct. 6, 2 percentage points more than the Standard & Poor’s 500 Index, according to data compiled by Morningstar Inc. Investors deposited $185.5 billion into savings and checking accounts last month through Sept. 22, TrimTabs data show.

“A lot of our favorite stock funds had financial bets that hurt heavily,” said John Coumarianos, a stock analyst with Chicago-based Morningstar. “Others were heavily weighted in international stocks to boost returns, a move that backfired.”

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42 comments

  1. aw70

    I’ve said it before in this forum, and I’ll say it again – the fact that the stock markets are tanking does not, by itself, say as much as is being made of it. At the moment, that’s a herd of livestock panicking, but the financial world is larger than this particular pen. Although we admittedly might be in Trouble if they charge through the fence, the upkeep of which was the responsibility of that alcoholic uncle that no-one in the family wants to admit to… (a.k.a. the SEC and/or the Treasury)

    Sure, the Dow performance amounts to a calamity in itself, but at the end of the day, why does the inane collective investor behaviour behind all this surprise anyone? IF (big IF there) the majority of stock trading and investing had been done by responsible (or at least not completely defective) persons with an at least medium-term attention span and average economics education over the past decade, we would not be in this mess.

    But what do we have instead? Sure, there are many reasonably level-headed professionals left out there in trading, who would, if left by themselves, NOT panic in this situation (or not as badly). However, the huge expansion of the financial industry over the past decade plus has brought a large influx of persons who are basically gamblers, and whose economics qualifications more or less amount to Being Good At Reading The Tea Leaves.

    In a buoyant financial environment, you can get surprisingly far by investing other people’s money, even if you do not really, fundamentally, understand what you are doing. Part of the problem is that these bozos are now taking that whole panicking thing way too far (sort of understandably, from their dim viewpoint), and taking everyone else with them. Interesting times, indeed…

    Moo!

    A.

  2. jm

    “Valuations don’t matter.”

    But perhaps the truth is that we’re heading back to a world in which they really do — but only valuations based on a real cash return on investment, e.g., dividends.

    Since it seems that today all profits from operations are paid out to top management through bonuses and stock options (dilution concealed by stock buybacks which thus equate to bonus payments), this may require some change in the business landscape.

    What will the indices fall to if stocks need to pay out at the 6% dividend level that once characterized a typical bear market bottom?

  3. satan

    We could nationalize banks and throw the current senior management of these institutions out forever. But that would be the rational thing to do.. and rational things are not popular especially when they hurt campaign contributers.

  4. Michael

    But isn’t there a buyer for every seller? Clearly, someone is buying here. It obviously isn’t the retail investor. To me, this is a huge buying opportunity. If the world ends, my money won’t do much for me in treasuries.

  5. Sammy

    “Valuations don’t matter.”

    Gee, why weren’t all these assholes complaining when stocks were trading above what the valuations would support?

    You live by the sword, you die by the sword. Right now it’s dieing time.

  6. mxq

    RE: Valuation…just fyi

    (also, this was information via Stifel Nicolaus research…so no link)

    This data was compiled prior to today’s massive dive, so, forgive me if it might even sound quaint or even naive?!!…ugh

    “The average P/E for the DJIA from 1972 has ranged fron 5 to 27 with an average of 14.7x. Based on recent level of Dow 9300, what type of earnings scenarios are being implied from current valuations?

    1) Based on consensus EPS for F12 months a/o 9/30/08, the DJIA has P/E ratio of 9.5x or 28% below average P/E of 14.7x.

    2) The five worst years of earnings decreases since 1955 have averaged 24.5%. Assuming EPS declines by this amount, P/E of DJIA is 12.3x, which is still below average P/E.

    3) Based on average P/E of 14.7x, current prices implies a 37% decrease in EPS.

    Nothing says P/E has to stay at average, but it does appear this bear market may be getting to overshoot territory.”

  7. Anonymous

    mxq.

