Margin Call Monday 11/7/11

Chicago Mercantile Exchange raised margin maint. rate to 1.0 effective Monday


Hold on to your hat Dorothy Were going for a ride

http://www.zerohedge.com/news/cme-g...s-maintenance-margin-equal-initial-everything

Better enjoy your weekend!We may all be paupers come Monday.Bet the big players will have a tough weekend trying to get some sleep while their world crashes around them.

The spring is wound tight, wonder what is going to set off the super inflation? Wonder if this will be the catalyst?

fogtender said:

The spring is wound tight, wonder what is going to set off the super inflation? Wonder if this will be the catalyst?

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Got gold?

I'm sorry to be a stock market noob, but what exactly does this all mean? I'm assuming it's not good but what is a margin call anyway?

Looks like Tyler Durden misinterpreted the press release. The CME is lowering the margin maintenance rate, not raising it. All courtesy of MF Global. Those MF'ers ...

squerly said:

I'm sorry to be a stock market noob, but what exactly does this all mean? I'm assuming it's not good but what is a margin call anyway?

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Squerly, I'm a noob too, but I'll take a shot at 'splainin it.

Buying stocks on margin means you're borrowing a percentage of the purchase price. You can only a borrow a certain percentage, and thus have to have a margin maintenance percentage. Kinda like a down payment on a house.

If they raise the margin maintenance percentage, the concern is that there will be a major sell off of stocks (driving stock prices down) so that margin buyers meet the necessary equity ratio in their portfolios. In other words, a margin call. When they lower the maintenance rate, folks can borrow more to buy stock (driving stock prices up).

jpr62902 said:

Squerly, I'm a noob too, but I'll take a shot at 'splainin it.

Buying stocks on margin means you're borrowing a percentage of the purchase price. You can only a borrow a certain percentage, and thus have to have a margin maintenance percentage. Kinda like a down payment on a house.

If they raise the margin maintenance percentage, the concern is that there will be a major sell off of stocks (driving stock prices down) so that margin buyers meet the necessary equity ratio in their portfolios. In other words, a margin call. When they lower the maintenance rate, folks can borrow more to buy stock (driving stock prices up).

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Uh......Uh!,,,Ummm!

Isn't that what happened in the 20' and then things kinda went of the rails?

Great Gatsby Batman! What is wrong with these people?

I am a dummy also but I did point out to Fidelity when they first launched their website the miscalculation of margin.

A simple approach is you take $10 dollars and buy $20 of stock. The brokerage automatically gives you a low interest loan (margin) for the second $10.

The idea is if the stock goes up say 10% you make $2 instead of $1 doubling your profit. At this point you can let it ride, pay down the loan, take the profit & buy more stock, or something else like a car or house of you add more zero's in the example. (In the going blowing pre 2008 years.)

CME is one of many boards (CBOT, NYSE, NASDAQ, are others) said Friday night after the market closed the loans must be smaller. Monday CME wants more cash covering the difference. Some accounts will simply e-transfer more cash in, others transfer other holdings and some will have to sell some of their stock to cover the cash demand.

Since the market moves like cows & follows a leader the other boards might boost margin % as well, if enough sell stock -- the price per share drops -- causing more demand for cash coverage. Setting up a spiral.

Watching the foreign markets Sunday night Tokyo & London for example may be an indicator.

The MF Global chunk of change seems more of a rash than market mover as Obama ploitical bundler Corzine mailed checks to account closers which bounced in bankruptcy, they will get something back not a total loss.

http://www.agweb.com/article/scale_of_mf_global_bankruptcy_remains_to_be_seen_/

Bottom line is margin is great in times of stability, not so much when idiots are running the country & markets bounce off the walls.

The real difference between margin stocks and mortgages or consumer loans is that the perameters can be changed in mid field on margin transactions, not so on mortgages. To couch mortgages in stock terms, if you borrowed based on a a 20% equity in your home and the value dropped, you would have to pony up the difference to maintain the 20% equity. If you didn't, or couldn't, then they would sell your home.
The problem is that if margins are raised, (or if the value of your stock goes down), the stock owner must meet new equity requirements in the position or some of the stock will be sold to meet the new margin, thus creating a short term surplus of stocks for sale, and a shortage of buyers.

jpr62902 said:

Looks like Tyler Durden misinterpreted the press release. The CME is lowering the margin maintenance rate, not raising it. All courtesy of MF Global. Those MF'ers ...

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So is this good news or bad news?

I think it is going to be a non factor.

Well it sure will be interesting to say the least!

I think the stock market is due for the major crash after all the reckless spending of money we don't have, and printing money we can't back.

Going to be a very interesting Month, this November, and this next Friday will be the key!

fogtender said:

Well it sure will be interesting to say the least!

I think the stock market is due for the major crash after all the reckless spending of money we don't have, and printing money we can't back.

Going to be a very interesting Month, this November, and this next Friday will be the key!

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Good points sir.

Greece has fallen and Italy is next. No matter the headlines these two are down for the coming count.

Gold is shooting up ever since the "announcement" last nite of the "everything will be fine" agreements in Greece. What does that tell you?

Masconni has a bigger target on his back than Herman Cain. The Italians are so emotional, I doubt common sense will cool any heads there.

Flameout for them as well.

The best chance Europe has to hold off the wolves is a big influx of money from the USA. They don't deserve it, they really don't want it and ,,,,,we don't really have it.
Besides, such funding would just delay the inevitable.

Progressive socialist experiments are failing all over the globe. Just like some of our too big to fail corporations, what is to be gained from propping them up?

I'll make a suggestion,,,,higher taxes and more crap from the OW crowd.

So, perhaps it is in our best interest that this supposedly Capitalist nation should actually let the socialist experiments prove their own worth. Don't you think?

And don't you also think we have put enough load on our kids as it is?

France is looking pretty shaky as well. They will have big trouble trying to reform things there.

muleman said:

France is looking pretty shaky as well. They will have big trouble trying to reform things there.

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Agreed. The Frogs would never admit defeat, even as the white flags were raised.

Spain and Portugal are shaky but frankly I think they will be OK. Having dumped their "green economy" initiatives they are recovering some ground. At least common sense has taken a foot hold there.

France will have big problems when they have to cut the handouts to the muslims and all the other whiners. They will riot and demand more and the government won't be able to afford the appeasements they gave out previously.