Maybe if you guys are down more than 35%, your money may have been in the worst spots to begin with. :shrug:
Traders: 'We're in the 100-year flood'
'YOU WANT SAFETY' | Cash is king as CBOE 'fear index' surges
October 10, 2008
BY DAVID ROEDER
droeder@suntimes.com
The Chicago futures markets, where some traders eat fear for breakfast, has become a place of helpless uncertainty.
They've seen bear markets and even short-term credit crises before, but nothing like this. To them, the financial system has a confidence crisis and there's no telling when it will end.
Prominent futures traders and brokerage executives reached Thursday didn't utter the standard advice about sticking with stocks through thick and thin. They said safety of cash is paramount.
Patrick Arbor, former chairman of the Chicago Board of Trade, said he's keeping money in short-term U.S. Treasury debt. "You want safety. You want comfort. The banks are probably secure" and investors should consider their certificates of deposit, but only in sound institutions, he said.
"Don't chase yield," Arbor said. Recall that over the last few months, the banks that paid the highest CD rates included Washington Mutual Inc., rescued by JPMorgan Chase & Co., and Chicago-based Corus Bank, staggering under losses from condominium loans.
The head of a trading firm here was frustrated by his own confusion. "The conventional wisdom is to ride these things out," he said. "The conventional wisdom doesn't work. We're in the 100-year flood."
He said he sought out advice from traders he respects, and "they don't have any better idea than you or I."
Anxiety spread across the La Salle Street financial community as the markets, late in a losing but drab session, nosedived in the last hour of trading. It left the Dow Jones industrial average with a decline of 678 points, the third-worst point drop ever, while sending the benchmark index below 9,000 for the first time in six years.
Stocks have fallen for seven consecutive sessions.
The Dow is now off 21 percent in the four weeks since the Lehman Brothers Inc. bankruptcy and 35 percent for the year.
The losses and cash movements have caused sharp increases in futures volatility, including in such widely followed Chicago markets as commodities and interest rates. CME Group Inc., owner of the Chicago Mercantile Exchange and the Board of Trade, raised its margin requirements for trading Eurodollar futures by up to 50 percent.
Mike Manning, president of Rand Financial Services Inc., said he's been working with customers to adjust their strategies. "Most of them are scaling back their trading because the markets have just gotten too frantic. I think that's a good decision and I believe they will come back," he said.
At the Chicago Board Options Exchange, participants noted that its popular volatility index, known as the VIX and often called Wall Street's version of a fear factor, stood at a record 63.92. The VIX uses options trading to measure expected volatility in the Standard & Poor's 500 index.
Thursday's falloff occurred with volume somewhat lighter than usual because of Yom Kippur. But it continued a pattern of steep late-in-the-day declines, which some experts believe comes mostly from selling by individual sellers and mutual fund managers. The old saw is that large trading firms -- those that are left -- dominate morning trades.
