Imminent and severe market correction

[dhukka]

Have to love some of the quotes out there right now, with bankers running around with their heads chopped off. Here is a re-assuring snippet:

One shell-shocked senior banker in London said that there was no future left for the traditional investment bank. “The world is on the brink. The market is puking all over us. There’s no capital left in the world,” he said.

This is the kind of stuff you want to see at market bottoms, but it is not widespread enough yet IMO. Too many calm collected individuals out there still.

 

[jeflin]

What are the chances of Morgan Stanley surviving till next week? The way things are going they might have to merge with another bank. Already NYT is saying they are in talk with another bank (Wachova). If that happens next in line will be GS, which also comes under the category of "too big to fail"...

1909 looks so similar to 2009. History indeed repeats itself, especially after a century...

And after that there will be a new beginning and a new rat race will follow. It is about time we enter 21 century and start off with new banks... Down with the old, in with the new

The good thing out of all this mess will be a better regulated derivative market from now on.

Well, I certainly hope for a better regulated derivative market. But I doubt if the investment banks will change from their old practices.

 

[wayneL]

This is the kind of stuff you want to see at market bottoms, but it is not widespread enough yet IMO. Too many calm collected individuals out there still.

...as evidenced by the lowly VIX.

36 may be high by recent standards, but can get much higher at real capitulation bottoms

 

[dhukka]

...as evidenced by the lowly VIX.

36 may be high by recent standards, but can get much higher at real capitulation bottoms

Yeah not there yet, would like to see the VIX in the 40's. It hit 45 in August 02 and hit the same level in August 1998 with LTCM. Hopefully we can revisit those good ole days soon.

 

[pepperoni]

With the US and UK bank failures .. will one of our big 4 fail?

Im so tempted to put everything into NAB today and hold til it gets up 10%:

P/E ratio 8.36
Dividend yield 9.1%

 

[awg]

my questions refer to the $100 billion pumped into AIG.

not sure this is the best thread for this post, but..

my reading is that the bulk of these monies are primarily to settle CDO/S default insurances.

if this is the case, does it not mean that if the situation deteriorates, this money will be effectively pissed away?

I recall a very prescient post by TECH_A,(some months ago), showing the exponential growth of interbank OTC derivatives, and his concern regarding counterparty risk.

in the highly likely event of further asset price falls, and given the high leverage in these financial instruments, it would seem that, $100 B, would be a drop in the bucket ( I think TechA post indicated OTC derivative value in excess of $60 TRILLION!), and would be swallowed up.

i would be pleased to hear that i am wrong, have misunderstood, or am ill informed

 

[Kauri]

Anatole Kaletsky writing in today"s UK Times states that the "apparent rescue of Halifax Bank of Scotland may result in a bigger crisis, if the drowning HBOS drags down its rescuer, Lloyds TSB." Kaletsky says that the events of the past two weeks might be only the prelude and not the climax of this "amazing" crisis. Kaletsky maintains that "if the Lloyds-HBOS merger offers the enlarged bank some kind of firm government safety net - not just for depositors, but crucially also for shareholders - it will probably succeed and act as a firebreak against the financial crisis on this side of the Atlantic. If, however, the merger is presented as a pure private sector solution, with no government support for shareholders, market attacks against HBOS will soon be revived and redirected against the merged bank. This will leave only one solution - nationalisation of the entire British banking system. The impossible will suddenly become inevitable." --

Cheers..Itunk
.................Kauri

 

[explod]

my questions refer to the $100 billion pumped into AIG.

not sure this is the best thread for this post, but..

my reading is that the bulk of these monies are primarily to settle CDO/S default insurances.

if this is the case, does it not mean that if the situation deteriorates, this money will be effectively pissed away?

I recall a very prescient post by TECH_A,(some months ago), showing the exponential growth of interbank OTC derivatives, and his concern regarding counterparty risk.

in the highly likely event of further asset price falls, and given the high leverage in these financial instruments, it would seem that, $100 B, would be a drop in the bucket ( I think TechA post indicated OTC derivative value in excess of $60 TRILLION!), and would be swallowed up.

i would be pleased to hear that i am wrong, have misunderstood, or am ill informed

I understand that is fairly accurate and the amount is closer to 62 trillion.

We live in very interesting tiems indeed

 

[CamKawa]

Tell you what cracks me up is when politicians tell us how safe our banks are, like they are renowned for telling the truth.

 

[Kauri]

News hitting the screens of the concerted intervention many had previously suspected. The liquidity push comes in a coordinated effort from the Fed, ECB, BoE, SNB, BoJ and the BoC, with news filtering through of the sizes and individual requirements of the reciprocal 180bn repo operations with the Fed in an effort to ease conditions in the dollar markets. It is having a minor impact in as much as stocks have opened with a slight bid and fixed income markets are a bit offered. Sustainability is highly questionable in the current environment but certainly the Fed are pulling out even more stops in an effort to pull the market out of the downward spiral.

Cheers
............Kauri

 

[Kauri]

someone out there is spreading filfy rumours of an emergency BOE cut at 0930GMT. when it more than likely doesn't eventuate and the originators have cleaned up and left the party... don't be left looking lonely..

Cheers
...........Kauri

 

[IFocus]

This is the kind of stuff you want to see at market bottoms, but it is not widespread enough yet IMO. Too many calm collected individuals out there still.

