Stock Market

[Larry Andrews]

assuming you have any money left to buy these great deals with....

Now that I have to pay full price for my In-N-Out...

But the line is shorter that way. It ain't like those guys make 'fast' food...

[Bob Beamesderfer]

1,020-point roller coaster ride ends with the Dow down 128, but small stocks up.

[Steve Ekstrand]

Absolutely do not use PEG to screen for stock growth. I use it as one of a couple of possible screens for stocks that have been crushed. I tend to be a bottom feeding value seeker out of the wreckage. A better screen for what I'm looking for might be price to sales, but the problem there is a tendency to be the most sector dependent screen for valuation (other than maybe margins). Price to Sales, P/E, and PEG are all correlated to a degree, I just like PEG as being less sector dependent than the others. There is no single variable stock predictor. These are simple mindless screens, then you have to go to work.

I'm looking for stocks that have come down literally like 80% yet they still have growth predictions and earnings. I have zero expectations that they will meet prior estimates. But its just a screen, now the work and judgment comes in to look at the sector, the company, the balance sheet, and decide what prayer those companies will have going forward.

There are the classic defensive plays, but those only interest me when the market is flying and defensive names can't get any lift. The defensive names will make money tomorrow. But the I'm only interested in them right now if they've gone of sale too. Sometimes that works, because in a panic EVERYTHING gets hacked down. If you can spot a diversified quintet of stocks that have solid balance sheets and good business prospects but have been taken to the woodshed this month equal or worse than the overall market, then I'm guess they will make you money mid to long term.

[Steve Ekstrand]

Think about what this is going to do to all those stories about October crashes and sell in May and go away (buy in Nov for the Santa Claus rally or NewYears rush).

And the damn technical players will make it a self-fulfilling prophecy. I hate charts.

[Bob Beamesderfer]

Think about what this is going to do to all those stories about October crashes and sell in May and go away (buy in Nov for the Santa Claus rally or NewYears rush).

And the damn technical players will make it a self-fulfilling prophecy. I hate charts.

I don't go with the techno chart lovers. They assume a rationality that isn't there, ignore stewardship, business case and anything else that can't be plotted on fever line. Stocks don't follow pure economic principals.

[Steve Ekstrand]

There is zero relationship between Economics and Stock charters except for wavy lines.

Stock charters are making pictures and trying to predict the future by hoping the next picture begins to fit some prior picture. Its the stuff of 3yo's. Except you'll usually end up with some geeky fringe idiot with a picture of Lyndon LaRouche in his bedroom whose developed some monster computer program to identify trading patterns in Rorschach cards. There's no science, no economics just a bunch of idiots going look it went up three time within this band and fell to this range each time and look here there's a stock that's drawn the same picture, it has to fall this much. Complete idiots.

[Will Kalman]

Stock charters are making pictures and trying to predict the future by hoping the next picture begins to fit some prior picture. Its the stuff of 3yo's. Except you'll usually end up with some geeky fringe idiot with a picture of Lyndon LaRouche in his bedroom whose developed some monster computer program to identify trading patterns in Rorschach cards. There's no science, no economics just a bunch of idiots going look it went up three time within this band and fell to this range each time and look here there's a stock that's drawn the same picture, it has to fall this much. Complete idiots.

All the answers are here - http://en.wikipedia.org/wiki/Pi_(film" onclick="window.open(this.href);return false;)

"Max, a number theorist, theorizes that everything in nature can be understood through numbers, and that if you graph the numbers properly patterns will emerge. He is working on finding patterns within the stock market, using its countless variables as his data set with the assistance of his homemade supercomputer, Euclid."
...

"The next day, the stock market has crashed and the financial world is in chaos due to the unexplainable drops in value. During a visit with Sol, his old mentor warns him that the mysterious 216-digit number is more than Max realizes"

[Steve Ekstrand]

What is interesting is that true technical analysis in stocks involves only a SINGLE variable.

Every stock chart is simply a plot of price.

Wearing magnets and consulting a magic 8 ball would be more involved.

[Larry Andrews]

"Max, a number theorist, theorizes that everything in nature can be understood through numbers, and that if you graph the numbers properly patterns will emerge.

Wasn't that the storyline of the 'A Beautiful Mind' movie?

And, to think that my bosses don't understand why I don't spend hours with JMP looking for miniscule trends in production data. A quick scroll-wheel scan through the data is all that's needed to determine what's really going on - that, and a shitload of time spent out on the line figuring out what mistakes people are consistently making. (usually, that involves nothing more than listening to people that nobody else listens to) It's a hell of a lot easier to explain chart trends when you know where the bump in teh graph is and what caused it before the data is graphed. Doors seem to cause a profound loss of connection to reality.

