Wednesday, October 08, 2008

Daily Dose of Distress


Here are images of the front pages of today's Chicago Tribune and The New York Times. The financial crisis of 2008 is one for the history books. Most crises last a few months at most, but this one has gone on for 14 months and still counting. It has been accompanied by headlines like these, but generally this sort of headline occurs very close in time to an important low. 

4 comments:

kleenup2 said...

As I have stated before my wife is a VP at Bank of America here in Charlotte, NC and I am merely just the owner of my own commodity trading business, I don't think I have any information that the general public has other than things are worse than they are being portrayed to the public. This crisis is not 14 months old as you suggest because there were several months that passed before a crisis was recognized. We are not even have way through this recessionary cycle and as I stated yesterday...the banks, home builders, and retailers would be the sectors that lead us to new lows. I do believe that too many fail to realize the amount of GDP, jobs, and spending that was created due to the housing boom. Credit has fueled our economy and accounted for much of the gains in the stock market(remember all those private equity and LBO deals with 80-100% buyout premiums. We are now in a credit contraction on all levels and the margin contraction on companies will be dramatic. It is amazing that people fail to realize that we are entering a new consumer phase that will be based on prudence, saving, and cash will be king again. Many people that had good credit yesterday now have average credit today and will have bad credit tomorrow. Maybe the government should make the credit agencies give everyone 800 credit scores on Jan.1. Just sell the rallies and you will be OK. I think the magazine covers fail to account for the fact that the retail investor has much less impact on the markets than anytime in history. Studies show that up to 60% of trading is done by computer models and quant funds. The vast majority of the money in the markets are managed by 401ks, hedge funds, institutions, endowments, etc. As always I enjoy your blog.

BTW I canceled my resting my buy orders for S&P 950...we will be going much lower. The Fed rate cut was a death nail...not a savior.

Anonymous said...

Hi Carl,

To comply with your request, I'm posting sooner. I just covered my 1020.00 short position and went long at 1000.00 on the button. My model is telling me a rally should occur soon enough.

Thanks.

Kindest regards,

PM

larry said...

Hey all,

This guy I spoke about a few days ago at www.moneycycles.com who has been pretty accurate of late is looking for a decline to 925, much like Carl, and then a rally of 8-10%. Worth checking out!

Best,

Larry

Anonymous said...

The distressed magazine covers and newspaper headlines for this year have been predicting the market and economy direction acurately. Perhaps the distressed articles have become self fullfilling prophecies. They have generally failed to act as contrarian market signals other than relatively short lived bear market rallies.

The collapse of the credit bubble seems to be relatively young even after 14 months and wiping trillions of dollars from global stock market indices. Perhaps the more accurate contrarian headlines over the past year are those of government and company officials that have repeatedly reported that the crisis was at or near the end. This seems similar to the historical accounts that I have read of news articles reporting comments by officials during the late 1920's and 1930's where the data did not actually support the reported optimism.

The credit default swap (CDS) auctions seems to be just getting started as hundreds of billions of dollars appear to be required just for settlements of only Fannie Mae, Freddie Mac, Lehman Brothers, and Washington Mutual this month. These large auction settlements may contribute to additional concentrated financial strains for insurance companies, banks, soverign wealth, and hedge funds to create the next round of defaults and bankruptcies. This may result in a further decline of available capital to support financial markets. This coupled with the reported information by kleenup2 would seem to suggest that other than periodic bear market rallies, the ultimate market bottom is potentially destined to be months away from the present.

The contrarian news is reported in the media but the focus on what is actually contrarian seems to be misplaced.

Thanks again for your efforts.
Best regards, J.