The stock market......

[Paddy]

..... is looking shaky; shakier that it's been in awhile.  Is it about to go over the edge?  (I'm thinking about cashing out, taking profits and buying in later).  The DJIA is still above 13k today, so it's ahead YTD. But...but....

[K Frame]

It's been shaky for several weeks now.

The subprime lending market is really weighing heavily on it.

Define "over the edge."

[Paddy]

It's been shaky for several weeks now.

The subprime lending market is really weighing heavily on it.

Yes, I know.  It has been losing, rallying, losing, rallying, treading water so to speak.  I understand the worst of the subprime defaults are yet to come.

Define "over the edge."

A drop more than 20% that could not be recovered within, say, 6 months.

[Manedwolf]

It can't do a 1929 because the computers would halt trading to let people take a deep breath and find their wits.

[K Frame]

It couldn't do a 1929 in a single day, but over a period of time that sort of drop is certainly possible.

But would it be catastrophic to the economy?

Maybe, maybe not.


Using that definition of "over the edge," the last one of those we had was during the .dotbomb of 1999-2000. It took a couple of years for prices and levels to recover fully, but they've done so with a vengeance.

[Paddy]

It was more than a couple of years for most investors. More like 3-5 years.  Besides, the conditions are different this time. The .com bust really only hurt investors in those companies; companies that were waaaayy overvalued because they produced absolutely nothing.  Now it's the fear of huge defaults and nobody knows the extent of it.  Investors and brokerage houses and mutual funds are beginning to draw back from some of the major lenders who may be affected.  This could be much wider and deeper than the .com bust.

[charby]

I dumped a lot mutual funds mid May, I'm waiting for certain things to drop to a certain price and I'll re-buy what I sold. It was hard to stomach the June/July rise and thought I did the wrong thing, but after the last two weeks I feel pretty confident what I did.

[K Frame]

You also have to realize that the dotcom bust severely affected the real estate and lending markets in the United States in much the same way that the sub prime situation is affecting the lending and real estate markets.

The situation is different, but in many cases the players are really the same, and facing many of the same pressures.

[The Rabbi]

It was more than a couple of years for most investors. More like 3-5 years.  Besides, the conditions are different this time. The .com bust really only hurt investors in those companies; companies that were waaaayy overvalued because they produced absolutely nothing.  Now it's the fear of huge defaults and nobody knows the extent of it.  Investors and brokerage houses and mutual funds are beginning to draw back from some of the major lenders who may be affected.  This could be much wider and deeper than the .com bust.

Yeah.  And I LOVE IT!
Things have been so over-valued that people have forgotten what value means.
I want foreclosures galore.  I want people to swear off stocks forever.  In 1968 stock values were enormous and by 1973 no one wanted them.  Companies were selling for less than the cash they had in the bank.  And they were profitable.  I want those days back.
I want the days of the RTC when they auctioned condos here for $5-10k each.
I want $260 gold.
Blood in the streets, bring it on, baby!

[Paddy]

You also have to realize that the dotcom bust severely affected the real estate and lending markets in the United States in much the same way that the sub prime situation is affecting the lending and real estate markets.

Well, a lot of those investment dollars that went into the dotcom market have since gone into real estate, fueling the outrageous (and unsustainable) appreciation we've seen in the last coupla three years. The appreciation was the driving force (right after blind greed) behind the current crop of subprime-loans-in-excess-of-value debacle.  So, in a sense, yes, the same speculative factors are at work.  However, both the real estate and mortgage industries taking huge hits at the same time may have some unanticipated lasting effects.  And if it spills over to 'consumer confidence' and retail start declining significantly, we're all in trouble.  That's the weakness in a consumer based economy that doesn't produce anything of intrinsic value (durable goods., etc.).

[K Frame]

The dotbomb affected the retail and home real estate markets fairly equally, as I recall.

Prices in both sectors were depressed.

I really don't see that investor dollars that were flowing into the dotbombs went into real estate. The real estate market boom was, I believe, more driven by jobs created in the post September 11 world.

[MillCreek]

In 2000 after the dot com crash, my retirement plan at work, with the investments in balanced fund packages, went from $ 310,000 to $ 170,, and it took several years to get back up to that level.  In the last week or so, I have lost $ 27,, still with the balanced fund packages.  I have to take the long term approach since I still have many years left in the job market and I still subscribe to the philosophy that over the long-term, the market offers the best rate of return.  The sticky wicket of course, is if the market downturns at retirement time.

[Manedwolf]

The dotbomb affected the retail and home real estate markets fairly equally, as I recall.

Prices in both sectors were depressed.

I really don't see that investor dollars that were flowing into the dotbombs went into real estate. The real estate market boom was, I believe, more driven by jobs created in the post September 11 world.

