Sub-prime Meltdown Hits Thailand With Force

[george]

Sub-prime meltdown hits Thailand with force

BANGKOK (The Nation/Opinion): -- We are now witnessing the dark side of global finance. The crisis in the US sub-prime mortgage market is having a ripple effect across global financial markets, hitting stock markets badly and causing a credit squeeze.

The Stock Exchange of Thailand (SET) has not been spared, having faced selling pressure over the past week. Yesterday alone, the SET index shed almost 4-per cent due to selling pressure from foreign institutional investors, who needed the cash to redeem funds or alleviate the tight credit situation back home.

How could events in the US sub-prime mortgage market shock the world and result in a global credit squeeze?

It started off with easy credit and a low-interest-rate environment several years back. Financial institutions or mortgage companies went after homebuyers like crazy, giving them easy loans to purchase homes. Buyers with murky credit histories also found cash being placed into their hands. Never mind the payback time: if these homebuyers could not make their instalment payments, the financial institutions or mortgage companies could foreclose on the properties and sell them to other buyers. By the way, US home prices would continue to rise, so that at the end of the day nobody would get hurt.

Then there were a bunch of smart US investment bankers, who repackaged these risky sub-prime loans into mortgage-backed securities and resold them to not only US investors but also to investors around the world. That was not the end of the story. Investment bankers also bundled the sub-prime mortgage-backed securities with other financial instruments and called them collateralised debt obligations (CDOs). The CDOs, bundled together with high and poor quality products, were also sold worldwide, with European financial institutions and insurance companies having the largest exposure. Buyers grabbed the CDOs, which gave out yields of more than 10 per cent, compared to more than 5 per cent for government treasuries.

The problems were accentuated several weeks ago when defaults among sub-prime mortgage borrowers were becoming more apparent. As demand for the US securities or CDOs dried up, the banks and funds were unable to sell and had to mark down the value of their holdings. This has resulted in a chain effect because banks are unwilling to lend money out when uncertain of the credit worthiness of their institutional clients. This has, in turn, spooked global investors and caused credit markets worldwide to tighten.

The US Federal Reserve, the European Central Bank, the Bank of Japan and other central banks have reacted to the credit squeeze by pumping more than US$300 billion (Bt10.2 billion) into money markets to smooth out trading, otherwise global financial systems would collapse. The European Central Bank has faced the greatest trouble because of the heavy exposure of European financial institutions and funds to CDOs. The European Central Bank is blood-soaked and has had to pour in the largest chunk of liquidity to save its financial markets.

In the meantime, European financial institutions and funds with exposure to the US mortgage securities and CDOs are losing money in a hurry. The dust has not settled yet. Once the turmoil subsides, we'll see several institutions fold.

Is the US doing enough to calm the financial turmoil? The Fed has not been in much of a hurry to come to the rescue. Some economists even argue that the Fed should not cut interest rates to help out banks and institutions facing the crunch because that would create a moral hazard like the time of the collapse of the hedge fund LTCM in 1998. Instead, the Fed should continue to focus on inflation targeting, or managing its monetary policy to curb inflation at a time when the general economic situation remains intact.

US investment bankers have flooded the world with CDOs. The European and Asian institutions and funds have now learnt another hard lesson. They will never beat out the Americans when it comes to high-risk, high-return financial derivatives.

Thailand is facing the tailspin from this global financial turmoil. Foreign investors, who earlier held about Bt400-500 billion in Thai stocks, are retreating to get cash home to redeem funds. Fortunately, Thai banks have very little exposure to CDOs. They are not yet that sophisticated with their investment portfolios. However, Thai authorities have to stay alert to any ramifications from the global credit squeeze by being prepared to pour in liquidity to keep the local financial system afloat.

The Nation 2007-08-17

[Mid]

Sub-prime meltdown hits Thailand with force

couple of days ago ........................

[hammered]

Whoever wins the election is going to have more than a few internal problems to deal with.

[george]

Continued stock plunge stems from external factors, says SET chief

BANGKOK: -- The continued plummeting of the Stock Exchange of Thailand’s composite index is attributed by external factors, particularly mounting concerns over impacts of sub-prime lending crisis in the United States, according to SET chairman Vijit Supinit.

Speaking after a meeting with SET president Patareeya Benjapolchai, Bank of Thailand Governor Tarisa Watanagase and her deputy Bandid Nijathaworn, he said the sharp decline in the SET index stemmed from fears of a possible domino effect from the sub-prime mortgage loan crisis in the US.

