Ugly Day Ahead?
If the Asian markets are any indication, we could be in for an ugly session today. The Hang Seng put in a 52-week low overnight, dropping another 900 points before recovering to finish down 455. The index is down almost 3,000 (almost 12%) since last Monday's open.
The dollar is off pretty sharply against the Euro so far today, thanks to the combination of the S&P downgrade and the ECB stepping in to buy more European government debt to shore up Spain and Italy.
The European markets are in negative territory so far today, but they're not off dramatically. The FTSE and the CAC are both down about 1%. If this is any indication of how the US markets will open in four hours, we could be in for a pretty ugly day.
The S&P downgrade is unprecedented, and we'll be covering it in depth in this week's NSFW (which will be out tomorrow). One thing I find really curious about it is how some people knew it was happening ahead of time.
Obviously, the White House knew about it because S&P made a (dis)courtesy call before releasing the news. But the rumors were all over Twitter on Friday that the downgrade was coming after the close, and I heard they originated with BNP Paribas. So who do the guys at BNP know? S&P? Someone with loose lips in the White House? It's just not where I'd expect a rumor like that (especially one that ended up being true) to originate.
In any case, hopefully you're positioned for a move to the downside, because that's how it's looking right now. Keep your heads low and powder dry, guys. Could be a rough day today.
How on earth S&P, Moodys etc still hold any credibility ia beyond me - the fact that there idiotic analysis is capable of moving markets is incredible (for the record I think AA+ is probably generous!).
As to this morning, lot's of red already, not as bad as Thursday yet though.
I'm really bored of this 'why does anyone trust what the agencies say' chat. Did you chime in, pointing out the poor credit quality of the underlying loans, the correlation of the asset, the weakness of assumed house price trend when people were pedalling CDOs of sub prime? If not, keep quiet.
My observation was that when a service provider so clearly fails in their fiduciary duty I believe their credibility should hold little credence to the wider market. Am I to understand that in your opinion we should forgive and forget?
Although surprised that they actually went through with the downgrade, I think its an embodiment of the situation right now. Nothing has fundamentally changed since 2008: house prices are still too high, Fannie and Freddie still exist, consumers are still overlevered buying shit they don't need. We tried fixing the economy the same way we tried to fix it every other time: the government spends a bunch of money on random shit (most of it borrowed) and the Fed gets interest rates lower and lower. So what has this massive 'stimulus' spending binge and two rounds of QE yielded us? Bumpkus.
So yes its a credit downgrade, but I see it as more of a credibility downgrade. The US government's method of fixing things is more-or-less having bullshit called on it. I still think of the US as having AAA credit - that we will always make all our debt payments, for at least for the next 15 years. But S&P is saying 'get your shit together now before you start down a path of becoming the next Greece'
Also I think its ironic that after however many years of bashing rating agencies' ratings as shitty and wrong and not to be trusted, somehow suddenly now what S&P has to say has a weighty meaning.
So, who's shorting the S&P 500and the DJIA ? Im in for a short :) 100 point drop for S&P 500 and 350 for DJIA today ?
Those numbers aren't correlated correctly, 100pts for the S&P would be an extreme drop. Several percentages more than the dow only dropping 350.
But agree with the short. Big fan of SPX puts right now.
US stocks to open sharply lower:
http://www.cnbc.com/id/44056259
Tell me something, Eddie--does it make you wish, just a little bit, that you were still in the game?
In some ways. When I was a stockbroker in the early 90's, my sector of the market was in a pretty pervasive bear cycle even though the broader market was doing pretty well. It really got to be a drag after a while, playing poison phone and other shit because nothing was working out. It's kinda how I imagine it must feel to work at a long-only mutual fund today (which would suck ass on a day like today).
When I was slinging futures in the late 90's, I was much better positioned to take advantage of moves like this, so yeah, that was more fun. It still wasn't what I'd call a good time, but at least I was a lot more nimble in my trading and was able to capitalize better on macro moves.
I don't know that you'd ever hear me admit that I "miss it", however. The work was too much of a grind, even on its best day.
Made a little money this morning on gold. Anyone else see Gold hitting $1750 by week's end?
As far as BNP knowing: S&P communicated with a number of European points of contact over the last few weeks and it's very likely that someone over there went public with this. Their motive? Europe plays dirty and this helps take the heat off of them, so that's my guess.
I'm glad I'm not a trader today: any time I walk past the entire spectrum of news channels reporters on the way to work it usually gets ugly.
We actually cover this in this week's NSFW (going up tomorrow). I'll tell you the same thing I told Midas when he made the same argument: regardless of motivation, you can't make the case that the US is the same country credit-wise that it was 5 years ago, 10 years ago, or 50 years ago. The downgrade just reflects the reality on the ground.
BTW, they just cut Fannie Mae and Freddie Mac from AAA to AA+ as well.
Although this is probably necessary and will be good for the country in the long term, I'm not a humanitarian or world leader: I'm some guy that's getting dicked by this and there's nothing I can do about it. So honesly, I'm pissed. This is one of those times where I seriously reconsider my law abiding ways and ask myself why I should be fair when life isn't.
Ugly is right - it's only 10:24am and dow is already down 289points
as for s&p... "kick 'em when they're down" is exactly what they did
Yeah, we're -350 now.
Houston, we have a problem.
Eddie, when is they buying opportunity? I am getting real close to turning into a contrarian investor in this market.
DOW 7,500
So are you officially called that the bottom?
