Anyone familiar with Operation Twist and whether it succeeded?

 @NR “Tuesday morning update: The just announced new Fed facility – the Term Securities Lending Facility that will lend up to $200 billion of Treasury securities in exchange for debt including agency and private mortgage-backed securities – confirms that the Fed has now entered into the business of artificially propping up the agency debt market and the residential MBS market. With credit risk for GSEs recently rising for fundamental reasons the manipulation of this market just increases moral hazard and saddles the Fed with meaningful credit risk.”   Professor Roubini can really nail it, can’t he?  (Just now reading the professor’s previous post from an unpopulated outpost in coastal Oregon but had to express my admiration.)  

When will this ever end? Oh God, please….  

 Some “economists” say that the current gas prices are not so bad, historically:  In 1980, the average American had to work 105 minutes to buy enough gas to drive the average car 100 miles, according to Beth Ann Bovino, a senior economist at Standard and Poor’s. Now, the average American needs to work only 53 minutes, thanks to better fuel efficiency and higher wages.  http://money.cnn.com/2008/03/11/news/economy/gas_prices_inflation/index.htm   Now the average American needs to work less “thanks to … higher wages”?  What a piece of … baloney. The wages have really not went up since 1981, even by the governments distorted standards (read “Crash Proof” by Schiff). But I guess they could not just say that the sole reason is a better fuel economy?  That would not have fit the “things are getting better” / “they are not so bad” / “it’s just as bad in country X” mantra in the U.S. media. 

The average American isn’t Joe cubicle, making 80-100k a year, they are the 30-40k a year guy that cant wait to get home and drink a beer to forget about the day they just lived in bondage. Middle class America is strapped, credit cards are maxed out, negative or neutral equity, and driving a couple of negative value cars, most likely American made garbage that depreciates faster than the imports. Take that guy with the demands society places on them to consume – they are dogs at that point, hoping for a bone and they got the bone today. What they dont realize is that the master got a bigger prize and is smiling, hence the trickle down. The problem isnt liquidity or insolvency on the greater stage, it is the symtomatic effect on the average guy that will be the killer.  Things that keep the masses happy are costing more and subsequently they/we don’t have the money to pay for the fun stuff, it doesn’t happen overnight, nor does change in the financial state of the nation – that doesn’t include securities. The misconception is that the market reflects economic health, when in reality it is an internet based casino that is legal.   CNBC was all over the market activity today and even barfiromo was back today amazingly. Fed to the rescue, of the fat cats. There are a few standards, if it seems too good to be true…. and every action has an equal and sometimes stronger reaction and we have seen both of these themes in the last 6 months and from the same governing body.   The inflation measures suck, plain and simple – they aren’t shopping where I do and a 4% raise doesn’t keep me in line with what I see at the store. Inflation shouldn’t measure anything other than necessities, those are the things we have to consume and they are precisely the items that are appreciating most rapidly and cut into the “fun stuff”.

Here are some soothing thoughts to help the bears get to sleep tonight.   The Fed’s in a desperate race with spectre of collapse  Fed takes boldest action since the Depression to rescue US mortgage industry   By Damian Reece Last Updated: 2:10am GMT 12/03/2008   Equity traders, being ever the optimists, decided to look on the bright side of yesterday’s central bank intervention. London and New York did a jig after the US Federal Reserve and Bank of England pulled out all the stops to avoid markets falling into a pit of despair.  And who can blame them? When you’ve got state institutions as big as the Fed supporting markets then where’s the worry?  The Fed, with its latest $200bn offer of cheap cash, has provided yet more state aid for errant hedge funds and another Washington-backed bail-out for Wall Street bankers. The Bank of England joined in again, further shedding any notion of being wary of moral hazard. But as the bail-outs are getting bigger, then clearly the problems causing them must be getting bigger.  The Fed has saved the day again, but it will only be for a day or so. It was Friday remember when it had to pump $200bn of cash into the system. Yesterday it was offering to lend a similar amount to try and soak up some of the toxic debt out there which has left the lending markets hamstrung. How much further can the central banks go to support a system that is so obviously broken?  Arguably, having come this far, Mervyn King and Ben Bernanke have breached the point of no return. There is no going back. The US certainly is now relying on its central bank to keep its most important credit markets open, its equity markets from plunging and bring a veneer of normality to financial life. Traditional supports, such as confidence in normal commercial debt repayment, have been knocked away as institutions are engaged in a desperate dash for cash.  We have not seen anything like it since the decade of the Great Depression. Melodramatic as that might sound, it is a fact but a fact that markets seem unwilling to accept. While the Fed is willing to slash rates and hope, and pump liquidity into the system, markets will remain optimistic. But it is a race to the bottom. The Fed hoping it reaches the finishing line first and restores confidence returns before a bank goes bust. But the spectre of a collapse is neck and neck with Bernanke and it’s still anyone’s guess which will win.  http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/12/ccom112.xml   Pleasant dreams. Perhaps when you awaken you will find that the 417 point rally was only a nightmare.  

JMA its down by 2% now

LOL! From the previous thread:  >The Vatican has proposed to bless the FED’s collateral paper with a triple cross… <  Written by tutterfrut on 2008-03-11 10:32:47  Yes, forgive the sinners, because they don’t know what they’re doing…  It’s a bit difficult, though, as they are eating my hard earned savings away…  

From previous thread;  ”What does this mean? It means that we have sitting on a pile of dynamite with the fuse lit but extended. At the end of the day, the revaluation of financial assets will cause Balance Sheet insolvency and that is something the Fed cannot prevent. It is not in the business of owning banks. It would require federal government action. Don’t expect it in the current adminstration though.  Written by Wolf in the Wilds on 2008-03-12 00:02:05   @Wolf, What we have seen time and again with these crooks at the Fed and .gov is that nothing is what it is sold as. This TSLF is nothing different. Another shell game. I view the TSLF as exactly what it is- a covert purchase of equity in the US banking system by the Fed. The Fed is exchanging toxic bank and PD balance sheet paper with Govt Treasuries. They call it loans. As you would expect, when one considers the Fed’s primary purpose for being is to shore up the US Banking system ie, support the Banksters at all costs. Of course, this is being done with taxpayer debt. Treasury debt paper ,that is ultimately attributable to the account of the US taxpayer, is being used in the risky shell game of fending off the insolvency of greedy corrupt US Banks and PD’s.  ” Never…. has so much been owed by so many to so few”  @ Rich H, I don’t believe I have referred to you as “mad” so please don’t attribute that to me. Far from it , I consider you to be pretty sharp. I don’t however agree with your views on gold/money etc as I have stated. That is all and nothing more. 

A Palliative, Not a Cure From the Fed  Notwithstanding the stock market’s applause, the new Fed facility won’t cure the credit crunch. “Today’s action is not nearly a large enough step to make a big difference,” writes Merrill Lynch North American economist David Rosenberg. “Just compare the size of the operation, $200 billion versus the total MBS market of $6 billion, comprised [sic] of $4.1 trillion agency MBS and $1.9 billion in non-agency MBS.”  Indeed, only time will cure the problem, as house prices decline to levels that are affordable. But steps that the Fed is taking helps buy some time for the credit system and the economy.  http://online.barrons.com/article/SB120524767738227325.html?mod=yahoobarrons&ru=yahoo   

NR’S BLOG (THROUGH NO FAULT OF HIS) MAY BE INVESTING POISON  Today I considered a possibility. The possibility is that those of us who have been visiting this board have become blind to the bullish case. When we read NR we need to realize that he gets paid to comment and not to invest. Basing our investment decisions on his doom and gloom may be misguided. As we saw yesterday, in just one day Bernake and the powers that be can deprive us of our profits.   Could it be that this is it? That the war is over? That we are forming a bottom here? That decoupling turns out to be valid? That signals of economic weakness will be short lived and we’ll have a V-shaped recovery that is starting now? Could it be that we will get killed on our short positions and miss the profits bonanza starting in Q2? Could it be that historic central bank interventions have put in place a bottom that will not go any lower?   Does anyone feel like Q2 will be such a disaster? What happens if GOOG and AAPL and RIMM make their numbers? The stock market will take off and we’ll see 2600 way before we see 2000.   This is just random food for thought but I feel it’s important to get it out there. We should be well under 10,000 on the DOW by now and under 2000 on the NAZ. The Fed and govt. have really burned the shorts up to this point, especially those of us like JMA and myself who took short positions as early as summer 2006 (it’s been a hell of a rollercoaster).  Going long is starting to sound really good at this point. I really wouldn’t want to miss a historic rally or be shorting into it waiting for a doomsday scenario that never arrives.  Bernake has shown himself to be in charge and capable of coaxing the market to do whatever he wants it to. January was a major demonstration with the 75 bps cut. But yesterday was beyond belief. The man can keep coming up with schemes indefinitely till he accepts PEZ dispensers as collateral on T-bills. Come hell or highwater the indices have to move up. Why miss out on this?  So under the rubric of “If you can’t beat them, join them” I encourage any thoughts on the heresy of possibly reducing short exposure and going long from this point forward. Any ideas? Anyone?    

Preview of your Comment Professor says:   And now the Fed radically shifting the compositions of its almost $900 billion of assets from safe Treasuries into up to $400 billion of mortgage related securities is dangerous and a active form of manipulation of the credit spreads on these instruments. Why to fight a repricing of these agency spread that is fundamentally driven by the expected losses that the GSEs face?   In the previous thread, the issue was raised about the type and quality of the collateral the FED is willing to accept at the new facility. Ken provided the answer:   http://www.newyorkfed.org/markets/tslf_faq.html   What collateral is eligible for pledging?  Eligible collateral will be determined by the Federal Reserve and includes all collateral eligible for tri-party repurchase agreements arranged by the Open Market Trading Desk (“Schedule 1”) and AAA/Aaa-rated private-label residential MBS that are not on review for downgrade (“Schedule 2”). Schedule 2 also includes everything in Schedule 1.   So the issue is, in addition to agency RMBS, are there any significant amounts of “toxic” private-label AAA RMBS that are not on review for downgrade, and, thus, that can be posted as collateral?   The closest I came to the answer is the outstanding piece of research by Pittman which I posted yesterday:   Moody’s, S&P Defer Cuts on AAA Subprime, Hiding Loss  http://www.bloomberg.com/apps/news?pid=20601109&sid=aRLWzHsF16lY&refer=home   Even though the rating agencies have not yet downgraded the toxic stuff rated AAA (ain’t this shocking?), it would appear that if they have done “bare minimum” due diligence since things imploded last summer, ALL the toxic private label AAA RMBS should be under review for downgrade; and, thus, do not qualify as collateral at the new TSLF facility.   Can the “experts” out there that I know read this blog please elaborate?   BTW, I have a bunch of posts from last night at the end of the previous thread.  Written by Octavio Richetta

Wait until after the elections and the Olympics. Then we’ll see.

@Phil on Chinese inflation. It is not that bad (yet). Food CPI up 23% (pork up 63%), but non-food is up only 1.6%, and core (ex. food and energy) is up only 1%. And personal income is up 10%, and it was up by double digit numbers in each of the past five years.

I think a lot of people in equity markets and some on this board misunderstand the Fed’s actions. The Fed is not injecting bank capital into the system. It is injecting funding. In the previous incarnation of the TAF, only commercial banks could access the window. The Fed had hoped that the banks would then lend to the broker/dealers, which did not have access. That has broken down. The broker/dealers are now finding difficulty in funding their balance sheet. Today’s action was meant to forestall any force unwinding of position due to lack of financing (ie leverage), ie liquidity insolvency. It is a scary thought to think that any one of the large broker/dealers (BSC comes to mind first, ML second) is facing liquidity insolvency. The systemic ramifications are serious.    What does this mean? It means that we have sitting on a pile of dynamite with the fuse lit but extended. At the end of the day, the revaluation of financial assets will cause Balance Sheet insolvency and that is something the Fed cannot prevent. It is not in the business of owning banks. It would require federal government action. Don’t expect it in the current adminstration though.  

@CPR   Sigma 4 moves on Dow, Start of Bull moves  ”A characteristic of Sigma 4 moves is that they rarely show up in isolation, usually they are followed by another Sigma 4 event within a week or so.  Only 38 such occurances since 1970  traders-talk.com/fearless forecasters/scroll down to forum topics/Sigma 4 moves on Dow…posted by limron1       

Medic on 2008-03-12 06:52:39:  Revolutions usually begin when the haves and have nots are separated by such a distance. No. This will not be a good thing………    I was just thinking along the lines of how also many seriously bad situations needed a “reason” of one type or another. For example Hitlers anti-semitic philosophy did not pop up from thin air. It had already been present in the German culture for some hundreds of years (albeit not as strong), he just utilized it for his own aims. The other thing that he utilized was a bit newer, mainly the evolutionary ideas of Darwin which were used to bolster claims of a pure race that needed to be kept clean.  Anyway it was not like he built the national-socialistic philosophy from scratch. It was built from the raw materials already present in the German society (the existing ideas, beliefs, etc). This was actually also necessary as doing otherwise would have required a rather unsurmountable amount of effort.  The same thing with the physical actions he took, every one supposedly had some sort of a “reason” through which it was justified to the populace. Sort of like the Iraq war, waterboarding, and other controversial subjects are always provided some “reason”.  A very bad situation can be a ‘catalyst’ that causes the masses to act in a new way, but it can also be a ‘reason’ for those in power to act in some new way. Unfortunately.

I shudder to think of the “new” ways our current crop of “leaders” can conjure up. Let’s hope the masses come to their senses soon. Depair en masse usually finds a voice (not always a good one) but it usually finds one.

@Acheson  I don’t think that’s it. Benny is a pretty smart guy but only has a few options to choose from, lower rates (hasn’t worked at all) inject liquidity (stalls the process) and now buys up MBS crap in the hopes of keeping the banks propped up. Who knows if this will work.

@Guest  > Some “economists” say that the current gas prices are not so bad, historically… ___  My understanding is that there have only been two points in the last 100 years when real (discounted for inflation) gasoline prices were so high: around 1921 and around 1980.   SWK

Fell free to take a walk around CalculatedRisk if you haven’t done so lately; great stuff!

We ara talking centipede here, another shoe just dropped! (via CR)  Latest Trouble Spot for Banks:  Souring Home-Equity Loans Losses May Hit Lenders That Skirted  Subprime; Surprise Delinquents By ROBIN SIDEL March 12, 2008; Page C1  http://online.wsj.com/article/SB120527998662928743.html   Here comes another headache for banks suffering from the mortgage downturn: Losses on home-equity loans are soaring, even at some lenders that avoided big blunders on subprime loans.  When times were good, banks raked in billions of dollars in profit from home-equity loans, which allow borrowers to tap the accumulated value in their property with either a loan for a specific amount or a line of credit. As long as home prices were rising, lenders had little to worry about.  But falling home values are leaving banks with little or nothing to collect on many home-equity loans in case of default. Some stretched borrowers are keeping up with their mortgage and credit cards — but not their home-equity loan.  The problems are already causing trouble for J.P. Morgan Chase & Co. and Wells Fargo & Co., and are expected to hit other large banks when first-quarter earnings results are released next month. The pain is likely to deepen through the rest of 2008, sapping capital levels and resulting in tighter lending standards as banks try to reduce their risk.  ”These losses are well beyond what we would have modeled…and continue to get worse,” said Charles Scharf, head of J.P. Morgan’s retail business.  At a meeting with analysts and investors last month, Mr. Scharf spent more than 30 minutes dissecting the second-largest U.S. bank’s $95 billion home-equity portfolio. It wasn’t pretty. J.P. Morgan expects home-equity-related losses of about $450 million in the first quarter, up from $248 million in last year’s fourth quarter. By the end of 2008, home-equity losses could double from current levels, he said.  Because J.P. Morgan largely escaped the brunt of the subprime crisis, its ominous tone on home-equity loans has fueled anxious number-crunching.  David Hilder, a banking analyst at Bear Stearns, last week cut his 2008 and 2009 earnings estimates for National City Corp., SunTrust Banks Inc., Washington Mutual Inc. and Wells Fargo, citing rising home-equity losses. Each of those lenders has 12% to 19% of its total assets tied up in home-equity loans.  Fitch Ratings, a unit of Fimalac SA of Paris, predicts that “banks will significantly ratchet up loan-loss provisions against home-equity loans in 2008.”  Projected losses from home-equity loans aren’t anywhere close in size to the carnage caused by the declining value of mortgage-related securities. (Those losses now total more than $150 billion.) But the cascading delinquencies and charge-offs represent one more piece of the U.S. banking industry that is in big trouble after years of bumper-crop profits.  Originally used to finance home-improvement projects, borrowers increasingly turned to home-equity loans to pay off other debts, such as credit cards. Home-equity loans also became a popular way to fund vacations and expensive electronics — or to buy a house with little or no money down without paying for private mortgage insurance.  …  And the recession is barely starting!  

