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Showing posts from March, 2008

The Fed Leviathan grows

Well, it didn't take long for the rumors of a new Federal Reserve-led regulatory regime to blossom into a full blown policy announcement. Today, Treasury Secretary Hank Paulson announced plans for the an overhaul of the nation's financial regulatory structure.

In what MSNBC.com calls the "most sweeping changes since the Great Depression", the plan set forth by the Bush administration would enlarge the regulatory role of the Federal Reserve and the SEC and create a "superagency" to oversee financial markets.

Here's more from the LA Times:

"Treasury Secretary Henry Paulson today unveiled a 218-page blueprint for regulatory reform that would represent the largest federal overhaul since the Great Depression.

The blueprint, widely previewed before the secretary's remarks, would give the Federal Reserve more authority to oversee the markets and would create one superagency to oversee both investor protection and market stability, assuming many of the …

Features of the week

Glad to see that we made it to the end of another week. Now, sit back and relax. Hope you enjoy our latest edition of, "Features of the week".

1. Whitney Tilson joins FT.com for "View from the Markets".

2. Wall Street firms cut 34,000 jobs, most since 2001 dot-com bust.

3. Jim Rogers sees investment opportunities in Taiwan, and a looming disaster in the Federal Reserve's recent efforts to prop up the markets and save the investment banks.

4. We're living in a bailout nation, says The Big Picture.

5. "Bailouts 101". Minyanville's Mr. Practical, via Bear Mountain Bull.

6. Mugabe's days are numbered regardless of vote, mining industry bets.

7. Famine, farm prices, and aid. Economist reports on rising food prices and resulting social unrest.

8. Globe and Mail on "G-d's Sugar Daddy", investor John Templeton.

9. Book review: The Complete Turtle Trader. M.A. Nystrom.

10. Lew Rockwell details the folly of, "The War on Recession".

11.…

Stock market wrap up

Are US stock markets set to go higher?

While the current financial environment is dominated by a wave of bad news related to the credit crisis and weaker corporate profits in the tech and financial sectors, recent action in the leading Dow Jones averages may be painting a different picture for US shares: one of strength.

Dow Theory Letters writer Richard Russell has recently made repeated references to the surprising strength in both the Dow Jones Industrial Average and the Dow Transports since the time of their January lows.

While the DJIA has been something of a laggard between the two, the Industrials have remained stubbornly above their January lows (Edit: this is true only in terms of intraday lows reached on January 22, and not in terms of closing prices. My apologies.).


Meanwhile, the Dow Transports continue to move higher, having recently broken through the 200-day moving average on the daily chart, and above their old February highs.

Are we witnessing a brief bear market rally…

Hoarding by banks?

So now it seems the central banks are angry that they can't get banks to lend, in spite of the Federal Reserve's recent rate cuts and newfangled lending facilities.

For some strange reason (like, I don't know, fear of insolvency?) banks and other financial institutions don't want to make a bunch of new loans in the midst of a steadily worsening credit crunch.

Here's how the FT put it: "Hoarding by banks stokes fear over crisis".

"Central banks' efforts to ease strains in the money markets are failing to stop financial institutions from hoarding cash, stoking fears that the recent respite in equity markets may not signal the end of the credit crisis.

Banks' borrowing costs - a sign of their willingness to lend to each other - in the US, eurozone and the UK rose again even after the Federal Reserve's unprecedented activity in lending to retail and investment banks against weaker than usual collateral and similar action in Europe."

I see …

Wall Street, meet Fed

Are the Federal Reserve's recent efforts to stop investment bank failures, while providing credit to non-commercial banks, a sign of its future involvement on Wall Street?

Writers at the Financial Times and Barron's believe it is.

While doing a bit of weekend reading, I came across the following article in the weekend edition (March 22/March 23 2008) of the Financial Times.

