Archive through March 15, 2008

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rdumas

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Post Number: 1215
Registered: 11-2006

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Votes: 0


Thursday, March 13, 2008 - 07:19 am:

Dear Eugenio,

I have seen your enthusiastic response to rallies in the past that were inspired by 'the FED and their group of top notch economists' only to see them (the rallies) fizzle out into fools rallies.

Have you for one minute thought why it is that the US bankers and finance companies are too scared to lend their money out at this time? Do you really understand why there is a credit problem at this time. The bankers and finance companies know exactly what they are doing. They are hanging onto what money they have because they know that they are exposed to huge potential losses.

I know that you are impressed with the size of a sum of $200 billion dollars because its a quantity of money that you and I don't have hidden under the bed but relative to a $45 trillion economy it really isn't a huge amount of money. It's a bit like trying to stop a charging bull with a garbage tin lid. I should remind you also that the decisions that are being made by the Fed are far from whole heartedly supported by a huge majority of economists.

Let me know in a couple of weeks time what you think of 'the FED and their group of top notch economists'. And whilst you do just remember which group of people oversaw the nightmare on Elm Street that the world is now facing.

Don't get me wrong mate. I love your enthusiasm and faith. If you have the money to pour down the drain then why should you not go ahead and enjoy yourself.

deanrosario

Member

Post Number: 1379
Registered: 11-2002

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Votes: 0


Thursday, March 13, 2008 - 08:30 am:

Rudy you are to be applauded for posting analysis based on objectively analysing data.

A US$200b cash injection is, in my view, going to have insignificant impact on the global crisis that is impacting capital markets.

From a TA point of view, I cannot see anything positive about the future based on the current XJO futures chart (daily).

In fact, all signs point to disaster within the next few days.

These are worrying times that require cool heads and trading without emotion or, worse, hope.

"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

"Hope is a dangerous thing. Hope can drive a man insane." Ellis Boyd "Red" Redding, played by Morgan Freeman, in 'The Shawshank Redemption'.

kate

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Post Number: 837
Registered: 04-2005

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Votes: 0


Thursday, March 13, 2008 - 08:32 am:

Hi Rudy
Just back from holiday. Agree that was a sucker's rally, amazing that everybody was terribly excited about the move up but neglected to see the rest of the headlines which mentioned further big losses in Merill Lynch and others.

http://news.bbc.co.uk/2/hi/business/7289815.stm See latest news on right hand part of the page.

There is excitement that the interest rate cycle may be over yet our banks will continue to raise them independently to cover costs. I think that while individuals will be affected it will be new projects or expansions that will be constrained. This will lead to a reduction in employment and profits and therefore growth - the usual old cycle!

I wonder how the CBA will fare, pressure seems to be mounting with all that exposure to Allco.

Kate

deanrosario

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Post Number: 1380
Registered: 11-2002

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Thursday, March 13, 2008 - 09:28 am:

Unemployment figures are to be released at 1130 a.m. today

This data always has an impact on the intraday move of the XJO.

rdumas

Member

Post Number: 1216
Registered: 11-2006

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Votes: 0


Thursday, March 13, 2008 - 09:32 am:

Hi Dean and Kate,

Thank you both for your support. I am not a bear by nature as is proven by my continuing bullish comments late in the previous bull market. I will continue to report my views based on the facts that I see and not on the view of brokers who wish to have investors buying into this market.

One thing that not many brokers will tell people is that the US consumers represent something like about 70% of the US economy. Other than the than the $600~$1200 that they will each be getting from Santa Bush as a tax rebate (would anyone is Australia feel that their lives had changed dramatically if Rudd gave them that amount of money as they were about to be thrown out of their homes?) all that Hercules Ben has done by driving down interest rates and printing money is to have lumbered them with higher inflation. Even if you believed the CPI figure of a little over 4% (most people don't) if Benny brings keeps reducing the interest rates further below the CPI what it means is that the average US man/woman in the street is seeing their savings going down the gurgler whilst their expenses continue to increase.

What will happen to the CPI when the PPI figure of 7% feeds through the economy? What will happen as more and more average Americans get thrown out of their homes and the housing sector continues to lose value way below the size of the loans paying off those assets? What will happen as more of the average consumers lose their jobs?

