Dow Falls Below 10,000

[apocolypse]

I took my 401k and IRA out of stocks and into straight money market accounts about six months ago. As a result, my retirement savings are worth ~3% more today than they were six months ago, while lots of people today are panicking because theirs are worth 30%-40% less.

I went aggressive with my 401A (and I think my 457 as well) and haven't seen my statement in a while. It was looking pretty rough even before events as of late, I can only imagine what it's like now. At least I'm at the age that I can weather this storm better than others.

As much as I hate to admit it, I paid attention to what Admiral Valdemar (and some of the his more wild-eyed, END OF THE WORLD compatriots) were saying back then, did my own research, and came to the (sad) conclusion that they were probably right (at least about the economic problems - not the end of the world). I still don't think Soviet Style breadlines are coming, and I'm not planning on stockpiling years worth of food, but if you're currently working in a job that could be done cheaper overseas and have no marketable skills, or think you can live on credit forever without paying the piper, or are a dumbass who bought a $500k home on a $50k income, then this market is really going to fuck you over.

I would say I'm of similar mind. I don't see huge breadlines or anything of the nature, but I can easily see a lot of people having a more difficult time of it. I am fortunate in that the job I have (as much as it sucks, lol) isn't going anywhere, and I can afford my rent even with the upcoming increase. While everyone is affected to some degree by this, I think (or at least hope) that I'll be able to ride it out okay.

[Broomstick]

This sort of situation is exactly why the Other Half and I got rid of our debt about 10 years back. You're always better off with low or no debt, owning assets free and clear, and having several months living money in cash (or equivalent). We've had a somewhat rough ride this year, but at least I know I can pay my rent and buy food. The only things I've had to give are luxuries (and not even all of those), not necessities.

A lot of people screwed up in thinking the boom would never go bust. Sooner or later, the boom always goes bust. You have to make sure you can weather a storm like that.

[TithonusSyndrome]

With respect to Iceland, I wouldn't advise anyone get too bent out of shape over what's happened to them. Yes, obviously this was a result of the Wall Street crisis, but they had their own home-grown credit problem and this was more than enough to push them over the edge. Their case isn't really reflective of anywhere else.

[CaptainChewbacca]

Alright, so trading is closed. DOW was up 936.42 today after the bell. Is it a solid start to recovery, or the final bounce before it drops through the floor?

I officially have no clue what's going on.

[Count Chocula]

Unreal. My money's on a pump and dump, maybe by the end of the week.

[Big Phil]

Alright, so trading is closed. DOW was up 936.42 today after the bell. Is it a solid start to recovery, or the final bounce before it drops through the floor?

I officially have no clue what's going on.

Tomorrow it'll drop again as people sell to realize their gains from today. It's too volatile right now to predict anything other than volatility for a few years, and the rest of the problems with the economy need to be sorted out before Wall Street can feel comfortable.

[Count Chocula]

Well well well, guess which sector had the most gains? That's right, financial, with Morgan Stanley logging a stunning 86.98% increase per Yahoo! Finance, and the C:TRIN NYSE Short Term Trade Index up 34,386.77%. No,that's not a typo.

Looks like the first $700 billion of the bailout all got spent today. Wonder what the Fed will pull out of its hat tomorrow?

[aerius]

Alright, so trading is closed. DOW was up 936.42 today after the bell. Is it a solid start to recovery, or the final bounce before it drops through the floor?

I officially have no clue what's going on.

Think folks. The root cause of the current crap is lack of trust in the banking system along with bad loans & debts. Does anything that's been done address either one of these problems in a meaningful way? In other words, is transparency being forced onto the system so that everyone knows who's holding the bags of shit, and are the bad loans & debts being paid off or defaulted?

It's pretty simple, if the answer is no then we're just as fucked as we were last week.

[Alferd Packer]

Think folks. The root cause of the current crap is lack of trust in the banking system along with bad loans & debts. Does anything that's been done address either one of these problems in a meaningful way? In other words, is transparency being forced onto the system so that everyone knows who's holding the bags of shit, and are the bad loans & debts being paid off or defaulted?

It's pretty simple, if the answer is no then we're just as fucked as we were last week.

I heard it rather aptly put on a radio show:

"The market is like a dead cat, in that if you throw a dead cat against the ground hard enough, it will still bounce."

[phongn]

"Dead cat bounce" is actually a widely-used term.

[Kanastrous]

Maybe a better example would be, the market is like a desperate stockbroker, in that if he hits the ground hard enough after jumping from his office window, he'll still bounce.

[Tribun]

We should have expected it.

Everything gained in the rally on Monday has almost totally evaported by today's closing at the NYSE. The Dow lost a whopping 733points. It's together with yeasterday's losses almost back to where it left off last week.

