Traders’ Talk

Excerpts from the Avid’s Live Chat Room…

What does the future hold? My bet is ~1300 SPX in the fairly near future. Then most likely new highs after that. But I reserve the right to change that forecast. : ) It is certainly interesting, and confirms suspicions about the nature of the selling, that as soon as the NYSE closes, the futures rebound somewhat. Often it is the futures that push the market around. But not in the past couple of weeks. Institutional selling becomes a fundamental piece of information for the Futures camp, there is nothing you can sell that cant be sold.

The present situation is not exactly ‘business-as-usual’. But my current judgment is that there will not be a huge impact on the aggregate economy from what is happening. I.E. we will not see two consecutive down quarters in real GDP. The Federal Reserve was created for the very reason that an institution like the Fed was required to stabilize things when discontinuities like the present happen. There had been so many of theses kinds of events in the 1800s, which did have fairly serious economic ramifications, that finally in the 1913 (?) they created the Fed precisely for the present type of situation.

So, I expect us to weather this without a problem in aggregate GDP, but clearly there are a lot of entities that currently are short of cash and need to liquidate assets to raise cash. How long the liquidation will last is anyone’s guess. But SPX ~1300 seems like a sensible number to me. Although I have to say that my degree of conviction about GDP in the immediate coming quarters is appreciably less than it would be without the present ‘mess’. But my point is that it depends on who it is that is selling that explains PREM. Or if you like, PREM gives some information about who it is that is selling. This time it is not the futures people who are applying the selling pressure. Let’s put it this way, if the Fed wants a recession it would have no trouble getting one going. But if the Fed doesn’t want a recession then all the gods in the universe combined would have their time cut out trying to create one. IMO

Credit Ratings

Excerpts from the Avid’s Live Chat Room…

The three leading rating companies, all based in New York, say that policing CDOs isn’t their job. They just offer their educated opinions, says Noel Kirnon, senior managing director at Moody’s.
“What we’re saying is that many people have the tendency to rely on [the ratings], and we want to make sure that they don’t,” says Kirnon, whose firm commands 39 percent of the global credit-rating market by revenue.

S&P, which controls 40 percent, asks investors in its published CDO ratings not to base any investment decision on its analysis. Fitch, which has 16 percent of the worldwide credit-rating field, says its analysis are opinions and investors shouldn’t rely on them. The rating companies apply disclaimers about their analysis. S&P says in small print: “Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision.”
Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers.
“I laugh about Moody’s and S&P disclaimers,” he says. “The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.”

Sounds like most stock prospectuses these days. LOL If one isn’t supposed to rely on a rating agencies opinion on risk, I wonder why they would actually offer an opinion? Oh well, equities appear to be far less risky these days as compared to debt instruments…………. should seek out new highs on equities as investor’s risk appetite decreases IMO.