Posted on 02/29/2008 3:21:52 PM PST by TigerLikesRooster
Stocks slide as investors scramble for safety
By Michael Mackenzie and Saskia Scholtes in New York
Published: February 29 2008 19:08 | Last updated: February 29 2008 21:10
Stock prices and bond yields tumbled on Friday as fears about the stability of the financial system sent investors scrambling for the safety of government debt.
The yield on the two-year Treasury note dropped to its lowest level in nearly four years, while the S&P 500 stock index fell 2.7 per cent and the Dow Jones Industrial Average lost 2.5 per cent.
Traders said sharp falls in the prices of mortgage bonds and municipal bonds this week led to margin calls for some investors, exacerbating volatility as traders closed their books for the month and several leading investment banks marked the end of their fiscal first quarter.
“No question, margin calls are driving prices lower and there is more to come,” said Tom di Galoma, head of Treasury trading at Jefferies & Co.
Investors also reacted to dismal US economic data, continuing worries about credit insurers, a UBS report predicting that losses from the credit squeeze could reach $600bn and $15bn in writedowns from insurer AIG after the close of trading on Thursday.
“We are in the middle of a financial crisis,” said Larry Kantor, head of research at Barclays Capital.
The search for safety sent the yield on the two-year Treasury from 2.12 per cent on Monday to 1.64 per cent on Friday – its lowest level since April 2004.
The difference between the yield on the three-month Treasury bill and three-month Libor, the rate banks charge each other, was about 1.2 percentage points. That is about five times its normal spread.
Investors cut “carry” trades that involve borrowing in lower-yielding currencies to invest in higher-yielding currencies, sending the dollar to less than Y104, a four-year low against the Japanese currency. Gold rose to nearly $1,000 an ounce.
“The credit markets do appear to be in the throes of another leg down into the abyss,” said Bill O’Donnell, UBS strategist.
There was good news for one credit insurer as Wilbur Ross, the distressed situations specialist, said he would invest as much as $1bn into Assured Guaranty.
Ping!
Margin calls drive down the price of good stocks, since those who need money are more likely to sell something that still has substantial value.
giving away money and no-one’s qualified to borrow it.
It maybe a GREAT time to buy!
Another ten days like this and stocks will be closer to their fair value. Not there, mind you.
"There's nothing to worry about....there is no crisis....it's only a flesh wound."
I remember a guy on here a few months ago who said that about Apple a few months ago. He won't respond now when I ask him if he really bought it.
Never buy on the way down!
giving away money and no-one’s qualified to borrow it.
paging Paul Volcker.
Oh, the banks are borrowing tons of money from the Fed right now...and offloading their toxic portfolios as collateral.
All of this is partially due to Clinton and Bush pushing the idea that owning a home is the American dream.
It will be around 7500.
The hedge funds and others borrow cheap (less than 1%)and buy income and other US equities. Everything is fine unless the yen strengthens (fewer yen to buy a dollar)and then the hedge funds bail. They sell everything they have to. Today they even sold gold stocks in spite of gold being up.
Borrowed funds are the bane of the current stock market. The big players take way over half of the NYSE and NASDAQ trades and trade these in over 1 million dollar amounts. They then take computer generated derivatives and, finally, sometimes turn the whole decision making process to a program they place in their computers.
For awhile you could predict the general direction of the market by focusing on 110 yen to the dollar. When it dropped below this or 162 yen to the Euro, things began to happen. The dollar had a remakable severe and quick decline this week. Presently, you only need 103 or so yen to buy a dollar.
All of this can change direction, at least to some degree, once the selling stops. No doubt, hedge funds and other big players are going to be careful using borrowed funds. At least I hope so. When the turn comes there will be considerable short covering and a dramatic thrust to the upside.
Just from what I have read. I have no real expertise in this area.
UBS analysts estimate $600 billion of credit crunch losses
By Steve Goldstein | Feb. 29, 2008
LONDON (MarketWatch) -- Total industry losses from the financial crisis should reach $600 billion, with $350 billion coming from listed banks and brokers, UBS strategist Geraud Charpin said in a note to clients, pointing to American International Group as an example of a non-bank and broker that is suffering. The banks and brokers have only written down roughly $160 billion so far....
Dang. That low? DJIA is @ 12,266 right now. I was figuring maybe around the 10K area. But, I'm in it for the long haul. Buy something, let it double and sell half. Preserve and reinvest the principle. It's worked so far.
Real Estate is in the toilet and CD and money market rates are laughable.
No place left to invest but the stock market. I'm staying the course, although I've tried to get dear husband to let me invest in some gold to wear, but he's not buying it..:)
sw
Scoring property at a low price isn't all that bad. Interest rates are @ about 5.5%. (I was going to wait for the baby boom to bust - which seems to be right around the corner - if not now!) And my retired neighbor lives off of CD's. What are they now - 5%? It's very safe and much better than tanking especially if there's plenty of loot involved.
Gold? It's never been valued at zero. It may have been good to buy around the $350 mark. To see it go much higher from the current $975? I dunno. It may be another way to go.
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