Heading under 10,000 on the way!

[audreyh1]

Oooooh! Here's a good scoop on the "market glitch". Finally something that makes sense!

NEW YORK (TheStreet) -- The unusual trading action in Procter & Gamble(PG) stock believed to be at the center of the market's most volatile moments on Thursday is thought to have originated from Terra Nova Financial(TNFG), a Chicago-based provider of prime brokerage and clearing services, a person familiar with the situation has told TheStreet.

This firm is already in trouble with the SEC for several things right now:

Terra Nova is apparently already under scrutiny for allegedly lax trading policies and procedures. The company, which is listed on the over-the-counter Bulletin Board under the symbol "TNFG.OB," disclosed in its Form 10-K for fiscal 2009 filed on March 30 that it received a Wells Notice on March 9 from FINRA, alerting the company of a recommendation for disciplinary action against it related to short sales occurring in the October-December 2007 timeframe.

FINRA is alleging that Terra Nova "accepted short sale orders without proper arrangements to borrow the securities" during that period, a practice known as "naked" shorting.

Also in the Form 10-K, Terra Nova disclosed its receipt of a Wells Notice in December 2009 from NYSE Regulation, saying the NYSE is investigating its conduct in four separate matters. The most recent of these is an allegation from September 2008 that a "large volume of erroneous trades" were placed by a Terra Nova client named Hsu-Tung Lee through an automated trading program.

"NYSE alleges that these trades far exceeded Lee's buying power, disrupted the market and indicate that Terra Nova failed to establish or maintain appropriate policies or procedures to prevent such erroneous orders from reaching the market," the filing states.

The other allegations, one of which dates back to January 2005, stem from similar alleged deficiencies in the firm's control policies and procedures related to short sale orders, restrictions on "wash sales and prearranged trades," and possible "spoofing" of the market by a customer who allegedly entered and then cancelled orders prior to the market's open for a two-month period in 2008.

The whole story is here: Chicago Firm Linked to P&G Trade | TheStreet.com

Yep - all you need it a broker-dealer/clearing house that pulls these stunts (or lets their customers pull these stunts), and no wonder we have horrible market action.

Now, what I can't believe is that there is only one of these "bad apples" out there.

Audrey

 

[IndependentlyPoor]

Dow futures up 400 on euro-bail news
EU to Dump a $Trillion Dollars into Eurozone | The Big Picture

 

[FUEGO]

Dow futures up 400 on euro-bail news
EU to Dump a $Trillion Dollars into Eurozone | The Big Picture

And all it takes is a trillion dollar bailout!

 

[Gone4Good]

That might make a difference in your thinking through the scenario, if you assume over time that stocks generally appreciate.

Audrey

I know a lot of folks who sold long-term covered calls in Citigroup at $55 or so hoping to get taken out of their employer stock eventually and earn some extra cash along the way.

Some of those folks left eight figures on the table . . . oops.

I'm a fan of selling stuff I want to sell as soon as I've decided I want to sell it.

 

[ziggy29]

I'll be convinced of the lasting power of the economic *and* stock market recoveries when it doesn't take massive government bailouts to pump them up.

It's feeling like a good opportunity to take some off the table for those who are skittish moving forward.

 

[Gone4Good]

Although billed as a "bailout" the European move seems to me to be more of a step toward greater European integration (in this case fiscal) then anything else. Some economists have warned for a long time about the inherent weakness of Euro monetary integration without accompanying fiscal and labor market integration. Oftentimes it takes a crisis to force things that people would prefer to avoid. In this case, the Euro members had two stark choices. Embrace greater integration. Or face impending disintegration.

 

[ziggy29]

Although billed as a "bailout" the European move seems to me to be more of a step toward greater European integration (in this case fiscal) then anything else. Some economists have warned for a long time about the inherent weakness of Euro monetary integration without accompanying fiscal and labor market integration. Oftentimes it takes a crisis to force things that people would prefer to avoid. In this case, the Euro members had two stark choices. Embrace greater integration. Or face impending disintegration.

