I think it was a great day. Capitalism works, long live capitalism!!!
The market is finally punishing excessive risk taking, it is about time.

BTW: I am too chicken-sh*t to short, so I lost money today (thought not too much since I have been holding much cash lately)but I am still happy to see the market start shaking out this crap.

Who said” The market can stay irrational longer than you can stay solvent”? Genius.

-one muggle

John Kenneth Galbraith.

His book on the 1929 Crash is a good read right about now. One interesting point that Galbraith made is to be very careful when all of the “experts” hasten to reassure you that the market fundamentals are “still sound”.

The scary part is that the worst hasn’t even happened yet. If this carnage is any indicator, it is gonna get really ugly.

Thanks Allan,

I do agree that things overall likely will get uglier, but the stock market (unlike RE) isn’t historically expensive, so how bad can it get?
Much of the really stupid sh*t that made lots of money (until recently)was done with private equity. I’d heard from someone that knows far more than I that this was actually the reason the market had not been going up (last year). The big money was trading amongst itself with hedge funds and derivative trades.

Do you think the credit crunch, RE and such really will tank the market (by my crude definition, that would be retracing below its point one-year ago (~11k))?

-one muggle

Muggles,

It can get very bad. The stockmarket IS historically expensive — reference to the P/E ratio is unhelpful, because corporate earnings are at record highs. As Shiller has pointed out, those record earnings cannot last forever; they will move to the equilibrium. With the RE meltdown just beginning, and corporate finance tightening up, it will get worse, much worse.

I’d say that the market still has a ways to fall, but that’s just my complete amateur opinion.

I’m not a huge fan of actually shorting stock either; it’s a bit too stressful for me…but I’ve been using pro shares etfs. That seems to me like a much easier way to “short”.

http://www.proshares.com/funds

What’s cool is that you can buy funds that short by sector or by index.

I agree with ThriftyDifty: It can (and will) get much, much worse.

I think that stock market valuations are inherently worthless right now, mainly due to bloated corporate earnings. Standard valuations based on traditional methods are therefore not going to be worth much.

IMHO, there are three bubbles right now: Housing, Credit and Stock Market. I also believe there is a coming credit crunch and that is where things will get really ugly.

The majority of mortgage resets are still over the horizon and yet we have seen some seriously bad bloodletting as of late. Wall Street has now taken to punishing risk taking, as evidenced by the last week or so in the market.

If you speak with anyone in banking right now, the message is one of the coming crunch. I would have to believe that with a huge inventory overhang, tightening lending standards and declining values, the RE market will probably be on the front end of the bust, with the stock market not too far behind.

The Japanese learned this particular lesson the hard way, and, to a certain extent, have still not gotten over the effects.

Allan from Fallbrook and one-muggle,

Actually, that quote is from John Maynard Keynes’ “General Theory of Employment, Interest, and Money.” JKG wasn’t nearly that astute.