Elite Forex Blog - Market analysis & intelligence, see more at globalintelhub.com

Saturday, September 20, 2008

Government bailout

On Monday night, Senate Majority Leader Harry Reid was briefed on the gravity of the situation in a secret meeting with the Treasury Secretary and Federal Reserve Chairman. Reid's remarks are the best summary yet of the events of the last 14 months. He said, ""We are in new territory, this is a different game...No one knows what to do." http://www.counterpunch.org/whitney09192008.html

Money Market victims bury cash near sewers

Putnam, Mellon Spur `Oh, My God' Money-Market Flight (Update2)

By Michael Janofsky

Sept. 19 (Bloomberg) -- Before yesterday, Sheila Bialka, a retired dance and drama teacher in Laguna Woods, California, said she hadn't thought about shifting money out of her money-market account.

Then she learned that Boston-based Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund and a similar fund run by Bank of New York Mellon Corp. had fallen to less than $1 a share. BNY Mellon's shares fell as much as 36 percent yesterday, then mostly recovered amid a broad market rally and gained as much as 36 percent today.

``Oh, my God,'' said Bialka, 74, whose money is with Fidelity Investments. ``Now I think I will move it. I wasn't concerned before. Now, I am.''

Advisers say larger companies, such as Boston-based Fidelity, have more resources to prop up their money-market funds. Still, fears over potential losses in the low-risk investment accounts have become the latest source of angst for investors as they adjust their portfolios and lifestyles to the tremors of Wall Street.

Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts. The withdrawals totaled a decline of 2.6 percent in money-market assets.

The redemptions countered a trend in which assets in money- market funds increase almost 14 percent, to $3.58 trillion, from January to the beginning of September, according to IMoneyNet Inc., the research firm that publishes the Money Fund Report.

First in 14 Years

U.S. Treasury Secretary Henry Paulson said the government would take ``hundreds of billions'' of troubled assets from banks to try to repair the worst credit crisis since the 1930s. In addition, the U.S. Treasury said today that it would use as much as $50 billion from the government's Exchange Stabilization Fund to temporarily protect investors from money-market fund losses.

``Your typical day doesn't include outflows,'' said Peter Crane, president of Crane Data LLC, which tracks money-market funds.

This week, shareholders pulled more than 60 percent of the assets from Reserve Primary Fund, which on Wednesday became the first money-market fund in 14 years to expose investors to losses.

Financial advisers around the country said they are fielding more calls from clients buffeted by events including the failure of Lehman Brothers Holdings Inc. and the sale of Merrill Lynch & Co. to Bank of America Corp. Now, brokers, say, clients are worried about their funds in money-market accounts, traditional safe havens.

Rattled Nerves

``People are asking if their cash is safe,'' said Cary Carbonaro, president and founder of Family Financial Research, an advisory service based in Huntington, New York and Clermont, Florida. ``I've been telling them yes, but they're still scared. It's bad out there. Really bad.''

Investors have already started withdrawing funds from money markets in the Phoenix area, said Rich Kerr, branch manager of the Charles Schwab Corp. office in Chandler, Arizona. The experience of Reserve Primary, he said, ``has stimulated a greater degree of conversation.''

Though stocks rallied the most in six years Thursday as the Dow Jones Industrial Average jumped 617 points from its low of the day, investors remained jittery over the recent volatility.

Marci Fenske, an air resources technician for the state of California, said she overheard a woman in a restaurant tell her friends that she redeemed all her assets and buried the money in her backyard.

`Walk the Cat'

Carl Mueller, 48, an actor in Los Angeles, said he has begun shopping at a 99-cent store to save money. Chris Calle, 27, a project manager for a concrete company in Dallas, said he has started buying off-label goods at the grocery store.

Ruth May, 75, a retired travel agent in Laguna Woods, said whenever she feels panicky, she calls her financial adviser.

``He tells me to calm down and take a walk with the cat,'' she said.

Mark Berg, president of Timothy Financial Counsel, Inc. in Wheaton, Illinois, said one of his customers, a single mother, decided to trade houses for vacations rather than spend on a traditional getaway.