    Interesting, but ignores the Greenspan "irrational exuberance" comment as of…..1996.

    I would suggest that the entire post 1996 period has been a bubble and would look at valuation norms before then. For instance, an earnings multiple of 16 would have been considered toppy in past cycles, It came to be seen as normal.

    Or consider this:

    Financial system on life support. Insurers now looking dubious too. Economists per Yves saying the banking system in aggregate is insolvent.

    Financials were 40% of S&P earnings. The S&P is down 38% from peak as of today. If we have a largely nationalized banking system, I'd say much of that former 40% goes to zero. In 1980, financials were only 8% of the S&P. So I'd assume on a going forward basis that the entire financial sector in the future will be only 10% of S&P earnings, between contraction of the entire sector and tougher regulation on what survives.

    That accounts for 30% of the move. You'd attribute only 8% to the greatest destruction of household wealth in the 12 months through August (on a percentage basis in the history of the US due to the fall in housing values? We are only starting to see the real economy impact of the fall in housing values, which has further to run, and the contraction in consumer and business spending due to the credit crunch.

    The present valuation actually looks plenty rational to me.

  8. melpol

    I have lost everything including my live in girlfriend. My portfolio was worth over three million dollars only four years ago—now it is worthless. My creditors have been hounding me day and night and I had to disconnect my phone service in order to get some sleep. All I am left with is savings of less than 75 hundred dollars. I blame my stock broker for advising me to invest all my hard earned money in the auto industry and even my car needs a new transmission. Instead of me weeping I have started over again by mopping floors in the local fast food restaurant. We all learn from experience and what I learned is to keep my money under the mattress.

  9. wintermute

    Ignore the Dow – it is unrepresentative, and worse, a price weighted index and therefore a weak indicator.
    The S&P 500 is all important. This is still far closer to its historical average of 15 as a ratio between the index and annual dividends than to 7 which was seen in depression conditions. The market is finally starting to price in the effect of a bad recession / possible depression on corporate earnings. Considering that the all-time high was only one year ago – the market has done a reasonable job of pricing in this financial disaster.

  10. dis

    it’s a run on the stock market

    people are just getting out and going into government cash.

    don’t blame them

  11. Anonymous

    The Plunge Protection Team was mentioned on Fast Money today – unusual for PPT to be acknowledged by the Real News.

    Isn’t it logical to assume the PPT has been buying the SPX and others.

    Perhaps they are just getting blown out near the close by all the mutual funds unwinding their positions.

  12. Ginger Yellow

    It still astonishes and disgusts me that Paulson pushed and Congress passed the bailout without determining the valuation methodology. It’s no wonder the markets have more or less ignored it, when the entire effectiveness of the bill as a bailout (and its ultimate cost to the taxpayer) depends on whether the government will be buying the assets at market value or higher. The ambiguous statements from Paulson about recapitalisation vs liquidity have hardly helped.

  13. Anonymous

    You can’t understand what is happening in the stock markets without seeing it as occurring simultaneously with shouted calls to murder the likely next President of the US.

    People are quickly becoming aware that our basic institutions, our basic sense of decency, our sense of being one people are crumbling.

    The vast majority of Americans are seeing the value of their homes and their retirement accounts evaporating and they’re rightly afraid.

    On top of which you have fear-mongering politicians of a certain stripe planting seeds of doubt of whether Social Security will be there for them.

    America is getting its due, which in this case is the bills coming due.

    Jim Cramer, who I think is mostly a wind-bag, realized these things over last weekend and despaired.

    “We are in the midst of an unfolding debacle. It is happening about us. I am not sure how or when it ends, but the end, when it arrives, will radically alter the way we live for a long time.”

    This is what you end up with when you elect a draft-dodging, drug-addicted liar with no accomplishments and give him the keys to he treasury and the war-machine.

    We’re in trouble people.

  14. DD

    To MXQ who writes:

    “1) Based on consensus EPS for F12 months a/o 9/30/08, the DJIA has P/E ratio of 9.5x or 28% below average P/E of 14.7x.”

