The Blood Bath on Wall Street Is the Blood of Main Street

All hail the credit rating agencies. The Dow is tanking, at the time of this post down over 630 points, probably getting hit with margin calls. Gold is over $1700 an ounce. Oil is down $3 dollars a barrel as investors hunt for a place to hide. Currency exchange rates are bouncing. Panic is clear due to high market volumes and the fear index, otherwise known as the VIX, surged 40% in a day.

 

vix080811.png

 

As expected, S&P's downgrade of the United States is resulting in further downgrades.

More and more S&P is being accused of playing politics, buying into Tea Party insanity, instead of objective analysis:

Standard & Poor’s, the rating company that downgraded the debt of the United States to AA+ from AAA for the first time, now finds itself assailed by investors led by billionaire Warren Buffett for making a political decision that has more to do with Tea Party politics than the financial stability of the U.S.

S&P officials, shrugging off a $2 trillion calculation error, blamed “uncertainty” in the policymaking process on Aug. 5 when they cut the assessment of the U.S. government’s ability to pay its debt, citing Congress’s failure to agree on as much long-term deficit reduction as the credit-rating company wanted. Buffett, the world’s most successful investor, said S&P erred and the U.S. should be rated “quadruple-A.”

S&P downgraded both Fannie Mae and Freddie Mac quoting their reliance on the government. If anything can be gleamed from a political position it is this reasoning.

Because the U.S. government -- through lenders including Washington-based Fannie Mae, Freddie Mac of McLean, Virginia, and the Federal Home Loan Banks -- is the country’s central source of mortgage funding, the downgrade could lead to higher borrowing costs for homebuyers.

As we've noted many times the real crisis is the destruction of the United States middle class. It is a jobs crisis. While we doubted the U.S. economy would slide into a second recession, we noted that one could not have a major adverse event. It could be S&P running amok with so much power is that event.

When the market plunges a favorite trick of corporations is to slash and burn their employees. They fire people like the Auschwitz concentration camp Kommandant in Schindler's List, indiscriminately. At a point with such a jobs crisis ongoing for 43 months, this could indeed be the tipping point. Consumer spending is already D.O.A. and real income, adjusted for inflation, has declined 13.7% from 2007. David Cay Johnston:

 

 

Because the budget deal is putting it all on the backs of the U.S. middle class, discretionary spending, this directly affects, negatively, GDP growth.

EPI also has done an analysis on the current budget cuts and shows the effects are, in terms of jobs.

Debt ceiling deal threatens deep job losses and public investment finds that the spending cuts in the deal will reduce GDP by $43 billion in 2012, lowering employment by roughly 323,000 jobs. The failure to extend the payroll tax cut will reduce GDP by $128 billion, resulting in roughly 972,000 fewer jobs, and the failure to continue emergency unemployment benefits will reduce GDP by $70 billion, resulting in roughly 528,000 fewer jobs. In other words, the debt ceiling deal will result in more jobs lost in 2012, relative to current budget policy, than have been created since employment troughed in early 2010.

Over half of the deal’s spending cuts will come from the NSD portion of the budget, which represents only 15% of the total federal budget. The deal’s initial spending cuts reduce NSD from 3.5% to 2% of GDP in 2021, the lowest level in over 50 years. If the committee tasked with producing additional cuts cannot agree to a plan, or if Congress does not pass it, the sequestration mechanism would reduce NSD further, to 1.7% of GDP. At the 1.7% level, NSD spending would be roughly half of what it is right now.

Moody's Economist Mark Zandi also has run GDP multipliers and concludes the latest budget deal will reduce GDP by 1%.

Like all great economies, when one moves to financialization, complete with bail outs and lobbyists, instead of a production economy and then gets a series of crazies out to destroy social safety nets and the U.S. middle class along with it, these are the results.

So, is a double-dip recession possible now? Yes, and it's all completely manufactured by the forces above, and the pain and suffering is unnecessary.

Meta: 

Comments

666 Calculated RIsk, S&P 500 dropped 6.66% today

Calculated Risk has a chart of the top 1 day percentage changes in the markets and notes the infamous analogy on today's percentage.

That ain't no lie and after all, isn't 2012 supposed to be the end of the world?

