October 10, 2008
Forced Selling
U.S. Stocks Tumble, Sending Dow Below 9,000; GM, Insurers Slide
“Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.”
The big symmetrical triangle broke down and there was freefall below 962.50. Looks like a lot of forced selling (people who have no choice) and panic selling (people who have a choice but are bailing anyway).
Cat: | Time: 9:55 am (utc+8)
October 10th, 2008 at 11:00 am
I’ve never seen a panic like this before. I got stopped out today (mauled is more like it) after trying to catch that falling knife. We’ll probably overshoot to the downside in this panic. I’m thinking about taking out a personal loan from my credit union to add to what I’ll be buying with. Please talk me out of it.
October 10th, 2008 at 11:22 am
Wait a few years until the Dow hits 3500.
October 10th, 2008 at 11:35 am
How is your limit order for NYT doing? Was the fill at 12 or is it 10?
October 10th, 2008 at 11:56 am
Nobody under 90 has seen anything like this.
Once the bounce comes. Don’t be afraid to buy highs.
I’m waiting for 2 consecutive days where the market closes at its highs to even consider a long play here.
October 10th, 2008 at 12:05 pm
@Anthony: Minimize expenses and don’t borrow a dime here.
@TominDC: NYT low at $12.08 so $12 order would still stand (if I hadn’t cancelled all new purchase orders).
October 10th, 2008 at 1:04 pm
It looks like hedge funds and mutual funds are in a redemption induced rabbid sell fest with nary a soul on the buy side. I pray for them.
Russia is bailing out the frozen hedgefund known as Iceland. Maybe our guys can get some relief from Romania or Chechnya.
October 10th, 2008 at 1:26 pm
@Chairman: What did you mean in your other post about a “possible generational change of trend”?
October 10th, 2008 at 3:59 pm
Hi,
I need help undestanding this mess please. The markets are crashing and some people are saying there’s going to be a rally and some are saying that we’ve reached the bottom and still the markets go down. And then people say, well at some point the participants will find value in the market and start buying.
That would all be well and good if the problem was indeed one of overvalued stocks but is that really the case? Some people say that the current crisis we’re facing has more to do with faith (or lack thereof) in our monetary system.
As I understand it money is created out of debt, is it not?. A Treasury Bond is converted to cash by the Reserve Bank with the understanding that the government will make good the repayment of the loan. But since the loan incurs interest and the money to pay the interest doesn’t exist (i.e. more money would need to be created - via more debt - to pay the interest thus creating a never ending cycle) we’re kinda screwed right? or am I misunderstanding it?
I mean isn’t the current monetary system nothing more than a pyramid scheme and we’ve run out of suckers who will take on loans which allows wealthy countries the ability to create more money to pay off their own debt? Like for example, bomb the shit out of a country then offer them a loan to help them rebuild their infrastructure and then re-route that cash back to ourselves by using our own companies to rebuild the country. Then when they can’t repay the interest (much less the capital) start taking their resources as downpayment. Is this all conspiracy BS?
I guess what I am asking is this: Is money created from debt (as I amateurishly described above) and if so then is that not a pyramid scheme and in that case is the market going down because it’s anticipating the global meltdown that will follow when everyone realises that money is not worth the paper (or for Australia, plastic) it’s written on? The subprime crisis, the credit squeeze, the derivatives abuse, all these things, are they not simply the triggers that have highlighted the shortcoming of fiat currencies?
Or should I just shutup?
October 10th, 2008 at 5:13 pm
Yes Cedric, you are onto something. The following video, Money As Debt, may be instructive for you:
http://video.google.com/videoplay?docid=-9050474362583451279
October 10th, 2008 at 7:43 pm
what i am doing: if today is down “normal” (several hundred dow points), i am waiting for a panic WHOOSH on monday or tuesday. i will be looking to buy then, unsure whether it will be for long term or 1-2 weeks, but there has NOT been panic in the u.s. equities market until yesterday, thursday. there have been setups which started, but smaller players have stepped in to buy (and killed the setups), and been crushed.
October 10th, 2008 at 7:47 pm
Thanks RJ I’ll check it out.
October 10th, 2008 at 9:43 pm
@Anthony: That’s a quarterly chart that I posted before so with this (rapidly approaching) move to the halfway retracement level (~7500), the bull market that started in 1982 — in force for over a generation — is officially dead. I’ve posted quite a few “2B Test of Top” charts on maoxian over time, so you can google them to see what I mean.
October 11th, 2008 at 1:24 am
i will have to adjust my forecast from the other day, i said we will hit zero in about 19 days. we may just get there by mid next week and then it will be the buying opportunity of a life time.
October 11th, 2008 at 4:09 am
Well call me crazy, but today I bought more BAC @ 19.xx and XOM @ 56.xx.
Buy and hope!
October 11th, 2008 at 4:30 am
@Capital Gain: Maybe you’re on to something. I don’t have the stomach to put money in right now. But Jim Rogers was on Bloomberg TV this morning saying he covered his shorts. He did that he wasn’t getting long anything in the US other than agricultural companies.
October 11th, 2008 at 5:29 am
Ok I watched that link. Sounded more like a conspiracy theory than anything so I’ll just shutup now. :)
October 11th, 2008 at 8:34 am
I have bought and been stopped out GE twice so far. Today, I ran my stop WAY to high(18.75) and missed a 12%
gain. Damn. Oh well, the game goes on….
October 11th, 2008 at 8:38 am
Cedric, that Money as Debt video is very misleading. Maybe my post earlier this week would be more helpful.
The game changer here is the rapid decline in the velocity of money. As market participants, including banks, shy away from new investments and hoard cash, money is effectively pulled out of the economic system.
Markets will eventually bottom when excess leverage are squeezed out. The problem is that the economic system is more leveraged than ever in recent years with the proliferation of CDOs, CDS, and levered funds.
The process is getting disruptive, as evident from the high volatility, because of the rapid pace in which everyone is trying to head for the same exits.
As far as the current monetary system is concerned, I don’t see any evidence that markets are losing faith in fiat currencies, at least for now. Market participants are simply flocking to the world’s reserve currency. The US Dollar has outperformed gold since the onset of the panic.
October 12th, 2008 at 12:06 am
^Interesting post Brian.