patrick.net

Person,

The brokerage won't let your equity tank that far. You'll get a "margin call". When your equity gets below a certain percentage, they will automatically liquidate holdings in your account to pay off the margin loan.

I don't know. That's pretty rare. I guess they can still sell your stocks, then send some collectors after you.

Person,

Good questions. There really isn't a connect between FICO, TransUnion, Experian and the brokerage industry. We assume you are who you say you are. Obviously if you can't cover ONE margin call both the broker and yourself are going to look pretty silly. I don't think the discounters care.

However if you do get a "house call" (under 35% equity in most cases) you will incur a 3X sell out if not covered by settlement. Meaning if the call is for $1,000 the broker (as per your margin agreement) can sell out $3,000 worth of stock to cover the call. If you go into "Fed Call" (under 25% equity) they can sell out FOUR TIMES the amount of the call!

Issues trading below $10 are typically only given partial credit toward equity percentages and stocks below $5 are considered "non-marginal" securities. This is what killed a lot of people, when SUNW goes below 5 and is non-marginable many went into a "negative equity" situation where they were completely sold out, the account had NO value and the investor actually had to send in even more $'s. I'd just as soon not see you there.

BLR (broker loan rate) is usually Prime + 2 pts. up to 25K then it goes incrementally down to about Prime + 1/4 pt. on anything north of a mil. So if you're going to leverage your account, it has to make sense. Lean on something solid with an awesome dividend to off-set (as much as possible) your BLR and gravitate toward short term plays. Don't be afraid to use Stop Loss Orders and close out a position over the weekend.

If you stiff a broker/dealer the will submit your name and SS# to McDonald Reporting and make ever getting a margin account again difficult if not impossible.

Not Margin Advice

SFWoman

The key word is "rumo[u]r". Trading on gossip can be very hazardous. That the precise future date of a combat military action has somehow gotten into the foreign press is an incredible claim. I'd guess either it's not true at all or it is a diversion/misinformation. Perhaps it could be a form of brinkmanship diplomacy too. I put nothing past the guys running the machine right now.

Exactly how does one define a “conspicuous” pistol grip? And how does the existence of a thumb-hole turn an ordinary rifle into an “assault weapon”? Does any feature that increases the ability of the shooter to aim accurately turn that gun into an “assualt weapon”?

Exactly. And what is wrong with hi-cap magazines?

MVR,

Hey man! How you been?

After the tech wreck "Risk Management" depts. became more pro-active in dealing with M/C's. Early on the discounters just sent out an e-mail to the acct. holder saying "you need to send in X $'s by ___." Well that didn't work and after they got tired of getting burned they somewhat automated the sys.

Hey DinOR,

We were moving offices last week. So I haven't had time to read the blog til today. Wonderful timing on the move, just as our accountants are ramping up for the 4/15 deadline. My office has a better view now. Guess that's worth all the work.

DinOR -
See you at the Crossroads Gun Show at the Cow Palace.

All-
Maybe someone needs to remind Boxer the mess made out
of NYC by her liberal friends in the 1970s. ;)

SIPC covers far more than FDIC, 5 times in fact, plus the private insurance taken out by the brokerages.

I park 99% of my money with brokerages. If SIPC fails, I think this country will have far more to worry about than just a recession. If SIPC goes goes, that means the stock market is facing a complete meltdown, if the stock market is facing a complete meltdown, I don't think any country on earth will be spared.

Randy, at that point I won't store gold, because gold is useless, I will start hoarding fire arms, medicine, food, gasoline in buckets etc. in my backyard.

MVR,

Oh I hear ya! At least you got a better view out of the deal. We moved from SW 5th and Yamhill in Portland to SW 5th and Columbia. 1st floor. From the 11" X 17" window you could see the underside of the Tri-Met busses as they roared past!

Ok, back on topic. I'm not so worried about losing FDIC covered money. The gov can always print more. My main worry is if the FDIC gets overwhelmed, it might be a while before someone can get started working on your case.