Entitled, "Wall St detects shift in regulatory power", the piece outlined the possibility of a new "unified regulatory regime" that would involve closer Fed supervision over Wall Street investment banks:

"With the credit crunch worsening and public money at stake, the Fed and the Treasury are taking a hands-on approach to the oversight of Wall Street banks, whose primary regulator for the past 70 years has been the Securities and Exchange Commission.

Senior bankers say that officials from the Treasury and the Fed are in constant contact with Wall Street firms, checking on their liquid…

Features of the week

Welcome to this Friday's edition of, "Features of the week".

1. The financial system: What went wrong. Economist report.

2. "Ask the oil producers to rescue Wall Street". FT Comment piece notes that, "banks' appetite for risk-taking has vanished", and that the recent crisis could signal, "the beginning of a massive global credit crunch".

A key paragraph explains the recent shift in risk appetites:

"Banks want to shrink risk exposure, not maintain or expand it. Liquidity support by the Fed is an invitation to borrow from the central bank for on-lending to others – that is, to expand balance sheets. On the contrary, the banks and brokers want to contract their balance sheets."

For more on this, see the following item.

3. "Can't get a loan? You're not alone". A follow-up to our recent post, "Money is cheap and unavailable", that explains why credit is suddenly so tight.

4. FT's John Authers on the recent…

The Public Enemy (1931)

Do you ever get the feeling some days that you'd like to just take a break from what you're doing, and go take in a movie instead?

Well, today's your day. We're ducking out and going to the movies.

Found a good seat?

Allow me to present, with a little help from our friends at YouTube, our first film feature here at "Finance Trends Theater". William Wellman's 1931 film classic, The Public Enemy.

Here's a snippet from Allmovie.com's review:

"One of the great pre-Production Code gangster films, William Wellman's The Public Enemy made James Cagney a star, providing him with his defining role: Tom Powers, a bitter Chicago gangster driven to a tragic end.

Like its contemporaries Little Caesar and Scarface, The Public Enemy was surprisingly ambitious in its examination of the social causes that drive young men into a life of crime, closely examining the allure of street gangs to working-class youths."

The Public Enemy: Part one, two, three, fo…

Can't get a loan? You're not alone

Can't get a loan? Don't worry, you're in good company. Neither can anyone else, and that's including some top-shelf investment funds and financial institutions. Today we'll continue to examine why this is so.

Recap

In our last post, "Money is cheap and unavailable", we highlighted comments from investor Wilbur Ross on the current availability of money and credit. In a recent interview with the Wall Street Journal, Ross noted the following:

"Usually when money is cheap, it's also very plentiful...now, it's cheap, except you can't get it".

It's an odd situation, and it led me to wonder how such a disparity came about. Was money being priced too cheaply as a result of artificial forces? If there is demand for money and credit, yet little availabilty, wouldn't that suggest high prices for access to credit?

Higher Rates, Nervous Lenders

Well, it turns out that banks are now charging higher rates to individuals seeking loans for new ho…

Money is cheap and unavailable

Last week, in a post on the dollar and expected Fed moves on interest rates, we included a link to a recent Wall Street Journal interview with investor Wilbur Ross.

I mention this because Ross said something interesting during this interview about the availability of money and credit in recent weeks. Ross noted that we are currently in a period of very tight liquidity, and that money, while cheap, is practically unavailable.

This is an odd situation, because as Ross notes,"usually when money is cheap, it's also very plentiful". Today, this is not the case. Ross continues, "Now, it's cheap, except you can't get it".

This leaves me with a few questions to ponder over.

What's behind this tightening of money and credit? Why is money priced cheaply if you can't get your hands on a loan? Is money and credit artificially cheap? Has the Fed set short term interest rates at an artificially low level, thereby distorting the market for money and credit?

Also…

Fed cuts, Bear $2 bucks

A weekend rate cut, and a cut-rate deal for Bear Stearns. Here's the latest.

The Fed has cut the discount rate to 3.25 percent.

