What Confuses Me

StevieJ

The S&P is down 33% from September, what confuses me is I can't see what has changed that much.
Recession - Yes I think think we were already expecting a pretty severe one for ages.
Credit crunch and write offs - Again been around for a while.
Libor Rates - I think these were increased by the fall of Lehman, I think these are/will be reducing helped bt govt liquidity action.
On the plus side:
Commodity inflation should reduce dramatically soon, add to this reduced interest rates and this should put extra cash in peoples pockets.
On the Negative side
Increased unemployment

Obviously some thing has happened that I am not accounting for to cause the 33% drop, WHAT IS IT?

1echidna

1. True a recession has been foreseeable for sometime but official spokesmen and optimists have until recently poo pooed the possibility until it became too obvious to deny.

2. Few people quite understood what a difficult situation the banks were getting into and the recent crisis in the banking sector shook people's confidence.

purch

Recession - Yes I think think we were already expecting a pretty severe one for ages

I think the realisation that we are actually in a recession is pretty recent, for much of the yrear the "markets" were trying to convince themselves that one would either be avoided, or would be minimal.

Stock prices reflect future events, not current one's. The expectation that earnings will be much less than anticipated is the main factor.

The market will start to recover long before the recession is over, probably long before it becomes apparant to most people.

And at that time there will be many asking "Whats changed...the economy is still cr*p"

peawack

Closures and job losses have not kicked in yet.
Demand will drop markedly and the downward spiral begins.
The trouble is that when the recession is world-wide, there's no-one to drag us out.

tradetime

The market is a discounting system, currently it is discounting the rising unemployment and expectation of much higher levels (people are beginning to bandy about the figure of 10%) , the realization that yet again the housing market hasn't bottomed, the growing worry that Iceland (the country) will not be the only country to go bankrupt.
A late realization that earnings estimates are still way too high, and a now growing worry that an estimated $1 trillion in cdo's based on corporate debt is about to unwind at 10c on the dollar. So it's got a lot on it's mind right now

StevieJ

tradetime wrote: »

The market is a discounting system, currently it is discounting the rising unemployment and expectation of much higher levels (people are beginning to bandy about the figure of 10%) , the realization that yet again the housing market hasn't bottomed, the growing worry that Iceland (the country) will not be the only country to go bankrupt.
A late realization that earnings estimates are still way too high, and a now growing worry that an estimated $1 trillion in cdo's based on corporate debt is about to unwind at 10c on the dollar. So it's got a lot on it's mind right now

As far as I concerned it had already priced in those things (i.e. discounting mechanism - market down 25%) now it has priced it in again, I think it has just totally overcooked it and left some fantastic bargains on the table.

tradetime

StevieJ wrote: »

As far as I concerned it had already priced in those things (i.e. discounting mechanism - market down 25%) now it has priced it in again, I think it has just totally overcooked it and left some fantastic bargains on the table.

Well I don't think so, but then that's what makes a market, there's room for everybodies view. I think this market has lower to go, I suspect the S&P will at least test the '02 lows, then we can reassess.

domcastro

Sorry to be a thicko, but whats S&P? please

tradetime

domcastro wrote: »

Sorry to be a thicko, but whats S&P? please

S&P500 = Standard & Poors 500 large cap US companies, considered to a broad market snapshot of US companies.

Lauri_2

Hi,

Just watched this video about the credit crunch which explained what is happening really well comparing the credit crunch to an antartic expedition - http://bigtom.biz/notebook/2008/10/credit-crisis-as-an-antarctic-expedition.html

Enjoy!

tradetime

I think this market has lower to go, I suspect the S&P will at least test the '02 lows, then we can reassess.

On that topic the futures are limit down currently.