;)

Such a great title, putting 666 plus S&P in the same headline.

Anyway, today's slaughter is one of the worst on record. Check out the link.

You must have Javascript enabled to use this form.

Warren Buffett is not a disinterested party

He went heavy into the stock market two weeks ago before this crash hit. He's been buying on the way down. He has publicly said the US will not enter a recession and the stock market is a safe long run bet. He owns substantial positions in Wells Fargo and in Moody's, which means he took a big hit today because the banking sector was one of the worst performers, and he has to justify Moody's decision to maintain the Aaa rating at a time when all the publicity is on S&P, their arch rival. He was a prime beneficiary of the 2008 bailout, being given a private first look at all the assets for sale, so he is very closely identified with the authorities who are not looking too good at the moment. Despite calling derivatives time bombs ready to go off, he has a massive derivatives portfolio that just caused him to be downgraded today by S&P, so he has now lost his precious AAA rating.

I would rate him very unhappy with S&P and someone with an ax to grind. In fact, from what I read in Wall Street publications, people are realizing that he never speaks publicly without an agenda and an understanding that he can move markets. The interesting thing is, as people get to understand his motives better, his ability to move markets is waning considerably.

You must have Javascript enabled to use this form.

Fundamentals when there's no long-term

Let's reformulate the news about S&P downgrading Berkshire and say that since insurance is a long-term investment, then it's a lousy investment when there is no long-term anymore. (Of course, it's been a while since anyone anywhere projected anything out even to five years.)

Anyway, thanks to Numerian for the report, but maybe we could give the Wiz a break! It's tough when you hit your eighties and still have to work.

Shouldn't he be allowed his retirement years ... in Australia, or anywhere but Omaha?

All these S&P moves represent an agenda too.

It depends on what you think an S&P or a Moody's rating is supposed to mean. It's like when the average person is below the poverty line, what does that mean? So maybe there's no paper out there that should get a AAA anymore. Okay. But isn't that like an agenda respecting precious metals markets? Somebody's doing okay off the S&P announcements and some people probably knew in advance? Somebody has as much cash but more gold today than they had yesterday?

"I don't think it matters much to Berkshire and I don't think it makes much sense," says Steve Check.

Well, you know, the big insurers, the re-insurers, the law of averages ... yeah, it makes sense that they're going to be making more payouts more sooner as socio-economic stability declines globally, assuming that's what is happening ... and assuming it's markedly more so since Boehner walked out of the White House on a late Friday. So S&P downgrading the insurance business makes some sense. On the other hand, it also can make sense in terms of somebody's day-to-day trading profits, like over the last few days. Maybe even somebody other than the Wiz.

A few days back, I opined here at EP that the NYSE is almost like an adjunct to the precious metals and currency markets. So, for Buffet, the arch-fundamentalist, the question now is "How fundamental can it get?"

Steady as she goes!

You must have Javascript enabled to use this form.

"I Robot" Economy Where Robots are Not Made Here

There is no contradiction between Buffet's buying and a reversal of the already started 'correction'. The market can go way up while we suffer much more. Captialism in its brutal, degrading, decrepit form in this time is all about pain and the blood sport.

Every manager in this economy manages 'costs' - a euphemism for the bread going into our mouths. Every manager knows he gets richer not in spite of our poverty, but because of our increasing poverty.

If I am wrong, I am not where I am. In an IT concentration camp, overseen by the Kommandants right out of Schindler's List, just waiting to take another shot.

If I am wrong, I would not be the oldest, the best skilled, and the only person doing IT work, in my shop,
born in this country. And every where we look and go
the story is repeated.

You must have Javascript enabled to use this form.

Burton Leed

crazy market swings, DOW up +462, today 08/09/11

There are a lot of trading/financial sites publishing "fast analysis" on what the hell just happened. Frankly, I don't know.

If I find out something that isn't elsewhere I'm write. For now, I'm wondering about automated, flash trades cascading on levels. Something like 73% of all trades are flash, or automated, operating from software, and trading on levels, triggers.

I don't see how the Fed can basically announce, guess what, we've got a 6 year recession and have the stock market take off like a rocket.

Treasuries also imploded an the entire VIX jumped 120%.

