is now a good time to buy shares?

[the Deel Rover]

I assume your on about me To . I know i said muppett what will i do the reason i did so was because muppett is on this thread quite a bit however to tell you the truth i ll not be touching the shares the way they are at the moment and in fairness to muppett his advice all along has been to stay away from them

[Tyrones own]

I suppose that's my point...simply because he's on the thread doesn't make him an expert
and with that said, we don't know who is reading this stuff or what they're liable to do
with said opinions, i just wanted to clarify that...a disclaimer if you like.

[muppet]

I suppose that's my point...simply because he's on the thread doesn't make him an expert
and with that said, we don't know who is reading this stuff or what they're liable to do
with said opinions, i just wanted to clarify that...a disclaimer if you like.

Tyrone's Own I have pointed out in many posts that I am not an expert. I have a big interest and losts of money invested, but not an expert.

[blast05]

We've had a dot com bubble burst. a property bubble burrst ..... whats the next bubble ?
For me, its any company in the green industry. Literally trillions of dollars coming into circulation from central banks that has to find a home and even in the US, Obama is a big advocate for green energy so very high level prediction .......  any half decent green company anywhere will see a major spike over the next 3 to 5 years before the bubble bursts there.
But then again this is from a punter who put the equivalent of a couple of months wages in BOI at 92 cent 

[Canalman]

Cash is King at the moment. We aint seen nothing yet imo. Jobs are being lost at a terrible rate here in Dublin. Just heard today that a mate was let go last week and another put on protective notice today. One is a joiner and another a QS.
If you really want to invest, historically Gold is usually the commodity investors flock to in times of distress.

[orangeman]

Cash is King at the moment. We aint seen nothing yet imo. Jobs are being lost at a terrible rate here in Dublin. Just heard today that a mate was let go last week and another put on protective notice today. One is a joiner and another a QS.
If you really want to invest, historically Gold is usually the commodity investors flock to in times of distress.

[/b]


Seems you were right - 


Bad week for the markets - looks like there's a lot of sorting out to do yet.

[DrinkingHarp]

Start panning now



http://www.kitco.com/charts/popup/au3650nyb.html

[muppet]

I need some one to explain to me why shorting is allowed. It seems to me to be hugely responsible for the recent part of the mess we are in.

We know the for example Sean Quinn entered a transaction called a CFD. This involved him putting up a percentage of the overall money and the CFD house putting up the rest. Between them they bought 25% of Anglo. Fine.

The CFD house has fixed terms on the deal and does't care what happens the share price. If it is goes down Quinn picks up the tab as part of the deal. If it goes up Quinn wins and the CFD house gets it's money anyway.

So the CFD house has no incentive to see the price go up despite the fact that they technically own the shares. Now this is where the trouble really starts.

Because of this they 'loan' (for a fee of course) the shares to brokers. This allows the 'shorting' of shares whereby brokers bet on the share price falling. This can have the effect of driving down the share price and in recent times this seems to have happened dramatically.

In this case it appears that the shares bought by Quinn were used against Quinn. How can we have a system that can undermine investors with his own shares?

I don't know enough about it but if the various governments banned shorting temporarily recently there is obvious a problem with the practise. Should we consider banning it completely?

 

[Caid]

Short selling is not the cause of the downfall of the global economy.  Neither is it the fault of the various financial derivatives such as Collateral Debt Obligations, Credit Derivate Swaps wtc. 

The problem ultimately comes down to irresponsible lending by the financial institutions.  Speculation plays a part but speculation is not what resulted in the Nationalisation of Anglo Irish.

When you have a willing buyer and a willing seller the fault can not be blamed at the product sold but rather the buyer or the seller and the information asymmetry that often exists.

There is very little difference between short selling and spread betting.  It is risk and return.  It can however distort the share price in instances and greater transparency is required.

Regarding Gold, whilst Gold is often the mainstay in tough times it seems to be at a pretty full value.  Gold historically was important as countries held reserves in Gold to support there currency and pre-Bretton Woods Gold was the currency of the world.  Nowadays less Gold reserves are held by Central Banks worldwide.

