Wall Street Ready To Tank Tomorrow

[jackal]

you can't go wrong with Gold its been rock solid the last two years
my 401 K stable fund is based heavily on this.

[Hunter Morrow]

What would you say to a guy with say, 10 or 15 grand?
I don't know what to do with all this money I got.
All my needs are taken care of so I have some stuff to play around with.
I know it isn't a lot, so I don't want to go the gold route and get 11 ounces of gold or whatever.
Edit: Maybe the only way to win is not to play?

[S197]

What would you say to a guy with say, 10 or 15 grand?
I don't know what to do with all this money I got.
All my needs are taken care of so I have some stuff to play around with.
I know it isn't a lot, so I don't want to go the gold route and get 11 ounces of gold or whatever.
Edit: Maybe the only way to win is not to play?

Hunter, I think it depends on what your objectives are. Gold should never be more than 10-20% of your total portfolio (20% is really pushing it). Anyone who tells you to put more than that doesn't know what they're talking about.

First thing is to make sure you have an emergency fund. You want to have between 3 and 6 months of living expenses stashed away in a safe and easily accessible account (such as a savings or money market account).

Also, if you have any unsecured debt like credit cards, pay those off. Most people are charged 10, 15, 20+% interest on their cards and making a return like that in the market is really tough if not close to impossible on a consistent basis.

If you've got your emergency fund and your debt is paid off, then I'd say you can look at investing in equities. 10 to 15 grand is plenty and there are many options but again its really what are your objectives. Will you need this money within the next year or two? Are you willing to take risks or do you prefer to be more conservative? Depending on your answers, you can start to formulate an investment strategy.

Sorry that's so general, but it really depends on the individual.

[S197]

Think it's time to short T-bills.

TBT, an ultrashort treasury ETF was up 3.2%. Too bad I didn't pull the trigger

The VIX spiked to 42 today and shortly thereafter we had a nice rally as we the taxpayers will be buying more bad debt.

The only thing that changed today is we're throwing even more money at the problem. It's pretty clear we're going to try and inflate our way out of this crisis. I'd say more but I'm probably already pushing the political envelope...

[Hunter Morrow]

Speaking of shorting, doesn't shorting mean that when these companies do get sucked up into the federal government, that it puts taxpayers on the hook even more?
Heard puts on AIG cost nearly 50 billion.
So I know that is why naked puts on these things have been banned for now.
But how does that make taxpayers have to pay more money?
Shouldn't it just be zero sum between the people who sold the puts and the people who bought options?
Sometimes I think the stock market is just a scheme for rich, clued in people to take poor, clueless people's money.

[Mr. X]

TBT, an ultrashort treasury ETF was up 3.2%. Too bad I didn't pull the trigger

Would have been a risky trade IMO. Don't beat yourself up over the woulda, shoulda, coulda moments our you'll go nuts. Those ETFs require lots of attention as many tend to be highly volatile. If you have been in the XLF the past few days you basically have to sit in front of your computer screen from the start of trading to the close. Getting up to go the bathroom could end up costing you money.
Having said that I do prefer the ETFs over mutual funds because of their liquidity and tax advantages. Paying a commission charge for an ETF is worth it.

The VIX spiked to 42 today and shortly thereafter we had a nice rally as we the taxpayers will be buying more bad debt.

Are you a John Najarian fan? He's fixed on the VIX. I thought the late rally was mostly about the rumor of bringing back the RTC for the gov to take on more bad paper. Sounded like a head fake to me. I took about 20% off the table ten minutes before the close. The S&P dipped at the end but less than I thought it would. Might be a good sign for tomorrow. Maybe not. After the financial sector crisis subsides we're still left with economic indicators that don't look very good.

The other big news is the SEC finally getting off their duffs and are prohibiting naked shorts across the board. One or more of the European exchanges have temporarily banned shorts altogether. This is long overdue. We need the uptick rule back in place ASAP. Short selling has been out of control and I think it is largely responsible for all the turmoil right now. Not saying we should not allow investors to short stocks but we need to have some firewalls in place.

