Originally Posted by flotsamandjetsam
I see that today all of them moved in lockstep. The charts are very similar for each stock as though market forces have swamped the individual story of each stock. This is the first time I have seen this in my portfolio. So much for diversity! I suppose, in the long run, each stock will sink or swim based on performance. But still, this is disturbing.
In terms of generalities, in CAPM the simple premise is called 'systematic risk', or the beta portion of your portfolio risk. For indexers, I suppose that it would be called 'market risk'. In current trader lingo, it is called the 'risk "ON" trade'.
Basically, the general concept is that in this post-financial collapse, recessionary and debt-laden world the various Central Banks (CB) are extremely wary of things like deflationary spirals, stagflation, liquidity traps, etc. so they have done everything in their power to force people and investors to spend and invest their cash versus the alternative of earning de minimis interest on cash - or even losing relative value on cash through monetary inflation which can be hedged instead by buying Gold. The binary situation that the CBs have forced on investors is thus to play their game and to hold a Risk asset or to hold Gold if they are betting against the CBs: There are no cash equivalent investments in this world that will pay decent interest for wary investors to tread water in as those investments are Risk assets as well.
The interesting thing about the capitulation on Thur was that the sell-off took both Risk assets and Gold down with it which is frightening for the CBs in that the risk "OFF" trade is what they do not want. Deleveraging is not good in their opinion so the huge deleveraging sell-off that we experienced last week is surely scaring them. The bookies were the big winners as they told all the players in the gambling hall to put up their margin - therefore, the total value in the room went down which means all tables have less money on them (or, in other words, all Risk assets have lower value).
Once things settle in the short term I suspect the Gold guys are loving this market since the UST credit cut on Fri will force more market chaos which will then force some who were long Risk assets to eventually bid up Gold rather than to hold cash. Those who are not forced margin sellers of long positions will all place collar trades on their positions and buy Gold to hedge ASAP.
Some friends had a meeting with S&P a few days ago and asked them whether the Obama administration was applying pressure on them to not cut the UST rating: S&P replied, "We are not officially able to respond to that question"! Sell Mortimer, Sell!!!
Laissez les bon temps roullez!