The Stock Market thread

• OneBuckeye

  

  Purpose: This thread is meant to be a non political disscussion of the stock market although government policies will be discussed.
  
  My question: WTF does this Obama regulation stuff mean for the market now and in the future?
  
  http://www.marketwatch.com/story/us-stocks-slide-on-obama-bank-regulations-djia-down-189-2010-01-21
  

  NEW YORK (MarketWatch) -- U.S. stocks fell as President Barack Obama outlined plans to impose new restrictions on banks, sending financial stocks reeling Thursday.
  
  The Dow Jones Industrial Average was recently down 189 points, or 1.8%, to 10414, after sinking as many as 219 points during Obama's speech. All of the Dow's components were in the red, with financial components J.P. Morgan and Bank of America the two worst performers, with J.P. Morgan down 5.2% and Bank of America down 5.2%.
  
  The Standard & Poor's 500-index fell 1.8%, weighed by its materials and financials sectors. The tech-heavy Nasdaq Composite slipped 1.2%.
  
  On track to close at their lowest levels of the year, stocks fell as Obama proposed new limits on the size and risk taken by the country's biggest banks. Obama also endorsed what he called the "Volcker Rule," after measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital.
  
  "It's a separation of the investment bank from the traditional bank," said John O'Donoghue, head of equities at Cowen & Co. Still, O'Donoghue said many firms managed to turn a profit before Congress in 1999 repealed the Depression-era Glass-Steagall Act, which essentially walled off commercial banks from investment banks.
  
  "There were a lot of firms on the Street before Glass-Steagall was repealed that were still able to function quite profitably," O'Donoghue said. He viewed Obama's speech as an attempt to gain back popular opinion after Democrats lost one U.S. Senate seat in Tuesday's Massachusetts election.
  
  Financial stocks sank after the speech. Morgan Stanley tumbled 4.7%, while Goldman Sachs fell 4.3%, and Citigroup slid 4.1%.
  
  "Investors are selling these stocks now because they thought they got a free lunch," said Joseph Battipaglia, chief market strategist of the private client group at Stifel Nicolaus. "Investors had the false expectation the government would bail [the banks] out and then everything would be back to normal. Now we're seeing in full force the measure of the government coming in under the tent, seeking to regulate banking operations as a consequence of the financial breakdown."
  
  The market also broke through key technical levels, accelerating its descent. John Schlitz, chief market technician at Instinet, noted that the market's rapid fall accelerated after the S&P 500 hit a key level at 1131.
  
  Investors are also skittish over movement in the dollar, which recently broke through a 200-day moving average against a basket of other currencies, noted Craig Peckham, equity trading strategist at Jefferies. Data showing growth in China's economy and subsequent reports of a tightening lending environment have made the market more cautious recently.
  
  "It's suggestive of a global environment becoming a little bit more risk-averse at the margin," Peckham said.
  
  In other markets, crude oil futures fell below $77 per barrel and gold futures also slipped. The dollar slipped against both the yen and the euro, while Treasurys climbed. The 10-year note was up 9/32 to yield 3.619%.

• gut

  Think supply and demand. You put new restrictions on banks lowering leverage and increasing reserve ratios and that = less money sloshing around. Lower demand = lower prices. Increased demand (relative to supply) for margin/loans means higher interest rates, which affects the discount rate typically applied in valuing stocks = lower prices.
  
  And, of course, financials are still a good chunk of the market and these regulations likely will significantly impact their earnings from prop trading and brokerage fees
• IggyPride00

  

  One slight glimmer of hope on an otherwise dreary day was that Obama finally appears to have finally tuned out Geithner & Summers and is finally listening to Volcker.
  
  Volcker has got a spine of steel and you can take to the bank that whatever he is recommending to Obama is what he believes will right the ship and is not politically tainted or a give away to Wallstreet.
  
  He was the last competent Federal Reserve chair we had, as he single handedly killed off inflation at the same time refusing to give into Congress/the President or Wallstreet that were all screaming bloody murder about how interest rates were killing them.
  
  Instead he powered ahead because he was right, and history has vindicated him when you see what a fraud Greenspan and Bernanke turned out to be.
  
  The joke has been for the last year that Volcker has been in the wilderness because Summers & Geitner had frozen him out because they aren't interested in his ideas.
  
  Thankfully it appears Obama has come to his senses and is listening to Volcker, and we can thank Scott Brown for that.
• LJ

  

  I'll come in here and admit I was wrong about Sirius.
  
  But damn... I hit a gold mine on BRK-B
• gut

  IggyPride00 wrote: Instead he powered ahead because he was right, and history has vindicated him when you see what a fraud Greenspan and Bernanke turned out to be.

  To be fair, Greenspan and Bernanke's record on fighting inflation is pretty decent. They learned from Volker.
  
  But they had a different beast to tame, which was the threat of deflation. Now, you could argue Volker might have seen what actually comes to fruition before dropping money from helicopters, but you had a more or less 10-yr case study on deflation with Japan and that's what they were trying to learn from.
  
  The failing of Greenspan was not that he was slow to raise rates because of inflation, it was missing the bigger threat of bubbles forming in multiple sectors. Yes, you can call that a form of inflation, but in terms of targeting an overall number with the understanding there are winners and losers in different sectors it's not as as incompetent as you paint the picture. The big mistake was in failing to grasp the threat of the housing bubble (same could be said on the dot com bubble to a lesser extent) and leaving rates arbitrarily low after the threat of deflation had long subsided. The mistake was taking a reactive position rather than proactive against unforseen threats.
• OneBuckeye

  

  Is this dump off going to continue? The DOW has dropped over 200 hundred today and yesterday...