Karl Denninger is leading the charge to expose the risks of this bill to the American tax payer. See his opinion here:
http://market-ticker.denninger.net/archives/594-MAKE-THIS-VIRAL-STOP-THE-BAILOUT!-SAVE-AMERICA!.html
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› Monthly Archives › September 2008
29Sep
ECB overnight rate drop to 3.0%; cut soon?
Could an interest rate cut at the ECB be in the works? We’ve seen interesting overnight activity indicating the rate dropped to 3.0% as liquidity was flooded in to the markets in an attempt to avert a panic over the bail out of Fortis and other troubled financial institutions. Risks to growth seem to be worsening faster than the risks of inflation in the Euro zone. Significant rate cuts by the end of the year seem likely.
29Sep
Pound sterling pounded
29Sep
Wachovia forced in to Wells Fargo or Citi’s hands
As Washington Mutual’s collapse remains fresh on the minds of Federal regulators, pressure is increasing for Wachovia to strike a deal with its two bidders. Wells Fargo and Citigroup have offered to buy the troubled bank. I believe Wells Fargo will ultimately prevail as Citigroup has a myriad of its own troubled assets.
29Sep
Global markets boo bailout
Asian and European equity markets sell off as traders speculate the US bailout plan is not big enough and won’t address the liquidity freeze up in credit markets. This is an interesting turn of events and certainly not expected. If US markets lose the 1200 S&P support level, we could see a retest of the September lows around 1150. The path of least resistance remains downward. Be careful trading!
28Sep
Socialism Sunday: Congress nears bailout
The now familiar weekend bailout is once again underway. The Congress is approaching an agreement, which is ultimately less awful than Paulson’s completely ambiguous blank check, but still not ideal. If passed, the temporary boost of confidence could cause global equity markets to rally in the short term, but reality will catch up as the global recession looms. I don’t think we’ll see anything but lower highs in the S&P, but we could see a 200DMA retracement. Watch key resistance levels around 1250, 1275 & 1300 on the S&P. If 1300 is broken, watch the 200DMA as resistance and look to build short positions if it is unsuccessfully tested.
27Sep
Is the Fed illiquid?
Speculation is growing that the Fed may be losing its grip on the crisis and on its own balance sheet:
“In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:
Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b);
Increased its “other assets” by about $80b (from $98.67b to $183.89b);
Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b);
That works out to the provision of something like $370b of credit to the financial system in a two week period. And that is just what I saw on a cursory glance.
The most that the IMF ever lent out to cash strapped emerging economies in a year?
$30b, in the four quarters through September 1998 (i.e. the peak of the 97-98 crisis).
The most the IMF ever lend out over two years?
$40b, in the eight quarters through June 2003 (this covered crises in Argentina, Brazil, Uruguay and Turkey)
This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lent out these kinds of sums over such a short-period.”
26Sep
Afternoon update – Line up the dominoes
Washington Mutual is gone. National City Corp is next. Wachovia is hanging in the balance.
Pretty broad weakness right now across financials and the VIX is up nearly 10% to 35.96. At the same time, money is flowing out of 13wk bonds, where the yield has increased 19.72% to 0.85%. On the long end of the curve, 10 year bonds are down 1.63% to 3.79%. We’re seeing the yield curve flatten a bit on those moves.
In foreign exchange markets the dollar has lost its luster and is now losing ground against the GBP and JPY. Both seem to be trading in a limited channel.
In metals, gold prices are up 1% touching $890. We’re definitely seeing $900 act as a key level of resistance.
In energy, oil has slid to $104, but seems to be finding support at that level. Natural gas is down to $7.6, but may see some seasonal strength as we enter the Winter months.
The falling dominoes of the credit market are leading to credible potential for a global equity market disruption regardless of whether the bail out is passed. The only thing the bill would do is delay the market capitulation. The question is do we have some more inflation or do we experience the asset deflation crisis immediately…
26Sep
Washington Mutual fails
As I mentioned in yesterday’s post “Corporate Welfare Wins”, Washington Mutual was struggling to survive. The battle has ended in WaMu’s demise and much of their assets are being transferred to JP Morgan in a US Gov’t brokered deal. This is the biggest bank failure in US history, but I doubt it will hold that title for too long. Wachovia is at great risk if the bail out is not passed. Money is continuing to flow from weak hands to stronger hands. Overall there will be less market participants with less liquidity from more stringent leverage requirements. This will likely cause wider swings from greater volatility given the reduced volume. The outlook continues to remain bleak for the global equity markets.