He said foreign investors had sold off stocks heavily and brought a certain amount of money out of the country.

However, he believed the capital outflow would proceed only temporarily and the investors would return to invest in the Thai stock market since the country’s economic fundamental remains sound.

In addition, the general election is due to take place in Thailand. Such development could attract the investors back.

Mrs. Patareeya said the SET index plunged by more than 31 points in the morning trading session because of a panic selling by investors in global markets, who were concerned about the sub-prime lending woes in the US.

She said SET would not come with any measures to shore up the market slump although the index had dropped continuously since last week.

“The SET has plunged on parallel with global markets. It stems from external factors, not internal ones.

“So, we will not issue any measures to help shore up the market. We will just prompt securities companies and asset management firms to accelerate boosting understanding of investors on the current situation,” she said.

The SET composite index fell by 23.23 points to close at 750.69 Thursday, while the bluechip SET 50 index fell 16.42 points to 532.05.

--TNA 2007-08-17

[Mid]

open and green in the first minutes .............................

[PeaceBlondie]

Look at the stock market charts outside Thailand. DowJones, S&P500, etc. Down, down, almost relentlessly. The Euro mutual fund that I picked in November, to balance my assets in different currencies, has tanked after being 20% above my purchase price, including dividends. If it were not for my dividends, I'd have lost money in 9 months. I expect an instant rebound, of course.

I notice that once in the OP from the Nation, the author refers to these CDO's as deriviatives. Does that suggest the CDO's were highly leveraged, not merely high risk?

Let's relate this to Thailand. The dollar strengthened against the baht this week, right? Does it relate to currency exchanges due to foreign investors taking baht out of the SET and converting it to dollars?

[Lancelot]

I just checked exchange rates and noticed that the baht had weakend dramatically against the USD

http://corporate.visa.com/pd/consumer_serv...HB&rate=0.0

Hot money in; hot money out. Buckle up for a bumpy ride

[Mid]

didn't last long ....................

RED

[hammered]

didn't last long ....................

RED

Only medium to long term investors will touch the SET right now. We will have to wait until the world sees more stability to see volume buying return althought the passage of the charter (if it happens) may give a slight boost after the weekend if world markets are not too volatile.

[Martin]

There is nothing happening here that wasn't foreseen a couple of years ago when we had the thread "Get out of $dollars$ now".

We could see then that there would be trouble if folk in America went on buying houses and things that they couldn't afford with money they hadn't got.

Watch now to see if the carry trade unwinds. If that happens, some big hedge funds will collapse. They have gambled, big time, on the yen staying low.

Remember what happened to Baring's, when Jim Leeson gambled that the yen would recover, and it didn't?

There could be a lot of similar revelations.

And there could be a lot of anger and litigation.

UK pension funds are being hard hit, and people don't like it when they feel that their savings are vulnerable.

I note that there is already a class action being mounted in the USA against Moody's for rating dodgy CDO assets as suitable for investment.

Be wary of stocks on all exchanges, even for the longer term. As the 'baby boomers' start to retire, the pension funds will be selling stocks to provide monthly pension payments, and there is no sign that there will be enough buyers to keep the prices up.

[Lorin]

I just checked exchange rates and noticed that the baht had weakend dramatically against the USD

http://corporate.visa.com/pd/consumer_serv...HB&rate=0.0

Hot money in; hot money out. Buckle up for a bumpy ride

The $ is still up, lets hope it will be the beginning of the end of strong baht !

[highdiver]

There is nothing happening here that wasn't foreseen a couple of years ago when we had the thread "Get out of $dollars$ now".

We could see then that there would be trouble if folk in America went on buying houses and things that they couldn't afford with money they hadn't got.

Watch now to see if the carry trade unwinds. If that happens, some big hedge funds will collapse. They have gambled, big time, on the yen staying low.

Remember what happened to Baring's, when Jim Leeson gambled that the yen would recover, and it didn't?

There could be a lot of similar revelations.

And there could be a lot of anger and litigation.

UK pension funds are being hard hit, and people don't like it when they feel that their savings are vulnerable.

I note that there is already a class action being mounted in the USA against Moody's for rating dodgy CDO assets as suitable for investment.

Be wary of stocks on all exchanges, even for the longer term. As the 'baby boomers' start to retire, the pension funds will be selling stocks to provide monthly pension payments, and there is no sign that there will be enough buyers to keep the prices up.

good post.

the bigest problem is that many pension funds have invested in those huge hedge funds looking to make a higer yield.

what will happen if those hedge funds go under?

