TODAY - We are publishing these comments from our membership site (delayed a wee bit). Patience and a clear head will keep your perspective real and sound. WBB
0145 EDT
Some will criticize the Fed and Bernanke for any reason that comes to mind. But remember, that this is a game of NOW - not yesterday. Many screamed about lowering interest rates faster/earlier/ more dramatically, but that wasn't the solution. It may have helped for a few days but not for long.
Some will criticize the Fed and Bernanke for any reason that comes to mind. But remember, that this is a game of NOW - not yesterday. Many screamed about lowering interest rates faster/earlier/ more dramatically, but that wasn't the solution. It may have helped for a few days but not for long.
If a derivative cannot be valued nor traded for price discovery, then what is it worth? How much should the Fed secure to liquidate something no-one knows its tradable or even intrinsic value? This is the nature of the Sword of Damocles hanging over the Fed Chairman, the man who studied the causes and federal government acts that caused Crash of 1929 and the Depression (thank goodness he studied it). But remember that there was the causes to study like the effects the Republican Smoot-Hawley Bill that Hoover was against but eventually signed. There were no solutions to study, except letting the markets fall to near zero and then wait 25 years for them to recover.
So we have Bernanke sitting under the Sword of Damocles trying to untangle this financial hairball that the fat cat bankers and their well-healed customers have coughed up. The hairball must be lueined now! Yes, lueined or loosened. Luein is the absolutely perfect word. It was the word used by the oracle who proclaimed that he who would luein the cryptic knot of Midas at Gordium would conquer and rule all of known Asia. The brilliant tried for 100's of years but it was Alexander who tried too but realized that it did not matter how the Gordian Knot was loosened. He took his sword and cut it open with one blow to reveal all of the ends to the cornel bark strips inside the knot holding the chariot to the post.
So I say Bernanke should quickly grab that Sword of Damocles overhead and boldly slice through this knotted Gordian hairball of global financial enigmas. Either let the markets crash, or guarantee every strip of cornel bark in this hairball by opening the world's first global financial pawn shop.
Its a viability or solvency question now. Nothing more, nothing less. Solvency of every government and corporation around the world is on the butcher's block. Its that dramatic. I have restrained my words before today but it is time to state it clearly. That is what is at risk here and now. This is the source of my sincere "editorial" rah rah. If you are over 40 years, you know what October 1987 was like. This is a much broader global market. We can't stop the boulder if it gets going and crescendos into a rock slide.
We will continue to update throughout the day and potentially after the closing.
A man named Tom wrote about this banking crisis before it happened, and I like his perception.
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
We can all agree that banks are not inherently evil but they do effect the way we live. The man who wrote that 200 years ago understood and had the vision but was opposed by Hamilton, a central banking advocate. That man was Thomas Jefferson in 1802.
We will get through all this and be the better for it all, mates.
WBB
0131 EDT
A comment about all this leverage - A bank can theoretically and in practice accept a deposit $1,000 by a retail customer, and with current reserve requirements of 5,5%, can turn that $1,000, in multiple iterations of lending transactions, into $17,000 worth of loans to the asset side of their balance sheet. That is a normal banking function of leveraging 17:1 on the assumption that all the loans will not go under at the same time, even if they were not collateralized properly.
But, using the Carlyle Fund as an example of abusing the bundled mortgages, they had bundled loans instruments and re-leveraged them into an unrecognizable derivatives that had leverage of 32 to 36 to one. Yes, 36:1! No wonder they listed on the tiny Amsterdam Exchange.
0121 EDT
We will likely enter 100% short at the opening today unless something persuades us to elect a lower level for the position. Same routine and plan - feed the models, watch the reaction to the data, timing, structures, sentiments, volumes, momentums etc. At times like this, remember to avoid the urging of greed - set your targets and exit as your plan prescribes.
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The problem with the J.P. Morgan all stock purchase of Bear Stearns for $236 million (with an 'm') is that similar investment banks are now extremely vulnerable to be taken under too - Lehman for one example. At $2 a share, its an amazing turn of events since Bear closed at $30 on Friday.
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The Fed releases Industrial Production data at 0915 EDT Monday morning. They have seen the data and it potentially is not supportive of a growing economy.
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With an estimated $750 trillion, yes, Trillion, of collateralized debt derivatives, the Fed and the USA federal government is on the edge of a dire state of affairs here. If only 1/2 of 1 % of the $750 Trillion default - well, how does one handle the domino effect with an economy of $3 Trillion?
What I believe is occurring here is a Fed trying to find more thumbs to plug a financial dike. I hope something they do works but these are not the measures that will prevent a panic. The Fed and the U.S. Treasury and the U.S. Congress must get in front of the growing wave.
They all must categorically affirm that they will be the buyer and seller in this broken derivative market.
In effect, they must open wide the doors to the world's largest financial Pawn Shop. The Fed's invitation to the global financial markets should begin with the last stanza of the Lazarus poem on the great lady standing in the New York harbor.
"Give me your tired, your poor,Your huddled masses [of CDO's] yearning to breathe [trade] free,The wretched refuse of your teeming shore.Send these, the homeless, tempest-tost to me,I lift my lamp beside the golden door!" Emma Lazarus, The New Colossus 1883
[] by WBB
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Editorial-
This amazing and marvelous country can do it. It has saved the world several times before. The cynics and America haters are always wrong. Always! They have never erected a statue to honour the cynical, the hater and others of their ilk. Give it time and the USA will pull it out again. No doubts mate.
Every crisis has its opportunities and ours is to be short the indexes here and short the USD, for awhile. WBB
1115 EDT
CNBC has initiated Special Coverage tonight with the latest Fed cuts to bail Bear Stearns out of liquidity jail, and as Asia is down quite strongly.
AORD - down 2.5%+
NIKK - down 4%+
Hang Seng - down 4.85%+
Shanghai - down 2.4%+
Korea - down 3.58%+
WBB
1050 EDT - Sunday night
http://www.federalreserve.gov/newsevents/press/monetary/20080316a.htm
Press Release Release Date: March 16, 2008
For immediate release
The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.
First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.
Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.
The Board also approved the financing arrangement announced by JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
We will update through the morning as the EUR/USD has broken out again to new highs.
WBB