I would suggest buying Oil or OIl futures.  I think it is currently around $40 per barrel.  The majority of the Opec nations require a price of $30 to $40 per barrel to break even.  The price will not go much lower but once the global economy recovers, granted this may be another 18 months away, then global production will increase and global demand for oil will also rise.  Forecasts for oil prices are between $50 - $70 for oil this year alone.  Although granted no one forecast oil prices of $200 per barrel last year.  If you prepared to wait then oil is a good buy.

I am not authorised by the Financial Services Authority (FSA) to provide financial advice and therefore any one who acts on the above advice is doing so entirely at their own risk and their actions are independent of me and no liability can result towards me

[muppet]

Short selling is not the cause of the downfall of the global economy.  Neither is it the fault of the various financial derivatives such as Collateral Debt Obligations, Credit Derivate Swaps wtc. 

The problem ultimately comes down to irresponsible lending by the financial institutions.  Speculation plays a part but speculation is not what resulted in the Nationalisation of Anglo Irish.

When you have a willing buyer and a willing seller the fault can not be blamed at the product sold but rather the buyer or the seller and the information asymmetry that often exists.

There is very little difference between short selling and spread betting.  It is risk and return.  It can however distort the share price in instances and greater transparency is required.

Regarding Gold, whilst Gold is often the mainstay in tough times it seems to be at a pretty full value.  Gold historically was important as countries held reserves in Gold to support there currency and pre-Bretton Woods Gold was the currency of the world.  Nowadays less Gold reserves are held by Central Banks worldwide.

I would suggest buying Oil or OIl futures.  I think it is currently around $40 per barrel.  The majority of the Opec nations require a price of $30 to $40 per barrel to break even.  The price will not go much lower but once the global economy recovers, granted this may be another 18 months away, then global production will increase and global demand for oil will also rise.  Forecasts for oil prices are between $50 - $70 for oil this year alone.  Although granted no one forecast oil prices of $200 per barrel last year.  If you prepared to wait then oil is a good buy.

I am not authorised by the Financial Services Authority (FSA) to provide financial advice and therefore any one who acts on the above advice is doing so entirely at their own risk and their actions are independent of me and no liability can result towards me

This is what I said. i didn't blame it for the entire crisis.

It seems to me to be hugely responsible for the recent part of the mess we are in.

When you have a willing buyer and a willing seller the fault can not be blamed at the product sold but rather the buyer or the seller and the information asymmetry that often exists.

Are the shares not merely loaned? How would you feel if this was done with your house?

[Caid]

How would you feel if this was done with your house? 

I wouldn't really care less except that the trading in CFDs might distort my share price.

The shares aren't loaned.  Ownership of the shares never moves.

Example

I have a house worth £100k.  I own 50% and a CFD brokerage owns 50%. 

Mr A thinks my house price is going to rise. He can't afford to buy the entire 50% stake but he wants to maximise his return.  He therefore takes out a long CFD position with the broker.  The broker will charge him a margin of say 10% (£5k).  If the house price rises then Mr A will profit by the increase (less the margin/commission).  If the house price falls then Mr A can lose a lot of money. 

However, if the house price rises the value of my 50% will also rise and will be unaffected by what the CFD roker is doing with his 50% and vice versa with a house price fall.

The CFD broker, however, will not want to be exposed to fluctuations in the house price and will seek to lock in an arbitrage profit.  To do this he will either seek another investor, Mr B, who wants a short position or he will trade in the underlying shares (trading in the underlying shares could have a demand/supply impact and affect the value of my 50% stake).

Mr B thinks house prices are going to fall and so takes out a short CFD position paying a 10% margin (£5k).  If the shares fall in value Mr A will profit (less the margin/commission).  If the shares rise in value then Mr A will make a loss. 

The CFD brokerage will structure the transaction so that any losses on one side are covered by profits on the other side.  The CFD brokerage takes its commission and bears no risk.  The risk is borne by Mr A and Mr B.  I am exposed to falls in share price as I would be if I owned 100%.

CFDs are the same as spread betting but with no stamp duty.