From the same link:  While banks can foreclose on a first-lien mortgage, lenders often have little recourse when trying to collect a delinquent home-equity loan, especially if another bank holds the primary mortgage. Banks holding home-equity loans generally can only seize the collateral — a house — after the mortgage is paid off.  When another bank holds the mortgage and the mortgage payments are current, the home-equity lender is effectively powerless to collect the debt.  Unfortunately for home-equity lenders, many borrowers understand that pecking order, concluding there are few repercussions if they stop making payments on their home-equity loan. “Lenders are seeing people go delinquent on home equity who by all rights wouldn’t be expected to go delinquent,” said Dan Balkin of Wholesale Access, a Maryland research and consulting firm that specializes in the mortgage industry.  Leaning on outside mortgage brokers for home-equity business was “one of the biggest mistakes we’ve made,” said Mr. Scharf. Those loans have performed worse than home-equity loans generated by J.P. Morgan.  J.P. Morgan, Wells Fargo and other banks are now backing away from brokers to focus on home-equity loans offered through their own retail branches, where customers already have a relationship with the bank. Citigroup Inc. has slashed the number of home-equity loans originated through brokers by 90%.  Meanwhile, financial institutions are refusing to provide home-equity loans to homeowners whose residences are already weighed down by big mortgages in states like California and Florida where home values are falling fast.  ”This product was meant to help people do construction on their house, [and] do debt consolidation — not to take out every last dollar of equity in their home to finance a different kind of lifestyle,” Mr. Scharf said. J.P. Morgan is “rolling our changes back to represent that kind of product.”   I never imagined Bankers could be so stupid. And JPM’s are supposed to be among the better ones with the Bank One new boss running a tighter ship.  One last thought. The name for the product HELOC should make an excellent candidate for posting to the oxymoron list:  http://www.oxymoronlist.com/ (read a few; have some fun)

OR:  Your fingers are flying this morning! Perhaps another cup of coffee?

The $ continues to fall and libor continues to rise this a.m.. The Fed is powerless and yesterday’s stock action in response to this plan (which doesn’t even take effect for 3 more weeks!) just makes them look even more idiotic!

The investment bank CEOs clamored and said Master, we have liquidity needs being demanded from all of these people. They have come to us and we can not meet their requirements. We only have illiquid investments ! How will we provide this large crowd with the liquidity they need. They may turn on us. What shall we do ?  Ben took a deep sigh and told his disciples. Gather up your illiquid investments in these baskets and pass them around.  Ben’s banking disciples said. Master, they are not liquid how can we pass them around and provide them the liquidity they need. One of his disciples said just do as he says. So the disciples passed around the baskets and to the amazement of the crowds and the disciples, the illiquid investments had been transformed into liquidity. The disciples and the crowds marvelled at one they had seen. For indeed, Ben had performed another financial miracle before their eyes.

Thanks Lili!  Giraf, perhaps I am being a bit slow here but I don’t see how lili’s remarks makes the stuff you will see below unsuitable collateral for TSLF.  From a CR poster. This is awesome stuff. You need to check out the interactive stuff:  Misean writes:  Oh look,  Someone made a pretty colloured chart on Bloomberg of AAA rated used toilet paper that the Fed can accept in it’s free lunch program.  This is so cool, I’m going to have to have another double ‘tini. Hell I might have to go target practicing tomorrow as well.  Gosh, could things be any better.  http://www.bloomberg.com/apps/ da…id=iQUy2GaasArs  Cheers, Misean | 03.11.08 – 10:44 pm | #  

@ Octavio richetta  Good morning ; could you resend us the link, it doesn’t work for me.  Thanks !

@OR,  We can continue to go round and round in circles. Bottom line is, unbeknown to most, the U.S. bond and money markets were within days of total seizure. The dealers were losing their ability to fund their inventories. All market making in debt securities would have ceased, I suspect even for U.S. Treasury securities. (Daily debt market transactions make stock market volumes look miniscule.) Such an occurence would be devasting for the global economy.  This TSLF allows the markets to continue functioning, at least temporarily. It is not an injection of cash or liquity. It is not a bail out for toxic waste. It is a much needed innovative way to allow dealers/market makers to access equisting liquidity in the market place. The alternative would be a rapid, domino effect of all banks closing their doors, worldwide. Imagine that outcome!

@Lili,  I found the info for you yesterday by digging around the FRB of NY site. I suspect the info you need will be found on the federalreserve.gov site.  Sorry I can’t be more specific as I don’t know the answer off the top of my head.

Re my latest post to OR, in the second paragraph, it should read “access existing liquidity” not “equisting”, a word, I believe, that doesn’t exist. My mind works much faster than my fingers.

US stock market has now become on big State Fair Shill. What a joke…

@ Giraf, lenny  About the depository institutions : ok i’m going to do a bit more research ; i doubt there is no clear list, but the fact is, with the transformed and transforming banking industry, it’s quite hard to understand how this whole thing works. Anyway if you have new info, i’m there! Thanks  lili

@Giraf on 2008-03-12 10:09:47  Interesting, and do you know wich criteria legally determines if an institution is a depository insitution or not ? Ok maybe i should try to get this one myself. Just in case you know without doing research.

@Lili,  What is it that you are trying to get at?

More good news for the economy an dstocks: Builder Confidence In Condo Market Declines Again     March 11, 2008 – The Multifamily Condo Market Index (MCMI) ended 2007 on a low note, with the component of the index tracking builder confidence in current conditions standing at 18.8, down nearly 11 points from the same time a year ago, according to the National Association of Home Builders (NAHB).   “Given that the condo market became so overheated during the peak of the housing boom, it is not surprising that the market now continues to struggle, considering the difficulties in the mortgage sector and the fears about the economy in general,” said David Seiders, NAHB’s Chief Economist. “It is going to take time for the extra inventory to be absorbed.”   The index is derived from a quarterly survey of multifamily builders and developers, in which responses are rated on a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.   The component of the index that gauges current conditions in the condo market has not risen above 25 during any quarter of 2007.   Builder expectations for the next six months are only slightly more optimistic: The component tracking expectations stood at 29.2 in the fourth quarter of 2007. In the fourth quarter of 2006, this component of the index stood at 49.1.   Responding to a series of special questions that accompanied the MCMI survey for the fourth quarter, 28 percent of survey respondents reported higher or somewhat higher sale cancellation rates in the fourth quarter of 2007 compared to a year earlier. The average sales cancellation rate in the fourth quarter of 2007 was 19 percent; the median was 12 percent.    About two-thirds of builders reported lowering prices to bolster sales. The average price reduction was 11 percent. When asked about other marketing strategies being used to shore up sales, more than 70 percent of the respondents reported including optional items at no costs, paying closing costs or fees, or absorbing financial points for their buyers.   

Since the FED is a gov’t sponsored entity able to capture special monopoly privileges, and is using them for rent-seeking activities, and to economically sustain and enrich Wall Street players, they are enemies to democratic republics.  As such Jim Rogers is correct, they should be completely abolished. It is their enabling of outrageous risk, and bank hubris that they are “too big to fail” that led to false prosperity and unbridled gaming of chance.

Not a single dissenting voice on Bloom, cnbc, fbn. Everyone agrees this is a wonderful move. The Socialist Dream is here. Your Socialist Dreams have been fulfilled. Free govt money for private American banks. Banks run by the proverbial “stupid american”. 100 billion, 200 billion…make it a trillion. Debase the currency. “Inject” “liquidity” -terms that cannot even be defined. Credit “crunch”- can’t even be defined. The “financiers” just invent their own language to fool the public. American financiers have a worhless product and no buyers..except the stupid american taxpayer! Pay up americans! Bailout your banker slavemaster. And pay it directly to your government slavemaster!  

 Here is yet another..  “A temporary suspension of redemptions is the best defensive measure to protect the interests of the participants,”   _________________________________________________________  GO Capital Halts Redemptions From Global Hedge Fund (Update2)   http://bloomberg.com/apps/news?pid=20601208&sid=ajAByLCA.SDg&refer=finance  By Tom Cahill and Alexis Xydias  March 12 (Bloomberg) — GO Capital Asset Management BV blocked clients from pulling cash from its Global Opportunities Fund, at least the seventh hedge fund in the past month forced to take steps to protect itself from market fluctuations.   Frans van Schaik, the former head of equity research at ABN Amro Holding NV who founded the Amsterdam-based fund in 2000, wrote to investors that the fund is not leveraged and not facing margin calls. The fund, which bets both on rising and falling prices, has assets of about 570 million euros ($881 million).   “A temporary suspension of redemptions is the best defensive measure to protect the interests of the participants,” van Schaik and other members of GO Capital’s management said in a letter posted on their Web site and dated March 11. “Current market circumstances do not allow the fund to sell investments at a reasonable price.”   Hedge funds managing more than $5.4 billion have been forced to liquidate or sell holdings since Feb. 15. As U.S. subprime contagion spread, the MSCI World Index fell 16 percent from a record on Oct. 31 through yesterday. The other funds included Peloton Partners LLP’s $1.8 billion ABS Fund, Tequesta Capital Advisor’s mortgage fund and Focus Capital Investors LLC, which invested in midsize Swiss companies.   Drake Management LLC, the New York-based firm started by former BlackRock Inc. money managers, may shut its largest hedge fund after a 25 percent decline last year, according to a letter to investors today.   European Focus   GO focused mostly on listed European equities, although it was not restricted in investments it could make, the Web site says. The fund planned to make bets on between 10 and 30 stocks and looked for “situations of overreaction or stress,” according to the Web site.   The fund held 25 percent of Hamburg-based Thielert AG, a maker of propeller engines for aircraft, and 22 percent of Devgen NV, a Belgian biotechnology company with headquarters in Ghent, according to filings from December through February,.   Thielert dropped as much as 15 percent today and fell 8.9 percent to 4.43 euros as of 4:35 p.m. in Frankfurt. Devgen declined 4.4 percent to 12.45 euros.   The fund also owned a 26 percent stake in Stern Groep NV, a Dutch car dealer based in Amsterdam. A total of 92 Stern shares traded today, with the stock trading 1.2 percent higher at 30.66 euros.   Asset Value Drops   Van Schaik didn’t respond to an e-mail or phone calls seeking comment. The note didn’t specify what investments the fund couldn’t sell. GO Capital’s managers also include ABN Amro veterans Corneille Couwenberg, Mike Kranenburg and Albert Jellema.   The fund, which targeted returns of 15 percent a year, is down 7.7 percent through the end of February, according to net asset value figures on its Web site. It gained 2.1 percent last month, reversing a 9.5 percent drop in January. The fund rose 3.3 percent in 2007, 22.4 percent in 2006 and 69 percent in 2005.   To contact the reporters on this story: Tom Cahill in London at tcahill@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.   Last Updated: March 12, 2008 11:53 EDT

“Dollar Falls to Record Low on Concern Fed Package Won’t Succeed”  It is said that we should buy US stcoks as the cost is lower in view of weak USD. Buy European stocksn as Euro money is getting stronger and stronger.  I am learning how to play with such good ideas…  

@Anonymous, “GO Capital Halts Redemptions From Global Hedge Fund”  I was going to make a joke about a hedge fund implode-o-meter, hf-implode.com, modelled on the mortgage-lender implode-o-meter ml-implode.com, but I see that hf-implode.com already exists!  

The next leg down any moment or day now, will take the DOW to 10,700. This is clearly a level where the Fed should step in and work another miracle on a technical basis. All have grown accustomed to these saves and the the prowess of the GPPT – Global Plunge Protection Team with their crack technical teams painting pretty charts across the world. For all of those believers out there, be my guest in getting long there.  Personally, I will be short there with every last drop of blood, sweat, tears I have left. It will be a precarious level and these technical dramatic saves will not go on into infinity.  Here is a scenario for you to ponder, Shanghai is near old lows. Once those lows are taken out, a plunge occurs and replay March of 2007 times about 3 in the US. I do not track relations between Shanghai and US markets in a meaningful way but down over 2% versus US up over 3% is a bit compelling IMHO.

@CPR  Good question. Yesterday had all of the characteristics of the sort of rally that occurs at the beginning of a bull, but we are at the end of a bull, not the beginning. This was a high sigma event which means there’s a very good probability of a major move up from here. As Ken wrote yesterday, cover your shorts now.  The Fed and now other central banks are willing to gamble on inciting hyperinflation in assets in order to counteract the extremely threatening and accelerating deflationary trends in real estate. Where they know they can’t cope with growing deflationary expectations, they believe they can control hyperinflation with a Volcker style response. Whether they can or not, remains to be seen. But it is perfectly clear that the Fed is doing everything it can to incite asset inflation in the markets regardless of the long-term consequences. And the open ended commitment Bernanke implied yesterday has reignited the speculative frenzy. No telling how long it will go on or how high the markets will climb before they ultimately crash.  Money can be made during this speculative frenzy, but this changes nothing about the fundamental macroeconomic environment which Prof Roubini analyzes. Given the extraordinary and unprecedented measures the Fed is now employing, market prices may become even more completely disconnected from the real economy for several more weeks, months, or quarters. But not years. The Prof never pretends to be a market timer. Timing is everything in this fantasy market, but don’t blame the Prof if your timing is off.

Some more news:  ”US DATA: Feb budget deficit $175.6b vs $120.0b deficit in Feb 2007. Calendar quirks such as the shift of March payments in February and the presence of five Fridays (when tax refunds are sent out) boosted outlays. Excluding those factors, gap would have been $33.6b less. 2008 FYTD deficit $263.3 vs 2007 FYTD deficit $162.2b.”  The Dane 

@JMa  Have you pre-planned your wake?  :)

@ JMa , “dramatic improvement in ABX, LCDX and CMBX indices following financial shock and awe”  These price upticks, though consistent, are quite smaller than the daily variance seen in the historic data, so I don’t see how this qualifies as either a “dramatic improvement,” or even necessarily anything to do with the Fed’s acceptance of AAA securities as collateral.  

@ Stratonovich calculus,  i was being sarcastic sorry for the misunderstanding. they barely moved and the LCDX held support at 450.  somehow i have become twisted, skeptical and sarcastic – it may have something to do with the fact the equity markets are about 4 standard deviations away from reflecting reality right now and I have endured no less than 4 blows to the head with an aluminum bat from the Fed since last August…   is it prudent for the Fed to sit around and wait and time throwing bullets at the credit market freeze only when the equity markets reach a certain technical level ? is it prudent to back the US dollar with illiquidity ? are equity prices relevant when the entire credit construct is frozen like NYC in the day after tomorrow ? one would guess the credit issue should hold a higher priority than sitting around and day trading equities while attempting to pull confidence in the credit markets out of the black hole in outer space where it may have been lost forever…

“http://www.moneymorning.com/2008/03/11/dear-ben-to-save-the-u.s.-economy-here-are-the-moves-you-need-to-make-now/“  THERE IS NO INFLATION!!!! Ben’s wrong moves will guarantee hyper-inflation.  Those deflationists are on crack.

@ JMa, “i was being sarcastic sorry for the misunderstanding”  Oh good. Whatever you, please don’t resort to winking smileys or tags in future comments — misunderstandings are preferable.  Re the market bounce — I’m amazed that so many posters here apparently have a day-trading mentality about their short positions. I’m short too, but in “buy and hold” positions offset by other long positions. Worrying about a 10 percent haircut on one day is as silly as giddiness last week as the markets plunged. I can’t predict the markets, and no one else can either. That said, it’s difficult to see how lending more money to insolvent parties will solve the problems facing the banks and the Fed, so sit back and enjoy the ride. Perhaps the potential market bounce after Ben’s rate cut next week will provide more attractive shorting opportunities. It’ll be interesting either way it plays out.  

@ES Trader  woops, hope you didn’t!

