US investment bank fears!

Sean K · 16 November 2007

dhukka said:
Every week we hear the same crap from the media. This is just poor journalistic reporting. There were NO new injections of money pumped into the system, what the $47 billion injected by the Fed represents are rollovers of repos of different durations. Repeat there is no new liquidity being added to the system. John Hussman of Hussman Funds explains it best. Below relates last week's so-called massive injection of liquidity.

Dhukka, I defer to your undertanding of 'new money' but I have the impression, from a 'lay perspective', that there are institutions around the place with vaults full of cash, who are pumping money into the system. It is not 'new' money, but just other people's savings. So, it's only reducing the total savings that have been accumulated.

The developed world has a LOT of money in the bank to be distributed...

Maybe I'm way off track...

dhukka · 16 November 2007

kennas said:
Dhukka, I defer to your undertanding of 'new money' but I have the impression, from a 'lay perspective', that there are institutions around the place with vaults full of cash, who are pumping money into the system. It is not 'new' money, but just other people's savings. So, it's only reducing the total savings that have been accumulated.

The developed world has a LOT of money in the bank to be distributed...

Maybe I'm way off track...

Kennas,

You are right that banks (other than the Fed) have the ability to create new money. However it is not in the form of cash, they create more debt. My point above relates to the Fed and the weekly rollovers of repurchase agreements which are falsely reported as injections of new liquidity. Pure nonsense.

ithatheekret · 16 November 2007

........ and .......... they also go to the market and borrow it in the way of bonds , ergo , Citi group , taking up their latest spread at historical levels in relation to yield . The cost of borrowing has goneup , but now the same borrowers will have to pay a higher yield ........ except / probably for Australian banks , who will more than likely , just pass on the costs to established borrowers .
Money has just got expensive , like everything else , afterall .... it is an asset .

Isn't it ..... ?

I always thought cash is King , and we know royalty is expensive .

Sean K · 16 November 2007

dhukka said:
Kennas,

You are right that banks (other than the Fed) have the ability to create new money. However it is not in the form of cash, they create more debt.

This is the little bit in the global picture I'm struggling with, because I know (perceive) that the generation of the years 50 - 80's have SAVED. It's not 'new' money. They OWN their houses and now have generous pensions coming in. Maybe this is Australian biased, but this equity position has massive implications for the rest of us left behind who will inherit it. Australian house prices are still going up.

Are we being too US centric with the economic position of Aus?

Having said the above, I am a Bear about the human being, which you might have picked up through my general posting....

So, I wait for our implosion, but not right now.

noirua · 16 November 2007

kennas said:
This is the little bit in the global picture I'm struggling with, because I know (perceive) that the generation of the years 50 - 80's have SAVED. It's not 'new' money. They OWN their houses and now have generous pensions coming in. Maybe this is Australian biased, but this equity position has massive implications for the rest of us left behind who will inherit it. Australian house prices are still going up.

Are we being too US centric with the economic position of Aus?

Having said the above, I am a Bear about the human being, which you might have picked up through my general posting....

So, I wait for our implosion, but not right now.

Australia is set to grow and grow for the next two hundred years at least. In two hundred years time, I forecast, that Alice Springs will be a City with a population of 500,000 and major towns and Cities will be built all the way from Adelaide to Darwin.
Not feasible yet, but as the water problem is solved by mega deep wells, desalination plants and adapting power from sunlight, all this is achievable.

"Implosion", no chance, until the year 21,000 for Australia. Expected eventual population 250 million.

dhukka · 16 November 2007

kennas said:
This is the little bit in the global picture I'm struggling with, because I know (perceive) that the generation of the years 50 - 80's have SAVED. It's not 'new' money. They OWN their houses and now have generous pensions coming in. Maybe this is Australian biased, but this equity position has massive implications for the rest of us left behind who will inherit it. Australian house prices are still going up.

Are we being too US centric with the economic position of Aus?

Having said the above, I am a Bear about the human being, which you might have picked up through my general posting....

So, I wait for our implosion, but not right now.

I saw a discussion this week about the position of baby boomers in the US. A large proportion of them do not have sufficient assets for retirrment. This is not a new revelation but one that has been tossed around for while. It is my perception that many Australian boomers are in the same boat though not as bad as the US.

IMHO the inheritance of wealth is great, however I would say it is more important that that wealth be put to productive use. Look at what happened to Spain.

You also have to be careful what you call equity. The US had the biggest real estate boom in history yet based on the Fed's flow of funds report, the percent of homeowner equity was at a record low of 51.7% at the end of Q2 2007.

I definitely have to reign in my own thinking in from being too US centric. The Australian economy looks very sound at the moment. However I still think we have been infected by the US mentality of not thinking twice about running up large sums of debt. The US is now in the process of realizing that is not sustainable.

Sean K · 16 November 2007

dhukka said:
I definitely have to reign in my own thinking in from being too US centric. ..... However I still think we have been infected by the US mentality of not thinking twice about running up large sums of debt..

dhukka, I don't think that you are not right in thinking that we have not being too infected by the US. We definately have been, I just question the impact.