``People are beginning to be a little more creative in how to moderate the way they live,'' Berg said. ``So, her vacation is essentially free.''

Carbonaro said, ``The biggest question I hear from my clients is, `Should we liquidate everything?''' She said she has been so shaken by recent events on Wall Street that she wakes up in the middle of the night to check foreign markets.

``This is way more than anyone expected,'' she said. ``It's incredibly taxing, psychologically and emotionally.''

Changing Their Lifestyles

Bialka said she has already altered her routines to accommodate the worsening economy. She said she cooks at home more, rather than go to restaurants, and worries that any future bad news might require bigger changes.

``Next thing, I'll have to stop going to the theater and wearing the latest styles,'' she said. ``I might have to start shopping at thrift shops.''

Fenske, 64, said she was sitting alone at Carol's Restaurant in West Sacramento, California, when a group of elderly women at a nearby table were discussing how much money they had been losing in the financial markets.

She said she heard one woman, whom she didn't know, complain that she ``can't take any more hits'' and told her friends, ``I turned everything I had into cash, put it in a lock box and buried it under the shed near the sewer line.''

``I was horrified that somebody else might have heard her,'' Fenske said. ``The placed was crammed. I told her to go home and move it.''

To contact the reporter on this story: Michael Janofsky in Los Angeles at mjanofsky@bloomberg.net

Last Updated: September 19, 2008 12:20 EDT

Tuesday, September 16, 2008

The Markit CDX North America Investment Grade Index climbs 25 basis points

The Markit CDX North America Investment Grade Index, which rises as confidence in companies deteriorates, climbed 25 basis points to a record 220 at 7:50 a.m. in New York, according to broker Phoenix Partners Group. http://www.bloomberg.com/apps/news?pid=20601109&sid=ad5I2uMlzN7o&refer=home

"It's banana republic financing," Lockyer said. The spending plan relies on "phony money and phony estimates." http://blogs.usatoday.com/ondeadline/2008/09/schwarzenegger.html

Fed to give AIG $85 billion loan and take 80% stake

By Michael J. De La Merced and Eric Dash

Wednesday, September 17, 2008

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan. http://www.iht.com/bin/printfriendly.php?id=16217125

The Fed, apparently unable to convince private-sector companies to provide the cash, did the deal itself. That raises the question of whether the financial-services industry really felt that AIG's demise would have been catastrophic. The only alternative explanation would be that Wall Street won a game of chicken with the Fed... http://www.forbes.com/markets/2008/09/16/aig-fed-bailout-markets-equity-cx_mm_0916markets50.html

With time potentially running out due to credit rating downgrades that have threatened AIG's ability to operate, it reportedly reached a deal with the Federal Reserve, gaining an $85 billion bridge loan in return for going into conservatorship, with the Fed taking an 80% stake in the insurer. http://www.forbes.com/2008/09/16/briefing-outlook-aig-markets-equity-cx_ss_0916markets48_print.html

Sunday, September 14, 2008

ISDA reverses 14 trillion in derivatives

http://www.nytimes.com/2008/09/15/business/15lehman.html?_r=1&hp=&pagewanted=print&oref=slogin In one the most extraordinary days in Wall Street's history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

SUNDAY[!]: One of the most dramatic days in Wall Street history...

LIQUIDATE: Banks, Brokerages Prepare for Possible LEHMAN Bankruptcy...
ON THE BRINK...
BARCLAYS Abandons Talks...
BANK OF AMERICA NO LONGER BIDDING...

Feds Balk at putting up taxpayer money...
CEO hubris contributed to meltdown...

LEHMAN NETTING TRADING SESSION PROTOCOL

ISDA confirms a netting trading session is taking place between 2 pm and 4 pm New York time today for OTC derivatives. Product classes involved are credit, equity, rates, FX and commodity derivatives. The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy filing. Trades are contingent on a bankruptcy filing at or before 11:59 pm New York time, Sunday, September 14, 2008. If there is no filing, the trades cease to exist. These trades are subject to a protocol which is being distributed by ISDA (International Swaps and Derivatives Association). Traders should execute the protocol and email a copy of the signature page to Mark New at ISDA (mnew@isda.org) with LEHMAN PROTOCOL in the subject line. Click here for Protocol Text.