    Could it be that the consensus EPS F12 is wildly optimistic? It’s my understanding that the estimates for earnings for the end of this year were terribly unrealistic. Am I missing something here?

    Thanks.

  15. Anonymous

    Hi, Anonymous at 6:43pm again. My comment about PPT was meant as a comment on –

    “I am still perplexed with the pattern of the last two days, with a plus 350 point end of session fall yesterday, and a roughly 600 point plunge today in the final hour.”

    just to clarify

  16. Lune

    I’m curious if any of this is a consequence of the ban on short selling.

    Short selling tends to provide liquidity by moderating both the upswings (when short sellers get in the market) and downswings (when short sellers cover their shorts). Might the enormous volatility we’re seeing be partially as a result of the removal of this importance source of stability?

    Another effect may be more secondary but perhaps more important. Many hedge funds and other players in the market use shorts as part of their trading strategy (plenty of “balanced” funds that use both short and long positions). Now that that leg of their strategy is disallowed, they’re not going to continue their strategy sans the shorting part (which would be a drastically different strategy). Instead, I expect that They’d simply take out all their money, park it in cash, and wait until they can implement their strategies in full again.

    Finally, the increased volatility we’re seeing from the short selling ban is probably serving to frighten the retail investor who’s pulling money out from their mutual funds rather than suffer daily heart attacks from following the market swings.

    In summary, then, I think that the ban on short selling has had 3 unintended consequences that have served to dry up 3 separate and large sources of liquidity in the market: the short sellers themselves, balanced hedge funds, and retail investors. That could partially explain the drops we’re seeing.

  17. Steve

    What I’ve heard is that the sell-off in the final hour was driven by forced hedge fund portfolio liquidations and cascading margin calls. There’s a lot of concern about how much more forced cash raising is coming tomorrow and whether a general panic might result.

  18. Steven

    Ignore the Dow – it is unrepresentative, and worse, a price weighted index and therefore a weak indicator.

    The S&P 500 is all important. This is still far closer to its historical average of 15 as a ratio between the index and annual dividends than to 7 which was seen in depression conditions. The market is finally starting to price in the effect of a bad recession / possible depression on corporate earnings. Considering that the all-time high was only one year ago – the market has done a reasonable job of pricing in this financial disaster.

    I’d add that even the historic ratio is vastly distorted. If we compare that average 15 to the last 20 years, we see that 15 has corresponded well to a bear market bottom. However, if we look at history prior to that, the valuation of P/E of 15 has better corresponded to a bull market top.

    Its almost as if something happened in the last 25 years that caused lots of people to invest in stocks, and there by created a massive equity asset bubble.

    Hmm… I wonder if that thing can be called a 401k? If we experience a full market correction, I wouldn’t be surprised to see the normal S&P valuations restore to an average moderately below 15.

    That is, over course, after profit estimates are adjusted to something vaguely resembling reality. So, to say it simply, even after this sell off stocks are still way overvalued.


    A nice chart for everyone.

    Steve

  19. Nick

    Admittedly I’m likely a totally uneducated neophyte in analyzing market behavior, but it seems to me like this is a simple, predictable, and perfectly rational reaction to statements about more government interaction. That is, today Treasury said they were considering partially nationalizing banks to force money-losing lending. This would predictably negatively impact those businesses, and other businesses in which the government interferes. This causes the market value for those businesses to decrease, as expected.

    Of course, as I said, probably a naive view, but it seems straightforward to me.

  20. doc holiday

    I’m furious that no action is in place to shut down derivatives and suspend contracts. Bernanke and Paulson are always eager to do things before the market in Japan opens — so why are these boobs doing nothing to help stop the spread of this crisis?

    Re: The short-term debt shrinkage was less extensive than the prior week. The “decline has been driven by money market funds, which have been worried that the crisis among financial institutions could result in significant losses in their holdings. They have been hoarding their cash for fear of redemptions. Money market funds are the largest buyers of commercial paper, purchasing about a third of outstanding paper.”

