Is the stock market going to tank?

[Toadman]

The Fed knows who needs cash and who has surplus. They also know who has spare quality collateral. They all but prompt them to take the cash on offer and pass it around.

So what happens when they can't pay it back? They lose the collateral, and what does the CB do with the collateral? Sell it? Where's all this surplus cash coming from anyway?

[Brock Landers]

Cant the CBs just buy or sell govt securities to alter the money supply? In this case, the Fed buying treasuries gives liquidity to the banks ?

[4matic]

You're getting dangerously close to money laundering...

So here's a paragraph from today's WashPost:
"The New York Federal Reserve said this morning that it had put an additional $50 billion into the banking system -- part of a global wave of liquidity offered by its counterparts in other countries. The European Central Bank added around $100 billion to the system, Tokyo $24 billion, and London $36 billion. "

So what's it mean 'putting $ into the banking system'? So the New York Fed 'puts in $50 billion'. They just call up, say Citibank, and say yo, ya need a few billion today?

Banks can take short term loans to meet capital requirements and the banks lend money at floating rates among themselves for the same purpose. Fund rates approached 6% yesterday so "liquidity" was injected into the funds structure to keep overnite rates near the 3.5% Discount Rate target.

[neck beard]

So what happens when they can't pay it back? They lose the collateral

Lots of info here http://www.frbdiscountwindow.org/cfa...drID=21&dtlID=

Not all collateral is equal and the Fed demands a haircut (over collateralisation) depending on the quality. If you cant repay then you have defaulted on the Central Bank. That's one way to go out in huge style. Should that happen, the Fed then has your pledged/repoed assets and would at some stage sell them I assume.

In the case of AIG, it looks like the Fed will take AIG warrants (options) which in the case of AIG's inability to pay back the $85bn, the Fed can exercise those warrants and gets shares in AIG with payment being the cash already extended in the short term bridging loan. In short, AIG warrants are not really collateral at all. The Fed has basically said "here's a huge short term loan. If you can’t repay, we own 85% of you". AIG gets out of jail free.

Remember that non-bank Broker/Dealers Like LEH, ML, GS, MS etc don't have access to the Fed discount lending window. They can’t pledge collateral against a short term depo. So for the Fed to then bail out AIG, which certainly cant access the facility, is a very serious event. AIG is NY State regulated, not even Federally.

You should be concerned that AIG’s regulator has extraordinarily allowed the financial products entity within AIG to access valuable and usually legally ringfenced collateral within AIG’s insurance subsidiaries. That collateral is there to back up claims on your insurance policies, not to use as emergency collateral to obtain desperate funding due to very bad CDO trades (for which the average senior trader is probably paid about $500,000 per year plus the same or more in bonus. The good ones get much, much more.)

Where's all this surplus cash coming from anyway?

The surplus cash (at an individual commercial bank) comes from... borrowing more money than you have commercial assets: not usually intentional. Having long term debt against short term assets will bring it about. It's a great, but traditionally money-losing position to be in. If you do have this surplus cash, each and every day you are looking for the best place to put this surplus in the interbank money market. However, within the entire system, there is almost no surplus: all commercial banks should in theory be left with a very small balance at the central bank account at the close of each day (beyond any regulatory minimum balance). This presupposes that they lend to each other – which in non-crisis times is what happens.

[LeeLau]

I like the fact that senior fed officials have stated that this deal is not a nationalization of AIG. Said with a straight face. Commons pretty much wiped out

[Platinum Pete]

dow below 8k bump

[iceman]

dow back over 8K bump

[4matic]

Classic Bear market action the last week. Slow grinding down with the occasional bounce. The only positive I have seen is stock futures trading with premium at times lately. No premium=No rally.

[jce338]

...rally

[skier666]

Did someone say 7,000!

Holy shit balls....end of day 11/20/08 = 7,552.29!!!!

Hot damn, our AG Edwards account is grasping for air but my savings and money market accounts are just killing it....well are positive at least..

Dow 5yr ----------

[Platinum Pete]

Anybody think we'll see the market drop below 7000 before spring?
Below 6000 before end of 2009?

[RootSkier]

Above 20K by 2012?

[jbach]

Anybody think we'll see the market drop below 7000 before spring?
Below 6000 before end of 2009?

Might see <7000 before the end of next week at this rate...

[julesrules]

dow to levels not seen since 1997 - that would be the year i graduated high school. everybody get long on gold and short treasuries. that would help me out a lot. thanks.

[Droopy]

I thought this thread was about the "Stoke Market" instead 18 pages later I am just really depressed.

[Jim S]

Might see <7000 before the end of next week at this rate...

+1

Just a dumb feeling. I say 6000 by April/early May. It's all in this book:

[LeeLau]

Post preservation service from mid 2007

I work specifically in financials and financial stocks were cheap on Weds, now they are trading very close to August 1998 valuation levels. If I liked something at $30 on Weds I love it at $26 on friday.

In general I think stocks are still cheap vs. historical valuation metrics. Maybe its not the bottom but its going to be close. Too many doom and gloomers out there and its opening up alot of buying opportunities.

WRONG!!

they barely retraced. nmost of them are going to get downgrades in eps very soon- this is just a bounce ... may last till tues.

The financial are still over valued based on this whole CDO mortgage crap. You can trade them for a quick bounce ( +10% max).

barely retraced? You're right the S&P is up 4.5% this year and S&P financial index is down 8.2%.

May last til tuesday? Is that what the magic 8 ball told you? Fundamentally there is nothing wrong with 90% of these companies.

well, you've got the credit market, which is in ruins right now.

meanwhile, we can't get any issues done, and deals are falling apart.

and news issue are Libor +7% + - that translates into a 13% - 14% coupon on the new LBO deals. NO WAY! You've got 350 Billion dealing that need to be funded... banks are eating shit. Can't get anyone to buy the debt.

it's a very bad situation, i've heard money markets are in trouble too, how is that for a clincher?

[Poop~Ghost]

LOL, CUBUCK, you care to eat that crow?!

Props to BD4All... hope you had the gumption to bet against the housing market.

[Lonnie]

I am ready for some irrational exuberance....

[72Twenty]

I don't feel like going back through all of it, but were there any predictions on a 19-0 Patriots season?

[Brock Landers]

John Elway molests collies

[Buster Highmen]

I do consider that a factor. but Bill Gross has been considering that a factor for quite some time. since 2002, I think. for what ever reason, things keep getting cheaper in real dollar terms.

are we learning from the late 90s? The 7 percent gain in the DJIA would have seemed downright pedestrian back then and almost no one was giving the doom and gloom.

I guess the companies driving this are actually making money, unlike the tech/telecom boomers.

not only that, but imagine the DJIA's gain if companies like GM weren't in the index over tha past five years.

Just IMAGINE! Especially in the light of tech stocks like msft who are making absolutely no $.

[jbach]

+1

Just a dumb feeling. I say 6000 by April/early May. It's all in this book:

I was one trading day off We're now well on our way to your prediction.

[grrrr]

One more day and the dow will be down 50% over the year.

[Benny Profane]

What happened to Yossarian? He started this thread.