Nouriel, While you and Gary Shilling make strong arguments for re-coupling, for now at least, China’s middle class seems to be spending happily lifting the domestic economy, and encouraged or subsidized by the government. Shilling argues that Chinese are inveterate savers, but now with bank interest rates negative in real terms, will the cultural commandment to save survive? Spending on stylish clothes, cell phones, appliances, cars and apartments has been booming and may continue as the Chinese consumer catches the spending/consumption “bug”. A lot of these spenders are young people who’ve come into the cities for work – they don’t necessarily have a commitment to the old ways.  Teenagers in Japan, Europe and the US pretty much like the same music, games, clothes, etc. Maybe China will soon join this global homogeneity. We’ll have to wait a while to see the impact of US slowdown in consumption on China’s cities and factories. Surely, the workers will be hurt by factory cutbacks at some point. What is the US consumer share of China’s production? Around 25%?  http://www.bloomberg.com/apps/news?pid=20601087&sid=aEYqjtxu1PLg&refer=worldwide   

i forgot to say IMHO…

Stratonovich calculus on 2008-03-12 11:57:50  @Hong Kong fun manager, “It is said that we should buy US stcoks as the cost is lower in view of weak USD.”    Yes! Now that all U.S. businesses now accept Euros, those P/E’s are falling through the floor!   Better buy up those U.S. equities now, or you’ll be priced out forever!   hmmm…it’s a plus-minus-zero change on the P/E’s if the dollar falls, unless if you use the Euro value on ONLY the “P” side. But that would skew the whole calculation. Actually considering that the future “E” would be even lower against the Euro it does not look like a good idea to use Euro to buy U.S. stock.

4:28 Mens Wearhouse profit drops 72% 

@ Guest, “it’s a plus-minus-zero change on the P/E’s if the dollar falls”  Yes, that was sarcasm, but with a conscientious avoidance of using winking smileys or <sarcasm> tags.  Obviously the dollar’s rise or fall shouldn’t have first order effects on U.S. stock index fundamentals.  

@JMa I think you are correct that the Chinese market holds the key to the great crash. When the Shangai index really begins to implode in earnest, all hell will break loose. The mythology of the great “Chinese Miracle” will be revealed to be the great “Chinese Bubble”. If there is no such thing as the Chinese Miracle there can be no rationale for stocks to go up.

Quote of the day  “We have a dollar that’s adjusting, and I am for a strong dollar.”  G.W.BUSH   http://www.bloomberg.com/apps/news?pid=20601087&sid=a7aXfhZ1VIcE&refer=home

As all fiat currencies it follow a long trajectory to its fundamental value.

Quote of the Day#2  ”To be successful, keep looking tanned, live in an elegant building (even if you’re in the cellar), be seen in smart restaurants (even if you only nurse one drink), and when you borrow, borrow BIG.” ~Aristotle Onassis 

http://news.xinhuanet.com/english/2008-03/12/content_7772053.htm ”BEIJING, March 12 — With the United States bordering on recession, the global economic boom has ended. The boom was unusually long and persistent, with four years of roughly 5 percent growth – a period of sustained economic dynamism not seen since 1970.  The clearest sign that the boom is ending is the International Monetary Fund’s forecast of 1.5 percent growth for the US in 2008. That may not sound like a recession, but the IMF’s marginally positive projection primarily reflects the growth overhang from 2007, with hardly any new contribution in 2008. It is compatible with three consecutive quarters of zero growth in 2008″  This is interesting because the source is thoroughly in bed with the chinese government, hence basically propaganda. The Commies are more honest with their people than Bush and Co.?  

The Fed inspired rally couldn’t hold for 48 hours, let alone until the next rate cut. The Fed has expended nearly every round with few bullets left in the belt, and none of them silver.  This will rapidly spiral out of control when even extreme measures like the tslf and taf fail in short order.  It is going to get much worse before it gets worse.

@ I find it strange that people don’t need to know who exactly is concerned by the measures…  Written by lili on 2008-03-12 10:33:17  Since I think that you are asking about the TAF rather than the new facility, the answer was provide in an VOXEU article of 16 December 2007 by Stephen Cecchetti:  Term Auction Facility (TAF): new – really new  Finally, we are now ready to discuss the actions of 12 December. The Fed announced that they are going to auction off reserves for terms of up to 35 days, allowing all banks to participate and accept the same collateral that is accepted in discount lending. This is different from open market operations because it involves all 7000+ banks, not just the 20 primary dealers, and the collateral accepted is much broader than what is taken in the standard repurchase operations (‘repo’ in the jargon).[7]   The TAF is also different from discount lending in that it is for a fixed term and is through an auction. This may be a critical change as it means that Fed determines the quantity and the timing, not the private banks. Banks do not come hat in hand to the Fed asking for a loan, they simply bid at the auction – no stigma, one hopes. (emphasis added)  You may wish to read the entire piece, which also contains a few internal links: http://www.voxeu.org/index.php?q=node/814  Hope that helps.

We need a False Statements Database for econ statements

Medic, from your post, it seems you were JUST recently unplugged from the Matrix  some people, hey maybe most people here have known about this manipulation a long, long time ago and have expected this (implosion) to happen  

I have a question.  If we assume that this whole chirade involving sub-prime+ and the US economy is one big “pump and dump” scheme, then who are the pumpers?  Lets set aside whether Roubini is right or wrong. Now that Roubini is getting noticed (again, after some years since 1997-98) in the mainstream media, he (and in a small way, we) are now part of the great game.   The question thus becomes, who benefits from pushing Roubini’s and other’s ultra-bearish interpretations of the US economy?  There is economic data, and then interpretations of data. As Lawrence Summer’s said last week, in every collapse in history, greed turns to fear. i.e. “real” data becomes increasingly less important as the flames of the crisis wildfire spread. *Interpretations* of information become crucial, even if they may have only the slightest of relevance to the “actual” situation.   So lets look through history and figure out which actors benefits from fanning the flames of financial collapse.  Lets just stick with the 1990s:  1990 Japan 1994 Mexico 1997-98 Thailand, Indonesia, Malaysia, South Korea 1998 Russia 1999-2000 Brazil, Argentina  Thoughtful ideas?  thanks.

Octavio, Medic, Dan, Skipper et. al…   Thanks for answering my question in various ways and from different angles.   This is kind of a long post but I just wanted to get the bullish case out there:  My main concern stems from earnings season. Major U.S. companies now get more than 50% of their earnings from overseas. With the weak dollar as further help, it’s highly possible that the big names can beat estimates even with the U.S. economy in the doldrums. This would ensure a powerful rally up, coming from both the shorts covering positions and permabulls dying to get back on the rollercoaster. The full effects of recession may not be felt until later this year so it’s possible we get a six month pop back up which would definitely seem possible from this oversold conditions.   As Jma points out, the Fed has burned us several times since August and we should be several standard deviation points lower from this level. Not even Greenspan on his most inflationary day was this accommodative. In fact, in the history of U.S. central banking, Bernake will stand out as easily the most active and interventionist. We really shouldn’t be surprised though. This is exactly why President Goober hired him and Paulson as well. Of course it’s insulting to anyone who believes in free markets but they are an investing reality. It really depends on how you look at it. Shorts see themselves as honest and rational brokers trying to get the market down to where it should be whereas the permabulls see them as gloom and doomers robbing their nest egg. Permabulls don’t care where the money comes from as long as markets go up – to the devil with the dollar, inflation or moral hazard. Bernake is on their side, not ours, and he has proven himself to be Wall Street’s bottom bitch to the hyperinflationary end. Who would we rather have on our side? NR or Bernake?   With this in mind, I took out a long position on the Nasdaq yesterday, something I hadn’t done in a long time. Don’t get me wrong. I’m still short and still bearish but from a self-interested standpoint, I am considering the other side of the argument. We can endlessly discuss the state of the U.S. consumer and the U.S. economy but this may have nothing to do with earnings season for companies outside of those with direct U.S. exposure such as financial, real estate or retail. The other day McDonald’s reaffirmed earnings, Caterpillar did the same, and Jeffrey Immelt at G.E. is buying stock talking about no problems with earnings going forward. Valuations are in the teens across the board and companies are surely looking like bargains to a lot of money managers.  It could be possible that the U.S. is slowly being reduced to a third world country where the currency is kept weak, the population live impoverished, except for a few white elite that own all the wealth. When I hear that BMW wants to move factories to the U.S.A. to take advantage of the weak dollar, I start to wonder if all of this is not by design from Bush and Co. If that is the case, the stock market can push Bovespa like levels. The core elite can profit while everyone else languishes – debt slaves getting by on their minimum wage jobs and few token consumer goods to keep them happy.  I’ve marked April 2 on my calendar as a pivotal day as RIMM comes out with earnings. A couple of weeks ago they said their subscriber base had increased but didn’t push up earnings forecasts. Not sure how that will play out but RIMM will be important to market sentiment, of that I’m sure. There is a lot of chatter about GOOG and APPL out there. Will they or won’t they make earnings? And what about looking forward into Q3 and Q4? I can tell you that both are almost 50% off their highs. That’s a lot of bloodshed. I can’t overemphasize how important these two stocks are to overall market sentiment. They are like Wall Street rosary beads – people hold them and pray for the best. Any positive news from them and IMHO we’ll be off to the races across the board. Conversely, any negatives and we’ll be pushing lower.   After all the macro and credit market analysis, it really comes down to a handful of companies that can decide sentiment either way. And from these oversold conditions sentiment is everything. Bernake has robbed the shorts of a huge profit opportunity with the timed rate cuts and interventions. Tuesday’s action showed how he can invent market prop-up schemes at will. I don’t know how much further we can drop from here against that kind of firepower. Any move back down and he’ll be accepting canned goods and food stamps in exchange for T-bills. I’m skeptical of Nasdaq 2000 at this point and Dow 10,000 seems just as far off.   Anyway, keep the feedback coming. I agree with all of you on the macro trends but am very worried about upcoming earnings season. It may not move the way we would like and we should be prepared for such a contingency.   Luck to all.      

Carlyle Capital failed to come to a standstill agreement with its lenders and expects its assets to be seized.  Wow.

true CPR  but, USD is still the world reserve currency oil/commodities are priced in USD USD depreciations=higher inflation level=public discontent  how long would the rest of the world accept this S*** if, TROTW dumps USD what will happen?  

@ J. on 2008-03-12 21:40:36  Thanks a lot, yest it helps !  

conan o’brian, tonight, looking into the future: “pres bush will finally admit that the us is in a recession when we see americans illegally crossing the border with mexico to go and wash dishes over there”…

@CPR, I would add one more thing here. After the treatment I have received from this government, administration investing in the equity markets of the USA as a seller (markets have buyers and sellers), I would prefer nothing more to find any other country on earth to invest in after the emerging markets correct. Brazil, India, Russia and China (China-after the severe crash) Markets go up and they go down. This circus show of Federal Reserve and government has prolonged and worsened this event which is about to go down by artificially keeping nominal prices intact and artificially elevating them all the way up to the top. It is not hard to argue part of this may have been to allow a few last major (one in particular) deals / IPOs not to mention any names. Equity market wise the PPT in fact ADDED to the extent of the coming plunge through unabated complete and total corruption.  I am an American and proud of it. When I sat in my local church near the 4th of July last year and listened to the congregation sing various anthems it deeply saddened me to know what was about to happen here. Here were these simple middle class folks singing, heartfelt melodies about their faith and country while its extremely wealthy, powerful, corrupt, greedy players were ruining it, raping and stealing from it. Whatever happens here, I hope the world understands there are many wonderful people here as there are in any country throughout the world.

Crikey!   S&P Futures minus 16pts and counting….Maybe Europe will help out and buy buy buy some junk junk junk….. 

asian equities continue their steady, almost linear fall today (-2.5% to -4.5%). yen very close to breaching 100 to the us$.  things could become very very very ugly by friday… if the world still exists by then.

Correction: “merger oF equals”  but then, what to do with bush??? 

JMa,   Thanks for your comments. I agree with you on the issue of the Bovespa and do remember you being the one that mentioned it once or twice over the last couple of years. It’s amazing how time flies on this board, isn’t it? We have been coming to this site for so long. Personally, I’ve always felt a particular kinship to your position, being that we started to short the market at roughly the same time. I, like you, walked into the Israel Lebanon War pullback thinking that the markets had a tremendous run up and were do for a serious correction. We both turned out to be way wrong. I understand your frustrations and some of your wild posts of late. To go all the way down on our short positions and come all the way back and be denied a serious profit by this inflationist pig Bernake is like getting teeth pulled.   If I have learned anything over the last two years, it’s that you can’t bend reality to your beliefs, even if you know that you will one day turn out to be right. Like 1997 bears, NR has been right for a long time but it’s only now that it’s all coming undone that one would be rewarded for going short. 2006 and early 2007 and even late 2007 was too early. A lot of people on this board (myself included) became mesmerized with NR’s bearish case and arguments. Riding APPL from 50 to 200 would have been nice. Personally, I regret not going long during that time. Missed a major ride up. Though I have profited from the ride down. And I did learn extremely valuable lessons with respect to going short.  The question on my mind now is how not to get caught with such an adamant position that I’m frozen. I lost the buy and hold mentality in the 2000 tech wreck. I have lost all my outright bearishness in the last two years. It’s all about market sentiment, psychology and statistics. The trend is your friend. Why fight the crowd. Cause and effect: in general, if companies make their numbers, stocks go up; they fail to make their numbers, stocks go down. I have a million and one little stock market Hail Mary’s like these.   My problems with the Gold Bugs Index you suggested are two-fold: 1. price; 2. it’s based on gold companies. I would personally prefer to invest in GLD – a simple ETF that holds gold. If you pull up a chart of HUI and compare it with GLD you will see that they track exactly the same. All investments in gold have their problems but a simple ETF like GLD seems like the easiest way to create a dollar hedge. I do agree with you that there will be a pullback at some point soon.   In general, it’s safe to say that we just can’t tell at this point. But I can tell you, and anyone who was short for the last year plus can agree, that being short in an upward moving market feels really bad. By the same token being short in a downward moving market feels really good. How to stay lucid and not be rigid in our opinions is all we should care about at this point. If we do this we have a much better chance of staying on the right side of the market. 

CPR relaxs,  FED is burning both Bulls n Bears timing is of the essence  P.s. real economy is screwed

Mr Skeptical,  I understand your point of view and am clear on what you’re saying. Still, I’m just being the devil’s advocate here for the long case. Here are three points I’d like you to consider:  1. The issue of the Fed and what they can or can’t do is tricky. Open Market operations are complex and opaque. But I feel we should stick with the idea that in a fiat economy the central bank is all-powerful. Bernake has proven himself capable of anything. In the end, if it means “printing” money then that is exactly what he will do, inflationary consequences be damned. The TAF pumps liquidity into the system and rolling over these debts indefinitely is akin to asking that the money never be paid back. Read his 2002 speech to see just how far he’s willing to go.   The second point is the most important one to what I was trying to say.   2. Earnings in Q2 may have nothing to do with how the U.S. is doing. Let’s be honest. Outside of finacials and real estate and the retailers, your average S&P company beat estimates in Q4. Earnings did come down but not by a whole lot. This is important to remember. Can companies pull a rabbit out of their hats in Q2? This is my main question. It is possible.  I appreciate your comments. And understand that I’m only preaching a balanced view with respect to the market. That’s all. Like most here I remain long-term bearish on the U.S. economic fundamentals.      

CPR  you give bernanke to much credit, Prof Roubini deflation scenario is coming soon Inventory is increasing but price is yet to dropped demand has faltered a bit  DEflaation is coming.. pppooooff  Gasoline inventory is up 11% YoY.6.2 Million barrels.  The US is awash in oil, especially gasoline.  this is what happens before commodity prices collapse. recalled seeing a chart of silver prices to inventories a while back. Near the end of the mania, fools drive the price higher even as inventories are going up. Then reality sets in.    http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/txt/table12.txt  

CPR  all i can say is “something has to give”…   besides the only longterm solution will be the painful one of actual savings and increases real productivity… not more fiat credit or more accurately illusionary money…    mrskeptical  

first by inflation, then by deflation  hmmm who said that?????

@CPR  ”Faith In The Fed Is The Last Bubble”, Mish.  I suggest you an excellent article posted by Mish a while ago. It is hard to believe, but in hard times the FED has much less real power than people think.  ”Bubble Economy Endgame”  http://globaleconomicanalysis.blogspot.com/2008/02/bubble-economy-endgame.html  In light of the financial risk that it is willing to take in this environment, I will personally not be shocked if the Federal Reserve Bank of New York itself would go bankrupt.

Today is the day!

Today may well be the day. But they’ll do anything they can to stop it.

Yes. Today is the day that ships drop anchors and sever communications cables. 

