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!
"There's nothing to worry about....there is no crisis....it's only a flesh wound."
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.
In the last two weeks, I’ve noticed a marked drop in tax free municipals. Those are some of the safest harbors around, but with the current drop, yields may be over 5% soon.
Practically speaking, this is about the same as a 10% or better return on a typical investment. You have to be under a lot of pressure to surrender a safe return like that.
The bottom line to this market is where is the freed up money going? If it is going to cover losses, that means the market is still heading south. If it is to build up a cash reserve to bargain hunt, the market will recover.
What I would suggest is making a list of 10 stock sectors, from safest and stablest on the bottom, to riskiest and high return on the top. When the bottom half of the list is on the uptick, the market is probably going to go north again.
So will Monday bring more of the same?
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."~~Irving Fisher PhD, leading U.S. economist , New York Times, October 17, 1929
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."~~Harvard Economic Society, October 19, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." ~~R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
Asian indexes are looking steady, with Chinese indexes up a little and most other Asian indexes down only a little for the day. And oil is still high.
It appears that the December plan to lower oil prices and raise the dollar is not working yet. ...will have to lay the rest of the middle class off in order to shut down the larger SUVs. Then maybe oil will go down a little and the dollar up a little. ;-)
That's getting into the range where the Bank of Japan last intervened.
It is an election season, don’t ya know? Markets are expected to fluctuate wildly during the election process. How else would people who own the gold pick the puppet of their choice?