U.S. stocks sank and the Standard & Poor’s 500 Index dropped to the lowest level since April 2003 on concern a worsening global economic slump will damp profits.
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The S&P 500 lost 58.27 points, or 6.1 percent, to 896.78. The Dow Jones Industrial Average plunged 514.45, or 5.7 percent, to 8,519.21 as all 30 of its companies dropped. The Nasdaq Composite Index lost 80.93, or 4.8 percent, 1,615.75. About 24 stocks fell for each that rose on the New York Stock Exchange.
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The S&P 500 has moved more than 1 percent on 13 of the 16 trading days this month, making it the most volatile by that measure since September 1932, according to S&P analyst Howard Silverblatt.
Canadian stocks fell, pushing the main index toward its worst monthly drop in 21 years, as energy shares including Canadian Natural Resources Ltd. slumped along with oil prices on signs that fuel consumption is dropping.
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The Standard & Poor’s/TSX Composite Index fell 5.7 percent to 9,236.88 in Toronto. Canada’s broadest stock benchmark, which derives more than three-quarters of its value from commodity and financial shares, has lost 21 percent in October, the most since after the “Black Monday” crash in the same month in 1987.
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The S&P/TSX has dropped 39 percent from its June 18 record as debt markets froze after more than $660 billion in credit losses at global institutions.
Barney Frank wants Financial Services bonuses frozen:
House Financial Services Committee Chairman Barney Frank said there should be a freeze on Wall Street bonuses until companies find a way to keep the year-end payouts from encouraging excessive risk-taking.
“There should be a moratorium on bonuses,” Frank, a Massachusetts Democrat, told reporters yesterday in Washington. “They have a negative incentive effect because they are the ones that say if you take a risk and it pays off you get a big bonus,” and if it causes losses “you don’t lose anything.”
He’s right as far as this particular time ’round goes, but most of the time, if it causes losses you’re looking for work. It’s another variation of ‘Lose a million, you’ve got a problem. Lose a billion, THEY’VE got a problem.” Which, ultimately, comes down to risk management which, from all appearances, has for the past few years been largely a regulatory box-ticking exercise, as opposed to a job that somebody actually wanted done. The pro-Street Dealbreaker leads the charge:
I mean, yeah, it was really only higher ups who perpetrated the monumental fuck ups we’re currently paying for, including but not limited to the barbershop quartet of, say, Dick Fuld, Stan O’Neal, Chuck Prince, and Jimmy Cayne (with back up dancers Angelo Mozilo, Alan Greenspan et al.), but surely something will come of cutting the annual take-home of low-level plebes who were minding their own business placing Seamless Web orders while their boss’s boss’s boss’s boss’s boss was investing in that can’t miss asset class, subprime.
I was once offered a job running a small piece of a large company – they wanted to pay me bonus based on how well the other 99.9% of the company did, rather than how well my little feifdom did. There were other problems, and the conversation didn’t last long.
There will be no market reporting AGAIN, due to the same technical difficulties that caused yesterday‘s report to be cut short. However, I have now determined, isolated and neutralized the problem; it only remains to determing that I am doing so in the best manner.
I’ll explain in another post, because it’s kind of funny, but basically there’s a little loop used in the process of curve approximation that calculates a yield; in the case of YLD.PR.B, quoted at 1.60 with a stated annual dividend of $1.05 (currently suspended) until maturity 2012-2-1 at $15 [dubious], the little loop ran ’round 5,709,833 times [in the run where the problem was unequivocally isolated] before the WebService timed out and blew up the whole programme.
So, all is well, basically, but I’M TIRED.
More later.