[S197]

Are you a John Najarian fan? He's fixed on the VIX.

Never heard of him. The VIX, aka the fear index, is watched by a lot of people as an indicator of which way the market will move.

I don't really try to time the market but when I see a spike in fear, I usually take notice. When people start acting irrational, historically it tends to be a good buying opportunity. I don't only use the VIX but it's one of the bigger indicators I watch.

I thought the late rally was mostly about the rumor of bringing back the RTC for the gov to take on more bad paper

That's the way I saw it too although I haven't read too much into the details of what the gov't is doing yet.

I think it might've been a good call to take 20% off the table, the market might rally a bit more tomorrow but it doesn't seem sustainable. Of course I didn't see a 400pt rally coming today either so what do I know

I'm on the fence about short selling. Naked short selling they needed to do something but banning short sales all together seems a bit overboard.

[S197]

Speaking of shorting, doesn't shorting mean that when these companies do get sucked up into the federal government, that it puts taxpayers on the hook even more?
Heard puts on AIG cost nearly 50 billion.
So I know that is why naked puts on these things have been banned for now.
But how does that make taxpayers have to pay more money?
Shouldn't it just be zero sum between the people who sold the puts and the people who bought options?
Sometimes I think the stock market is just a scheme for rich, clued in people to take poor, clueless people's money.

You're right on options being a zero sum game. One winner and one loser. I'm not really sure why AIG would be put on the hook like that, that's a good question, unfortunately my knowledge on derivatives are pretty basic.

I do know that AIG insured a lot of these derivatives and are taking losses because of this but I'm not sure if that's related to what you're talking about.

[mefford76]

Hunter, I think it depends on what your objectives are. Gold should never be more than 10-20% of your total portfolio (20% is really pushing it). Anyone who tells you to put more than that doesn't know what they're talking about.

First thing is to make sure you have an emergency fund. You want to have between 3 and 6 months of living expenses stashed away in a safe and easily accessible account (such as a savings or money market account).

Also, if you have any unsecured debt like credit cards, pay those off. Most people are charged 10, 15, 20+% interest on their cards and making a return like that in the market is really tough if not close to impossible on a consistent basis.

If you've got your emergency fund and your debt is paid off, then I'd say you can look at investing in equities. 10 to 15 grand is plenty and there are many options but again its really what are your objectives. Will you need this money within the next year or two? Are you willing to take risks or do you prefer to be more conservative? Depending on your answers, you can start to formulate an investment strategy.

Sorry that's so general, but it really depends on the individual.

I'll take some advice too. I am in a similar position. I tend to be VERY conservative. I have my money in an ING account making my 4% or whatever. I think I want to buy another condo in a year and a half and want to keep my money fairly liquid. I am also nervous that the economy could turn really far south...so that emergency fund is a good idea. I have all my CCs paid off. I would have 20k to invest on top of the emergency funds. Do you think there's anything that I could earn more then that in being that I'd want to get it back in 12-18 months to get a condo?

[Samkon35]

Dude the best investment is in video games!!! Oh yea I know the best investment is Burger King food!!! Dang it lol, I suck at investing lol

[S197]

I'll take some advice too. I am in a similar position. I tend to be VERY conservative. I have my money in an ING account making my 4% or whatever. I think I want to buy another condo in a year and a half and want to keep my money fairly liquid. I am also nervous that the economy could turn really far south...so that emergency fund is a good idea. I have all my CCs paid off. I would have 20k to invest on top of the emergency funds. Do you think there's anything that I could earn more then that in being that I'd want to get it back in 12-18 months to get a condo?

Given that you want to stay conservative and have a short timeframe, the ING account (I think ING Orange is yielding about 3%) right now isn't a bad place to park your cash.

Trouble is the combination of low interest rates and people looking for safety has caused fixed investment yields to remain low so there aren't really a lot of good options. You can check bankrate.com for CD's available in your area, you can probably squeeze out another 1-1.5% with a 12-18 month CD. Of course, you give up your liquidity should you find that perfect condo sooner.