My gut seems to think that Wed or Thu will be the end of the sell-off. Maybe Tuesday. Too much value has vanished too quickly. However, if the CDS stuff does indeed keep injecting turmoil then all bets are off. Seems like it would be in everyone's interest to simply rule CDS obligations invalid...

OTOH, it'd RULE to see negative stock values! Take my stock, PLEASE!

[Steve Ekstrand]

A credit default swap is basically an insurance policy. They were written with the attitude that "oh yeah, I'll take your premium" because even if somebody failed the RE market was climbing so fast you couldn't really lose money. So, collateral was pennies on the dollar and insurance was written cheap and fast on things with no real underwriting. Now in a crash its impossible for the insurers to come close to covering the claims.

The CDS's are causing problems because they are worthless. Declaring them worthless doesn't solve anything except it truly would take a guilty party and let them off to the detriment of maybe a not so guilty party. Let say the state teachers fund purchases a portfolio of mortgages in the form of a CMO. To make sure the risk level fits within their investing guidelines they purchase CDS's from AIG. The teachers pension fund didn't do anything wrong. They are buying a bond like instrument that is rated AA or AAA by Moody's. They are purchasing default insurance from AIG who is highly rated. They are the innocent party. Invalidate CDS's and the teachers suffer and the criminals at AIG walk.

[Steve Ekstrand]

All this stuff is so complicated and I haven't even made a real effort at trying to understand it (I should but if I got to wrapped up in this stuff with my students I'd never get to the core skills they need).

Maybe what Larry was alluding too and something I would support, that is regarding third party CDS speculation plays. CDS serve an important role like I wrote about in the above post. However, a tremendous amount of speculation went in to the credit derivitives market. People who didn't even own a mortgage security, would simply purchase a CDS as a bet on the mortgage market. It was flat out gambling under the guise of an insurance policy.

An example would be purchasing a insurance policy that pays a pre-determined amount based on some independent event. Like CSCC Solo purchasing a policy that pays $3000 if it rains on Nov 9, 2008 in the city of Fontana, CA. Such deriviatives markets were created to allow hedging. We are at risk with our events. We pay a rental fee to Auto Club Speedway and also for toilets and sanction. If it rains and only a few people show up we loose a lot of money. If AIG writes us an insurance policy that pays if it rains and the premium is cheap, like say $45, then we'd probably do well to purchase the protection.

So, I might see given the extraordinary situation here cancelling CDS transactions that were pure speculation. But how do you determine that? We want to protect the teachers union. We want to protect the CSCC Autocrossers. You might have a contract that looks like pure gambling on other peoples misery, but it might serve a legitimate hedging purpose. If I'm a real estate agent, developer, or contractor I might purchase a CDS on the theory that if business goes bad and I lose income, mortgages will probably fail too and my CDS will pay off. That's the whole purpose of the product. That said, the majoirty of CDS contracts it would appear have nothing to do with insurance or hedging they were pure speculation plays at the Wall Street Casino.

[Larry Andrews]

yeah, the criminal component of the equation hasn't yet been examined adequately - no argument. Feetfirst in nitric would be too soft.

Seem to remember hearing that there's CDS obligations that exceed global GDP by ~3-4x. As a way of managing the liquidity mess that seems to be pushing things well beyond a reasonable point, taking away that arbitrary pressure could help things.

It ain't like the school teachers' pension is going to see a dime from a CDS as it is.

Note: Just read steve's new post...seems like we're more in agreement than not.

Oh, and my favorite tidbit from Liz Ann 'bleached hair and teeth' Sonders..."the stock market is only one ring in the current financial circus (I mean crisis)" and "But one silver, albeit tarnished, lining is that the U.S. stock market has fared relatively well during this crisis. "



2nd Edit: Just found this idea on another site...apparently a call-in to one of those Uber-Liberal NPR types.
The caller proposed that "the bailout concept be that neighbors of foreclosed houses be the ones who are allowed to buy them up dirt cheap at bargain interest rates, then rent them back out to the former homeowners who got foreclosed.

The foreclosee's get to stay in the same house for a price they can afford, but they no longer own them, as it should be. The banks on Wall St don't get bailed out and end up losing the equity difference between their irresponsible loans and the sweetheart deal that the NEW owners get. The real winners are the responsible owners who get to buy into investment properties dirt cheap, while keeping their neighborhoods intact and in some cases generating a monthly profit on their investments. Even at break even on rent vs mortgage, they get to build their own little real estate monopoly without tax penalty as a reward for being responsible through this whole craze. "

[KJ Christopher]

2nd Edit: Just found this idea on another site...apparently a call-in to one of those Uber-Liberal NPR types.
The caller proposed that "the bailout concept be that neighbors of foreclosed houses be the ones who are allowed to buy them up dirt cheap at bargain interest rates, then rent them back out to the former homeowners who got foreclosed.