Guess the fundamentals of the American economy really aren't strong.

[Big Phil]

We should have expected it.

Everything gained in the rally on Monday has almost totally evaported by today's closing at the NYSE. The Dow lost a whopping 733points. It's together with yeasterday's losses almost back to where it left off last week.

Guess the fundamentals of the American economy really aren't strong.

The fundamentals of the economy are mixed; credit markets are still fucked, real estate is still in trouble, people are still scared, manufacturing is down, growth is slowing, and unemployment is rising. All that being said, the market is still diversified and some sectors are doing quite well. It's not like the 30's where we were predominantly a manufacturing economy.

To use Seattle as an example, in the 1970's when Boeing was in trouble, the economy of the city almost collapsed. If Boeing went away today (i.e., bankruptcy or moved its manufacturing somewhere else), it would be unpleasant, but there are enough other strong businesses to maintain the economy.

[aerius]

Dow, Nasdaq, and S&P 500 futures are all lock limit down. Black Thursday was exactly 79 years ago today.
There's a good chance all the circuit breakers will get tripped today.

[irishmick79]

looks like the dow has opened with an almost 400 point nosedive. Good lord. So the dow shuts down if it loses 10%, correct? How long does that halt trading for?

[phongn]

looks like the dow has opened with an almost 400 point nosedive. Good lord. So the dow shuts down if it loses 10%, correct? How long does that halt trading for?

Here be your answers

[cosmicalstorm]

I really feel like picking up the phone and calling one of those talking monkeys who as late as yesterday went up on TV and promised everyone that "the bottom has most certainly been reached"

[J]

There's a couple reasons markets worldwide have all taken a big fall today.

This is one of them In short, there's $2.3 trillion of phantom US T-bills which should not exist. Whoops. Your supposedly super-safe Treasury holdings, well, they're ah, kinda empty, filled with bills which were pulled from thin air and worth nothing. Everyone holding US government debt is going to be thinking real hard, are those real T-bills they're holding or are they "accounting errors"? If this gets wings it could lead to a complete loss of confidence in the US, and it goes the way of Iceland.

Delivery failures plague Treasury market
Total hit a record $2.29 trillion as of Oct. 1
By Dan Jamieson
October 19, 2008, 6:01 AM EST Post a Comment Recommend (7)


The credit crisis is causing a growing number of delivery failures with Treasury securities.
The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).

The outstanding U.S. public debt is $10.3 trillion.

"Current [fail] levels are at historic levels," said Rob Toomey, managing director of the Securities Industry and Financial Markets Association's funding and government and agency securities divisions. "There's been significant flight to quality" with the market turmoil, he said.

With the strong demand for Treasury securities, "some of the entities that bought Treasuries are not making them available in the [repurchase] market, which is the traditional way to get them," Mr. Toomey said.

Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said.

This month, New York- and Washington-based SIFMA came out with a set of best practices to reduce failed deliveries.

This year, the New York Fed revised its own Treasury market trading guidelines. Its guidelines, originally released last year, warned that short-sellers "should make deliveries in good faith."

LACK OF LIQUIDITY

Chronic failures can increase illiquidity problems in the market and expose market participants to losses in the event of counterparty insolvency, according to the New York Fed.
"There is a question about there being some impact on liquidity if [delivery failures] last for a long period," Mr. Toomey said.

Many retail investors also own Treasury securities, either directly or indirectly. The Treasury market is also an important fixed-income benchmark, so any liquidity problems can affect all participants.

In extreme cases, chronic fails could cause participants to limit their trading in secondary markets, the New York Fed said.

"Who wants to buy what they're not going to get?" said Susanne Trimbath, a market researcher with STP Advisory Services LLC of Santa Monica, Calif. In a September research paper, she estimated that based on failure rates in 2007 and 2008, the cost to investors from failed deliveries is about $7 billion annually.

The cost arises because sellers don't have access to their money. In addition, the federal government loses $42 million a year in lost revenue, and the states miss out on an additional $270 million in revenue due to excessive claims of tax-exempt income on state-tax-free Treasury securities, Ms. Trimbath said.

She and researchers at the New York Fed said that some delivery failures are intentional.

As with naked shorting of stocks, naked shorting of Treasuries "allows you to avoid the borrowing costs," Ms. Trimbath said.

"There can be circumstances in a low-rate environment where it's cheaper to fail" than deliver, Mr. Toomey said. Such an environment also reduces incentives to act as a lender of securities, he said.

A 2005 study by the New York Fed confirmed that episodes of persistent settlement fails are often related to market participants' lack of incentive to avoid failing.