[Naam]

Let's relate this to Thailand. The dollar strengthened against the baht this week, right? Does it relate to currency exchanges due to foreign investors taking baht out of the SET and converting it to dollars?

not only against the Baht but virtually against all currencies.

[Naam]

the bigest problem is that many pension funds have invested in those huge hedge funds looking to make a higer yield.

what will happen if those hedge funds go under?

pension funds will lose money.

[highdiver]

the bigest problem is that many pension funds have invested in those huge hedge funds looking to make a higer yield.

what will happen if those hedge funds go under?

pension funds will lose money.

so cenral banks and goverments will need to bail them out.

[Naam]

Be wary of stocks on all exchanges, even for the longer term. As the 'baby boomers' start to retire, the pension funds will be selling stocks to provide monthly pension payments, and there is no sign that there will be enough buyers to keep the prices up.

pension funds worldwide invest mainly in bonds. and their holdings of shares are not meant to be sold in order to cover payments.

[RKASA]

Next year may be a good time to start picking up rental property. If buyers can't buy rents go up and the prices of some homes will be looking pretty good for them with the cash.

[LaoPo]

Sub-prime Meltdown; but WHAT caused it ?

Timeline: Sub-prime problems [and what happened]

30 June 2004

The US Federal Reserve starts a cycle of interest rate rises that will lift borrowing costs from 1%, their lowest level since the 1950s, to the current level of 5.25%.

The central bank will go on to increase interest rates 17 times in a row as it tries to slow inflation. It pauses in June 2006, and has not lifted borrowing costs from 5.25% since then.

August 2005 through 2006

Higher borrowing costs start to impact on the US housing market and the property boom starts to unwind.

Building rates drop sharply to decade lows and prices also start to come down.

Defaults on sub-prime mortgages - where lenders give cash to people with poor or no credit history at higher than normal repayment levels - start to increase.

12 March 2007

Shares in New Century Financial, one of the biggest sub-prime lenders in the US, are suspended amid fears it may be heading for bankruptcy.

16 March

US-based sub-prime firm Accredited Home Lenders Holding says it will pass on $2.7bn of money loaned - at a heavy discount - in order to generate some cash for its business.

2 April

New Century Financial files for Chapter 11 bankruptcy protection after it was forced by its backers to repurchase billions of dollars worth of bad loans.

The company says it will have to cut 3,200 jobs, more than half of its workforce, as a result of the move.

24 May

Shares in Bear Stearns come under pressure as questions are raised about the investment bank's exposure to the sub-prime market in the US.

14 June

Reports emerge that Bear Stearns is liquidating its assets in a hedge fund that made large bets on the US sub-prime market.

20 June

Merrill Lynch seizes and sells $800m (£400m) of bonds that are being used as collateral for loans made to Bear Stearns' hedge funds.

22 June

Bear Stearns says it will provide $3.2bn in loans to bail out one of its hedge funds, the High-Grade Structured Credit Strategies Fund.

The bailout of the fund would be the largest by a bank in almost a decade.

Analysts have also been questioning the position of another fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

25 June

Reports emerge that Bear Stearns will have to rescue a second hedge fund as rival banks refuse to help in bailing it out.

29 June

Bear Stearns hires a new head of asset management to find out what went wrong at its hedge funds.

4 July

The UK's Financial Services Authority (FSA) says it will take action against five brokers that sell sub-prime mortgages, claiming they offer loans to people who should not be given them.

10 July

Independent market analyst Datamonitor says UK sub-prime mortgages are set to grow faster than mainstream mortgages, with the market worth some £31.5bn by 2011.

13 July

US industrial firm General Electric decides to sell the WMC Mortgage sub-prime lending business that it bought in 2004.

"The mortgage industry has greatly changed since the purchase of WMC," says its chief Laurent Bossard.

18 July

Bear Stearns tells investors that they will get little, if any, money back from the two hedge funds that the lender has had to rescue.

20 July

Federal Reserve chairman Ben Bernanke warns that the crisis in the US sub-prime lending market could cost up to $100bn.

26 July

Bear Stearns seizes assets from one of its problem-hit hedge funds as it tries to stem losses.

27 July

Worries about the sub-prime crisis hammer global stock markets and the main US Dow Jones stock index loses 4.2% in five sessions, its worst weekly decline in almost five years.

31 July

Bear Stearns stops clients from withdrawing cash from a third fund, saying it has been overwhelmed by redemption requests.

The lender also files for bankruptcy protection for the two funds it had to bail out earlier.