That's why I keep most of my downpayment funds in short term treasuries. No need to worry about banks failing. If the federal government fails, then I've got bigger things to worry about.

Oh yeah, I hear that cigarettes & soap are great things to have in a doomsday scenario. Much more useful than gold, in fact.

DinOR,

Well, the good thing about being on the 1st floor is that in a fire or an earthquake, you're the first one out the door. We're on the 6th floor now, so in an emergency, I can't even survive by jumping out the window.

OO,

Thanks for pointing out SIPC's attributes! (If I say it, I'm an "industry shill"). We all pay into it every month. SIPC obviously doesn't insure anyone against a sell off in the market but rather to cover clients that may have an account at a failed brokerage. Additionally most firms have coverage to around 25 mil. per account.

I worked on the 9th floor (One Pacific Square Bldg.) when Seattle had the quake that rattled the old Starbucks bldg. It was definitely scary even that far away and felt like it went on for some time. We later learned it was only about 90 seconds. It knocked the phones out for the rest of the day.

Stretch002,

I am in similar boat with investment considerations but I won't buy any real estate till after 2010, so I park my money mostly in real assets (oil, gold, agriculture, plus a smaller portion in Euro and AUD bonds), anticipating a rampant stagflation. If your investment window is short, then I would suggest Euro or AUD bonds. I like AUD bonds because AUD is a commodity-based currency, and its government at least appears on surface is combating inflation more vigilantly than the lip-service of Fed.

If this coming Oz rate hike goes through, AUD will be looking at 6.5% interest rate. However, I think the recent rise of AUD is a bit too fast, so a pullback may be coming soon, although I also anticipate in about a few years, AUD will be on 1:1 basis with USD. Australia government is entirely debt free, Australia's most important exports like minerals, agriculture and energy, will be less exchange-rate sensitive if USD's status as the world's reserve currency is seriously challenged.

USD has only one way to go, IMHO, down.

Wow, no real goldbugs! Just a couple of reasonable queries and a smartass or two ;) I'm happily proven wrong.

Maybe there is hope yet.

Gold is too heavy. I'd rather collect diamonds.

This is funny:

http://consumerfreedom.com/news_detail.cfm/headline/3278

I Wrote:

> I’m happy with a lot of cash since I feel that the risk
> of loss due to inflation is less than the risk of loss
> from real estate dropping in value, stocks dropping
> in value or bonds dropping in value…

Then HARM Says

> Any regular would agree with you on RE, but what
> makes you think that (non-RE related) stocks are
> necessarily primed for a big drop? I would say there’s
> a reasonable chance of a finance/MBS/consumer-led
> plunge larger than what we’ve already seen, but are
> most (non-RE) stocks really that overvalued in general?

It is hard to get accurate numbers, but Trillions (with a T) of cash has flowed in to the US economy from cash out refis over the past few years (Not to mention the Billions from the Bush Tax cut). With cash out refis slowing to a trickle and more and more of the cash people earn every month going toward mortgage payments with the huge number of low teaser rates adjusting there will be a lot less consumer spending in the next few years. I feel that this drop in spending will cut earnings at almost every company in America (with escalating hearth care costs and other benefit costs cutting earnings even more)…

P.S. I’m not a doom and gloom guy, but I think that we are set for a slowdown in corporate earnings. I still own a lot of stock in a Russell 2000 index (I last invested in the fund ~1998) and a S&P 500 index (that I stopped putting 401k money in to ~1999 but I probably dumped about $50K in to over the past 5 years)…

None of this new fangled metal thingie. It's shells and pebbles for me.

@Peter P,

Yup. Vegan food Nazis are almost as hypocritical as anti-gun Nazis.

"a lot less consumer spending in the next few years."

"drop in spending will cut earnings"

"escalating health care costs"

Well... it's kind of hard to argue that! But I am trying to look past it? Seems to me everyone (and I do mean EVERYONE) wants to get thru this housing correction as quickly as possible. Finally found one thing we and the REIC can agree on! If that means subs, banks and GSE's gotta eat it, well then... whatever.

