The Economy, stupid

[bmags]

thank you. I just got a new this american life on the economy I plan on throwin on the ipod and listening to today.

 

Thanks NS and SS, I have a lot to learn but, god if there is any good for me is that this all has made the stock market incredibly pertinent and interesting to learn about.

[Cknolls]

Just look at AIG's insurance practice, they are a completely legit solid business. The Insurance Industry isn't even close to being a disaster. And let me just state that I say that based upon a s***load of knowledge of the insurance industry and the standards they have to abide by. Sure they insurance companies have taken part is some credit swaps and have plenty of Alt A investments. But they also have a s***load of regulations to ensure that the company has matched its funds to ensure that the assets pay out in a period where they'll be able to pay out the expected liabilities and on insurance type contracts those liabilities are pretty well set (you don't expect some massive fluctuation unless there is just a complete and utter run on "deaths"). Obviously Insurance companies do more than just Life insurance but the reality is all of there policies are based on a s***load of historical trends and than those payouts get matched with the assets on very conservative set-ups and this ensures you won't ever have another insurance collapse.

 

Plus there are a lot of things which limit the types/risk of investments the company can have. If its a certain type of investment they may only be able to go up to a certain percentage of assets, etc. Trust me knolls, Insurance Companies aren't the next to blow up. I could see picking on people that did some shady stuff related to credit swaps but a typical insurance business is about as safe as it gets right now, although they obviously will have profitability issues in the short-term due to some of the investments they are in, but as those investments flux one way they'll likely see gains on there FAS 133 riders.

 

 

Insurance companies match their liabilities(death,hurricanes,car accidents, surgery, etc.) against assets. So they own corporates, CDO's, etc. Their CDS is blowing out, their credit is getting killed and the credit downgrades have begun.

 

Check their bond portfolio's to see if they are reliable in terms of ability toback annuities. AIG's was a sobering experience. In the end these are large bond portfolios with LEVERAGE, and LOADS of LEVEL THREE ASSETS, in many cases at least as much as shareholder equity.

[southsider2k5]

I assumed they meant options, not short the stock. Theoretically, if you are following the rules and covering all your shorts or at least doing locates on them, this should be impossible.

 

SS2K5 might know this better than I do though - can you short stock on a large scale without locates on the stock? This stinks of firms multi-locating stocks to trading firms, which seems awfully dangerous. Not sure its illegal though.

 

That right there is a hole that could be legislated - stock/collateral locates have to be singular, no exceptions. All collateral must be single-pegged.

 

That is how I understand it. I will be honest and say my knowledge of the regulations on shorts is sketchy at best. I have never dealt with it.

[southsider2k5]

Quote of the Day

 

"is worst then a divorce; I’ve lost all my money and I still have my wife.”

[NorthSideSox72]

I've been thinking about this. There are hedge funds and trading firms out there who have been shorting big naked, and selling naked calls. They are getting burned, or will get burned (and some, too, will make out big on it). If they do fail on their bets, they will have to cover with cash, which will drive many of them out of business. That is bad for the job market, but may be good for the financial markets in the long run, flushing out some of the guys who take too much risk. Darwinian investing.

 

Here is where it gets tricky, though. Look at trading firms, hedge funds, and IB's who are relatively risk-averse and do what they are supposed to. When they short a stock, they ask for a collateral locate, from their own stores or their clearing firm if they don't self-clear. This is the smarter, lower risk move.

 

BUT, it seems obvious now to me, that the major stock holders - the big IB's and CF's - may be allowing multiple locates on the same shares. For example, Big IB has 100k shares it holds. Some is held in house accounts, some held by investors. Trading firms ask for locates. They allow not only 100k locates, but they allow 400k locates, thinking that not all the locates will get called. Usually, that's true. But now, in this market, what if a lot more of them do? Now, big IB has to send straight cash to cover anything over their actual shares. And they don't HAVE that kind of cash right now. And, because of the credit markets, they can't borrow it either. Now what happens??? Even worse, what happens if the holders of that 100k in customer accounts start to liquidate quicker than usual. The problem is now compounded.

 

That is just scaring the s*** out of me right now.

 

[StrangeSox]

I've been thinking about this. There are hedge funds and trading firms out there who have been shorting big naked, and selling naked calls. They are getting burned, or will get burned (and some, too, will make out big on it). If they do fail on their bets, they will have to cover with cash, which will drive many of them out of business. That is bad for the job market, but may be good for the financial markets in the long run, flushing out some of the guys who take too much risk. Darwinian investing.

 

Here is where it gets tricky, though. Look at trading firms, hedge funds, and IB's who are relatively risk-averse and do what they are supposed to. When they short a stock, they ask for a collateral locate, from their own stores or their clearing firm if they don't self-clear. This is the smarter, lower risk move.

 

BUT, it seems obvious now to me, that the major stock holders - the big IB's and CF's - may be allowing multiple locates on the same shares. For example, Big IB has 100k shares it holds. Some is held in house accounts, some held by investors. Trading firms ask for locates. They allow not only 100k locates, but they allow 400k locates, thinking that not all the locates will get called. Usually, that's true. But now, in this market, what if a lot more of them do? Now, big IB has to send straight cash to cover anything over their actual shares. And they don't HAVE that kind of cash right now. And, because of the credit markets, they can't borrow it either. Now what happens??? Even worse, what happens if the holders of that 100k in customer accounts start to liquidate quicker than usual. The problem is now compounded.

 

That is just scaring the s*** out of me right now.

 

Sorry if I ruined your day.

 

[bmags]

gulp.

