<p>I doubt anyone has an account larger than 6k. I have had before, but i have spent most of my money and will be lucky to have $1500, $1000 which is my mothers. She is trusting me to make some profit. And if i do, i get to keep the money and it shall be depleted in march when i pay for spring quarter.</p>
<p>America's isuses are going to affect everyone. In a few decades down the road, this may become seemingly less true. But we are still a behemoth in this world, and we run this world. (Well, sort of run it, China sort of walks it around too.) </p>
<p>I doubt volatility will ever be as low as it used to be again. Chicago's Volatility Index is up 70%, many again, blame the new ticker-rule. It may decrease, yes, but not to previous amounts. </p>
<p>south, please don't take this offensively, but that post 40 was much too incomprehensible. I didn't mean to knit-pick or be a grammar nazi. </p>
<p>I can understand where you're coming from - advising to enter financial advisor services, but, until we find out who were the ones carrying the hot potato, it may not be that fun of a risk. That's when the market's going to rebound. After we find out who bought the risk. </p>
<p>But it was coming. The hype of PE pushed it furthermore.</p>
<p>Peaks in VIX (which is figured out from the IV of SPY options) correspond to market bottoms. Its essentially a sentiment indicator as it displays oversold levels in the market. </p>
<p>Globalization doesn't necessarily guarantee stable revenues. I think the current situation is a perfect example of global market integration. The global economic boom has been fueled mostly due to cheap money (easy credit). Now that there is a liquidity crunch, you have markets move in locksteps as correlations between various asset classes increase. Take the following (simplified) description of the current situation:</p>
<p>In FX land, you had emerging economies with massive trade surpluses trying to figure out places to put that cash to. Thus, they bought massive amounts of U.S. treasuries (primarily...they did other things too) which brought yields down and thus increased liquidity. You have currencies like AUD and NZD precipitously falling. This is because much of the appreciation of those currencies was fueled by the carry trade as people took advantage of Japan's low rates (lot of liquidity) to invest in currencies/countries with higher rates (lower levels of liquidity). Thus, as positions are being unwound because investors have become risk averse (want liquidity) AUD, NZD and the like are being hammered.
In FI land, during the boom people were willing to finance debt cheaply. The spread between corporate bond yields and govt was essentially a downward trending line for the past few years. However, now that people are risk averse (want liquidity) they are not willing to finance corp debt (this includes all the junk in the news recently) and want to move into treasuries (which has more liquidity).
In equity land, during the boom companies could finance expansions and acquisitions with cheap credit (relates to FI land). Consumer spending (>70% of the GDP) increased as people felt richer (wealth effect) from rising home prices due to lower mortgage rates (related to FI land, with liquidity provided by emerging economies) thus driving up earnings. Now that the liquidity spigot has tightened, acquisitions can't be financed, spending is decreasing (as people don't feel richer anymore) leading to pain in the equity markets.
sset classes and thus were exposed to the same risks (aka liquidity dryups). </p>
<p>Take a moment to read through that. Notice how every market is linked to every other market (more or less like a huge web). Diversification in this era isn't achieved through asset classes alone as liquidity dryups tend to increase correlation between various asset classes globally. We saw this in 98 and we are seeing this now. This is also the reason why all these funds are in pain right now. Many of these firms essentially played the same strategy across multiple asset classes and so were exposed to the same risks (liquidity dryups).</p>
<p>Edit: I think its mostly right although its very late. This is what happens when I am bored and have nothing to do before college starts.</p>
<p>BTW> Check this out as well: Go on any internet finance site and graph the prices of SPY and DBV. Notice how these two products essentially move in lockstep. SPY is the proxy for equity markets and DBV is an ETF which is essentially a carry trading proxy (which in turn represents, roughly, the level of liquidity present in the market). Shows that the hypothesis regarding easy credit and markets isn't unfounded.</p>
<p>by the way, what college do you go to?</p>
<p>AND, did your knowledge come from your work or from individual studies? The only businesses i have found in Santa Barbara that i could seek experience from are very small trading firms, that, to my despair, are only looking for programmers. Research positions are limited. My mom has told me to contact george leis, CEO of PCBC to see if he would have anything for me. He probably does, but without help from my mom who is an old friend, i will probably be stuck with nothing. So just tell us, how do you do it. </p>
<p>
[quote]
south, please don't take this offensively, but that post 40 was much too incomprehensible. I didn't mean to knit-pick or be a grammar nazi.
