I thought I would make a quick post just to explain the misconception of the term ‘market-to-market’ - which is really not a financial term - rather its ‘marked-to-market’. I have gotten a few emails of people asking me what exactly this means and whether I could provide a really simple explanation of this term.

Typically, you see “marked to market” referring to a derivatives position or a margin lending facility. At the end of each trading day, each counter party exchanges the change in the market value of their position in cash. That is, each counter party is required to settle their obligations to ensure a “zero-net-game” exists. So “marking to market” typically occurs at the end of the trading day where an account has fallen below a given threshold and a broker requests from the client, via a margin call, that the client deposits more funds (or at worst, liquidates the account) in order to get the account back within the predefined “ratio limit”. i.e. the ratio limit is the amount a broker will allow for “fluctuations” in the market before instigating a margin call. Typically most brokers set this rate between 5% - 10% of the trade amount. So if you had a $10,000 margin loan set up, and the ratio limit before a margin call was instigated was at 10% - a value drop of more than $1000 would instigate a margin call and you would be required to top up the account.

So really ‘marked-to-market’ means ensuring that the position you are in is “converted to the current market prices” and is a full reflection of the market on any given day at closing.

Marianne Moore, the famous American Poet, once famously wrote:

“War is pillage versus resistance and if illusions of magnitude could be transmuted into ideals of magnanimity, peace might be realized.”

This is exactly what happened on Wall St when the market opened this morning in New York, and what might happen if magnanimity was actually reached. As you would expect, the bargain-hunters are out in full force today as the market, once again, over-reacted to the news that a bailout wouldn’t occurr. How short sighted can Wall St be ? Of course a bailout is coming - both Congress and the World know that it must. I don’t even want to think about the alternative and I’ve already stated my reasons for Congresses short-sightedness.

At the time of writing, the Dow Jones was up 284.76 points and the NASDAQ was up around 61.92. I don’t think that anyone is surprised that the market should (fingers crossed) remain up for the day. When $1.2 Trillion is wiped off the USA markets in a matter of hours, you would think that there are some real bargain trades to be made. If there are any Index traders reading out there, please let me know how you are trading on the swings - it’s either going to be a goldmine or a panic attack for you at the moment!

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With all the latest turmoil surrounding the markets, and a 207.9 point loss on the ASX today. I think it’s fair enough to say that the time has come for the Reserve Bank of Australia to take some drastic action when they meet for their October Board Meeting next week. The latest market data released today indicates that building approvals fell by 3.7% for August, primarily due to the finance and global economic slowdown making it less attractive for builders to enter the market. Approvals for private sector housing fell by 0.8% while approvals for apartments and “other dwellings” were down a whopping 7.8% (check out all the data here). To be honest, I am not exactly sure what the RBA is waiting for.

The 12-month All Ords Chart shows a very bleak picture - down from 6,200 to 4,631.30 as of today. With  consumer sentiment usually always being positively correlated to the overall stock market business cycle - one would suggest the RBA is still being far too cautionary with its reaction to the global economic woes. Retail sales have continued to slow and if you take out food sales, then retail sales actually fell by 0.5 per cent for August - a shocking result.

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The world is in a crisis at the moment, and we have one country to blame - the United States of America. Amazingly, last night Australian time, or Monday Afternoon Washington US Time - the American Congress voted against a $700 Billion dollar bailout plan that would have helped restore, at the very least, some confidence back into the world markets. I bold the word, world, because this crisis is not just about Americans - it’s about the entire world and I think for all congresses power - they have utterly forgotten this point. Every article and review I have been sent on the bailout plan seems to focus on the fact that both the Republican and Democratic parties are “refusing to bailout rich Wall St investors”. This is such a ridiculous and misconceived ideology to take and I’ll tell you why.

This is not about Wall St and its very rich, now only rich, investors.

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