Another horrific day in the stock market today....the Dow plunged 450 points to 10, 609, which is about 100 points below what I thought would have been a bottom. Of course that was my thinking six months ago when the big investment houses weren't crumbling.
More information on Lehman going bankrupt: they had these collateralized debt mortgage obligations, CDMO's, which are somewhat exotic instruments. They went to the banks and said, "Hey, we have $10 billion of these CDMO's, but need some operating cash. Can you loan us $10 billion for current liquidity?" The answer? Nope. These CDMO's are whats tanking these investment houses as banks aren't valuing them at ANYTHING!!
Also important and something you can take action on: examining your money market fund accounts. A money market fund (MMF), one of the largest actually, indicated today that their "shares" were going to be worth less than $1 per share ($.97). That hasn't happened in 14 years and it only happened to one MMF. This particular MMF overweighted in Lehman and went they went to zero, their position did as well. It's a classic "run on the bank" scenario there now. The people who redeemed on Friday got the traditional $1 price. Today it's $.97. Tomorrow...who knows? They are already extending their time to pay out the maximum of 7 days.
So take a look at your MMF and maybe give them a call to see what S&P is currently rating them. If it's with a smaller MMF, consider moving it to a larger investment house (like Vanguard). There's not a WHOLE lot you can do, but now is not the time to be with a fly-by-night company....but then again, when is a good time?
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2 comments:
this strikes me as a great opportunity to start identifying good companies that may take an unfair hit. Any suggestions? I suspect the blood bath will continue for some weeks/couple months, but the market will remain very jittery, so the chances to scoop up some bargains in the next couple months are maybe pretty good?
Sharks circling....
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