Brace Yourselves For Another Stock Market Dive On Monday

[Toddsterpatriot]

I kind of know what I'm talking about...

But so much of what you "know", just isn't accurate.

 

[g5000]

The pocket from which they move goes under. Just ask Lehman or Bear Stearns or LTCM.

The pocket from which they move goes under.

Sometimes.

Just ask Lehman or Bear Stearns

They went under because they financed a huge bond position, which went down in value, with overnight borrowing, which they couldn't roll over, Nothing to do with derivatives.

Lehman financed derivatives using massive leverage.

The collapse of 2008 was greatly amplifed by leveraged CDS.

LTCM went under because of arbitrage bets on bond yield spreads around the world which ended up having a correlation of 1 when they all went sour. LTCM was leveraged 100 to 1.

Lehman financed derivatives using massive leverage.

Link?

Bankruptcy of Lehman Brothers - Wikipedia
Lehman borrowed significant amounts to fund its investing in the years leading to its bankruptcy in 2008, a process known as leveraging or gearing. A significant portion of this investment was in housing-related assets, making it vulnerable to a downturn in that market. One measure of this risk-taking was its leverage ratio, a measure of the ratio of assets to owners equity, which increased from approximately 24:1 in 2003 to 31:1 by 2007.

And another link that their derivative portfolio played more than a minor part in their collapse.

Same link as above:

In 2008, Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis. Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.

Those "tranches" were from CDOs.

Collateralized Debt Obligation (CDO) Definition

A collateralized debt obligation (CDO) is a complex structured finance product that is backed by a pool of loans and other assets and sold to institutional investors. A CDO is a particular type of derivative because, as its name implies, its value is derived from another underlying asset. These assets become the collateral if the loan defaults.

The collapse of 2008 was greatly amplifed by leveraged CDS.

Not really.

Yes, really.

Credit Default Swap (CDS) - A Major Player in the 2008 Financial Crisis

Before the financial crisis of 2008, there was more money invested in credit default swaps than in other pools. The value of credit default swaps stood at $45 trillion compared to $22 trillion invested in the stock market, $7.1 trillion in mortgages and $4.4 trillion in U.S. Treasury. In mid-2010, the value of outstanding CDS was $26.3 trillion.

Many investment banks were involved, but the biggest casualty was Lehman Brothers investment bank, which owed $600 billion in debt, out of which $400 billion was covered by CDS.


In other words, the bulk of Lehman's collapse was due to CDS, which are derivatives.

LTCM was leveraged 100 to 1.

I don't think it ever got that high.

It got much higher than that.

Long-Term Capital Management - Wikipedia

LTCM was essentially betting that the share prices of Royal Dutch and Shell would converge because in their belief the present value of the future cashflows of the two securities should be similar. This might have happened in the long run, but due to its losses on other positions, LTCM had to unwind its position in Royal Dutch Shell. Lowenstein reports that the premium of Royal Dutch had increased to about 22%, which implies that LTCM incurred a large loss on this arbitrage strategy. LTCM lost $286 million in equity pairs trading and more than half of this loss is accounted for by the Royal Dutch Shell trade.[26]

The company, which had historically earned annualised compounded returns of almost 40% up to this point, experienced a flight to liquidity. In the first three weeks of September, LTCM's equity tumbled from $2.3 billion at the start of the month to just $400 million by September 25. With liabilities still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1.

Lehman borrowed significant amounts to fund its investing in the years leading to its bankruptcy in 2008, a process known as leveraging or gearing.

Yup. They were leveraged.

Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.

Yup. They held lots of mortgages.

Those "tranches" were from CDOs.

Yup, they held a lot of the crap from their own securitizing operations.

Many investment banks were involved, but the biggest casualty was Lehman Brothers investment bank, which owed $600 billion in debt,

Lehman owed money. They borrowed. They couldn't rollover the debt.

out of which $400 billion was covered by CDS.

Other firms held CDS, betting that Lehman would default.
You thought Lehman got in trouble by betting Lehman would default?
That's funny.

In the first three weeks of September, LTCM's equity tumbled from $2.3 billion at the start of the month to just $400 million by September 25. With liabilities still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1.

Thanks for the link. I heard that before and thought it sounded outrageous.

