Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

The Smell of Financial Contagion in the Air

Stock-Markets / Financial Crash Jul 02, 2007 - 12:35 PM GMT

By: Michael_J_Panzner

Stock-Markets An ill wind swept through Wall Street last week, seeping into trading rooms, cubicles, and offices on every floor. All of a sudden, people began to feel anxious and afraid. After years of dreaming about how much they would make, people started worrying about how much they might lose. In a matter of days, the notion of risk had been transformed from a hypothetical concept to a potentially lethal reality.


Signs of a sea change were everywhere. Investors rejected buyout-related debt from companies like U.S. Foodservice and investment banks were left holding the bag. Several firms, including Catalyst Paper Corp and Magnum, dropped plans to issue junk bonds, citing "adverse" conditions. South Korea's Kia Motors, Netherlands' Arcelor Mittal, and others pulled offerings amid an abrupt shift in favor of less risky alternatives.

As investors balked at terms that would have been warmly welcomed only weeks before, the pace of mergers and acquisitions slowed. That, in turn, spurred anxious bankers to turn up the heat. They warned portfolio managers that those "'who [refused] to take their "fair share" of ... troubled deals [would] face reduced allocations on good deals in the future,' ... recalling tactics employed by Drexel Burnham Lambert in the latter days of its reign over the junk bond market in 1989," noted Barron's , citing analyst Martin Fridson.

Meanwhile, the once burgeoning market for collateralized debt obligations, or CDOs, slowed to a near standstill. Activity was stymied by the meltdown in the subprime finance sector and the collateral damage at two Bear Stearns hedge funds. Sizeable losses at Caliber Global Investments, a $900 million hedge fund, forced it to shut its doors. According to Barron's , dealers also cut back "on making markets in high-yield paper because of the capital they [had] tied up in bridge loans and problematic mortgage paper."

Risk spreads ratcheted higher across the board. A late-week burst of buying in Treasury bonds suggested that money managers were seeking safer shores in the run-up to a new quarter. Although major stock averages were hardly changed, trouble lurked below the surface. Banks, brokerages, and other financial shares continued to fare poorly. The volatility index, or VIX, remained elevated, despite relatively flat markets and the onset of a holiday-shortened week. Breadth and momentum flagged, in contrast to the usual cheerleading that all was well.

Uncertainty about what shoe might drop next contributed to the unfamiliar shift in sentiment. So did a fear of losses -- and of lost bonuses, lost jobs, and lost reputations. Although most Wall Streeters knew it was only a matter of time before the jig was up, hubris and denial had lulled them, time and again, into thinking that nothing would happen until "next year." But with one major operator experiencing problems and rumblings about others, the day of reckoning suddenly seemed a whole lot closer.

Until recently, Wall Street's movers-and-shakers thought they had all the answers. Now, everyone -- including risk managers, regulators, and reporters -- was asking a lot of questions. How many others had similar problems? Who else held securities that were at risk? What would happen if other firms revealed that they, too, had bet wrong and would be taking large hits? People started turning all sorts of rocks over, looking for potentially nasty surprises.

Yet despite the clamor for more information, many were clamming up. Some were trying to maintain the pretense that all was well, or they were stalling in the hope that recent troubles would somehow go away. Others feared what might happen if the truth about what was being discussed behind closed doors came to light. Rumors started to fly about hedge fund liquidations and margin calls. In the absence of hard data, some began to fear the worst.

In no time at all, it seems, things are looking much different than they were. Suddenly, there is the smell of contagion in the air.

By Michael J. Panzner
http:/www.financialarmageddon.com

Copyright © 2007 Michael J. Panzner - All Rights Reserved.
Michael J. Panzner is the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World , and is a 25-year veteran of the global stock, bond, and currency markets. He has worked in New York and London for HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase. He is also a New York Institute of Finance faculty member and a graduate of Columbia University.

Michael J. Panzner Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules