Stock Markets

Though investors have endured some pretty terrible Dow performances in recent weeks, including another 300-plus point on Friday, the downward spiral has not gone far enough to halt trading on Wall Street.

New York Stock Exchange rules currently call for circuit breakers to interrupt trading only in cases of extreme drops of more than 1,100 points. Such breaks, established after the Black Monday crash in 1987, are intended to help investors step back and assess what is happening.

The thresholds for market timeouts are set quarterly, using the Dow’s average closing price for the previous month, and activate in increments of 10, 20, and 30 percentage point drops.

For the current fourth quarter, if the Dow drops 1,100 points before 2 p.m., trading stops for an hour. If such a drop happens between 2 p.m. and 2:30 p.m., trading halts for a half hour. After 2:30 p.m., the 1,100-point threshold expires.

There is also a 2,200-point mark. If the Dow falls by that much before 1 p.m., trading stops for two hours. Between 1 p.m. and 2 p.m., a 2,200-drop causes an hour halt. After 2 p.m., trading ends.

If the Dow falls by 3,350 points, trading stops for the rest of the day.

The circuit breakers have been activated twice, both times in late afternoon trading on Oct. 27, 1997, when the Dow eventually closed off 554 points, or 7.2 percent. Trading that day was halted under previous triggers, which were later revised in 1998. The current triggers have never been hit.
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The torrent of earnings releases set to hit this week could only exacerbate volatility moves, analysts say. Volatility has knocked around stocks on Wall Street in record ways. Buckle up for the coming week.

News and concern over inter-bank lending, credit spreads and declining oil prices, the major averages managed to piece together a strong week that built on the lowest levels in five years.

So far in October, each day the Dow in ranges of no less than 250 points. In fact, the index saw the first 1,000-point swing in its history just over a week ago on Oct. 10. Most of this volatility has been blamed on the liquidation of assets of hedge funds and mutual funds. Rumors of poor performance at major players intensified the effect.

“No doubt the indiscriminate selling we’ve seen has been liquidation, no doubt. Everything is for sale,” says Art Hogan, chief market analyst with Jefferies. Hogan points out that all the indexes have fallen by roughly the same percentage, which indicates that funds are not selling stocks in one industry to invest in another.

The news about the deleveraging of the hedge fund industry is already behind the event, to a certain extent. A lot of hedge funds have a very high level of cash right now. As we come into next week, the question now is whether cash levels are high enough for everyone’s comfort and is the indiscriminate selling is behind us or not, and can we start focusing on fundamentals.
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All that money you’ve lost — where did it go?

Any ideas? Come on lets talk……

Have you ever seen a road accident happen? You must have, since many generally drive like idiots and have a high accident rate. Whenever I see a road accident and later think about how it happened, I can’t help feeling that while most of us drive like idiots, most of the time accidents happen when two idiots do something idiotic at the same time and at the same place. One guy is happily speeding, while trying to read a text message and just then another one in front of him decides to turn right without revealing his intentions beforehand. Either one would have got away but the two in combination becomes an event.

The stock markets are just like that. While one company or one industry may be driven by some particular factor, a prolonged bull market or a bear market only happens when many different factors come together. Sometimes, some of these factors may be related but at other times, they may be unrelated. It could just be a coincidence that they are happening at the same time.

There has never been a correction that has not proven to be an investment opportunity. While everything is down in price, there is actually less to worry about than when prices are historically high. More money has been lost by people who bought into last year’s markets than by those who will buy into this one, at this stage of the correction. When the going gets tough, the tough go shopping.

Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the financial markets. This correction is worse than most that I’ve experienced, but the doom and gloom scenarios many have been pushing are unlikely to come to fruition. Once the media elects a new president, they’ll just have to start reporting better news: 96% of all mortgages are current sounds a whole lot better than 20% of all sub-prime mortgages are in trouble.

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The undeniable truth is that making a lot of money doesn’t require a high IQ, either in the market or in business. It takes ruthless disciplined routine, and a focus on doing what is right for the long-term.

You can just feel it, can’t you? People are terrified about how the market has acted over the past month, to be more precise since the last one week. Watch the news — watch if you dare. The “boo-yahs” seem more restrained.

This is the time to buy andd hold on to solid blue-chips. Buy shares of good businesses that generate real profits, attractive returns on equity, have low to moderate debt to equity ratios, improving gross profit margins, a shareholder-friendly management, and at least some franchise value. Everyone is thinking this is a terrible time to be invested. But when everyone is thinking the same thing, no one is thinking much at all. That means ….OPPORTUNITY.

If you have been wanting to change your financial future for the better, then now is the perfect time.  The invetory of cash producing, equity filled homes is at an all time high!  Did you know that most retirees single most lucrative investment during their working years was the home that they lived in.  Imagine if they had bought just one or two more properties (that supported themselves of course) and then retired.

Those are the moments when fortunes are made. You might not recognize it at the time. You might not know it for years. But it’s true. When everyone is down on a stock, or a sector, or a country, you might as well take a look. Usually, the negativity comes with good reason. But the over-negativity can provide plenty of opportunity. It’s been that way forever, and it will always be so.