I heard it mentioned by analysts that this deal is the EU going "all in" to try to clean up the PIIGS sty and take a stand at defending both the euro and the EU overall. These things may be necessary but until all the shoes drop, one has to wonder when and if the economy will start expanding through organic growth rather than government-provided stimulus and liquidity.

 

[Gone4Good]

I heard it mentioned by analysts that this deal is the EU going "all in" to try to clean up the PIIGS sty and take a stand at defending both the euro and the EU overall. These things may be necessary but until all the shoes drop, one has to wonder when and if the economy will start expanding through organic growth rather than government-provided stimulus and liquidity.

Agreed.

I've come to understand that excess liquidity can masquerade as strong fundamentals. I haven't spent enough time thinking about it to disentangle the two. And I'm not certain that there is any way to tell one from the other. What is clear, though, is that at present liquidity provided by governments and central banks is unprecedented. Which raises the risk that whatever we think the fundamentals are doing is simply a mirage.

 

[MichaelB]

Alright everybody. Nothing more to worry about. It's safe to put your money back in the stock market now. Especially EU. Uncles Ben and Jean-Claude are watching over us.

 

[FinanceDude]

Although billed as a "bailout" the European move seems to me to be more of a step toward greater European integration (in this case fiscal) then anything else. Some economists have warned for a long time about the inherent weakness of Euro monetary integration without accompanying fiscal and labor market integration. Oftentimes it takes a crisis to force things that people would prefer to avoid. In this case, the Euro members had two stark choices. Embrace greater integration. Or face impending disintegration.

What a far cry from just a few short years ago, when the dollar was plummeting and all the pro-Euro folks were saying their was the "world currency of the future"..........'

The USD is far from dead..........imagine that..........

 

[walkinwood]

It's feeling like a good opportunity to take some off the table for those who are skittish moving forward.

Or at least re-examine your risk tolerance & liquidity needs while last week is still fresh in your memory. (Not that there is a danger that anyone here is going to forget late 08/early 09 in a hurry!)

I gave some serious thought to my AA last week and discussed with DW. We decided to stay put at 60 equities / 40 bonds, and re-balance when our tolerance bands are crossed.

 

[Gone4Good]

What a far cry from just a few short years ago, when the dollar was plummeting and all the pro-Euro folks were saying their was the "world currency of the future"..........'

The USD is far from dead..........imagine that..........

Hmmm, I wonder who here was challenging that argument a year ago? Oh, I remember . . .

Currency is a zero sum game, if the dollar declines, some other currency or currencies have to appreciate. Most of the rest of the world is a basket case too. Some EU members could be heading for default. The U.K. is in worse shape than we are. It's not clear which currency would benefit at the expense of the U.S. China, maybe, but they are pretty intent on managing their exchange rate (and may need to). It's also possible that China ends up imploding in pretty spectacular fashion.

 

[Gone4Good]

What a gold mine that old thread is. Here's another good one (circa March 2009) . . .

I have one prediction about which I'm highly confident.

Roubini will be calling for further declines at least 12 months into a sustained market recovery.

 

[ESRwannabe]

The market is on fire today! I really wish I had money to invest during the little hicup last week. The EU really came through with some shock and awe.

The Europe Index, VGK ETF, is up 9.20% so far.

 

[IndependentlyPoor]

Somebody explain to me again why the market is supposed to be rational?

 

[ziggy29]

Somebody explain to me again why the market is supposed to be rational?

At any given time, EMT would claim the market is pricing everything at just an aggregation of what is known.

Which, even though I'm not 100% behind the EMT stuff, would explain in large part why there is so much volatility during periods of maximum uncertainty.

 

[audreyh1]

I know a lot of folks who sold long-term covered calls in Citigroup at $55 or so hoping to get taken out of their employer stock eventually and earn some extra cash along the way.

Some of those folks left eight figures on the table . . . oops.

I'm a fan of selling stuff I want to sell as soon as I've decided I want to sell it.