The entire risk lies with Mr A and Mr B.  The advantage to them is that it allows them to leverage up and gamble on shares with smaller amounts (as they pay 10% margin not 100% face value).  This is good if they guess correctly.  But if they get it wrong their losses are magnified.

Sean Quinn's investment in Anglo Irish was a leveraged gamble that went wrong.  Ultimately it comes down to unneccessary risk taking and over-leveragin -> the trademarks of this recession.  In that instance it is not the fault of CFDs but of the people using them.  In more recent times you are correct in that it has exassperated the problem as investors have been taking on more and more short positions - gambling that the stock price will fall further.  This has created nervousness and market distortions.  However, this is more linked to human behaviour and a herd mentality than it is to weaknesses in the product themselves. 

Stock markets would be efficient if it wasn't for the humans that use them

[muppet]

Thanks for that, it is one of the best explanations I've seen.

The CFD broker, however, will not want to be exposed to fluctuations in the house price and will seek to lock in an arbitrage profit.  To do this he will either seek another investor, Mr B, who wants a short position or he will trade in the underlying shares (trading in the underlying shares could have a demand/supply impact and affect the value of my 50% stake).

Are these the same shares that Mr. A bought (with the CFD house) as part of the original transaction?

[Caid]

Mr A never buys any shares.  The CFD brokerage probably never buys in shares either. The CFD brokerage will borrow the shares from a company specialising in lending shares. 

- CFD brokerage borrows 50,000 shares from the lending house
- Mr A gambles that the shares will rise in value.  If the shares rise in value the CFD brokerage will owe Mr B money
- To cover its position the brokerage may thus buy shares in the open market (so if the value of the share price increase the brokerage will gain from the rise in underlying shares but lose from its CFD position, they will structure it so the two cancel out

Thus if the brokerage is trying to cover positions using shares in the market it may distort the share price.

Moreover, CFD's get bad press as it is often difficult to know how many shares in the market are freely traded (free float) as 50% of the shares may be traded and 50% may be "leant" to a CFD brokerage.

I am not an expert on derivatives and have been winging it a bit with all of the above so there may well be holes in my arguments

[Fear ón Srath Bán]

CFDs are nothing more than spread betting, but betting nonetheless dressed up as wealth generation, and that's what the highest echelons of the Irish Banking System have been involved in (not uniquely). This is the rot at the root in the raw Capitalist System that will have been responsible for destroying itself, and I'll rejoice at it's sorry demise.

[muppet]

Mr A never buys any shares.  The CFD brokerage probably never buys in shares either. The CFD brokerage will borrow the shares from a company specialising in lending shares. 

- CFD brokerage borrows 50,000 shares from the lending house
- Mr A gambles that the shares will rise in value.  If the shares rise in value the CFD brokerage will owe Mr B money
- To cover its position the brokerage may thus buy shares in the open market (so if the value of the share price increase the brokerage will gain from the rise in underlying shares but lose from its CFD position, they will structure it so the two cancel out

Thus if the brokerage is trying to cover positions using shares in the market it may distort the share price.

Moreover, CFD's get bad press as it is often difficult to know how many shares in the market are freely traded (free float) as 50% of the shares may be traded and 50% may be "leant" to a CFD brokerage.

I am not an expert on derivatives and have been winging it a bit with all of the above so there may well be holes in my arguments

Let's talk about an imaginary transaction involving the hypothetical Mr. Q.

He decides to go to a CFD House to buy 25% of a bank.

Neither he nor the CFD house own the shares?
They are all borrowed from a Brokerage??

A few questions:
a. 25% is a serious stake in any business, who owns the voting rights? Mr. Q, CFD House or neither.
b. Does the brokerage buy the shares as part of the transaction or do those in the transcation (Mr. Q and CFD house) have to find a brokerage that happens to hold shares in the desired company?
c. How does this type of transcation typically expire? With the Mr. Q type owning the shrares? Or is it merely a gambling exercise and the shares are always owned by the brokerage.

What I dont like is that is seems that there are people in the stock market ether who benefit form driving a price down when it has nothing to do with the performance of the company in question. That to me is fundamentally wrong.