As some of you know I was a professional trader for over 10 years. When OIL was at $140, I felt the need to post this...
I called a top in Oil and indeed it's in free-fall now. Now if I were a genius I would have shorted oil and retired but I refused to take the risk because of another risk - a war with Iran which would boost OIL to $200 easily.
Now we are in a much different situation. The general economy of our country and many others are going into deep recessions. There is a ton of fear out there with the failing of banks and institutions that have been around for over 100 years.
There is no question that Real-Estate was a bubble. The Internet was a bubble also but didn't hurt the banking system because they put THEIR INVESTORS in the stocks and they came out fine.
This time the problem is that they were directly involved in the mortgage crisis in a big way. And they knew what they were doing - don't feel bad for them. They knew that there was no way that the bubble would last and they knew that housing would tanking like every other bubble. So you ask - why did they do it? Why make bad loans? Why package them up and hold them? It was because they bought a TON of insurance from companies like AIG knowing that if the market tanked they would have made a ton during the bubble - and then would be protected when the bubble burst (and some even say would make even more money).
Well the problem is that AIG and the other insurers all went bankrupt and this left the banks with no one to insure them - and they got killed. I'm sure you know the big names that have gone out of business or been bought for pennies on the dollar (Merrill, Bear, Lehman, etc..).
The 700 Billion Bailout was opposed by many people because they didn't want to see these banks bailed out of a situation they created and intended to profit from even when it burst. However since the banks provide credit for nearly EVERY business out there if they all went belly-up our economy would go into a deep DEPRESSION and we couldn't let that happen. The credit market had to be saved. Everyday business rely on these firms for everyday credit needs. You can't buy a car or a house without someone to lend you the money. And it goes far beyond that. The average business runs off of credit. If their bank no longer can loan these businesses money then you see major economic pain.
This is why the bailout passed. We had very little choice. We had to save the banking institutions despite the fact that they did this on purpose or the economy would crater. That's why people are calling for more regulation and there SHOULD be more regulation. If the government had been on top of this it would never have happened.
But let me get to the point here. Don't panic - you are too late to panic. If you had sold last year perhaps you did well. But at this point we are getting closer to a bottom in the market every day. If you sell here you will likely be making a big mistake. Of course this is my OPINION and I could be wrong.
What's happening now is "fear" is driving the market down and when the market loses so much so fast people get margin calls. Margin calls require that securities be sold in accounts where the value of stocks have fallen below the amount borrowed to buy them. So around 2:30EST every day the margin clerks start to sell stock out of consumers accounts to meet the margin call. That's why you frequently see the market dive around this time of day.
Eventually people will be sold out of their margin and the market will stop dropping in huge increments like it has been doing. And once that happens the panic and fear will abate and the market will settle down.
It will take a long time for it to recover - especially with this recession we are in, but to sell here in my opinion is to be selling at the precise wrong time. This is the time to dip your toes in with any available cash and start to buy little by little.
Many parts of the economy are still strong - but even those companies that are doing well are selling off because of the fear and margin calls that are going on. There are bargains out there to be found.
Anyway that's my 2 cents (which is all I have left after this beating :>).