Dow drops another 297 points

[Defender968]

Sadly I think we'll be there by months end, I hope I'm wrong but they're not addressing the problems best I can tell. On top of that the one keeps preaching doom and gloom, and then he and our politicians go and spend another 500 B on nonsense.

If outrageous spending were a path to economic security wouldn't we be there by now, I voted for the last POTUS both times but the spending he and the Repubs presided over was a train wreck, and now this POTUS seems to think spending more is Change and if he just goes over the top with spending that somehow it will all get better, least that's their public strategy.

Einsteins definition of insanity anyone? “Insanity is doing the same thing over and over again and expecting different results”.

[csquare]

The media blasted W every chance they could for the fear tactics of the "boogyman" living in the closet.
BHO, instead of reassuring us and the rest of Wall Street, he has become the next to use fear tactics. Sending panic and desperation to everyone, spreading doubt and fear. WHY? Because he is so anxious to cram through every last spending bill, tax increase on the so-called rich, new government regulation, and expansion of healthcare entitlement that he must preserve the atmosphere of crisis as a political necessity. Only by keeping us in a state of panic can he induce us to vote for trillion-dollar deficits and spending packages.

[Ret10Echo]

For those of you who want to read a little more on the "budget"

http://www.whitehouse.gov/omb/assets...nsibility2.pdf


Note that there are line items in there that increase certain fees that agencies must collect upward of 500 million dollars.

It isn't a tax increase....but that's what is NOT going to be in your wallet.

[Sigaba]

Originally Posted by csquare

The media blasted W every chance they could for the fear tactics of the "boogyman" living in the closet.
BHO, instead of reassuring us and the rest of Wall Street, he has become the next to use fear tactics. Sending panic and desperation to everyone, spreading doubt and fear. WHY? Because he is so anxious to cram through every last spending bill, tax increase on the so-called rich, new government regulation, and expansion of healthcare entitlement that he must preserve the atmosphere of crisis as a political necessity. Only by keeping us in a state of panic can he induce us to vote for trillion-dollar deficits and spending packages.

FWIW, I think the president is sending two messages that are presently in conflict. One message speaks of 'change' in what is done and how. In essence, this vision amounts to a grand strategy for the United States. While I disagree with much of this vision, I appreciate that it offers an endstate in which America is acting rather than reacting.

The other message, increasingly shrill, is a throwback to the crisis management stance that,as often as not, has characterized the federal government's responses to unfolding events. This stances sees America reacting rather than acting.

It is my view that QP csquare's analysis demonstrates how the president is trying to split the difference between these two messages. I would much prefer that the president harmonize his rhetoric with his vision. (That he has not underscores my personal belief that his reputation as an outstanding orator is, so far, undeserved.)

During the interregnum, the then-president elect said something that struck me as problematic when he spoke of the need of appearing to be a strong, confident leader. For all of his study of Lincoln, Franklin Roosevelt, and references to Ronald Reagan, it seems that the president does not yet grasp that the appearance of leadership is different than leadership. If the president were to learn this distinction, I think he might realize the value of talking to his skeptics and critics rather than at them.

[nmap]

Please let me offer another possibility. It may well be that the administration is in a state of panic. Furthermore, they may have some justification for that attitude. Let's put the current decline into some perspective. The lowest point that the Dow Jones industrials reached during the Great Depression of 1929 was 41. That occurred in July 1932. The high point of the Dow was 14164. We have now lost more than half of the appreciation that has occurred over the past 77 years, and we did it in a short time.

The problem we face is a cascading failure. Many large public companies, including those with stocks included in the averages, have defined benefit pension plans. These plans are regulated. In order to achieve high levels of growth, the company's have invested their pension funds in stocks and other instruments that have declined substantially in the current market. Under the regulations, the companies are required to subtract the deficiency between the pension funding requirements and the existing value directly from shareholder equity. Boeing is one particularly telling example. In 2007, their pension fund had a $4.7 billion surplus. In 2008, the pension fund has an $8.4 billion deficiency. When the values are deducted from shareholder equity, there is a real risk that the individual stock will decline further. However, this puts further pressure on pension funds that invested in that particular stock. Then they have to go out and make up further deficiencies. The declines build upon themselves. More discussion of the problem is available at LINK

Still worse, we do not appear to have accomplished capitulation. At some point, shareholders simply throw up their hands, sell their stock for however many pennies they can get, and walk away. Generally, that means that selling is exhausted. We're not there yet. We have further to go.

