T Nation

Black Tuesday

Anyone else worried about the market tomorrow?

Yes.

Markets all around the world took a pretty big hit today.

The flaw is fractional reserve banking. Banks can lend out way more than they have on deposit. If some of those loans head south, it can eat very quickly into the equity of the bank.

If anyone has any significant money in a bank, convert it now into some sort of Federal Reserve or Treaury obligation.

This is going to be a systemic bankruptcy.

I was under the impression that today’s dump was strictly a global reaction to an assumed recession; outside of international funds, why should there be a drastic domestic reaction?

The end is nigh…

http://www.youtube.com/watch?v=XaxdUPNYj2s

The real depth to this subprime CDO mess seems to be in the derivative contracts. A lot of the banks thought they had hedged their risk, but it turns out that some of the parties writing these “insurance” derivatives can’t cover the extent of their exposures - which were greater than the value of the initial securities.

It will take a bit of time to unwind - and the problem is that there is a lot of uncertainty still as to the amounts. And with that uncertainty, the hope is the that the various central banks can supply enough liquidity to avert a credit crisis. We’ll see.

Don’t try too hard to time the market. But if you ever see a crash, ignore the fucking lemmings, and buy buy buy.

If Biotest suddenly dropped the price of every supplement they sold to $1, would you go crazy trying to dump all your stockpiles of protein powder, or stock up?

Lots of people get rich during the crashes, and that is the time to buy, not sell.

We keep hearing buy low, sell high, and regardless of this basic piece of information, when the market is over priced, everyone wants to buy, and when the market plunges, everyone wants out. The exact opposite of this core piece of information.

Why aren’t a lot more people rich today? It has nothing to do with being taken advantage of, being oppressed, not having an education, nor does it have to do with bad luck.

It’s because people are fucking stupid. They do stupid shit, and then blame others.

And before anyone complains about this statement, I am including myself, other then the blaming of others. And due to my stupid shit I am currently digging myself out.

After every crash, the market jumps. Not always back up to where it was before, but it always does. 1929, 1987, 2001. Three years people made a lot of money. Not because they took advantage of anyone, but because the idiots were practically giving away money.

[quote]The Mage wrote:
After every crash, the market jumps.[/quote]

The intelligent person understands that there is only two directions prices can go – up or down. This means we should be betting on both high and low prices depending on the industry. To only bet on high prices is, as pointed out, stupid.

Low prices, despite what Wall Street traders try to make us believe, are not always a bad thing; particularly, when not driven by a complete lack of demand. When costs are down and productivity rises or remains constant profits will go up. This means the average consumer will have a higher standard of living even when he doesn’t get that measly 3% raise.

Nope. I have no control over what the markets do, why should I worry? The inevitable consequence of prosperity is recession. Thing s go up and down. I’ve done my part to stimulate the economy, this recession is everybody else’s fault, not mine.

Mage,

You are 100% correct. The market has run up and they are in the process of having a sale.

I have always been a contrarian equity investor and have been rewarded well since 1985. In fact, other then Countrywide I am thinking about financial stocks right now. After the big writedowns they will have nice clean balance sheets and be reorganized for growth.

Nice post Mage; agreed. At a minimum though friends need be reminded not to panic. On Wednesday, for example, the Dow plunged nearly 330 points, only to reverse course and rally 625 points, to close up 298.98 points. Many of the best trading days followed closely on the heels of large stock market sell-offs just as has been eluded previously in this thread.
The lesson here is that timing can be difficult, and it pays over time to stay invested in stocks despite your upset stomach.

[quote]hedo wrote:
Mage,

You are 100% correct. The market has run up and they are in the process of having a sale.

I have always been a contrarian equity investor and have been rewarded well since 1985. In fact, other then Countrywide I am thinking about financial stocks right now. After the big writedowns they will have nice clean balance sheets and be reorganized for growth.[/quote]

Exactly - like eating at the proverbial restaurant right after it fails its health inspection: it’s never been cleaner and the food has never been better.

The next little while will be a good time to look at buying in.

[quote]thunderbolt23 wrote:
hedo wrote:
Mage,

You are 100% correct. The market has run up and they are in the process of having a sale.

I have always been a contrarian equity investor and have been rewarded well since 1985. In fact, other then Countrywide I am thinking about financial stocks right now. After the big writedowns they will have nice clean balance sheets and be reorganized for growth.

Exactly - like eating at the proverbial restaurant right after it fails its health inspection: it’s never been cleaner and the food has never been better.

The next little while will be a good time to look at buying in.[/quote]

It probably is a good idea to hold stocks — even during Germany’s hyperinflation of 1923, German stocks in general only lost 75% of their value. The currency became worthless.

We are in a similar budget situation to 1920s Germany.

Look, the deficits have to be paid for. Social Security and Medicare have to be paid for. The Prescription Drug Program has to be paid for. The war has to be paid for. So either taxes have to go up, which kills the economy, or inflation goes up, which kills the economy. Either way, our government is contractually obligated to pay out a whole shitload of money it doesn’t have. The only realistic thing to do is simply to default and leave those who bought the government debt stuck with the bill — which of course won’t happen.

If you want to hold stocks, buy those that benefit from chaos, like defense stocks or security stocks.

[quote]Headhunter wrote:
If you want to hold stocks, buy those that benefit from chaos, like defense stocks or security stocks. [/quote]

Expect the “defense” people to use their influence to create said chaos.

Since fat is the new black, isn’t this just like Fat Tuesday?