tags: short selling

youngdan wrote:

This is a difficult article to follow but the whole idea of the Fed is to confuse. I hope to get back to this

http://seekingalpha.com/article/98991-how-bad-is-the-fed-s-balance-sheet

Youngdan I'm going to copy this to the Central Banks thread. The first question I'd ask is "What's a term auction facility?"

Any predictions on where the Dow will bottom? They're saying on Bloomberg that the Dow went to 7000 after 9/11 and at around 9000+ now it has a long way to go.

Presumably there is lots of money out there like both Slim and Squire are saying and there will be businesses swooping in to take charge of x, y and z soon. You'll see a lot of changes in the near term I'd say - McWilliams said it on Prime Time recently that we'll see one of our big banks get taken over by a super-bank.

Squire, great point on the awkwardness of the EU in dealing with all this. there is now some Board getting set-up to review the mechanics of all this and how the regulator could be improved and Charlie McCreevy is sitting on that board (but apparently some Socialists in the Parliament are going nuts because of that. McCreevy is a rabid free-market Capitalist advocate). For anyone (ibis, tonys) who thought the lack of monetary control mushroomed house prices originally then isn't all this fan-hitting not a lesson for ye? Banks squirmed out from under regulators as to what their capital/debt ratios were and now are pulling the wool over the eyes of the Government as to what crap is on their books so really they are (or were) perfectly in control of the in and outflows of moolah through their halls. A lot more it seemed flowed out than in. Banks in the Eurozone should be independently if not publicly audited.

ISEQ up 5% on the interest rate change yesterday.

There is a general concensus, dare I say, that given the recent rate cuts and various government interventions, that seasonality will be allowed to play out this year. Normally, the big mutual and hedge funds in the US will have jettisoned their poor performing stocks by this time. They will be looking for new holdings. The reason this cycle occurs is due to the US seasonal tax structure which ends in December. Right now the European bourses are taking their lead from the US bourses and have been for some time - ie there's strong correlation.

The hedge funds might have been inclined to park more money in short term bonds but the rate cuts by CBs yesterday put the brakes on that option. So the next few months will give us wee punters time to analyse where the big boys/girls are putting their cash.

The upshot is that the equity markets should see some posititive action in the months ahead. If the markets go down or stagnate, then we can take it as a sign that the equity market players have very little faith in any businesses or business sectors propspering for quite some time.

gl all

Just after reading through the various posts. Some very interesting posts and maybe some valuable information to think about.

At the end of the day, all the various bourses in the world are tertiary to the main framework of our national and international economies. They're only auctions. I used to deal in cattle and sheep and I'm thinking of doing so again. I still wander down to Ballybay cattle market of a Saturday to remind myself what a market looks like and how it works. If I have a bullock for sale, I know how much it cost me to rear the beast and what price I need to earn a profit. If the animal doesn't get the price, I can't blame the market. It's just doesn't make sense. Either the cost inputs were too high or the demand for cattle is too low.

These last couple of weeks the Fed, primarily, has been blowing smoke into joe public's eyes. "Ooh, the markets are falling." "Run for cover." True, joe public might have some dosh in a pension plan but joe public's real problem is earning enough to cover the cost of modern day living. The Fed knows this and has know this for yonks. The commercial bankers, who are the Fed main clients, need to grow quarter by quarter to satisfy shareholders. Shareholders are the very basis of the capitalist system. The bankers in the US, primarily but by no means exclusively, have sought ingenious ways to lend money because this is how bankers profit and that keeps shareholders happy.

There's just one ineluctable fact that underpins our entire system. If there was no lending, there would be no currency in circulation. All US and European currency is created through lending. If all debts in these areas were paid off today, theoretically there wouldn't be one red cent to be found.

So what happens when lending dries up as it has done in the last couple of months? There is no new money being created and there is stagnation in economic growth. The daily necessity to create ever more debt is causing assets bubbles. The Fed and other CBs thought they could control the level of debt through interest rate increases or decreases but time has indicated that this is a very blunt financial tool. If the increase in debt isn't or can't be funneled into productive and wealth producing enterprises, the debt is directed at any asset which can be manipulated to appear to create wealth - ie property. The stockholders demand growth; economic growth can only occur when lending occurs; and the vicious circle keeps turning until it meets a crisis point as we've recently witnessed.