Yes still fur on the bear yet I want to hear the so called pros screams the end is here, amazing we break new ground but I still don't hear real fear

 

[Kauri]

The infection in the financial markets has now spread to State Street and Bank of New York which have dropped dramatically over the past half hour with State Street now down 40% on the day and BONY down 30%. This has been followed by additional losses in Goldman Sachs and Morgan Stanley as the fallout continues and the fear reaches unprecedented levels as reflected in the TED spread at record levels. yet another wave of carry liquidation kicking in with the repatriation to US assets seen as the safest play at present. The best thing to do at present is probably to stay on the sidelines and wait this out for some form of stabilization. These market are not meant to be traded.
Custodians shares latest casualties; State Street & BNY-Mellon in Freefall
GS hit $85.88 and has bounced back to $100, however the fragility of the situation, and the innate volatility is simply shattering investors confidence.
Cheers
..........Kauri

 

[noirua]

They reckon Goldman Sachs is the next one in line for bailing out. George Bush is reported to be contacting Banks to encourage them to merge.

 

[Uncle Festivus]

False alarm citizens, there is no credit crunch, as Dow surges in the final hour (again), up 400 pts. It's about time all that repo priming money was put to good use . Some nice window dressing from the PPT? Tonight will be the real test - who will be brave enough to hold over the week end?

 

[mayk]

Will Paulson's plan work?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOEQDGa_6XT0&refer=home

 

[Kauri]

False alarm citizens, there is no credit crunch, as Dow surges in the final hour (again), up 400 pts. It's about time all that repo priming money was put to good use . Some nice window dressing from the PPT? Tonight will be the real test - who will be brave enough to hold over the week end?

leave the conspiracy explanations to the experts, the american columnists who ply thier trade and living by explaining everything away by feeding the gullible with "believe it or nott" theories..

US stocks rebounded in the afternoon on word the FSA were forbidding shorting of UK financial shares, while CALPERS stopped lending GS and
MS shares and the NY AG threatened to prosecute shorts who manipulate the market with bearish rumors. The equity market has been back on the rebound on the news that Senator Schumer has hinted at a permanent Fed plan in the works to address the current financial crisis and instability.Paulson has suggested the possibility of a Resolution Trust Corporation ("RTC") solution (remember the S+L crisis of the 80's??) to the current financial market turmoil. IMF suggested that it may be time for a global "systemic" approach to the problem, including fiscal policy, monetary policy & direct intervention.the Hedge Fund lobby is challenging SEC"s decision to require daily disclosure of short positions ( ooohh what a surprise ).Sen McCain said SEC"s Cox should be fired and the clamber for ending the short-selling feeding frenzy grew louder. . Focus is on stocks, central banks and regulators.

Cheers
...............Kauri

 

[tcoates]

Interesting...

Short selling of bank shares banned


http://www.guardian.co.uk/business/2008/sep/18/banking.creditcrunch

Last paragraph...

George Osborne, the shadow chancellor, said: "Gordon Brown now says he wants to "clean up" the City. He seems to forget that he is the man who in ten years as Chancellor created the current system of regulation. For ten years he boasted about his achievements. Today he is trying to disown them.

My 2c worth - lets just put a Band-Aid over the cancer.

Tim

 

[Bushman]

Here it comes; what the markets have been craving. Ben & Hank's 'shock and awe' show. So it is either allowing smelly steaming CDO's to be swapped for crispy US dollars or it is an agency that buys up those pesky boarded up McMansions that have caused all this fuss.

Can this all simply to be swept under the carpet now? There are already a few corpses under there already.

WASHINGTON (MarketWatch) -- Top U.S. financial officials emerged from a briefing with congressional leaders Thursday night with an agreement to work quickly toward a broad-ranging fix for the crisis roiling U.S. and world financial markets.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke briefed House and Senate leaders to hash out a solution to the massive downturn in global markets and the failure of several financial firms.
Treasury spokeswoman Brookly McLaughlin said in a prepared statement that Paulson, Bernanke and congressional leaders "began a discussion ... on a comprehensive approach to address the illiquid assets on bank balance sheets that are ... the underlying source of the current stresses in our financial institutions and financial markets."

 

[gfresh]

Well it looks at least they are moving in the right direction .. lets see whether they can actually come up with something that has a chance of working. Could it involve(?) a multi-pronged attack...

1) agency that holds and can clear the bad CDO's, CDS, and whatever else that needs to be dealt with over the next few years. What happens to them once they are sitting there is a good question, but what happens to them on the Fed's books presently anyhow?

2) a clearing house for hither-to 'off balance sheet' derivatives, so there is more transparency, and everybody can see what is happening with the securitisation market, and spot potential problems well in advance.

3) cleaning up the source, the housing mess, with government policy.. e.g. encouraging people to stay in their homes, extending introductory interest periods, further tax benefits for holding property. This would probably allow 1) to slowly be dissolved as the housing market repaired itself. I think this is probably the most important thing. If house prices stop falling, there may just be a chance of reversal in the financial markets as less derivatives have to be written down and down and down until they destroy companies (the point we are now).

4) regulation giving greater oversight and tighter rules on securitisation, preventing further issues in future years.

The short selling thing is missing the issue if you ask me, but I guess they figure it will allow time for things to be repaired in the short-term.

Of course that's if you support the fact that things should be interfered with, but as we've seen, of course they will try.