Financial Turmoil - Year 2008

Sept 7, 2008 : U.S. bails out Fannie Mae and Freddie Mac
100 Billion Dollar to each.

Sept 9, 2008 : Lehman Brothers Struggles to Survive
Lehman Brothers struggled to survive after loosing more than half of its market value. Analysts feared that the investment bank was running out of time and options. Speculation rose that the government was unlikely to come to its rescue.

Sept 14, 2008 : Lehman Heads into bankruptacy, Merrill is sold
Lehman Heads into bankruptacy after it failed to find a buyer. Merrill Lynch agreed to be bought by Bank Of America.

Sept 16, 2008 : Fed's Loan Rescues AIG
The Federal Reserve agreed to lend AIG 85 Billion Dollar in exchange of control over AIG.

Sept 21, 2008 : Goldman Sachs and Morgan Stanly
The end of an era. Goldman Sachs and Morgan Stanly, the last big investment banks on Wall Street, got approval to become regulated bank holding companies.

Sept 25, 2008 : Washington Mutual Seized
Took over by FDIC, J P Morgan bough its deposits for $1.90

Sept 29, 2008 : Citi buys Wachovia
Initially Citigroup wanted to buy Wachovia’s banking operation for $2. Later Wells Fargo bought it for $15.1 billion.

Oct 01, 2008 : 700 Dollar Bailout Plan Reached
Senate passes $700 billion dollar financial bailout package.

Oct 06, 2008 : Global Markets Plummet

NEW BILL TARGETS JOB OUTSOURCING TO TRY TO PROTECT AMERICAN WORKERS

New Bill has been introduced in New Jersey assembly, that would prohibit the state from doing business with and investing in companies that outsource jobs overseas.

This sends a strong message as New Jersey workers and businesses grapple with the global economic meltdown.

Under the bill, businesses that eliminate jobs in the United States and send them to foreign countries would be ineligible to perform any state contract or receive any state grant. Also, state money could not be invested in such companies.

News Source

Treasuries: The Next Big Bubble?

Peter Schiff who predicted US recession 2 1/2 years ago, sees the collapse of the bond market sometime during Obama's first term, and he further says, interest rates are going to spiral out of control, and the dollar is going to just be destroyed.

The fear and the volatility we’ve seen in the past few months in the stock market has driven investors to safe-haven instruments like U.S. Treasuries, and prices for Treasury bonds and notes have soared. It’s looking like the next big bubble. Like any bubble, it should eventually burst.

"The sheer steep day after day appreciation of Treasuries is no different than the appreciation in tech stocks in 2000, or a REIT in 2006 or an energy stock just 6 months ago.”

Treasury prices and yields trade inversely to each other, so as prices have skyrocketed, yields have dropped to historic lows. The 10-year Treasury note yield has seen its lowest levels in half a century, falling under 3 percent. The 10-year Treasury note yield even briefly fell below the dividend yield on Standard & Poor’s 500, which hasn’t happened either in 50 years. This is certainly a sign the stock market is cheap right now, and that a bubble is forming in Treasuries. Some analysts say Treasury yields could drop even more.

There’s the exploding budget deficit and the ballooning bailout commitments of the U.S. Treasury. By our count the U.S. government has loaned, invested or committed …

* $200 billion to nationalize the world’s two largest mortgage companies, Fannie Mae and Freddie Mac;
* $25 billion for the Big Three auto manufacturers;
* $29 billion for Bear Stearns;
* $150 billion for AIG;
* $350 billion for Citigroup;
* $300 billion for the Federal Housing Administration rescue bill to refinance bad mortgages;
* $87 billion to pay back JPMorgan Chase for bad Lehman Brothers trades;
* $200 billion in loans to banks under the Fed’s Reserve Term Auction Facility (TAF);
* $50 billion to support short-term corporate IOUs held by money market mutual funds;
* $500 billion to rescue various credit markets;
* $620 billion for industrial nations, including the Bank of Canada, Bank of England, Bank of Japan, National Bank of Denmark, European Central Bank, Bank of Norway, Reserve Bank of Australia, Bank of Sweden, and Swiss National Bank;
* $120 billion in aid for emerging markets, including the central banks of Brazil, Mexico, South Korea and Singapore;
* Trillions to guarantee the FDIC’s new, expanded bank deposit insurance coverage from $100,000 to $250,000; plus …
* More trillions for other sweeping guarantees.