So what happens now? I think Squire hit the nail on the head. We need the EU to become one big nation like the US, and if memory serves me correctly there is one clause in the Lisbon Treaty regarding the ECB. The original ECB charter is based on decentralisation. Each national CB is self regulated essentially and contributes to the decision making process of the ECB, although the central decision making board is independent. I'm sure a few Brussel legal boffins will be able to use the clause to re-align the ECB into a more unitary mechanism.

I believe this further integration will occur because the private financial institutions upon which our economies rely are too big for the regulatory environment in which they do business. Indeed, multi-national corporations of every conceivable variety have grown beyond the ability of government to regulate; hence the national fight to lower corporate taxes to zero.

Do I think the USE will be a better entity than the USA? Naw. In time, it'll do just the same things in the same way. Often the govermental and regulatory frameworks become the masters of the population. They are easily manipulated. Look at how quickly the US adopted socialist principles when it suited them. Of course, they privatised the profits and only socialised the costs, but when the people are afraid they'll accept any bull chips or just bury their heads in the sand.

Thankfully, by the time the USE plays out its world role, I'll be too old to give a buffalo chip. I'm not one to predict anything, and maybe I'm not really predicting anythins. But, I see the world being broken up into three general strata. Those who control debt, those who can obtain debt and the those who will be forced into a debt spiral or out of the game altogther. The old social classes are dead. The new cohorts are currently sorting themselves into their respective groupings. The demise of so many banks over the last several months (with more to follow) will eventually reveal the winners and losers in the big credit crunch reshuffle. Of course, new regulations will return lending criteria to "normalcy". We'll just have to see where the new lending (debt creation/money supply) gets funneled. By the talk coming out of Washington and London, they want the auld consumer to start picking up the slack and get spending again. O dear. As long as man is master to money instead of mastering money, vast sections of humanity will be destined to live in penury.

Interesting blog, youngdan and interesting comments on it too.
The top graph shows the Fed's holdings expanding and shifting from mainly sound Treasury bonds to much less secure debts.

The second graph shows peaks of deposits that have occurred when inter-bank lending seized up.

The bottom line message is that Bernanke is trying to get out of this in the same way he and others got into this - flushing vast amounts of paper into the system with no value to back it up.

It would tend to fuel hyperinflation. The cutting of interest rates is also more of the same that got us here - easier to borrow but less viable to lend.

If we get hyperinflation, the people who are sitting on piles of cash will not be the better off for it.

The new age Travellers in West Cork with their home grown everything may not be looking so poor this time next year.

The blog and comments give an interesting glimpse into the minds of
people who seem to have an almost religious view of the market, as a holy behemoth that should not be touched and is beyond the comprehension and control of mankind.

CF

It struck me that Bernanke is doing his utmost to conceal what he is up to. ANLF, TAF, PDCF, CPFFs why not add a few more Future Undercover Credit Kitty and Yearly Outreach Units. The abbreviations would more accurately reflect the purpose.

I have come to the conclusion that high inflation may be a necessary tool to flush out the system. Bubbles are caused by too much money chasing too few goods, so we are told. High inflation devalues money and corrects the problem.

I could deal with a period of high inflation. At least I could plan in that sort of environment. You need to avoid holding currency. Those that think they can make money with money get roasted and everyone else gets a work out carrying bags of money around.

Audi

Here is my guess the DOW needs to fall to say 7500 - 7800 and the FTSE to around 3500-3600. Until we see some significant correction what happens on the ISEQ is a side show. However in Ireland the overall is over reliant on the financial sector and the Government have really botched up there. There are a few Banks to many and the guarantee impedes what needs to happen.

Eventually there comes a point where no one wants to sell or at least less than want to buy. A bit to go yet before we get to that point, we are still in bear territory and definitely not out of the woods.

That is my guess.


rockyracoon

Perhaps I am cavalier, but I don't get over worried about a debt based currency. It is just a slight of hand that makes trade possible. What does worry me is the control of money supply and abuse of that control.

Banks generally need to be reigned in, activities curtailed and their role reduced or diversified into more productive activity. A lot of the cleverness needs to be directed towards providing a real service in the real world and away from creating profit from commissions on financial conjuring tricks.

Some of my first comments on this site were for the need of effective regulation, transparency and higher ethical standards in the financial sector. That sentiment still stands.

I have had Banks offering (without my request) to set up off shore accounts, extend credit, finance me to take over another business (yes!!!), provide finance for cars, for holidays etc etc I even get cold calls on an ex directory number offering credit. To me all this is totally unethical and needs to stop. It is on a par with pimping.