Until you think we hit that low, VXX and FAZ are monsters...
you think it'll hit that low? i was betting for 9,000 as an absolutely posibility
Time to sell large-cap equities? Every day for the past 2 weeks I kick myself for not exiting...
No...look at the relationship between bond yields and stock P/E's. Something's gotta give...
I think being a stock picker and being patient is the way to go here.
@alex We shall see, buddy. We shall see.
@WonderWoman I do think it will get there. Well, let me rephrase that. It absolutely should get there, and I'm betting that it will. This is nothing new, however. I've been saying this on the site since early 2010 and maybe sooner.
@Conan You are correct, they could be monsters here. Just be prepared for some serious whipsaw action because it's gonna be a bumpy ride.
I'm long VIX, only down 1% today.
I posted a few times for people to buy the VIX a few weeks ago, and if they didn't want net long, to buy the August and short the Jan (back when the spread was 5 to the Jan side, now it's 7 to the Aug side). Hope you monkeys listened...
Bovespa down another -5%, -28% YTD - boom...
http://www.cnbc.com/id/44054257
muhahaha that is all I will say
Meant to post this a little earlier. My girl Brenna with a little pre-market color that is still useful at mid-day:
obama is done
-420 Now..11,000 is about to be taken out.
And boom goes the dynamite..
Oh...my...god.
UFO: In my opinion, considering the sovereign debt of the U.S., the ratings agencies have been like thy were with MBS. Ignoring the problem for too long. It's just that S&P decided to man up, bite the bullet, and do right by their clients. While this is not all Obama's fault, he has added like $4tn in 2 years when bush did it in 6. That includes dot com. Obama didn't create this economy, but NO COUNTRY should be able to run this kind of deficit and stil be considered the safest investment in the wold.
They were really manning up with those CDO's back in 2006, weren't they? Sure, it's the right choice here, but since they could have stopped this entire mess 5 years ago, let's just say I'm not their biggest fan.
Any other bottom predictions? Alex?
Eddie, I did not open that small account yet. You might be getting that booze money after all, BAC looks even uglier today.
Friends don't let friends go long BAC.
Awesome.
When did I predict a bottom? The fact that I only lost like 2% today should tell you I'm not very bullish...
-635.
Absolutely brutal. Way worse than I thought it was going to be.
Do we test 10,000 this week? Tomorrow?
Total damage: Down 634. Holy cow, what a ride.
BAC - soon to join bear sterns?
I don't think so honestly. BAC has a lot of good points among the bad. The problems that are coming up will drive the stock down (lawsuits, mismanagement, etc.). But they aren't left holding the bag with billions in MBS or other securities whose value is trending towards zero.
What happens when BAC drops below $5 and is no longer marginable? That could get ugly quick. Plus, the word is out that they're looking to raise capital.
Patrick and I had a conversation about this earlier, and I told him I was reluctant to compare BAC to Bear. That was for two reasons. BAC has access to more outs than Bear did at the time, so that's to the plus side of the equation. To the minus side however, BAC's situation right now isn't nearly as similar to Bear's as it is to Lehman's.
Before you go off on a tangent, I'm not saying BAC is going under or will be allowed to go bankrupt. Not at all. But the liquidity squeeze they are soon to be facing (if the trend continues) is much closer to Lehman's situation than Bear's. The only difference is that someone will step in to buy them, a la Bear.
Munis are taking a hit next. Wouldn't be surprised if it happened tonight. Any other thoughts on this?
Munis are taking a hit next. Wouldn't be surprised if it happened tonight. Any other thoughts on this?
The rape train has no brakes.
So if youre too fearful of playing in the BAC sandbox with their preferreds yielding 11-12 percent there are a lot of other REIT and other preferreds that have been smacked down and are prolly yielding more like 8.5-10 percent that might not be in the direct line of fire. yet ;x
In other markets, IG CDX widened considerably, surpassing its 52wk high. VIX was up 50% on the day.
You didn't. I was just asking everyone else if they had one (looks like a poll was created), but was specifically interested in hearing if you had one yourself.
Oh sorry, I misunderstood. I think the market could get to 1K on the S&P over the next few months, but not any lower than that because the Fed will be printing money again by the time it gets that low. There are already some screaming buys out there. Who cares where the market goes, do pairs trading. I don't really care how low the market goes because I know the fundamentals of what I own and have a long holding period.
In my opinion, this market expects a clear solution from the U.S. government. Debt ceiling alone is not the best result.
As long as there are not any better arrangements, I can say: Ugly Day Ahead...
With the S&P at 11.5x earnings, we're not quite down to November 2008 valuations quite yet, but we're getting close. Meanwhile, there are some really cheap utilities out there yielding 5-8% that are strongly capitalized. These dividends will probably keep getting paid at some level as long as we have civilization. Of course, folks who bought at 7-8% dividend yields in 2008 were stunned when they saw them widen out to 10% then 12%, then, in some cases, 14%.
If you believe we are going to shut down the economy here and people will stop using electricity and heating their homes, fine. But don't buy gold. In a true crisis, paper gold is often worthless and physical gold just sticks a target on your back. This is especially true in France where it seems like they get out the Guillotine every 30-40 years and line up everyone who looks like they're not dirt poor.
For those of us who aren't giving our life savings to the Methodist Church and praying that Jesus returns quickly, the best response is not to sell and maybe even think about buying if you're in a good financial situation (make sure you have at least six months of living expenses saved- ideally eight). And hopefully this is a good reminder to the crowd of young analysts of why IlliniProgrammer is so thrifty and so conservative with money.
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