Market crash: are we there yet ?

[Rickm505]

"You're multiplying when you should be dividing."

Perhaps you're missing my point. The hedge funds are allowed to borrow against the securities. An interesting development since in essense they've resold them... but I degress They then use the borrowed money to invest ON MARGIN.

Lot's of articles on how it's done. Would you care for some links?

I get the feeling that you really aren't grasping whats going on. I'm only trying to point this stuff out.

But.... You multiply

[hellosailor]

Margins, options...It's still gambling, and should be kept in the casinos.

[SteveSouthwood]

When a hedge fund loses a billion dollars, the underlying assets have lost a billion dollars regardless of the leverage. Maybe it's you who needs an example.

Let's say I put in $20k on a $200k house (10x leverage) and house loses $5k in value. Have I lost 10x $5k? No. I've lost $5k - same as the house lost.

Leveraging in any fund simply multiplies potential risks and potential returns - you get to see this only when you talk percentages - not actual dollars. So if the house goes up 5%, my investment of $20k goes up 10x 5%.

I understand leverage. I understand it very well. Despite your very kind offer, I have no need of a classroom thanks.

[sailaway21]

It's ok, Steve. The same guy mocks what a phD economist, the son of the former Chairman of the Council of Economic Advisors (goes in the family) has to say, because he also works as an actor. (g)

Once again, "There is no 'good' economic news". and some people beleive this reflects reality, while lathering $25 a quart varnish over their boat. "D" is for disconsolate.

[Sapperwhite]

Uh oh....what a difference an hour can make. It looked pretty steady all day, then down another 170 points, 1.3%.


BBC sez:
"The problems in the US housing market came to the fore again as Merrill Lynch told its clients to sell any shares they own in the country's largest mortgage lender, Countrywide Financial.

It warned that Countrywide could face bankruptcy if the availability of credit in the market gets any worse and there were market rumours that the lender had indeed failed to raise some money it needed.

Worries about a slowdown in US consumption were not helped by results from the department store Macy's, which blamed the "difficult" climate for a 77% fall in its quarterly profits."


More housing woes, and 77% fall for Macy's due to a "difficult" climate (more middle class erosion???)

[bestfriend]

It's gonna be a long cold winter with lots of boiled potatoes and shoe leather.

[Sapperwhite]

Originally Posted by bestfriend

It's gonna be a long cold winter with lots of boiled potatoes and shoe leather.

I don't mean to be negative, but it's pretty volatile. When companies like Macy's, a generally middle class type establishment, has 77% profit fall due to what it claims is a "difficult climate", it may be an indicator that people have stopped spending. But what do I know? You can throw out all kinds of numbers and talk of different types of leverage, but at the end of the day mortgage companies are going belly up, and a lot of retail is putting out gloomy reports.

[Cruisingdad]

Originally Posted by Sapperwhite

I don't mean to be negative, but it's pretty volatile. When companies like Macy's, a generally middle class type establishment, has 77% profit fall due to what it claims is a "difficult climate", it may be an indicator that people have stopped spending. But what do I know? You can throw out all kinds of numbers and talk of different types of leverage, but at the end of the day mortgage companies are going belly up, and a lot of retail is putting out gloomy reports.

HOOLLLYYY CRAP! Macy's is a middle class establishment??? I get dressed up to go to Walmart. Now I really feel like a loser.

- CD

[bestfriend]

What do you do when the American market toilet is flushed and keeps on running? Buy more stock in Kohler.

[SteveSouthwood]

Originally Posted by Sapperwhite

I don't mean to be negative, but it's pretty volatile. When companies like Macy's, a generally middle class type establishment, has 77% profit fall due to what it claims is a "difficult climate", it may be an indicator that people have stopped spending. But what do I know? You can throw out all kinds of numbers and talk of different types of leverage, but at the end of the day mortgage companies are going belly up, and a lot of retail is putting out gloomy reports.

Chances are it won't stop being volatile for a bit either.

Some mortgage companies will fold - it's a result of the overheated market prior to these interesting times and the market contraction we're going into.

This happens to other industries too. On a less grand scale you see these cycles in all sorts of areas. Good example is recruitment which goes through cycles. When demand is high, companies spring up. When demand drops, many companies die - not necessarily the ones that just sprung up - merely the less competitive ones. A few companies will do well out of the contraction as they buy up the companies in difficulties but have value.