Loan work-outs, builder price reductions/incentives, debt forgiveness? Most Americans don't care. We DO (most don't care how it gets resolved). If we can revert to the mean, re-claim our incomes, break the addiction cycle and get people paying for jet ski's and RV's with their paycheck rather than MEW there's a chance we can pull through. Health care costs? Can't help you there.

That's just how juvenile this whole debacle feels (to me anyway). Like borrowing the old man's car, putting a dent in it, your date threw up on the dashboard and you're just wishing you could close your eyes and have it be the day "before" all this happened!

The REIC and their "necessary evil" (FB's) really don't give a rip how they get out of this. Just that they DO! Look for modest atonement and another round of creative financing.

DinOR,

well, since SIPC has never been put to a stress test before, I figured that I may have a slight chance of being the guinea pig :-) We will see what the claiming process will be compared to FDIC.

My other reasoning of why SIPC may matter more than FDIC is, based on what I read from financial journals, it seems like America has two types of people: those who save, and those who don't. Those who don't operate on a paycheck to paycheck basis, so even if they have a banking balance, it is likely to be very minimal. Those who save are more likely to put their money in brokerage than letting it sleep in the bank.

OO,

I'll do a little checking but like I say every check I've ever gotten had an SIPC assessment taken out of it. Wouldn't it take an insolvency along the scale of Merrill Lynch to put a strain on the system though? Since many of the boiler rooms that went under in the 90's weren't even NASD approved firms they probably weren't covered under SIPC anyway.

Iran is 4x as large as Iraq, with 4x the population. It's rich, armed, unified, allied, and the seat of the ancient Persian empire. Good luck with those attack plans...

It’s rich, armed, unified, allied, and the seat of the ancient Persian empire.

We need 300 brave warriors...

We need 300 brave warriors…

Preferrably in leather speedos and capes.

Something from the neo-'con' handbook:

"The size of the lie is a definite factor in causing it to be believed, for the vast masses of a nation are in the depths of their hearts more easily deceived than they are consciously and intentionally bad. The primitive simplicity of their minds renders them a more easy prey to a big lie than a small one, for they themselves often tell little lies, but would be ashamed to tell big lies."

-- Joseph Goebbels

"If this were a dictatorship, it would be a heck of a lot easier, just so long as I'm the dictator."

-- George W. Bush, December 18, 2000

SFBubbleBuyer Says:
We need 300 brave warriors…
Preferably in leather speedos and capes.

That would certainly startle and possibly dazzle them, at least momentarily...

That would certainly startle and possibly dazzle them, at least momentarily…

But it will inspire a whole nation against the invaders.

"Iran is 4x as large as Iraq, with 4x the population. It’s rich, armed, unified, allied, and the seat of the ancient Persian empire. Good luck with those attack plans… "

And after 10 years of fighting with IRAQ which they could not defeat
they gladly signed a cease-fire agreement.

IRAQ fell in two weeks when US forces invaded. Come on ... who you fooling! There are plenty of Iranians that hate the mulahs!!!

BTW, they are corned on all four borders by US forces from the North East West and South...

No where to run !
No where to hide !

"But it will inspire a whole nation against the invaders."

Give me a break! There are plenty of people who be glad
to rid of the Mulahs! You be sick to death of Jerry Falwell and
his cronnies if his kind ran the goverment dictatorship.

“a lot less consumer spending in the next few years.”
“drop in spending will cut earnings”
“escalating health care costs”

People dump their homes and mortgages and start to rent thus saving more because in SF BA rent is 1/2 of owning.. With more disposal income availble, consumer spending is still robust. LOL! No doom and gloom
after the RE bust.

After a 55% haircut... those of us with cash (and great credit) on the side lines pick up homes dirt cheap. Only after 55% haircut... and merry way!

Speedos and capes...talk about shock and awe!!

Huh?

