September 18, 2008, 6:00 am

Is the apocalypse among us?

by: The Financial Blogger    Category: Investment, Market and Risk,Trading
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Look at the chart at the top of this post… this is a 1 month graph… are these penny mining stocks? Not really… These are some of the biggest banks (both commercial and investment banks) in the world. A couple of years ago, these banks were considered untouchable. Now, within a few days, some of these banks have lost between 30% and 99% of their value… amazing, truly amazing.



I can tell you that what’s going on has caused huge panic in the markets. I had already discussed the Lehman case briefly…and while the Lehman collapse had major impacts throughout the system, the last 48 hours have been a lot crazier. AIG, one of the biggest insurers in the world neared collapse. The consequences of such a failure would have been major. Imagine hundreds of clients around the world that have huge risks and have them all hedged (protected) with insurance.. But what if the insurance company goes bankrupt? Big problem… And the Fed agreed by buying out the company (or almost all of it) for a 85$US Billions bill… Then, rumors started about Morgan Stanley being in trouble. Some say it is just a target of short sellers (to be discussed in a future column) but in any case, this situation can unfortunately become self-fulfilling. Morgan Stanley hosts (is a prime broker) for a major portion of the world’s hedge funds. What happens when these funds become worried that their money might be stuck? They start withdrawing. Millions and millions coming out.. And then, Morgan Stanley has less money to invest, less profits to make, more to worry about, more withdrawals..you get the picture.

To have a company the size of Morgan Stanley losing 30% of their value in a single day with no notion of profits is amazing to anyone involved in this market. Liquidity concerns are driving all of this. Liquidity and of course confidence. Goldman Sachs, the biggest investment bank in the world even had to come out publicly today to say they did not need any money from the Fed. Just the fact that they felt they needed to do that is worrying, and so the stock dipped after the announcement… The next days and weeks will be very important for the stability of a system that seemed so strong only a few months ago…

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Comments

The bad news is playing out fast now.

I like the description I heard recently – it’s an “unbubble”.

Instead of a bubble (greed gets ahead of fundamentals), we are starting to see fear get ahead of fundamentals.

Now is the time to invest in non-financial stocks – “while there is blood in the streets”.

Non-financials look good, but I’m also interested in Goldman. They seem primed to be the absolute king of finance throughout the world in the next few years.

by: The Financial Blogger | September 19th, 2008 (9:05 pm)

The apocalypse came a few days ago and now the Messiah saved us on a Friday!
Crazy day on the market but on the good side at least… TSX… 800+ points today… crazy world!

I think financials surviving this crisis will become even bigger monster… I mean great and big company that we should invest our money in 😉

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[…] Financial Blogger notes in the post, Is the apocalypse among us?, that “The US market is going down and major companies are following the trend. What is going […]