Although LTCM is a hedge fund, this issue is not limited to hedge funds. Other financial institutions, including some banks and securities firms, are larger, and generally more highly leveraged, than hedge funds. LTCM, with total assets of $129 billion at the end of 1997, was significantly larger than any other reporting hedge fund family at that time. Only 11 reporting hedge fund families, including LTCM, had total assets exceeding $10 billion at the end of 1997. At the end of 1998, LTCM's total assets were $89 billion. The notional amount of LTCM's total OTC derivatives position was $1.3 trillion at the end of 1997 and $1.5 trillion at the end of 1998. LTCM's balance sheet leverage was 28-to-1 at the end of 1997.

Hedge Funds, Leverage and the Lessons of Long-Term Capital Management: Report of the President's Working Group on Financial Markets

The CFTC has a lower figure though...…….​

Lehman drank their own piss and sold CDS against their assets, believing their toxic mortgages could not fail.

They were wrong, and that is what did them in.

Simple as that, and proven in the links I provided.

And as you yourself just admitted, their CDOs (which are also derivitaves) helped to sink them.

This quote by you "LTCM's balance sheet leverate was 28-to-1 at the end of 1997" means fuck-all. They collapsed at the end of 1998, when their leverage was 250-to-1.

At the end of 1997, LTCM forced their investors to divest and then the partners began plowing their own money into their arbitrage bets.

 

[g5000]

I kind of know what I'm talking about...

But so much of what you "know", just isn't accurate.

It was dead-on accurate. Sorry about that!

 

[Toddsterpatriot]

The pocket from which they move goes under.

Sometimes.

Just ask Lehman or Bear Stearns

They went under because they financed a huge bond position, which went down in value, with overnight borrowing, which they couldn't roll over, Nothing to do with derivatives.

Lehman financed derivatives using massive leverage.

The collapse of 2008 was greatly amplifed by leveraged CDS.

LTCM went under because of arbitrage bets on bond yield spreads around the world which ended up having a correlation of 1 when they all went sour. LTCM was leveraged 100 to 1.

Lehman financed derivatives using massive leverage.

Link?

Bankruptcy of Lehman Brothers - Wikipedia
Lehman borrowed significant amounts to fund its investing in the years leading to its bankruptcy in 2008, a process known as leveraging or gearing. A significant portion of this investment was in housing-related assets, making it vulnerable to a downturn in that market. One measure of this risk-taking was its leverage ratio, a measure of the ratio of assets to owners equity, which increased from approximately 24:1 in 2003 to 31:1 by 2007.

And another link that their derivative portfolio played more than a minor part in their collapse.

Same link as above:

In 2008, Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis. Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.

Those "tranches" were from CDOs.

Collateralized Debt Obligation (CDO) Definition

A collateralized debt obligation (CDO) is a complex structured finance product that is backed by a pool of loans and other assets and sold to institutional investors. A CDO is a particular type of derivative because, as its name implies, its value is derived from another underlying asset. These assets become the collateral if the loan defaults.

The collapse of 2008 was greatly amplifed by leveraged CDS.

Not really.

Yes, really.

Credit Default Swap (CDS) - A Major Player in the 2008 Financial Crisis

Before the financial crisis of 2008, there was more money invested in credit default swaps than in other pools. The value of credit default swaps stood at $45 trillion compared to $22 trillion invested in the stock market, $7.1 trillion in mortgages and $4.4 trillion in U.S. Treasury. In mid-2010, the value of outstanding CDS was $26.3 trillion.

Many investment banks were involved, but the biggest casualty was Lehman Brothers investment bank, which owed $600 billion in debt, out of which $400 billion was covered by CDS.


In other words, the bulk of Lehman's collapse was due to CDS, which are derivatives.

LTCM was leveraged 100 to 1.

I don't think it ever got that high.

It got much higher than that.

Long-Term Capital Management - Wikipedia

LTCM was essentially betting that the share prices of Royal Dutch and Shell would converge because in their belief the present value of the future cashflows of the two securities should be similar. This might have happened in the long run, but due to its losses on other positions, LTCM had to unwind its position in Royal Dutch Shell. Lowenstein reports that the premium of Royal Dutch had increased to about 22%, which implies that LTCM incurred a large loss on this arbitrage strategy. LTCM lost $286 million in equity pairs trading and more than half of this loss is accounted for by the Royal Dutch Shell trade.[26]

The company, which had historically earned annualised compounded returns of almost 40% up to this point, experienced a flight to liquidity. In the first three weeks of September, LTCM's equity tumbled from $2.3 billion at the start of the month to just $400 million by September 25. With liabilities still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1.

Lehman borrowed significant amounts to fund its investing in the years leading to its bankruptcy in 2008, a process known as leveraging or gearing.

Yup. They were leveraged.

Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.