[southsider2k5]

I've been thinking about this. There are hedge funds and trading firms out there who have been shorting big naked, and selling naked calls. They are getting burned, or will get burned (and some, too, will make out big on it). If they do fail on their bets, they will have to cover with cash, which will drive many of them out of business. That is bad for the job market, but may be good for the financial markets in the long run, flushing out some of the guys who take too much risk. Darwinian investing.

 

Here is where it gets tricky, though. Look at trading firms, hedge funds, and IB's who are relatively risk-averse and do what they are supposed to. When they short a stock, they ask for a collateral locate, from their own stores or their clearing firm if they don't self-clear. This is the smarter, lower risk move.

 

BUT, it seems obvious now to me, that the major stock holders - the big IB's and CF's - may be allowing multiple locates on the same shares. For example, Big IB has 100k shares it holds. Some is held in house accounts, some held by investors. Trading firms ask for locates. They allow not only 100k locates, but they allow 400k locates, thinking that not all the locates will get called. Usually, that's true. But now, in this market, what if a lot more of them do? Now, big IB has to send straight cash to cover anything over their actual shares. And they don't HAVE that kind of cash right now. And, because of the credit markets, they can't borrow it either. Now what happens??? Even worse, what happens if the holders of that 100k in customer accounts start to liquidate quicker than usual. The problem is now compounded.

 

That is just scaring the s*** out of me right now.

 

So if this is the case, when we start to rally, we will rally hard, because there will be multiple covers instead of just one per short. Interesting.

[lostfan]

I just forwarded some of these posts to a co-worker and we spent the last 20 minutes talking about it.

[NorthSideSox72]

So if this is the case, when we start to rally, we will rally hard, because there will be multiple covers instead of just one per short. Interesting.

Hey look - silver lining!

 

Meanwhile...

 

Down down about 5% today, to 8165, so far

 

S&P down down almost 6% to 856

 

[bmags]

God, I was so shocked when I heard Russia lost 50% of their value in the market. Then we are at what, a 35% drop now? Jesus.

[bmags]

So if this is the case, when we start to rally, we will rally hard, because there will be multiple covers instead of just one per short. Interesting.

 

SS...as I'm trying to wrap my head around this...when people start investing in the funds or stocks in the funds, would that mean the stocks have more money behind them with more covers...And if what I just said is a simple yes or no I'll be shocked.

[southsider2k5]

SS...as I'm trying to wrap my head around this...when people start investing in the funds or stocks in the funds, would that mean the stocks have more money behind them with more covers...And if what I just said is a simple yes or no I'll be shocked.

 

If I am understanding what strangesox posted, and what you are asking, it would be really bad for the people who are short, because it would become what is called a short squeeze really quickly. This happens when a lot of people who are short, are trying to cover the same things, at the same time. Demand drives the prices up, because there are a lot more buyers than sellers. It would also go a lot towards explaining why we have fallen so far the last couple of days since the short sell rules were relaxed again.

[southsider2k5]

Hey look - silver lining!

 

Meanwhile...

 

Down down about 5% today, to 8165, so far

 

S&P down down almost 6% to 856

 

Big rally into the last hour. Short covering or bargain hunting?

[Balta1701]

As ailing Wachovia Corp. waits to see whether it will be acquired by Wells Fargo & Co. or Citigroup Inc. -- possibly with taxpayers paying the tab for hundreds of billions of dollars in bad loans -- some of the company's top brokers are preparing to depart Saturday for an all-expenses-paid cruise of the Greek Isles.

 

The weeklong trip for up to 75 employees of brokerage A.G. Edwards, which Wachovia acquired last year for nearly $7 billion, will also include spouses and significant others, said Teresa Dougherty, a Wachovia spokeswoman.

 

"This is one way that we recognize our top financial advisors," she said.

Link.

[StrangeSox]

Big rally into the last hour. Short covering or bargain hunting?

 

It's like a reverse of yesterday. Too bad I waited until today to transfer more money into my trading account (won't clear until Monday). Oh well, gives me the weekend to research what I'm actually going to buy.

[bmags]

ugh, I think it just went from +300 to -170 in like half an hour.

[Cknolls]

It's like a reverse of yesterday. Too bad I waited until today to transfer more money into my trading account (won't clear until Monday). Oh well, gives me the weekend to research what I'm actually going to buy.

 

 

The rally will lead to a test of the lows. Always does. 1974. 1987. both tested the lows 6-7 weeks later. FWIW.

[NorthSideSox72]

Markets up big today. 5 to 6% on the major boards. Oil recovers too.

 

[southsider2k5]

Markets up big today. 5 to 6% on the major boards. Oil recovers too.

 

Dow is up about 1000 points from the intraday lows of just under 8000.

[bmags]

Is this to do with Europes weekend response?

[NorthSideSox72]

Dow is up about 1000 points from the intraday lows of just under 8000.

Intraday low on DJIA was about 8462?. Not below 8000.

 

[southsider2k5]

Intraday low on DJIA was about 8462?. Not below 8000.

 

Friday it went under 8k.

[EvilMonkey]

In about a week or two, if the dow keeps going back up, we'll hear the sob stories from the idiots who paniced and sold their stocks and ira shares when they were worth s***. Too bad for you.

[NorthSideSox72]

In about a week or two, if the dow keeps going back up, we'll hear the sob stories from the idiots who paniced and sold their stocks and ira shares when they were worth s***. Too bad for you.

I don't think we'll go rocketing back up and stay there - more likely we'll see a lot of up and down, but with a general, small upward trend.

 

You're right though, as things go up, some people will complain, after they made bad decisions. I don't think the number of them will be very large, but there will be a few here and there.