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How much will the market drop tomorrow?

Marco-Polo said:
Yes, that's exactly what I said: LIBOR = the London Inter-Bank Offered Rate. When banks loan to each other for capital, as opposed to reserve, they lend at rates relative to LIBOR, just like a commercial bank will loan you, as an individual, at rates relative to prime.

By contrast, the Fed Funds Rate is the rate, or range of rates, within which depository institutions (depository institutions only, by definition) lend to each other for regulatory reserve purposes. The Fed Funds Rate is manipulated by the FOMC.

There is a FFR-LIBOR spread, but that's a) because of different risk profiles and b) because LIBOR is open-market, where FFR is controlled by the Federal Reserve and is used as a tool of monetary policy (in order to manipulate the money supply or flow of monetary aggregates, M).
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All of which I'm aware of.

Just was clarifying that I was referring to the fact that earlier in the week, there was a point at which there was something like a 400 bp spread between the target and what was actually being done. That's indicative of FEAR.

Don't think we're saying anything different here...
 
The New York Fed tracks the difference between the rate target and the effective rate (the volume-weighted weight). The most it's been in the last couple of months is 80 bp, on 9/15.

Now, there are a few cases where the high loan was quite large, up to 6% (also on 9/15) for an interbank overnight loan. That's well above LIBOR, but it's apples and oranges as LIBOR is a transaction between a high quality institution and another high quality institution. The bank taking the overnight loan was clearly a candidate for the discount window, but chose not to do so because going to the discount window is a well-known marker of impending doom; the last thing a highly leveraged bank needs is a review of its bond rating on corporate paper. It makes for a good anecdote, but like every statistician knows, the plural of anecdote is not data.

I don't agree that this is a sign of widespread fear or some other market psychology (I'm not an especially big believer in market psychology in general). Everyone's factoring in additional risk premium because everyone is 100% correct to factor in additional risk premium. Lehman actually defaulted with their clearing house, prompting the crisis that killed them ... I mean, WTF???? There are easier ways for a bank to commit suicide.

PS. Always good to talk to someone who pays attention to that kind of thing - I remember reading the same Bloomberg article you did. You're on the street, I take it?
 
Marco-Polo said:
The New York Fed tracks the difference between the rate target and the effective rate (the volume-weighted weight). The most it's been in the last couple of months is 80 bp, on 9/15.

Now, there are a few cases where the high loan was quite large, up to 6% (also on 9/15) for an interbank overnight loan. That's well above LIBOR, but it's apples and oranges as LIBOR is a transaction between a high quality institution and another high quality institution. The bank taking the overnight loan was clearly a candidate for the discount window, but chose not to do so because going to the discount window is a well-known marker of impending doom; the last thing a highly leveraged bank needs is a review of its bond rating on corporate paper. It makes for a good anecdote, but like every statistician knows, the plural of anecdote is not data.

I don't agree that this is a sign of widespread fear or some other market psychology (I'm not an especially big believer in market psychology in general). Everyone's factoring in additional risk premium because everyone is 100% correct to factor in additional risk premium. Lehman actually defaulted with their clearing house, prompting the crisis that killed them ... I mean, WTF???? There are easier ways for a bank to commit suicide.

PS. Always good to talk to someone who pays attention to that kind of thing - I remember reading the same Bloomberg article you did. You're on the street, I take it?
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And I thought some of Justice Scalia's opinions were hard to follow along with... :laugh:

I gotta say, the complexity and depth of the financial world is a little overwhelming to the layman, at least to me. Props to you guys who actually get this stuff and can carry a conversation about it :thumbs:
 
It's only tough to understand because I need an editor. :)

If you - or anyone else - wants a lay treatment of the banking and finance industry, the BEST popular treatment that I've read is Doug Henwood's book Wall Street. You don't have to agree with his politics, but the man worked on the Street and knows his stuff inside and out. And he's a good writer to boot.


Out of print, but available for free download here: http://www.leftbusinessobserver.com/WSDownload.html
 
So where is the Dow Industrials headed? Let's look at history going back to the lows after the Depression in 1932
All data is on a monthly basis...hence the actually highs and lows may differ from the actual as it is only looking at monthly closes.

