How low do people on here think the dow will go? Are we already there, or does this market have more losses in store? I think we are going to see a further drop to near 6000. I don't think the financials have run their course. There are still big write-downs to come.
No one wants to go near the financials at the moment, and they still make up a decent portion of the major averages (I'm not sure how relevant the Dow is anymore, but people still talk about it). I don't know where we're going (and I hope that we hold the current lows-looking unlikely, although today is options expiration and not entirely normal). There are some excellent values out there, IMO, but I think a lot of stuff is going to get pushed lower as the financials drag down a lot of stocks with them. EDIT: Just got out of TBT at $46 (Shorting the 20 year treasury). Ended up making 8% on the trade (bought in early January at $42.40) , but could have made a little more if I had sold two weeks ago when it was getting near $50. I still think TBT makes sense on some level, especially when we recover from this and interest rates start going up. There's just too much risk in it at the moment, especially if one of these large banks actually fails.
I think it will get into the 5000's. The recession/depression will cause new classes of bank assets to lose value leading to more writeoffs. To cushion the writeoffs the banks will conserve capital. Banks should be nationalized - need dramatic action.
If all 5 financial stocks in the DJI average went to zero, the Dow would only drop 200 more points. So in that sense the Dow is a pretty useless indicator at the moment.
The broader market is a better indicator, but the effect of the contracting economy (lower revenue and earnings), partly caused by the lack of credit, will be reflected in most other Dow stocks.
Well for comparison to the worst in recent history, the 1929-1933 stock market peak-to-trough was about 89%. If that happened now (which I'm not saying it will), the Dow trough would be about 1500. We're currently down about 50%. Anyway, interesting note from Barry Ritholtz today. http://www.ritholtz.com/blog/2009/02/50-dow-retracement-1982-2009/ And he doesn't note this but I did just looking at the graph, if you take the original slope of the stock market rise throughout the 1980s and extrapolate it to 2009, you wind up with a Dow level roughly similar to the level it is at now.
Good call. Seriously though, this latest rally is an absolute joke. I dont think we will see S&P drop below 400, even that may be a stretch since by that point we would be well into inflation and we can inflate the markets to higher levels.
Why is this latest rally a joke? Wells Fargo reported record profits, and several of the other banks have reported profits as well. True, several still have lots of toxic assets on their balance sheets, but those assets were never really as toxic as their market prices suggested.
You are right...borrow at 0% from the government and then lend out that money at a much higher rate! Genius! oh and lets just assess all assets at prices we feel they should be rated as, not what the silly market thinks. Actually its so brilliant, I think all banks executives should get huge bonuses for this!
Borrow at 0%? The interest rate for TARP funds is 5% for the first five years and 9% after that. And look, I support mark-to-market accounting, but MTM misses one important aspect of MBSs: they're still producing cash flows. They're like bonds in an incredibly illiquid market. There's no question that the market is undervaluing them right now; there's also no question that the banks would value them for more than they're worth, if they were permitted free reign. What none of us know--including you--is how lenient the new FASB regulations are regarding the valuing of these securities. I'd wager that the new regulations are not simply "whatever you say they're worth, that's what they're worth."
I wasnt talking about TARP. That's not what banks use to lend out money. Citi only has a 3% asset to credit ratio, you take from that what you will. How we are tackling this is ridiculous too, first they were too big to fail and then we make them bigger with more money... then we devise a stress test that says they all pass yet they need much more money from the taxpayer to stay afloat. I must be the only person who finds this beyond ridiculous, our economy has become a damn joke!
I think he's talking about the Fed Funds Rate or the overnight rate, which is targeted from 0 to 25 basis points. The problem with their cash flows is that there still is a strong probabiliity that a significant portion of MBSs will no produce their cash flows to maturity or disposition. Until the housing market stabilizes and MBS holders get a better idea of how bad the damage is, you won't see movement in the market. As much as I like MTM, and I do for it's transparency and applicability, it magnifies returns both when asset prices are rising quickly and when they are falling quickly.