MARKET PARTICIPANTS HAVE INDICATED THAT THEY ARE WILLING TO TRADE UNTIL AT LEAST 6:00 NEW YORK TIME. PARTIES SHOULD COMMUNICATE WITH EACH OTHER AS TO THEIR WILLINGNESS TO TRADE LATER THAN 6:00.

Barclays May Bid for Lehman as Fed Seeks Solution (Update1)

By Ben Livesey and Yalman Onaran

Sept. 14 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, moved closer to making a bid for Lehman Brothers Holdings Inc. as the U.S. government raced to find a solution for the faltering investment bank, two people familiar with the situation said.

Senior executives of major financial-services companies arrived at the New York Federal Reserve building in lower Manhattan this morning to discuss a rescue plan, including Citigroup Inc. Chief Executive Officer Vikram Pandit and Robert Wolf, chairman for the Americas at UBS AG. JPMorgan Chase & Co. sent CEO Jamie Dimon, Investment Bank Co-CEO Steven Black and General Counsel Stephen Cutler.

Barclays's takeover approach depends on whether losses from Lehman's mortgage-related holdings can be sealed off, said the people, who declined to be identified because no formal offer has been made. Bank of America Corp., the biggest U.S. consumer bank, also is among the potential bidders for New York-based Lehman, which has lost 94 percent of its market value this year after record losses from investments tied to mortgages.

``The solution is to force the merger of Lehman now, this weekend, with a big commercial bank,'' said Richard Bove, a Lutz, Florida-based analyst at Ladenburg Thalmann & Co.

Lehman, led by Chief Executive Officer Richard Fuld, may be forced to liquidate unless buyers step up for all or part of the 158-year-old company, U.S. Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner told the heads of Wall Street's biggest firms at a meeting Sept. 12. Paulson has said he's reluctant to use government money to rescue Lehman. Talks with the banks continued yesterday without producing an agreement.

Discussions Continue

``Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow,'' a New York Fed spokesman said.

With backing from the company's board, Barclays President Robert Diamond, 57, is leading a team to review Lehman's books and gauge the level of guarantees the bank would need to cover potential losses, the people said. Peter Truell, a Barclays spokesman, declined to comment.

``Acquisitions are difficult for Barclays because of capital constraints,'' said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, who has a ``reduce'' rating on the London-based bank. Barclays raised 4.5 billion pounds ($8 billion) in a share sale in June to shore up capital depleted by credit losses and increase its securities trading and fund management units in the U.S.

Bad Bank

Geithner, 47, and Paulson, 62, are pushing Wall Street to contribute money to a so-called bad bank that would assume Lehman's $50 billion of devalued real estate assets. That would make it easier for a buyer to take over the rest of the company while the assets are sold off.

The approach is similar to one Lehman presented to investors last week, which the company said would cost $5 billion to $7 billion.

Such an arrangement would be reminiscent of the rescue of hedge fund Long-Term Capital Management LP, which failed in 1998 as Russia defaulted on its debt, roiling global markets. Spurred by the New York Fed, Wall Street firms including Lehman contributed cash to prop up LTCM.

Korea Development

Lehman CEO Fuld, who participated in the LTCM talks and built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the investment bank, was pushed toward a forced sale this past week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.

In addition to Pandit and Dimon, the government met Sept. 12 with CEOs including Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, Merrill Lynch & Co.'s John Thain and Credit Suisse Group AG's Brady Dougan, according to the people, who asked not to be identified because the gathering was private.

Robert Kelly, CEO of Bank of New York Mellon Corp., UBS's Wolf, and Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated, the people said. Bank of America CEO Kenneth Lewis didn't attend because his company is a potential bidder for Lehman, one person said.

Helping lead the discussion was Kendrick Wilson, a former Goldman executive whom Paulson tapped last month as an adviser.