Update, 2008-10-24: The subindices have been updated:
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30. The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index. |
|||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | N/A | N/A | N/A | N/A | 0 | N/A | N/A |
| Fixed-Floater | 5.39% | 5.63% | 69,256 | 14.76 | 6 | +0.0043% | 959.3 |
| Floater | 6.00% | 6.06% | 45,073 | 13.8 | 2 | +3.9025% | 571.7 |
| Op. Retract | 5.33% | 6.19% | 125,891 | 4.06 | 14 | -0.1940% | 992.4 |
| Split-Share | 6.23% | 10.31% | 57,836 | 4.00 | 12 | -1.9658% | 940.0 |
| Interest Bearing | 7.54% | 13.03% | 56,283 | 3.48 | 3 | -0.5706% | 928.7 |
| Perpetual-Premium | 6.76% | 6.84% | 48,995 | 12.71 | 1 | -0.6022% | 917.9 |
| Perpetual-Discount | 6.67% | 6.75% | 174,038 | 12.89 | 70 | +0.1023% | 810.2 |
| Fixed-Reset | 5.18% | 5.01% | 877,400 | 15.37 | 10 | +0.6953% | 1,107.7 |
Ah, Mr. Hymas, it’s just a plain old recession now – get some sleep – no worries – all is well with the world again – or soon will be.
Dividends and Bonuses — Two problems looming in front of government investments in the banks. The political optics are not good: gov’t invests $25B in a bank and right away there is $10-30B in year-end bonuses. A while later there has been $10B in common share dividends (vs $1B in gov’t pref share dividends). After a while, the politicians (and the people) start to wonder — where did our money go? What did we just fund — bonuses, dividends or banks?
Solution #1: sorry, but this year we have to can the bonuses. That’s what happened to me when my former company went through a rough patch. Besides, there aren’t many places where these people could get alternative employment right now, and there are other retention methods — like promises to pay a deferred bonus after the gov’t gets paid back, or deferred non-cash stock or options. To the extent bonuses are reduced, bank profit increases (which is good, if perhaps not sustainable). To increase capital the deferred bonuses have to be of lower value than otherwise due.
Solution #2: Ouch, those common dividends might have to be cut. We all know that will kill the stock — so we need to tread carefully. I’m not sure how best to do this, but dividends should be paid out of retained earnings over a period (past 8 quarters? similar to the old Bank Act). Another idea: while government support were active, the common shareholders might give up dividends equal to the government dividends — that might be a cut of 5-15% for some well run banks, which might not be fatal to the stock price and potentially be seen as temporary.
Through both these measures, banks would be able to show that capital given up from dividends and bonuses was 1-3X the government support capital — i.e. that the burden was being shared. (it is also being shared by new capital raised simultaneously with gov’t support).
Watch those optics and see if bank boards respond….
Thanks, lystgl! Just another recession? … well, maybe. Credit dislocations may make this one notable.
prefhound … ah, good old optics! Soon the financial system will be run as efficiently as Ontario health care; and a three-month wait to transfer funds will be held up as a shining example of efficiency!
There will be government attempts to cut down the headline numbers; the financial players will simply learn how to take their compensation in other ways. Just like teachers, f’rinstance: ask for 6%, get 3%, and take pension improvements worth 5% in compensation. The public in general, and reporters in particular, won’t notice.
My fears about how all this will play out is that the financial system will have its efficiency killed; or at the very least weighed down with MORE RULES.
“efficiency killed” vs “more rules”
Absolutely, lots of rules, some or many no good. Certainly a quite different financial environment.
However, efficiency, I think will stay good — by that I mean EFT, broker-bank transfers, maybe even liquidity in good quality investments. Life would be lots worse if the payments system broke down, margin requirements went up or certain investments banned (e.g. shorting).
What will be “killed”, however, is “innovation” and leverage — new financial products that few people seem to understand (including the credit rating agencies); especially those involving leverage or unrecognized liabilities (like short put and call options we have discussed before). To the extent that useless crap and noise is taken out of the financial system, it may not be bad.
It remains to be seen if competition will be up front and simple (i.e. plain vanilla MERs coming down), rather than of the “innovative” buried type in complex products with high MERs. Split shares, in particular, stand on the cusp of irrelevance….(I hope).
new financial products that few people seem to understand (including the credit rating agencies);
Why would anybody care whether or not the Credit Rating Agencies understand anything or not?
To the extent that useless crap and noise is taken out of the financial system, it may not be bad.
Who gets to decide which bits of paper is useless crap and noise? Nobody’s forced to buy paper they consider to be useless crap and noise.
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