"The Fed, in an effort to get the funds rate back down and meet the spike in demand for cash, twice entered the market today to inject cash. It lent $12 billion through a 14 day "repo," the name for an operation that adds reserves to the banking system and alleviates upward pressure on rates, and an additional $12 billion through an overnight repo."
look at what's going on in the European money market this morning -- the overnight London Interbank Offered Rate, or LIBOR, is surging. It just soared to 5.86% from 5.35, according to the British Bankers Association, putting it at the highest level since the start of 2001. 3-month LIBOR rose to 5.5% from 5.38%. 6-month LIBOR climbed to 5.39% from 5.34%. The European Central Bank has responded by lending the market the euro equivalent of $130 billion.
This is serious stuff. It's a sign that liquidity is seizing up amid fears of subprime mortgage contagion. LIBOR hardly ever moves on credit concerns, only in response to increases in the federal funds rate. And guess what's tied to LIBOR? All kinds of short-term loans, including some Adjustable Rate Mortgages.
So LIBOR is dropping the hammer on ARM re-setters?
I think the peak of ARM reset is in November-December timeframe according to the (bubble-infamous) Credit Suisse chart. Merry Christmas.
CR/Tanta, how often does the liquidity injection (described iun the WSJ article dis linked to above) happen?
Fairly unusual, no?
Unlike many here, I do not trade the market. But I am fascinated by the sideshow that's been going on for the past few years, and looking forward to a healthy correction to insanely inflated asset prices.
I like the phrases explaining why people spent less:
"while they grappled with economic anxieties and volatility"
and
"are far more concerned about credit and financing woes"
and
"indirectly through the home-value concerns".
I guess the statement of actual truth that certain consumer segments have run out of money is too harsh.
Instead, let's just pretend that the missing consumers are musing in a philosophic fashion about economics in their free time instead of going to the mall.
Keep in mind the small gain at Wal Mart came at a time when they were drastically reducing prices to bring shoppers into the story. Translation: it failed.
Gary - I asked the same question to a friend who works for a central bank. Answer: ECB has interevened 3 times to inject liquidity through such "fine tuning operations": in 1999, 2002 and 2003. Two of those cases were related to the introduction of the Euro and all three were for much lower amounts (7, 25 and 10 billion).
He shares the feeling that this suggests that something serious if afoot - maybe ECB knows more than it is saying.
Yal - from a previous thread - put options are obviously more expensive today, but volatility is still fairly cheap, which means option plays are still cheap. Bear in mind there's still a ton of corporate buyback money to chew through, which will support and stabilize the market somewhat, but the rot in the financial system is clearly starting to show through, and the longer a meaningful adjustment is delayed, the more likely it is to be discontinuous (ie. one big thud) when it arrives. For what it's worth, down 200+ for the Dow by the end of the day is still my call. Apparantly there was a "medical emergency" over on the mortgages desk this morning - down 1,000 on the Dow would more accurately reflect what's going on in credit today, but there's just too much price insensitive corporate buyback money out there today for that to happen.
The Fed really only added enough money today to cover maturing repos and yesterday's 10 year auction. It's interesting that most of the funding problems have been offshore, which probably reflects the greater degree to which US banks have been able to offload toxic waste to investors.
Another commentator also noted this, but seriously folks, have a look at the holdings in your money market and bond funds. Or better yet, have a couple drinks first, keep the bottle handy, then sit down with the prospectuses. You'll be shocked by the amount of potentially toxic waste held in supposedly conservative funds.
for all you conspiracy theorists. take a look at this from Implode o meter: 404 Not Found 1186671780.php
IMO this is silly for a number of reasons:
1) The behavior in the market can be easily explained by the huge hedge fund presence in the market as I've explained over and over again. There may be a PPT, but they're working for hedge funds, not the government.
2) If you can parse their behavior it's clear that the stock market is one of the factors preventing the Fed from lowering rates - if they did so we'd get Dow 50,000 followed by the "Hundred Year Depression". I seriously doubt the government would purposefully make the Fed's job harder.
3) If you look at past data it's unusual to have corrections with the amount of short interest. Short interest often feeds huge rallies and meltups. Short interest was at a low point when the NASDAQ crashed because it was all wiped out by a meltup. Currently we're unlikely to have a correction without a major shock (though I think we might see just that).
The article makes this statement:
The PPTs strategy is to offset weakness in the US housing market, with increased household wealth in the stock market, in order to avoid a recession.
Rising stock prices do not create wealth. They create the preception of wealth through inflated numbers on paper or a computer screen. This is an illusion that cannot be realized in the real economy (unless you're one of the first to sell).
This may encourage people to up their borrowing and spend even more than they make, but that's the problem not the solution.
What Turbo said, mostly. There is also a bond auction today. Estimating add need is as much art as science, and a very good Fed watcher I know offers a rough estimate of $5 bln as the extra increment in today's operations for aimed at overnight problems. The outstanding $29 bln in repos is not large, nowhere near a record. The balance of outstanding RPs is very likely to go up as the reserve maintenance period goes on, as part of the normal pattern.