Here's more from Forbes:

"In two emergency moves to bolster market liquidity on Sunday night, the Federal Reserve cut its discount rate for direct loans to banks by 0.25 pct point to 3.25 pct and created a special lending facility at the New York Federal Reserve Bank for primary dealers in the securitization market.

The two initiatives are 'designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth,' the Fed's statement said."

This most recent lending facility announcement means the Fed will accept a "broad range" of collateral from primary dealers. Guess this means that the pawn shop is growing in size...

As for the weekend discount rate cut, that's just a prelude to Tuesday's Fed meeting. Traders are still expecti…

Features of the week

I'm going to try something different in today's "Features" post. Instead of the usual collection of articles, essays, and interviews, we are going to focus on a single item of interest.

Today we'll highlight a recent CNBC interview with Jim Rogers.

Rogers: "Abolish the Fed"

Here's the lead point in CNBC's article coverage: Jim Rogers: 'Abolish the Fed'.

Rogers made this statement when a CNBC anchor asked him what he would do if he were appointed Fed chairman tomorrow. Rogers replied, "I would abolish the Federal Reserve and I would resign."

And why not lead with this? It's an outrageous suggestion, at least to the bubbleheads on CNBC, who increasingly cry out for intervention from the Federal Reserve whenever anything seems to "go wrong" in the markets or the economy. They can't imagine life without the Fed; who'll bail out Wall Street when the chips are down?

Bailouts and Interventions

But aside from Rogers&…

Gold tops $1000

Yes, the long awaited milestone has been reached.

Today, gold reached a $1000 an ounce for the first time ever, as investors continue to regard precious metals as a safe haven in this current market environment.

Here's more from Bloomberg:

"Gold rose above $1,000 an ounce for the first time as mounting credit-market losses spurred demand for bullion as a haven from the sagging dollar and equities.

Silver and platinum also advanced as the dollar dropped below 100 yen for the first time since 1995 and to a record against the euro. Standard & Poor's increased its forecast for bank writedowns related to subprime mortgages to $285 billion. Gold is up 37 percent since the Federal Reserve began cutting interest rates in September, sending the dollar tumbling.

Gold futures for April delivery climbed $13.30, or 1.4 percent, to close at $993.80 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier reached $1,001.50, the highest ever for a most-act…

What are you investing in?

What are you investing in? That's the current topic of discussion over at the Mises Institute blog.

Lots of responses so far, too, especially for such a personal question. It seems that a lot of people are willing to discuss their money and personal finances with openness these days, at least that's what I've noticed on the internet.

And it's not the usual cocktail party chatter of, "I just got a tip on this great stock". I mean, people are talking full asset allocation here, which must account for a large chunk of their personal savings and investments. Interesting to note how willing some people are to discuss personal matters these days.

Maybe some of you would like to share some personal investment strategies here as well. I'm all for it; be as detailed or as nonspecific with the information as you like. Some of our readers might have some interesting ideas or valuable wisdom to share.

Dollar falls to record low

The US dollar has fallen to a record low against the euro today, as markets signal a vote of no confidence in the Fed's banking system money injections.

The dollar is currently trading at $1.55 per euro, the lowest level since the euro's debut in 1999. The US dollar index (DX) is also trading lower, at 72.512. Earlier today, it reached a low of 72.471, just above its record low of 72.462 set on March 7, 2008.

More from Bloomberg, "Dollar falls to record low...":

"The dollar fell to a record below $1.55 per euro as firms from Citigroup Inc. to Goldman Sachs Group Inc. said the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

The U.S. currency erased almost half of yesterday's 1.6 percent rally versus the yen, the biggest in six months, which came after the Fed said it would lend Treasuries to financial institutions in return for mortgage debt. Traders bet the Fed will cut rates by a…

Credit market meltdown

Well there's a title designed to catch your attention. "Credit market meltdown".

It's always interesting to talk about turmoil and disaster, especially when it's the kind of disaster that's happening right before your eyes, as opposed to the more usually seen and heard theoretical musings on potential calamity.