What does this mean? Probably more massive layoffs. Certainly a reduction in tax revenues, both from individuals and corporations. At the same time, the demand for social services of every sort at both the state and federal level will increase. We are in unknown territory. And although there is a wealth of opinion, no one really knows when the current bear market will end. Still worse, despite the wealth of opinions, no one really knows how to correct the current problems in the economy.

How will Americans react as they lose their homes, their cars, their jobs, and their hopes of future retirement? I don't claim to know, but politicians must surely suspect that incumbents will not be popular. Blaming previous officeholders will work for a time, but not permanently.

So I suspect that those who are now responsible for dealing with the situation are quite literally in a state of panic. Unfortunately, such a mindset may not lead to optimal outcomes.

[Team Sergeant]

Originally Posted by nmap

Please let me offer another possibility. It may well be that the administration is in a state of panic. Furthermore, they may have some justification for that attitude. Let's put the current decline into some perspective. The lowest point that the Dow Jones industrials reached during the Great Depression of 1929 was 41. That occurred in July 1932. The high point of the Dow was 14164. We have now lost more than half of the appreciation that has occurred over the past 77 years, and we did it in a short time.

The problem we face is a cascading failure. Many large public companies, including those with stocks included in the averages, have defined benefit pension plans. These plans are regulated. In order to achieve high levels of growth, the company's have invested their pension funds in stocks and other instruments that have declined substantially in the current market. Under the regulations, the companies are required to subtract the deficiency between the pension funding requirements and the existing value directly from shareholder equity. Boeing is one particularly telling example. In 2007, their pension fund had a $4.7 billion surplus. In 2008, the pension fund has an $8.4 billion deficiency. When the values are deducted from shareholder equity, there is a real risk that the individual stock will decline further. However, this puts further pressure on pension funds that invested in that particular stock. Then they have to go out and make up further deficiencies. The declines build upon themselves. More discussion of the problem is available at LINK

Still worse, we do not appear to have accomplished capitulation. At some point, shareholders simply throw up their hands, sell their stock for however many pennies they can get, and walk away. Generally, that means that selling is exhausted. We're not there yet. We have further to go.

What does this mean? Probably more massive layoffs. Certainly a reduction in tax revenues, both from individuals and corporations. At the same time, the demand for social services of every sort at both the state and federal level will increase. We are in unknown territory. And although there is a wealth of opinion, no one really knows when the current bear market will end. Still worse, despite the wealth of opinions, no one really knows how to correct the current problems in the economy.

How will Americans react as they lose their homes, their cars, their jobs, and their hopes of future retirement? I don't claim to know, but politicians must surely suspect that incumbents will not be popular. Blaming previous officeholders will work for a time, but not permanently.

So I suspect that those who are now responsible for dealing with the situation are quite literally in a state of panic. Unfortunately, such a mindset may not lead to optimal outcomes.

Hey Hey Hey, I said that months ago!!!

http://www.professionalsoldiers.com/...ing#post225108

I still do not see an end in sight.

I have another idea/thought of which I hope is wrong.

What if this is the deliberate destruction of the most powerful capitalist nation in the world?

At this moment in time I cannot think of any other reason almost 4 trillion is being spent other than to destroy the dollar and our current way of life.

One does not throw water into a sinking ship, not unless he wants it to rest at the bottom.

Team Sergeant

[Ret10Echo]

Originally Posted by nmap

We are in unknown territory. And although there is a wealth of opinion, no one really knows when the current bear market will end. Still worse, despite the wealth of opinions, no one really knows how to correct the current problems in the economy.


So I suspect that those who are now responsible for dealing with the situation are quite literally in a state of panic. Unfortunately, such a mindset may not lead to optimal outcomes.

And what confuses me the most is that those who are responsible for creating an atmosphere where these sort of things were allowed to occur (blind eyes on both sides of the aisle) are the same people that the American public expects to fix the issue.

This is madness.....

I keep waiting for the outrage.....and all I hear are whimpers...or is that the sound of 300 million wringing hands...