If you're positive you won't need the cash in the next year, consider a CD. If you may need it sooner or feel like the Fed might raise rates down the road(seems doubtful right now), the ING account will work just fine.

[PurpleMustReign]

Dude the best investment is in video games!!! Oh yea I know the best investment is Burger King food!!! Dang it lol, I suck at investing lol

I used to invest in Taco Bell food, never got anything back on that either.

[Mr. X]

I'll take some advice too. I am in a similar position. I tend to be VERY conservative. I have my money in an ING account making my 4% or whatever. I think I want to buy another condo in a year and a half and want to keep my money fairly liquid. I am also nervous that the economy could turn really far south...so that emergency fund is a good idea. I have all my CCs paid off. I would have 20k to invest on top of the emergency funds. Do you think there's anything that I could earn more then that in being that I'd want to get it back in 12-18 months to get a condo?

An alternative to a CD would be some high-quality high-yielding dividend stocks in sectors that don't have a lot of volatility (e.g. utilities and tobacco). You get favorable tax treatment on your dividends (15%) and cap gains rate when you sell. Altria (MO) and Vector (VGR) in the cigs; ConEd (ED) and Duke Energy (DUK) in the utilities. These stocks have fairly narrow trading ranges. On an after tax basis your return could be significantly greater compared to a CD. The CD is risk free (at least in theory) whereas common stocks always have some risks. A price decline can eat up the dividend yield, but you also have some upside price appreciation as well (risk/reward). These stocks have predictable cash flows and a history of paying quarterly dividends (otherwise there would be no reason to own them). I like all four but everyone needs to do their own research.

[Hunter Morrow]

Tobacco is good, I thought I chewed a lot before I joined.
Yikes.
What are your thoughts on the 700 billion dollar plan, and raising the debt ceiling to over 11 trillion dollars?
11 trillion dollars worth of debt?
Good sweet blasphemies and expletives, America is hosed.

[Mr. X]

What are your thoughts on the 700 billion dollar plan, and raising the debt ceiling to over 11 trillion dollars? 11 trillion dollars worth of debt?

Our national debt (different from the budget deficit) was already closing in on S10 Trillion and was going to be adjusted upward regardless of what the Fed and Treasury did last week. Our annual GDP by comparison is $16 Trillion.

Good sweet blasphemies and expletives, America is hosed.

The cost of doing nothing could have been far greater than what has been done to date and what is being proposed with a new Resolution Trust Corporation to get the toxic mortgages off the banks' balance sheets. On Friday the US Treasury made a $16.4 million profit on AIG when the stock went up.

I don't think many people realize just how close we came to a meltdown of our financial sector. On Wednesday, banks effectively quit lending to one another in the overnight market. Credit started to freeze up and there was a full fledged run on Money Market mutual funds on Thursday. That was going to affect Main Street just as much as Wall Street. There was a terrifyingly high lack of confidence in the financial markets on Thursday with professional traders paying negative spreads to get into TBills (unheard of). The next progression could have been a more broad based panic in the form of a run on the banking system. People think FDIC insurance makes their bank deposits risk free. Not in a panic it doesn't. Right now the total FDIC reserves are less than 1% of the the amount of deposits that are insured. The failure of IndyMac depleted the FDIC fund by 12%. That was just one bank and we've got hundreds of banks that are technically insolvent or do not meet minimum capital ratios.

Eventually our national debt level is going to crush the dollar and we could be facing runaway inflation in a year or two. However ... we know how to deal with a weak dollar and hyper-inflation as we've gone through those periods in the past. That's a better option than trying to recover from a 1929 style depression. We have more firewalls in place than we did back in 1929 but there still could have been an enormous number of people (including a lot of ordinary Joes) who could have been wiped-out if the death spiral in the financial sector had been allowed to continue unabated.

We are not going to know the real cost of this intervention for several years to come. The $85 billion to take over AIG could end up being a fraction of that as we can now unwind those assets over time instead of blowing them all out at the bottom of the market. There is even a chance that the Treasury could make money on that arrangement. Same thing goes for the Freddie and Frannie takeover. Time will tell.