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Black Tuesday?
Posted by: Dale Franks on Monday, January 21, 2008

If you have a lot of money tied up in stocks, you may want to start taking your extra anti-depressants tonight. Tomorrow's not looking good for the markets.
Stocks tumbled across Asia on Tuesday, and U.S. stock index futures sank, as panic gripped markets that a U.S. recession could derail global economic growth, sending investors fleeing to safe-haven government bonds.
And it's not just Asia. Europe took a big hit today, too.
The pan-European Dow Jones Stoxx 600 index, which has fallen for the last six weeks, dropped 5.7% to 308.77. The U.K. FTSE 100 index saw its one-day largest percentage fall since Sept. 11 to end down 5.5%. Germany's DAX Index closed down 7.2%, and France's CAC 40 index fell 6.8%, meaning the new year has brought it a 15%-plus loss.
On of the reason is increased fear of exposure to the subprime lending problem, especially since Fitch came out on Friday with more bad news for bond insurers:
Banks are suffering after Fitch Ratings' decision Friday to downgrade ratings on bond-insurance companies. Further downgrades are expected as credit-rating firms react to the insurers' subprime exposure. Banks stand to lose billions of dollars if they lose the insurance on the battered securities they are holding. These so-called monolines insure about $2.4 trillion of debt, including $100 billion of subprime-linked collateralized debt obligations, and their downgrade and the forced sales of bonds that would follow, remains the major risk to credit markets, according to UniCredit strategist Jochen Felsenheimer.
This has hammered financial services companies especially hard, as sizable loan write-off are now indicated.

As far as the opening bell on Tuesday is concerned, well, things aren't looking good.
Futures on the Dow Jones Industrial Average dropped 476 points, the S&P 500 futures contract fell 62 points and the Nasdaq 100 futures contract declined 81 points.
In other words the futures markets are indicating that the indices for the Dow, S&P, and NASDAQ all look to take a serious dump when the market opens.
 
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Comments
That just means I can afford more shares!
 
Written By: JWG
URL: http://
This has been building up for some time. The world economy is completely rebalancing, and dealing with high debt and a credit crisis which Susan Strange saw coming way back in 1999. Where this will land is anybody’s guess, the distance between the best and worst cases scenarios is huge, and I doubt we’ll be close to the best case scenario.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
I thought Erb had been arguing that it was just the decline of America.
 
Written By: JWG
URL: http://
Since everyone leaches off the American marketplace, as America goes, so goes the world.

Anyway, the Feds just did an emergency 0.75% rate drop. Although I think it will help, in the next few days the market will be in some chaos regardless.
 
Written By: jpm100
URL: http://
so far the DOW is just down 59...far better than the -500 they were predicting earlier.
 
Written By: Joel C.
URL: http://
Looks like a bit of a bloodbath, seeing as the Dow is currently down 450 points right now.

Would it be inappropriate to lay odds on Jim Cramer making it to the closing bell?
 
Written By: InebriatedArsonist
URL: http://
The Fed bailed them out from a short term collapse. I still think the long term points to some difficult times ahead, especially for the US economy. With that kind of emergency rate cut, they might even end the day higher.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
A speculation based economy is no way to live.
 
Written By: jpm100
URL: http://
When the dust settles, we’ll be told that we have been in a recession for the last two quarters, the layoffs will increase, and unemployment will increase to 7%. It will be a bit worse than recent recessions because of the credit crunch and dollar spiral on top of the cyclical slowdown.

Good times to buy.

I think I agree with most of you on stimulus packages, while I’ll take the money, I think it’s impact on the economy will be negligible. The sad reality is that the best position to be in at the end of a growth cycle is to be in a fiscal surplus position to mitigate the deficit spending endemic to a slowdown, but sadly the conservatives were not conservative, and deficits will become bigger deficits.

When do you think we’ll learn to be responsible in good times?

I’m thinking never.


 
Written By: Captin Sarcastic
URL: http://
When do you think we’ll learn to be responsible in good times?

I’m thinking never.
You’d probably be thinking right, there...not that it is the end of the Universe.
 
Written By: Joe
URL: http://
Gosh, you mean the lack of government oversight when it comes to lending practices has had a bad effect?

Who could have guessed that would happen?
 
Written By: mkultra
URL: http://
Gosh, you mean the lack of government oversight when it comes to lending practices has had a bad effect?

Who could have guessed that would happen?
actually i would say that people applying for and accepting loans they knew they couldn’t pay had a bad effect.

But i suppose there are those out there that refuse to take personal responsibility for their own actions and will say "shame on the gov’t for letting me get a loan i can’t pay"
 
Written By: Mac
URL: http://
Gosh, you mean the lack of government oversight when it comes to lending practices has had a bad effect?

Who could have guessed that would happen?

Gosh you mean that Congress drawing and quartering lending institutions for their alleged racism ,might contribute to lenders making poor loans? Who could ahve guessed that would happen?
 
Written By: Joe
URL: http://

I think I agree with most of you on stimulus packages, while I’ll take the money, I think it’s impact on the economy will be negligible
I actually think it will have a negative impact, especially if it’s just more borrowing. The dollar sinking, money we spend on our oil addiction coming back to bail out our banks and keep our equity markets reasonably strong (but at a price — equity and banks now have high levels of foreign ownership), US politicians not really addressing the problem...I tell ya, add some kind of unexpected event like a terror attack or turmoil in the Mideast beyond the norm, and instead of risking 70s like stagflation or Japanese like deflation, we may be looking at a global economic slowdown like the 30s. I still think we can avoid that, but the imbalances in the world economy have reached a point where they can’t be maintained, and weak oversight over credit markets is a primary cause.

I don’t think we’re there yet — the rate cut might spur enough spending/investment to keep things going, but we’re on increasingly weak ground. I don’t know who to trust to deal with this in the Presidential race.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
Gosh, you mean the lack of government oversight when it comes to lending practices has had a bad effect?
Yeah, because, GOSH! the government would never mishandle money, now would it?

You’ll piss your Fruit of the Looms over NSA Data Mining (not wiretapping), but
having a bunch of bureaucrats determine who should get a home loan and for how much is A-Ok with you?

The housing market is already beginning to correct itself. Any govt. intervention is simply going to prop up those who can’t afford their homes, while at the same suppressing willing buyers from taking advantage of a sluggish market.

 
Written By: Come on, Please
URL: http://
Dale,

I think you get a chance to show a little wisdom here. When I linked to you earlier today I noted you were right about bear market rallies, that in fact there were three rallies of more than 20% in the last downturn. Given the furious rally today, we now get to see if that pattern holds.

As a bear, I have a feeling you are right.

As for the stimulus package guys, I am very skeptical. On that I’ll just keep it short by just linking here, here,and here.
 
Written By: Lance
URL: http://riskandreturn.net

 
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