You know the kind; it usually sounds something like, "well, we could be headed for disaster as a result of x...".

Well now "x" is here. And today's "x" is a fallout in the credit derivatives market that's spreading to other parts of the global financial system and driving up the cost of available credit.

Here's more from FT, "Credit derivatives turmoil bites":

"Turmoil in the credit derivatives markets is having an increasingly brutal impact on the wider financial system as a vicious cycle of forced selling drives risk premiums on company debt to new highs.

The trend accelerated on both sides of t…

Features of the week

Welcome to our Friday edition of, "Features". Enjoy this week's collection!

1. "Europe's tiny tax havens should be left in peace", writes Bloomberg's Matthew Lynn.

For more on this issue, please see the first item in our Feb. 22 "Features of the week".

2. Commodites have been a saving grace for investors.

3. How have the S&P 500 and US home prices fared in gold and euro terms? FT's John Authers examines this question in Friday's "Short View" column.

4. A disappointing February payroll report has convinced the holdouts (and campaigning politicians) that the US is in a recession.

5. "Margin call, gentlemen". Carlyle Capital Corp shares were suspended on Friday after lenders marked down the value of the firm's residential mortgage-backed securities.

An excerpt from this FT article details the problem:

"CCC is the latest casualty of the banks’ increasingly unforgiving attitude towards even the most powerful p…

Platinum and palladium revisited

Platinum and palladium have been on fire the past couple months, as you probably know.

We've recently highlighted platinum's surge here with some brief article mentions, but it's been a while since we covered the platinum group metals (PGMs) at length. And since platinum and palladium are probably both due for a nice short-to-medium-term pullback, you may take this post as an intermediate-term top signal!

Back in April and May of 2007, we highlighted the launch of the new platinum and palladium ETFs brought out by ETF Securities and Swiss bank ZKB. Demand for the new commodity ETFs was strong right out of the gate, and the recent upward move in the PGMs has generated more interest in these products.

Still, no platinum ETFs have been introduced in the US, a situation which is probably due to the metal's extremely tight supply and expected lobbying by industrial users against such a product.

And its not just the industrial users who would be upset by increased investment b…

Dollar down, commodities up

Well, if yesterday's action in the commodity markets threw you, then today we're back on track with the main trend. The dollar is down against the euro (to a record of $1.53), and commodities are up. It seems, for now, that the trends for a lower dollar and higher commodity prices are intact.

Yesterday saw declines in some of the most actively traded commodities, with oil, gold, and corn falling from record levels on worries of a US slowdown.

But with today's action, we've seen a reversal of yesterday's declines. Oil, gold, and corn are now at new highs, and a weaker dollar is said to be fueling this rise.

Here's more from Bloomberg:

"Crude oil, gold and corn prices surged to records, leading a rebound in commodities on renewed concern that a slumping dollar and lower borrowing costs will spur inflation and increase demand for raw materials.

The UBS Bloomberg Constant Maturity Commodity Index of 26 futures contracts jumped 39.11, or 2.6 percent, to 1,546.74…

Gold vs. paper assets

And the winner is gold.

Bloomberg - "Gold beats financial assets as investors seek safe haven".

"Gold, silver, platinum and palladium may be the best-performing financial assets this year as inflation and slowing growth erode the value of the world's major currencies, bonds and stocks.

Precious metals have risen at least twice as fast as the euro and yen in 2008 and returned six to 20 times as much as U.S. Treasuries. The Standard & Poor's 500 Index and all other major gauges of equities are down. Gold futures reached an all- time high of $992 an ounce today, while silver traded at $20.74 an ounce, the most expensive since 1980."

The idea that investors would increasingly seek out tangible assets and investments as inflation accelerated has been confirmed. Investor preference for gold and tangibles vs. paper financial assets is now a mainstream trend.

What a chart of the Dow versus gold has shown for years is now made more apparent by recent investor behav…