Vikings Message Board.Com

Busy with football today and am only now getting around to checking the financial news. Whoa! B of A has purchased Merrill Lynch, Lehman Bros is getting ready to go down, and AIG is standing by to go down. The Dow futures are down over 300 points. The $400 Trillion derivatives market was allowed to trade on Sunday (unheard of) and it is going to be tested early and often tomorrow. Could be bloody awful. The banking system looks awfully wobbly even after the socialist Fed bailed out Freddie and Frannie last week. Seriously ... there's no end in sight to the trouble in the banking sector. I'd say a 600 point decline is not out of the question if panic selling sets in.

If you're out of equities ... congratulations. I'm trying to decide if I want to place some sell orders for the start of the market. I almost never do that ahead of bad news but tomorrow looks a lot different ... almost unprecedented. Fasten your seat belts.

Yeah. The high price of oil and gasoline is going to be the least of our worries before all this is over.

The writing has been on the wall of a long, long time. I give Paulson (not that I like the guy) some credit now for finally drawing a line in the sand and letting Lehman go under. AIG, Washington Mutual and Wachovia will be next.

With oil taking a hit, the Fed will likely cut rates again. Too bad the Fed is irrelevant at this point.

For those looking for a nice summary of the oil crisis, I highly recommend Chris Martenson's Crash Course.

The Motley Fool's Macro Economic Trends and Risks board is also a very valuable source of information.

Also, Nouriel Roubini's economic blog is another interesting read, he's an NYU economics professor who was laughed at for calling the credit crisis way before most other "experts."

Just part of the overall economic *SLOW DOWN*, nothing to see here, go about your business.

Demi wrote:Just part of the overall economic *SLOW DOWN*, nothing to see here, go about your business.

I'd like to just go about my business but I'm thinking of joining the amish as I dont see them suffering in this but I'd doubt they'd take a pagan viking cuz i think they're quite religous, what ya think? Should I at least ask?

I've seen worse. Some mis-managed companies are going down, and they should. The 500 point drop was about 4-5%, a correction nothing more.

It was good to see no government bail-outs. Government had a lot to do with this mess going back to the early 90s.

Bank of America got a good buy on ML, about half the considered value I understand. Still B of A took a hit today.

Hey, Cola was up a quarter today. I made a couple bucks.

It's rare to see volume like 700K+ shares that AIG had.

Is anybody selling? Have you repositioned your 401K? What are you buying? Have you put any cash under your mattress?

I don't see this as your run of the mill correction. When Freddie and Frannie were nationalized that should have been a seminal moment in the market and created a catalyst for a rebound. Instead we got a measly 250 point bounce and that was erased over the next few days (I should have sold into that rally). Our financial sector, even after the demise of Bear Stearns and Lehman, is still in serious serious trouble.

Normally I would have viewed a drop like we had today as a buying opportunity but I stayed away and I'm going to continue to stay away. There is still a lot of bad news ahead for the financial sector. Credit is going to be significantly constrained (it has to) and that is going to ripple through the economy and slow growth and earnings, probably considerably.

B of A grossly overpaid for Merrill Lynch. Had they just waited a few days MER would have been trading under 10 in reaction to the Lehman bankruptcy. Here's what the market thought of BAC's purchase: BAC's stock was down 24% today! MER, despite doing a successful stock offering a few weeks ago, was likely going to fail without more capital as it is now being reported that they were peddling themselves to more than just BAC.

Goldman Sachs announces earnings tomorrow. Less than a month ago their analysts were predicting $200 oil. If they were trading their own accounts the way they were advising their clients you might see a very big miss on their quarterly earnings. If that happens and if the AIG mess gets worse we could easily see another big sell off tomorrow. AIG is a much bigger problem than either Bear Sterns or Lehman. What we need is capitulation but I don't think we're going to get it for a while.

I haven't been this negative on market sentiment ... ever. Conventional wisdom says it's too late to sell (if you're already down a nice chunk) but I'm questioning if CW applies in this market. Heck, Dr. Gloom (i.e. Roubini) is saying that even the FDIC insurance fund is in question. I missed his prediction on the Mattress Option.

Many people are concerned, with good reason. It wouldn't shock me to see the Dow drop another 500+ by the end of Oct. (always a difficult month for the market).