Yup. They held lots of mortgages.

Those "tranches" were from CDOs.

Yup, they held a lot of the crap from their own securitizing operations.

Many investment banks were involved, but the biggest casualty was Lehman Brothers investment bank, which owed $600 billion in debt,

Lehman owed money. They borrowed. They couldn't rollover the debt.

out of which $400 billion was covered by CDS.

Other firms held CDS, betting that Lehman would default.
You thought Lehman got in trouble by betting Lehman would default?
That's funny.

In the first three weeks of September, LTCM's equity tumbled from $2.3 billion at the start of the month to just $400 million by September 25. With liabilities still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1.

Thanks for the link. I heard that before and thought it sounded outrageous.

Although LTCM is a hedge fund, this issue is not limited to hedge funds. Other financial institutions, including some banks and securities firms, are larger, and generally more highly leveraged, than hedge funds. LTCM, with total assets of $129 billion at the end of 1997, was significantly larger than any other reporting hedge fund family at that time. Only 11 reporting hedge fund families, including LTCM, had total assets exceeding $10 billion at the end of 1997. At the end of 1998, LTCM's total assets were $89 billion. The notional amount of LTCM's total OTC derivatives position was $1.3 trillion at the end of 1997 and $1.5 trillion at the end of 1998. LTCM's balance sheet leverage was 28-to-1 at the end of 1997.

Hedge Funds, Leverage and the Lessons of Long-Term Capital Management: Report of the President's Working Group on Financial Markets

The CFTC has a lower figure though...…….​

Lehman drank their own piss and sold CDS against their assets, believing their toxic mortgages could not fail.

They were wrong, and that is what did them in.

Simple as that, and proven in the links I provided.

And as you yourself just admitted, their CDOs (which are also derivitaves) helped to sink them.

This quote by you "LTCM's balance sheet leverate was 28-to-1 at the end of 1997" means fuck-all. They collapsed at the end of 1998, when their leverage was 250-to-1.

At the end of 1997, LTCM forced their investors to divest and then the partners began plowing their own money into their arbitrage bets.

Lehman drank their own piss

Yup. They bought a bunch of mortgages. Sold off the good parts, kept the bad parts. Mortgages.

and sold CDS against their assets, believing their toxic mortgages could not fail.

What assets do you feel they sold CDS against?

And as you yourself just admitted, their CDOs (which are also derivitaves) helped to sink them

Putting a bunch of bonds, or other assets, into a pile and selling slices didn't sink Lehman.
They sank because of the crap they held onto.
Crappy bonds, including

the crappy slices their "CDO department" couldn't sell is what sank them.
​

This quote by you "LTCM's balance sheet leverate was 28-to-1 at the end of 1997" means fuck-all. ​

​

At the end of 1998, LTCM's total assets were $89 billion. The notional amount of LTCM's total OTC derivatives position was $1.3 trillion at the end of 1997 and $1.5 trillion at the end of 1998. LTCM's balance sheet leverage was 28-to-1 at the end of 1997.​

​

If their assets at the end of 1998 were $89 billion and the notional amount of their derivatives was $1.5 trillion, the CFTC's leverage number doesn't agree with the one you linked. Sorry.​

 

[Toddsterpatriot]

I kind of know what I'm talking about...

But so much of what you "know", just isn't accurate.

It was dead-on accurate. Sorry about that!

Tell me again about the $400 billion of CDS Lehman held......LOL!

 

[Manonthestreet]

When Trump visited the CDC, he made the coronavirus epidemic all about him. Gee, these guys are surprised at how smart I am! I had a super-genius uncle at MIT which makes me a super-genius! I coulda been a great doctor!

This from the fuckwit who thought a vaccine was just a couple months away and asked an astounding number of ignorant questions of his medical team.

He also said the missing-in-action test kits are "perfect, just like the letter, just like the transcript".

We have a real fucking idiot clown in Trump.

Maybe he said a vaccine was close because at least one lab claimed it was......and for all we know it is. Even DARPA is in the game.

 

[g5000]

I kind of know what I'm talking about...

But so much of what you "know", just isn't accurate.

It was dead-on accurate. Sorry about that!

Tell me again about the $400 billion of CDS Lehman held......LOL!

It's a simple fact that without derivatives, the broker-dealers would not have had the means to spread the risk as far and wide as they did. Without derivatives, the massive number of toxic mortgages would have been impossible.

I am absolutely correct that derivatives greatly amplified the losses.

Sorry about that!

