Stock market plunge

[Dave A]

The JSE was not alone in taking a plunge yesterday. It seems to have been around the globe - except in the USA which was on holiday.

Asia still seems to be falling fast today - I hate to think what the NYSE numbers are going to look like at the end of the day.

Any sage advice from experienced hands for times like these?

[Graeme]

Stock Market Plunge

If you bought equities with the idea of making a capital profit, its too late. If you bought equities for the dividends, then ask yourself the question "will what's going on hurt the company's profits?". If you are looking at a company whose profitability may be hurt (banks, luxury goods, retailers). then think about switching; if profits are unlikely to be hurt (shipping, food, infrastucture equipment, petrochemicals) then stay with them and allow the turmoil to wash past you.

Seen it all before.

[Dave A]

The Fed has wasted no time in trying to staunch the bleeding.

The United States Federal Reserve on Tuesday slashed a key interest rate by a hefty three-quarters of a percentage point, the biggest cut in more than 23 years, after a two-day global stocks rout sparked by fears of a US recession.

The move, a rare one made between the US central bank's regularly scheduled meetings, took the federal funds rate governing overnight lending between banks down to 3,5%, its lowest level since September 2005. The Fed also lowered the discount rate it charges on direct loans to banks to 4%.

"The Fed is very, very, very worried," said John Tierney, an analyst at Deutsche Bank in New York.

The Fed's bold bid failed to instill confidence in shaken financial markets as US stocks, playing catch-up with sell-offs around the world, fell sharply at the open. The Dow Jones industrial average was down about 1,1% in late morning.
full story from M&G here

The Fed keeping one step ahead of the market, or a sign of panic?

Ultimately, a 1.1% loss for the morning was not that bad given the losses on other boards over the last two days.

All this doesn't account for the Rand slide against the Dollar, though. Obviously we've got some other forces in play.

[Dave A]

A new name has been etched on the wall of rogue traders. Jerome Kerviel has eclipsed the previous record set by Nick Leeson five times over.

A brilliant young rogue trader, who spun an elaborate web of fake transactions from his desk, has cost France's second-biggest bank €4,9-billion in what appears to be the largest fraud by a single trader.

Jerome Kerviel (31) deemed "a genius of fraud" by France's top banker, caused five times the financial damage of the notorious rogue trader Nick Leeson, who sparked the collapse of Barings Bank in 1995 with losses of £800-million.

The discovery at the weekend of what SocGen deemed an isolated fraud of "unprecedented size" caused concern in a market already reeling from the sub-prime crisis. There was astonishment at how a junior trader on the bank's award-winning derivatives desk, described as both "brilliantly intelligent" and a troubled Walter Mitty character, could create fictitious accounts and wreak havoc. The young trader appeared to have acted alone and reaped no personal financial benefit. "[It's] everyone's worst nightmare," said Richard Fuld, chairperson of the rival bank Lehman Brothers at the World Economic Forum in Davos.

London was on Thursday awash with rumours that SocGen's desperate race to clear up the damage and unravel Kerviel's trading positions were at the heart of the stockmarket turmoil on Monday when share prices across Europe crumbled by 7%.
full story from M&G here

I find it interesting when you really start reading between the lines, though. Consider this point for a moment:

SocGen chairperson Daniel Bouton almost admitted as much when he said that "these losses could have been gains if the market had climbed on Monday, Tuesday and Wednesday".

Whilst I'm sure that Jerome Kerveil will go down as the culprit, maybe the blame should really be laid on the heavy handed manner in which SocGen closed out the positions. Very clumsy, by the looks of things.

[IanF]

Who got the profits? Futures are a zero sum game so there must be some happy traders on the other side.

[QUINN]

Guys

Remember .....It's not the timing of the market but your time in the market that counts......

[Dave A]

It's not the timing of the market but your time in the market that counts

That depends on whether you are an investor or speculator. For the speculator, timing is everything. For the investor, it's just a matter of time - as long as you've picked a solid share to ride.

Speculators are derisive of the investor's strategy, saying they are wasting opportunities. Investors are derisive of speculators, saying they are gambling opportunists who don't really add value to the underlying capital raising purpose of shares.

Ian, I had a wicked thought as to who may have picked up the volume - but I'll wait to see if anyone else has a shot first.

[IanF]

Ian, I had a wicked thought as to who may have picked up the volume - but I'll wait to see if anyone else has a shot first.

Dave
Its not me are you thinking about a derivative fund.

[Dave A]

OK. Consider for a moment.

SocGen is one of the leaders in derivative trading.
They are forced to sell a bundle - not because of the underlying position, but because it is based on fictitious accounts. (all kinds of nasty regulatory issues).
They know the off-load will pull down the market.
So they feed the market until it goes into the predictable slide, and then start buying too.
Maybe even around as much as they off-loaded.

Just idle speculation, but they did also raise €5,5 billion whilst they were about it.
And they do have a hedge department.