[riversend]

Another perspective on the current mess:


VIX Premium Shows Stocks Bear Market Lasting 2 Years (Update1)
2009-03-02 10:23:49.67 GMT


By Jeff Kearns and Gareth Gore
March 2 (Bloomberg) -- Options investors are paying twice this
decade's average to protect against losses in U.S. stocks through 2011,
signaling the bear market that already wiped out
$10.4 trillion of equity value may last two more years.
"There's a real panic in the markets, with some people wanting to
buy long-term insurance at any price," said Peter Sorrentino, who helps
manage $16 billion, including $130 million in options at Huntington
Asset Advisors Inc. in Cincinnati.
"People have lost hope."
Contracts to protect against a decline in the Standard & Poor's 500
Index for two years cost $15,160 on the Chicago Board Options Exchange,
compared with $6,875 in 2007, according to price-adjusted data compiled
by Bloomberg. Today's level shows traders expect the benchmark gauge for
U.S. equities to fluctuate twice as much in the next two years as it has
since 2000.
Federal Reserve Chairman Ben S. Bernanke said last week the economy
is in a "severe contraction" that may continue to next year unless
actions to save the financial system start working.
The S&P 500 lost 53 percent since peaking in October 2007 while retreats
in commodities and corporate bonds drove 920 hedge funds, or 9 percent
of the total, out of business last year.
Options traders see little chance of relief, based on the so-called
implied volatility of two-year contracts on the S&P 500. It jumped to a
record 43.58 in November and stayed above 30 since then, a level it
never previously exceeded, according to data compiled by Bloomberg and
IVolatility.com, a New York-based provider of options data. Implied
volatility is the main variable in determining an option's price.

Biggest Swings

The S&P 500 slipped 4.5 percent last week to a 12-year low of
735.09 after the federal bailout of Citigroup Inc. reduced shareholders'
stake in the bank and a report showed the U.S.
economy contracted more than forecast in the fourth quarter. The implied
volatility of two-year options closed at 36.08, little changed from a
week earlier.
Futures on the S&P 500 fell 1.9 percent to 720.10 at 10:20 a.m. in
London after Warren Buffett, the billionaire chairman of Berkshire
Hathaway Inc., said in his annual letter to shareholders released Feb.
28 that the economy will be "in shambles" this year, and perhaps longer.
Levels of volatility show traders are using options to prepare for
the longest bear market since 2002. They're at odds with the prevailing
view of Wall Street strategists, who forecast the S&P 500 will rebound
37 percent to end the year at 1,010, based on 10 estimates compiled by
Bloomberg News.

Nowhere to Hide

More than $1.1 trillion in bank losses and writedowns froze lending
in 2008, pushing volatility in the S&P 500 to a record high and sending
62 of 68 industries lower. The intraday fluctuation in the index grew as
wide as 11 percent on Oct. 28, panicking investors. On a closing basis,
the gauge moved more than 5 percent on 18 days last year. Before 2008,
it hadn't risen or fallen that much since July 29, 2002, according to
data compiled by Bloomberg.
Investors had little refuge other than Treasuries last year, as
10-year government notes gained 14 percent in 2008, according to Merrill
Lynch & Co. index data.
Corporate bonds with investment-grade credit ratings fell
6.8 percent, according to Merrill. The Reuters/Jefferies CRB Index of
commodity prices tumbled 36 percent, the most in its history stretching
back to 1957. The average hedge fund lost 23 percent, the steepest drop
on record, according to Chicago-based Hedge Fund Research Inc.

'Volcano, Hurricane'

Two-year options show the same level of concern as one-month
contracts signaled when Bear Stearns Cos. collapsed in March and Lehman
Brothers Holdings Inc. fell apart six months later. The Chicago Board
Options Exchange Volatility Index, reflecting the price for 30-day S&P
500 contracts, closed at 32.24 and 31.70, respectively, after the Fed
helped New York-based JPMorgan Chase & Co. bail out Bear Stearns in
March and Lehman Brothers folded in September.
"There's a new appreciation for the risk of extreme and unlikely
events," said Michael McCarty, chief equity and options strategist at
Meridian Equity Partners Inc. in New York. The increase in volatility
"was an earthquake, volcano, hurricane and tsunami all at once," he
said.
Investors use options to protect against weakening asset prices as
well as speculate on fluctuations. Calls give the right to buy a
security for a certain amount by a given date. Puts convey the right to
sell.
Prices for longer-term options are elevated in part because fewer
investment banks and hedge funds are selling the contracts, according to
strategists at New York-based Morgan Stanley, Paris- based BNP Paribas
and Russell Investments of Tacoma, Washington.