Patrick, the FDIC won't fail. If it did, your money wouldn't be worth anything anyway and we would all probably be pointing rifles at eachother's houses waiting for some threatening move. Some readers may want to remind themselves that unless something has changed, I believe the insurance is only up to 100K per account.

My view is that gold is overpriced right now. I've pretty much sold off all of mine. The reason I say this is because gold is a great hedge against inflation, but is a dog during deflation, especially given the speculative runup. Most people on this board I would think aren't expecting a huge jump in inflation though I do think you should keep an eye on interest rates as a guage of what the government predicts inflation will do. Another thing I don't like is that even if it were to go up it needs to go up a lot for it to even be worth the opportunity costs and the spreads of selling and buying. The best I was able to do is sell at 2.5% below spot. You can sell it on Ebay, but the fees make it disadvantageous. That's just my opinion.

When the standing ARMY is no longer able or willing to operate
than yes! Its been defeated It a a miltary power no longer exists.
After two weeks, the Iraqi army ceased to be ...

The Iraq-Iran war lasted 10 years ... no victory for either side.

Diwakar Says:

"It’s starting to freak me out...Where do I put my money now?..."

"Where do you guys think my money will be safe in next coming years?. I’m very skeptical about stock markets/bonds. As I think its going to be taken down by housing and credit expansion."
_____

Michael Holliday scratches his head, ponders the situtation for a second, then reaches his hand across the table, into a bag of Chips Ahoy chocolate chip cookies, pulls one out, and hungrily takes a big bite.

As usual, a crunching sound is heard as half the cookie crumbles onto his shirt, some tumbling in a flurry onto the floor.

He greedily takes a gulp of his midday elixer, Hi-C fruit punch, wipes off the red mustache residue onto his shirt sleeve, snuffles twice, walks over to the window and cautiously pulls back the blinds to take a gander at his broke-ass neighors.

Once again they are arguing incessantly, chattering like squirrels, going at it on the driveway with gusto and verve...Accusations of infidelity now and then punctuate the "F YOUs," and "NO, YOU'RE THE CHEAP ASS."

He turns away in ennui and disgust, just as a wine glass crash sound can be heard smashing against dude's leased BMW as it tears out of the driveway.

Michael ponders his neighbors' domestic catastrophe for a second, sits down wearily, surveys the crumbs scattered on the table, chair and floor, and thinks to himself, "looks like a general state of freakout is preponderant around here now. Is this localized or is someting larger, bigger looming on the horizon? Perhaps the 'fearful symmetry' of a frightful new financial Zeitgeist is taking shape?"

Knock...knock...knock...

Michael's negative contemplative state is suddenly broken with a rap, rap, rap on his front door.

Michael gets up, the crunching sound of cookie crumbs can be heard under his feet, as he follows the trail of crumbs to his front door. But not before sneaking one last chocolate chip cookie for the road.

He cracks open the door a sliver, peers out, then asks, "what's up?" Scarcely waiting for the reply, he munches into the chocolate chip disk.

Diwakar stands there with his frazzled hair sticking up like Einstein. Sporting a grizzled mug and with a quizzical look on his face he pronounces to a bewhiskered Michael Holliday, "I'm scared dude. Where should I put my cold, hard cash?"

Holliday cracks the door open a few more inches, looks Diwakar up and down, as if to size him up, and says, "You're skinny and weak looking. Wait right here, I'll be right back."

After what seems like an interminable length of time, Diwakar stares in bewilderment as a hand bearing two Chips Ahoy chocolate chip cookies emerges from the crack in the door with the solemn pronouncement, "take two cookies and call me in the morning."

Urgently, the bemused neighbor grasps the cookies greedily--with an almost prehensile grip--a muffled crunching sound can be heard as crumbs tumble like marbles onto Michael's porch.

A slight sniffle sound can be heard as Michael quickly shuts the door...

Diwakar lingers like a song on Michael's porch for a few seconds. He stares blankly down at the valuable stash of cookies in his hand, those pearls of great price.

...TO BE CONTINUED