"We've got to get the [Securities and Exchange Commission], the Fed and SIFMA in there to force" Treasury traders to deliver securities, Ms. Trimbath said.

The Department of the Treasury has a buy-in rule for the cash markets, but the repurchase markets rely on contracts, Mr. Toomey said. Currently there are no penalties for failures, and regulators to date have not required disclosure whether the dealer or the client fails to deliver.

By industry convention, fails are generally allowed to roll over until they are eventually closed out, Ms. Trimbath said.

SCRUTINY

She said that scrutiny by the SEC and the Fed, and widespread investigations into short-selling practices, are driving the industry to rein in questionable practices with Treasuries.
Mr. Toomey said that one of SIFMA's best-practices suggestions is to require that extra margin be provided by the party that is underwater due to a failed delivery.

SIFMA also said that it is establishing a Treasury fails monitoring committee, with representatives from the Fed and Treasury.

The committee will alert the market "when marketwide mitigation, remediation and the attention of management is warranted" because of a high level of fails, SIFMA said in a statement.

The other reason, for which I can't find a link at the moment, is that Taiwan has put in some heavy restrictions on the amount of US GSE and MBS securities their banks can hold. In addition, they've also stated the US ratings systems are essentially worthless, and US investments cannot be trusted. Once again, if other countries follow everything goes kablooie. We get an instant bonds market dislocation leading to a Great Depression. Endgame.

[Ekiqa]

There's a couple reasons markets worldwide have all taken a big fall today.

This is one of them In short, there's $2.3 trillion of phantom US T-bills which should not exist. Whoops. Your supposedly super-safe Treasury holdings, well, they're ah, kinda empty, filled with bills which were pulled from thin air and worth nothing. Everyone holding US government debt is going to be thinking real hard, are those real T-bills they're holding or are they "accounting errors"? If this gets wings it could lead to a complete loss of confidence in the US, and it goes the way of Iceland.

snip

The other reason, for which I can't find a link at the moment, is that Taiwan has put in some heavy restrictions on the amount of US GSE and MBS securities their banks can hold. In addition, they've also stated the US ratings systems are essentially worthless, and US investments cannot be trusted. Once again, if other countries follow everything goes kablooie. We get an instant bonds market dislocation leading to a Great Depression. Endgame.

Sweet. What I dont get is the T-Bills. Aren't they guaranteed by the Treasury? How can they be created from nothing?

[J]

Sweet.

No, it's not. I don't think you have any idea how deadly serious this is. Read up on Iceland. Gas stations ran dry. Grocery store shelves were emptied. No food, no fuel, and no prospects of restocking either. Endgame.

What I dont get is the T-Bills. Aren't they guaranteed by the Treasury? How can they be created from nothing?

Naked short selling, which is of course illegal. Except all the major players do it anyway and the SEC and other regulators turn a blind eye to it.

[Ekiqa]

Sweet.

No, it's not. I don't think you have any idea how deadly serious this is. Read up on Iceland. Gas stations ran dry. Grocery store shelves were emptied. No food, no fuel, and no prospects of restocking either. Endgame.

[/quote]
I was being sarcastic. I realise we'll be back to Bennet's Buggies, hitching our cars up to live stock, and other such fun and interesting things.
Though with the price of oil being so low, governments could hike the gas tax to eat into the profits of the oil companies, who are not lowering the price of gas at the same rate as oil.

What I dont get is the T-Bills. Aren't they guaranteed by the Treasury? How can they be created from nothing?

Naked short selling, which is of course illegal. Except all the major players do it anyway and the SEC and other regulators turn a blind eye to it.

So this has less to do with deregulation, and more with the regulators being lazy?

[General Zod]

So this has less to do with deregulation, and more with the regulators being lazy?

How is "regulators not doing their jobs" any different from "deregulation"? Policies that nobody enforces are effectively the same as not having any policies at all barring purely academic distinctions.

[Broomstick]

Sweet.

No, it's not. I don't think you have any idea how deadly serious this is. Read up on Iceland. Gas stations ran dry. Grocery store shelves were emptied. No food, no fuel, and no prospects of restocking either. Endgame.

^ That's why I have a couple weeks of food in my home at this very moment. That, and there's the possibility of a blizzard shutting things down for a few days to a week during any given winter around here.

[J]

And now for some comedy relief.

Hank Paulson and Ben Bernanke comment on the economic crisis & bailouts

[Uraniun235]

Sweet.

No, it's not. I don't think you have any idea how deadly serious this is. Read up on Iceland. Gas stations ran dry. Grocery store shelves were emptied. No food, no fuel, and no prospects of restocking either. Endgame.

So what's happening with Iceland? Are they all going to just starve to death?