The foreclosee's get to stay in the same house for a price they can afford, but they no longer own them, as it should be. The banks on Wall St don't get bailed out and end up losing the equity difference between their irresponsible loans and the sweetheart deal that the NEW owners get. The real winners are the responsible owners who get to buy into investment properties dirt cheap, while keeping their neighborhoods intact and in some cases generating a monthly profit on their investments. Even at break even on rent vs mortgage, they get to build their own little real estate monopoly without tax penalty as a reward for being responsible through this whole craze. "

How many neighbors have even 10% of the outstanding balance on the houses? For those who don't, where would they get the cash? The banks just take a 90% write down and finance the remaining balance over 30 years fixed?

[Steve Ekstrand]

yeah, the criminal component of the equation hasn't yet been examined adequately - no argument. Feetfirst in nitric would be too soft.
Seem to remember hearing that there's CDS obligations that exceed global GDP by ~3-4x. As a way of managing the liquidity mess that seems to be pushing things well beyond a reasonable point, taking away that arbitrary pressure could help things.

The CDS total market probably exceeds the 2007 WORLD GDP of $54 Trillion. I had to look up 2007 GDP as I wasn't sure if we passed $14trillion or not. We hit $13.8Trn. The entire European Union is at $16.8Trn. The next country is Japan with $4.38Trn. I think its funny all the commentary out of Putin and other "enemies" and even domestic pundits about the US will no longer be a financial superpower. We'll no longer be relevant or significant.

Okay so who will takeover??? Russia? They are a larger country with more natural resources, but a smaller population and an economy 1/12th of ours. China? A 1/4 of our economy even though they have 4x the people. Ouch, 1/16th the standard of living. Saudi Arabia??? 24Mln people with a $376Bln economy. The Saudi's are 1/5th of the California economy. Makes you think doesn't it? We can have the great depression and the US is still the big fish in the pond and then some. You have to combine the next five richest countries in the world just to get close to the US Economy. The entire middle east and toss in South American and it doesn't make it even remotely close. Anyway.... Just an aside after looking up the 2007 numbers.

Back to the CDS's. Blows me away that the market is larger than World GDP. That is sick. And its

Aren't you curious about the name. Credit Default Swaps. Swaps are insurance. That is what they are properly used as. That is how they are modeled and should be underwritten (but aren't). Why aren't they? The better question is why are they called a swap? The answer is because if you called it insurance, the government would have to regulate it. Call it a swap and its anything you want it to be and the government doesn't have oversight or regulatory powers. Sorry once again, I can embrace the libertarian view. The market just can't factor stuff in that lacks any semblance of transparency. We have a clear and obvious market failure, the market didn't have a chance. The invisible hand is my friend but it has its limitations.

[Bob Beamesderfer]

The invisible hand is my friend but it has its limitations.

The invisible hand just got scalded.

[Will Kalman]

OK, so the government is going to buy bank stocks. What money does the government have? Isn't this just shifting the problem to be bigger at a later time? Isn't this type of credit-shifting the same type of shenannigans that got us here?

[Thomas Barrett]

OK, so the government is going to buy bank stocks. What money does the government have? Isn't this just shifting the problem to be bigger at a later time? Isn't this type of credit-shifting the same type of shenannigans that got us here?

Yes, I think so too.

We just did a balance transfer to another credit card.

No easy way out here I am afraid.

[Bob Beamesderfer]

Dow up 936 today, 11%, biggest day in 70 years [points]; all 10 S&P sectors up 7% or better, overall index up 11.6%

[Steve Ekstrand]

Banks aren't as simple as that.

You can't just let it shake out and let some fail, because then you get a run on basically all banks and all financial institutions. Then eveything fails.

The CNBC tag line even today is "Is your money safe?" That's the question everybody has. I REALLY HAVE IT....

This most recent scheme to invest in banks was probably brought on by BofA having difficulty selling out its $10billion secondary. BofA was supposed to be bulletproff, but investors didn't want in. And when that happened suddenly BofA was at risk of being under capitalized and in danger. Now if nobody reacted to that news, BofA could never I mean NEVER fail. But even BofA started feeling the tremors of a run. A run on any bank is unsurvivable. Banks are unique in that way. No other business can be reduced to ashes in 48 hours.

You backstop the banks worldwide and we can begin to get on with the game again. As things get stronger we can consider ways of keeping this from happening again.

[Steve Ekstrand]

I really thought from 12:30 on we'd see a thousand. I'm surprised it went the other way after the close after such a steep run up. Some things got sold off at the close.

My energy overweighted portfolio was up 18% today. That's a big day. I'm still underwater on my rushed gamble on the failed bailout day.