I welcome what is happening in Britain and would like to see a similar approach across Europe. We need a Europe wide banking standard of conduct that is agreed and enforced by a European body. Initially Banks will resist but in the end it is probably to their long term advantage and now is a good time to encourage them. It is about simple effective regulation, ethical standards and transparency.

Squire wrote:

CF

It struck me that Bernanke is doing his utmost to conceal what he is up to. ANLF, TAF, PDCF, CPFFs why not add a few more Future Undercover Credit Kitty and Yearly Outreach Units. The abbreviations would more accurately reflect the purpose.

I have come to the conclusion that high inflation may be a necessary tool to flush out the system. Bubbles are caused by too much money chasing too few goods, so we are told. High inflation devalues money and corrects the problem.

I could deal with a period of high inflation. At least I could plan in that sort of environment. You need to avoid holding currency. Those that think they can make money with money get roasted and everyone else gets a work out carrying bags of money around.

Inflation makes people want to spend what they have, but they don't get much for it. If there was employment, then inflation would allow wages to catch up with mortgages.

So cash, bank accounts and commodities look shaky spots to hold one's assets in. What next? My grandmother's idea of a financial safe haven used to be a pantry full of tinned salmon.

http://www.treasurydirect.gov/NP/BPDLogin?application=np

If you go into here and pull up the daily history for the past 50 days you will see the explosion from Sept 15 which corresponds to the jump in Fed assets. The Fed calls a treasury bond an asset but for the treasury it is a liability.

Quote :

Some of my first comments on this site were for the need of effective regulation, transparency and higher ethical standards in the financial sector. That sentiment still stands.

I have had Banks offering (without my request) to set up off shore accounts, extend credit, finance me to take over another business (yes!!!), provide finance for cars, for holidays etc etc I even get cold calls on an ex directory number offering credit. To me all this is totally unethical and needs to stop. It is on a par with pimping.

I welcome what is happening in Britain and would like to see a similar approach across Europe. We need a Europe wide banking standard of conduct that is agreed and enforced by a European body. Initially Banks will resist but in the end it is probably to their long term advantage and now is a good time to encourage them. It is about simple effective regulation, ethical standards and transparency.

It's a peculiar market, the money one. Your opinion of it is that it is mere 'lubrication' rather than a product as such. Are we all realising now that it is a special product that needs special control, if indeed it can be called a product at all. It's all done with computers - someone presses a button, you've got your credit and the interest starts ticking. Funny way for them to be able to make money but it is often as casual as that. Or used to be. Were they all betting on the continued expansion of the value of wealth, income, property etc.? At some stage it will come to an end anyway - enough houses will be built, enough production will have gone on and we'll be into the arena of maintaining the stock we have. Maybe this is a long way off but it's inevitable because there is only so much the human being can consume.

I think our banks have pulled a fast one on our politiicans - even as soon as they had issued the guarantee, one of the guaranteed banks began to capitalise on the goodwill of the 'people'. Harsh measures were taken against them (a 50k fine) but that shows what they are like, the snakes. I fear our politicians aren't up to them.

youngdan wrote:

http://www.treasurydirect.gov/NP/BPDLogin?application=np

If you go into here and pull up the daily history for the past 50 days you will see the explosion from Sept 15 which corresponds to the jump in Fed assets. The Fed calls a treasury bond an asset but for the treasury it is a liability.

I got this but maybe it's not what you mean

Auditor #9 wrote:

Quote :

Some of my first comments on this site were for the need of effective regulation, transparency and higher ethical standards in the financial sector. That sentiment still stands.

I have had Banks offering (without my request) to set up off shore accounts, extend credit, finance me to take over another business (yes!!!), provide finance for cars, for holidays etc etc I even get cold calls on an ex directory number offering credit. To me all this is totally unethical and needs to stop. It is on a par with pimping.

I welcome what is happening in Britain and would like to see a similar approach across Europe. We need a Europe wide banking standard of conduct that is agreed and enforced by a European body. Initially Banks will resist but in the end it is probably to their long term advantage and now is a good time to encourage them. It is about simple effective regulation, ethical standards and transparency.

It's a peculiar market, the money one. Your opinion of it is that it is mere 'lubrication' rather than a product as such. Are we all realising now that it is a special product that needs special control, if indeed it can be called a product at all. It's all done with computers - someone presses a button, you've got your credit and the interest starts ticking. Funny way for them to be able to make money but it is often as casual as that. Or used to be. Were they all betting on the continued expansion of the value of wealth, income, property etc.? At some stage it will come to an end anyway - enough houses will be built, enough production will have gone on and we'll be into the arena of maintaining the stock we have. Maybe this is a long way off but it's inevitable because there is only so much the human being can consume.

