Financial topics

[umoguy]

Looks like this bear market rally is over, get ready for the next leg down. Time to average into some short positions. Don't use the short ETFs, you'll lose money to time volatility decay. If you want to use an ETF, short the long ones. You can do this, I have. I think we will be breaking to new lows inside of a month. It is going to get scary out there. Take the Great Depression and mix in instant access to information and electronic trading and things are going to happen faster than they did in the past. Hold on to your hats! -Umoguy

[Witchiepoo]

My cousin wanted to buy $5000 worth of Citigroup stock last week. I told him he was nuts. Now he's pissed cuz he thinks he missed out on a making a big profit. Probably lots more people out there who will have similar schemes in mind, and forget all about what happens when the banks go under. Greed is still king in this market, many lessons still to be learned.

[freddyv]

Looks like this bear market rally is over, get ready for the next leg down. Time to average into some short positions. Don't use the short ETFs, you'll lose money to time volatility decay. If you want to use an ETF, short the long ones. You can do this, I have. I think we will be breaking to new lows inside of a month. It is going to get scary out there. Take the Great Depression and mix in instant access to information and electronic trading and things are going to happen faster than they did in the past. Hold on to your hats! -Umoguy

I have been using SDS for a year and a half and there is little of the volatility issue with this one. I wouldn't suggest owning it on a buy-and-hold basis as it will deteriorate a bit over time but it often outperforms in the short run and does not have the same risk as true shorting in that you can only lose your initial investment. Another thing is that you can use SDS in a retirement account or other account that does not allow shorting.

There have been plenty of articles written and data collected on this subject and it's easy to pull up some charts and see for yourself so there's no reason to take my word or anyone elses.

--Fred

[steveA]

Re: Rally Over

Umoguy:
You said, "Don't use the short ETFs, you'll lose money to time volatility decay.."

Not sure I agree with you here. The Rydex RYTPX fund, which is an S&P500 inverse 2X fund, gained about 3X during the 50% fall from Oct 2007, a period which had quite a bit of volatility. If every 50% fall in the SP500 generates a 3X gain and we’re still going from, say 800 to 200, that’s two 50% falls for a gain of 9X.

[StilesBC]

SteveA - No. That's wrong. The short funds are rebalanced daily. The total size of the long-term move does not mean you'll get that with the short fund.

Mannfm11 - "But the real point is that GE is AA+ and the question is, why are they AA+?"

Answer:
Majority shareholder of GE is Berkshire Hathaway
Majority shareholder of Moody's is Berkshire Hathaway

It's all one clusterf*&% of corruption.

[MisterB]

I think that we are still in the denial stage.

The analogy that I use for the stock market during these last two years is to a life-threatening illness. Will the market and the economy pull out of this crisis or will our economic system essentially die.

We go through ups and downs about how we feel and the “doctor” announces new treatment plans which gives us new hope but all along our actual condition (fundamentals) get worse and worse. This last rally has been unusual compared to prior rallies. The prior rallies were generated by promised actions by the Fed or the Treasury – including the many interest rate cuts. This rally was essentially self-generated by market opinion/pundits that all of a sudden decided that the big banks will be okay.

Witchipoo’s comment about his cousin and Citibank stock is revealing in that the greed is still there. The belief that the market always comes back is there too.

I believe that we are still in for a true disaster and this is just another false rally. BUT, of course, I may be wrong! The market is up today as I write this. The patient (stock market/economy) may be okay after all.

[MarshAviator]

I believe that we are still in for a true disaster and this is just another false rally. BUT, of course, I may be wrong! The market is up today as I write this. The patient (stock market/economy) may be okay after all.

The Patient is about to die. In medical circles it is a common observance that people often have
a little rally's just before they die.

Once all this jawboning subsides (mainstream media, political officials) and the market continues it's downward
trend, and the hope dies that a "True Bottom" has been found, things will avalanche.

