OT - Dow plunges 1,175 - worst point decline in history

[Tony T]

Originally Posted by saab2000

Stocks are on sale and if nobody is buying, I sure hope nobody is selling for a loss.

December is the time to sell for a loss to offset current year gains on sales.
Also, if someone is heavily leveraged (margin), they will have no say in the matter of selling.

[seanile]

eh, i sold my low-movement bonds so i have more cash for buying any upcoming deeper dip.

[saab2000]

Originally Posted by Tony T

December is the time to sell for a loss to offset current year gains on sales.
Also, if someone is heavily leveraged (margin), they will have no say in the matter of selling.

I just ride the waves and keep on keeping on. No selling here but I only invest/save in low cost index funds and ETFs. The balloon expands and contracts, but only the ultra low fees constitute leakage from the balloons.

At least that's how I see it.

[verticaldoug]

Originally Posted by goonster

Let's also remember that the banks were so hungry for ****ty mortgages that they created synthetic CDO's, side bets not backed by any actual mortgages.



And wasn't the secondary market, the default swaps, entirely unregulated? Even if they had understood the scope, what would have been the mechanism for intervention?

The synthetic CDO's were pushed by dealers who did not have their own origination. It allowed them to create a product to track mortgage pools, allowed greater leverage and with all the moving parts, allowed the dealers to take more spread. I don't think these were about the customer, but just dealers trying to make more... at the end, we all get too greedy

At the end of there wasn't that much demand for CDOs from end customers, which is why so many of the big banks ended up having unsold tranches on their own books. I definitely think that was the case for the garbage on Merrill's books.

CDS is unregulated, and it is all about counterparty risk. No one imagined Lehman being allowed to go bust, so when they defaulted, any CDS or other OTC derivatives (swaps on stock indices, OTC Options on stocks, collars on stocks, currency swaps, etc etc etc ) essentially became worthless which transmitted the risk to all the other derivative markets.

That's why on Sunday, derivative traders were all in the office trying to figure out their net exposure to Lehman across all the different bank books. It was ugly. It became a race to grab collateral.

Besides trying to lay off risk, derivatives give you much more leverage. Leverage will always be a killer in a sell off. The million dollar question for today's market is where is the unknown leverage in the system.

[veloduffer]

Originally Posted by verticaldoug

Leverage will always be a killer in a sell off. The million dollar question for today's market is where is the unknown leverage in the system.

Look at the bond and leveraged loan market, there’s plenty of leverage:
- in two years (from 2016), the leveraged loan market grew from about $800 billion to $1.5 trillion (nearly doubled in size) and is now as large as the high yield bond market.
- leverage on these loans (1st lien) has gone from 2.5x cashflow in 2008 to 4x cashflow, driven by higher valuation multiples for LBOs at 9.8x cashflow, which is higher than before the crisis.
- BBB rated bonds (last stop before rated as junk debt) now comprises 50% of the investment grade index, up from 35% in 2007. At the same time, leverage for BBB has increased from 2.1x cash flow to 3.2x cashflow.
- total US govt debt is now 104% of GDP or $21.2 trillion, which included intra-government debt. With the budget deficit nearly $1 trillion annually, it will as about $800 billion of debt to this total annually and climb as the deficit increases. When the Medicare trust funds (for hospital insurance) deplete in 2026 and Social security trust funds deplete in 2034, the deficit increase significantly. This does not account for a recession, which if it occurs in 2020 may double the deficit and accelerate the depletion dates.

Note, the leveraged loan market, which had been issuing about $70 billion of loans per month, is currently shut down in Dec; loan prices have been falling and can’t find the bottom. Not a good sign for borrowers that need to refinance.



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[MattTuck]

Whee!

[likebikes]

[echappist]

Originally Posted by MattTuck

Whee!

here i go musing about losing ~10k in my 401(k)-equivalent (so i guess i should call it 391(k)-equivalent). a while back i wondered if my 70/30 allocation was a bit "too conservative", especially given I have a pension. Looking at it now, i think 70/30 is just about right. Not losing sleep over it (yet).

in the soccer thread, i mentioned a trope of some announcer rambling off a list of England's proudest sons and daughters and telling them that their boys took a helluva beating, after the announcer's team defeated England. and here i go thinking of listing the frequent participants of this thread, and ending it with, "our accounts took a beating, our accounts took a helluva beating"

[likebikes]

DJIA *officially* closed at a YTD low today.

[verticaldoug]

Originally Posted by veloduffer

Look at the bond and leveraged loan market, there’s plenty of leverage:
- in two years (from 2016), the leveraged loan market grew from about $800 billion to $1.5 trillion (nearly doubled in size) and is now as large as the high yield bond market.
- leverage on these loans (1st lien) has gone from 2.5x cashflow in 2008 to 4x cashflow, driven by higher valuation multiples for LBOs at 9.8x cashflow, which is higher than before the crisis.
- BBB rated bonds (last stop before rated as junk debt) now comprises 50% of the investment grade index, up from 35% in 2007. At the same time, leverage for BBB has increased from 2.1x cash flow to 3.2x cashflow.
- total US govt debt is now 104% of GDP or $21.2 trillion, which included intra-government debt. With the budget deficit nearly $1 trillion annually, it will as about $800 billion of debt to this total annually and climb as the deficit increases. When the Medicare trust funds (for hospital insurance) deplete in 2026 and Social security trust funds deplete in 2034, the deficit increase significantly. This does not account for a recession, which if it occurs in 2020 may double the deficit and accelerate the depletion dates.

Note, the leveraged loan market, which had been issuing about $70 billion of loans per month, is currently shut down in Dec; loan prices have been falling and can’t find the bottom. Not a good sign for borrowers that need to refinance.



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https://www.bloomberg.com/graphics/2...n-obligations/

Does seem like a chapter out of Michael Lewis's book

Everyone wins, everyone clips a fee

[SPOKE]

Is the cash generated by the market sell off being transitioned into bonds, realestate or other traditional safe havens??

[Tony T]

Originally Posted by SPOKE

Is the cash generated by the market sell off being transitioned into bonds, realestate or other traditional safe havens??

Campagnolo components.

[echappist]

Originally Posted by Tony T

Campagnolo components.

i thought it was frozen orange juice futures?

down 15% from its high, but look on the bright side, P/E ratio is finally coming down a bit. That still doesn't explain the outrageous P/E ratio of 90+ for Netflix...

I may go buy some individual stocks in a brokerage account if a full on bear market hits

[verticaldoug]

Originally Posted by SPOKE

Is the cash generated by the market sell off being transitioned into bonds, realestate or other traditional safe havens??

Most likely the short end into T Bills. Curve is pretty flat so you can just buy 1 yr tbills and almost get 10 yr rates. It also trades like water since Gov has increasing funding needs. So why take duration risk when you can get paid okay in the short end.

[zap]

Certainly not real estate. Gold is in play a bit and as verticledoug posted, short term.