This is not a very good world’s santacruzan!

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World?s stock markets plunges! That was the news that greeted me when I woke up early this morning. Was I shocked? Not really. I was expecting these kinds of news. And the bad news continues.

Iceland is on the brink of bankruptcy. They?ll have to go back to fishing to sustain their economy.

Japan?s Nikkei Index fell 9.6%. What does that mean? Typically, when the stock market slumps like this, if you have investments with say, in stocks and bonds that are being traded in Tokyo, then on average, there?s a very high probability that you?ve just lost about 9.6% or probably even more of your investments. It just evaporated.

Let me explain.

Let’s say buy ka nang Ka Miguel stocks. You bought it for Php500 na dalwang shares @ Pp250 each. Dahil tini-trade and stock na to sa stock exchange, nag-babago ang price nya araw araw. Maraming factors. One could be that Ka Miguel’s financial forecast eh tatabo sila nang kikitain. Pag nalaman yan nang mga investors ang effect sa market would be tataas and presyo. Let’s say magiging $275 per share na sya. Why? Siempre dumarami buyers. Law of supply and so many demanding buyers. Alam nyo yun di ba?

Pero once na ang forecast sa market eh hindi maganda, sell-out. Sell-out? Eto ung sinasabing ida-dump nila ang stocks, meaning ibebenta nila. Once na ganito ang news, typically, bumabagsak ang price to let’s say P200 per share. Why? Ang gusto kasi nang market, wag mong ibenta. Eh kung matindi ang news na magkakalugian, walang makakapigil sa investors na tuluyang itapon ang mga stocks na to at ibenta nang lugi. Getz?

Now, everywhere you look! Vienna, Indonesia and Russia suspended trading. What does that mean? There?s an expected heavy sellout. Sellout? Yeap. To pre-empt and protect the economy from outright dumping of the stocks, they have to resort to this.

In Australia, the S&P/ASX200 plummeted a record 8.3 percent, market watchers were calling it “Black Friday.”

In Hong Kong, Singapore, the Philippines and India were all down about 8 percent.

South Korea’s Kospi closed down 4.1 percent, while the Shanghai Composite Index posted a more moderate decline of 2.8 percent.

Oil prices? They continue to plummet and have fallen to a one-year low below $83 a barrel.

Currencies? The British pound have been sold heavily, while the Japanese yen and gold remain in demand as safe-haven assets.

You?d ask: ?But there is already the bailout! What?s going on??

Because the bailout did not address investor confidence. You see, it?s all about investor confidence and if these people are no longer confident with the system trying to steal money from them, chances are, they?ll dump their holdings. Dump? Meaning, sell.

Why did the bailout did not address investor confidence?

Because it?s in the bailout. I don?t believe it really addressed the problem. It did not address subprime. It did not address CDS (credit-default-swap). It did not adress corporate responsibility and accountability especially amongst those mortgage and investment companies who made some stupid investing decisions knowingly or unknowingly. It did not address the Wall Street crooks. It did not address the unregulated trading of CDS or derivatives which is running into trillions and trillions of dollars that literally brought down giant investment companies like Lehman Brothers, AIG and everyone else there on Wall Street.

I posted a comment on Tita Ellen?s blog and let me just re-print it here:

What?s interesting though with what?s happening in Wall Street is the obvious failure of capitalism which is now being rescued by socialism and here, at least, that?s how i see it. worse, the gov?t seems inutile to act on Wall Street crooks, and yet, the national security - errr? world?s pala is at stake.

I thought that once the national security becomes to be at the core of some malicious activities, ?lazy?-faire takes a back seat and police takes over. none of that in the bail-out.

While subprime is primarily being blamed by all (which Wall Street wants you all to believe), which is really true, the real culprit that brought down the behemoth investment companies with all their golden and glittering names is this: CDS, credit-default swaps. they literally created a humongous stock market in the dark corners of wall street completely unregulated. It?s called derivatives. Soon, I’ll write an entry about CDS. You’ll be suprised. You actually know what it means.

P.S. I have to put my disclaimer again!
?I worked for two of the biggest broadcast investment firms here in the East Coast and my previous job was with the 4th largest housing authority in the United States, and my work deals with financial reporting, LIHTC, tax credits, equity and bond financing. That?s why I have an experience on what I have just written, that I would like to share you all.?

?Because the US Securities Law is very strict on people giving financial advice, this entry which is my personal understanding of the US housing market and how the mortgage and mortgage-backed securities work all the way from homeowners to Wall Street to investors, is by no means a financial advice. Do not ever attempt to dump your stocks just because you read Reynz entry or I?ll smack the shit out of you! If you were rattled or feel uneasy with the financial news coming from New York, please consult your Financial Advisor and your doctor. :-)?

Last but not the least, I invite you to read Salve Duplito?s blog Money Smarts to be in tune with financial issues going on in the Philippines.

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