Note today everyone is giddy over a better than expected housing starts.
Now starts are down, just not as bad as expected, but the media say's "Housing Starts Surge"

Lets see the expected was 500,000 (revised to 447,000) and they got something like 583,000.
After factoring out 28 days of the month of February and other compensating errors, it's quite likely
that the next report will show a decline from expected.
Anyway it's hardly a surge presently as compared to the millions we used to get.
And it is certainly not geographically where the problems are (California, Florida and Nevada).

It's all just wishful thinking and retail sales are being bumped by tax refunds which now are received earlier and earlier.
The next 30 to 60 days should do it, but I don't have anything in the way of hard evidence to present, just
a perception.

We still haven't had that permanent attitude change from Greed to Fear yet.

Sooner or later pension funds are going to have to sell stocks to meet obligations and dividends are falling fast.
The whole P/E ratio as a decision tool has nothing to do with the fact that some stock holders need
a return presently for cash flow reasons and will sell irrespective of any magic valuation.

Personally while I expect any collapse to be a living hell, the stress of watching a slow protracted decline is just as bad.

[steveA]

by StilesBC » Tue Mar 17, 2009 3:58 am
SteveA - No. That's wrong. The short funds are rebalanced daily. The total size of the long-term move does not mean you'll get that with the short fund.

I understand that: the total move of the underlying index over multiple sessions does not tell you the total move of the short fund. The short fund daily moves are minus twice the first derivative of the index path, so the final value of the short fund depends on the path the index takes. Still, the 50% fall in SP500 from Oct 2007 did, in fact, move RYTPX from 26 to 77. All I’m saying is that if we had another 50% fall in SP500 with a similar amount of meandering, RYTPX would go up another 3X.

[MarshAviator]

The report lays bare the fears investors currently have about the creditworthiness of Britain's biggest banks. It reveals that a key measure of interbank health - the spread between the London Interbank Offered Rate (Libor) and expected interest rate levels had "started to widen again" while "contacts reported some increased reluctance to lend to banks beyond very short maturities."

The main worry haunting investors is the threat that banks could be nationalised and that financial institutions are harbouring "ongoing balance sheet constraints".

However, most worryingly, it warns that the credit default swap spread rates on large banks - a key measure of concerns about their possibly insolvency - picked up to their highest level since just before the collapse of Lehman.

The Bulletin says: "With a number of banks reporting large credit losses and write-downs for 2008 Q4, perceptions about bank counterparty risk appeared to pick up again. Consistent with that, premia on UK banks' credit default swaps rose, and approached levels reached in October 2008 when fears about system-wide failure were intense."

http://www.telegraph.co.uk/finance/fina ... pitch.html

Yet more over the horizon views of what is comming.

It always seems incredulous to me that the market is so gullible.
Joy that a "True Bottom" has been reached. Hogwash.

Either that or it's the guy from "Shamwom", we can only do this for the next few minutes.

[aedens]

Personally while I expect any collapse to be a living hell, the stress of watching a slow protracted decline is just as bad.

CBO’s baseline projects 2009 revenues of 16.5 percent of GDP and expenditures of 24.9
percent of GDP. Incorporating the stimulus package, these percentages would be 16.1 percent and 25.7 percent, respectively. This represents the highest expenditure share of GDP since 1945, and a revenue share that has been lower only once since 1950. The gap between revenues and expenditures, the deficit, will be the highest as a share of GDP since the end of World War II. Debt held by the public will rise to 50.5 percent of GDP in 2009, the highest since 1956. It is worth noting that the projected 2009 deficit and debt would be even higher were it not for the extremely low interest rates on government debt that currently prevail. Whereas debt service accounted for $249 billion – 1.8 percent of GDP – in fiscal year 2008, it is projected to drop to $195 billion – 1.4 percent – in 2009. Some see these low interest rates as a silver lining to the fiscal picture’s otherwise very dark cloud, arguing that meeting our fiscal obligations will be much easier, and the rowding out effects of deficits will be smaller, as long as interest rates remain low.