HSBC Holdings Plc, Europe's largest bank by market value, is also considering a bid for Lehman, the Wall Street Journal reported yesterday, without saying where it got the information. Goldman, the largest securities firm, is interested in Lehman's real-estate portfolio, the Journal said.

Goldman's Position

HSBC spokesman Richard Lindsay said the company doesn't comment on market speculation. Goldman spokesman Lucas van Praag also declined to comment.

Paulson, the former chairman of Goldman, doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said Sept. 12.

Unlike when the Fed committed $29 billion to help JPMorgan take over Bear Stearns Cos. in March, Lehman has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.

Paulson stepped in last week to guarantee the debt and mortgage-backed securities of home-loan financing companies Fannie Mae and Freddie Mac.

Fuld May Balk

If the government's resistance to fund the purchase lowers the price offered for Lehman, Fuld could balk as well, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.

``We might have a Mexican standoff, with two guys holding guns to each others' heads but nobody firing,'' Hintz said.

Lehman hired the New York law firm Weil, Gotshal & Manges LLP to advise the company on a potential bankruptcy filing, the Journal reported yesterday, without saying where it got the information.

The government is pushing for a quick resolution because Paulson is concerned panic may spread to other financial institutions, Ladenburg Thalmann's Bove said. American International Group Inc., the largest U.S. insurer, and Seattle- based lender Washington Mutual Inc. each plummeted in New York trading last week on speculation about their financial health.

AIG may move up plans to raise capital or sell assets after the shares plunged 46 percent, according to a person familiar with the company. WaMu, which fell 36 percent, may sell parts of its nationwide bank-branch network to raise cash, according to L. William Seidman, a former chairman of the Federal Deposit Insurance Corp.

Asset Write-Offs

A Lehman sale may be possible without government backing, an analysis of Lehman's distressed mortgage assets shows. In a worst-case scenario -- with the assets discounted more deeply than in recent distressed sales -- a buyer could write off almost half of Lehman's mortgage holdings and still have $7 billion of equity left in company, based on figures the investment bank disclosed when it reported third-quarter financial results last week.

``The firm should be worth something even after the troubled assets are taken out at a massive discount because Lehman has a good franchise,'' said Corne Biemans, a Boston- based senior portfolio manager at Fortis Investments, which oversees about $200 billion. ``There are distressed asset buyers who should be interested in this stuff at such serious haircuts.''

Lehman's mortgage-related assets have been marked down to between 29 cents and 85 cents on the dollar. Reducing valuations further to between 5 cents on the dollar for collateralized debt obligations and 35 cents for European mortgages would result in $21 billion of further writedowns. Shareholders' equity was $28 billion at the end of firm's fiscal quarter in August.

To contact the reporters on this story: Ben Livesey in London at blivesey@bloomberg.net; Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: September 14, 2008 10:15 EDT

Friday, September 12, 2008

Ike looms on Galveston

http://www.cnn.com/2008/US/weather/09/12/galveston.1900/?iref=hpmostpop (CNN) -- The worst weather disaster in American history took place in Galveston, Texas, in 1900 when a hurricane estimated as a Category 4 intensity blew ashore, killing thousands of residents and obliterating the town.

http://news.galvestondailynews.com/story.lasso?ewcd=71b810c50fc1f6c5

http://www.accuweather.com/news-top-headline.asp?partner=accuweather&traveler=0&date=2008-09-12_19:45 A significant part of Galveston Island is inundated, 6 hours before Hurricane Ike is forecast to make landfall near the threatened barrier island. Waters will continue to rise this evening on the barrier island and other coastal areas along the central and upper coast of Texas.

Updated 9/12 2045 EDT. Hurricane Ike's current track currently is headed directly for Houston/Galveston and is expected by the National Hurricane Center to be Category 2 (or perhaps a 3) at a late Friday/early Saturday am landfall, which remains in striking distance of over 5 million bpd of US petroleum refining capacity. (A little perspective: 5 MMBBL is about 30% of US capacity (about 15 MMBBL), and a bit less than 6% of global capacity (~85 MMBBL)). THEOILDRUM.COM

Ike Strikes

http://www.accuweather.com/news-top-headline.asp?partner=accuweather&traveler=0&date=2008-09-12_08:04
The wall of water being pushed through the Gulf Mexico by Hurricane Ike is already flooding Galveston, Texas.