Just heard it announced that the all non-interest bearing bank accounts will be guaranteed without limit. Not sure who parks more than $250K in non-interest bearing accounts but they will now. No more need to go through the sometimes obnoxious Tbill buying process and constantly have too worry about expirations every 90 days in order to have a safe parking space for your fortune.

[Steve Ekstrand]

Krugman won the Economics Nobel..... I'm really in tears now.
He's such a fricking blowhard.
He's never been a scientist. He's a blogger. He's a politico.
They just awarded a Nobel to somebody for being a critic of George W. Bush. How hard is that???
I hate Krugman. And unlike most conservative critics I've actually read maybe eight of his books.

Forget the free trade stuff... This is a lifetime acheivement award for being a loyal lapdog for the left. They had to look for something that sounded like a theory and they free trade stuff fit the bill. Karl Marx believed in free trade too. Probably 99% of all economists do.... That's bold.

Sorry had to vent.... Bob B. probably loves this guy. ;)

http://money.cnn.com/2008/10/13/news/ec ... /index.htm" onclick="window.open(this.href);return false;

[Bob Beamesderfer]

Krugman won the Economics Nobel..... I'm really in tears now.
He's such a fricking blowhard.
He's never been a scientist. He's a blogger. He's a politico.
They just awarded a Nobel to somebody for being a critic of George W. Bush. How hard is that???
I hate Krugman. And unlike most conservative critics I've actually read maybe eight of his books.

Forget the free trade stuff... This is a lifetime acheivement award for being a loyal lapdog for the left. They had to look for something that sounded like a theory and they free trade stuff fit the bill. Karl Marx believed in free trade too. Probably 99% of all economists do.... That's bold.

Sorry had to vent.... Bob B. probably loves this guy. ;)

http://money.cnn.com/2008/10/13/news/ec ... /index.htm" onclick="window.open(this.href);return false;

Don't know him. Besides, the Nobel Memorial Prize in Economics is not the same deal as the science awards. It wasn't established by Nobel's will and has often been controversial. Wikipedia:

The Prize in Economics, as it is frequently referred to by the Nobel Foundation, is a prize established and funded by the Bank of Sweden, in memory of Alfred Nobel. It was instituted in 1968 on the 300th anniversary of Sveriges Riksbank (the central bank of Sweden, sometimes called the Bank of Sweden or the Swedish National Bank).

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is not a Nobel Prize.[4] However, the nomination process, selection criteria, and awards presentation are conducted in a manner similar to the Nobel Prizes.[12][15][18] The Prize in Economic Sciences is awarded by the Royal Swedish Academy of Sciences "in accordance with the rules governing the award of the Nobel Prizes instituted through his [Alfred Nobel's] will",[12] which stipulates that the prize is awarded annually to "those who ... shall have conferred the greatest benefit on mankind".[3]

Controversies and criticisms

Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy. Among the most vocal critics of the Prize in Economics is the Swedish human rights lawyer Peter Nobel, a great-grandnephew of Alfred Nobel.[25] Swedish economist Gunnar Myrdal and former Swedish minister of finance Kjell-Olof Feldt have also advocated that the Prize in Economics should be abolished.[26] Myrdal's objections were based on his view that the 1976 Prize in Economics to Milton Friedman and the 1974 Prize in Economics shared by Friedrich Hayek (both classical liberal economists) were undeserved, on the argument that the economics did not qualify as a science. If he had been asked about the establishment of the Prize before receiving it, Hayek stated that he would "have decidedly advised against it."[26][27]

Some critics claim the selection of recipients for the Prize in Economics is biased toward mainstream economics.[28][29] The Department of Economics at the University of Chicago has garnered nine of these Prizes—more than any other university—leading some critics to opine that such an outcome demonstrates either a bias, or the appearance of one, against candidates with alternative views.[29]

In short, I don't see a reason to care.

[Steve Ekstrand]

The funny thing is..... In the last 35 years the only two awards I felt were truly deserving went to Milton Friedman and Fredric August Von Hayek.

Atleast the selection process makes more sense than the Peace prize.....

[Giovanni Jaramillo]

Dow up 936 today, 11%, biggest day in 70 years [points]; all 10 S&P sectors up 7% or better, overall index up 11.6%

You can scratch that Bob!

From CNN Breaking News

-- Recession fears help send Dow down more than 700 points at close for the second time ever.

[Steve Ekstrand]

Today had a real ugly vibe.

Prior weeks it was runs on banks and investment houses. Today its a realization that the runs on hedge funds and mutual funds aren't letting up. In fact the up day Monday may have increased the fervor to get out now. With everybody over leveraged, mass wholesale redemptions are about the most scary thing I can imagine. When we start hearing about funds going bust how is that going to shake people.