Thursday it looked like a bottom at 9100. The overseas markets had been quite and the market was churning along having lost about 78 points for the day, but advances and declines were balancing out and all and all a bottom was forming up nicely.
I took a nap at 2:45 and when I woke up an hour later the NYSE was down 700 points. What? Why? Was it a country or a big hedge fund selling enough to trip the auto sell programs?
What happened?
New government backed, too-big-to-fail Imperial Wallstreet Bullies in Town are putting the moves on, driving the market DOWN!
Evidently a JP Morgan, Goldman Sachs, and possibly Morgan Stanley as well — unilaterally and on spectacularly short notice, (AKA under the same terms as credit card interest rates are being raised) cut the margin that they extend to hedge funds and other professional traders who use these banks as prime brokers.
From Option Trader Don Fishback's Blog
What REALLY Happened
I hope my good friend Larry McMillan doesn’t mind me doing this. He has a terrific advisory service — The Options Strategist. In this morning’s hotline, He had this to say about the goings on yesterday:
The selling has reached historic proportions. There literally is a "run on the market," as investors worldwide are dumping stocks. It seems that the major catalyst for this selling is the fact that the newest large banks primarily J. P. Morgan, Goldman Sachs, and possibly Morgan Stanley as well — have issued massive margin calls to hedge funds and other professional traders who use these banks as prime brokers. These calls were not issued because of market losses, but more because the banks arbitrarily decided that they wanted their customers to use less leverage. Margin rates as low as 15% for broker dealers were raised to 35%; hedge funds who had been used to operating on high leverage were told that they had to bring accounts up to a much larger percentage of equity. In this illiquid environment, where all manor of exotic securities literally have no bids, the only place to raise the cash to meet margin calls was to sell stock. That is what really set
this market over the edge — as the first notice of these calls were issued on October 2nd and 3rd. There was something of a grace period to meet the calls, but funds realized they weren’t going to be able to meet them
other than by selling stock. There are rumors that the most massive of the calls are due Monday (October 13th). If so, this market could continue to decline through then.
There doesn’t seem to be any reason for this increase in margin. The most benign one is that the banks became overly worried that their prime brokerage customers could cause problems with leverage. A more sinister reason revolves around the fact that the banks issuing the calls will likely wind up the owners of some excellent inventory (relatively illiquid preferreds, bonds, etc., which are being sold at prices well below theoretical value). They are in effect confiscating from their prime brokerage customers.
https://www.donfishback.com/...
The Morgans and Goldman are going to be bailed out by the government who will take NON-VOTEING SHARES (so no control over things like exec pay) so they have the capitol to go bargain shopping in the wake of the carnage they created.
Your tax dollars at work folks!!!!!!!!!!!!!!!!