Live News Feeds:

ABC http://abclocal.go.com/ktrk/feature?section=news/local&id=6102015

FOX http://www.myfoxhouston.com/myfox/pages/Home/Detail?contentId=7406837&version=1&locale=EN-US&layoutCode=TSTY&pageId=1.1.1

KHOU http://www.khou.com/video/?nvid=178826&live=yes&noad=yes

Thursday, September 11, 2008

GAS RUN

http://www.citizen-times.com/apps/pbcs.dll/article?AID=200880911105 Emergency chiefs urge halt to local gas run

COLUMBIA, SC (WIS) - The impending landfall of Hurricane Ike has caused issues with the price of gas and limits on the amount you can buy, according to officials. http://www.wistv.com/Global/story.asp?S=8993849

Ike shuts down oil and gas production in the gulf

Energy production in the Gulf of Mexico remained largely shuttered Thursday as energy companies scrambled to complete evacuations and shut down refineries in advance of Hurricane Ike.

Roughly 97 percent of all oil production in the Gulf and 93 percent of all gas production is shut down, according to the Minerals Management Service, the federal agency that oversees drilling. Gulf energy production has not fully resumed since Hurricane Gustav struck Louisiana over a week ago. http://www.nola.com/hurricane-ike/index.ssf/2008/09/energy_industry_scrambles_to_s.html

Wednesday, September 10, 2008

Massive Dollar Short Opportunity

One way or another, the dollar is going down. Hold on to your shorts because this will be the short of the decade.

Recent interventions in commodity markets, which has been a combination of short selling in the Gold market, and large institutions taking profit in a multi-year bull market in hard commodities such as Oil, has caused a short uptick in the dollar. The fed didn't raise interest rates, and US economic data did not get any better. Nor was there any watershed event or even a clear indication that the US economy is improving. There is no other reason the dollar is up, other than the previously mentioned factors. 34% of the world's wealth (calculated in dollars) is still USD based, so any sell off in stocks, commodities, and bonds (meaning a return to cash) means a boon for the USD.

This trade will be a long term play and should not be taken with large leverage unless you are a day-trader who will be in and out of the markets. There is an overwhelming amount of negative data supporting the argument for USD down, so let's examine what could potentially cause the USD to rise, which we shall consider as USD down trade exit strategies.

What can change this trade (stop loss / exit points) can be the following unlikely scenarios:

Fed raises interest rates
ECB cuts rates (unlikely because unlike the Fed, the ECB only mandate is to contain inflation)
US Economy not only bottoms but shows signs of rapid growth (a bottom would not cause the dollar to rise without an increase in rates)

Anyone who previously thought it somehow negative to promote the shorting of the dollar should be silenced with Treasury's recent move, a message to the world saying that the US Government will backup free market capitalism with state sponsored socialism for the rich. None of these actions can possibly be good for the dollar in the long term. In the short term, as we see the Euro-bubble collapse, it is possible for the USD to rise slightly, but this should not be a prolonged trend. Euro weakness does not necessarily make a strong dollar, world markets are desynchronized and interest rate parity theory has stopped working years ago.

How to short the dollar?

Long term close your eyes trade; sell now with no stop loss and take profit at USD Index 65.
Short term automated trading systems with Sell USD bias. Tweak your systems to find USD short trends and take profits (systematic day trading)
Non-USD portfolio (European/Asian bonds / equities)
Long Swiss Francs or CHF based bonds

There may be a time when investment in the USD will be the trade, when once again foreign investors will flock to USA as a beacon of capitalism (meaning the ability to make money, which is restricted in many countries by strict government controls and the threat of potential nationalizations). Now is not that time.

http://eliteeservices.net/ Elite E Services FX Systems See more articles at www.eliteforexblog.com