Sub-Prime Mortgage debacle - OIL $ DROPS

[Karlin]

Aug 7th 2007 - "Subprime loan crisis spurs oil price drop"
http://http://tinyurl.com/ytvrc2


Mortgage concerns bubble over into oil prices
http://tinyurl.com/2hh7ah

The Perfect Economic Storm
The speculative binge in hedge funds, private equity, derivatives, and subprime mortgages is pushing the larger economy into a general downward spiral.
http://tinyurl.com/23tmvf

--------------------
K -
Several others available, but they all say the same thing - the slowdown in American economy has caused the price of oil to drop.
Also, OPEC is increasing production, and stockpiles of crude are going up, not down.
Plus, the end of summer driving season [do we still do that in the era of global warming? [Tch tch] also added to this "perfect storm".

On a side note, there are several nations dumping cash into the system to keep confidence up and to level out the drop:
"The Bank of Japan joined its U.S., Canadian, European and Australian counterparts in providing emergency credit transfusions
"injecting extra cash into the system - EU, Asia, Japan, etc"

Are they bailing out the wealthy? It seems that a slowdown in the economy is good for average people, with lower prices for commodities that we all use. If you are wealthy enough to hold major stocks, then you could be hit a bit, but it is mostly the larger investers that are on shakey ground.

Is it right to bail THEM out with these transfusions of government monies?

---
I am curious about how the price of GASOLINE is determined. With this latest drop due to economic slowdown, it seems like it could be a matter of "what the public is willing to pay".
In other words, they have been hosing us for the past few years with the record high gasoline prices that seem to have no relation to the price of crude oil.
Its odd tho - I don't see any real reason why they felt forced to lower the price of our gasoline at this time - crude oil is still over $70 per bbl.
Got an answer, anyone?

 

[Toro]

Several others available, but they all say the same thing - the slowdown in American economy has caused the price of oil to drop.
Also, OPEC is increasing production, and stockpiles of crude are going up, not down.
Plus, the end of summer driving season [do we still do that in the era of global warming? [Tch tch] also added to this "perfect storm".

On a side note, there are several nations dumping cash into the system to keep confidence up and to level out the drop:
"The Bank of Japan joined its U.S., Canadian, European and Australian counterparts in providing emergency credit transfusions
"injecting extra cash into the system - EU, Asia, Japan, etc"

Are they bailing out the wealthy? It seems that a slowdown in the economy is good for average people, with lower prices for commodities that we all use. If you are wealthy enough to hold major stocks, then you could be hit a bit, but it is mostly the larger investers that are on shakey ground.

Is it right to bail THEM out with these transfusions of government monies?

---
I am curious about how the price of GASOLINE is determined. With this latest drop due to economic slowdown, it seems like it could be a matter of "what the public is willing to pay".
In other words, they have been hosing us for the past few years with the record high gasoline prices that seem to have no relation to the price of crude oil.
Its odd tho - I don't see any real reason why they felt forced to lower the price of our gasoline at this time - crude oil is still over $70 per bbl.
Got an answer, anyone?

Okay, a number of answers, as best I can...

First, its not the slowing economy that is causing the price of oil to drop. Instead, there are two reasons. One, investors are anticipating a slowing economy. But simply because they anticipate a slowing does not mean it actually will. Second, parts of the financial markets are currently in a severe credit crunch which is forcing selling. Funds that hold oil are being liquidated to raise cash as investors run to the sidelines.

Next, the central banks are injecting liquidity into the financial systems to meet the demands and supplies of cash in the money market and at the fed window. Central banks control near term interest rates by buying and selling money balances. For example, when the Fed met on Tuesday, it voted to retain the current fed funds target at 5.25%. In the money markets, it soared as high as 6% yesterday, which is a violent move in the fed funds market and is symptomatic of a credit crunch. Therefore, to get it back to the target, the Fed is buying bonds and flooding the financial system with cash.

A slowdown per se isn't really good for the average person, but wringing out the excesses in the financial markets and the economy is good for everyone in the long run.

Should the government bail out the institutions? In general, no. To do so would encourage investors to take even more risk and leveraging up even more, which makes the financial system more dangerous in the long run. Investors must take their losses to bring the risk/reward trade-off back into balance, which is occurring in some markets, and is over-shooting in others.

I believe at least one major financial institution will fail. In fact, a bank in Germany would have failed this week had it not been bailed it out. Many mortgage companies are or have failed in the US the past few months. But what if its Bank of America or Citigroup? If one of those institutions fail, then the economy could collapse. Neither will, BTW, but the ramifications of such a collapse could be calamitous.

But there is a bit of a misperception that "the rich" would be bailed out. Yes, the rich are getting hurt in this, but the majority of funds invested in these products are in institutions such as banks and insurance companies and pension funds, which are there to serve the average individual. They, too, are getting hurt by this. But the institutions have to get hit too.

Finally, I am betting that the market has further to fall. I might change my mind tomorrow, but that's what I'm betting right now.

