Dow Falls Below 10,000

[Mr Bean]

Warren Buffet According to NPR put the low point at 6200 as the most likely stop point with how the markets are going now.
No idea what 2nd Richest man in the world is getting 6200 from, but the fact he made that prediction is interesting.

[aerius]

Osaka futures exchange halted, and the Nikkei doesn't look to be too far behind. It'll probably trip the circuit breakers any minute now.

[Eframepilot]

So what happens in the NYSE tomorrow? Will the Dow crash 2000 points and stop all trading? There's going to be bad news on Lehman's toxic assets in the afternoon.

[The Duchess of Zeon]

So what happens in the NYSE tomorrow? Will the Dow crash 2000 points and stop all trading? There's going to be bad news on Lehman's toxic assets in the afternoon.

I'm inclined to think that Buffet's right and we're going to hit 6200, but not until Monday.

[The Kernel]

Alright time to start taking bets, 8000? 7000? 6000? When will the crash halt?

4000-5000, unless something is done real fast to fix the fucking mess.

There's nothing to fix aside from restoring the credit markets, and it's pretty clear everything is being done there that can be done aside from perhaps nationalizing the banks. This is being driven by pure hysteria at this point, and it's hard to say how much of it is justified without getting a peek at industry wide Q3 numbers.

An interesting note: I noticed that the market cap of GM today is down to $2.4 billion. Let that sink it for a moment...this used to be one of the biggest companies in the world and now they aren't worth a damn. How the mighty have fallen...

Anyway, although I'm not touching my 401k, it's pretty clear we're in for one hell of a ride over at least the next year. I maintain that it isn't going to be clear just how bad this is until we see Q4 numbers are what a LOT of companies depend on.

[phongn]

There's nothing to fix aside from restoring the credit markets, and it's pretty clear everything is being done there that can be done aside from perhaps nationalizing the banks. This is being driven by pure hysteria at this point, and it's hard to say how much of it is justified without getting a peek at industry wide Q3 numbers.

Treasury is considering partial nationalization instead of just buying assets, as it happens.

[The Kernel]

There's nothing to fix aside from restoring the credit markets, and it's pretty clear everything is being done there that can be done aside from perhaps nationalizing the banks. This is being driven by pure hysteria at this point, and it's hard to say how much of it is justified without getting a peek at industry wide Q3 numbers.

Treasury is considering partial nationalization instead of just buying assets, as it happens.

Oh yes, and I'm not sure at all what to think of this. We have entered truly uncharted territory at this point...

And this really underscores the problem with the field of economics. It's really good at telling us why something happened the way it did or why something is happening, but it's nearly impossible to use it to tell us what WILL happen. I have studied the markets as much as I can in my life but I have no clue as to what the proper solution to this problem is, and judging by all the hysteria I'm not alone.

[aerius]

There's nothing to fix aside from restoring the credit markets, and it's pretty clear everything is being done there that can be done aside from perhaps nationalizing the banks. This is being driven by pure hysteria at this point, and it's hard to say how much of it is justified without getting a peek at industry wide Q3 numbers.

http://www.federalreserve.gov/releases/h3/Current/

Look at the non-borrowed reserves and the monetary base columns for the current week and the change from the previous period. Non-borrowed reserves more than doubled going the wrong way and the monetary base went up by ~8% in 2 weeks. It's horrifying.

Anyway, although I'm not touching my 401k, it's pretty clear we're in for one hell of a ride over at least the next year. I maintain that it isn't going to be clear just how bad this is until we see Q4 numbers are what a LOT of companies depend on.

Well, I'll say this. You're a lot more optimistic than I am.
My wife & I are prepared for a total meltdown event. I hope to god me & her wrong.

[phongn]

And this really underscores the problem with the field of economics. It's really good at telling us why something happened the way it did or why something is happening, but it's nearly impossible to use it to tell us what WILL happen. I have studied the markets as much as I can in my life but I have no clue as to what the proper solution to this problem is, and judging by all the hysteria I'm not alone.

Indeed. Bernanke's academic career was pretty much on the study of the Great Depression - and he's still floundering around here!

[J]

Over on another forum there's an inside joke of sorts which states that Bernanke studied the Great Depression so he'd know how to cause one.

It would be funny if so many people weren't suffering from his actions.

[The Kernel]

Well, I'll say this. You're a lot more optimistic than I am.
My wife & I are prepared for a total meltdown event. I hope to god me & her wrong.

Well honestly, I can afford to be optimistic. I've got a good job, a nest egg that's much larger than anyone my age has any right to have, and my parents are extremely well off and in no danger of financial collapse if it came down to needing support from them. My wife is also in a similar situation. I think of this economic downturn as a potential opportunity more than anything as there are a lot of investors that will pick over the pieces of undervalued companies and make a killing off of it.

However, I do realize that most people aren't nearly as fortunate as me.

[Fingolfin_Noldor]

How does anyone calculate the minima or rather, equilibrium position for the market? Seems to me that the market is going to keep falling and falling until it figures when it will... maybe stop falling.

[phongn]

How does anyone calculate the minima or rather, equilibrium position for the market? Seems to me that the market is going to keep falling and falling until it figures when it will... maybe stop falling.

If anyone could predict it, they'd be raking in untold sums of money.

[J]

Nouriel Roubini's take

The world is at severe risk of a global systemic financial meltdown and a severe global depression

The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.

There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficit and/or large fiscal deficits and with large short term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the US and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the US and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.

And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.

At this point the risk of an imminent stock market crack – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

This disconnect between more and more aggressive policy actions and easings and greater and greater strains in financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March the rally in equity, money and credit markets lasted eight weeks; when in July the US Treasury announced legislation to bail out the mortgage giants Fannie and Freddie the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the US government the rally lasted one day and by the next day the panic has moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion the market did not even rally for a day and instead fell 5%. Next when the $700 billion US rescue package was passed by the US Senate and House markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next as authorities in the US and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.) the stock markets and the credit markets and the money markets fell further and further and at an accelerated rates day after day all week including another 7% fall in U.S. equities today.

When in markets that are clearly way oversold even the most radical policy actions don’t provide rallies or relief to market participants you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.

At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:

- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

- massive and unlimited provision of liquidity to solvent financial institutions;

- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

- a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;

- a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;

- an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.

At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression. At this stage central banks that are usually supposed to be the "lenders of last resort" need to become the "lenders of first and only resort" as, under conditions of panic and total loss of confidence, no one in the private sector is lending to anyone else since counterparty risk is extreme. And fiscal authorities that usually are spenders and insurers of last resort need to temporarily become the spenders and insurers of first resort. The fiscal costs of these actions will be large but the economic and fiscal costs of inaction would be of a much larger and severe magnitude. Thus, the time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.

[Kodiak]

Alright time to start taking bets, 8000? 7000? 6000? When will the crash halt?

4000-5000, unless something is done real fast to fix the fucking mess.

Perhaps we should start a betting pool? I suggest we all pick a block of 50 points and cover our bets with the only true commodity left: Campbell's soup. Seriously though, is there ANYONE who understands what happens when?:

8000 - raise interest rates again
7000 - Lay off government employees
6000 - Run on banks
5000 - Hoarding of necessities begins
.
.
.
1000 - Bread lines start to form

I am seriously worried, but I'm glad we have 2 months worth of food storage saved up. One thing I think everyone can respect about the Mormons: we have excellent emergency preparedness.

[CaptainChewbacca]

I may be moving in with you guys, FYI.

[Broomstick]

I am seriously worried, but I'm glad we have 2 months worth of food storage saved up. One thing I think everyone can respect about the Mormons: we have excellent emergency preparedness.

I thought you guys were supposed to have a year's worth of food on hand - did that change recently, or have you had to break into your stores already?

[Count Chocula]

Broomstick, the Mormon creed does require a years' worth of food on hand - but, Mormons have the same economic issues we all do, and urban populations in many cases just don't have the storage capacity for 1 year's worth of food (plus the fuel to prepare it, if you want to be self-sufficient). Kodiak's waaayyy ahead of the curve with two months' worth of food. I've got maybe a month's worth, if I stretch it. My neighbors have maybe two weeks' worth of food (I'm not Mormon, but have Mormon acquaintances).

BTW, Asian stocks flushed last night (8-10% IIRC), Iceland's banking system is melting faster than their icecaps, European stocks are still circling the toilet (down 8% - 9% with hours to go), and Dow futures are predicting a 200 point loss on the open.

The chorus to Tom Petty's song "Free Fallin" keeps running through my head.

[CaptainChewbacca]

Iceland's economy collapsed last night, their currency dropped to almost zero.

[Crossroads Inc.]

Iceland's economy collapsed last night, their currency dropped to almost zero.

Well that just sucks...

Seriously Ive looked to Iceland for a while as an example of a Small nation that had been able to be quite economically successful.

[Count Chocula]

And the pain continues. Dow down 5.45%. Russell 2000's down 3.4%.

89% declining on the NYSE.

Damn.

[Tribun]

Wall street again looks bleak. At the moment they've already lost over 400 points.
Again a picture that visulizes how bad the situation is (although it is more symbolical and photoshop):

[Kodiak]

I thought you guys were supposed to have a year's worth of food on hand - did that change recently, or have you had to break into your stores already?

You're correct, we're supposed to have 1 years worth on hand. However, since buying a year's supply all at once is difficult we've been building up slowly. I was about to buy our third month's supply when this all happened.

[cosmicalstorm]

I seriously hope you people are wrong about the breadline predictions, but just in case I've bought about 60 kilos of pasta, rice, 3 gallons of honey and about 300 cans with assorted vacuumpacked foods in the past week.

[Admiral Valdemar]

http://www.youtube.com/watch?v=SKsiZdOD5u4

Even a broken clock is right twice a day.