Guys, lets be real. I've read the opinions of every hey googler and Robinhood gambler and all they do is confuse things so let an industry professional of 15 years tell you some of the facts. About history and the potential future.
In 2008, the unraveling of the financial system was caused by absolutely over-leveraged risky assets that became too much, and were the "straw that broke the camels back" in a big way. It was caused by gross ignorance and greed on a level that we might never see again. Debt issued to people who were obviously never going to be able to pay it back, bundled together and sold to large institutions, they were considered invincible, and many regular people's retirement accounts were comprised of securities in which these were the underlying asset. When the pool of shit that was all of these subprime mortgages that were issued to people who could never even wink at paying them back began to see higher defaults, the value of these assets tanked, and investors' heart rates started to climb as they saw the market for the underlying dry up. This was just the warm-up, the shot from the starting gun to initiate the sprint to the bottom came when Bear Stearns went tits up.
A quick and over-simplified recap of what happened to them goes like this:
-They bought tons of highly leveraged CDOs full of garbage mortgages that were somehow rated AAA, which is an investment grade given to instruments that are safe enough for retirement accounts and bank capital reserve requirements.
-Because they were so highly leveraged, they were able to purchase well beyond their capital abilities, this was risky, so they bought Credit Default Swaps, which is insurance that protects them against unexpected market behaviors, and also provides a steady amount of income in calm conditions. This is what investors like to call a "hedge" because its an investment to protect another investment to some degree.
-In 2007, delinquencies started to rise as people began to struggle to pay their mortgages more and more, this worried investors as the value of these CDOs began to fall. The fund started taking losses and people who had lended money to help BS finance this strategy began to request cash t cover losses, essentially a margin call on the firm. While they had insurance it wasn't covering their losses so they started to sell the underlying mortgages in bigger and bigger amounts to raise cash. Other institutions smelled blood in the water and began to accelerate the decrease in value of the mortgages to force BSs hand. These CDOs eventually became worthless, bankrupting the fund and toppling the institution, who was acquired by JP Morgan Chase through a Fed Loan.
-This caused complete panic on Wall Street because banks could not make fair assumptions on the values of portfolios and this made them decrease lending to each other out of fear. No one really knew where all of these shit sandwiches were and what they could do.
-This spread to other banks as there was a credit crunch and no one could borrow, banks began to struggle to come up with liquidity which quickly led to a bailout and a fat recession.
This is different from what we are experiencing now. Those toxic assets were nestled in mom and pop retirement accounts and were ultimately acquired by the US govt in a massive bailout for cents on the dollar to keep these institutions from wiping accounts to zero and destroying all of peoples life savings.
In this situation, we were in a slight bubble yes, many of these companies were overvalued and over-leveraged, but, with business humming along it was working out. Now the beer virus comes along and halts everything. Airlines, grounded. Factories, closed. Restaurants, take out only. Offices, closed.
Companies have lost their ability to conduct business as usual, and for this reason aren't pulling in enough revenue to pay their expenses. So what do they do? The lower their expenses. The highest generally being payroll, so they start by offering as much paid leave as they can to be nice and try to make the best of the situation, but they can only do that for so long with the cash they have on hand, if they even have any.
Now here's where it gets interesting.
Looking ahead, these companies and small businesses have no idea when this will end, they're developing contingency plans and planning as far into the future as they can. This is what they will have to come up with.
Not knowing how long this will last, the SMART business decision for them is to lay off or fire as many of their workforce as they can while still operating the best they can in these conditions. This makes sense for them because they know every other company is doing the same thing, driving labor supply up and decreasing wages, meaning when they hire employees back at the end of this they will be able to pay them less. Saving them money now and in the future. As an average Joe wondering what the future will hold for his paycheck and the market we can deduce a few things.
1) This isn't going to get better soon, no we haven't hit the bottom and don't ask me when because there is no knowing. Don't look to 2008 because it's just not the same scenario and it is likely to play out different this time. Don't take my word for it but I think we are going to see choppy swings up nd down for a few weeks but they will generally trend in the direction of market sentiment, AKA is this getting better or worse. For now you can expect it to trend down because Beer virus isn't even done with its dynamic warm up before this Pornhub Premium level of fucking.
2) Market prices shouldn't even be a worry of yours, even though you are here for advice of which stocks to buy or which options to gamble on, it would be best to either buy for value or consolidate into cash because the stock market is not behaving right and its got to do with the Fed doing funky things that no consumer will ever find out about.
3) Unemployment will shoot up, and it will take a LONG time to come back down. Corporate profits will suffer and GDP is about to pass the kidney stone of the century. Our economy is under siege, while it is in its early stages and if this went away tomorrow life would go back to normal, that is not going to happen and the effects of this will only be worse as time goes on. Big Donald says he wants to get things going again but he's just jealous of China going back to normal despite them trying to hide the fact that there will most likely be another outbreak there. Best to play it safe and kill this thing for good before we return to business but if I have learned anything about our Oompa Loompa in Chief is that he tends to pick up the picture book full of good ideas and stand on it so he looks taller during his COVID-19 press shit-shows. The effects of his inadequacies haven't hit yet but they will and he will be remembered for them, take no shelter in anything he says no matter how tempting it is.
I feel like I have gotten terribly off topic but I just wanted to spew out some shit that's been rotting in my head and making a stench, also I'm sick of people trying to look to 2008 on advice of how or where the bottom will come upon us. This is a different animal, look for other indicators, specifically what the Fed is doing, and remember, the grass grows greener where the cash is, follow it.
Stay strong, plan ahead. This is the way.
Submitted March 26, 2020 at 09:16PM by RootsIV https://ift.tt/2UBY7vK