  21. Anonymous

    Little sound bites:

    need prayers and divine intervention … We’re dealing with an investment community of atheists … People are very, very scared … our basic sense of decency, our sense of being one people

    Rational people don’t pray. They think. Rational people aren’t scared. Nor are they peasants in a collectivist ‘one people.’

    There will be blood in the streets literally, not figuratively, before this is over. Rational people are forward-looking and plan for the future. Prayer will achieve nothing except to close your eyes.

  22. Richard Kline

    “Whoa daddy! Whoa daddy!” Them’s _big_ bites. We’re riding history’s tiger down, and if we fall off the moment eats us. Hang on with yer teeth, brothers and siters. Hope y’all were positioned for equities down 50% minimum. We’ll probably overshoot that, but may roll back to it.

    Look, the game in equities changed fifteen months ago but the players couldn’t believe it so their plays remained the same. If you won’t ride it down slow, you get to ride it down fast; what can I say? And Anon of 6:19 and DD, you folks are shaking hand with the reality of it here. Earnings over the next 12-24 months are going to look _nothing_ like existing projections. Their transformations will be asymmetrically distributed as you say, Anon, with financials way, way down (or zeroed out in many cases) while others less so. We _are_ Iceland, just 100 times bigger . . . The IMF isn’t gonna go our bail, gotta cop a plea and do the time, folks. Joe and Jane McCubicle with all of their retirement in a stock index fund have lost half of it, and in many cases more. THAT’S a socio-political gamechanger right there.

    Speaking of which: Hank Paulson, (Involuntary) Democratic Socialist. *HaHaHaHaHHaaaaaaaa* There IS justice in this world.

    And Melpol, sorry about that brother. Not about the money gone, but I’m not going to lean on you about all that. Losing it all hurts like a mofo, though. Make sure you keep getting exercise. Get a library card if you don’t have one, and use it: Public libraries are one of the few unmitigated Good Things of western civilization. And whistle while you work; a positive attitude is surprisingly infectious. Others have made and lost _and remade_ fortunes, or just changed their goals to ones more satisfying and less transitory. Sorry about the girlfriend, that might be your biggest loss, depending. For those who haven’t been there, you don’t get the human condition into emotional parallax until you’ve loved and lost (if such were the case). Ayyy me, ten thousand stories in the naked city.

    And the best patch of upside in all this, to me?: When the soldiers’ paychecks bounce, the boys 9and girls) come home. Be it soon. “Myy darlins’ be home sooonn, I couldn’t bear to wait an extra minute if . . . .”

  23. Anonymous

    I love the smell of margin calls in the morning!

    The 85% drop of the S&P that started in 1929 is not a worst case scenario, like we like to think it is.

    Stocks were yielding around 4% going into the crash. During the bottom, the yields hit as high as 14% (briefly). The point is that stock yields were very high compared to this era.

  24. Anonymous

    Steven,

    Nice chart. Thanks.

    I agree, the DOW is still significantly overvalued.

    Before the dust settles we’ll most likely see P/Es back in the 7 range and, if earnings hold up, that will translate to a DOW of between 5000 and 7000. I wouldn’t be surprised if we get there within just a few days.

    Then if a severe recession or depression sets in and earnings suffer, the DOW could fall even farther in the next few years.

    Ninety to ninety-five percent of the banking, insurance and finance industry in this country needs to disappear. Most of the people that currently work in this industry need to get real jobs, productive jobs. Eliminating this cancer from the country will be painful, but necessary if the country is to survive.