Subprime induced credit crunch + increased volatility + increased leverage = financial disaster!  A simple example:  1. No leverage: Investor has $100 in assets and invests it in the stock market:  Balance sheet no leverage: (remember the fundamental equation of accounting Assets = Liabilities + Owner’s equity)  Assets: 100 (in the S&P 500) Liabilities 0 Equity 100  Suppose the S&P 500 goes down 10%, the BS becomes:  Assets: 90 Liabilities 0 Equity 90  Unlevered investor losses 10% of his capital.  2. 9:1 leverage: Investor (i.e. a hedge fund) has $10 in capital, borrows $90 and invests $100 in the S&P 500:  Assets: 100 (in the S&P 500) Liabilities 90 Equity 10  S&P 500 goes down 10%:  Assets: 90 Liabilities 90 Equity 0  The value of your assets goes down the same 10% but you still owe the bank the same 90 bucks, so a 10% decline in the market wipes you out (0 equity)! The up side of course, is that if the market goes up 10% you make 100%.  Even though carry trade type hedge funds [in theory] were supposed to be exposed to a fraction of the volatility one sees in equity markets [this turned out to be wrong] they used leverage that was much larger than in our example. For example, if you use 20:1 leverage a 5% drop in asset values wipes you out! This is what happened to LTCM the Fall of 98.   

sorry for shouting, it came with the copy/paste…

@OR  the Carlyle Capital vehicle has a 33x leverage, if I heard well on Doomberg…

I find it interesting that Bill Clinton was considered brilliant for his 200 to 225 billion dollar surpluses annually, and that George Bush has literally recently borrowed 170 billion in one day for some pathetic tax rebates. The foolishness of the Government, and the american public that elected those officials (that all approved of Bush’s budget) will never cease to amaze me. Borrowing roughly 5 trillion US dollars (essentially doubling the debt outstanding over just 8 years from roughly 5 trill to 10 trill) to bomb the afghan mountains and to invade iraq has been utterly ridiculous and totally stupid— the world will now suffer the enormous economic consequences of borrowing five trillion dollars, crowding out investment, crowding out borrowing, and inciting credit crunches. It will be like Japan ’89 in the USA (called the “lost decade” even though it’s been nearly 20 years now), or like 1929 all over again; somehow it also reminds me of the recessions and panic of 1819, 1837, and 1857.

OK, Paulson is making an announcement at 10.

Not sure if anyone posted a link to this Bloomberg article before:   Paulson, Bernanke Plan Tougher Scrutiny of U.S. Banks (Update1)  http://www.bloomberg.com/apps/news?pid=20601087&sid=aLz7MbR8Bs54&refer=home  Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other U.S. regulators will propose tougher scrutiny of banks’ capital in a report on lessons from the mortgage crisis, a government official said.  The results of the review by the President’s Working Group on Financial Markets may be released as soon as tomorrow, two officials said on condition of anonymity. Paulson is scheduled to speak on financial markets at the National Press Club in Washington at 10 a.m.

don’t worry Goldman’ earnings next week and the Fed cut will “save the day”  1.3% down is a pebble rolling down the side of a mountain… Until the lows of Monday are taken out with authority this does not mean a whole lot.  Interestingly enough, the Nikkei is comparable to the Dow 12,400 versus 12,000 now. Only thing is the Nikkei actually moves down 400 points from time to time. All of the market participants there simply must have more selling conviction than here in the US. A natural cultural difference displaying itself out in market behavior and daily movement. These types of down moves rarely occur in the USA.  @Andrew Come on Man !

@Alessandro  The article from Bloomberg was from last night when someone seems to have leaked it to them. It basically says that old hank and co have drafted a report in which they say that lenders have been naughty (o’rly?) and that they propose to tighten bank regulation, and that they were going to talk about the report this morning at 10.  Will this be enough to stop today from being the day??? Maybe they will have to say a bit more if today is the day that “ships drop anchors and sever communications cables.” Who knows.

On the other hand, maybe today will be the day they choose to save the dollar…  Rich H, are you there? A penny for your thoughts?

@ Muppet on 2008-03-13 08:40:26  ”…maybe today will be the day they choose to save teh dollar…”  I can’t even begin to imagine what you mean here? Who are these theys? How would they save the dollar, if they could choose? The only way to to save the dollar is to STOP BORROWING BILLIONS DAILY to bomb the afghan mountains and to invade Iraq. The way to save the dollar is for someone to find five trillion dollars under their sofa or mattress and to payoff the total government debt outstanding by this much. Also, if someone could find hundreds of trillions and if they could start buying everyone’s house and commercial property for more than it was ever pretended to be worth, that would be great. Save the dollar if you choose, just like Muppet says!

Paulson looks like Colonel Klink no?

 The “Democrat Party” has come up with their own surveillance bill. This would give telecoms a sort-of-immunity but would require them to disclose to congress what they are spying on.  Dear Leader is not very happy about that, says this article: Bush calls surveillance bill inadequate http://news.yahoo.com/s/ap/20080313/ap_on_go_pr_wh/terrorist_surveillance  And why is he not happy? Probably because he’s spying on them Democrats! 

“Colonel” Paulson definitely has a lot of beautiful, impressive flags behind him!   But what the hell is he saying we don’t already know??? time waster!    

Rich H “IMO… Today will not be good!”  Forgive my ignorance…what does IMO stand for?  Thanks  

Written by Guest on 2008-03-13 08:55:18 ”Save the dollar if you choose, just like Muppet says!”  Calm down mate. Take a deep breath, untwist your knickers and take a chill pill. I am sure that what Muppet occasionally posts every so often on the professor’s blog has the power to influence the masses and move the universe (sarcasm there, for the dullards). I thought Tuesday would be the day, but a lot of shorts got burnt on an announcement from the Fed and some solid media pumping. I am just thinking of things that could be announced and pumped to spank the shorts. Is that OK with you??? Jesus, the blog Nazi Guests are out in force today.

#Alessandro on 2008-03-13 09:10:22 Business Inventories Rose 0.8% in January, Biggest Gain in Two Years.  Is this infaltionistic or deflationistic? I have my answer.  Excess inventory is deflationary by itself, but it sits in a much larger milieu of inflated dollars so it does not really seem to matter. We know M3 is running ~17% over 2007 and we know inflation is running at 11.6%. Could inflation be feeding back onto the stock market? Are those daily run-ups the result of extra cash in the system? And do inflated dollars give the banks more wiggle room in delaying paying debt based in old dollars?

I swear I just heard Hank Paulson say that he thinks the Government should regulate compensation! Is that the stupidest thing you’ve ever heard or what?! Why should the government tell people what they can and cannot make as income. Pathetic. The day we have wage fixing is a horrible day for the united states of america.

Retail sales sink .6% in Feb 08… Much weaker than expected…   Things to consider — this report is probably weaker then noted. The following retailers DO NOT report monthly sales data.    2006 net sales, in billions Stopped reporting in… CVS/Caremark $43.8 Jan ’08 Macy’s $27.0 Feb ’08 Dollar General $9.2 June ’07 Jo-Ann Stores $1.9 Feb ’07 Pier 1 Imports $1.6 March ’07 Claire’s Stores $1.5 May ’07 Dress Barn $1.3 Aug ’07 New York & CO $1.2 May ’07 Guess $1.2 Jan ’07 Gymboree $.8 May ’07  Sources: Company Reports TNS Retail Firward  See story @ Wall St Journal  Macy’s Joins Trend Of Retailers Ending Monthly Reports  By VANESSA O’CONNELL March 6, 2008; Page B1   http://online.wsj.com/article/SB120476282188615013.html?mod=djm_HAWSJSB_Welcome

“The foolishness of the Government, and the american public that elected those officials (that all approved of Bush’s budget) will never cease to amaze me. Borrowing roughly 5 trillion US dollars (essentially doubling the debt outstanding over just 8 years from roughly 5 trill to 10 trill) to bomb the afghan mountains and to invade iraq has been utterly ridiculous and totally stupid— the world will now suffer the enormous economic consequences of borrowing five trillion dollars, crowding out investment, crowding out borrowing, and inciting credit crunches.”  Now, question is who putted them there? Yes, foolish J6P. Will foolish J6P be “totally stupid” and pick McCain??? We will see.

Gold hit $1000.35!!   Seems the guys from the IMF didn’t pay attention for a sec … 

Dollar plunging, oil now over $111/brl, gold at $998/oz and their is a race into treasuries-this is really bad folks-we actually could crash today or tomorrow…

 THERE IS NO INFLATION!!!! GOLD, OIL, COMMODITIES ARE ALL SPECULATION!!!!! BUY DOLLAR!!!!  You got to give it to those delusional deflationists.  gold touched $1000 and oil $110.

Medic on 2008-03-12 22:21:58  IMO, one the best posts of 2008!  On some level, we’ve all known it was a charade…  *Home prices increasing by 20, 30, 50 even 100+% (?!?) *Standing in line (camping out!) (?) to bid (?) on a condo (?) (the former scourge of residential R/E) before a spade of dirt was turned (?!?) *”Bidding wars” (?) for our neighbor’s home (not much different from our humble abode) (?!?) *“Lifestyle Developments” promising “Desperate Housewive” homes, furniture, clothes, cars…(?!?) *”Hybrid” mortgage products (?) Interest only mortgages, 100+% financing, 40-year mortgages…(?!?) *Home equity used to pay off (down) credit cards (?!?)  …but we bought into the charade none the less.  Medic’s closing thoughts are words to live by  “Parents, teach you kids. Turn off the TV, the computer games and talk to them. Be honest and tell them what is happening and why. Teach them to pay attention and to be skeptical of those with authority, power, influence and money. Give them the tools to see reality instead of the crap thrown at them every day. Make sure they understand who their representatives are in local, state and the Federal government. Make sure they read. Impress upon them that they have responsibility for their own actions. Help them to be better than we are. And don’t stop. Keep it up. It’s worth it. For all of us.”  TA 

11:05[BSC] Bear Stearns shares fall 17.5% to $50.81 

Stocks going green!!!! What is happening????

TA:  Thanks for the kind words – there is something about the late hour, exhaustion and watching Asia before I turn in that makes me wax philosophic. I was having a “Jerry McGuire” moment when the hard slap of reality is just too much and you feel the need to say something to everyone in hopes of changing things.  ”For a minute, I was my father’s son” – that person I hope I can be more often. But I digress…..it is daytime now and our own markets are in turmoil. They can be propped for a bit, but the exodus out of equities will be where Boomers go. I will believe in the greed of the Boomers to protect themselves first. Go with them, you will not be sorry. There is strength in numbers and those numbers will flock to solid forms of wealth preservation.

Guest on 2008-03-13 10:25:23 wrote  Wall st criminals, just plain criminals. That’s what is happening…     Sour grapes! They just have bigger gonads than you.

Patience. Don’t puke out. They know most people’s risk tolerance. Remember just a few days ago how down. No one thought we’d drop below January lows. Take a longer term view, you’ll be rewarded. Daytrading will BK you though if you haven’t a strong stomach.

“Dow rallies 100 points in the blink of an eye!”  Leveraged properly, the $200 billion TSAF (or will it be Permanent SAF?) can exert the force of maybe a $1 trillion or more of credit looking for something to buy. Giving the extremely negative news over the last several weeks and months and the “rational” certainty that the markets MUST GO DOWN, this would be a good time for the brokerages, who have sold all of those puts, to bring on a massive short squeeze to make them worthless. Doesn’t change anything in the long run, but the brokerages can make an awful lot of money over the short term as expirations approach next Friday.  

The dollar losses can’t keep up with the equity selling for now. Maybe if they take another 5% out of the dollar they can show the 98% of Americans who believe the illusion green stocks soon and if they take another 5% from there we can go to new HIGHS in the indices. A gallon milk and a bowl of cereal will be $7 at IHOP and violent crime will shoot even higher and life in this country will turn very dark for the poor and middle, BUT hey CREW THEM !  This is so unbelievably insulting to my intelligence… Devalue the country increase nominal equity prices Maybe when combo meals at McDonald’s go to $12 the people will realize the financial illusion. My new goal is to trade any other market but the USA. At least for now, the manipulation in other markets does not appear to have caught up the ingenuity on display daily here in this GREAT COUNTRY ! God Bless America ! I would like out of my offer for KJ Foehr to come to Chicago and beat my rear end if we are up today. However, I stand behind my technical call and if they blow it up for the 500th time so be it ! I will never post any calls here ever again out of sheer paranoi which is born out of attempting to analyze that which is nothing more than pictures painted by grown children using FIAT toilet paper to fool the masses of unsuspecting sheeple !  The hedge against any short position is going long large cap, blue chip commodity stocks PERIOD especially after meaningful corrections in those stocks…

“”We may be witnessing some macabre and tragic drama scripted by the gods…” Octavio, here is a story that might cheer you up.  Let me take a moment of your time to tell you a story about a story.  It is about a man called Joseph, Joe for short.  Joe sought me out, he wasn’t really my type, but we became close friends.  He was a good sculptor, but not a very practical sort of person.  He had an answer to every question I could think to ask him, and, as you might imagine, there were plenty of them.  He had seen enormous human suffering in his life, which he told me about, some of it at least.  He told me that God had told him to leave his former vocation but had not told him why.  He is dead now and died without knowing what he was supposed to do.  But lately I have had the idea that he might be back soon.  When he presented me with this story, I thought it a bit twee.  But I have always wondered about it.  Lately it has lost it’s naive tinge.  That’s why I thought I should share it with you.   The following was actually told to me by Joe about fifteen years ago.  He even gave me a printout of it, but I can’t find it at the moment so you will have to take my, or rather his, word for it!  This is a précis of the story.    We sail on to our destiny across the sea of time in space ship Terra.  With our support squadron Sol, we pass through uncharted voids.  We are the freighter, as it were, of the convoy.  We have outriders performing various services, but we are the main ship with the precious cargo.  Galileo got himself into strife when he pointed out that we were not the centre of the universe, not even of our solar system .  The Terra centric idea had a spiritual reality before he came along.  And he made the idea a physical nonsense.  But it is not the physical dependencies that I am talking about.  They, as Galileo discovered, are ordered according to physical laws.  The really important ship is one that carries the Spirit of Love, that’s us.  That is our precious cargo,  We have been entrusted with it,  We are it’s custodians, we are the amphora (the container) for the cargo.  We don’t know where we are taking it, but we are told, and in our hearts we know, that it is valuable.  We each carry a portion of this precious cargo and pass it on to each generation.  This is our destiny.  One day we will arrive at our destination and we will not be very popular if we have lost the cargo.  Not that we will lose the lot, but we can lose our portion.  It always lives in the hearts of some.  Remember to pass it on.

Stocks going GREEN!! Bank stocks surging!

I keep hearing the same thing over and over in my head. It was faint at first but now it’s getting louder and louder, the voice is saying……”A characteristic of Dow Sigma 4 moves is that they rarely show up in isolation, usually they are followed by another Sigma 4 event within a week or so. They are not buying panics, they are trend changing events that typify attempts at bottom forming…powerful moves right off the bottom.”  

@ Andrew Bernhardt St. Louis  Glad to see you return to posting, after I think long absence. Always appreciated your practical insights. But — is this a change of heart? As I recall, you were (formerly) very bullish? Now you are re-assessing long term (78 yr) return on stocks?, seeing it at about 1.8% real return? Maybe I have this wrong. 

rate cut by 1%… 300 billion usd injection… by today??

“S&P Says End in Sight for Writedowns on Subprime Debt”  S&P, Well done!!  I believe in you, as I trust the AAA bonds rated by you.   s of the P

@JMa: It’s making me crazy because I can’t understand what you’re trying to say – are you short or long or what’s going on?

Hong Kong flu? What’s this frenzy to copy and paste any negative news on any topic?  -iww

@oy vey  3-12 07:08:06 on this thread 

@Acheson I stand by my call made here last night. If they blow it up. They win again and I will live with it…  

NASD GREEN!!!

@Alessandro   You are correct. That Dow Sig-4 post was challenged/critiqued by several bloggers. Some of them mentioned Fed manipulation.  

Would appreciate comments/opinions about safety of stock brokerages. Can SIPC be counted upon?

Looks like 1273 is as low as this is gonna go. Today was the 5th test of this level and the “buyers” continue to soak up sales at this level. That would represent a roughly 19% correction from the highs and some would argue that the street has now priced in a shallow recession. The 1320 level will ultimately solve this riddle for us. Rally attempts have failed there teh last 2 attempts-that level held for 7 touches before it was finally taken out so it would appear to now be formidable resistance. I think we get our answer today…

Another miraculous 300 point turn around in the Dow.

Our own contrarian indicator, Andrew Bernhardt, signaled today’s reversal.

@guest   can sIPC be counted on?  How much money do you think the SIPC has, or the FDIC? As we have seen since August the word trust should be taken out of the american dictionary.

The markets are up for one reason… Can we all say — TAX PAYER BAIL-OUT to HOME OWNERS!  New Barney Franks legislation… See link below   ”U.S. Representative Barney Frank will introduce legislation today proposing federal backing for hundreds of thousands of delinquent home loans.”    http://www.bloomberg.com/apps/news?pid=20601009&sid=a3I66arwawT4&refer=bonds  

In the speech, Carney said the bank will try to soften blows to the “real economy” but will arrange no bailouts for losing players in the financial markets.  

