Market Plunge

When The Dancing Had To Stop

Sorry about our slow start on the day. We’ve been busy this morning trying to gather up information about the who’s and why’s of this morning’s equity crash. And, of course, trying to score twos for a pal of ours who recently got out of the hospital and has been having a rough time at work. The Dow went down 240 points after the open. That is to say, it has more or less shot down Bernanke’s helicopter.
And, actually, that understates the breadth of the decline. On the New York Stock Exchange, less than four hundred stocks are up today. Decliners out-number gainers by 6:1.
There are various theories about today’s plunge, almost all of them involving Citigroup in one way or another. Some say that Citigroup’s Super SIV is not attracting investors, and that the entities failure could re-ignite the worst fears of a credit-market meltdown. But far more popular is the word from a CIBC analyst who says that Citi might have to cut its dividend and stop making acquisitions.
But when we call the so-called “experts” they keep asking us what we’re hearing? “You got all those guys reading DealBreaker. What do you know?” one guy asked.
Fair enough. What are you hearing? Leave your ideas about today’s stock market movements in comments below.

The Friday Before Black Monday

On Friday Oct 16, 1987, the Dow dropped -4.6 pct.

Thanks For Weighing In: Mike Bloomberg

Market plunge is “going to hurt.”
‘Consequences’ Ahead for the City [New York Sun]

The Opposite Of Irrational Exuberance

bearstockmarketplunge.jpgJames Surowiecki is the guy the New Yorkerpays to explain the economy and the stock market to its readers. This week he explains why the sell-off two weeks ago was not the crash of 1929, which is presumably within living memory for most New Yorker subscribers.

Some of Tuesday’s drama, then, was the result of a mild bout of investor hysteria. But it’s likely that much of it had more sensible underpinnings. While the past few years have been exceptionally good for American companies, with interest rates and labor costs low, and profits at historic highs, a host of potentially huge risks continue to loom, including the threat of terrorism, America’s huge current-account deficit, and the possibility of a slowdown provoked by the end of the housing boom. If investors collectively decided that there was a slightly greater chance of even one of these risks becoming reality, that could have provoked the market decline we saw on Tuesday.
It may seem unlikely that a small change in investor expectations could lead to such a big sell-off. But stock-market investors are trying to predict how much money companies are going to make over the next fifteen or twenty years. Over a period that long, relatively small changes in the present can have huge effects. A ten-billion-dollar company that grows at ten per cent a year for twenty years, for instance, will be, at the end of that period, twenty billion dollars bigger than if it had grown at eight per cent a year. So while big market swings in reaction to poor earnings news or bad economic data often seem exaggerated, evidence suggests that they often turn out to be justified.

At the end of the article James comes perilously close to engaging in the dreaded “healthy sell-off” cliché but manages to avoid it. A couple of good articles like this and we may actually start stealing our neighbors copy on a regular basis again.
Reasonable Panic [New Yorker]

  • 06 Mar 2007 at 3:35 PM
  • FOREX

China Overheats; Japan Unwinds Its Carry Trade; Carney Gets Laid

Earlier this morning, we discussed the failure of dissertations on the yen-carry trade, namely the one in yesterday’s Journal, in that they failed to get Carney some ladies. Who knew that financial ennui wouldn’t turn people on? Apparently, not us. We remained upset about this for the remainder of the morning when, suddenly, like an Ass-Bestowing Fairy Godmother, The Street’s Daniel Harrison came along to save the day, with the most titillating yen carry trade article to date (though one might remember that in the land of the blind, the one-eyed man is king). He writes:

“The main problem in China is that their economy is overheating and posing serious concern to the authorities,” says a research note issued by J.M. Finn in London. “Speculation is rife, bank lending often irresponsible and it is estimated that 90,000 stock dealing accounts are opened daily. These are not everyday Western economic conditions. In addition, China is facing a colossal level of fixed-asset investment, nearly 50% of GDP in 2006.”

You can practically taste the STDs that resulted from the irresponsible decision to forgo prophylactics, can you not?
(Also: great headline, you old scallywag)
Probing the Carry Trade [thestreet.com]

Last ‘Over Reaction Tuesday’ Post EVER!

glitch-logo.jpgWe get it—you’re sick of hearing about last week’s drop in the Dow. Whether this is actual independent thinking or the result of the threatening emails you’ve received from John Thain’s jabronis, we’re not sure, but we respect your right to ask us to, as one email put it, “cool it with the Dow crap.” Anywho, we decided we didn’t have anything wrong with your request, in the biblical sense, and are going to try our hardest to keep the next few days strictly about, we don’t know, the Cavemen stuff. But first, one last bit of info, RE: Zee Glitch. According to a friend of DB, “RG Niederhoffer’s, Victor Niederhoffer’s risk averse younger brother, Negative Correlation Fund was up 8% on Tuesday’s plunge.” Don’t pretend like you didn’t just spring a homo-erectus.
Dealbreaker coverage of the Market Plunge

Wanted: What Should We Call Last Tuesday?

One of the most disappointing things about the reaction to last Tuesday’s market action has been the failure of a good nickname for the day to develop. Glitch Tuesday? Plunge Tuesday? Thain’s Bane?
We’re frankly at a loss. Which is why we’re turning to Time magazine’s Person of the Year to ask for nomination. That’s right. We are asking You. So, in the comment section below, please leave your nomination for what we should call last Tuesday. Or send us an email to [email protected] If it catches on you might earn yourself a place in the history books. Or at least a place nearby history books from which you can shout that you invented the widely adopted term.