Tuesday, 7/23, Market WrapUp (Things vs. Paper)

FinancialSense.com ^ | 07/23/2002 | by Jim Puplava

[razorback-bert]

JPM trading halted on NYSE till 9:30 AM

[razorback-bert]

HOUSING BUBBLE IN THE MAKING?

Here are some ways to determine whether your market is overheated.

• Increases in home prices are consistently greater than the growth in household income.
 
• Home prices have been increasing at double-digit rates for more than two years.
 
• Realtors are buying homes and immediately selling them.
 
• Houses don't stay on the market for more than a day or two.
 

Source: Economy.com

[RightWhale]

Remember Y2K. Also, does anyone know how to make bread from sawdust? Russians and N Koreans know how. Will it get bad? Will it get that bad?

[TigerLikesRooster]

Re #27

I think that the gold market is the "Stalingrad" of international finance. If gold breaks out at the wrong moment, many big players will be pummeled and the financial system itself can be in real danger. The real bruising battle of holding down gold price will go on for a while. Anybody who invested in gold will not see easy steady climb like Wall St. bullmarket of 90's, because the enemy will try to fight to the last man. But you could see the quantum leap at some point. This is the all-out WAR. So you need to be more patient.

[Semi Civil Servant]

In 1929, just 4% of households were in the market. Anybody know if that's true? (versus around 50% today). Also, 30% of the population was in agriculture verus 3% today.

4% sounds a little low, but I really don't know. I'm know a significant chunk of the population was involved in farming. 30% sounds reasonable. When you pass over the Kansas border today, a billboard tells you one Kansas farmer feeds 120(?) I can't remember the exact number, but it's big.

I saw someone complaining on a board that we are in a depression. An oldtimer responded that this is no depression (yet); a depression is when you go dig up dandelions in your front yard for food.

This is no depression. If the government figures are true, we aren't even in a recession. That doesn't mean all the hanky panky going on is harmless. What's been going on is no less than a con game that's now coming undone. This could be big trouble. But I'm hoping not.

I hear dandelions are best served with a light olive oil vinegret. :)

[TigerLikesRooster]

Re #49

As I said in the other reply, you are fighting a financial "Stalingrad". You would win eventually but enemy won't quit easily. You may not underestimate them. Pray to Rodina to delliver the bone-chilling winter, which will froze your enemies to death.

[razorback-bert]

Market Report -- In Play (JPM)
July 23, 2002 2:30:00 PM ET

JP Morgan Chase hit on derivatives, Fed rumors (JPM) 20.48 -4.04: Stock is getting mauled today on a report in the Journal that JPM was involved in numerous Enron-like deals (7:01); however, we are also hearing rumors among traders that if JPM's stock falls or closes below a certain price (we're hearing $20 or $22), the co may be forced to unwind a number of derivative positions; in addition, we're hearing rumors that the Fed may hold an emergency meeting tonight to discuss such banking issues; of course, a degree of skepticism is warranted here (especially with the latter rumor), but chatter such as this is undeniably weighing on JPM and the bank group in general.

moneycentral.msn

[razorback-bert]

The Man Behind the Curtain

Among the day's most noteworthy rumor was that the Federal Reserve was convening an "emergency meeting" to deal with the market's meltdown in general and J.P. Morgan's derivatives exposure specifically.

A spokesman for the Fed did not return phone calls seeking comment (not that I expect it would have commented, anyway). Late Tuesday, Adam Castellani, a J.P. Morgan spokesman, called and said the rumors were "completely untrue and irresponsible."

At the end of 2002's first quarter, the notional value of derivatives contracts involving U.S. commercial banks and trust companies was $45.9 trillion, according to the Office of the Comptroller of the Currency's bank derivatives report.

