From SI board.. >> As ugly as the markets are, the behind the scenes situation is even uglier. As I have posted here before, my daughter is a financial risk consultant with the consulting arm of one of the top accounting firms. Yesterday she received a call to get to GS as quickly as possible...it seem the derivatives settlement process is in danger of coming unglued. Since most of these are poorly documented private contracts with counterparties, there are $billions at stake where they don't know the counterparty or if the CP is even still in business. This has made it impossible to ascertain their existing positions because so many of the "sells" in the last couple of months have not been settled, but are in limbo. The NY Fed has been warning of this situation for the past several months...it seems like it is here in real life. My daughter has been told to expect to be at GS through the end of the year...the mess is HUGE. << http://siliconinvestor.advfn.com/readmsg.aspx?msgid=23803693:eek:
That fits too perfectly. The odd sequence of events from Mon to Wed to the Thurs lows to the multiple oddities friday premarket, (conveniently right in front of expirations)...GS at the heart of it, flailing. Worrisome. Thanks for the relay.
#1. Didn't think so. No worries. #2. Cassandra, I live in the south, and I have NO idea what you are saying. You're just going to have to speak slower please. Y' ain't from around 'ere, y'know? #3. Regarding the above risk managment post - even the current head honcho of that illustrious institution acknowledged this risk in the press (see ET thread #84683). FWIW, if anyone can handle it, my euro$ on him.
Scary. Is it inconceivable that a GS or an LEH could go under? All the FED has to work with is easier credit. Can easier credit straighten out balance sheets that only approximate the truth? Financial institutions won't deal with companies whose books are in disarray.
Acknowledging it and being well situated for it are two different things-I think they may be juggling more than they are letting on as it is. But I'll be rooting for your euro$ - ... even while i'm buying yen Take care
You assert a lot of things here ("comparing past volatility to present day volatility is not correct," "The dominoe effect, from current exposure is unique," "This price action combined with macro forces are predicted to create, a post March 2000 decline") yada, yada, but offer no real arguments or empirical evidence. Let's imagine it's 1990, a year that saw the S&P 500 down 8% with a 20% correction. It's only 3 years after the massive 1987 drop, and no one knows if S&L is really over...or if a similar crisis will spill over to mainstream banks. I was a college student then, reading permabear newsletters and halfway believing their combination of hard data, conjecture and wild extrapolations. The same can be said of current permabears, but I think the apocolyptic scenarios were slightly more plausible around '90. What happened, though? The rest of the decade saw stocks increase like no other time. I'm not suggesting that's about to happen again, but it could just as easily as this doomsday stuff. One difference hardly anyone is talking about is productivity--the silver lining of the 1990s technology frenzy and heavy capital investment period. We have productivity levels no one dreamed of back then. But permabears are more worried about manufacturing jobs being shipped out of the country. Yeah, paying more unionized workers out the wazoo with benefits galore is just what the doctor ordered for the U.S. right now... Many things could happen, but the burden of proof is on you to show it's really different this time. There have been bubbles and crashes since before the Roman Empire, and easy credit landslides for decades. But true catastrophes are very rare, as someone else has noted.
The Fed has made it clear that they are going to support these large institutions. It wasn't the cut that made that statement it was the change in terms from overnight to 30 days. At the heart of the problems are complex instruments that take time to price correctly. The Fed has made it clear that firms will be getting that time. Crashes happen when complex instruments are caught in fast markets and settlement needs to take place immediately when liquidity has dried up. The Fed has taken the time element out of the equation effectively extinguishing the chance of a crash. The fact that the amount of money that was borrowed under the Fed emergency arrangement has thus far been pretty meager is an indication that the liquidity crunch is not as severe as the headlines suggest (yet) My best guess is we see a continued rally (days, weeks maybe) and then a slow grind down as the true extent of losses incrementally come to light. *Maybe* there will be a crash of sorts (probably not a one day event) sometime next year but it will be because people will have recognized that the economic landscape has changed and that valuations/earnings expectations are not realistic, not because liquidity will have dried up. Long term though (10 years out) I think that we will be significantly higher than we are now and the EEM will look like an incredible bargain at current levels. With so much economic global potential that has just begun to be tapped and with so many very hungry people getting a taste of economic freedom for the 1st time in a long time and also starting to leverage the technology and productivity enhancements to leap frog certain developmental impediments and barriers to competitiveness a 1929 like depression seems very unlikely. There will undoubtedly be times of great volatility but those buying the major dips in the 10-20% range will do very well indeed.
I am a big fan of that point... And as far as global growth models are concerned, it's almost an exponential effect - revolutionary enhancement switched on just in time to see a couple billion new agents tap in. I like the way Clyde Prestowitz put this: The other half of the world is coming on to the capitalist road at a moment when that road has just become a high-speed freeway.