3 August

US stock markets fall heavily, with the main Dow Jones Index ending the session 2.1% lower, amid fears about how many financial firms are exposed to problems in the sub-prime market.

A top Bear Stearns executive says credit markets are in the worst turmoil he has seen in 22 years.

London's main FTSE 100 stock index closes down 1.2% at 6,224.3, with French and German markets also declining.

5 August

Bear Stearns co-president Warren Spector steps down, as the lender looks to restore investor confidence following the problems with its sub-prime exposure.

6 August

American Home Mortgage, one of the largest US independent home loan providers, files for bankruptcy after laying off the majority of its staff.

The company says it is a victim of the slump in the US housing market that has caught out many sub-prime borrowers and lenders.

9 August

French bank BNP Paribas suspends three investment funds worth 2bn euros (£1.4bn), citing problems in the US sub-prime mortgage sector.

BNP says that it cannot value the assets in the fund, because the market has disappeared.

Dutch bank NIBC announces losses of 137m euros from asset-backed securities in the first half of this year.

The European Central Bank (ECB) pumps 95bn euros into the eurozone banking market to allay fears about a sub-prime credit crunch.

The US Federal Reserve and the Bank of Japan take similar steps.

10 August

Global stock markets stay under intense pressure.

London's FTSE 100 index has its worst day in more than four years, closing 3.7% lower.

The ECB provides an extra 61bn euros of funds for banks.

The US Fed says it will provide as much money as is needed to combat the credit crunch.

13 August

Wall Street giant Goldman Sachs says it will pump $2bn into one of its funds to help shore up its value.

The ECB pumps 47.7bn euros into the money markets, its third cash injection in as many working days.

Central banks in the US and Japan also top up earlier injections.

14 August

Stock markets remain jittery as news continues to come out about the exposure of banks to the fallout from the sub-prime market.

Swiss bank UBS warns that the market turmoil is likely to hit its earnings in the July to September period.

Australian mortgage lender Rams Home says the "unprecedented disruptions" in credit markets may reduce its profit.

16 August

London's FTSE 100 index suffers its biggest one-day percentage fall in more than four years, dropping 4.1% or 250 points to close at 5,859.

http://news.bbc.co.uk/2/hi/business/6945672.stm

and this:

Q&A: World stock market falls

http://news.bbc.co.uk/2/hi/business/6939899.stm

And today 17 August

ALL Asian stocks tumbled down further, seriously, but the Thai SET is keeping the losses down to -0.61% at around 746.

Japan, Hong Kong, Malaysia and Singapore are hit hard with losses of more than -5%, so far.

Reports say that Europe, to be opened around this clock, will rebound a little from heavy losses yesterday, but these are uncertain times, so, who knows ?

LaoPo

Edited August 17, 2007 by LaoPo

[LaoPo]

ALL European stock markets opened in RED, except London which opens later, but it's too early to say how the day/week will end.

LaoPo

[Carmine6]

Look at the stock market charts outside Thailand. DowJones, S&P500, etc. Down, down, almost relentlessly. The Euro mutual fund that I picked in November, to balance my assets in different currencies, has tanked after being 20% above my purchase price, including dividends. If it were not for my dividends, I'd have lost money in 9 months. I expect an instant rebound, of course.

I notice that once in the OP from the Nation, the author refers to these CDO's as deriviatives. Does that suggest the CDO's were highly leveraged, not merely high risk?

Let's relate this to Thailand. The dollar strengthened against the baht this week, right? Does it relate to currency exchanges due to foreign investors taking baht out of the SET and converting it to dollars?

Derivative just means that it's value is based on something else. Call and put options are derivatives since their value derives from the value of the underlying stock. They don't have value on their own. With CDO's you don't actually own the loans in the pool, you own the rights to cash flows from the pool as has been specified when they were set up.

Where debt came into play is in the buyers of the CDO's such as hedge funds. For example, it yields 10%, you can borrow at say 6% and use the CDO as collateral for the loan. So you can borrow maybe 80% and have only 20% of your own money in.

When times are good, you make a 4% spread on the borrowed part plus 10% on your part which makes your effective yield very high. Using the hypothetical figures: you buy $100 million in bonds yielding 10% by using $20 million of your money and borrowing $80 million. At the end of the year you've made $10 million. You paid $6 million in interest and are left with $4 million. Since you only had $20 million invested, your yield is $4 m/$20 m, or 20%. (If you can borrow 90%, your yield is 40%) All investors in your fund think you're a genius.