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Warren Buffett’s Berkshire Hathaway, which has avoided major acquisitions in the financial sector in recent months, may have had a $3.5 billion two-day paper profit on six major banking and financial services investments.

The two-day rally in financial shares, which drove the broad S&P Financials Index 24 per cent, came as the government announced sweeping measures to rescue the financial system and restore confidence in shaky markets.

Shares of Wells Fargo & Company, the fifth-largest US bank and Berkshire’s second-largest investment as of June 30, rose 19pc over the last two days and touched a record high. That would have given Berkshire a $1.85bn paper profit on its reported 290.7 million share stake.

Berkshire would also have had a $1.12bn profit on its reported 151.6m share stake in American Express Company, the credit card and travel services company. Stakes in Bank of America, M&T Bank, SunTrust Banks and US Bancorp also gained value.

Buffett has long favoured investments in undervalued businesses with strong earnings and management. That has helped him transform Berkshire since 1965 from a failing textile maker into a conglomerate with at least 76 companies.

“He’s always felt Wells was very well-managed,” said Frank Betz, who oversees more than $800m at Carret/Zane Capital Management in Warren, New Jersey. “Why does he like banks? Like Willie Sutton said, it’s where the money is.”

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Another crisis unfolding in the US, if this is likely to give you sleepless nights and you ponder on whether to sell or hold on to your equity portfolio, here’s a word of advice. Stay calm and invested, don’t panic and sell.

You don’t incur losses till the time you book them. Equity markets behave in this fashion and investors should take such falls in their stride. If you are a long-term investor, you are likely to get the best returns in such turbulent times.

At such low levels, markets look quite attractive. For investors waiting to venture into the markets, this is an ideal time to average out the cost of purchase. Invest in stocks that are fundamentally strong, preferably in a broad-based index that gives you exposure to large cap stocks. Avoid small or mid-cap companies. But if you lack understanding or don’t have much information, then take the help of professionals or try the mutual fund way.

To start off, one can look at index funds that mirror the movement of an index. Index funds should form the nucleus of your equity investments and other funds should surround it. These funds act as a stabilizing factor in an equity portfolio and should not be always seen as a return-giving factor.

But how about those who are already neck-deep into equities? “Stay invested. Don’t change the investment strategy and keep investing in a staggered manner.”

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Leading bank shares around the world plunged yesterday after the crash of Lehman Brothers, forcing central banks to prop up the system with tens of billions of dollars. But US stocks rallied in the final hour of trading to close higher.

American Insurance Group (AIG) was the eye of the storm, with New York governor David Paterson warning the insurer had one day to raise $75-$80 billion.

After sliding about 150 points in early trading, Dow Jones Industrial Average closed at 11,059.02, up 141.51 points, or 1.3pc.

The S&P 500 gained 20.9 points, or 1.8pc, to 1,213.6, while the Nasdaq Composite climbed 27.99 points, or 1.3pc, to 2,207.9.

Stock markets took new fright yesterday after the Wall Street shocks, the bankruptcy of Lehman Brothers and bailout of Merrill Lynch by Bank of America.

The London and Tokyo markets dropped more than four per cent to their lowest points for more than three years with some leading bank shares dropping 20pc.

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The US is already in a recession and it will be longer as well as deeper than many people expect, US investor Warren Buffett said. Warren Buffett said the economy is still in a recession and unlikely to improve before 2009 but that stocks appear better valued than a year ago.

He said in an interview the US was “already in recession” and added: “Perhaps not in the sense that economists would define it” with two consecutive quarters of negative growth. “But the people are already feeling the effects,” said Buffett, the world’s richest man. “It will be deeper and last longer than many think.”

“You always find out who’s been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,” said Buffett, who in March was called the world’s richest person by Forbes magazine.

But that is just part of a market system. And you know, if I had to pick the chances that we are going into a recession, I would say they are fairly significant, but I don’t know anything that you don’t know.

However he said that won’t stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.

“If the world were falling apart I’d still invest in companies,” he said.

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Oil at $150? Very likely and could be soon. How about $170, or even $200? That is possible before the end of this year. There are those who see the price of a barrel of oil hitting $300 and even $500 in the next few years. Impossible you say, well just remember that last year a barrel of crude was selling at $70 and even then the markets were complaining that it was already too high.

The oil conundrum is playing havoc with local, regional and international markets. The producers say it’s not their fault and consumers blame speculators and a battered dollar. Others point to the current crisis between the West and Iran, which in recent days moved from rhetorical ranting to sabre-rattling. There is confusion, fear, mistrust and greed in the oil business today, but what else is new?

Oil has been a central pillar of international politics and trade for decades, and the West has traditionally played dirty games when it came to preserving the life-line of its economy and civilization. Cheap oil enabled Western societies to flourish and expand, the United States being the most notorious example. Wars were waged, coups staged and regimes toppled in order to maintain control of production, exploration rights, distribution and price.

It is unlikely that the rules of the game have changed in recent years, but it is now a fact that the new economies of China, India, Russia and others are competing ever more with the West for a bigger share of available oil. Economic displacement is a matter of time, with studies predicting that China will unseat the US as the biggest world economy in 30 to 40 years if not before.

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