This has been a long time coming. Anyone with Freddie, Fanny, AIG and a few others should have bailed a long time ago, even if they took a loss. And that's not hindsight, it is exactly what I told one family member about a year ago, I hope he listened.

A lot of the selling yesterday confused me. It was a typical sell-fest that happens without much thought after a point. It'll be interesting to see where some of the Dow stocks are at midday today. Some of those companies will look like a good buy if the selling continues.

OK, economics is far from my strong suit. Can someone please explain in simple terms what is going on??

Is anybody selling? Have you repositioned your 401K? What are you buying? Have you put any cash under your mattress?

I've left the 401K alone. The last two things I bought were the Prudent Bear Fund and Gold. Both up yesterday obviously.

They've been hedges but I've still taken hits, GE for example is taking it on the chin. I may buy more of this one soon. High dividend paying stocks are about all I'm looking at but am largely on the sidelines.

I'm really heavy cash and have been for quite some time. I'll jump back in once this all settles but remember the hedge funds fiscal year ends in October. I think they'll be quite a bit of selling. If oil drops to $80, I'll probably buy some of my energy plays. Other than that I'll wait until after the election with my cash earning 4.5% in a money market account (not to be confused with the non-FDIC insured money market fund).

PurpleMustReign wrote:OK, economics is far from my strong suit. Can someone please explain in simple terms what is going on??

We are in the worst financial crisis since 1929. Wall Street is disintegrating.

The investment banks (i.e. Merrill Lynch, Bear Stearns, Leham Bros., Goldman Sachs, etc) have no minimum capital regulations. Over the last decade they have used excessive leverage to help foster the housing bubble along with other things. Lehman, before they went out of biz was leveraged 40:1. Commercial banks like Wells Fargo are leveraged around 6:1. Commercial business that are levered more than 2:1 are usually considered risky.

Here's an example. Me = investment bank. You = customer.

I lend you $400K and have $10K of capital to back that up. You take that $400K and buy a house with no money down. My only collateral is a mortgage on the house you cannot afford. I allow you to buy that house without verifying your income or doing any credit underwriting that used to be in place to qualify for a mortgage. You decide to take a teaser rate in the form of an adjustable mortgage that resets in two years. Two years pass, your rate adjusts, you fall past due on your mortgage and are headed toward foreclosure. Both you and I were betting that your home would keep increasing in value but instead it has declined by 25%.

Repeat that about 20 million times in the US and then go over to Europe and repeat the same model.

I have to raise capital as I usually do to keep funding operations but now I can't do it because no one is willing to invest in me. The reason no one will invest in me is because my balance sheet if full of crap and I don't have anywhere near enough capital in relation to my liabilities. I go out of business, you lose your house and all of your purchasing power. You aren't buying anything and that helps to put the economy into a recession.

A year from now we might not have a single investment bank on Wall Street. We're talking about firms that have been in business since the early 1900s. Oil is now in the low 90s. That's a 40% decline from early July. In "normal" times that should have been a catalyst for a nice run up in the market. Instead we had the 6th largest point decline in the Dow yesterday. This is serious stuff.

Mr. X wrote: We are in the worst financial crisis since 1929. Wall Street is disintegrating.

The investment banks (i.e. Merrill Lynch, Bear Stearns, Leham Bros., Goldman Sachs, etc) have no minimum capital regulations. Over the last decade they have used excessive leverage to help foster the housing bubble along with other things. Lehman, before they went out of biz was leveraged 40:1. Commercial banks like Wells Fargo are leveraged around 6:1. Commercial business that are levered more than 2:1 are usually considered risky.

Here's an example. Me = investment bank. You = customer.

I lend you $400K and have $10K of capital to back that up. You take that $400K and buy a house with no money down. My only collateral is a mortgage on the house you cannot afford. I allow you to buy that house without verifying your income or doing any credit underwriting that used to be in place to qualify for a mortgage. You decide to take a teaser rate in the form of an adjustable mortgage that resets in two years. Two years pass, your rate adjusts, you fall past due on your mortgage and are headed toward foreclosure. Both you and I were betting that your home would keep increasing in value but instead it has declined by 25%.