This chart of the S&P was posted here a few months ago pointing out the volume spikes. I have watched this since then and have noticed the key times these spikes have occurred. Are these spikes real or are is it just the way Yahoo aggregates its data? If real, are they reflective of normal trading or PPT intervention?  http://finance.yahoo.com/q/bc?s=%5EGSPC&t=1d 

Re Chart: S&P made their release at the same time Goldman came in (10:30) with 2 huge buy programs that signaled the other desks to support the bottom, thus the solid buying for the next hour-it is all rigged at key points in the market. Most overseas indexes are down well in excess of 20% this year even though the US is in the worst shape out of all of them. This is part of the Bush/Paulson control compulsion…RIGGED!

 All aboard!……Tickets please!  Goin’ off the rails on a crazy PPT Train?  What a joke, Chairman Cramer will love it  Booyah! Booyah!   

The utilization rate compares actual production to estimated maximum output. It is a measure of how far the industrial economy is from its current potential.  Canadian industries worked at the lowest percentage of full output in more than 10 years in 2007, Statistics Canada said Thursday.  

tomorrow, at 7 pm EST, on CNBC: Kudlow to have a 1-on-1 with Dubya – should be fun. The goldilock twins… Everything is great, the dollar is strong!

It’s that confounded 1320 level. Damn the torpedoes! Oh well, maybe Asia and Europe can help out.

Morgan Stanley Fresh off the press  http://www.morganstanley.com/views/gef/index.html#anchor6091

I wonder how many $$$’s, no wait, Euro’s S&P got paid to release that story right at the lows this a.m.?

JLC: “I have an honest question for the shorts. I am wondering why you persist in shorting stocks when you know that the game is rigged and manipulated? … But if you want to short something, why not short the dollar?”  Are currencies any less manipulated?  ”Dollar’s Slump Puts Morgan, Goldman on `Intervention Watch’  By John Fraher and Simon Kennedy  March 13 (Bloomberg) — The dollar’s record-breaking slide may trigger the first coordinated effort to prop up the currency in 13 years, say strategists at Morgan Stanley and Goldman Sachs Group Inc.”  http://www.bloomberg.com/apps/news?pid=20601087&sid=aOg5ATtR4yto&refer=home

It”s time to write new post, Nouriel.  We are hungry.  hang sen futures are from the morning, they are 10 hours old

@Octavio  http://www.reuters.com/article/bondsNews/idUSWNA706920080313

About that S&P report that moved the market today:  Some market players may have misread S&P’s report, however, said Daniel Alpert, managing director at Westwood Capital, a New York investment bank specializing in securitization.  The report deals only with expected losses on subprime debt, but that is only about 8 percent of the $11 trillion of total residential mortgage debt outstanding, Alpert said in an e-mail.  ”The current crisis, of course, is no longer a subprime crisis,” he said, noting that a growing percentage of home foreclosures are coming from outside the subprime sector.  http://www.reuters.com/article/bondsNews/idUSWNA706920080313?pageNumber=2&virtualBrandChannel=0  -iww

Where stock ownership is rarely of much duration, with few long term wait-and-see investors, why doesn’t everyone see that RealEstate was just an extension of the daytrade mentality. Sure people had to endure more paperwork and take possession of a fixed asset but they were able to leverage so much of it (Way beyond normal stock margin requirements) that it was a wonderful addition to a speculative portfolio. Now that these asset bubbles are deflating, these same person are exercizing the “put” and dropping the RE investments like hot metal.  All the incentives, neg-am certificates, buyer rebates etc. are never going to move enough people to take inventory in the absence of these speculative buyers. Add to that that rates are diverging from the FF rate and financing is much, much harder to get and all this noise about stabilizing RE prices is just rearranging deck chairs.  We have barely begun the descent; but the TPTB at the front of this tobaggon see that the gentle slope everyone expects is in reality a freefall. Wiley E. Coyote moment — we are just in that gentle second where wildly spinning feet and brain understanding position come together.

the hand of the atomic clock has been spinning for days and tonight it has finally stopped, many of the people watching the clock remain in a daze for its rapid movements have not been seen in decades, the spins have been tumultous, spell-binding, confusing, dizzying… only those who have studied history can see where the clock has stopped…  it is March 13, 2008 and it is one minute until midnight…  

From the Professor’s post, MW article: What am I bid on financial sector losses from the US subprime mortgage crisis? Do I have advances on the $100bn suggested by Ben Bernanke, chairman of the Federal Reserve, only last July? Yes, I now have $500bn from the gentlemen from Goldman Sachs. Any advances on $500bn? Yes, I have $1,000bn-$2,000bn from Nouriel Roubini of New York University’s Stern School of Business. Any advances? Going, going, gone.   S&P 285 billion is about half the GS estimate and it focuses on subprime. They are missing losses in: Alt-A, prime, HELOC (see early posts above from yesterday), credit card, car loans, CRE, and last student loans which probably does not affect the big banks much.

… and muni bonds.

It’s early yet, so I’ll save the philosophy and preaching for later……..  I do not buy the sub-prime episode as over yet – It is perhaps getting there, but the Prime and Alt-A who hold ARM’s (35% of all loans over the last several years) are going to be looking at re-sets soon (May-July) and again in 2011 in large numbers. People who can refinance have – what’s left are people who don’t have the credit scores or history to pass muster or those who own multiple properties and were speculators who will walk away.   No. This has a way to run yet. If this were a football game (American Football that is) we are early in the first half, maybe just finishing the first quarter. The bad half-time show has not even begun. But maybe this week was a commercial break……everyone to the kitchen for a snack!

Foreclosures among flippers/second home buyers will probably be larger than most expect. And bet you most of these are not classified as subprime. Good points by Alessadro. So the Professor’s 1 trillion losses for financial institutions sounds right.

I recently started reading comments at CalculatedRisk. But this proved to be an impossible task. CR and Tanta post like crazy and each one of their posts gets over 100 comments. Bet you someone could get pretty decent website traffic by starting a website/blog with selected comments from CR

Untold foreclosure story: Flippers in trouble http://latimesblogs.latimes.com/laland/2007/09/untold-foreclos.html … Many blame sub-prime lending for our current real estate crisis, but rampant speculation, even by those with great credit, played a leading role.” said Sean O’Toole, Founder and CEO of ForeclosureRadar.com. “The subprime market took the first hit as those borrowers had the least to lose when they walked away. Now that nearly half of foreclosures represent non-owner occupied properties, it is clear that speculators are walking away too.”… Just two weeks ago, the Mortgage Bankers Assn. made news by estimating that flippers account for one in five foreclosures; today’s report indicates the rate could be more than double that in California.  And this is from September 2007!  September 02, 2007 Flippers Fuel Foreclosures  http://cincinnatihomes.blogspot.com/search/label/house%20flipping

 The Fed’s worst nightmare http://money.cnn.com/2008/03/13/markets/morningbuzz/index.htm?postversion=2008031311  Ugly retail sales and a somber forecast from CFOs point to recession, but rising oil and gold prices and a weak dollar show inflation. What’s Ben Bernanke to do?   I think the writer of this article mixes “inflation” with “rally”. Rising oil and gold prices are as much (if not more) due to a safe haven rally as they are due to a lower dollar. Or should I say the increases are due to the ‘law’ of supply and demand.  Besides the prices of gold and oil are in any case set by investors worldwide. So it cannot be claimed that they are an indicator of inflation in U.S.  The weird things is that the government themselves seems to talk as if these prove that there is inflation in U.S. And what is worse, they even attribute this type of inflation to an “improved” or “surging” economy. Truly funky, I tell you. Surging, yes…downhill:-)

There were squeals from the shorts today re: today’s late day rally (fixed, crooks, etc.) THere were no such complaints when yesterday’s rally went south late in the day. Looking at the last two recessions, including this one, rallies typically last eight trading days… if this rally is similar it will go at least until next Friday, neatly encompassing the fed rate cut next week.  I went long at the middle of monday’s rally, if things go according to form will renew my shorts late next friday. Good luck all.

OK guys, have a good night  Tomorrow, BSC is going down  NExt week its LEH..  watch out folks;

ptm: A pump shotgun with the plug removed is a much better home defense weapon.  The downfall is going to be the middle class guy that isn’t buying a bunch of unnecessary garbage that sits in a closet – the average american isn’t a consumer, they are accumulators, none of the crap really does anything other than give them the satisfaction of buying things that represent an assumed lifestyle. Go down to a used bookstore sometime and look at the people that just buy paper to fill shelves. Equities rallied, but so did commodities – not a good sign for those who need a loaf of bread and some cheese for a bologna sandwich. These clowns aren’t doing anything to help the average guy, all of their moves help big players and leave the minions with palms up waiting for a crumb. Bernanke, take Jim Rogers advice and quit. It is funny the hypocrisies that exists among the fat cats – they want no govt programs for those that want to sit around and do nothing, but when things are bad they look for the bailout. Long live capitalism – I guess.

@ Alessandro “Are currencies less manipulated?”  Funny how that article came out right after my post . . . are they watching us?  The size of the global currency market, especially when you are talking about the international reserve currency, makes it much more difficult to manipulate. For intervention to successfully reverse the dollar’s decline, the major central banks have to agree on a coordinated action. Its a lot harder to pull off than the shenanigans we’ve been witnessing in US stocks.  The article mentioned that a coordinated intervention would be the first in 13 years. Thats a long time. Individual countries can and do intervene from time to time, but the dollar is a different animal. And they don’t seem too concerned about it right now, they’re too busy pumping stocks.  I’ve considered shorting US stocks myself, probably with SKF, but I keep asking myself: Why fight the PPT head-on? Why not continue to take the path of least resistance?

@JLC on 2008-03-13 14:16:36  ”IMHO the stock market has become a crooked game. If you’re a short you’re against the power of the government and most of Wall St – massive forces are aligned against you.”  Ah, but these “forces” are no match for the physical/real world:  ”When there is a gap between perception and reality, it is only a matter of time until the gap is reconciled. But since reality is so stubborn and tolerates no gamesmanship, it is impossible for reality to rise to meet perception. So it follows that perception must decline to meet reality. Après moi le déluge.” – From the book “Supermoney”  ”Whether we and our politicians know it or not, Nature is party to all our deals and decisions, and she has more votes, a longer memory, and a sterner sense of justice than we do.” – Wendell Berry  I’m short on this system…  Mark (the original? one)

Just wondering…  If disastrous retail numbers, reging inflation, and record unemployment can’t drag this market down, then what will? Yesterday was a real disaster from the bearish standpoint. Days like that just encourage people to hold and not sell. How can shorts get the panic selling they need when the powers that be can artificially set a bottom on the market?   Q2 earnings will be make or break. The market can brush aside all the economic stats it wants but if earnings come in bad, that’s when the next downleg will really start. The question now becomes how will Q2 shape up? A lot of money will ride on which side one takes. We should be prepared in case the market trends up.   @ptm  ”I have never owned a gun in my life, but I went down to the local sports store and compared a Glock 22 to a Sig 239.”  To quote Ordell Robbie (Samuel L. Jackson) in the movie Jackie Brown: “AK-47! When you absolutely, positively got to kill a mother#$%@*%! 

i read a few comments above implying that gold run-up implies (hyper) inflation…   i dun really agree with that – it maybe the opposite – it implies deflation  as gold is money/cash like the deposits our banks only that its safer becoz the deposits are loaned out and the securitised out …   monetary value (in stocks and property) is basically evaporating now…   all the wealth and value (in stocks and property) were created out of thin-air..  eventually it must go back where it came from… into thin-air…   the financial system will eventually correct for all the excesses… just on systems (i also believe we wont get hotter and hotter till we boil in our pants.. the eco-system will trigger an ice-age to correct for all the heat)   mrskeptical

CPR: “The reason the Asian indices are down is because they track U.S. futures. If the U.S. futures are down, Asian indices head down. U.S. futures up, Asian indices up. The same is true with Europe.”  I can confirm with respect to Italy/Europe. The correlation with US future is staggering.

I do my best to read the NT daily commentary but CR beat me to this one:  Why Did the Fed Raise Rates in October 1931? March 13, 2008  http://tinyurl.com/2xh3r6   PK closes with:  After World War II, major central banks opted to peg their currencies to the U.S. dollar. The United States agreed to peg the dollar to gold at $35 an ounce. This was called the Bretton Woods Agreement. By the late 1960s, the United States was flooding the world with more dollars than were desired at the pegged exchange rates. The only way that the French and German central banks could maintain their currency pegs versus the dollar was to inflate their own economies. The demise of the Bretton Woods Agreement occurred in August 1971 when the peg between the U.S. dollar and gold was severed and an era of floating exchange rates was ushered in. Some commentators have referred to the Chinese and Saudi pegging of their currencies to the U.S. dollar as “Bretton Woods II.” We wonder if the demise of Bretton Woods II is not close at hand. If it is, the greenback could plunge, U.S. consumer inflation could spike, and the Fed would have little choice but to stop cutting its policy interest rate, and, perhaps, even have to raise it, as it did in October 1931. As Mark Twain said, “History does not repeat itself, but it does rhyme.” We are not yet predicting this outcome, but we are listening carefully for any rhyming.  So watch this:  FDR Ends Gold Standard in 1933  http://de.youtube.com/watch?v=3_ex0sTsb_I&NR=1  1944 Bretton Woods International Monetary Conference  http://de.youtube.com/watch?v=GVytOtfPZe8&feature=related  Nixon Ends Bretton Woods International Monetary System http://de.youtube.com/watch?v=iRzr1QU6K1o  So what is next?  It seems to me that it is highly likely that Obama will win and the US will embark in a wave of protectionism. If FDR and Nixon did it, why not him?  Hint: I know you doon’t like clicking but you should at the very least watch the Nixon clip (I got it from a comment by Yoringe in CR)

@Alessandro: If you don’t mind answering – what part of Italy are you in and how is it these days? My plan is to emigrate there when I’m done working. Which isn’t for 20 more yrs!

I went out yesterday to run some errands. Groceries have gone up since last week; gas is more expensive by $0.12/ gal; Heating oil is also up. The CPI this morning may be up a miniscule amount, but too many of us living (or trying to maintain a standard of living) know better.  Yesterday I bought more gold and a new multi fuel pellet stove. But my spending is now done beyond daily needs. I will hold my stimulus check the feds are sending my way. By the time it arrives in July (my slot on the schedule), it won’t be worth much anyway……..

Medic on 2008-03-14 06:43:34  I will hold my stimulus check the feds are sending my way. By the time it arrives in July (my slot on the schedule), it won’t be worth much anyway……..   They would need to give out a check of few hundred dollars every month to actually improve the economy. That way people would at least have a steady income supplement to look forward to, something that would also contribute toward improving the spending habits. 

@Acheson,  I’m in Rome. After having lived abroad for some years I came to the conclusions that most of the stereotypes on Italy and Italians are mostly right. As a matter of fact I ended up acknowledging that most stereotypes gets it right at some basic level, I was shocked the first time I realized it, but that’s it.  So if you like sun, food and endless talking about soccer and if you can stand the daily chaos and the utter idiocy of those in power, then Italy is for you. I came back because I love it, nevertheless.  Italy, as always, is a front runner when it comes to economic and financial crises. As far as I can say the economy is already bleeding and the political vacuum doesn’t help. If we get cursed by 5 more years of Berlusconi expect the public debt to explode, Italy to be kicked out of the UE and to default. That could be a tremendous time for you to buy a property.

MORE DATA FIXING BY GOVT ENTITIES!! ENERGY PRICES DOWN THE MOST SINCE LAST AUGUST??????????????????????? WTF!!!! THIS IS APPAULING!!!!

Oil was up 13.89% per brl in FEB ALONE!!! Gasoline was up .5% in FEB ALONE!!!! The CRB Index was up 11.96% in FEB ALONE!!!! Gold was up 8.3% in FEB ALONE!!!!  HOW THE HELL CAN THE CPI BE UNCHANGED FOR FEB???????????????

HOW THE HELL CAN THE CPI BE UNCHANGED FOR FEB???????????????  Please calm down and believe what your government is telling you. It’s for your own good.  Big Brother

S&P folks who said subprime write-downs are over should think again:  Lenders Face Still More Misery (BW) http://tinyurl.com/2aa8ts  Just one example of many in the article:  Those aren’t the only profits that may vanish. Big banks also recorded earnings up front from mortgage-backed securities they created and sold to investors. Here’s how the accounting maneuver, known as “gain on sale,” works. Say a lender bundles together a group of mortgages valued at $2 billion. Over the life of the bond—as long as 30 years—the bank will collect an estimated $100 million in cash flows from that security. That money comes from interest, servicing rights, and other payments. The bank counts the $100 million as income once the security is sold, even though it won’t actually get those payments for years to come.   It’s a perfectly legitimate, but controversial, move. Consider the fate of Conseco (CNO) . At the start of the decade, the firm, which specialized in risky mortgages on mobile homes, took a massive hit from writedowns related to profits previously reported through “gain on sale.” The company ultimately filed for bankruptcy in 2002.   Reflecting Reality? In this boom, Countrywide has applied the rule more aggressively than any other major player in the industry. Such gains accounted for 48.4% of operating income at Countrywide over the past three years. The lender, which Bank of America (BAC) agreed to buy in January, has started to take writedowns connected to those profits. But some analysts figure more losses are inevitable. BofA declined to comment.