The grand total? A mind-blowing $7.8 trillion and counting! How much is that

That’s half the yearly output of the entire U.S. economy. It’s equal to $25,507 for every single man, woman, and child in the United States. In the more than 200 years the U.S. has been a nation, it has racked up almost $10.7 trillion in public debt. Now, in just a matter of months, policymakers have added contingent and direct obligations equal to almost three-fourths of that amount.


Bottom line: There are lots of reasons to believe this Treasury rally is unsustainable, and that a day of reckoning is fast approaching.

Peter Schiff Was Right 2006 - 2007

Schiff heads Euro Pacific Capital, a brokerage in Darien, Conn. with more than $1 billion in assets under management. He has silenced critics because he predicted the collapse of the housing market, the subprime crisis and the soaring of oil prices in his market commentaries before they came to pass.

Peter Schiff predicted US recession 2 1/2 years ago. But he was mocked and ridiculed. I wonder if any of those people are feeling stupid now, or if they've somehow revised it all in their memories or explained it away to themselves.

The current crisis is due to Federal Reserve policies which created cheap money allowing people to get way over their heads in debt, which subsequently drove the prices of real estate and other things up. This is what he was saying happened, and its what did happen. Schiff has been kicked off the air for criticizing the Federal Reserve.

Thursday Wrapup........

• Federal Reserve Chairman Ben Bernanke called on the government Thursday to ramp up efforts to stem soaring home foreclosures, which are feeding into the country's deep economic troubles.
  
• Jobless rolls at 26-year peak, factory orders drop. The number of U.S. workers on jobless benefits rolls hit a 26-year high last month, data showed on Thursday, and it may head higher as a deepening economic slump forces a broad spectrum of firms to cut jobs.
• AT&T announces plans to cut 12,000 jobs, about 4 percent of its work force. The Dallas-based telecommunications company -- the nation's largest -- said the job cuts will take place this month and throughout 2009. The company also plans to reduce capital spending next year.
• Oil at nearly 4-year low ($45.84) with jobs slashed and factory orders plummeting. Oil prices fell Thursday to levels last seen nearly four years ago as the number of people continuing to receive government aid reached a 26-year high, factory orders hit an eight-year low and major corporations slashed jobs.

Wipro Technologies Offers BPO jobs to Engineers

Hedge fund assets fall $170 billion in third quarter

Global hedge fund industry assets fell by $170 billion in the third quarter of 2008 as negative returns of more than 10 percent combined with heavy net outflows, research firm Lipper TASS said.

he data provider said there was a net outflow of $18.6 billion in the third quarter, reversing the trend of the previous two quarters.

Global hedge fund assets fell to $1.63 trillion at end-September from $1.80 trillion at end-June as the industry also generally failed to post positive returns amid the volatility that many were designed to exploit.

The figures appear to confirm fears that investors spooked by the market turmoil have withdrawn from hedge fund products seen as opaque or too complex.

All hedge fund sub-strategies measured by Credit Suisse/Tremont posted negative returns in the quarter. Some funds did however, attract investment.

The Lipper TASS report published Monday showed there were positive flows into Global Macro, Managed Futures, Equity Market-Neutral and Dedicated Short-Bias sub-strategies in the quarter.

The largest hedge fund sub-strategy outflows were experienced by Long/Short Equity, Fixed Income Arbitrage, Multi-Strategies and Emerging Markets, which also posted the steepest negative returns during the quarter.

Economic Conditions To deteriorate Further

Two of the most accurate credit crisis forecasters predict that economic conditions will deteriorate further.