The market may rally each time Benny plays his ever diminishing set of cards but it changes nothing about the fact that their economy is similar to the Titanic after hitting the iceberg. From here on in I dub the US economy as the US Titanic.

rdumas

Member

Post Number: 1217
Registered: 11-2006

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Thursday, March 13, 2008 - 09:50 am:

Is the rally over already??

Another article from the Business Spectator site.

=============================================================

7:44 AM Mar 13, 2008

JAMES THOMSON

A very short party

It only took a day for the sceptics to get the upper hand on Wall Street.

The Dow Jones jumped sharply in morning trade, but has since developed that sinking feeling. It finished at 12,110.24 points, or -0.38 per cent lower than yesterday – hardly the prolonged rally that Ben Bernanke and the Fed would have been hoping for when they announced yesterday’s $US200 billion liquidity package.

The reaction to the Fed’s move has been lukewarm at best and downright cynical at worst, but most analysts and economists agree that it will do nothing to attack the root cause of the global credit crunch – falling asset prices and specifically falling US house prices.

Goldman Sachs told clients it expects house prices in the US to fall a further 10-12 per cent and commercial property prices to drop 15-20 per cent. Adding to the problem, Lehman Brothers pointed out that mortgage rates in the US increased last week and are now at eight-year highs. Rising interest rates will mean rising delinquencies and defaults, which will mean more houses on the market and further pressure on house prices and more losses for holders of sub-prime debt.

According to some commentators, the so-called “nuclear” option of the Fed buying those rubbish mortgage-backed securities has gone from being a crazy idea to the next logical step for Bernanke.

Another sign of global scepticism of the impact of the Fed’s liquidity injection is the sharp fall in the US dollar against major currencies – it crashed to historic lows against the Euro and gave back most of the gains it made yesterday against the Yen and the Swiss franc.

The reason for the slide is that most traders are betting that despite its actions yesterday, the Fed will be forced to cut its rates by as much as 75 basis points, while the Bank of England and the European Central Rates look certain to keep rates on hold for the time being. That’s likely to send the US dollar down further.

Concerns about the state of the US dollar are mounting around the world. Luxembourg finance minister Jean-Claude Juncker, who heads a group of Euro-area finance chiefs, said European officials are “very vigilant” on exchange rates, while the French president Nicolas Sarkozy said the high Euro had provided a “shock” to his country’s economy. There have also been rumblings from the Middle East that the United Arab Emirates is considering abandoning its peg to the US dollar. As the dollar has weakened, inflation in the UAE has soared about 10 per cent and the government has been forced to institute price controls, which are further damaging the local economy. Abandoning these currency pegs could put even more downward pressure on the greenback.

They’re starting to get pretty worried about the state of the US dollar on Wall Street too. US Treasury Secretary Henry Paulson has told the market repeatedly in recent weeks that a strong dollar is in the national interest – and he’s right. While the US dollar languishes, commodity prices are likely to keep soaring (take the oil and gold prices for example) and global investors will continue to be wary about parking their cash in the US – further hurting the US economy and exacerbating liquidity problems.

US officials – including Paulson and president George W Bush – have been criticised for talking about wanting a stronger dollar but not doing anything about it. It might be time for a bit of action and the Yanks will find plenty of Europeans and Arabs ready to provide help if needed.

=============================================================

I believe that as the US dollar continues to slide there will be more and more countries wondering if they should go back to the gold standard or peg their currency to a currency that is worth something.

deanrosario

Member

Post Number: 1381
Registered: 11-2002

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Votes: 1


Thursday, March 13, 2008 - 10:40 am:

ABS Data released 1130 a.m. (ref: abs.gov.au)

FEBRUARY 2008 (Seasonally adjusted estimates: monthly change)

EMPLOYMENT

Total: increased by 36,700 to 10,665,500.
Full-time: increased by 47,700 to 7,633,500
Part-time: decreased by 11,000 to 3,032,100.

UNEMPLOYMENT

Total: decreased by 16,800 to 440,900
Number of persons looking for full-time work: decreased by 5,800 to 293,200
Number of persons looking for part-time work: decreased by 11,000 to 147,700.

UNEMPLOYMENT RATE

Total: decreased by 0.2 percentage points to 4.0%.
Male unemployment rate: decreased by 0.1% to 3.6%
Femal unemployment rate: decreased by 0.2% to 4.4%.