Octavio,  If the banks didn’t expect further writedowns of significant size, they wouldn’t be hoarding cash, and we wouldn’t have this worsening credit crisis. So that S&P report is as false (or fraudulent) as this morning’s CPI data.  –iww

BAILOUT!!!  9:24 J.P. Morgan, Fed to provide financing to Bear Stearns 

The market is rigged. This is corporate fascism at its finest. Let’s just bail out everybody. Nobody should have to answer to even the market for corporate governence failures and outright LIES.

I guess many dont beleive the CPI numbers… and there is massive selling into the buying. I for one dont believe the CPI number. I dont beleive anything the gvt puts out anymore. Its sickening.

@CPR  The futures market is essentially controlled by TPTB to manipulate expectations. They don’t want to spook all of the shorts out of the market too early by letting the indexes rocket up. More money can be made by letting the shorts hope the last few days are a very short-term bounce.    

For those interested in conspiracy theories: could a leaked whisper about this uber-good inflation report be the real reason for yesterday rally?  (and now BCS ruins the day?)

9:44 Bear Stearns says liquidity has ‘significantly deteriorated’ 

May be possible creation of Bretton Woods III is at hand? We just need Y peg to Z. The problem is figuring out the Y and Z   Kasriel on the Possible Demise of “Bretton Woods II”  http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0803/document/us0308.pdf

Temporary confidence crunch…?  Bush’s speech later will restore it, no?

BSC DOWN 26 now. hunu?  A tame CPI number? GIVE ME A BREAK. Wall street knows that cant be possible with oil at 111 and a loaf of bread at 4 dollars…. The jig is up Paulson. If this were Russia or China, Paulson , Berenanke, Greenspan and a few others would be never seen again.

WOW!! Bond yields tanking, stocks tanking but have recovered 150 points in 15 seconds and consumer sent hits 16 year low!! Dollar hit parity with Swiss Frank for first time ever! PPT working feverishly!@!!!! My guess is Fed lowers 50 today on BSC collapse…. Stocks should be down over 500 points right now…

Bear, Carlyle, fudged CPI.  They can only fool most of the people most of the time. True reckoning of this scale can’t be hidden forever.

SAN FRANCISCO (MarketWatch) — Bear Stearns Cos. said Friday that it got short-term financing from the Federal Reserve and J.P. Morgan Chase after the brokerage firm’s liquidity “deteriorated significantly” during the past 24 hours.   BSC 45.55, -11.45, -20.1%) with secured funding for up to 28 days, in conjunction with the Federal Reserve Bank of New York.  J.P. Morgan also said it’s working with Bear to secure permanent financing or “other alternatives” for the brokerage firm.  ”Our liquidity position in the last 24 hours had significantly deteriorated,” Alan Schwartz, chief executive at Bear, said in a statement. “We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.  ”Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” he added. “We have tried to confront and dispel these rumors and parse fact from fiction.”  Despite those efforts, Schwartz said “market chatter” had undermined Bear’s liquidity.  Bear has been hit hard this week by growing concerns that it’s struggling to trade with some counterparties. Some market participants have been worried about Bear’s exposure to the dwindling mortgage business and its holdings of securities backed by home loans. Trading is the lifeblood of brokerage firms, so when counterparties pull back trouble often ensues.  Bear built a business focused on originating mortgages and repackaging them into mortgage-backed securities and collateralized debt obligations, reaping profits from the whole real-estate financing process.  But when the subprime-fueled mortgage crisis hit last year, “Bear did not get out of the way fast enough,” Dick Bove, an analyst at Punk Ziegel & Co., wrote in a note to clients earlier this week.  ”Consequently, its balance sheet, its business operations, and its reputation were all hurt badly. One key result of this is that the firm’s borrowing costs rose sharply according to reports,” he said.  Because the broadening credit crunch has undermined Bear’s business model, the firm may end up being acquired, he added

10:10 Dollar sets new all-time lows against euro, Swiss franc  Fed is going have to RAISE rates to stope a dollar collapse! 

Dow now working its way back to green! Down less than 70 points now!!!! THIS IS UNBELIEVABLE!!!!!

In the words of the great singer Elvis Costello.  Well I used to be digusted, now I am just trying to be amused.  Manipulation deluxe. what a sham, scam and defilement of our great country. George Bush, your father should be proud of you. He was in charge when the S&L’s went down the toilet. Genetic defect or something more sinsiter?

 Starting to look like another high sigma event is forming today. 

@skipper  It beginning to look like we no longer can trust our stock market. We used to surmise it is rigged, now a blind dog can see it. I dont know if this is a sigma 4 , 3 or eve 24. My friend is moving to Costa Rica. I am going to call him to see if he has an extra bedroom for a houseboy. Tame CPI my A**. If the big brokerage firms cant sell bad paper anymore or do lbo’s M&A’s etc then they have to let their trading desks run with the ball. Pure unadulterated manipulation between market makers IMO and the houses on wall street.  down 300, up 300 all within minutes. yup, the market doesnt belong to the people anymore, it never did I suppose, but now it is just overtly blatant. SICK SICK SICK 

UH-OH!!! Look out VIX just busted through 30!!! Look out belowwwwwwww

Intensifying credit fears sink stocks| 14 Mar 2008 | 10:28 AM ET Font size: NEW YORK (AP) – Stocks plunged early Friday as investors worried that a plan to ease a liquidity crisis at Bear Stearns Cos. indicates how severe credit troubles have become. Each of the major indexes lost more than 1.5 percent; the Dow Jones industrials fell about 200 points.  Investors were busy examining the plan from JPMorgan Chase & Co. and the New York Federal Reserve to provide secured funding to Bear Stearns for an initial period of 28 days. The move offers Bear Stearns relief from a sudden liquidity crunch and could help instill confidence in the stagnant credit markets.  Bear Stearns shares fell sharply, dragging down other financial companies.  Bear skidded $24.45, or 43 percent, to $32.55.  Stocks showed moderate gains in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase.  But the gains quickly disappeared after investors learned more about how close Bear Stearns appeared to have come to financial implosion.  ”The Bear Stearns news reversed the early positive sentiment from the inflation data,” said Peter Cardillo, chief market economist at Avalon Partners.  ”There had been nervousness about Bear Stearns for some time and now the market’s concerns about the company have been proven true.” In the first hour of trading, the Dow Jones industrial average fell 207.60, or 1.71 percent, to 11,938.14 after having fallen as much as 300 points.  Broader stock indicators also fell. The Standard & Poor’s 500 index fell 30.17, or 2.29 percent, to 1,285.31, and the Nasdaq composite index fell 45.82, or 2.02 percent, to 2,217.79.  

Talking heads out in full force now! Trying to talk the markets back from the ledge….

Wll, it must be working, dow now only down 100 again…

10:55 Fed funds futures rocket, odds rise for 1 point rate-cut 

Would the PPT be able to hold this market? We have a major financial house hitting liquidity insolvency and the market remains here? What the hell is going on? Who is buying share here? I would really love to see how the market holds here. I don’t think BSC is the only house having problems. This will be the first domino to fall in the series of financial institution failure in the US. And the Dow is still over 12000… what the hell is going on……    

I had Bear Stearns PUt options two days ago. I had a sell order for it @ 7.70. I forgot to cancel the sell order in after hours (And usually options don’t get traded in the after hours). Now it’s up to $25!!!!!!  

devastating article from Mike Whitney.  March 13, 2008 Meltdown Looms Larger as Credit Markets Freeze  By MIKE WHITNEY  ”It’s another round of the credit crisis. Some markets are getting worse than January this time. There is fear that something dramatic will happen and that fear is feeding itself,” Jesper Fischer-Nielsen, interest rate strategist at Danske Bank, Copenhagen; Reuters  Yesterday’s action by the Federal Reserve proves that the banking system is insolvent. It also shows that the Fed is willing to intervene directly in the stock market if it keeps equities propped up. This is clearly a violation of its mandate and runs contrary to the basic tenets of a free market. Investors who shorted the market yesterday, got clobbered by the not so invisible hand of the Fed chief.  In his prepared statement, Bernanke announced that the Fed would add $200 billion to the financial system to shore up banks that have been battered by mortgage-related losses. The news was greeted with jubilation on Wall Street where traders sent stocks skyrocketing by 416 points, their biggest one-day gain in five years.  “It’s like they’re putting jumper cables onto a battery to kick-start the credit market,” said Nick Raich, a manager at National City Private Client Group in Cleveland. “They’re doing their best to try to restore confidence.”  To understand the real meaning behind the Fed’s action; it’s worth considering some of the stories which popped up in the business news just days earlier. For example, last Friday, the International Herald Tribune reported:  “Tight money markets, tumbling stocks and the dollar are expected to heighten worries for investors this week as pressure mounts on central banks facing what looks like the “third wave” of a global credit crisis….Money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.”  The Herald Tribune said that troubles in the credit markets had pushed the stock market down more than 3 percent in a week and that the same conditions which preceded the last two crises (in August and December) were back stronger than ever. In other words, liquidity was vanishing from the system and the market was headed for a crash.  A report in Reuters reiterated the same ominous prediction of a “third wave” saying: “The two-year U.S. Treasury yields hit a 4-year low below 1.5 percent as investors flocked to safe-haven government bonds….The cost of corporate bond insurance hit record highs on Friday and parts of the debt market which had previously escaped the turmoil are also getting hit.” Risk premiums were soaring and investors were fleeing stocks and bonds for the safety of government Treasuries; another sure sign that liquidity was disappearing. Reuters: “The level of financial stress is … likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,” Goldman Sachs said in a note to clients.” Indeed. When there’s a funding-freeze by lenders, investors hit the exits as fast as their feet will carry them. That’s why the lights started blinking red at the Federal Reserve and Bernanke concocted a plan to add $200 billion to the listing banking system. New York Times columnist Paul Krugman also referred to a “third wave” in his article “The Face-Slap Theory”. According to Krugman, “The Fed has been cutting the interest rate it controls – the so-called Fed funds rate – (but) the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.”…(Now) “the banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing significant collateral damage to market functioning.” What the Times’ columnist is describing is a run on the financial system and the onset of “a full-fledged financial panic.” The point is, Bernanke’s latest scheme is not a remedy for the trillion dollar unwinding of bad bets. It is merely a quick-fix to avoid a bloody stock market crash brought on by prevailing conditions in the credit markets.  Bernanke coordinated the action with the other members of the global banking cartel—The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank—and cobbled together the new Term Securities Lending Facility (TSLF), which “will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.” (Fed statement)  The plan, of course, is wildly inflationary and will put additional downward pressure on the anemic dollar. No matter. All of the Fed’s tools are implicitly inflationary anyway, but they’ll all be put to use before the current crisis is over.  The Fed’s statement continues: “The Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.”  So, why is the Fed issuing loans to foreign banks? Isn’t that a tacit admission of its guilt in the trillion dollar subprime swindle? Or is it simply a way of warding off litigation from angry foreign investors who know they were cheated with worthless toxic bonds? In any event, the Fed’s largess proves that the G-10 operates as de facto cartel determining monetary policy for much of the world. (The G-10 represents roughly 85% of global GDP)  As for Bernanke’s Term Securities Lending Facility (TSLF) it is intentionally designed to circumvent the Fed’s mandate to only take top-grade collateral in exchange for loans. No one believes that these triple A mortgage-backed securities are worth more than $.70 on the dollar. In fact, according to a report in Bloomberg News yesterday: “AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.  `The fact that they’ve kept those ratings where they are is laughable,” said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. “Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.” Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.” (Bloomberg News) The Fed is accepting these garbage bonds at nearly full-value. Another gift from Santa Bernanke.  Additionally, the Fed is offering 28 day repos which — if this auction works like the Fed’s other facility, the TAF — the loans can be rolled over free of charge for another 28 days. Yippee. The Fed found a way to recapitalize the banks with permanent rotating loans and the public is none the wiser. Th
e capital-starved banksters at Citi and Merrill must feel like they just won the lottery. Unfortunately, Bernanke’s move effectively nationalizes the banks and makes them entirely dependent on the Fed’s fickle generosity. The New York Times Floyd Norris sums up Bernanke’s efforts like this:  “The Fed’s moves today and last Friday are a direct effort to counter a loss of liquidity in mortgage-backed securities, including those backed by Fannie Mae and Freddie Mac. Given the implied government guarantee of Freddie and Fannie, rising yields in their paper served as a warning sign that the crunch was worsening and investor confidence was waning. On Oct. 30, the day before the Fed cut the Fed funds rate from 4.75 per cent to 4.5 per cent, the yield on Fannie Mae securities was 5.75 percent. Today the Fed Funds rate is 3 per cent, and the Fannie Mae rate is 5.71 per cent, virtually the same as in October…..A sign of the Fed’s success, or lack of same, will be visible in that rate. It needs to come down sharply, in line with Treasury bond rates. Today, the rate was up for most of the day, but it did fall back at the end of the day. Watch that rate for the rest of the week to see indications of whether the Fed’s move is really working to restore confidence.”  Norris is right; it all depends on whether rates go down and whether that will rev-up the moribund housing market again. Of course, that is predicated on the false assumption that consumers are too stupid to know that housing is in its biggest decline since the Great Depression. Housing will not be resuscitated anytime in the near future, no matter what the conditions; and you can bet on that. The last time Bernanke cut interest rates by 75 basis points mortgage rates on the 30-year fixed actually went up a full percentage point. This had a negative affect on refinancing as well as new home purchases. The cuts were a total bust in terms of home sales. Still, equities traders love Bernanke’s antics and, for the next 24 hours or so, he’ll be praised for acting decisively. But as more people reflect on this latest maneuver, they’ll see it for what it really is; a sign of panic. Even more worrisome is the fact that Bernanke is quickly using every arrow in his quiver. Despite the mistaken belief that the Fed can print money whenever it chooses; there are balance sheets constraints; the Fed’s largess is finite. According to MarketWatch:  ”Counting the currency swaps with the foreign central banks, the Fed has now committed more than half of its combined securities and loan portfolio of $832 billion, Lou Crandall, chief economist for Wrightson ICAP noted. ‘The Fed won’t have run completely out of ammunition after these operations, but it is reaching deeper into its balance sheet than before.”  Steve Waldman at interfluidity draws the same conclusion in his latest post:  “After the FAF expansion, repo program, and TSLF, the Fed will have between $300B and $400B in remaining sterilization capacity, unless it issues bonds directly.” (Calculated Risk)  So, Bernanke is running short of ammo and the housing bust has just begun. That’s bad.  But that’s only half the story. Bernanke and Co. are already working on a new list of hyper-inflationary remedies once the credit troubles pop up again. According to the Wall Street Journal, the Fed has other economy-busting scams up its sleeve:  “With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly. “As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies. ( “Rate Cuts may not be Enough”, David Wessel, Wall Street Journal)  Wonderful. So now the Fed is planning to expand its mandate and bail out investment banks, hedge funds, brokerage houses and probably every other brandy-swilling Harvard grad who got caught-short in the subprime mousetrap. Ain’t the “free market” great? In fact, Bernanke is destroying the currency by trying to reflate the equity bubble. And how much damage is he inflicting on the dollar? According to Bloomberg, “the risk of losses on US Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves….Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.”  America is going broke and the rest of the world knows it.  Timothy Geithner, President of the New York Fed put it like this: “The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. The damage to confidence—confidence in ratings, in valuation tools, in the capacity of investors to evaluate risk—will prolong the process of adjustment in markets. This process carries with it risks to the broader economy.”  Without a hint of irony, Geithner talks about the importance of building confidence on a day when the Fed has deliberately distorted the market by injecting $200 billion in the banking system and sending the flagging stock market into a steroid-induced rapture. Astonishing.  The stock market was headed for a crash this week, but Bernanke managed to swerve off the road and avoid a head-on collision. But nothing has changed. Foreclosures are still soaring, the credit markets are still frozen, and capital is being destroyed at a faster pace than any time in history. The economic situation continues to deteriorate and even unrelated parts of the markets have now been infected with subprime contagion. The massive deleveraging of the banks and hedge funds is beginning to intensify and will continue to accelerate until a bottom is found. That’s a long way off and the road ahead is full of potholes.  ”In the United States, a new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively.” (Statement from The Global Europe Anticipation Bulletin (GEAB)  Is that too gloomy? Then take a look at these eye-popping charts which show the extent of the Fed’s lending operations via the Temporary Auction Facility. The loans have helped to make the insolvent banks look healthy, but at great cost to the country’s economic welfare. http://benbittrolff.blogspot.com/2008/03/really-scary-fed-charts-march.html  The Fed established the TAF in the first place; to put a floor under mortgage-backed securities and other subprime junk so the banks wouldn’t have to try to sell them
into an illiquid market at fire-sale prices. But the plan has backfired and now the Fed feels compelled to contribute $200 billion to a losing cause. It’s a waste of time.   UBS puts the banks’ total losses from the subprime fiasco at $600 billion. If that’s true, (and we expect it is) then the Fed is out of luck because, at some point, Bernanke will have to throw in the towel and let some of the bigger banks fail. And when that happens, the stock market will start lurching downward in 400 and 500 point increments. But what else can be done? Solvency can only be feigned for so long. Eventually, losses have to be accounted for and businesses have to fail. It’s that simple.  So far, the Fed’s actions have had only a marginal affect. The system is grinding to a standstill. The country’s two largest GSEs, Fannie Mae and Freddie Mac, which are presently carrying $4.5 trillion of loans on their books, are teetering towards bankruptcy. Both are gravely under-capitalized and (as a recent article in Barron’s shows) Fannies equity is mostly smoke and mirrors. No wonder investors are shunning their bonds. Additionally, the cost of corporate bond insurance is now higher than anytime in history, which makes funding for business expansion or new projects nearly impossible. The wheels have come of the cart. The debt markets are upside-down, consumer confidence is drooping and, as the Financial Times states, “A palpable sense of crisis pervades global trading floors.” It’s all pretty grim.  The banks are facing a “systemic margin call” which is leaving them capital-depleted and unwilling to lend. Thus, the credit markets are shutting down and there’s a stampede for the exits by the big players. Bernanke’s chances of reversing the trend are nil. The cash-strapped banks are calling in loans from the hedge funds which is causing massive deleveraging. That, in turn, is triggering a disorderly unwind of trillions of dollars of credit default swaps and other leveraged bets. Its a disaster. Economist Nouriel Roubini predicted the whole sequence of events six months before the credit markets seized and the Great Unwind began”. Here’s a sampling of his recent testimony before Congress:  Roubini’s Testimony before Congress: “There is now a rising probability of a “catastrophic” financial and economic outcome; a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown….Capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit.  To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.” Roubini has been right from the very beginning, and he is right again now. Bernanke can place himself at the water’s edge and lift his hands in defiance, but the tide will come in and wash him out to sea anyway. The market is correcting and nothing is going to stop it.  Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

