RSS 2.0Atom
To add an specific blogger’s feed, simply go to their blog and click on their individual RSS link.
Unwelcome Guests - Risk, Volatility, Margin Calls, and Loss
Rating: 2.67 (3 votes)
Vote: 
InvestorPlace Blogs is powered by Marketocracy. Marketocracy has authorized Investor Place Blogs as an official registrar for voting through Marketocracy's Investment Research Rating service. Registered members of InvestorPlace Blogs are linked with a Marketocracy account to establish voting power based on their performance of trading and posting on stocks.
Here we are, guests at a Stockpicker's party. At a country estate, on the carefully landscaped grounds of a newly built mansion, we are enjoying a pleasant gathering, chatting with old friends, sipping a drink, munching on various delicacies, strolling through the spacious formal gardens. I forget who our host is, it doesn't really matter, there's plenty of good food and a truly wonderful spirit of companionship and camaraderie among all concerned. Day Traders, Active Traders, Swing Traders, Investors, Speculators, Brokers, Analysts, Gurus and Guru wannabees - everybody is having a good time. Suddenly a cloud comes over the sun, the day grows noticeably darker, and we hear a whispered rumor: "unwelcome guests, uninvited, they are crashing the party." The first to appear is Risk, perhaps you have seen him on TV lately, bleary-eyed and with a sallow complexion, he keeps sneaking around, insinuating himself into the conversation, slyly sabotaging all the arrangements. He saunters over to the punchbowl and surreptitiously spikes it from a small flask he carries in his pocket. Soon his cousin Volatility arrives, built and dressed like a professional wrestler, he drains the bowl in one long swallow and then starts picking fights and tipping over the tables, smashing glassware, hurling plates and saucers at everyone. Then comes Call, not the pleasant fellow who always hangs around with Put, but Dr. Margin Call. When Margin calls, people listen - they have no choice. With a rueful grimace he informs his victims of the precarious state of their financial health, and prescribes his remedies - purging and bleeding. The last unwelcome guest is Loss, mournful and lugubrious, like an undertaker come to lay to rest our fondest hopes of quick profit, not to mention our legitimate aspirations to financial security. Can't we do anything about this? Where is our host, surely he can have this riffraff evicted - he can call the authorities and restore order. We will send them back to where they came from and continue with our party, none the worse for the temporary interruption. Alas, our host is the renowned architect of financial disaster, Professor Leverage. A gifted man, incredibly inventive, but he sometimes overreaches himself. Some even question his sanity. Our unwelcome guests are his offspring, and he is powerless to make them leave. As we look on in horror, his mansion, in reality nothing more than an elaborate house of cards, collapses in a cloud of smoke, which billows upward and eclipses the sun...a flock of financial vultures circles overhead... But wait! Isn't that a helicoptor I hear? Perhaps Ben will come to the rescue. | ||
Comments (3)
I always thought of Volatility as a she. ;-) I actually watched Purple Rain (some 80s flashback weekend thing I think) and remembered a quote from the movie. "God got her cycle backwards. About every 28 days she's nice for a few days."
I think the real queston of the week is will the run on Bear Stearns infect the other broker dealers?
Posted by Uncle John | March 15, 2008 10:27 AM
Tom,
I would like to ECHO Unka John's Sentiments in a Larger CONtext :
The Bankers' Bank of Last ReSort ( aka the FED ) has pulled out ALL the STOPS ( which is a blatant reference to Pneumatic PIPE Organ technology meaning 'Play it VERY LOUD & Maximum Proud' ). In this case - HOT AIR has been used to Pump UP the Volume - for Public Consumption.
The FED "Window" of Overnight Loans to Banks that have not been able to "Balance" their Books @ the end of the DAY has been extended to hysterical ( feminine references INtended ) LUNAR Cycle 28 day time periods.
In the "Day" it was considered "ShameFul" & a sign of TOTAL InCompetence to have a " Member Bank " Show UP @ the Federal Reserve's Window in a rather Public Manner to "BEG" for such 'floating' LOANS.
The "Window" has apparently been closed in favor of very PRIVATE - non-publically disclosed - Arrangements. Not So ????
This 'System' has been TOTALLY by-passed with "AFT's" ( Auction Funded Term Financing Loans ) and now the ability to put up as 'Collateral' AAA Securities that have been 'Rated' by Rating Agencies whose record ( Past & Present ) is DUBIOUS & Notoriously Flawed.
We now have the SEC allowing Cities and such to buy in Outstanding debt in the ( depressed )Muni Market @ a Discount- simply making Open Market Purchases and By-Passing the Contractual Rules of Calling Bonds ( @ a Premium ) after an Obligatory time period.
Who is doing the "Bridge Loans"? - Only God really knows.
The OLD Rules have been SUSpended ( for the "Nonce'?? ) to deal with the Clear & Present Dangers to the U.S. Banking System.
These are Desperate TIMES requiring Desperate Measures - & John Q. Public is watching "March MADness" BasketBall on his BOOB TUBE. Not So ??
All that is really being done is what Bankers have always done - DEFER problems to an UnSpecified FUTURE.
With $9.5 TRILLION in Debt, how long can the U.S. Governmwent borrow to "Paper" over Systemic problems. Are we to become the NEXT Third World Dead-Beat Debtor and debt Repudiator or Abrogator ? Sovereign debt has always been paid in blood & misery.
Bear STEAR(n)S - A Stear is a BULL with a "Tight" Rubber Band applied to it's GOnads to Castrate it SLOWly to make the Meat Tender to the palate. BS is in fact a "Cowed" Bear.
Not So ?
Sovereign debt will be re-paid with Hyper-Inflation. Mark my Words.
I just saw that Federal "Refundings" , which used to be Quarterly, are now Monthly.
It's a New World Order and a NightMare New World Reality !!!
Don Lee Ferk ( fka VikingWarrior )
Posted by | March 15, 2008 2:40 PM
Tom, a very nice piece and thoughtful replies from John and Don.
As I read I could not help but think what was always said of
investing in real estate--- rock solid-- you have something to sell--
its brick & mortar. It is really and always has been about the $$$$$.
You a former bean counter certainly know that.
We could have changed the story to real estate terms and
it still would read the same !!!! The country estate do you know how it was financed ???? Is it possible Uncle Rich used one of those Sub Prime that is going to reset !!!!!!
The punch is gone ! where is the beer !!!!!!
Cheer, DuffBeer
Posted by duffbeer | March 16, 2008 8:39 AM