You must have Javascript enabled to use this form.

Fear, Greed and Uncertainty

There's the never-ending swinging from fear to greed and back to fear and so on.

In between greed and fear, there's the wide open range of UNCERTAINTY.

The Uncertainty Industry in Las Vegas and Macau seemed to be doing just fine even as New York and Hong Kong markets tanked.

Excerpted for review purposes from the Las Vegas Review-Journal  (August 9, 2011), Business Section:

MGM Resorts International used its quarterly earnings conference call [August 8] to somewhat soothe the nerves of the investment community ...

The casino giant, which operates 10 resorts on the Strip ... had scheduled its second-quarter earnings release several weeks ago. It just so happened the event took place shortly after the Dow Jones Industrials suffered its largest one-day decline since December 2008. ...

Company executives said visitation trends in Las Vegas were strong in the first six months of the year and haven't shown signs of diminishing ...

In an interview following a conference call with analysts and investors, MGM Resorts Chairman and Chief Executive Officer Jim Murren, said he didn't believe stock market turmoil would affect continued visitation to Las Vegas.

He said the company's hotel-casinos in Las Vegas have experienced year-over-year growth in cash flow through June, and bookings haven't slowed since.  ...

"From what we've seen, the trends are still solid and improving," Murren said. "The foundation of the Las Vegas recovery is solid and our business is building. ...  "
 
...  In a statement, MGM Resorts said the company benefited from gaining a 51 percent majority stake in the MGM Grand Macau, after launching its Hong Kong IPO. The $3.5 billion was worth $6.30 a share. Without the $3.5 billion infusion, MGM Resorts would have lost 8 cents per share.  ...

MGM Resorts' new ownership stake in the MGM Grand Macau allowed the company to report greater financial details about the 600-room hotel casino it has operated since December 2007. ... The property collected revenues of $668 million in the quarter, compared with $307 million in the same quarter a year ago. ... Cash flow at the MGM Grand Macau grew 177 percent.
 

Seems like we've heard the phrase "casino capitalism" lately. Go figure.

You must have Javascript enabled to use this form.

Also profit skimming

People are cashing out in the short term to nail down whatever gains they can.

We should tax this sort of behavior in inverse proportion to the time shares are held, to encourage buy-and-hold investing, which would encourage more research into the companies' fundamentals and less computer investobot casino monopoly.

La partie continue!

You must have Javascript enabled to use this form.

Transaction tax, Tobin tax

Of course Wall Street lobbyists will squish it like a bug, but we really need a transaction tax on some of this. I've wanted a small transaction tax on flash trades for some time.

But our government is insane and corrupt.

You must have Javascript enabled to use this form.

Thousands of circuit breakers!

Excerpted from moneymentor.com NYSE Historical Clossings webpage --

October 27, 1997:

DJIA dropped 350 points, triggering a mandated trading halt for the first time that closed the market at 2:35 pm for a half hour. Trading resumed at 3:05 pm and the DJIA declined an additional 200 points, causing another halt at 3:30 pm that ended trading for the day.

___________

Weird how gold fever is so intense that gold today is fetching more than platinum. So nothing is certain, maybe not even gold (scarey thought).

How do flash trade computer systems (programs) handle that kind of input? Of course, we'll never know. The code isn't exactly widely published.

On the NYSE, has trading been halted this week? ... yet? Any circuit breakers been triggered? Yes, thousands!

Excerpted for review purposes from Bloomberg (Aug 8, 2011), report by Jeff Kearns, Nina Mehta and Lu Wang
 

‘More Orderly’

“The selloff has been more orderly than in the flash crash or the events of 2008, but the events of 2008 are probably an apples-and-oranges comparison,” Brett Mock, a San Francisco- based managing director at BTIG LLC, said in a telephone interview. Regulations to curb short selling and other rules to harmonize trading across venues worked, he said. ... “The markets are fairly orderly if extreme in their movements. It doesn’t feel like a disorderly selloff with a panic-stricken move. People are taking risk off the tape and the market is re- pricing events going on in the world [Mock].”