Wasn't there another sort of housing crash in the late 80's and early 90's, especially with condo speculation?

And AFAIK, most of the investors who once clamored for dotbombs now clamor for biotech.

[280plus]

LOL, I just checked it (4 pm EST Thursday) and it's just that, laughable. The problem, I think, is too many damn amateurs trying to play with the big boys. There's nothing to justify these kinds of daily swings except maybe stupidity. One day it rallies 300 points and the next it drops 400? That's just knee jerk stuff there... 

[K Frame]

LOL, I just checked it (4 pm EST Thursday) and it's just that, laughable. The problem, I think, is too many damn amateurs trying to play with the big boys. There's nothing to justify these kinds of daily swings except maybe stupidity. One day it rallies 300 points and the next it drops 400? That's just knee jerk stuff there... 

It's always cycled like that.

One day's profit taking (selling makes market drop) is the next day's bargain basement buys (buying makes market jump).

[280plus]

Down 381 doesn't sound like profit taking to me, it sounds like a panic attack. 

[charby]

Down 381 doesn't sound like profit taking to me, it sounds like a panic attack. 

381points on a 13k spread is less than 3%

1200 point daily drop would a whole different story

[280plus]

NEW YORK (Reuters) - Stocks closed sharply lower on Thursday, after a leading French bank froze three funds that invested in U.S. subprime mortgages, prompting central banks to take steps to calm investors.
 
The Dow Jones industrial average (.DJI) was down 382.47 points, or 2.80 percent, at 13,275.39. The Standard & Poor's 500 Index (.SPX) was down 43.70 points, or 2.92 percent, at 1,453.79. The Nasdaq Composite Index (.IXIC) was down 56.49 points, or 2.16 percent, at 2,556.49.

[K Frame]

Charby gets it.

I don't think the trading brakes have kicked on in something like a year.

Today's sell off was an orderly progression, not a "shove the anvil out the airplane" kind of drop.

Anyone remember what happened in 1987?

When the market dropped something like 22% in ONE DAY? IIRC the market started the day at something like 2,200 points and lost 500ish.

It took a couple of years to recover, but recover it did.

[Paddy]

I don't know that the 'amateurs', even collectively (and they're not all gonna move in the same direction at the same time) have anywhere near the effect that the 'big boys', the big institutional investors, who move millions of shares at a time, have.

No, 3% in one day is not much; we may very well regain it tomorrow.  However, these wild swings over the past few weeks mean something.  Sorta like an out of balance washing machine. 

[K Frame]

Yes, it does mean something.

It means that there's some unsettling economic news, and investors are nervous.

[Paddy]

Charby gets it.

Still, he dumped a bunch of mutual funds mid May.....

I don't think the trading brakes have kicked on in something like a year.

I don't remember the specific circumstances at the time, but it only happened once or twice, correct?
If they need to use the brakes everyday, then we're on the express elevator down to the lobby.

[The Rabbi]

Yes, it does mean something.

It means that there's some unsettling economic news, and investors are nervous.

I've mentioned that I have been an investor for over 30 years.  This is a regular phenomenon.
First as the bull market matures we see increasing numbers of poor quality IPOs or other "innovations."  That was LBOs in the 1980s, tech issues in the 1990s and private equity deals today.
Then that scheme gets maxed out.  The market gets increasingly volatile with big swings.  Then it gets into a sustained bear market, knocking about 20%-30% off the value.  The magazines declare the end of the world.  Lawyers gear up for class action suits.  People lose their life savings.  Everyone swears off the market.  Until the next time.
So, get ready for a decline of 20-30%.  If you are holding cash, hold on to it. Wait for everyone else to give up and buy buy buy.  Sit back and enjoy the recoil.

[Paddy]

So, get ready for a decline of 20-30%.  If you are holding cash, hold on to it. Wait for everyone else to give up and buy buy buy.  Sit back and enjoy the recoil.

That's what I expect too.  Cash is king.

[280plus]

I don't know that the 'amateurs', even collectively (and they're not all gonna move in the same direction at the same time) have anywhere near the effect that the 'big boys', the big institutional investors, who move millions of shares at a time, have.

So the big boys are repeatedly dumping their money and reinvesting it on a daily basis? That makes no sense to me coming from those who have the experience, but the little inexperienced investors trying to ride the waves, now that's another whole ball of wax.  Besides, last I heard the small investor was the backbone of the market.

I'm with mike and rabbi and I brought it up in my "Dow-ch" thread, granted, 3% isn't much but these wild ups and downs mean something isn't right with the market and I'm just making observations, I haven't made a single move and I don't plan to, I'm just hanging on and will continue to do so. I WAS thinking of taking some out and paying some stuff down, but not now.