  25. Richard Kline

    –What are the charges?—

    “Speculation in marsh gas.”
    “Stiffing the bill.”
    “Larceny of the heart.”
    “Malfeasance in office.”
    “Intellectual prostitution.”
    “Transporting a minor investor across state lines for immoral purposes.”
    “Breach of fiduciary responsibility. Serially.”
    “Fraud with individuals of diminished capacity.”
    “Killing the money.”
    “Economic bigamy.”
    “Falsification of legal documents; the truth was omitted.”
    “Bank robbery—but Your Honor, the gun wasn’t loaded; in fact, I didn’t USE a gun. Honest.”
    “Gambling with entailed assets.”
    “Rape of my child’s future.”
    “Debt slavery of my neighbor.”
    “Mass murder of my economy.”
    “Self-referential self-dealing self-love.”
    “Failure to pay a parking ticket—wait, this _is_ Traffic Court, isn’t it? It said so over the door.”

    —Wrong place, son; that’s in the lavatory. The courtrooms are full trying minor drug offenders and the mentally ill so we pressed this venue into service for socioeconomic offenders. How do you plea?—

    “Insanity.”
    “Inanity.”
    “Greed.”
    “Stupidity.”
    “I come from a disadvantaged tax bracket—” —Next.—
    “Nolo contendere.”
    “My lawyer will answer that if you release the funds so I can pay him.”
    “I do not admit to these charges, but accept—” –Next.”
    “Think of my two little—” –Next.–
    “Avarice.”
    “Sociopathy.”
    “I’m a mook; isn’t that enough?”
    “I’m sure my accountant can explain these minor matters.”
    “It’s all relative.”
    “Loved _every_ minute.”
    “When the market bounces back, I’M BUYING A NEW JUDGE!”

    —By the judgment of history, here rendered summarily as a matter of expedience in the public interest, you are all sentenced to five year’s on work release, plus restitution, plus court costs. Now get outta here; you all make me SICK.—

  26. bg

    The market wants to bounce and fall at the same time. I see the argument between me and my wife before work this morning on closing the short positions.

    By I also see all my friends starting to run for the exits on their long position. Capitulation is ahead of us, and not behind us. Please look at your charts pre crash 1987 and 1929. 1. Huge volatility, 2. grinding daily declines and then 3. capitulation. We are still at #2 with #3 in any of the next few days.

    ouch.

  27. Tiger Woods

    If you’re searching for a trigger to the recent days decline in equities,look no further than the Credit Default Swap market.

    Notice how insurance was a major theme behind the biggest decliners on the NYSE today. The amount of payments that must cross the transom related to the GSE/Lehman/Wamu credit events is so huge. We will unequivocally have counterparty defaults with respect to the Lehman CDS settlement. Until the losers are identified, banks just aren’t going to lend to one another. It’s just that simple.

    GM and Ford are next on deck…

  28. Raf

    As far as strict valuations go the S+P is headed to the 2003 low of 780.

    But the reality of the situation still doesn’t seem to be hitting home:

    the deregulation of bank capital and leverage, started in the 80s, and given a turbo boost by the SEC and the investment banks in 2004 (its a certainty that there will be Enron style prosecutions here..even Paulson) has come to an end.

    The fractional reserve system, beloved by JPMorgan and his fellow bankers, creators of the Fed on a late night in 1913, has come to an end.

    To be honest, as i wrote last year, the banking system was nationalised when Northern Rock was taken over.

    It’s over. Period.

    Those in power can’t see this because they are part of the system but many have been waiting for this to happen for some time.

    It’s basic maths at the end of the day.

    Wealth is being destroyed at a rapid rate. It’s gone….pooooof.

    The quicker the whole system is nationalised the better. And not by the Fed either. Like it or not a new state monetary authority will need to be created to create money.

    Banks have had their day in the sun and, through greed and hubris, they have killed their golden goose.

    The longer the inevitable is delayed the further these markets will fall.

  29. Tortoise

    Some historical statistics, according to Jim Stack’s newsletter, for SSP500 from top to bottom of a bear market event:

    1929 -86%
    1937 -55%
    2000 -48%
    1973 -47%
    1938 -45%

    So the 2007 bear market is pretty bad by any historical standard.

    Yves, are you ready to buy into this market?