I think our banks have pulled a fast one on our politiicans - even as soon as they had issued the guarantee, one of the guaranteed banks began to capitalise on the goodwill of the 'people'. Harsh measures were taken against them (a 50k fine) but that shows what they are like, the snakes. I fear our politicians aren't up to them.

youngdan wrote:

http://www.treasurydirect.gov/NP/BPDLogin?application=np

If you go into here and pull up the daily history for the past 50 days you will see the explosion from Sept 15 which corresponds to the jump in Fed assets. The Fed calls a treasury bond an asset but for the treasury it is a liability.

I got this but maybe it's not what you mean

interesting thoughts.

anyone any idea how the differrence between the velocity of money (currently at infinity or the speed of a computer's processing capacity) today compared to in the 1920's helps or hinders the crunch?

Quote :

anyone any idea how the differrence between the velocity of money (currently at infinity or the speed of a computer's processing capacity) today compared to in the 1920's helps or hinders the crunch?

The faster you get into debt the slower you get out of it ... ?

Dow Down 3.38% gone through 9000.

Nasdaq Down 2.60%

Bloomberg is reporting that mutual and hedge funds are seeing heavy redemptions (ie the average punter is pulling their money from the funds). I suppose the funds are selling off equities to keep their capital ratios down.

On another note, the Libor rate, while relaxing somewhat, isn't really falling as much as it should do given the CB rates cut yesterday. It may take a while for the credit markets to catch up to the cuts.

Anyone know if the Fed can sell its long term paper? I've just read a blog saying the Fed can't sell any long term paper and is relying on 1 and 2 year treasuries to finance it various bail-out operations. Not good, if true.

Tbh, this is all getting both scary and boring.

rockyracoon wrote:

Tbh, this is all getting both scary and boring.

I think they're mutually exclusive emotions rocky - can't have one without the other. (but I kinda see where you're coming from)

Do you think this is a business cycle end or a serious adjustment going on internationally? I've been feeling in my bones that there's a deflation around the corner which might not be a bad thing once you have some income. If this is the end of a 'normal' cycle then maybe there's an upswing around the corner? Tech stocks were apparently up today led by IBM and it's only a matter of time before certain new economy and tech economy names are perennial and household and are the old reliables. Hasn't the tech world expanded seriously in the last 18 years (a period that saw a boom in consumer spending in the US and onwards) and couldn't it, after a short breather, go on expanding seriously for another half dozen or dozen more years before the next upset?

Or is it all getting driven by faceless investors ready to act the vulture on a few banks and other companies?

rockyracoon wrote:

Bloomberg is reporting that mutual and hedge funds are seeing heavy redemptions (ie the average punter is pulling their money from the funds). I suppose the funds are selling off equities to keep their capital ratios down.

On another note, the Libor rate, while relaxing somewhat, isn't really falling as much as it should do given the CB rates cut yesterday. It may take a while for the credit markets to catch up to the cuts.

Anyone know if the Fed can sell its long term paper? I've just read a blog saying the Fed can't sell any long term paper and is relying on 1 and 2 year treasuries to finance it various bail-out operations. Not good, if true.

Tbh, this is all getting both scary and boring.

Too true. It is moving excessively fast, but seems long drawn out at the same time. I don't understand enough to know if this answers your question, but the blog youngdan posted about the Fed and Treasury funding loop suggests that whilst the Fed used to hold mainly Treasury bonds, its holdings are expanding but are rapidly being diluted with risky stuff. The answer to your question might be in that blog or one of the responses.

Auditor #9 wrote:

rockyracoon wrote:

Tbh, this is all getting both scary and boring.

I think they're mutually exclusive emotions rocky - can't have one without the other. (but I kinda see where you're coming from)

Do you think this is a business cycle end or a serious adjustment going on internationally? I've been feeling in my bones that there's a deflation around the corner which might not be a bad thing once you have some income. If this is the end of a 'normal' cycle then maybe there's an upswing around the corner? Tech stocks were apparently up today led by IBM and it's only a matter of time before certain new economy and tech economy names are perennial and household and are the old reliables. Hasn't the tech world expanded seriously in the last 18 years (a period that saw a boom in consumer spending in the US and onwards) and couldn't it, after a short breather, go on expanding seriously for another half dozen or dozen more years before the next upset?

Or is it all getting driven by faceless investors ready to act the vulture on a few banks and other companies?