Short-sale rules that went into effect Feb. 28 triggered circuit breakers about 2,700 times today [August 8, 2011], according to data compiled by Bloomberg. The curbs, which began Feb. 28, limit bearish bets the day they’re triggered and the next, requiring traders to execute orders at prices higher than the best available bid.

Circuit Breakers

Circuit breakers for stocks in the S&P 500 and Russell 1000 Index and almost 350 exchange-traded funds, introduced after the so-called flash crash, were extended today to all exchange-listed securities excluding options.

While the current curbs halt trading when shares decline 10 percent within 5 minutes, 30 percent plunges trigger the circuit breakers for securities $1 or higher that weren’t previously covered by the restriction. Stocks less than $1 trigger the curbs when they drop 50 percent in 5 minutes.

Last year’s disruption led to additional curbs to safeguard markets. Exchanges now require market makers to supply bids and offers within 8 percent of a stock’s prevailing price for the biggest companies during most of the trading day.  ...

Exchanges canceled trades on May 6, 2010, that were 60 percent or more away from their price at 2:40 p.m. in New York, when the sell-off intensified. Transactions in 326 securities, 70 percent of which were ETFs, were broken, regulators said.

‘Blew Out’

“During the flash crash spreads just blew out and things traded at crazy prices, which wasn’t the case today,” said Etai Friedman, head derivatives trader at MKM Partners LP in Stamford, Connecticut.  ...

The rout that erased about $780 billion from U.S. share values Aug. 5 also reflected orderly selling by institutional investors, unlike the crash of May 2010, traders said. The S&P 500 fell 4.8 percent to an eight-month low Aug. 5, the biggest drop since February 2009.

“It’s not like other times when we’ve seen very, very huge, sudden spikes in message traffic or volumes,” said Joseph Mecane, executive vice president and co-head of U.S. listings at NYSE Euronext, operator of the New York Stock Exchange, on Aug. 5. “It’s much more orderly with activity that’s more spread out.”

Equity derivatives suggest a level of concern similar to March 2009, when the S&P 500 fell to a 12 year low.

“It doesn’t look like a flash crash to me,” said Alec Levine, an equity derivatives strategist Newedge Group SA in New York. “It just looks like a global re-pricing of risk assets. You are having waves of forced selling, i.e. margin calls, into a market that is in the midst of a liquidity vacuum.”

 

Now here's a thought. Could this work like the old boiling crabs or lobsters pot on the wharf -- so warm and cozy and nobody notices until ....

 

5% down, back up, 5% down again, 5% down again, 5% down again, 5% down again, 5% down again, and as far as FAUX or MSM tells the public ... it's all just normal trading activity. What, a stock market crash? Nah! That's like saying the Great Depression of the 1930s was caused by anything but the New Deal!

 

Any effects you may be experiencing in your life on Main Street -- that's just because of over-regulation.

 

And don't worry about that. Tea Party politicians will save us!

 

But, really, shouldn't equity shares be tied to realistic expectation of earnings and shouldn't earnings reflect what it costs us here in the U.S. to buy food and gasoline, medical care and college educations? Well, if you live and work and invest in the U.S.A. and you're not one of the MNIs (multinational individuals) .... and that means you're forever dollar-denominated .... then even if your NYSE ETFs go up, you may only be keeping your head above water .... barely.

 

You must have Javascript enabled to use this form.

Not predicting anything

I'm not predicting a second Great Depression or a series of 5% drops in ETFs -- or anything else. And I'm not saying that flash trading or NYSE circuit breakers are good, bad or indifferent.

Just reporting and commenting about how NYSE and such markets apparently are functioning these days.

You must have Javascript enabled to use this form.

Traders/Markets are crazy

I think the computers have had their circuits blown, after all it's something like 73% of all trades are automated flash trades.

Bottom line, the stock market's huge pop up today doesn't make a lot of sense, given yesterday's claim it was about France, SoGen crashing rumor, sovereign debt, Europe and U.S. Macro economics.

Today's trade report almost guarantees Q2 GDP will be almost on life support, that will be 2 quarters in a row and we're cutting the infamous edge on recession definitions, claiming it has to be 2 quarters of negative GDP...

well, well, what a different a few 10ths of a percent make? Come on man, this is not good.

Traders are crazy.

You must have Javascript enabled to use this form.