CBO also treats the government’s bailout of Fannie Mae and Freddie Mac on a present
value basis, estimating that the cost to the government of guaranteeing these liabilities will contribute $218 billion to the deficit in fiscal year 2009. However, as this guarantee is not associated with any new official government borrowing, there is no corresponding increase projected for the national debt in fiscal year 2009. Thus, the treatment of Fannie Mae and Freddie Mac adds more to the deficit than to the accumulation of federal debt.
Taking these and other adjustments into account, CBO projects that the increase in
federal debt will exceed the deficit in fiscal year 2009 and fall short of the deficit in each
remaining year of the budget period. But which set of numbers is more relevant is difficult to say, given the somewhat arbitrary nature of the conventions. It is unclear, for example, the extent to which the guarantees extended to Fannie Mae and Freddie Mac should be treated as having a new cost, given that such guarantees were already implicit in the pricing of the securities issued by these agencies. However, if these agencies are really now part of the federal government, then it would make economic sense to include their very considerable liabilities – at the end of 2007, the GSEs had combined outstanding debt of $1.5 trillion and had provided mortgage-backed securities totaling $3.5 trillion – as part of the national debt. However, for a variety of definitional reasons, these liabilities are not included in the official public debt figures.

http://www.brookings.edu/papers/2009/~/ ... e_gale.pdf

Well, since Uncle Sam is the Broker of last resort again, and since the President has the Army to find them Patriots who created no value CDS who looted capital, meanwhile the taxpayer who is being exterminated as we speak, what do we the people do? My children are allowed no debt as such. I must consider 50 percent moving of capital to survive avarice in a historical context. Pages have conveyed where we are going since who has the stick anymore to discipline.
While one can argue that a different recovery rate would be appropriate, three points are worth making. First, the trend in the data clearly shows a visible uptick in the likelihood of default on U.S. Treasury bonds, a notion that was virtually unthinkable in the past. Second, if one assumes a higher recovery rate than 40 percent in the event of default, then the implied default rate is higher, not lower, than reported in the table. Third, the figures relate to default in the next five years, not to long-term liabilities associated with Medicare and Medicaid. While we find these figures hard to reconcile with our
own views of the current creditworthiness of the U.S., especially over the next five years, it is also worth pointing out that the data show similar or even higher credit default prices and implied default probabilities for other countries. In any case, it may well be that long-term fiscal problems will beset us much sooner than one might have expected in the past.
How can so large a fiscal gap be closed? Even under the most optimistic estimates just
provided, for the CBO baseline without the stimulus package, closing the gap would translate into a permanent reduction in non-interest spending of 22.8 percent or a permanent increase in revenues of 28.9 percent, both calculated relative to their projected trajectories. Narrower means of closing the gap would be even more Draconian – a 51.6 percent increase in income taxes, for example; and eliminating nearly all discretionary spending. Because the fiscal gap measures the size of the required immediate fiscal adjustment, the required adjustment also rises if action is delayed, and would be substantially larger when computed relative to the adjusted baseline.

I fired my bank in 1986 no explanations needed. This was from a like minded person across the pond.

Perhaps you, like I, find it richly ironic that members of the public still use your investment subsidiaries as a means to protect and grow their private wealth. I think you should promote the activities of these subsidiaries more widely. My idea for an advertising slogan: “When it comes to moral hazard, we’re Number One. We helped trigger the biggest financial and economic collapse in history through our imprudent lending and investment. Between 18 million and 30 million jobs throughout the world are almost certain to be lost. And more than 50 million jobs throughout the world are now in jeopardy. As a result of our investment expertise, we’ve lost billions, and those of us that still exist and aren’t owned by the taxpayer are technically insolvent. Now, how can we help you with your finances? In any event, this letter is also to let you know that now that you and your members, in collusion with your governmental paymasters, are offering negative real returns to cash depositors, I am withdrawing what remains of my funds since I can find altogether better opportunities for the preservation and growth of my capital within high quality pockets of the equity and corporate bond markets, and I can get sufficient “insurance” for my increasingly worthless fiat currency in the form of gold. I appreciate that the withdrawal of my funds may send you spiraling into nationalization. Sorry about that. In closing I will work for the common good in my Corporate Job hopefully long enough so you prove me wrong.