All good questions and no one knows the real answers. First of all, the equities markets aren't important at all in the current equation. If the current crisis was a three ring circus, the equity markets would be the third ring. The main ring right now is the credit market. It always is but we just don't notice it much because it usually works fairly well.

From what I been following on the Eurostats website, the EU bloc has been moving into recessionary territory all year. Is this driven by the credit crisis or was there underlying recessionary pressures anyway? I tend to think we were in for a mild downturn in most Western economies before the credit crunch hit. The situation is affected by the credit crunch but at a more fundamental level. If we forget about the housing bubble for a moment, there is evidence that many Western consumers had acquired too much personal debt over the last 5 years. Savings rates were falling among at the same time. In other words, too much of the GDP growth was spurred by borrowing and not being covered by real increases in wages. A mild downturn or even mild recession would have put a floor under this situation. For a while anyway.

What we've been seeing over the last fortnight isn't normal credit market corrections. The actions by various government make analysis only possible in hindsight imo. As the saying goes, Fear has overtaken Greed, and overtaken it exponentially. I tend to think that the people who are experts at pricing assets just don't know how to price them. Too much money is chasing too few assets. In this moment of indecision, the experts are just going into cash and letting the markets take care of themselves. The experts ability to predict the future, or more correctly their expectations of future asset price movements, have been hampered by the hodge podge of govt interventions.

Will the Lehman Bros CDS sales have an impact? I'm sure they will. Once the various Investment Banks can put a price on derivatives, they can begin to value balance sheets and the assets that lie on these balance sheets. However, the answers to asset values may just increase Fear.

(PS - good point on being scared and bored. However, if you've ever been in a near auto accident, you'll get my drift. I've been in a couple near misses (not my fault) but one becomes calm and almost detacted while at the same time scared bootless.)

rockyracoon said

Quote :

Once the various Investment Banks can put a price on derivatives, they can begin to value balance sheets and the assets that lie on these balance sheets. However, the answers to asset values may just increase Fear.

"And always keep ahold of Nurse, for fear of finding something worse"

Asia has opened down. Nikkei 225 down almost 10%

The rational opinion would be that it is going to be a really bad day for the ISEQ tomorrow, but reason seems to have little to do with it any more.

Jaysus, down to 2809

Changing fast very volatile but its the Banks!!

Anglo down 28%
Bank OI Down 22%
AIB down 12%
ILP down 16%

ISEQ Down is at 2858 but going up and down like a yoyo
FTSE Down 8%
DAX Down 8%
CAC Down 8.5%
AEX Down 6.5%
MIBTEL Down 7%

Wonder if exchanges will close today some trips thrown in Japan last night?

Banks have all improved to 5%-10% loss range extreme volatility.


EDIT
IL&P now showing a 10% gain !!!??*** BOI weakest down 10%

Anorak on p.ie and someone on the Pin were talking about BOI and Anglo (?) merger; they reckon that the changing share price suggests a friendly, orchestrated takeover. It's kinda really amazing that one of our banks hasn't gone down the drain yet - rubbernecks I suppose.

The problems of falling stock markets and sub-prime driven bailouts may be dwarfed by a crisis in the pipeline and coming our way: the coming CDS problem. Credit Default Swaps are complex, barely-known instruments which have been described by the Sage of Omaha, Warren Buffett, as the financial equivalent of Weapons of Mass Destruction. AIG, the insurer with the pedicure-addicted top management strata, was/is a big player in this market. Experts reckon that the total market value in this exotic market is $54.6 trillion. Put another way, the Wall Street rescue was 1.3% of the CDS market value. If this goes into a tailspin, then we really will be in uncharted territory.

http://www.focus.de/finanzen/boerse/finanzkrise/weltwirtschaft-die-naechste-krise-wird-toedlich-sein_aid_339326.html

Sorry the link is in German. I will try to get something in English on this.

Slim what is the translation of Börsengang and Börsenbeben ? Thay are not in my dictionarys?

A more worrying development today is the Euribor lending rate. Both the Dec and Mar contracts show a likely increase in the 3 mos Euribor rate. This is where the action is, and this is why the equity markets are spooked. It's all about solvency and liquidity for main street business right now.

The straw that broke or mended the camel's back today is the Lehman CDS auction. If anything can put a temporary floor under the panic, this'll be the auction to do it. I believe the final auction report is due out at 2 p.m. EST. Anything under .80 cents on the dollar for the instruments might be seen as temporary success.



9:33 - amended to under .80 cents on the dollar