 

[g5000]

Fears of Lehman's CDS derivatives haunt markets

 

[ABikerSailor]

Well, it dropped another 250 points today. If the virus keeps spreading and people keep dying without any effective response from the government, expect next week to be a bloodbath on the market as well.

Please cite for us the Article and Section in the U.S. Constitution that makes healthcare the responsibility of government.

Fucking imbecile.

Guess you missed the part where it says the government will provide for the general welfare of the nation. And, sorry, but there aren't any people I know of who are able to develop a vaccine, distribute it to where it's needed, as well as administer tests outside of the CDC and the government health infrastructure.

And yeah, as long as Trump keeps spewing bullshit about how he's got it all under control while the experts are saying otherwise will keep the markets unstable and they will continue to fall.

 

[g5000]

Well, it dropped another 250 points today. If the virus keeps spreading and people keep dying without any effective response from the government, expect next week to be a bloodbath on the market as well.

Please cite for us the Article and Section in the U.S. Constitution that makes healthcare the responsibility of government.

Fucking imbecile.

Guess you missed the part where it says the government will provide for the general welfare of the nation. And, sorry, but there aren't any people I know of who are able to develop a vaccine, distribute it to where it's needed, as well as administer tests outside of the CDC and the government health infrastructure.

Amazon!

 

[ABikerSailor]

Well, it dropped another 250 points today. If the virus keeps spreading and people keep dying without any effective response from the government, expect next week to be a bloodbath on the market as well.

Please cite for us the Article and Section in the U.S. Constitution that makes healthcare the responsibility of government.

Fucking imbecile.

Guess you missed the part where it says the government will provide for the general welfare of the nation. And, sorry, but there aren't any people I know of who are able to develop a vaccine, distribute it to where it's needed, as well as administer tests outside of the CDC and the government health infrastructure.

Amazon!

Amazon doesn't have any doctors. And, while they might have the ability to distribute it across the nation fairly quickly, there are a couple of problems................

First, is that there aren't enough tests to go around, as well as the fact that some of the tests have been proven to be ineffective.

Then, there is the problem that doctors are telling us that a vaccine is anywhere from a year to 18 months out from now. Even if Amazon was willing to do the distribution for reduced cost or for free, they still don't have anything to ship.

 

[g5000]

Well, it dropped another 250 points today. If the virus keeps spreading and people keep dying without any effective response from the government, expect next week to be a bloodbath on the market as well.

Please cite for us the Article and Section in the U.S. Constitution that makes healthcare the responsibility of government.

Fucking imbecile.

Guess you missed the part where it says the government will provide for the general welfare of the nation. And, sorry, but there aren't any people I know of who are able to develop a vaccine, distribute it to where it's needed, as well as administer tests outside of the CDC and the government health infrastructure.

Amazon!

Amazon doesn't have any doctors. And, while they might have the ability to distribute it across the nation fairly quickly, there are a couple of problems................

First, is that there aren't enough tests to go around, as well as the fact that some of the tests have been proven to be ineffective.

Then, there is the problem that doctors are telling us that a vaccine is anywhere from a year to 18 months out from now. Even if Amazon was willing to do the distribution for reduced cost or for free, they still don't have anything to ship.

I want my Covid-19 vaccine delivered by drone, dammit! Now!

Or else it gets one star.

 

[g5000]

Amazon Covertly Working On Cold Vaccine | PYMNTS.com

 

[ABikerSailor]

Amazon Covertly Working On Cold Vaccine | PYMNTS.com

Yeah, they are working on a vaccine for the common cold. Only problem is, that is a rhinovirus and the COVID-19 is a corornavirus. What works on one, won't work on the other.

From your link...............................

The common cold is caused by a class of virus called the rhinovirus, of which there are 160 strains. Finding a cure is difficult because the cold easily mutates and goes away in about a week. “The prevailing wisdom is that it’s impossible because there are so many different viruses that cause the common cold,” said Greg Yap, a health-focused investor with Menlo Ventures.


So, even if Amazon succeeded on the vaccine they are currently working on, it's not effective against what is going on now.

 

[Toddsterpatriot]

I kind of know what I'm talking about...

But so much of what you "know", just isn't accurate.

It was dead-on accurate. Sorry about that!

Tell me again about the $400 billion of CDS Lehman held......LOL!

It's a simple fact that without derivatives, the broker-dealers would not have had the means to spread the risk as far and wide as they did. Without derivatives, the massive number of toxic mortgages would have been impossible.

I am absolutely correct that derivatives greatly amplified the losses.

Sorry about that!

