Stock Markets Bombing!

thesaint

Can the title of this thread be changed from

Stock Markets Bombing :mad:

to

Stock Markets booming? :j

Generali

Gorgeous_George wrote: »

and now 6.3%.

Clearly, investing in the stock market on Friday was better than buying a house for the weekend.



GG

And if you leveraged it 6x like some BTLers you'd have made 20% over the w/e and could have sold your position in about 30 seconds just before the close today without ever talking to a solicitor or (worse) an est*te ag*nt.

Generali

thesaint wrote: »

Can the title of this thread be changed from

Stock Markets Bombing :mad:

to

Stock Markets booming? :j

I think 'Stock Markets All Over The Place' would be most accurate for last week (and quite possibly the next little while too).

Buy Volitility!

Melissa177

The brokers will be loving it.

Alan_M_2

I read FT.com on passing and don't fully understand the mechanics of these markets.

Can someone shed light on why the ECB has deemed it necessary to "lend" 150 Billion Euros to support these markets, where the money comes from and who actually pays for it?

Or is this "Virtual Money" that's there as a placebo to make all the traders feel a little bit better about the overexposed situation they find themselves in?

ManAtHome

Think they just nip round to PC Monde and buy a few thousand lasers...

Great signal to the W/Bankers - "whatever carp you get yourselves into, we'll bail you out" though.

Interesting piece from Robert Preston http://www.bbc.co.uk/blogs/thereporters/robertpeston/

Alan_M_2

Interesting article, thank you, whilst I didn't understand it 100% I got most of it and it kind of confirms what I've been thinking for a while.

It's not just the housing market that's skating on thin ice, but a lot of heavily linked financial markets, at that point the detail gets lost on me.

It seems a lot of money is being borrowed to speculate, (That's what I understand a hedge fund to be?) and what the ECB did (or possibly didn't do this week) was prevent a catastrophic global financial meltdown, or what I'd like to refer to as delaying the inevitable a little longer.

As someone looking from the outside in I understand this in the following manner....

I run a business, and when my borrowing becomes unsustainable, the bank call in my loan, but I can't pay this loan so I'm forced to sell my assets (on which the loan was secured), but because I (and all my neighbours) are being forced to sell our assets, our assets have become worthless, so not only am I required to sell these, I need to sell my car, my kidney's, my ex wife's kidney's and anything else I might be able to get hold of......

But hold on, My fairy godmother (the ECB) has stepped in and just pumped a whole load of money into my business so it doesn't go tit's up and everyone can carry on as though nothing has happened (even though in reality my basic business premise is unsound and unsustainable).

Does that kind of sum it up?

Nothing to see here, move along now, nothing to see......

pamaris

Hmmmm I was just wondering the same thing; how does more "liquidity" (debt) solve a debt crisis.

Generali

Alan_M wrote: »

Interesting article, thank you, whilst I didn't understand it 100% I got most of it and it kind of confirms what I've been thinking for a while.

It's not just the housing market that's skating on thin ice, but a lot of heavily linked financial markets, at that point the detail gets lost on me.

It seems a lot of money is being borrowed to speculate, (That's what I understand a hedge fund to be?) and what the ECB did (or possibly didn't do this week) was prevent a catastrophic global financial meltdown, or what I'd like to refer to as delaying the inevitable a little longer.

As someone looking from the outside in I understand this in the following manner....

I run a business, and when my borrowing becomes unsustainable, the bank call in my loan, but I can't pay this loan so I'm forced to sell my assets (on which the loan was secured), but because I (and all my neighbours) are being forced to sell our assets, our assets have become worthless, so not only am I required to sell these, I need to sell my car, my kidney's, my ex wife's kidney's and anything else I might be able to get hold of......

But hold on, My fairy godmother (the ECB) has stepped in and just pumped a whole load of money into my business so it doesn't go tit's up and everyone can carry on as though nothing has happened (even though in reality my basic business premise is unsound and unsustainable).

Does that kind of sum it up?

Nothing to see here, move along now, nothing to see......

It's not quite as simple as that IMHO. I posted the below on another website (The Fool):

Banks sometimes run short of cash overnight. This is because the amount of money going out (from asset purchases, lending money, honouring cheques etc) is greater than the amount coming in (your wages being paid in to your bank, asset sales, loan repayments etc). This is a completely normal part of the daily operation of a bank.

In this case they go to the money markets and borrow from banks that are in the reverse position - they have more cash coming in that day than going out. The lending bank makes money by lending cash it doesn't need for the night.

The problem at the moment is that there is a fear that some banks might not be ask good a credit risk as they appear and that nobody really knows which one that is. You don't want to lend a billion quid to someone overnight that might go bust. You're risking £150k against a billion in effect which is bad. The problem is, the bank that is short needs the cash to meet it's obligations so is forced to pay whatever price the market demands to borrow cash. This may destabilise perfectly healthy banks and lead to less willingness to lend and the whole banking system being at risk of collapse - A Bad Thing.

In the case, the Central Bank steps in as Lender of Last Resort. They will lend the banks money at the base rate from their own reserves, usually taking bonds in as collateral. This way the market can still function in an orderly way until the problems can be sorted out.

In the case of your business, I guess a better analogy would be the VATman allowing you to pay your VAT late because one of your big clients had gone bust leaving you in a bad way temporarily. Your business is still sound but you have a cashflow problem. The VATman is temporarily easing things, not letting you off.

buglawton

It all started with the U.S. sub-prime lending market being seen as a risk. Lending to people who maybe can't pay the loan back - and maybe the assets can't be sold to cover the debt either.

Difference between U.S. and U.K.: There, after 25 years the termites may have started to eat the wooden structure of your house, maybe rebuilding is due. Here, if your house in a residential area falls down due to rot, it's worth twice as much as a speculative builder can build flats on the spot or 2 houses where there was 1.