But let's say the bond value drops 10% to $90 million. The bank says you don't have enough colateral for the loan, you sell and are left with $10 million. You've lost half your money. If the bond value drops 20%, you get on the first plane out of the country and send an email to your investors telling them they've lost everything.

[Martin]

Pensioners and pensioners-to-be are facing an unhappy prospect.

This is from a UK newspaper today:

"Britain's pension funds were last night plunged into a £15bn deficit after the biggest fall in London share prices since the eve of the Iraq war in 2003 cut the value of the stock market by £60bn in a single day's frenetic trading.

After years of building up the value of funds following the dotcom collapse at the start of the decade, funds are now facing the prospect of new black holes after seeing a £12bn surplus eradicated by the market turmoil of the past month.

Last month, Britain's top 100 companies celebrated stock market gains that pushed their pension schemes into surplus for the first time since 2000.

Now the surplus has become a £15bn deficit, with £10bn of the losses coming in the past week alone. Pension experts said further falls in the stock market could force some companies to raid their reserves and top up their occupational schemes. However, employers facing their own difficulties borrowing money, and without reserves to draw on, may refuse to help out.

Pension consultants Lane, Clark & Peacock said: "Pension fund trustees need to understand whether the employer backing their fund is at risk from the current credit crunch. At worst this situation could lead to insolvencies, and a reduction in the amounts which pension schemes can recover from insolvent employers.”

That is about occupational pension schemes backed by companies.

But unfunded schemes run by governmental agencies (such as the UK Teachers' Pensions Agency) will be paying pensions that have much less purchasing power when the inflation effect of this works through.

[A_Traveller]

Be wary of stocks on all exchanges, even for the longer term. As the 'baby boomers' start to retire, the pension funds will be selling stocks to provide monthly pension payments, and there is no sign that there will be enough buyers to keep the prices up.

pension funds worldwide invest mainly in bonds. and their holdings of shares are not meant to be sold in order to cover payments.

Hm.. not sure that is true, as an example take CalPERS

Sorry no table editor here so Asset Allocation CalPERS

Regards

/edit format //

Edited August 17, 2007 by A_Traveller

[Naam]

ALL European stock markets opened in RED, except London which opens later, but it's too early to say how the day/week will end.

LaoPo

presently i see all green and two red ones:

http://de.finance.yahoo.com/m2

[A_Traveller]

Article from the Economist 16/08/07

Credit markets and the crisis of confidence in global finance

THE old-fashioned financial system was like Old Maid, a parlour game once beloved of small children. The banks were like players, dealt hands from a pack of cards, which they swapped among each other. At the end, one player was left holding a lonely queen—a bad debt, if you will—and lost. Over the past few decades the game has changed. Securitisation has snipped the old maid into pieces; new faces, such as hedge funds, have joined the party, enabling the banks to distribute those pieces among a larger number of players. When the game is over, lots of players are left holding small losses instead of one player holding a big one.

During two exceedingly prosperous decades, that theory seemed to work just fine. But the swings in almost all financial markets this month have made dispersed risk suddenly morph into dispersed mistrust. The uncertainty has been magnified by the way that bad risks have become so hard to value. Investors have bought asset-backed securities that use shaky subprime mortgages in America as collateral, but as defaults have risen, the value of that collateral has tumbled.

Meanwhile, collateralised-debt obligations (CDOs), made up of clumps of those securities and laced with leverage, have become almost impossible to trade. So none of the players really knows how much he has lost. While this uncertainty lasts, investors are taking it out on the banks that peddled the securities by dumping their shares; and the banks are taking it out on those they sold them to by demanding more collateral on their loans. The banks have even grown cagey about lending to each other.

The doubts burst into the open on August 9th when central banks were forced to inject liquidity into the overnight money markets because banks were charging punitive rates to lend to each other. At first, the problems appeared more serious among European banks. The pain in America was concentrated in the largest hedge funds, including those run by Wall Street’s biggest name, Goldman Sachs. Increasingly, however, analysts worry about the exposure of American, Canadian and Asian banks.

On Wednesday August 15th shares in Countrywide Financial, a large American mortgage lender, fell 13% after an analyst gave warning of possible funding difficulties. Despite liquidity injections by the Federal Reserve on August 15th, the S&P 500 index fell 1.4%. The heavy selling spread to Asian and European stocks on August 16th.

