Making sense of market turmoil...

[Ticklish8]

Most U.S. banks were in dire straights and all of the too-big-to-fail banks (the largest banks in the U.S.) were insolvent as a result of the credit crisis that hit in 2008. Both the U.S. Treasury Department and the Federal Reserve (which is run by bankers, essentially for banks) recognized that they had to save the banks at any and all costs - otherwise the U.S. economy and the global economy would collapse into a depression of catastrophic proportions.

 

Money was pumped into the financial system by means of several government and Federal Reserve programs. Interest rates were kept so low that the overnight rate that banks charge each other, which is engineered by the Federal Reserve Bank of New York, was, and still is, at historic lows in the range of 0.00% to 0.25%.

 

With money borrowed at essentially no cost, banks bought risk-free U.S. Treasuries. The banks used the Treasuries they bought as collateral to borrow more money in the short-term "repo" markets. And with those additional borrowed funds, the banks bought even more Treasuries.

 

The interest that the banks collect on the Treasuries created a profitable "interest-rate spread" - the difference between the interest they earned on the bonds they held and the almost-interest-free "loans" they took out in order to leverage their balance sheets.

 

Ok here where the problem start.

 

With borrowed money at technically "zero interest" rate, the banks, fund manager and the hedge fund started to look for "investment" that can maximise their profit. The first to benefit is of course stock market...... That what you have been witnessing so far with QE1 and QE2.... next in line is of course commodity like Oil, Gold etc.... then currency.... that why u see currenct like Australian Dollar and the Brazilian real surge... the next to go up is of course PROPERTY.

 

So the bull market that powered U.S/Singapore/Asia stocks off their March 2009 bear-market lows was the result of the massive monetary stimulus put in place by Washington and the U.S. Federal Reserve.

The U.S. monetary stimulus - billions of dollars worth- went into banks and other financial institutions - and not into the economy. That's why stocks have benefited - even in the face of an economy in US which growth has been lackluster, if not downright flat..........

 

So now you have situation that so called "hot money" is chasing the same thing, ie stock, currency (emerging market), commodity and property.... So what happen. Well the music have to stop.... ie after QE2 was withdrawn, u can see how ugly the REAL economy is, especially in US and Europe....

 

So the fund manager and hedge start to deleverage... Like I said, first u have situation ALL the hot money chasing the above (until u create a bubble), then u have reverse...... So that what you are witnessing right now......

 

I may be wrong in my analysis.... Please share your inputs... thanks....

 

 

 

 

 

 

 

[Sabbie]

Oh no, another money and market topic...I think just buy that ferrari and enjoy life better

[Without_a_car]

Most U.S. banks were in dire straights and all of the too-big-to-fail banks (the largest banks in the U.S.) were insolvent as a result of the credit crisis that hit in 2008. Both the U.S. Treasury Department and the Federal Reserve (which is run by bankers, essentially for banks) recognized that they had to save the banks at any and all costs - otherwise the U.S. economy and the global economy would collapse into a depression of catastrophic proportions.

 

Money was pumped into the financial system by means of several government and Federal Reserve programs. Interest rates were kept so low that the overnight rate that banks charge each other, which is engineered by the Federal Reserve Bank of New York, was, and still is, at historic lows in the range of 0.00% to 0.25%.

 

With money borrowed at essentially no cost, banks bought risk-free U.S. Treasuries. The banks used the Treasuries they bought as collateral to borrow more money in the short-term "repo" markets. And with those additional borrowed funds, the banks bought even more Treasuries.

 

The interest that the banks collect on the Treasuries created a profitable "interest-rate spread" - the difference between the interest they earned on the bonds they held and the almost-interest-free "loans" they took out in order to leverage their balance sheets.

 

Ok here where the problem start.

 

With borrowed money at technically "zero interest" rate, the banks, fund manager and the hedge fund started to look for "investment" that can maximise their profit. The first to benefit is of course stock market...... That what you have been witnessing so far with QE1 and QE2.... next in line is of course commodity like Oil, Gold etc.... then currency.... that why u see currenct like Australian Dollar and the Brazilian real surge... the next to go up is of course PROPERTY.

 

So the bull market that powered U.S/Singapore/Asia stocks off their March 2009 bear-market lows was the result of the massive monetary stimulus put in place by Washington and the U.S. Federal Reserve.

The U.S. monetary stimulus - billions of dollars worth- went into banks and other financial institutions - and not into the economy. That's why stocks have benefited - even in the face of an economy in US which growth has been lackluster, if not downright flat..........

 

So now you have situation that so called "hot money" is chasing the same thing, ie stock, currency (emerging market), commodity and property.... So what happen. Well the music have to stop.... ie after QE2 was withdrawn, u can see how ugly the REAL economy is, especially in US and Europe....

 

So the fund manager and hedge start to deleverage... Like I said, first u have situation ALL the hot money chasing the above (until u create a bubble), then u have reverse...... So that what you are witnessing right now......

 

I may be wrong in my analysis.... Please share your inputs... thanks....

 

 

You believe in conspiracy theory? US is trying to spread the meltdown to Asia. With the property bubble we have been building, it's just the right cocktail for an implosion.