[/quote]
</p>
<p>no offense taken, i knew it was not grammatically correct or decently written, but i was lazy.</p>
<p>Well mahras2, what do you think? If this is really the end of the credit bubble, commodity prices are going to break. Is this the end of the credit bubble?</p>
<p>Credit will rebound...Wall Street has a short memory</p>
<p>mahras is my baby daddy</p>
<p>Southpasdena> I am going to Duke. A lot of the stuff I picked up from reading various books, papers, news and really just thinking about things. I just read anything I could get my hands on and eventually I understood enough (which is still a pittance) and was able to form my own views. The key was to continually think and test the ideas I read real time so I could strip away the useless fluff from the important information.</p>
<p>Dstark> The elaborate response I had typed got deleted because for some reason my browser logged me out. Anyways I will paraphrase:</p>
<p>I have expected a slowdown in the credit cycle for some time now (and had even posted on CC about it I think). However, its one thing to identify an existing cycle and knowing what to do at that inflection point than to talk about what might happen afterwards. Way I see it the probable course of action would be a soft landing. I do not foresee such easy lending practices as the past few years continuing beyond this point. One of the primary sources of liquidity for the past few years were EM countries with fat trade surpluses. They used their coffers to fund global liquidity as well as keeping their currencies undervalued. But that trick is already up. Already certain EM currencies have appreciated (such as India's) and others are under great pressure to do so (such as China's). They are being forced to do so not due to foreign pressures but mostly because inflation is picking up steam in those economies (China's is already significant and thats just the govt reported figures). So, I see that spigot of liquidity turned off as I do not see those countries coffers growing as strongly as they have in the past few years. On the other hand, I do not see the gloom and doom that many of these commentators foresee. Fact of the matter is that the global markets are more integrated which provides the benefit of making it more robust in handling crises. There has been "real" growth in the markets so its not just the credit boom that has propped up global economies. The markets are orderly (or are being kept orderly...those liquidity injections being a good example) that such a meltdown isn't really feasible. So the probable course of action seems to be one where economies do slow (including the EM countries), spending does slow (part of economies slowing), excesses are weeded out and liquidity reverts back from its recent overextension. </p>
<p>As for commodities, I think we are already seeing that. Nearly all commodities are off their highs with some posting significant declines (silver today was a perfect example...the futures nearly hit limit down). I think its more probable to see commodity prices languishing than advancing in the near future. Even commodity and EM perma-bull Jim Rogers admits that a slowdown is possible/should take place.</p>
<p>Mahras2, my long post was deleted too.
So I am going to make this short. I'm not as sanguine as you about the debt.</p>
<p>People who make a career advocating for free markets and are now arguing for government intervention because they or their friends are in trouble are an embarassment. People like Larry Kudlow.</p>
<p>Trading is a very tough career (for the op).</p>
<p>Bear Stearns is in deep trouble...roughly 10 billion in loan commitments and the smallest equity base of its competitors</p>
<p>Potential target of an acquisition in 1-2 years...</p>
<p>dstark- dont forget about Jim Cramer</p>
<p>Isn't silver suppose to be negatively correlated? silly markets</p>
<p>Mahras - You are right on with the the whole emerging markets, but there are other causes of easy lending practices - generally whenever there's a boom banks want to get in on it and lessen their standards...liquidity is important, but only important once a bear market hits...wall street has a short-term memory and wants short-term profits, so during the next bull market I don't see liquidity being a huge issue. You seem to have researched this much more than I have so I'm probably missing something, but it seems that there will be a cycle of "cheap money" every few years.</p>
<p>Majayiduke09> Thats assuming someone can actually finance that purchase. I wouldn't consider the sort of M&A activity we have seen for the past few years to take place 1-2 years from now. </p>
<p>Mattistotle> Silver/gold etc are generally negatively correlated to the market as they act as inflation hedges. Generally, when inflation picks up equities take a hit (as probability of rate hikes increase) and gold/silver etc are assumed to hold value better than paper. However, you can argue that as overall credit has dried up, spending will dry up causing inflation to slow which in turn decreases the value of silver. Of course, credit drying up hurts equities as well so the effect ends up the same across both markets. </p>