The OCC noted seven commercial banks accounted for almost 96% of the total notional amount of those derivative contracts, which are complex financial instruments that are used to hedge risk against and/or increase leverage to movements in various financial assets. J.P. Morgan Chase is far and away the most active participant in the derivatives market, with involvement in $23.2 trillion, or 50.5% of the total. ("Notional value" is the total value of the contract, and J.P. Morgan's direct exposure to those derivatives was $51 billion as of Dec. 31, or less than 1% of the notional value, according to the firm. About 80% of the company's exposure was with investment-grade counterparties.)

For some time now, years literally, the hard-core bears have been talking about a "sum of all fears" scenario involving J.P. Morgan's exposure to derivatives in general, and bearish bets on gold in particular.

Today, the price of gold fell 3.4% to $312.60 per ounce, its lowest close since July 8, while the dollar rallied sharply vs. the euro, which fell below parity to 98.62 cents vs. yesterday's close of $1.0080. The dollar also rallied against the yen, and the dollar index rose 1.95 to 107.08.

Given the greenback has recently been moving in the same direction as equities (i.e., down), while gold has been trading inversely (although more sideways-to-down of late), today's movements were somewhat curious.

Indeed, a person given to conspiracy theories might surmise the Fed did convene a meeting today and decided to intervene to boost the dollar and weaken gold in order to help alleviate pressure on money-center banks, such as J.P. Morgan and Citigroup.

From thestreet.com

[tubebender]

"We already have more scandals than we do people to investigate them. The investment portfolios of insurance companies are just yet another ticking bomb. Where are they going to get the cash needed for reserves and claims? It is a house of cards in a wind storm."

Maybe the Hunt brothers gave up on Silver...

[tubebender]

"Convinced the housing market is a bubble about to pop, a number of homeowners are deciding to cash out -- and stay out. Instead of buying new homes, they are renting until prices fall back."

...and not pay capital gains taxes on the profit. They can do this every two years under the new tax rules.

[razorback-bert]

Here's part of a note from Paul Kedrosky on realmoney.com tonight:

"Today, for its own ineffable reasons, has people feeling dread, the nebulous sense that something wicked this way comes. Everything is being sold, and no-one knows what will accelerate the pace of selling. Pick a rumor -- emergency Fed meetings, derivative debacles, bank implosions, etc. -- and you heard it today. Wild stuff.

Enough investors have apparently now been burnt buying "bottoms" on opening that the worry is there will be a bid vacuum on an opening Real Soon Now. What will be the landing at the bottom of the air-pocket? Who knows, but it would be painful.

I hope this doesn't seem alarmist, and I hope I'm wrong and things bottom in here. It's just that I talk to an awful lot of smart people every day, and I want RealMoney readers to know that I am hearing things I haven't heard in more than fifteen years in the markets."

---Paul Kedrosky tonight on realmoney.com

[Tauzero]

"Everyone starts over with every material possession they have now, with no debt."

Hey, since I paid off all my debt a year ago, does that mean I get to go on a spending spree? :)

[Dec31,1999]

Bump to Lazamataz. Thanks for the ping.

[Dec31,1999]

Oh please do. You could buy some socks! :0

[Kozak]

Let's pass a law cancelling all debt in the USA. Everyone starts over with every material possession they have now, with no debt.

Wait, wait. Hold off for a few days I want to run up my credit cards and buy a house on the ocean okay? Tell me something why do you think its okay to steal if the Government passes a law? Thats what you are advocating. Stealing.

[Wyatt's Torch]

Question? - if JPM et al collapse and the Fed "bails them out" how would that occur? Would they simply flood them with cash? Would that not be an inflationary move? Would that be a bad thing considering our 5-year deflationary economy? Remember 1982 and the Mexican bailout? What did that do to the deflation at the time? Hmmmmmmmmm.

[Tauzero]

"Would they simply flood them with cash?"

I think so.

"Would that not be an inflationary move? Would that be a bad thing considering our 5-year deflationary economy?"

My deadbeat half-brother of course changes his ways after the latest cash infusion...

"Remember 1982 and the Mexican bailout? What did that do to the deflation at the time?"

A bit of the hair of the dog eh?