Repeat that about 20 million times in the US and then go over to Europe and repeat the same model.

I have to raise capital as I usually do to keep funding operations but now I can't do it because no one is willing to invest in me. The reason no one will invest in me is because my balance sheet if full of crap and I don't have anywhere near enough capital in relation to my liabilities. I go out of business, you lose your house and all of your purchasing power. You aren't buying anything and that helps to put the economy into a recession.

A year from now we might not have a single investment bank on Wall Street. We're talking about firms that have been in business since the early 1900s. Oil is now in the low 90s. That's a 40% decline from early July. In "normal" times that should have been a catalyst for a nice run up in the market. Instead we had the 6th largest point decline in the Dow yesterday. This is serious stuff.

How does this effect people that bought a house during this time period and *can* afford the loan they took out? If you have a mortgage (that you pay on time) from one of these banks that goes under what does that mean for you?

S197 wrote: I've left the 401K alone.

I did as well but I am thinking of selling into rallies because the outlook is so gloomy.

I'm really heavy cash and have been for quite some time. I'll jump back in once this all settles but remember the hedge funds fiscal year ends in October. I think they'll be quite a bit of selling. If oil drops to $80, I'll probably buy some of my energy plays. Other than that I'll wait until after the election with my cash earning 4.5% in a money market account (not to be confused with the non-FDIC insured money market fund).

Can you please tell me where you're getting 4.5% in a MMkt account as I would like to move some cash into that. My core account is in a muni mutual fund that is yielding 1.6% today. Six month CDs are averaging around 3%. Who is offering a MMkt account at 4.5%???

In March I had ten stocks in my basket; today I have six. Of those six, three are underwater to the point where it makes no sense to sell them. All three have solid fundamentals (Foster Wheeler, Chesapeake and Joy Global) and all three will eventually bounce back but I have to adjust my horizon to at least a year or maybe more. In the meantime I'm not going to look at them. As Jeff Macke says: the most you can lose is 100%.

Gold is off about 30% from its July high (using the SPDR etf). It's down 1% today in a market where is should be up. Inflation is in check and the dollar is still surprisingly strong and that makes be a bear on gold. Dennis Gartman is saying to stay away from gold (although Gartman isn't quite the commodity guru that CNBC thinks he is).

Today's market is not for investors; it's strictly a traders market. I'm not a chartist and I've never had much luck being a day trader in the few times I've attempted it. If I bought anything in today's market I'd put a very tight stop on it and eat the commission charges if it dips (which is a whole lot cheaper than getting dinged up in a one day selloff). I had some nice gains in a few commodity stocks during the runup; mostly natural gas plays along with Potash and Mosaic. I also got beat-up on the decline which was much steeper than the runup. Glad I got out of Potash and Mosaic when I did as both of those have cratered.

Cliff wrote:How does this effect people that bought a house during this time period and *can* afford the loan they took out? If you have a mortgage (that you pay on time) from one of these banks that goes under what does that mean for you?

It has no effect. Your mortgage might change hands a few times but today most people don't know who holds their mortgage. They only know who services that mortgage (i.e. the company you send your mortgage payment to). The only direct effect is if you own stock in the companies that bought large blocks of subprime junk.

The indirect effect is that the meltdown in the financial sector is causing other stocks to decline. Do you have a 401K? After that it is whatever indirect effects you might feel due to a possible recession.

John wrote:It's rare to see volume like 700K+ shares that AIG had.

Today the volume in AIG is over 1.1 billion shares. That is truly amazing. It got down to 1.25 but it's bouncing back based on rumors of a government backstop. So much for the "moral hazard" concern.

The theory of bailing out Bear Stearns was that the systemic risk was so high that the cost of allowing it to fail would have been much more expensive than doing the bail out. AIG is a huge player in Credit Default Swaps and is much larger than Bear Stearns. AIG's systemic risk has to be much higher that Bear Stearns. I abhor the idea of a government bailout but on the other hand a failure of AIG could be the thing that stimulates a panic. Rock meet Hard Place. Hard Place meet Rock.

I wonder what the federal budget deficit will be next year? $800 Billion? $1 Trillion? I don't see how we can be adding all this crap debt to the balance sheet of the Fed without the deficit going through the roof.