As someone with a longer perspective in investing (killed in 10/87 stock crash, killed in 03/2000 Tech Bubble, was in the middle of the 80's Texas S&L scandals as a land planner for most of Ft. Bend county) I just suggest you learn the lesson of Boom and Bust capitalism. When smart people see an angle to exploit, the herd all look up and head that way. As the momentum builds and the legitimate markets are saturated, the greedy and unscrupulous begin to bend the rules and ignore prudence until the bubble becomes unsustainable and the entire market collapses as everyone panics to get out. It's been true since the Tulip Bulb market of the 1600's and it's still true today. Greed and fear have have more to do with market valuations than fundamentals. The stock market is a game of musical chairs to see who will be the last one to buy at the highest price. If that were not true why would investors in companies with huge record earnings only get 4 or 5% return in dividends. It is the game that fuels the worlds economy, so don't get me wrong, it is a game you can play and make money, Just be aware that every boom has it's bust and as soon as you start noticing that everybody on the block is piling on something, know it's time to get out. It is better to take a smaller profit on the way up than get hammered with a loss trying to time the top. March 11 2000 haunts my nightmares to this day. I guess it would be imprudent or gauche to mention numbers, but suffice to say I was hanging on knowing the bust was coming trying to hit a number so that I would be set for life after taxes.I was going to sell everything and just buy treasury bonds But I went to the Texas Boys High School basketball playoffs on the 11th and didn't have my eye on the ball the day it hit. Seven years later I still kick myself every day.
Thanks. So are these tranches the same as derivatives mentioned in the papers? What were the assumed protections that have failed miserably? That's a risky move as no one knows when a bottom's a bottom and a trough's a trough. A trough is when investors think similarly as you and try to plunge in for their percieved bottom. Collectively, that halts the drop, if only temporarily. There'll definitely be some analysts telling you the bottom is near if they've had bad moves in that sector and are waiting to hedge their losses. In other words, they better have independently verifiable reasons for you to believe them. That's the perk of assymetric information.
wait for beazer to go bankrupt or wait for the feds to really clamp down on them before you look to buy other homebuilders. i have had put options on beazer for awhile so i am doing pretty well in those. i should have covered some when those bankruptcy rumors came out and drove the stock down to 8 but oh well. anyhow...you need someone to go bankrupt and someone big would be the best case scenario for investing. now the trouble is finding who is quality and who is not. this is something i am still searching for with respect to financials. perhaps for now it is better to ignore the financials until a major blow up happens and instead look for other quality stocks that are completely unrelated for buys. just pick up a barrons newspaper at barnes and noble every weekend until things start to clear up. it will give you a huge amount of market knowledge in an easy to read format.
to second that...there were moron analysts coming on CNBC everyday saying that the housing market was bottoming out and subprime wasn't going to be a big deal. i don't know when it is going to happen but the best case scenario for a complete washout will be after a major bankruptcy and everyone on CNBC becoming insanely bearish on the market. i don't know if it will get there but that is what i will be looking for when i am looking for a bottom. however, i have an advantage since this is my game. i trade everyday so if i believe i am wrong i will quickly get out and wait for a better look because those trades are EXTREMELY dangerous. so do it with a very small amount of your portfolio and be patient. we are getting closer to a bottom but it just isn't here yet.
Yes, it's a dangerous game. Look at the "short recovery" in the chart. A lot of people thought things had bottomed out. They were wrong. Impeach the Chump and His Buddy.
This is true... on a SHORT term basis. You'd have to be an idiot to not invest in the market in the long- term. Though there is evidence that this is a global bubble across ALL asset classes. Even gold and oil have been going down. WIll do.
They are not the same as derivatives, they are just straight bonds, although there are plenty of derivatives involved in the CDO market, credit default swaps being one of the biggest ones. The assumed protections are tiered tranches, i.e. AAA holders will get hit after BBB holders. There are built in triggers that will start paying AAA holders back when bad things happen, so in theory the AAA holder should at least get their principal back. But in reality no one is safe when things go really bad. (shows you how crappy those backing loans are)
No I'm not, hedge funds records of surpassing the mystical "alpha" after extracting their exorbitant fees is really really bad to most emprical evidence. An english economist, I believe, has put togehter some studies on this, it was in a new yorker from last month or the month before that is pretty well known.
well for what it's worth another mortgage lender is finally going belly up. Accredited Home Lenders reported some massive losses after the close today and subsequently Lone Star Funds withdrew their bid to buy out the company at 15.10/share. LEND isn't bankrupt yet but they might as well be after the statement they gave a few days ago that basically said if anything went wrong then they were toast...and this would be something going wrong. i'm kind of bragging about this one here because i have held puts and been short the stock for awhile figuring the buyout would fail. but if any of you guys watch jim cramer and mad money then you might know he has been stating that the buyout will go thru and the agreement was ironclad. he was going on and on about how he read thru the buyout agreement and no one else has and blah blah blah.... score one for me baby! w00t! on a side note this is another horrible development for subprime and the market. i think there had to be some people still clinging to the hold that LEND could walk the tight rope in this sh.t storm, maintain their earnings enough, and get the buyout completed...but they failed. not sure how this will effect the market on monday.
I agree with SJC. For once, being a broke college student has its perks. By having no assets, I ensure that the only effects that I will feel will be the inflation
I think the stock market is just controlled by a bunch of computers running some advanced AI program.
I agree with the mass proliferation of hedge funds since about 2002 or so, we have seen most of the firms average paltry returns in regards to the fee structure. What has been hammered these past few weeks are these quant funds such as Renaissance and the Goldman Alpha Fund. Renaissance is down 8% this month, and Goldman's is down 26% on the year, which is following a negative year last year. It makes me feel better that these quants have been failing, since they have been getting all the hype over the years. I've been working in the hedge fund industry since 2004, and I'll say I've seen a bunch of blowups in small and mid tier firms. Reason is many of these managers somehow think they need to put up 30-50% returns per year in order to get noticed. There still are some really good firms out there, but unfortunately for most investors they are offshore. Some of the best funds out there I've analysed are located in markets such as South Africa, Brazil and Russia, which trade on less mature, less efficient markets at this point. I think the markets are more spooked with Thursday and Friday's mass liquidity injections by the Fed and the ECB. They normally inject liquidity but not at these seen levels. But on the whole the liquidity problem derives from the Greenspan era, which was forced to cut rates down to 1% to serve the mandate of growth set forth by GW with his tax cuts for the richest Americans only. The tax cuts if all inclusive would have stimulated the economy by itself, but the Fed realized that the cuts would not do that, so it was forced to begin their cycle of ultra low rates. I'm hoping Bernanke doesn't cut rates in any emergency meeting. Speculators need to be forced to absorb losses, instead of receiving in essence a bail out package. As Former Fed governor William Poole says, " A rate cut that causes inflation is essentially the cruelest tax increase."
I don't know if I agree that over half of the hedge funds will fail. There are so many hedge funds with different strategies that have nothing to do with Subprime mortgages. Energy, FOREX, and many value funds really shouldn't feel the effects of the current market woes. If anything, the volatility that the market is seeing will allow some funds to really clean up if they bet correctly. Also, if a major bank fails, it would likely cause a major domino effect that could possibly take down many more because of the intertwining nature of credit derivatives.
D&C is an excellent, hold forever fund. I am less sure about LL. D&C has an international fund which has done quite well since its inception (in the last 5 years or so).