 

[tamarin]

It's all manipulation. And once more the fed proves the value of money in the global economy. It creates it at will. "Injecting liquidity" is one of the central bank's favourite euphemisms. I kinda like it myself. The rich depend on volatile markets like this to clean the clocks of small time and Joe Average investors. The most money in any market is always made on the short side. Neat little trick too this July and not appreciated enough by the general public: the short sales uptick rule in the US has been eliminated. This allows for even greater market volatility as major market particpants sell into a rout to feather their already comfortable nests.
There is no such thing as a level playing field in financial markets. Just do what you can to stay ahead of the big boys.

 

[Karlin]

Thanks for the replies!

Toro gave some suggestions to explain how the drop in oil price now is related to the mortgage/market tumble
Quotes:

One, investors are anticipating a slowing economy
[two]Funds that hold oil are being liquidated to raise cash as investors run to the sidelines.

ok, maybe that explains it...hmmm

But tamarin said

"its all manipulations" -
The rich depend on volatile markets like this to clean the clocks of small time and Joe Average investors. The most money in any market is always made on the short side.

 

[Impetus]

I think it's criminal that people can influence such a critical resource like oil just with fears and speculation.
Natural resources should be nationalized rather than exploited by the greedy few.

I'm a capitalist by nature, but I think those things are not best left to corporations and shareholders.
They belong to the people.

Muz

 

[Toro]

Governments do far more to manipulate and distort energy markets than "capitalists" do.

And I disagree with tamarin in general. Though there may have been a $5-$10 speculative premium in the price of oil, the bulk of the price appreciation is due to structural issues in the energy markets.

 

[tamarin]

"the bulk of the price appreciation is due to structural issues in the energy markets. "

Toro, you've got to know that sounds like gobblygook. A transparent market would allow the layman to see clearly what the salient issues are.

 

[Toro]

If its not transparent, how do you know its all manipulation?

 

[tamarin]

Manipulation by its very nature prospers in an opague environment.

 

[Toro]

That's true, but simply because its opaque doesn't mean its manipulated. (Much)

Besides, if manipulation is the driving force behind prices, why was oil $10 in 1998 and $70 today.

I do know that we were awash in oil then and aren't now while demand is incrementally higher relative to supply compared to a decade ago. That's a fundamental reason for the difference in prices.

Also, natural gas is trading in a narrow band, and is way, way down from its peak nearly two years ago while oil is not. I know that supply was extremely scarce in the days when Henry Hub nat gas was $17 while inventory is well above the 5 year average and thus the price sits at $6-$7. Again, fundamentals. Why isn't gas being jacked around by manipulators while oil is?

So what evidence is there of (massive) manipulation?

 

[Kreskin]

It looks to me like a good old fashioned correction at this point topped off by hype and media frenzy. As one investment dealer head said today, the sub prime mortgage problem is a mile wide but only about a foot deep. The fix is in but the investor psyche isn't, yet. I wouldn't be surprised to see more selling off, which is one of the staples of the market. People who make money in it require others who historically make mistakes to continue to make them. Those who sell out now will get back in somewhere after the market exceeds the old index high. Buy high, sell low. Someone has to do it for others to make a lot of money.

 

[Kreskin]

I'll bet Toro has one or two clients who are living breathing market bottoms. The ones who are always last in line to sell or buy. When they come into his office to demand everything sold he could comfortably call his clients to declare the bottom of the market.

 

[Dreadful Nonsense]

Every ten years there is this huge "Correction" in the stock market....it always bounces back cause there are will always be a market .....people made billions on each correction...before the correction i gamble.....gotta be....too crafty...this one is a lil different though...the easy flow of credit is going to be stopped.....i know a few real esate sales people who have mortgage people in banks rigging the works....you don't want to know...
i suspect it's rampant....As these people with false credetials with mortgagees and can no longer afford the higher interest even by one point they default ...when they default it become obvious they lied to get their mortgage...fun times all round....

 

[Toro]

I'm still short, though I expect a bounce from here.

I would have thought with the rally today, Japan would be up, but its not. The Nikkei is down nearly 400 as I type this.

 

[Dreadful Nonsense]

I'm still short, though I expect a bounce from here.

I would have thought with the rally today, Japan would be up, but its not. The Nikkei is down nearly 400 as I type this.

and the band played on.....

 

[Toro]

I'll bet Toro has one or two clients who are living breathing market bottoms. The ones who are always last in line to sell or buy. When they come into his office to demand everything sold he could comfortably call his clients to declare the bottom of the market.

Actually, those are the economists upstairs. They are my signal. lol

 

[normbc9]

I reside in an area 40 miles west of sacrameto, CA. and the new foreclosure figures are out for our city of 98,00. It is astounding. 278 homes are now in foreclosure and another 56 will probably have the process initiated shortly. the locla financial talents on the radio asy most of these are "No down payment" 2001/2003 new home sales. I wonder if there is a predatiory home loan scheme just showing its ugly head? The Mortgage Bankers don't care. They negotiate the home loan and then sell it an investment broker.

 

[Toro]

Real estate is a disaster.

There's more disaster coming.

 

[Dreadful Nonsense]

Real estate is a disaster.

There's more disaster coming.

does this effect guys like Trump?

 

[Kreskin]

I saw Trump on tv a couple of months ago. He was begging for lower interest rates. He almost cried.