Everyone does things their own way. I took over 12 years to divest most of my company stock (although I did sell 2/3 of it the two years around my retirement date) and that worked reasonably well for me. Once I had divested the initial chunk, appreciation of the rest was "icing on the cake". It was a calculated bet. Much less risky than my initial one of having my net worth highly concentrated in company stock for many years, but which ultimately allowed me to retire very early.

Audrey

 

[audreyh1]

Somebody explain to me again why the market is supposed to be rational?

It's not. But these recent changes have to do with rapidly changing conditions in Europe, so this time the volatility "makes sense".

Audrey

 

[ESRwannabe]

I use index funds for the bulk of my money, but not because I believe in the EMH. It is simply a cheap way to invest with a reasonable algorithm.

 

[Gone4Good]

The stakes of this game of can kicking continue to escalate as the years are passing.

Perhaps, but what is the alternative?

In the case of Greece, a default and a 100% repudiation of its debt wouldn't solve the problem. It would still have an annual deficit of ~8% of GDP. The country is trying to put in place austerity measures that are pretty severe compared to what other countries have done. The problem is, those tax increases and spending cuts exacerbate the problem by further slowing GDP and thus, depressing tax revenues making it ever harder to balance its budget. In other similar cases, the country would try to blunt the impact of contractionary fiscal policy by expansive monetary policy, but Greece doesn't have that option. For their domestic fundamentals, the ECB is running a contractionary monetary regime on top of a massively contractionary fiscal austerity plan. If the European Union didn't do something to help, Greece would probably be forced to leave the EU so it could get some monetary relief. That very well could have been the first step in a broader unraveling of the currency.

Rather than go that route, the EU is providing both liquidity and, perhaps more importantly, monetary easing to give Greece a chance to implement its austerity measures. I also wouldn't call this "kicking the can down the road" exactly.

 

[smjsl]

@Running man, would not most likely scenario just be inflating the way out of all the debts? It's easy to repay those loans when everyone's wages and prices jump (perhaps world-wide). In the process, everyone who has been saving will most likely lose the value of their investments, but it will be gradual enough that you will not see any demonstrations on the streets and everyone (including those savers) will just have to keep working longer.

 

[ziggy29]

@Running man, would not most likely scenario just be inflating the way out of all the debts? It's easy to repay those loans when everyone's wages and prices jump (perhaps world-wide). In the process, everyone who has been saving will most likely lose the value of their investments, but it will be gradual enough that you will not see any demonstrations on the streets and everyone (including those savers) will just have to keep working longer.

In this scenario, it's long-term fixed income holders who bend over. At least corporate earnings are also rising in inflated dollars for stock investors and those in cash can likely get ever-increasing yields (maybe not even with inflation, but they will at least rise more with a spike in inflation).

Someone holding a 30-year bond at 6%, on the other hand, takes it in the shorts.

If you really believe high inflation is coming -- and sooner rather than later -- a mixture of stocks, cash and commodities is probably the best way to go. The problem is, a dip into another deep recession will slaughter such an allocation.

I'll just keep diversifying. Seems like my portfolio targets are looking more and more like the Permanent Portfolio every day -- not there yet but slowly recognizing the value of keeping cash and commodities in addition to stocks and bonds...

 

[NW-Bound]

Don't know about y'all, but today my stock positions are up 4.74%, MFs up 4.80%, and total portfolio up 3.49%. I nearly recovered all my losses on Thu 5/6 and Fri 5/7. Will see what tomorrow brings. Have not bought nor sold a thing!

 

[W2R]

Don't know about y'all, but today my stock positions are up 4.74%, MFs up 4.80%, and total portfolio up 3.49%. I nearly recovered all my losses on Thu 5/6 and Fri 5/7. Will see what tomorrow brings. Have not bought nor sold a thing!

My portfolio has recovered to about the same value as last Wednesday. I don't suppose we are done with this, but so far, so good.

 

[teejayevans]

There is a Seinfeld episode where George does the opposite of everything he would normally do. Using that theory I moved money from MM->equity funds on Friday.

I watched CNBC, there was 2 guys predicting the future, one predicted 1500 for S&P by
end of the year, the other predicted gloom and doom?

TJ