'Price of Insurance'

"We would expect a sustained higher level of implied volatility
until more sellers enter the marketplace," said Jody Smith, a
London-based volatility trading analyst at Russell, which oversees $150
billion. "When the number of insurance companies goes from 100 to 50,
the price of insurance is going to go up."
Dealers are selling fewer contacts after 2008's rout broke a
17-year stretch in which making markets in options earned money.
The Merrill Lynch Equity Volatility Arbitrage Index, which gauges the
profitability of selling options by comparing implied and realized
volatility, plunged 69 percent in September to November.
Gervais Williams, who manages about $1.2 billion in stocks at
Gartmore Investment Management in London, said he used options at least
a year from expiration to hedge a 50 million pound ($72
million) fund in July 2007, just before losses on bonds backed by U.S.
subprime mortgages brought credit markets to a halt.

'Credit Crunch'

"We were concerned equity markets were going to run out of room,
that some kind of credit crunch was about to happen,"
Williams said. The positions netted him more than 15 million pounds in
profit, he said.
Two years ago, Bernanke predicted that "moderate" economic growth
in 2007 would be followed by an accelerating expansion in 2008. Instead,
the U.S. joined Europe and Japan in the first simultaneous recessions
since World War II. Bernanke said Feb. 24 that "downside risks probably
outweigh those on the upside" and the Fed's outlook is clouded by
"considerable" uncertainty.
"The market expects further unforeseen shocks," said Simon Emrich,
head of North American quantitative derivatives strategies at Morgan
Stanley in New York.
John Bogle, who created the $68.8 billion Vanguard 500 Index Fund,
said in a Bloomberg Television interview from Washington on Feb. 24 that
the U.S. recession may linger into 2011. Bank of England policy maker
David Blanchflower predicted a day later that the slump in the U.K.
might intensify "significantly."

'Medication Runs Out'

Two-year volatility dropped 14 percent from its record in November,
compared with a 45 percent retreat in 30-day volatility. The difference
shows that confidence in the market's direction over one month has
improved while concern about longer- term swings remains elevated, said
Paul Britton, chief executive officer of New York-based Capstone
Holdings Group, which specializes in volatility trading.
"The market is subdued now because we have enough morphine in our
system that we won't see the spikes we did in October and November,"
Britton said. "The uncertainty comes when the medication runs out."

[nmap]

Originally Posted by Team Sergeant

Hey Hey Hey, I said that months ago!!!

http://www.professionalsoldiers.com/...ing#post225108

I still do not see an end in sight.

I have another idea/thought of which I hope is wrong.

What if this is the deliberate destruction of the most powerful capitalist nation in the world?

At this moment in time I cannot think of any other reason almost 4 trillion is being spent other than to destroy the dollar and our current way of life.

One does not throw water into a sinking ship, not unless he wants it to rest at the bottom.

Team Sergeant

One thing this proves beyond a doubt. One should never, ever think the Team Sergeant is not well ahead of the power curve.

Yes, this could easily be economic warfare. Perhaps Mr. Soros is a player; he is, after all, known as the man who broke the Bank of England ( LINK ). In addition, his positions in the exchange rate market were hugely profitable. Add in some countries that would like to injure the U.S., and the scenario could easily come to pass.

Where this gets particularly interesting is when one considers that the dollar is high relative to the past and - much more important - that treasury bonds are too. A 30 year treasury bond yields 3.6%. One could purchase futures contracts on $100,000 worth of T-bonds and put up around $4,500; or, it is possible to sell the contract short in a similar manner. Now let's suppose that interest rates on such securities went to 5.71%. The value of the bonds would decline to about $70,000. Which would mean that the $4,500 margin would generate $30,000 in profits. (Clearly, this is quite risky. Those who engage in such things should have lots of risk capital. I certainly would not do it.)

So, suppose that the U.S. sells large quantities of debt to the world, and continues to do so. Might it be possible for someone to start floating rumors about the ability of the U.S. to repay the debt? Would U.S. debt then decline in value, generating big profits for someone, somewhere? It's all very possible.

Once upon a time, many years ago, a gentleman who is far more adventurous than I commented: "I love the poor. It's cheaper to buy them. And, they're grateful." These are, I think, words to reflect on. Just as someone working for a large corporate employer is less independent than a businessperson or farmer, so too a person with little money is less independent than someone with some savings. The poor are, I think, easier to control than are the middle class. Of course, I hasten to add that I have never seen the slums of the third world - so perhaps my views on the matter are in error. If my premise is true, then a poorer America is an easier to control America.