  30. Anonymous

    Striking market-to-market was a stroke of genius. Now it is market-to-whatever-you-want-it-to-be.

    That should really restore faith and trust between lending institutions.

    Hold to maturity is another winner. Guarantees a 30 year long drawn out affair.

  31. River

    Richard Kline, you are right on.

    Anyone out there that can tell me where ‘earnings going forward’ will come from? I would like to know. Since I could not see any earnings going forward that would justify current prices I got out last Spring.

    LEH unwind might blow some socks off. Tomorrow could easily be a wilder ride than today if contracts at LEH don’t net out and the news gets out to the market…

    What about treasuries? Will they continue to sell if the market stabilizes? Signs now are that they are selling well on days with big sell offs in equities, but need candy coating (40 basis pts) on stable days…Like we have had any stable days recently. I have a lot more questions than answers.

    Good luck to all, we are going to need it.

  32. Tortoise

    By the way, Anonymous 8:14 PM is right that the drops before the war were not as bad as they look now because, back then, they had CPI deflation and generous dividends.
    So, life could go one for the fortunate who were long-term investors or coupon clippers. Today, so many people depend on appreciating stocks for their retirement (and not only …) that it will be a major political issue if stocks do not recover soon.

  33. Anonymous

    mxq

    Why call it panic when the selling is logical and overdue considering government manipulation (PPT) to hold up the market and trade within a narrow range all the while government macro figures were also being manipulated to conceal inflation and unemployment, while an addled Greenspan, devotee of the radical Ayn Rand cult double-talked Congress into believing he was some kind of genious, etc., etc.

    Why, with the end of stratospheric leverage, should you expect historical average p/e ratios to prevail? And why, once this illegal manipulation has been revealed would anyone trust US markets?

    Its a new world -and the stock market is a reflection of that. The prosperity built since the end of WWII has been thoroughly pillaged and with payback time here and the US consumer economy on the way to being demolished, the very concept of growth stocks should enter a new phase of lowered expectations, therefore, a lower p/e range.

  34. Anonymous

    kt

    It is the responsibility of the SEC to protect shareholders by requiring transparency.

    It has never been the responsibility of any government agency to hold up share prices or the entire stock market.

    It is (or was) illegal to manipulate stocks, or the entire market (inconceivable before computerized trading). The PPT (Paulson’s plumbers’ group) authority was for ‘emergencies’ I believe, but it appears it was being used routinely.

    The idea that shareholders are entitled’ to anything other than fair dealing in a speculative, unpredictable, volatile vehicle such as corporate equities is mistaken at best, made worse when government acts as pusher to lead an entire population into it when the purpose of having a nest egg is for security and peace-of-mind in old age, the opposite of the stock market

    The stock market is ALWAYS and never not speculative and unpredictable.

  35. Anonymous

    Ear plugs. We all need earplugs to drown out the incessant humming of government printing presses. Us poor dumb bumpkins out here get so distracted by the noise, we can’t think rationally.

    Now, what’s the inflationary-adjusted value of the dow (DOW) at today’s closing?

    —- Avg Joe

  36. Richard Kline

    So bg at 8:28, that’s a good read, yeah. Capitulation is still in front of us. Coming in view, but to the fore. Volatility spike tells shapes the space for it.

    And regarding what trigger . . . I _seriously_ doubt that there is ANY trigger. Mass social phenomena have their own dynamics which are neither mechanistic nor directly causal. There’s a lot of theory and some evidence behind that rather terse and uniformative sentence, and I’m sorry I can’t explain here in any concise way. We are inside a social moment of decoherence, that’s all; there isn’t a ‘rational’ explanation because there is no one mind at work making a reasoned choice. The madness of crowds and short-term cyclical soft spots compound each other in an environment of bad numbers and cascading defaults. In such circumstances, the numbers or the defaults alone are contributory causes but not predominant causes. Ad hoc ‘explanations’ of mass social movements are a waste of time.

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