4th Quarter 2007: The Murky World of Derivatives

4th Quarter 2007
Market Commentary


The Murky World of Derivatives

Over the course of the past three months, we have seen multiple back to back days of 100 point swings in the Dow Industrial Averages, often in both directions on the same day.

This kind of volatility is unusual, and has occurred because of a sharp drop in liquidity, which in turn, is due to the inability of lenders and individual bankers to price securities held in their portfolio. One could call this a "perfect storm," and for those heavily invested in mortgage obligations secured by residential real estate, it is. Read more (pdf)

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