March 13, 2008 Meltdown Looms Larger as Credit Markets Freeze  By MIKE WHITNEY  ”It’s another round of the credit crisis. Some markets are getting worse than January this time. There is fear that something dramatic will happen and that fear is feeding itself,” Jesper Fischer-Nielsen, interest rate strategist at Danske Bank, Copenhagen; Reuters  Yesterday’s action by the Federal Reserve proves that the banking system is insolvent. It also shows that the Fed is willing to intervene directly in the stock market if it keeps equities propped up. This is clearly a violation of its mandate and runs contrary to the basic tenets of a free market. Investors who shorted the market yesterday, got clobbered by the not so invisible hand of the Fed chief.  In his prepared statement, Bernanke announced that the Fed would add $200 billion to the financial system to shore up banks that have been battered by mortgage-related losses. The news was greeted with jubilation on Wall Street where traders sent stocks skyrocketing by 416 points, their biggest one-day gain in five years.  “It’s like they’re putting jumper cables onto a battery to kick-start the credit market,” said Nick Raich, a manager at National City Private Client Group in Cleveland. “They’re doing their best to try to restore confidence.”  To understand the real meaning behind the Fed’s action; it’s worth considering some of the stories which popped up in the business news just days earlier. For example, last Friday, the International Herald Tribune reported:  “Tight money markets, tumbling stocks and the dollar are expected to heighten worries for investors this week as pressure mounts on central banks facing what looks like the “third wave” of a global credit crisis….Money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.”  The Herald Tribune said that troubles in the credit markets had pushed the stock market down more than 3 percent in a week and that the same conditions which preceded the last two crises (in August and December) were back stronger than ever. In other words, liquidity was vanishing from the system and the market was headed for a crash.  A report in Reuters reiterated the same ominous prediction of a “third wave” saying: “The two-year U.S. Treasury yields hit a 4-year low below 1.5 percent as investors flocked to safe-haven government bonds….The cost of corporate bond insurance hit record highs on Friday and parts of the debt market which had previously escaped the turmoil are also getting hit.” Risk premiums were soaring and investors were fleeing stocks and bonds for the safety of government Treasuries; another sure sign that liquidity was disappearing. Reuters: “The level of financial stress is … likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,” Goldman Sachs said in a note to clients.” Indeed. When there’s a funding-freeze by lenders, investors hit the exits as fast as their feet will carry them. That’s why the lights started blinking red at the Federal Reserve and Bernanke concocted a plan to add $200 billion to the listing banking system. New York Times columnist Paul Krugman also referred to a “third wave” in his article “The Face-Slap Theory”. According to Krugman, “The Fed has been cutting the interest rate it controls – the so-called Fed funds rate – (but) the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.”…(Now) “the banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing significant collateral damage to market functioning.” What the Times’ columnist is describing is a run on the financial system and the onset of “a full-fledged financial panic.” The point is, Bernanke’s latest scheme is not a remedy for the trillion dollar unwinding of bad bets. It is merely a quick-fix to avoid a bloody stock market crash brought on by prevailing conditions in the credit markets.  Bernanke coordinated the action with the other members of the global banking cartel—The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank—and cobbled together the new Term Securities Lending Facility (TSLF), which “will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.” (Fed statement)  The plan, of course, is wildly inflationary and will put additional downward pressure on the anemic dollar. No matter. All of the Fed’s tools are implicitly inflationary anyway, but they’ll all be put to use before the current crisis is over.  The Fed’s statement continues: “The Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.”  So, why is the Fed issuing loans to foreign banks? Isn’t that a tacit admission of its guilt in the trillion dollar subprime swindle? Or is it simply a way of warding off litigation from angry foreign investors who know they were cheated with worthless toxic bonds? In any event, the Fed’s largess proves that the G-10 operates as de facto cartel determining monetary policy for much of the world. (The G-10 represents roughly 85% of global GDP)  As for Bernanke’s Term Securities Lending Facility (TSLF) it is intentionally designed to circumvent the Fed’s mandate to only take top-grade collateral in exchange for loans. No one believes that these triple A mortgage-backed securities are worth more than $.70 on the dollar. In fact, according to a report in Bloomberg News yesterday: “AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.  `The fact that they’ve kept those ratings where they are is laughable,” said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. “Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.” Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.” (Bloomberg News) The Fed is accepting these garbage bonds at nearly full-value. Another gift from Santa Bernanke.  Additionally, the Fed is offering 28 day repos which — if this auction works like the Fed’s other facility, the TAF — the loans can be rolled over free of charge for another 28 days. Yippee. The Fed found a way to recapitalize the banks with permanent rotating loans and the public is none the wiser. The capital-starved banksters at Citi and Merrill must feel like
they just won the lottery. Unfortunately, Bernanke’s move effectively nationalizes the banks and makes them entirely dependent on the Fed’s fickle generosity. The New York Times Floyd Norris sums up Bernanke’s efforts like this:  “The Fed’s moves today and last Friday are a direct effort to counter a loss of liquidity in mortgage-backed securities, including those backed by Fannie Mae and Freddie Mac. Given the implied government guarantee of Freddie and Fannie, rising yields in their paper served as a warning sign that the crunch was worsening and investor confidence was waning. On Oct. 30, the day before the Fed cut the Fed funds rate from 4.75 per cent to 4.5 per cent, the yield on Fannie Mae securities was 5.75 percent. Today the Fed Funds rate is 3 per cent, and the Fannie Mae rate is 5.71 per cent, virtually the same as in October…..A sign of the Fed’s success, or lack of same, will be visible in that rate. It needs to come down sharply, in line with Treasury bond rates. Today, the rate was up for most of the day, but it did fall back at the end of the day. Watch that rate for the rest of the week to see indications of whether the Fed’s move is really working to restore confidence.”  Norris is right; it all depends on whether rates go down and whether that will rev-up the moribund housing market again. Of course, that is predicated on the false assumption that consumers are too stupid to know that housing is in its biggest decline since the Great Depression. Housing will not be resuscitated anytime in the near future, no matter what the conditions; and you can bet on that. The last time Bernanke cut interest rates by 75 basis points mortgage rates on the 30-year fixed actually went up a full percentage point. This had a negative affect on refinancing as well as new home purchases. The cuts were a total bust in terms of home sales. Still, equities traders love Bernanke’s antics and, for the next 24 hours or so, he’ll be praised for acting decisively. But as more people reflect on this latest maneuver, they’ll see it for what it really is; a sign of panic. Even more worrisome is the fact that Bernanke is quickly using every arrow in his quiver. Despite the mistaken belief that the Fed can print money whenever it chooses; there are balance sheets constraints; the Fed’s largess is finite. According to MarketWatch:  ”Counting the currency swaps with the foreign central banks, the Fed has now committed more than half of its combined securities and loan portfolio of $832 billion, Lou Crandall, chief economist for Wrightson ICAP noted. ‘The Fed won’t have run completely out of ammunition after these operations, but it is reaching deeper into its balance sheet than before.”  Steve Waldman at interfluidity draws the same conclusion in his latest post:  “After the FAF expansion, repo program, and TSLF, the Fed will have between $300B and $400B in remaining sterilization capacity, unless it issues bonds directly.” (Calculated Risk)  So, Bernanke is running short of ammo and the housing bust has just begun. That’s bad.  But that’s only half the story. Bernanke and Co. are already working on a new list of hyper-inflationary remedies once the credit troubles pop up again. According to the Wall Street Journal, the Fed has other economy-busting scams up its sleeve:  “With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly. “As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies. ( “Rate Cuts may not be Enough”, David Wessel, Wall Street Journal)  Wonderful. So now the Fed is planning to expand its mandate and bail out investment banks, hedge funds, brokerage houses and probably every other brandy-swilling Harvard grad who got caught-short in the subprime mousetrap. Ain’t the “free market” great? In fact, Bernanke is destroying the currency by trying to reflate the equity bubble. And how much damage is he inflicting on the dollar? According to Bloomberg, “the risk of losses on US Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves….Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.”  America is going broke and the rest of the world knows it.  Timothy Geithner, President of the New York Fed put it like this: “The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. The damage to confidence—confidence in ratings, in valuation tools, in the capacity of investors to evaluate risk—will prolong the process of adjustment in markets. This process carries with it risks to the broader economy.”  Without a hint of irony, Geithner talks about the importance of building confidence on a day when the Fed has deliberately distorted the market by injecting $200 billion in the banking system and sending the flagging stock market into a steroid-induced rapture. Astonishing.  The stock market was headed for a crash this week, but Bernanke managed to swerve off the road and avoid a head-on collision. But nothing has changed. Foreclosures are still soaring, the credit markets are still frozen, and capital is being destroyed at a faster pace than any time in history. The economic situation continues to deteriorate and even unrelated parts of the markets have now been infected with subprime contagion. The massive deleveraging of the banks and hedge funds is beginning to intensify and will continue to accelerate until a bottom is found. That’s a long way off and the road ahead is full of potholes.  ”In the United States, a new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively.” (Statement from The Global Europe Anticipation Bulletin (GEAB)  Is that too gloomy? Then take a look at these eye-popping charts which show the extent of the Fed’s lending operations via the Temporary Auction Facility. The loans have helped to make the insolvent banks look healthy, but at great cost to the country’s economic welfare. http://benbittrolff.blogspot.com/2008/03/really-scary-fed-charts-march.html  The Fed established the TAF in the first place; to put a floor under mortgage-backed securities and other subprime junk so the banks wouldn’t have to try to sell them into an illiquid market at fire-sale prices. But the plan has
backfired and now the Fed feels compelled to contribute $200 billion to a losing cause. It’s a waste of time.   UBS puts the banks’ total losses from the subprime fiasco at $600 billion. If that’s true, (and we expect it is) then the Fed is out of luck because, at some point, Bernanke will have to throw in the towel and let some of the bigger banks fail. And when that happens, the stock market will start lurching downward in 400 and 500 point increments. But what else can be done? Solvency can only be feigned for so long. Eventually, losses have to be accounted for and businesses have to fail. It’s that simple.  So far, the Fed’s actions have had only a marginal affect. The system is grinding to a standstill. The country’s two largest GSEs, Fannie Mae and Freddie Mac, which are presently carrying $4.5 trillion of loans on their books, are teetering towards bankruptcy. Both are gravely under-capitalized and (as a recent article in Barron’s shows) Fannies equity is mostly smoke and mirrors. No wonder investors are shunning their bonds. Additionally, the cost of corporate bond insurance is now higher than anytime in history, which makes funding for business expansion or new projects nearly impossible. The wheels have come of the cart. The debt markets are upside-down, consumer confidence is drooping and, as the Financial Times states, “A palpable sense of crisis pervades global trading floors.” It’s all pretty grim.  The banks are facing a “systemic margin call” which is leaving them capital-depleted and unwilling to lend. Thus, the credit markets are shutting down and there’s a stampede for the exits by the big players. Bernanke’s chances of reversing the trend are nil. The cash-strapped banks are calling in loans from the hedge funds which is causing massive deleveraging. That, in turn, is triggering a disorderly unwind of trillions of dollars of credit default swaps and other leveraged bets. Its a disaster. Economist Nouriel Roubini predicted the whole sequence of events six months before the credit markets seized and the Great Unwind began”. Here’s a sampling of his recent testimony before Congress:  Roubini’s Testimony before Congress: “There is now a rising probability of a “catastrophic” financial and economic outcome; a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown….Capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit.  To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.” Roubini has been right from the very beginning, and he is right again now. Bernanke can place himself at the water’s edge and lift his hands in defiance, but the tide will come in and wash him out to sea anyway. The market is correcting and nothing is going to stop it.  Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

Dow not being allowed to drop below 12,000. The PPT must not let stocks do what they should (collapse) becuase if they can prop this, they may be able to stop an outright panic. Lets see how long they can hold this….

11:15 Citigroup planning to shed billions in assets: report 

Written by Wolf in the Wilds on 2008-03-14 10:02:21  I ask myself that. It I didn’t see it, I would say it is impossible for the market to hold up this well with the accelerated breakdown that has been going on since last summer. I guess somethings one cannot understand.  Alessandro: try firstname.lastname at google mail

“Fed is going have to RAISE rates to stope a dollar collapse!”???  did you read the new? Fed is gonna pump more dollars. What a better to pump more dollars than cutting rate by 1%??? you faith in Fed is plain amazingly stupid.

Bush is speaking right now…… what a stupid F**K

11:25 Bush says economic foundation is solid  11:24 Bush says U.S. economy is resilient and will recover

Re: Citi:  By Wallace Witkowski Last update: 11:14 a.m. EDT March 14, 2008Print RSS Disable Live Quotes   SAN FRANCISCO (MarketWatch) — Citigroup Inc. (C:Citigroup, Inc News, chart, profile, more  Last: 20.23-0.84-3.99%  11:13am 03/14/2008  plans to shed hundreds of billions of dollars worth of assets to reorganize the firm, The Wall Street Journal reported on its Web site Friday, citing an analyst meeting with Citi Chief Executive Vikram Pandit. The CEO also told analysts Citigroup is reviewing its leadership and plans to make changes before an investor meeting in May

Borrowers Find What Citigroup Says Isn’t What It Does  By Bob Ivry  March 14 (Bloomberg) — Real estate developer John Wimmer paid Citigroup Global Markets Realty Corp. almost $1 million last year to lock in a 5.6 percent mortgage rate on the refinancing of six commercial properties.   At the November closings, Citigroup, citing plummeting demand for mortgage bonds, boosted the rate to 7.123 percent.   Commercial mortgage lenders had not used the material adverse change clause, or MAC, to back out of commitments since the Sept. 11 attacks, and the case law on its invocation in mortgage lending has not been established, said Douglas Buck, a real estate attorney at Foley & Lardner LLP in Madison, Wisconsin.      

Andrew !

