Posted on 08/11/2007 10:20:57 AM PDT by Hydroshock
The uncertainty that caused last week's dramatic stock market swings and central bank interventions will stoke investors' fears for a while, but traders likely will know more next week about the illiquid credit valuations behind the turmoil.
As the dust settles after a week in which the Dow Jones Industrial Average had both its single biggest advance this year and its second-biggest decline, investment banks will likely be working overtime.
The largest Wall Street brokerage firms have been trying to mark to market or determine the market value of illiquid esoteric securities that have gone sour in the ripple effects of the subprime mortgage meltdown.
The uncertainty caused the Dow to fall 387 points on Thursday, and another 31 points by day's end on Friday. But despite central bank liquidity injections and laments on Wall Street that the markets need emergency federal funds rate cuts, the large-cap index remained higher for the week by 0.4%.
In the coming week, many fund managers may see their day of reckoning: July's month-end portfolio evaluations by prime brokerage firms that lend to these funds will include some of these best attempts at valuations. Many investors have pointed to Aug. 15 as a day to watch, as margin calls and collateral requirements issued then could generate some forced selling of more liquid assets.
(Excerpt) Read more at thestreet.com ...
ping
Am I the only guy that’s beginning to wonder what it will take to wipe this issue off the front page? As disconcerting as that may be, it’s more disconcerting to wonder who else is pondering that question...
What is... right around the corner? Nothing? Anything? Grrrrrr...
What is... right around the corner? Nothing? Anything? Grrrrrr...
the implication could likely be that the outcome of widespread liberal issuance of ARM’s is about to come home to roost, much like the issuance of margin calls built rather quickly into the events and subsequent course of events that peaked in the media on Oct 29, 1929
If you consider the ripple effect of the huge numbers of mortgages at risk, it is not being a chicken-little to be concerned with this.
This sort of thing will lower the value of all stocks.
Why?
Even a dumb electric utility in the Midwest is priced based on the value of its free cash flow. If credit is cheap, the value of this cash flow will be what some crazy hedge fund buyout guy might be willing to pay for it with borrowed money.
If, on the other hand, credit is tight, then it has to compete with the high interest rates available on bonds and CDs. Its price will fall until its dividend and potential growth are in line with the cost of funds.
That’s my take as well. It is often interesting to watch the planned or not misdirection that seems to take our interest off of certain things at times.
I have considered it, and my take is about the same as yours with regard to that. I’m hoping it won’t turn as far south as it looks like it could.
The powers that be seemed to be showing some grave concerns.
Did I miss something? I’ve been away for a week. The Dow seems to be just a bit lower than it was when I left....
My hunch is they will lower interest rates by next month at the latest, and a substantial lowering of the rates in the near future, would not surprise me one bit.
What is the ARMS reset based on? Why would they go up, particularly if the Fed lowers rates?
I wouldn’t be surprised, but doesn’t that affect our foreign sales of teasury notes? Who is going to buy if we aren’t providing the interest rates others are?
I think a lot of people saw this coming. They know a rather dramatic rate decrease could assist a lot of struggling homeowners. I honestly feel there is no way rates can go up, as they know darn well what would happen. If homeowners are struggling, that means little else is being purchased, and that could very well have wide spread negative consequences. I’m no expert, but outside of lowering rates, I don’t see many other alternatives, especially if this mortgage thing escalates even more in the next few months as some are predicting.
I think you’re right.
OK, so the Fed sends in a bunch of cash to cover “non-performing” paper.
What does this do to the obligee of the paper? Somebody owes somebody something and can’t pay, thats what this is all about.
Is this just a fancy way of covering it up and not calling it a “bailout”?
They ain’t making any more paper. Paper is the best investment you can make. What do you have against low prices?
Well, I’m still tryin to figure out under what political or economic theory a bailout is fair to those folks who scrimped and saved and lived on macaroni and cheese and DIDN’T run out to buy a 42” Plasma tv on their credit card at 18% interest.
If anybody can tell me, let me know!
It’s fair to the scrimping and saving folks in that it doesn’t depress the value of those dollars they sacrificed to put together.
But fair is entirely besides the point. If the economy goes into the crapper, all will suffer — yes, even those scrimpers and savers.
Mass injection of dollars into the economy helps some, hurts others.
You checked the price of Mac&Cheese lately?
ALL prices are skyrocketing.
Prices are rising on the price of oil.
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