Edited August 9, 2011 by Without_a_car

[WWbarb]

You believe in conspiracy theory? US is trying to spread the meltdown to Asia. With the property bubble we have been building, it's just the right cocktail for an implosion.

 

ya so best to sell house now and chop a place at changi beach and wait for 'kabom'

[Without_a_car]

ya so best to sell house now and chop a place at changi beach and wait for 'kabom'

 

it's disguised financial warfare...

[Maroon5]

Oh no, another money and market topic...I think just buy that ferrari and enjoy life better

 

i agree. if i had changed car last yr, i wldnt hv lost that money in the past 2 weeks.

[Sabbie]

i agree. if i had changed car last yr, i wldnt hv lost that money in the past 2 weeks.

 

ya, at least car is tangible, you sit in it laopa also song, you lose the money trading, you only suffer emotional loss.

[Jasonjst]

Got QE3 then QE4 right ? so hot money will still flow everywhere mah , right ? Who stop the music , China ?

Edited August 9, 2011 by Jasonjst

[Maroon5]

TS, i jus share a simple analogy. the US is like someone earning 100 but spending 110 every month. but becos hes the biggest fark in the land, the pple ard him lend the money to sustain his spending. in return, he supports these pple where it matters, some need security, some need purchases etc. the dust kept getting swept under the carpet until now, the 100 earning is no longer possible but spending stil 110. eg. farking bankers/ceos stil thk they deserved their multi million bonuses, instead of thkg how to repay those bailouts. so now, the pple he used to support in return is feeling the sh*t spreading to them.

[Ticklish8]

Deleveraging Aussie dollar...

 

SYDNEY: The commodities-linked Australian dollar Tuesday slumped below parity with the greenback for the first time since March, when it was rocked by the Japan earthquake.

 

The "Aussie" sank under US$1.00 shortly after noon Tuesday and was as low as 99.30 US cents by 12.20pm (0220 GMT), amid carnage on regional markets linked to the US debt downgrade by Standard & Poor's on Friday.

 

Since breaching parity with the greenback in October the Aussie has rallied consistently near or above the US$1.00 mark, retreating only briefly in the immediate aftermath of Japan's quake and nuclear crisis.

 

It hit a record of US$1.1081 just two weeks ago.

 

The unit has plunged 4.1 percent in local trade since Monday's close, and was tipped below parity by a 6.5 percent surge in Chinese inflation to its highest level in three years on soaring food costs.

 

China is Australia's major trading partner and the soaring inflation's potential to trigger social unrest and economic instability is likely to rattle policymakers and investors.

 

The Aussie is a risk-based currency and Bank of New Zealand currency strategist Mike Burrowes said it was hit badly by the global panic.

 

 

 

Got QE3 then QE4 right ? so hot money will still flow everywhere mah , right ? Who stop the music , China ?

 

[Maroon5]

ya, at least car is tangible, you sit in it laopa also song, you lose the money trading, you only suffer emotional loss.

 

yup. go to gatherings also got extra gloss haha! money lost in stocks only goes to another's pocket. but no choice, who ask me stupid.

[Ticklish8]

HK at one point plunge 7 percent... wow

 

Fear gripped Asian markets following a rout in the US stock market overnight, sending equities and currencies tumbling as investors grew increasingly pessimistic about the outlook for the global economy.

 

The FTSE All World Asia Pacific excluding Japan index was down 5.2 per cent by mid-morning in Hong Kong, entering bear market territory having now dropped more than 20 per cent since its peak in May.

 

The Hang Seng was the biggest decliner among Asia

[Plim72]

ya, at least car is tangible, you sit in it laopa also song, you lose the money trading, you only suffer emotional loss.

 

same lah..lan pa song asset will becomes emotional loss too at the end of its life come to think of it, almost all things are like that. once up the lorry, nothing left

[Maroon5]

if u look at 2 yr data, i fear the drop is not over. the only thing diff from 2 yrs ago is the liquidity in the mkt. at which pt do these funds come out again.

[Plim72]

if u look at 2 yr data, i fear the drop is not over. the only thing diff from 2 yrs ago is the liquidity in the mkt. at which pt do these funds come out again.

 

 

i am with you on this one. looking at my past entry pts, i am still positive for most of my STI stocks even if i exit as late as yesterday. cannot say for tomorrow and onwards through.

[Icedbs]

Arnout van Rijin, who manages an Asia-Pacific equity fund for Robeco, said stocks were bearing the brunt of a global decline in risk appetite because they were much more liquid than bonds, where trading spreads have jumped. But

[Icedbs]

i am with you on this one. looking at my past entry pts, i am still positive for most of my STI stocks even if i exit as late as yesterday. cannot say for tomorrow and onwards through.

 

 

When people were jumping in after the first day drop.....I was already saying how can that be cheap? It's still nothing yet.

 

The bigger discount is still way ahead.

[Jasonjst]

When people were jumping in after the first day drop.....I was already saying how can that be cheap? It's still nothing yet.

 

The bigger discount is still way ahead.

 

So how to tell that it bottom or not ?