Black Friday on Wall Street? Markets turn worse, and ask for assistence
Black Friday on Wall Street? Markets brace for worse, and cry for help. If ever there was a setup for a Black Friday on Wall Street, this is it.
We can hope it doesn’t happen. But better that investors are realistic about the risks. Global markets and the world economy are at a dangerous point in this debt-fueled debacle, and anyone who says otherwise is a liar.
On Thursday the U.S. stock market suffered its seventh straight loss, and the 7.3% drop in the Dow Jones industrial average — down 678.91 points to a five-year low of 8,579.19 — was the biggest yet in this latest sell-off.
In other words, the get-me-out-at-any-price mentality is more intense than even a few days ago. Many people are morose, demoralized, desperate. They can’t take any more.
”Investors are in survival mode,” said Robert Bissell, chief investment officer at Wells Capital Management in Los Angeles. “Stocks of major companies are at ridiculous prices,” he said, but no one cares. “This is what panics are all about.”
Much of the selling now is forced: Hedge fund managers may not want to let stocks go at these prices, but their clients want their money back. Ditto for mutual fund managers, who are facing a surge in redemptions. Selling begets more selling.
There wasn’t much new in U.S. markets Thursday, and that was the problem. Credit markets remain mostly frozen, as wary banks still refuse to lend to one another despite the federal government’s attempts to break that logjam.
The plan for the Treasury to buy up $700 billion in bad loans from banks now is roundly viewed as too little, too late, or just wrong-headed. Critics say it won’t get the banks to lend again any time soon.
New reports from Washington on Thursday said the Treasury might try another approach: injecting capital directly into banks. Yet that revelation also failed to lift market sentiment.
Coordinated, but modest, interest rate cuts by the world’s major central banks Wednesday didn’t work either.
Maybe it’s time to start listening to people other than the same ones who let things get to this point.
Nouriel Roubini, an economics professor at New York University and head of Roubini Global Economics, over the last two years has predicted much of what has since come to pass. His critics dismissed him as Dr. Doom; now they wish they had heeded him.
Roubini is warning that the world has reached the brink of financial and economic calamity. This is from an e-mail he sent to clients late Thursday:
At this point the risk of an imminent stock market crash — like the one-day collapse of 20%-plus in U.S. 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.
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 crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls and cascading falls in asset prices well below falling fundamentals, and panic is now underway.
He says governments have no choice but to take much more dramatic steps — in unison — to try to restore confidence. His list includes:
– another round of interest rates cuts by central banks, at least 1.5 percentage points in size.
– a temporary blanket guarantee of all bank deposits.
– a “rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures.”
– a “massive direct government fiscal stimulus package 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.”
– government recapitalization of financial institutions and a reduction of the debt burden of distressed borrowers.
Economic policymakers of the G-7 industrialized nations meet in Washington this weekend. If they don’t have their own blueprint for action, Roubini just gave them one.
The following are just comments. Please leave your views afterwards:
Black Friday, it may be. The Lehman Bros credit default swap auction is slated for Oct.10th. Those with liabilities for their Lehman CDOs will sell stock to raise capital to cover their position. Combine that with investors panicking to sell stock because other people are selling stock to cover their credit default obligations and you have the makings of a very high trading volume day. A smart investor will recognize that the bottom of the bear market is getting close, unfortunately, herd mentality overtakes sensibility. The herd mentality is what helped the real estate bubble to propagate. The herd mentality may result in a huge sell off tomorrow.
Armageddon can wait.
I know it’s the stretch run of a presidential election. I know the media has drank the kool-aid and is without question completely in the tank for the Marxist Messiah Barack Obama. I know that it makes sense for them to gin up as much pessimism in capitalism as possible but really. This panic is completely overblown and senseless.
Yes, the government went diversity mad and extorted banks to abandon their traditional lending criteria in favor of affirmative action lending which has left us with millions of mortgages that are not going to be repaid by their makers. Big deal. The underlying properties still have some value. Maybe it’s only 70 percent. Maybe it’s only half but there is a tangible value there. Someone will be more than willing to move into those houses and make the payments provided the valuations aren’t too far off from reality.