PARTICIPATION RATE

Remained steady at 65.2%.

End of ABS Data:

My comment: Despite the rate rises, employment (and, hence, the economy) seems to be powering ahead and supply constraints will continue to drive up inflation.

I reckon the markets had been factoring in NO rate rise next month.

Hence, I reckon these figures will catch the market off guard and, if so, watch out for a caning.

(Message edited by deanrosario on March 13, 2008)

rdumas

Member

Post Number: 1218
Registered: 11-2006

Rating: N/A
Votes: 0


Thursday, March 13, 2008 - 12:09 pm:

Hi Dean,

Thanks for the updated ABS figures. As usual, your call of the market reaction was spot on.

Cheers

rdumas

Member

Post Number: 1219
Registered: 11-2006

Rating:
Votes: 1


Friday, March 14, 2008 - 08:00 am:

The attempted and real effects of the Fed bailout plan.

The following article from the Australian Investment Review gives a pretty good explanation of what the Fed is attempting to do with its bail out plan. Note that the bail out plan does nothing to solve the real problems but rather its motive is indicated in the following extract:

But it should buy time and it should help convince nervous banks and others in the financial sector panicking about US Government-backed debt (such as Freddie Mac and Fannie Mae bonds), that the Fed and others won't stand by and watch the whole lot slide into depression

=============================================================
Fed’s Last Throw?

March 13 2008 - Australasian Investment Review – (AIR)

The Fed's latest attempt to ease seized-up credit markets marks its most direct effort yet to repair the mortgage meltdown (and slumping house prices) that poses the biggest threat to the economy.

The Fed's pledge to lend, in return for mortgage debt, $US200 billion of Treasuries to the securities firms that trade directly with the central bank is the most dramatic move so far.
In effect the Fed is telling the market that for the time being it will accept inferior mortgage backed securities (or mortgages) in return for Triple A rated paper from the US Government.

Officials later briefed reporters that the program may expand as the central bank seeks to break the logjam in the home-loan market.
The step goes beyond past initiatives because the Fed can now inject liquidity without flooding the banking system with cash.
Bernanke and his colleagues are trying to halt what some have called a 'feedback loop' where losses on mortgage investments cause banks to cut their lending, sending the economy into a deeper contraction, which then in turn puts more homes on the market, driving prices down, slashing equity and cutting the value of securities, producing more losses, and forcing the banks to again cut lending.

Under the new Term Securities Lending Facility, the Fed will lend around $US100 billion in US Treasury securities for 28-day periods in return for debt including Triple A rated mortgage securities sold by Fannie Mae, Freddie Mac and by banks. The weekly auctions start on March 27.
Unlike the newest tool, the past steps added cash to the banking system, which affects the Fed's benchmark interest rate. The central bank had to withdraw the funds through operations with securities dealers to keep the rate from falling below the target.

By contrast, the TSLF injects liquidity by lending Treasuries, which doesn't affect the federal funds rate. That leaves the Fed free to address the mortgage crisis directly without concern about adding more cash to the system than it wants. According to media reports, the Fed has about $US713 billion of Treasuries
What the Fed is doing is trying to make sure the credit creation processes in the US markets, the most powerful in the world, are not frozen by fear and uncertainty that a big financial group could fail.

It's an attempt to get banks back to lending and to convince the likes of Citigroup to restore the $US45 billion in cuts to its mortgage sales over the next year.

It’s not designed to help the US economy: merely slow its slide into recession, which wouldn’t of itself these days drag the rest of the world into the red.

But a frozen set of US financial markets with no lending or credit creation being generated by the big commercial and investment banks on Wall Street (which have global reach) would be terrible. Even China, with all its hundreds of billions of dollars in foreign reserves and a booming economy, would be badly hurt. After all China is already losing value from those reserves with every drop in the value of the greenback.

Much of money injected into the markets could very well be re-lent back to the US Government to finance its huge and growing budget deficit, which will be boosted from May by the $US162 billion emergency stimulus package, which includes around $US130 billion in tax rebates for individuals.

Think of it as a huge overdraft secured by these Triple A rated mortgages and the US Treasuries: an uneven bargain to be sure, but a sign of just how desperate the Fed is to stop the rot in housing in particular.