<p>You assume that liquidity concerns and bull/bear markets are independent of each other. There is very few things that are truly independent in the economy or in finance. As I have said one of the main drivers of the past boom has been increased liquidity which in turn decrease the volatility of prices, which in turn reduced "riskiness" and led to lower rates allowing for increased consumer spending, firm expansion and M&A activity. So saying that liquidity is only important during bear market isn't correct IMO. Its essentially a cycle. Extraneous factors (9/11 and dot com slump which led to the fed cutting rates, boom in housing prices and rise of the EMs) led to increased liquidity which in turn influenced Wall Street to ease practices and encouraged them to develop products which in turn increased liquidity. There are many factors at work here other than the greed of Wall Street firms (which actually is beneficial for the most part).</p>
<p>Not sure if anyone's explained the "equities in Dallas" thing yet, but use your heads people...does trading equities (something a lot of computers are replacing people for) in Dallas (as far from NY, Chicago, and SF as you can get) sound good?</p>
<p>mahras2, you know a lot! :)</p>
<p>the market looked to be due for a correction for a while before this credit crisis blew up. Isn't some of this fallout not so much from a major problem in some sudden overnight loss of liquidity (which feds can cushion) due to a one-time repricing of risk, but also a typical pullback from an overly bull market, except people have a specific term "credit crisis" to pin it on. easy credit may be at a low point but I don't see it as "disappearing" because there seems to simply be a repricing of risk but not any long-term trend suppressing the markets. I mean, what's changed from 3 weeks ago except for this one-time (well, not really one-time... maybe, "isolated case"?) repricing of risk?</p>
<p>btw, would be great to have anyone interested join a free site started by Harvard Business School students (I'm interning for them). manage a virtual stock market portfolio, and publish stock picks/analyses kinda like what you're already doing. cool thing is you get paid cash weekly/monthly if your portfolio does well or your advice is good. also while anyone can join the site's targeted to students so there's lots of good feedback on postings. anyways: <a href="http://www.theupdown.com/newUser.do?_refer=1098&_code=cc%5B/url%5D">http://www.theupdown.com/newUser.do?_refer=1098&_code=cc</a></p>
<p>untitled> Thanks.</p>
<p>A "pullback" is a pullback only in hindsight. The thing is its not as "isolated" as you make it. Credit was at the heart of consumer spending (70% of GDP), company expansion, and M&A activity for the past few years. A "simple" repricing of risk essentially means that the assumptions used for credit pricing, which has been the primary driver of the bull market, is false. Therefore, while it may seem to be "isolated" it isn't (as I had noted earlier in my post) and has major impacts across multiple asset classes. Markets can't seamlessly reprice risk either which can be seen from the fact that several credit products have, more or less, no market. </p>
<p>Another way you can see it is as follows: If it was solely a "pullback" from the equity bull market, then the case should be isolated in equity markets alone. You would also expect FI to be affected as well. However, the credit crises has affected nearly every market globally. Equities have fallen significantly, FI has obviously been affected directly, and currencies have had dramatic swings (just look at any JPY pair). So its not just some isolated problem.</p>
<p>Thanks for the link I will check it out.</p>
<p>The problem is that the true impact delinquencies had wasn't (and still isn't) known. The fact that the Bernake not too long ago explained that the situation wasn't so bad, then months later all but admits he was very wrong gives the impression that even those who were monitoring the situation closely didn't quite know how widespread the damage was. The markets have been running recently on M&A and private equity buyouts, and which were primarily financed through all these types of credit securities. Investors are reacting negatively, and are wary about the preservation of capital, so are less likely to do the activities that provide the necessary credit. I believe that a large majority of the economic (corporate) growth in the past few years has been made possible because of the widespread availability of cheap credit. While fundamentals like index P/E seem to suggest (for example the S&P) is undervalued and not overvalued, these earnings have been dependent on that cheap credit. If the credit begins to dry up, will corporations be able to grow at the rate they have and post the earnings that would keep them undervalued? I have no idea, but this is just one small example of how the effects of subprime lending meltdown echoes across many different areas seemingly not related.</p>
<p>Rumors that a major U.S. investment bank is about to file for bankruptcy....uh oh....</p>