Yes, banks and mortgage-backed securities investors are going to have to absorb some losses. But, other than that, our economy still has the same building blocks as it did a year ago. No one has bombed New York City, Washington, D.C., our off shore oilrigs or anywhere else for that matter.
Everything still works. All of the technologies developed over the history of mankind still work. Yes, the infrastructure is a bit worn in places but we still have the greatest system of roads, bridges, canals, railways, airports, power plants, sewer systems, pipelines, electrical transmission lines and communications networks ever devised. Our work force hasn’t been hit by a plague nor have they forgotten how to do what they do. No one has tried to shut off our oil supply or quarantine our exports. All of our farms are still producing at record levels. Manufacturing capacity is still in tact even if demand is questionable.
As any fool knows but no politician has the guts to say these days, the fundamentals of our economy are sound.
The real reason why investors are bailing out of the market has nothing to do with the soundness of the economy. It has to do with the certainty of property rights.
As polls now indicate that we seem to be on the verge of electing a Marxist to the office of President of the United States, investors worldwide interpret that as a lack of faith in free enterprise on the part of the American people. Now, of course, workers all over the world know that Marxism is a miserable failure and they wonder what will happen to the world economy if that bulwark of freedom, The United States of America, suddenly loses its collective mind and abandons the very principals that made it the greatest nation with the highest standard of living and largest economy in history.
That is why the markets are tanking. With the specter of a Marxist taking over as “Leader of the Free World”, no one knows for sure if anybody really owns anything. If the U.S. no longer believes in freedom, who will guarantee, or even threaten to guarantee, the property rights of the Free World?
Walter Williams sums up their sentiment like this, “We might have reached a point where the trend is irreversible and that is a true tragedy for if liberty is lost in America, it will be lost for all times and all places.”
It’s not a crisis of economic confidence. It’s a crisis of political confidence.
And the Marxist Messiah is at the heart of it.
My finances are decimated as are others. We demand that the financial industry be reguilated to the hilt, fraud exposed and those responsible in jail, and taxed heavily on future gains. These masters of the universe should be drawn and quartered. No one in this industry should ever make a dime again.
Charlatons and crooks.
Politicians – do this or we will burn this country to the ground.
Before the folks handlking the financial problems (Sec. Paulson et al) were appointed they were allowed to sell their holdings at top market prices with out campital gains tax. Then over a year ago, it is reported they had a team stry to sell the sub prime paper to foreign countries and, apparently, Japan and China bought a lot of it.
This may suggest they knew about the pproblem before they were appointed and would explain why they had a plan so fast after the announcement of theproblem.
He left out some things:
- A lot of debt is consumer credit (credit cards, cars, personal loans).
- Then there are non-debt obligations (you name it… existing contracts, court orders, etc.)
For all this to be relieved, the only thing that is going to work is to wipe it away with massive inflation — to make the debt effectively worthless.
I would add to his list:
- freeze on all consumer debt payments including mortgages
- ban on all fees / charges where such charges result in an interest rate exceeding 8% pa
- setting usury interest rate at 8% and unilaterally modifying all debt to conform to this rate including fees, points, penalties, etc.
A similar mechanism for all existing contractual or legal arrangements where either party may declare a “time out” until the economy stabilizes.
Effectively, what is being proposed is to grant everyone who owes the equivalent of a form of special bankruptcy protection.
The time out period shall last initially 2 years, and thereafter,r until the economic stabilization measures kick in and the President and Congress declares the national emergency over.
This would be a good start.
Our economy has been based on consumer spending for decades and now we are paying a price for that bad idea. We need to get back to basics in our way of living and get off this spending kick. I wish they would bring back the all savers certificates and encourge Americans to save more and spend less.
“Windfall”: Marxist messiah, eh? You idiot. You complete idiot. You have no f..n idea what you are talking about. Fools like you are just as damaging as the financial idiots who started this mess. You could think yourself half-lucky to get Obama as president instead of a militarist who is likely to start a war to get the economy going. God help us if that old bastard wins.
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