Capitalism has not proven to fail yet. It will go through corrections, as should occur, but modern capitatist societies have yet to be proven failures in the long term....

noirua · 16 November 2007

ithatheekret said:
........ and .......... they also go to the market and borrow it in the way of bonds , ergo , Citi group , taking up their latest spread at historical levels in relation to yield . The cost of borrowing has goneup , but now the same borrowers will have to pay a higher yield ........ except / probably for Australian banks , who will more than likely , just pass on the costs to established borrowers .
Money has just got expensive , like everything else , afterall .... it is an asset .

Isn't it ..... ?

I always thought cash is King , and we know royalty is expensive .

Yes indeed, Infact the problems of the Bank of England show it's not worth bailing out any Bank, how ever large or small. They've now hit real problems over Northern Rock, a Banking minnow, having now lent it the equivalent of A$62 billion including nearly A$7 billion in unpaid interest.

Two consortiums that looked like making a bid are now trying to arrange a deal providing the interest is waived. Other Banks and Institutions are waiting on the sidelines like vultures to pick up the pieces.

Hopefully this will not happen to an Aussie Bank. If it does, my view is, let it go under.

dhukka · 16 November 2007

kennas said:
dhukka, I don't think that you are not right in thinking that we have not being too infected by the US. We definately have been, I just question the impact.

Capitalism has not proven to fail yet. It will go through corrections, as should occur, but modern capitatist societies have yet to be proven failures in the long term....

Firstly Capitalism is an ideology that doesn't really exist today in any pure sense (if it ever did) just as Communism as Marx saw it never really existed. The problem is there so much economic activity that goes on today that is claimed as capitalistic that has nothing to do with capitalism.

Look at currency trading for example, the trade in currencies actually dwarfs real trade. However currency trading is little more than unproductive speculation. You hear cheerleaders of free market capitalism heralding this as the result of financial innovation in a capitalistic society. It has absolutely nothing to do with capitalism. Money is meant to grease the wheels of trade, however now money is treated as a trade good in itself.

Uncle Festivus · 16 November 2007

The offspring of creative accounting and derivatives - carnage not finished yet, contagion continues? Australian money shufflers are feeling the pinch of more expensive funds too, but who will make the first move higher?

Shares of Citigroup Inc, the No. 1 US bank, dropped more than 4 percent, while those of Bank of America Corp, the No. 2 US bank, declined more than 3 percent.
"There's just too much fear in the financials," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland, Ohio.
"The fear is back again that the write-downs are kind of a mystery and no one really knows what the bottom is or what the outcome is going to be."

Kauri · 16 November 2007

This is only a RUMOUR.... but a goodie none the less... maybe someone else out there knows something???? or not???
Cheers
.........Kauri

November 16. Nothing has been confirmed but vague rumors of massive withdrawals from a fund run by Carlyle looks to be behind the push lower in the Nikkei into the morning close and the drops in USD/JPY, EUR/JPY and other JPY crosses. The talk is that the fund needs some $1 bln to stay afloat

numbercruncher · 16 November 2007

Wells Fargo (nyse: WFC - news - people ) isn't expecting the housing market to make a comeback anytime soon.

"We have not seen a nationwide decline in housing like this since the Great Depression," said Wells Fargo Chief Executive John Stumpf.

"I don't think we're in the ninth inning of unwinding this," Stumpf said, according to the Associated Press. "If we are, it's going to be an extra-inning game." In what has become a familiar refrain, Stumpf blamed the housing woes on weak demand, a decline in home prices, rising defaults and poor loan-lending practices.

Shares of America’s second-largest mortgage lender fell $1.28, or 3.8%, to $31.97 in Thursday trading.

http://www.forbes.com/home/markets/2007/11/15/wells-fargo-closer-markets-equity-cx_er_ml_1115markets37.html

dhukka · 16 November 2007

ithatheekret said:
........ and .......... they also go to the market and borrow it in the way of bonds , ergo , Citi group , taking up their latest spread at historical levels in relation to yield . The cost of borrowing has goneup , but now the same borrowers will have to pay a higher yield ........ except / probably for Australian banks , who will more than likely , just pass on the costs to established borrowers .
Money has just got expensive , like everything else , afterall .... it is an asset .

Isn't it ..... ?

I always thought cash is King , and we know royalty is expensive .

Citi and Merrill are now paying more than the average company:

Citigroup, Merrill Push Financial Borrowing Costs to Records

For the first time, the world's biggest financial institutions are paying more to borrow in the corporate bond market than the average company.

Bonds of banks, brokerages and insurance companies yield 1.49 percentage points more than U.S. Treasuries, matching a record high set in October 2002, according to indexes compiled by New York-based Merrill Lynch & Co. The average industrial company bond trades at a yield premium of 1.34 percentage points.

Investors are demanding extra compensation for the risk of owning Citigroup Inc., Merrill Lynch and Barclays Plc on concern that the $50 billion in losses already reported from subprime mortgages will increase. The total damage may reach $400 billion worldwide, Deutsche Bank AG analysts said this week in a report, and Wells Fargo & Co. Chief Executive Officer John Stumpf said the housing market is the worst since the Great Depression....