Every crisis begets finger-pointing, and the blame now is falling on the rating agencies that helped structure these exotic instruments. Currently, they are guided by a voluntary code that aims to tackle potential conflicts of interest. The biggest is that the agencies are paid by the firms they rate. Rating CDOs was a profitable business.

If these securities are now downgraded, banks could be forced to offload lots of illiquid instruments into a falling market—one of the fastest ways to lose money yet devised. But if there are no buyers, banks may have to sell something else to shore up their balance sheets.

Something like this indiscriminate selling has been affecting hedge funds over the past couple of weeks. Faced with more demanding standards from their banks and investors, some have been forced to unwind positions in order to realise cash. That has led to unusual movements in debt and equity markets, which have only got some funds deeper into trouble. Quantitative funds have been hardest hit, as investment models that had made money for ages briefly proved worse than useless.

Since banks lend to hedge funds, any problems there quickly become their concern. On top of this, both Bear Stearns and Goldman Sachs have found that when funds bearing their name get into trouble the desire to preserve their reputations soon leads to a rescue. Sometimes risk is not as far away from the banks as it seems.

At the end of Old Maid as banks used to play it, the loser would take a big write-off and then everyone could start playing again. In the new version, the use of leverage means the game is being played with hundreds of packs of cards and by thousands of different players. Working out who has won and who has lost in this round will take a long time.

Economist Lead Story

[xbusman]

I think a moment of being curmudgeonly is called for. Even for the most idiotic and drooling fool of an investor or economist learns on day one that return is based on risk. More return absolutely must mean more risk. Less return does not always mean less risk but three minutes of due diligence will out it.

These CDOs were all high return, high risk. In the words of the immortal philosopher Homer Simpson, DUHHHHH! I really dont see what the fuss is all about. After all, what is the definition of high risk, I think its the possibility of losing your investment capitol. Emerging markets are another code word for high risk. Amazing what sheeple will do with their money and then bleet to high heaven when the wolves sweep in.

Let em fail I say, lets all relearn one of the few hard and fast rules of investing.

[LaoPo]

ALL European stock markets opened in RED, except London which opens later, but it's too early to say how the day/week will end.

LaoPo

presently i see all green and two red ones:

http://de.finance.yahoo.com/m2

Correct; I just mentioned red when the markets opened.

London is in the green as well now after opening.

Curious what the US markets will do today but:

"Intervention Fails to Calm Markets"

and Bernanke is under a lot of pressure to cut the rates...

http://www.bloomberg.com/apps/news?pid=206...&refer=news

LaoPo

[samran]

Poor old Bernake, will have to keep a poker face for the next few weeks. Try and legitimately inject some liquidity into the system, and the markets will take that as a sign of panic. I don't envy him at all.

[Naam]

Emerging markets are another code word for high risk. Amazing what sheeple will do with their money and then bleet to high heaven when the wolves sweep in.

some "sheeple" exist who (based on the high proceeds of EM) are happily retired since SEVENTEEN YEARS, EIGHT MONTHS AND SEVENTEEN DAYS and hope for at least another happy 17 years.

[Naam]

Poor old Bernake, will have to keep a poker face for the next few weeks. Try and legitimately inject some liquidity into the system, and the markets will take that as a sign of panic. I don't envy him at all.

Benny could call Alan and ask "Yo Greenie! what shall i tell these clowns tomorrow that they don't understand?"

[lannarebirth]

I think a moment of being curmudgeonly is called for. Even for the most idiotic and drooling fool of an investor or economist learns on day one that return is based on risk. More return absolutely must mean more risk. Less return does not always mean less risk but three minutes of due diligence will out it.

These CDOs were all high return, high risk. In the words of the immortal philosopher Homer Simpson, DUHHHHH! I really dont see what the fuss is all about. After all, what is the definition of high risk, I think its the possibility of losing your investment capitol. Emerging markets are another code word for high risk. Amazing what sheeple will do with their money and then bleet to high heaven when the wolves sweep in.

Let em fail I say, lets all relearn one of the few hard and fast rules of investing.

I'm just not at all clear what the hulabaloo is all about. Since the March '03 lows, the S%P 500 has climbed the longest time in it's history without a 20% correction. It's down something like 10% after double topping in an area of known resistance. Advances that never retrace result in parabolic moves that ALWAYS retrace at least 100% and are very unhealthy for markets. The 4 1/2 year business cycle has 4 elements as relates to stocks. They are:the accumulation,markup, distribution, and markdown. It would appear this is the markdown phase of the cycle, and look it's Aug, Sept, Oct, selling season anyway.

Edited August 17, 2007 by lannarebirth