The Fed meets next week and will cut its federal funds rate by either 0.75% or 1% to maintain the momentum from the unprecedented series of liquidity boosting measures announced on Friday and on Tuesday.

With major investment banks, Goldman Sachs, Morgan Stanley, Lehman Bros and Bear Stearns (which has been the subject of denied rumours that it is short of liquidity) reporting next week it was going to be an enormous pressure point for US and world markets.
The slightest hint of one of these banking giants having liquidity strains, or questionable accounts and figures, and there could have been a huge sell off, such is the fragility of confidence in the state of the markets in the US and around the world.

The money won't help underwrite the huge and growing budget deficits of state and local governments across the US which are suffering revenue shortfalls from the housing slump and subprime mess: not to mention losses on investments in Wall Street funds, failed bond issues and other setbacks caused by the credit crunch.

Nor will this money stop these levels of government from sacking thousands of people, nor will it stop thousands more in other industries from losing their jobs.

It won't lower the debt burden on US consumers who generate 70% of US economic activity these days, nor will it help the millions of people made homeless and now renting or worse because they lost their homes when their subprime mortgages became too expensive and the banks foreclose on their homes.

But it should buy time and it should help convince nervous banks and others in the financial sector panicking about US Government-backed debt (such as Freddie Mac and Fannie Mae bonds), that the Fed and others won't stand by and watch the whole lot slide into depression
For that's what is at the end of what is happening in the US and other countries such as Spain, Ireland and Britain where falling property values are tugging the rest of the economy into a black hole.

(Message edited by rdumas on March 14, 2008)

eblode

Member

Post Number: 707
Registered: 11-2002

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Votes: 0


Friday, March 14, 2008 - 08:44 am:

Rudy,
The above item reinforces my position that the FED is doing everything in it's power to bring back a more positive and confident public into the financial area. Another more subtle device is the power of the IRS (Internal Revenue Service). This powerful arm of the US government will give tax concessions to certain companies and banks who in their eyes will aid them to restore prosperity back to the economy. I know from experience that whenever there is a hint of a prolonged labour strike the IRS slams both sides quickly with threats to compromise immediately as they lose tax revenue when there is a strike. The same with corporations that employ large pools of employees, they will bend over backwards to help that company survive. I recall when Chrysler Corp. was going bankrupt and their CEO actually went to the US Congress and they approved a loan to make the company survive, and it did! Never had this been done before to a public company. Therefore I feel that this market will feel the effects shortly of this financial aid coming from all sides of the American government.

Eugenio

rdumas

Member

Post Number: 1220
Registered: 11-2006

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Votes: 0


Friday, March 14, 2008 - 10:45 am:

Hi Eugenio,

Your US heritage is shining through my friend. Faith is a great quality to have in this cynical world that we live in. I am afraid that coming from an engineering background I prefer to work with facts and figures.

I admit that the Fed and all government (as well as interested non government) bodies are genuinely doing everything they can to fix the problems that they have got. You keep on missing the most important point of every article that explains the facts and that is that these bodies are all attempting to do is to remove fear from the market so that the money flow starts again and in the meantime hope that the problems will go away. None of their actions and that would include any actions that your friends in the IRS may have up their sleeves can solve the massive problems that exist in the US economy at this time. They keep dosing up on their head ache tablets and ignoring the axe that they have stuck in the back of their head.

They continue to try and push back the inevitable and in doing so create even worse problem down stream. Unfortunately for them they eventually have to take the punishment that their actions precipitated and all of the delaying tactics will not help them avoid it in the end. It's a bit like running from room to room hiding from your dad when you've done something bad hoping that he will eventually stop looking for you and go away. No, on the contrary if you keep running and hiding by the time he finds you he is even crankier than he was in the beginning.

The US markets will continue to have fool's rallies on the back of the 'next bit of hopeful news' only for the rallies to fail when reality hits them with the facts. The coming months will expose the extent of the problems as companies issue their quarterly reports showing diminishing revenues and earnings growth and the US consumers that the US depends on to continue to grow will continue to strain under the heavy burden of every increasing inflationary pressures brought about by the actions of your shining knights in the Fed.

eblode

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Post Number: 708
Registered: 11-2002

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Friday, March 14, 2008 - 11:53 am:

Rudy (the gloomy)
Then the only solution is for the United States to declare war on somebody. Anybody will do. lol.

Eugenio

coyotte