It's a simple fact that without derivatives, the broker-dealers would not have had the means to spread the risk as far and wide as they did.

Ok.

Without derivatives, the massive number of toxic mortgages would have been impossible.

So the number was 5% higher? 10%? How much? Show your work.

​

I am absolutely correct that derivatives greatly amplified the losses.

Nah.

 

[Toddsterpatriot]

Fears of Lehman's CDS derivatives haunt markets

It is a full week after bankers gathered in New York to start sorting out the derivatives mess left by the bankruptcy of Lehman Brothers. We still do not know who is on the hook for some $360 billion of default insurance, or how much they will have to pay.

Duh. CDS on Lehman's debt. Because people were betting Lehman would default.
Not CDS that Lehman owed money to a counterparty.....silly.

 

[Manonthestreet]

Well, it dropped another 250 points today. If the virus keeps spreading and people keep dying without any effective response from the government, expect next week to be a bloodbath on the market as well.

Please cite for us the Article and Section in the U.S. Constitution that makes healthcare the responsibility of government.

Fucking imbecile.

Guess you missed the part where it says the government will provide for the general welfare of the nation. And, sorry, but there aren't any people I know of who are able to develop a vaccine, distribute it to where it's needed, as well as administer tests outside of the CDC and the government health infrastructure.

And yeah, as long as Trump keeps spewing bullshit about how he's got it all under control while the experts are saying otherwise will keep the markets unstable and they will continue to fall.

Foool….govt vaccine ,,,what an idiot

 

[g5000]

Amazon Covertly Working On Cold Vaccine | PYMNTS.com

Yeah, they are working on a vaccine for the common cold. Only problem is, that is a rhinovirus and the COVID-19 is a corornavirus. What works on one, won't work on the other.

From your link...............................

The common cold is caused by a class of virus called the rhinovirus, of which there are 160 strains. Finding a cure is difficult because the cold easily mutates and goes away in about a week. “The prevailing wisdom is that it’s impossible because there are so many different viruses that cause the common cold,” said Greg Yap, a health-focused investor with Menlo Ventures.


So, even if Amazon succeeded on the vaccine they are currently working on, it's not effective against what is going on now.

Actually, one strain of the common cold is a coronavirus.

Causes of the Common Cold


Rhinovirus. This bunch is most active in early fall, spring, and summer. They cause 10%-40% of colds. You'll feel plenty miserable when you catch one, but the good news is they rarely make you seriously sick.

Coronavirus. These tend to do their dirty work in the winter and early spring. The coronavirus is the cause of about 20% of colds. There are more than 30 kinds, but only three or four affect people.

RSV and parainfluenza. These viruses cause 20% of colds. They sometimes lead to severe infections, like pneumonia, in young children.

 

[g5000]

Fears of Lehman's CDS derivatives haunt markets

It is a full week after bankers gathered in New York to start sorting out the derivatives mess left by the bankruptcy of Lehman Brothers. We still do not know who is on the hook for some $360 billion of default insurance, or how much they will have to pay.

Duh. CDS on Lehman's debt. Because people were betting Lehman would default.
Not CDS that Lehman owed money to a counterparty.....silly.

That in no way negates my point. In fact, it confirms my point that derivatives amplified the crash.

Without derivatives deluding financial institutions into bleeving they had eliminated risk, they never would have exploded subprime loans.

 

[Toddsterpatriot]

Fears of Lehman's CDS derivatives haunt markets

It is a full week after bankers gathered in New York to start sorting out the derivatives mess left by the bankruptcy of Lehman Brothers. We still do not know who is on the hook for some $360 billion of default insurance, or how much they will have to pay.

Duh. CDS on Lehman's debt. Because people were betting Lehman would default.
Not CDS that Lehman owed money to a counterparty.....silly.

That in no way negates my point. In fact, it confirms my point that derivatives amplified the crash.

Without derivatives deluding financial institutions into bleeving they had eliminated risk, they never would have exploded subprime loans.

That in no way negates my point.

Your point was that "the bulk of Lehman's collapse was due to CDS, which are derivatives"
Somehow $400 billion of them. Still funny.

In fact, it confirms my point that derivatives amplified the crash.

You said CDS greatly amplified the crash. By how much? 5%? Less?

Without derivatives deluding financial institutions into bleeving they had eliminated risk, they never would have exploded subprime loans

Selling individual mortgages or selling securitized mortgages spread risk just fine without the need for a single CDS, interest rate swap, currency swap, futures contract, options contract, or forward.