As leveraged assets go down in value, the leverage multiples go up. Adding to that multiple is the falling dollar and the fact that these assets are in reality debt deposits, not cash deposits, that were passed on in different forms to be leveraged over and over.
With financial stocks like Lehman Brothers (LEH) and Morgan Stanley (MS) continuing to take their lumps, Toddo adds color, noting that financial firms are an encapsulation of the economy. From credit to derivatives to risk appetites to smoke in the system, they sum it up. Financials comprised 25% of the S&P in 2000. That's since dwindled to 16%, but it's still a structural influence.
The former hedge fund manager then vows to never, ever say the word "financial" again.
Minyanville staff and contributors may trade or hold securities that are discussed in an article. Staff and contributors will indicate whether they have a position in any security discussed, but will not indicate size or direction. The information on this site is not intended as individualized investment advice and all investment decisions by a reader must in all cases be made by the reader either individually or together with his/her investment professional. The views expressed in articles appearing on this site are solely those of the staff and contributors and should not be attributed to any other person or entity except where expressly stated. Minyanville staff and contributors will not respond to requests for investment advice.
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