DOW Down 250 Points. Is There a Bottom Anytime Soon?

yes the credit crisis will take a couple more years to work itself out. alt-a mortgages are going to be the next thing to blow up. they are tracking the same way subprime did before it went south. alt-a is much larger in size.

further, there is the completely unregulated credit default swap market which bets on the credit worthiness of a company. this market is around $65 TRILLION. bankruptcies are clearly on the rise and if there are some major ones like leh and mer then the companies that have been selling cds (aka jp morgan) will have a **** ton of money to pay. not sure that i buy into this but there was some speculation that part of the fed's backing of the bsc buyout was to help save jpm from the default swaps they wrote against a bsc bankruptcy. it sounds like bs but jpm has done so much cds writing that it could sadly have been a possibility. ...no one really knows how this will work out since it is completely untested relative to the level of stress it may face.

anyhow...it is good to start fishing around the financials to find which companies are actually good to own because they will undoubtedly get thrown out with everything if a massive blow up occurs in the 2nd half.

 

i'm not blaming the fed for the credit crisis. there are many things at work there. i am just saying i am worried that our fed doesn't recognize inflation is a major potential problem. they said inflation is more uncertain now but they continued with the line that they have been saying forever that inflation should moderate in the future. all the signs of inflation rising signifcantly are present but again we will find out what the 2nd half of the year holds. i hope they are correct.

 

Where to place the dinero so as not to get smashed then?

 

Which is just crazy. It's also suspected that most insider trading going on these days happens in the world of CD swaps since they're not regulated or monitored. - i.e., someobody gets buyout tip off and then loads up in the CDS market

I have only the barest comprehension of that market and how it works but I'm wondering why no politician has said "hey maybe we should monitor this thing to make sure no abuses are going on and to prevent people from bettng the farm in secret"

 

lol i have been trying to figure that out as well. i am inclined to think brasil but inflation is ramping up there big time. i've also seen some notes of caution from reliable analysts on about emerging markets recently due to inflation. i was thinking about going short treasuries but that kind of got killed from our fed saying they don't mind inflation for the time being.

the only things i have done recently for my personal are add into Cosan (CZZ) and buy the Nov 50 puts on Legg Mason. i just haven't seen too much i want to be in. other than that i have seen an intriguing bet by refinery insiders buying their own stocks. there has also been pretty massive call buying on TSO recently. i can't say i agree with the trade at this second because oil is still strong but it could be something to watch.

...and oil just busted out to new highs as i wrote this.

 

as with everything in the market it won't happen until something blows up. it would be pretty sick if JPM was significantly crippled or went under due to this. from what i have read they could...it is pretty scary stuff. bloomberg magazine had some really good write ups on this stuff last month.

 

A lot of the CDS are private counter party agreements. Its no different than 2 person betting on tomorrow's temperature. CDS should be a compliment to actual deals like cash CDOs, used as hedges against potential credit risks. The problem is when collateral pool dried up, people started to create pure "synthetic" deals, with no real money backing them. Much of this $65 trillion number is created out of nothing.

Best hope is no one major goes down, otherwise the counter party risk will be huge to others. The sad part is, what was created as a tool to reduce risk has now turned into the biggest risk itself.

 

The credit crisis can be attributed to greenspan's economic policies of lowering the interest rate so much. In hindsight I think volcker was a shrewd guy. He was a little more future thinking than most, but I don't know if people would put up with 8% unemployment now days.

 

yes that is one aspect. greenspan is utterly worthless. he loves to hear himself talk nowadays. i have also seen some blame put on the repeal of the glass steagall act in 1999. a good basic explanation is on wikipedia... http://en.wikipedia.org/wiki/Glass-Steagall_Act

 

it just touched three bills. it seems like there is a 200 point drop day every week now.

 

It's still mainly the housing market, which is going to continue forcing consumers to pull back on spending. The housing market was one of the biggest bubbles in history, it is going to take a while to work itself out.

And the energy boom/bubble is just making things worse.

It's going to get pretty ugly. The FED is just going to have to raise rates to tame inflation and these bubbles.

You would think bonds would be a safe investment, but not if their is inflation looming.

 

crude touched $140, insanity, or is it

 

Wealth creation in the US has traditionally been from.

1. Manufacturing value - We are now a service economy
2. Banks creating wealth by lending more than their assets on hand for an expanding housing market - We are dead there for a while with a credit crunch, and an over supply of inventory
3. The invention of disruptive technology - you can't really predict it since the about the only ones we've seen are the industrial revolution, the petrochemical revolution and the invention of the computer/internet. If we have another one in our lifetime my bet is on alternative energy technologies.

The national debt is about $30,000 per person so the government isn't in a good position to help. Banks are at risk (and government insured) to the tune of about 15 trillion dollars if we get a total collapse in the housing market. Local government ,funded by property taxes are looking at declining taxable values. Energy costs are controlled by forces outside the US so even if we go into a full scale depression, China and India will probably keep demand up unless they collapse too because we quit buying their widgets.

I guess I'm a pessimist but I think we are in a heap o' **** and teetering on the edge of massive reduction in the quality of life of the average American. I for one am scared ****less and I have about 30% of my net worth in oil and gas leases and 20% in cash.

Agricultural exports is about the only bright spot I see for the US and not this summer, and at the cost of cheap food for Americans.

I'm not saying we are headed for third world status but I don't think your children's lives will as economically prosperous as ours has been. They may just turn us geezers into soylent green before they pay our social security and medicare.

 

If you look at the numbers, we have already lost about a decade. The Dow is close to levels seen in 1999.

 

I'd suggest you look at:

Foreign Bond Funds
Long/Short Funds
Resource backed issues from Canada and Scandinavia

 

you don't seem to understand the correllation. Japan had a "lost decade". A decade of recession that is unparallelled. This scenario would foretell a decade long correction.

 

Yes, it's insanity. Bubbles are insanity. There is legitimate price increase due to demand, but a lot of it is all the liquidity flowing around the world and people buying oil as a hedge against the falling dollar and inflation.

 

I admit I don't know that much about financial markets but reading this thread has me worred...