Although one day does not make a bull market, let me just keep a record here.
Stocks Soar 11 Percent on Aid to Banks
By MICHAEL M. GRYNBAUM
Published: October 13, 2008
The Dow Jones industrial average gained 936 points on Monday, the biggest gain in the American stock market since the 1930s, as Wall Street continued to careen through the worst crisis in decades.
October 13, 2008
Margin Calls Prompt Sales, and Drive Shares Even Lower
By ALEX BERENSON and GERALDINE FABRIKANT
For some big investors and corporate executives, Mr. Margin is calling.
In the last week, as the value of stock portfolios has plunged, executives and fund managers who had bought shares on margin — that is, using borrowed money — have been forced to sell millions of dollars worth of stock to settle those loans with banks.
Professional investors say that the margin calls probably added to the downward pressure on stock prices last week, when the average stock plunged nearly 18 percent.
Some analysts and investors are concerned about a situation in which margin calls occur in larger numbers, causing an even bigger wave of selling, even though most analysts say that stock prices are already historically low. On Sunday evening, futures trading indicated that the major indexes would climb as much as 3 percent on Monday.
Margin calls affect more than those with outsize portfolios. By flooding the markets with sell orders, they can send prices broadly lower, ensnaring ordinary investors as well. Because margin calls force investors to sell their shares at times when stock prices are already falling, they can push stocks down quickly and mercilessly.
On Friday, Aubrey K. McClendon, the chief executive of Chesapeake Energy, issued a statement saying he had been forced to sell all of his 33.5 million shares in Chesapeake because of a margin call. And Sumner M. Redstone, the chairman of Viacom and CBS, disclosed that he would sell $400 million in shares in those companies to pay down a loan.
For shareholders, margin calls can be extremely painful, forcing them to liquidate their portfolios at exactly the worst moment, as stocks are near panic lows.
For example, in July, with Chesapeake trading above $60 a share, Mr. McClendon’s stake in the company was worth more than $2 billion — the vast majority of his net worth, which was reported at $2.1 billion in last year’s Forbes 400. But to meet last week’s margin call, Mr. McClendon sold his entire stake, at prices ranging from $15 to $22.
Other investors will face similar squeezes, said Seymour Zises, who runs Family Management Corporation, a firm that manages money for wealthy families. “I believe that the predominant selling will be among hedge funds themselves and executives who control their own companies,” Mr. Zises said.
http://www.nytimes.com/2008/10/13/business/13margin.html?pagewanted=print
We may have a tradable bottom on Mon or Tue, but I don't think it is the bottom. The only strategy works this year is to sell on rallies. I don't think the bottom will come in when people are expecting it.