I think that quite a few people are going to make a great deal of money from that $4 trillion budget. In essence, the tax payers will put quite a lot of cash in someone's pocket. All of that is, perhaps, merely a side effect. The real issue is control. We might not give up our freedom willingly; however, I suspect many will sell it for a low price. Power and wealth have motivated many in the past, and I suspect they still do. The good of the nation and its people could be subordinated to personal ambition.

Originally Posted by Ret10Echo

And what confuses me the most is that those who are responsible for creating an atmosphere where these sort of things were allowed to occur (blind eyes on both sides of the aisle) are the same people that the American public expects to fix the issue.

This is madness.....

I keep waiting for the outrage.....and all I hear are whimpers...or is that the sound of 300 million wringing hands...

Sir, I think that government tends to be a very small, rather ingrown clique of people. We see the same people decade in and decade out. I often wonder if the political contests we see are not more theater than anything else.

Right now, we are, as a people, well fed, nicely housed, and entertained. Should that change, I suspect we will see outrage. The only problem I perceive is that people who are angry and afraid are susceptible to manipulation.

[Pete]

Originally Posted by Team Sergeant

.....What if this is the deliberate destruction of the most powerful capitalist nation in the world?.......

I took a look at some of the world markets from the past year. They all seem to be tracking pretty much with ours.

As an example, this mess is putting a big strain on EU member relations.

With the help of the new president we may be more socialist when this is all over but we may still come out better than other areas of the world.

When push comes to shove just how "nice" are we? Are Americans willing to go hungry a couple of days of the week or have food rationing while we ship millions of tons of grain to third world countries for free? I think that would only last until the next election.

[Electron]

For those old enough, remember what happened when Carter took office? The stock market plunged while gold, silver and copper skyrocketed. If you wanted to make money, you should have bought all the gold and silver you could while Bush was in office.

Stocks have always been an iffy long-term investment (in my opinion).

"Hindsight is always 20/20 but looking back, it's still a bit fuzzy."
-Dave Mustaine (Megadeth)

[Team Sergeant]

I was thinking about a few factors related to the current US and global situation:

The largest "communist" country is backing a substantial amount of our credit.

We talked about perceptions just the other day. I believe the reason we are bailing out in the trillions is two-fold, one factor we know and sort of understand, the other is one that no one is talking about in the media, the dollar may weaken to the point where all confidence is lost. If that happens and the world turns their collective backs on our dollar, China calls in our debt, there is a run on US banks, at that point all will be lost (stock market) capitalism would be dealt a huge blow.

Currently there are a great number of banks, (60 + if I recall correctly) not being identified for Gov loans, why not be identified, the loss of confidence = end of story.

The media (Fox news anyway) keeps harping about how much this far left spending plan is going to cost the average American, and most Americans don’t make the sort of money to repay this sort of debt anytime soon, it might take decades to repay. This might get to the point where the rest of the world begins to realize the US is about to go under and make their own run on the banks, taking us with them.

Couple that with our current far left wing Gov attempting to take over (socializing) health care, the perception will be the extreme left is doing something "wonderful" for the poor masses and we are about to get much much poorer. Again Perceptions.

Again, I believe the extreme left might be executing this plan deliberately and with an agenda. Remember who were obama “favorite” mentors were in college? Remember his mother, extreme left wing radical.

Add to this what nmap posted, poor people are much easier to manipulate than a strong middle class. I could not agree more.

Let’s blame the Ivy League for this mess, blame capitalism, blame big business and begin to socialize all you can in the hope it all falls apart and guess who’s in office to pick up the pieces and give socialism a chance.

Then, IMO the new USSR (United States Socialist Republic) begins to emerge and what a better way to greet socialism than to prove capitalism “doesn’t/didn’t work”.

I believe we are in for the ride of our lives. I hope I’m wrong.

TS

[Electron]

Stop!!!! You're scaring me!!! Make the bad man go away!!!

[Electron]

Originally Posted by Pete

When push comes to shove just how "nice" are we? Are Americans willing to go hungry a couple of days of the week or have food rationing while we ship millions of tons of grain to third world countries for free? I think that would only last until the next election.

We could always teach those third world countries how to grow their own grain, but we would have to include tons of ammonium nitrate (to fertilize the crops, of course)...oh, the UN has helped us out with that one...how nice.

[Pete]

Originally Posted by Electron

We could always teach those third world countries how to grow their own grain,........

It escaped notice in the major news services but I do believe Mugabe a few days ago ordered the last of the white farmers off their farms.