There have been 4 major up moves for the Dow Industrials since it bottomed during the Depression in 1932....lets look at them

1.
April 1932 low 42.84
October 1972 high 1020
A move of 978 points
Downward correction to 607.87 in July 1974
A correction of 42% (remember that number)

2.
July 1974 low 607.87
Aug 1987 high 2662
A move of 2055 points
Correction on the October 1987 crash to 1833
A correction of 40.34%

3.
October 1987 low 1833
December 1999 high 11,497
A move of 9664 points
Correction by September 2002 to 7591
A correction of 40.42%

4.
September 2002 low 7591
October 2007 high 13,930
A move of 6339 points
Correction by July 2008 to 11,350
A correction of 40.70%

Interesting isn't it?
These 4 major bull markets each corrected right around 40%, including the current drop.
If your an odds player this would mean that this is the best buying opportunity since September 2002 (six years!) and has only occurred 3 times in the last 75 years. Sure the current market looks bad...oil, financials, foreclosures....on and on. But that is what bottoms are made from. Things look so stacked against the market there is no way it can or will ever rally. Doom and gloom prevails as its has with each of the previous corrections. The low in 1932 in the midst of the Great Depression, the low in July 1974 in the midst of the oil crisis (lines at the gas stations) which began just 9 months earlier, the low in 1987 after what was the biggest disaster since the Great Depression, and finally the September 2002 low coming one year after the attack on the World Trade Centers.

So here we are now with all this negative news and people talking about how bad things are. July 15, 2008, I believe was a significant day; the low-the 40% correction. You are already seeing signs....oil has dropped (but they all say its going back up-yeah right), gold has dropped, dollar is rallying, and a host of other things. I'll admit the current issues look overwhelming, but they always do. It won't be until we are 2000 Dow points higher (or perhaps more) that the market will begin to realize (and the data will begin to show) things are getting better. Now is the time to be buying! Upside projection for the Dow Industrial (from here) is between 17,250-19,500. How long this will take? I have no idea. Could be 2 years-could be 10 years. But I will be long until then and then reverse for the next 40% correction You heard it here first!.


So how will I know if this all wrong? Closing on a monthly basis below 11,000. Then here comes The Great Depression II...and that will be bad-very bad. Lets hope the above scenario pans out!





The last 2 day of rally (+7.33%) and the close off the low of the week (+8.0%) has only occurred a few times in history going back to 1956 and "ALL" occurred at significant market bottoms!
 
Marco-Polo said:
PS. Always good to talk to someone who pays attention to that kind of thing - I remember reading the same Bloomberg article you did. You're on the street, I take it?
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Didn't notice this until now. I follow the street from a small town in CT, trying to help clients make sense of it.

Ugly day today.
 
tigger said:
Marco-Polo said:
PS. Always good to talk to someone who pays attention to that kind of thing - I remember reading the same Bloomberg article you did. You're on the street, I take it?
Click to expand...


Didn't notice this until now. I follow the street from a small town in CT, trying to help clients make sense of it.

Ugly day today.
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At one point I think it dropped 777!

Oops...almost time to BUY!:

Stocks tumble as bailout plan fails in House


NEW YORK - Wall Street's worst fears came to pass Monday, when the government's financial bailout plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones industrials down nearly 780 points in their largest one-day point drop ever. Credit markets, whose turmoil helped feed the stock market's angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.
 
Does it really matter how much it drops?

How much worse can it get. Pull all your money out and put it in your piggy bank for a while.. At least you can't lose it that way.
 
bully1875 said:
Does it really matter how much it drops?

How much worse can it get. Pull all your money out and put it in your piggy bank for a while.. At least you can't lose it that way.
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It is funny you should say that. I just got into a discussion about this idea the other day. But basically, money has no intrinsic value. It isn't even backed by the gold standard anymore. It only has a value relative to the global economy. So, let's say you take cash out all your assetts and put it into cash; if the value of the American dollar drops, then even the value of your cash is less. And becasue we are so dependent upon foriegn manufacturing, as the value of the dollar drops, most all goods and services will become more expensive.

But ammo .. now that has some intrinsic value. ;)
 
Where'd that $700-billion figure come from?

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

Linky - thanks Moki!

Oh yea..not politics!

:D
 
Blue Dragon said:
bully1875 said:
Does it really matter how much it drops?

How much worse can it get. Pull all your money out and put it in your piggy bank for a while.. At least you can't lose it that way.
Click to expand...
It is funny you should say that. I just got into a discussion about this idea the other day. But basically, money has no intrinsic value. It isn't even backed by the gold standard anymore. It only has a value relative to the global economy. So, let's say you take cash out all your assetts and put it into cash; if the value of the American dollar drops, then even the value of your cash is less. And becasue we are so dependent upon foriegn manufacturing, as the value of the dollar drops, most all goods and services will become more expensive.

But ammo .. now that has some intrinsic value. ;)
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Very true. Our money is essentially Fiat money. It is actually pretty scary when you delve further into this and realize that most other nations around the world have been accumulating and hoarding gold reserves for years, and the U.S. has been selling theirs off. The true value in our nations currency is more or less a gauge of 'the confidence of the people in the ability of the government to effectively run the affairs of state'. This is a very dangerous thing!
 
We have a no politics rules. If you can't abide by it, this thread will be locked down, and your account may be suspended.
 
:p

.......


Ok...so, who thinks Cramer's suggested drop to the 8000's seems appropriate?
 
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