Citigroup paid 1.90 percentage points more than Treasuries of similar maturity to sell $4 billion of 10-year notes on Nov. 14, its biggest premium, according to data compiled by Bloomberg. Citigroup is rated Aa2 by Moody's Investors Service, the third-highest level, and AA by Standard & Poor's.

The same day NStar, the Boston-based electricity provider with ratings two levels below Citigroup, paid a premium of 1.40 percentage points in the sale of $250 million of notes due in 2017.

Wachovia versus Abbott

Merrill's 6.4 percent notes due in 2017 pay a spread of 2.24 percentage points, almost double the premium of 1.21 percentage points a month earlier, according to Bloomberg data and Trace, Finra's bond-pricing service.

Wachovia Corp. sold $1 billion of 10-year subordinated bank notes yesterday at a spread of 1.95 percentage points, the second-highest yield premium the Charlotte, North Carolina-based bank has paid on similar debt. Wachovia is rated Aa3 by Moody's and AA- by S&P.

Abbott Laboratories, the third-biggest drugmaker, on Nov. 6 paid 1.27 percentage points more than Treasuries on its $1.5 billion sale of 10-year notes. The Abbott Park, Illinois-based company is rated A1 by Moody's and AA by S&P.

Kauri · 19 November 2007

By pressing my trembling ear firmly to the ground I have picked up rumblings that sound like Citigroup are looking at writing off another 11Bn odd in their 4th Qtr... of course they are only rumblings at the moment...
Cheers
..........Kauri

dhukka · 20 November 2007

Kauri said:
By pressing my trembling ear firmly to the ground I have picked up rumblings that sound like Citigroup are looking at writing off another 11Bn odd in their 4th Qtr... of course they are only rumblings at the moment...
Cheers
..........Kauri

A report out today from Goldman Sachs downgraded Citi to a sell and estimated up to $15 billion in write-downs from collateralized debt obligations over the next two quarters.

source:

ithatheekret · 20 November 2007

noirua said:
Hopefully this will not happen to an Aussie Bank. If it does, my view is, let it go under.

To bl**dy right ! That's called a free and fair market .

Banks never rescue defaulters , so why should we help banks that need to default ?

If they can't meet their repayments , fold them . If the boards have stuffed up , fine them . If they have not reported correctly to the market .........

LOCK THEM UP !

numbercruncher · 20 November 2007

ithatheekret said:
To bl**dy right ! That's called a free and fair market .

Banks never rescue defaulters , so why should we help banks that need to default ?

If they can't meet their repayments , fold them . If the boards have stuffed up , fine them . If they have not reported correctly to the market .........

LOCK THEM UP !

I agree, but Individuals should have deposits guaranteed and first right of withdrawl imho.

ithatheekret · 20 November 2007

numbercruncher said:
I agree, but Individuals should have deposits guaranteed and first right of withdrawl imho.

Now there's an interesting concept !

Unfortunately ........ we would have to get that past the bankers lobbyists .

The side news lately on forex markets is the carry trade linked to sophisticated Japanese housewives and their forex accounts .

Theses housewives have had to adapt to government policies that will not see bank deposits guaranteed , in fact they have been withdrawn .

But I have always suspected that the policy was enacted to force cash stashers into hoarding government bonds as the only sure bet .

I would suspect that this trend will inevitably spread across the globe eventually , seeing only those with an appetite for risk and rewards partcipating in any market , not the mix we currently have .

The risk reward crowd may have peaked already , it certainly grew quickly and government policies steered well clear of abating it .

I can remember one comment by a Fed representative in regards to throwing cash out from a helicopter if he had to .

These type of comments sparked a lending and investing phase never seen before on the planet and it was only a few years prior that a certain bubble had taken care of the first wave of pioneers of this investment method .

And they wonder why people run to gold for safety ...........

In fact they are almost burnt at the stake as heretics , a big taboo as seen by many of the spinners . Comments like it has no use etc. , whilst the globe is booming and rattling at the same time , banks funds no longer guaranteed , fraudsters acquitted or given get out of gaol free cards ....... Presidential pardons .

if it wasn't so bad , it would have to be a whopping joke .

Come to think of it , after analysis , I'm on the side of the Japanese housewives . You go girls !

mullokintyre · 26 February 2024

Nothing on this since 2007.
Have the US banks been good citizens in the meantime?
I think not.
It seems that after a run on both the large and the small banks in late 2022
, faith in the smaller banks has been largely restored.
The big banks on the other hand ....

Mick

Knobby22 · 26 February 2024

mullokintyre said:
Nothing on this since 2007.
Have the US banks been good citizens in the meantime?
I think not.
It seems that after a run on both the large and the small banks in late 2022
, faith in the smaller banks has been largely restored.
The big banks on the other hand ....

View attachment 171583
Mick

Looks like return to status quo.

US investment bank fears!

Sean K

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