The Big Whoosh: Is This the Beginning? 11:30:01 AM March 14th, 2008     The Bear Stearns liquidity crisis may very well go down as the beginning of the big whoosh that must happen before anybody can see the light of day in this financial crisis.  One thing that gets lost in the noise about Bear Stearns, and why a bailout is critical, is that it’s a broker-dealer for many big hedge funds and wealthy individuals.  If the hedge funds and rich folk get caught here, without a net, you imagine possible domino effect throughout the brokerage and banking industries as people start pulling out cash and heading for safer pastures, such as trust companies.  And to think, just yesterday, S&P tried to suggest that the end of the subprime mess was in sight. Hate to break the news to them: The subprime slime was just the tip-o-the-rapidly melting iceberg. 

This market prop job is making me want to vomit! What is the deal with Dow 12,000???? Bush is a farging IDIOT!

Hmm, why are investors dumping shares here. Just sell it to the PPT. The system is already dead. It is clear the more than BSC are having liquidity issues. Can JPM bail out everyone? Can JPM bail out Citi?? With a broken financial system, corporates will suffer as well. Why hold shares when all these problems are coming. Or do investors genuinely believe that all this will not impact the “real economy”? Can anyone give me some insight? I am absolutely loss for words here……

A typo. I meant why investors are NOT dumping shares here….

I’ve been doing a great deal of trading since late last summer. Made excellent money. Daytrading following dips and rips. My Bank/broker called this morning and are going to limit the trading activity that I can perform on Pershing ETFs. No rules broken, no margin issues, excellent funding and credit.  They just couldn’t handle the money I took and volitility I introduced (shorting shorts, puts, calls, buy/sells within minutes sometimes)  Anyone else out there? TPTB are fighting this war (and it is a WAR) with everything they’ve got. That alone is a great clue on the descension of desperation now and to come.

   Bear Stearns Cos. will hold a conference call Friday at 12:30 p.m. EDT to address “speculation in the marketplace related to its announcement this morning.”

Witkowski:  http://www.marketwatch.com/News/Story/Story.aspx?guid=%7b210E3260-63CA-4288-9513-5D2A2E84B9A0%7d&siteid=yhoo&dist=yhoo

What did standard and poors say again about the credit crisis? and how long ago is it they said it???

Kudlow got it wrong. Read below, Bush praised Fed for pumping liquidity into the system. Bush and Paulson share same strong dollar policy.  http://biz.yahoo.com/ap/080314/fed_credit_crisis.html  ”WASHINGTON (AP) — The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.  The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was “doing a good job under tough circumstances.”

Bretton Woods II will be dead. Bretton Woods III will be created -> Pegged to stock market.

bear stearns conference call live here  http://www.cnbc.com/ 

@Wolf in the Wilds on 2008-03-14 10:51:39  I share your frustrations! I regard myself as a pretty logical thinker and, historically, I’ve got it right much more than I’ve got it wrong. Clearly, while a lot of market participants are bearish, they seem to have no idea how bad things are in the credit markets. I commented a few days ago, on the announcement of the TSFL,that funding facilities for the market makers who are at the core of our financial system, were about to seize up. Yesterday or today it happened for Bear, and it will extend to all the other non-deposit taking institutions: i.e investment banks rather than the JPMs, Citis of the world who have direct access to the discount window and its equivalent in other countries.  The stock market bounces 400 points on the announcement of a pretty desperate move. Amazing. Today, the market falls 300 points on the Bear news and then rallies back to -75 (currently -181), when it should be down 500-1000 points. The reality, from my perspective, is that equity markets can only bottom after all this mess gets washed out and all the losses are taken.  

Bear Stearns is actively being shopped to a potential acquirer, and not just to JPMorgan ChaseCNBC has learned.  right now, considering that the emergency financing from the Fed is being arranged through JP Morgan. But people familiar with the situation say other banks are being approached as well.   Analysts have been speculating for months about a possible acquisition of Bear Stearns, which has been hurt badly by the subprime mortgage crisis. Even so, Bear chief executive Alan Schwartz said in early January that being acquired is not a strategy for the firm.  But as the credit crisis has increased, so has the possibility of more bank mergers.   

I am on the call…will try to post live…  Right now, Alan is blabbering to his best.

PB and repo continues to get worse today : BS

http://www.bloomberg.com/tvradio/radio/#  bloomberg radio is live with it…

@Giraf  I have been through many crisises and never in anyone of them can the government stop the bleeding by supporting the stock market. When the unwind comes, no one can stop the flow. And It will just trigger all the stops. The problem is that none of the equity funds actually know how deep and dangerous the problem in the financial sector is. I am very afraid to go into the office on Monday. There will be questions on every counterparty we are dealing with. This is going to be the scariest week to date in the crisis. Its time to examine counterparty risk, and see who is the survivor. My bet is LEHM is next in the list. The fear is in and if you think today was a show, Monday will be a even better one. Every bank and securities house in the WORLD will be cutting lines to Bear and reducing exposure to everyone of the broker/dealers. Subsequently, American commercial banks will also be questioned upon. The credit derivatives market will seize up on Monday. And the equity guys still think everything is fine. They really have no idea do they…..  We are in the first stage of Financial Armegeddon….the first domino has fallen….   Don’t think I will be getting any sleep today……….

it is so hard when your own Father does not believe you when you tell him what is happening… i am so sad about that i can not even express to you how disappointing it is…

http://www.marketwatch.com/quotes/vix

Rich H, any comments on what you are seeing?

I started counting how many “uh”s and “um”s he uttered in the BSC call. At the time I lost count, the “uh”s had it by a whisker. Both were a result of him trying to come up with good lies without being too blatant about it.

IMHO the Fed will not allow BSC to fail. That would undoubtedly kick off the nightmare scenario about which Bill Gross was accused of fearmongering. The unwinding of CDS contracts with a major player insolvent would be nightmarish. We know there have been writedowns of monoline counterparty exposure. There has been nothing on broker exposure thus far.  Cash market completely screwed up. Repo cash over the weekend now trading north of 3.50% stateside.

 Repurposing for hotel business  The milk trials begin – 2003 -2008-2011-  HUGE convention centre needed to rent for 2/3 years since it must hold 34,000 witnesses and 100 plus SMALL investors.  After five years will the 32,000 savers be happy with possible outcomes of jail time,money back, denials or confirmations ?  Can’t wait to read that book

JPY now down to 99.30!!!

Nuts and bolts of the Bear Stearns bailout  By Greg Robb, MarketWatch  WASHINGTON (MarketWatch) — The Federal Reserve was able to supply funds to Bear Stearns Cos. by employing a little-used power under which the U.S. central bank can lend directly to non-bank financial institutions, Fed officials and experts said Friday. Under “unusual and exigent circumstances,” the Fed can loan to broker-dealers if credit is not available from other sources and if a firm’s failure to obtain such credit would adversely affect the economy.  The most important thing to realize, analysts said, is that this is a loan from the Fed to Bear Stearns backed by collateral from Bear Stearns.  J.P. Morgan Chase & Co. is only serving as the operational conduit for the funds from the Fed, simply because it had all the necessary arrangements in place to conduct business with the central bank, a Fed staff member and outside experts said.  ”J.P. Morgan is not liable if Bear Stearns defaults, so the Fed is looking to the collateral of Bear Stearns,” said Lou Crandall, chief economist at Wrightson ICAP.  The size of the loan isn’t certain, a Fed staffer said. The amount of credit provided by the Fed will depend on Bear Stearns’ credit needs and the collateral on the company’s balance sheet.  On a conference call with analysts, Bear Stearns’ executives refused to discuss the size of the loan. See related story.  Nor was the length of the loan known. J.P. Morgan said the initial period of the lending would run for 28 days.  A wide range of collateral can be used at the Fed’s discount window.  Under law, the Fed’s board of governors was required to approve the Bear Stearns loan. The board vote was 4-0, with Fed Gov. Frederic Mishkin absent due to his travel schedule.  During every period of financial strain, including immediately following the Sept. 11, 2011, terror attacks, the Fed typically reminds financial markets that it has the power to lend to other financial institutions. But the Fed hasn’t used the authority in decades

What are the odds of one of the other big investment banks (I won’t name names but I’m sure we can all guess who) being that huge buyer, with the knowledge that they were going to pull their credit lines to Bear later (i.e. yesterday or today) this week? This one smells to high heaven and I hope some investigative report goes after it.   Written by Giraf on 2008-03-14 11:09:23  Nuthing to worry about. Spitzy ain’t around no more.

“Why did the Lord give us agility,  If not to evade responsibility?”    thought thoughtful, thoughtful, pensive Ben,  as he gave his printing press another spin,    under knocking knees and twisted belly  long stout timbers bowed like jelly    For    Some primal termite knocked on wood  And tasted it, and found it good!  And that is why your dollar’s pay  Fell through the parlor floor today.

One possible script: Monday Asia and Europe crash, Ben cut 1% and announce one more T*F bailout scheme before the bell, the market sells on the news and the world marks the Very Black Monday as the beginning of the Very Great Depression.

As always invaluable hindsight is provided by S&P and the other rating agencies, just moments after it is completely irrelevant.  ”Bear Stearns Credit Rating Cut Three Levels, by S&P (Update1)  By Emma Moody and Caroline Salas  March 14 (Bloomberg) — Bear Stearns Cos.’s credit rating was reduced three levels to BBB by Standard & Poor’s after the securities firm was forced to seek emergency financing from JPMorgan Chase & Co. and the New York Federal Reserve.  The rating, the second-lowest investment grade, may be cut further, New York-based S&P said in a report today. Bear Stearns’ short-term rating was cut to A3 from A1.”  http://www.bloomberg.com/apps/news?pid=20601087&sid=aZgjNjPwmwGQ&refer=home

 Bear Stearns and You  What kind of a system is it where a private company (JPMorgan), partnering with the government bails out a competitor? Since the government has no money of its own—the burden of bailout falls to the will of the people.  What will is that?  Alexander Hamilton: In the general course of human nature, a power over a man’s subsistence amounts to a power over his will. 

Shorties: bunch of demoralized chickens. They won’t sleep short over the weekend:-) Indices may close barely negative (hope I am wrong)

It doesnt matter. These cuts by S&P. BSC has no access to any capital other than what JPM can give anyway

Here comes the rally! They are going to close the Dow above 12,000!

S & P yesterday reports that the worst is over for the Big Banks and then this morning Bearr Stearns crashes.  http://jtaplin.wordpress.com/2008/03/14/s-p-know-nothings/

goddamn fucking bullshit rally! I HATE these times.

THIS IS THE GREATEST FRAUD EVER PURPITRATED IN PLAIN VIEW FOR THE WORLD TO SEE!!!

Written by Anonymous on 2008-03-14 14:20:06  I am offended by your language. dont use the word RALLY again or I will report you to NR.

We were down 310 points 30 minutes ago. CRIMINALS!!

Lehman Brothers Obtains $2 Billion Bank Credit Line (Update1)   By Emma Moody  March 14 (Bloomberg) — Lehman Brothers Holdings Inc. obtained a $2 billion, three-year credit line from 40 banks.   The unsecured facility replaces an existing credit line, New York-based Lehman said today in a statement. JPMorgan Chase & Co. and Citigroup Inc., also based in New York, led the effort, the statement said.   Lehman announced the financing hours after Bear Stearns Cos. said it agreed to an emergency bailout by JPMorgan Chase and the New York Federal Reserve. Bear Stearns, which fell as much as 53 percent in New York trading, said its cash position had “significantly deteriorated” in the past 24 hours, raising concern among investors that more financial companies may face a liquidity shortage.   “We are extremely pleased with the success of the syndicated facility and view this as a strong signal from the market and our key bank relationships,” said Paolo Tonucci, Lehman’s global treasurer, in the statement.   Lehman fell $5.29, or 11.5 percent, to $40.70 at 3:18 p.m. in New York Stock Exchange composite trading.   

As the Dow lies the Dollar cries.

UPDATE: Lehman’s New Credit Facility ‘Oversubscribed’ >LEHLast update: 3/14/2008 3:15:06 PM    DOW JONES NEWSWIRES   As private and public entities stepped in to keep Bear Stearns Co. (BSC) liquid Friday, rival investment bank Lehman Brothers Holdings Inc. (LEH) announced that its new credit facility was “substantially oversubscribed,” with some of the largest banks in the world participating. Lehman, which often dominated sales of subprime mortgage-backed securities, closed a new $2 billion committed unsecured three-year revolving credit facility, replacing its existing three-year facility. Lehman said 40 banks participated in facility, co-led by JPMorgan Chase bank and Citibank. Global Treasurer Paolo Tonucci said, “We are extremely pleased with the success of the syndicated facility and view this as a strong signal from the market and our key bank relationships.” When it reports results Tuesday, Lehman is expect to say its fiscal first-quarter net income plunged 63% to 72 cents a share from $1.96 a year earlier, according to 16 analysts surveyed by Thomson Financial. Their estimates range from a low of 45 cents a share to a high of $1.13. Analysts expect a 34% decline in revenue to $3.35 billion. Lehman’s shares recently traded at $40.35, down $5.66, or 12.3%. The Dow Jones industrial average was down 200 points as stocks sank on the Bear Stearns news. -By Kathy Shwiff and Melissa Korn, Dow Jones Newswires; 201-938-5975; Shwiff@dowjones.com (END) Dow Jones NewswiresMarch 14, 2008 15:15 ET (19:15 GMT)

@Anonymous on 2008-03-14 14:20:06  ndx 1700 buy is a must,…

Written by oy vey on 2008-03-14 14:50:13  I guess it is too late to send Spitzy the tip. He would have been legal down here:-)He tried to play politics in the wrong place. Take Mennen (Argentina), for instance, he was a big ladys guy; Everyone knew it, no-one ever bothered him.  Well, at least the bears have got it DOW under 12K, S&P under 1300 but above Jan low of 1270.  Tice permabear on bloomberg… ouch rudely cut off!

OR, does that mean Mennen liked big ladies?  BTW isn’t it interesting how quiet Alan Greenspan has been the last few weeks?

could someone please explain a sigma 4 event?did anyone who trades skf regularly see unusual behavior today? only up small % compared to underlying financials. btw according to fidelity bsc has a nice position. tia

It’s interesting that NR, London Banker, and RH have not been here lately. Both are fairly close to the action, and I’d guess that provides another index of the seriousness of the moment.   Octavio R, I’m sure you’ve noted that Richard Fisher is more stridently positioning himself; he’s made several remarks lately about his objection to further rate cuts. I guess he’s signing up to be the next Volcker. I noted further on CNN/Money’s website that they’re now saying “maybe a recession is the right thing to do”. I guess that means all the right people are securely seated in their chairs, and now the music can stop.   I have a “so-what” question. So what if BS, Lehman, and one or two other commercial banks get cleaned out? Beyond the immediate impact to their shareholders, do the rest of us really care? Won’t the surviving CBs just step in, mop up the assets at fire sale prices, and then the parade moves on?    

With all that’s going on at many levels in our society & economy, I’m starting to think that people who are not suspicious and wary of powerful forces are the ones who are odd and that their reactions against the whole possibility of any conspiracies is unusual and maybe a form of naive denial. To say there’s nothing weird about current events & utter collapse pending is now the oddball response IMO.

Written by OuterBeltway on 2008-03-14 16:20:22  All these banks, BDs in trouble, sure the FED has to step in to keep markets functioning; but if they are insolvent, they should let the equity be wiped out and and the government take over. Build them up, then sell to best bidder when things improve…   But they don’t. They bail out the stockholders, the people who are supposed to be taking the risks: big rewards, but also big failures when they happen. That is where the moral hazard is.

I honestly think you have to be a little bit, ‘in the know,’ to realize the seriousness of the situation. As JMa quoted above, he had a hard time convincing his father of what is ACTUALLY going on in the markets. I work at an engineering company and a lot of recent college grads and current students work here and I have asked them if they are talking about any of these issues in any of their classes? They say no…if I didn’t talk about it, they wouldn’t even know. These are people with technical degrees…smart, but out of the loop.   My mom is totally oblivious. All she knows is what is said on the news, or is read in the paper, and that is very far from what is actually going on.  It is pretty bad that the majority of America has no clue to the true scope of this mess, it is also the reason it is playing out of a long time frame. I liquidated all of my stock and changed my banking relationships because of the information I have gained from this site and others. If everyone in America did that, we would have a serious devaluation of the equity markets and a run on the banks.  So, since we here can see it ahead of time, does that make our actions any different? Or just more timely? Holding cash in the safe in the house…investing in commodities, canned goods and fire-arms…and liquidating equity investments… Seems like all the signs of panic to me. I guess we are just ahead of the curve.   When the majority of society starts to do exactly the same thing. That is when the real mess will happen. I wonder how long it will take them to wake up?