One is Nouriel Roubini, who predicted the financial crisis in July 2006. In February this year he forecast a ``catastrophic'' meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks exposed to mortgages and a ``sharp drop'' in equities. He also predicted that Financial Markets May be Shutdown.

Meredith Whitney, who was the first banking analyst to call the crisis in financials, and has made some notably astute calls, recently said her outlook for the industry had been "too optimistic."

This is what she says

" As an analyst, it is my job to do fundamental research and call it as I see it, and my bailiwick is financials. My outlook has been negative for over a year and, technically, I have been “right” on my calls. Seeing massive capital destruction has brought me no pleasure, but unfortunately I see little on the horizon that would change my outlook. In fact, after observing the US economy so derailed, I feel that I must act as a citizen of this great country to attempt to offer solutions to this economic train wreck we are all involved in.

First, I am more bearish today than I have been in the past 18 months. In so far as the market has impacted on the economy, capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not stabilise the effects of shrinking liquidity to corporations and consumers. More than $3,000bn (€2,365bn, £1,955bn) of available credit has been expunged from the markets and therefore corporate and consumer borrowers so far this year. "

Black Friday (a day after Thanksgiving) sales up 3% from last year

The most awaited data as on today are coming out which is the sales figure for Thanksgiving day.....Strong discounts brought U.S. consumers to the stores on "Black Friday" -- the traditional first day of the holiday shopping season -- with estimated sales rising 3% from last year. This indeed a good news for wall street.

Preliminary sales for Black Friday totaled $10.6 billion. This year's rise in sales, while lower than the 8% increase seen for the day last year, comes despite plummeting consumer sentiment data and other economic turmoil. Retailers should be cautiously optimistic as deep discounts drove consumers en masse to various retail locations to spend, despite myriad economic pressures seen over the last two months.

Black Friday refers to the day after Thanksgiving, so called because many retailers begin to turn a profit on that day, moving from "red ink" to "black ink." Sales for the day are seen as a key harbinger for the overall holiday season.
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Just wait for the revision...these reports are just like GDP and unemployment always good enough to juice the markets then later revised down.

* Sales up as discounts are up. Reminds us of existing home sales numbers...in many parts of the country the sales were up but prices were way down.
* Amazing--you lower the price and people will buy it? Only products that were deeply discounted were selling. There go your margins. And, like the car manufacturers, this erodes future sales. How many laptops purchased at $0 or negative margin were sold on Black Friday that now won't be sold next year or the year after at a profit?
* They'll have made sales look better but there was no margin. You can only put off the pain for so long and then it's curtains for you.

Top Stories over the Weekend

Government bonds have performed well, but what happens when new issuance really hits home? (Economist.com)
Keep an eye on 10 year Treasury yields for a clue on risk aversion. (VIX and More)
30 year mortgage rates are down. (Bespoke)
Carl Icahn is buying senior debt. (Barrons.com)
After 15 years of being overvalued, the stock market is back to “fair value.” (Clusterstock)
“I think the Nasdaq is much more representative of the current American economy than the Dow.” (A VC)
Doubling down on losers is “dumb.” (Howard Lindzon)
“It is hard to say how successful monetary and fiscal policy will be in avoiding a deep downturn.” (NYTimes.com)
The gold-silver ratio in the spotlight. (MarketBeat, FT Alphaville)
Charles Kirk inteviews Jeff Miller. (Dash of Insight)
Secondary sales of private equity stakes indicate lower valuations than the current marks. (Economist.com)
Bob Rubin finally gets called to account for the Citigroup (C) debacle. (WSJ.com, Market Movers, naked capitalism, Big Picture)
“The economy has simply changed too much since then for experience to be a reliable guide.” (Slate.com)
Recession or depression, web companies have a raft of opportunities. (GigaOM also Silicon Alley Insider, Economist.com)
Look at the picture, not the words. (Odd Numbers)