Overwhelmingly, it was the ECB, not the Fed, that responded to the problem in money markets today.
Reaching here but what the hell at this point stupidity seems to be the call of the day:
Why with all the foreclosures going on,why don't the markets band together and set up a program or bond fund to refi all this toxic waste...wouldn't that make sense since the wall of card is crashing down.
yes we will not save all..but I think at this point it is beyond the stupid home owner that is in trouble it is the global market that is in trouble..ehh! just a Niquil induced thought.
"There are credible(?) reports that a number of quant hedge funds are collapsing. This was mentioned in the WSJ last night, but the report seemed skeptical. I just heard from a credible source that Goldman is liquidating its Alpha fund. Radiant and Renaissance are rumored to be in big trouble. This is probably one of the reasons for the huge release of liquidity by the Fed and ECB.
This is causing all sorts of screwey market behavior. These guys were long some stocks, and short others. The longs are going down and the shorts up (e.g., homebuidlers up today?). The SPY, as an average, is not a particularly metric to see what is going on.
Another indication - see the post 'One Shoe Dropping'.
Yal - I didn't know that, thank you. Explains some of the ugly closes we've been seeing, and the extent to which corporate buybacks are supporting this market.
GS just announced problems with one of its funds - not the alpha fund though. I guess, yesterday's rumors were on the right track, if not completely right.
Because you'd be refinancing people into more mortgages they can't afford. That's the problem.
Yes I agree...but there has to be some kind of fix...this is what happens when you let former Junk Bond King Michal Milkin in the mix...but you didi not hear that from me
I just think that unless you're willing to lose money by offering people unprofitable loans, its impossible to "refinance" a large portion of the borrowers who are defaulting out there.
"There are credible(?) reports that a number of quant hedge funds are collapsing. This was mentioned in the WSJ last night, but the report seemed skeptical. I just heard from a credible source that Goldman is liquidating its Alpha fund. Radiant and Renaissance are rumored to be in big trouble. This is probably one of the reasons for the huge release of liquidity by the Fed and ECB."
Borrowers of alt-A mortgages may be of higher caliber than their subprime counterparts, but that hierarchy doesnt necessarily hold for the bonds backed by the two types of loans. In fact, some alt-A securities are trading in line with comparable subprime-backed bonds, according to several market participants.
Weve historically been very wary of alt-A because of the decreased levels of subordination in the transactions, said a buyside source. We are much bigger believers in subprime.
US financial market are struggling, US dollar is appreciating against most of the developing countries money. It is clearly reflecting on other businesses like retail... p shaped conservatories north east
primero?
July was exceptionally good weather to shop.
"July was exceptionally good weather to shop."
lol ...
It is great the the US "sub-prime" problem only affects European banks and US retailrs while the US ML and HB are un affected at all.
The Census data comes out on a Monday, and it's a 13th too. Funny.
"The Fed, in an effort to get the funds rate back down and meet the spike in demand for cash, twice entered the market today to inject cash. It lent $12 billion through a 14 day "repo," the name for an operation that adds reserves to the banking system and alleviates upward pressure on rates, and an additional $12 billion through an overnight repo."
Fed Enters Market To Tamp Down Rate - WSJ.com
look at what's going on in the European money market this morning -- the overnight London Interbank Offered Rate, or LIBOR, is surging. It just soared to 5.86% from 5.35, according to the British Bankers Association, putting it at the highest level since the start of 2001. 3-month LIBOR rose to 5.5% from 5.38%. 6-month LIBOR climbed to 5.39% from 5.34%. The European Central Bank has responded by lending the market the euro equivalent of $130 billion.
This is serious stuff. It's a sign that liquidity is seizing up amid fears of subprime mortgage contagion. LIBOR hardly ever moves on credit concerns, only in response to increases in the federal funds rate. And guess what's tied to LIBOR? All kinds of short-term loans, including some Adjustable Rate Mortgages.
Bottom line: Fasten your seat belts.
So LIBOR is dropping the hammer on ARM re-setters?
I think the peak of ARM reset is in November-December timeframe according to the (bubble-infamous) Credit Suisse chart. Merry Christmas.
CR/Tanta, how often does the liquidity injection (described iun the WSJ article dis linked to above) happen?
Fairly unusual, no?
Unlike many here, I do not trade the market. But I am fascinated by the sideshow that's been going on for the past few years, and looking forward to a healthy correction to insanely inflated asset prices.
yal-HB and ML are slowly dropping
I like the phrases explaining why people spent less:
"while they grappled with economic anxieties and volatility"
and
"are far more concerned about credit and financing woes"
and
"indirectly through the home-value concerns".
I guess the statement of actual truth that certain consumer segments have run out of money is too harsh.
Instead, let's just pretend that the missing consumers are musing in a philosophic fashion about economics in their free time instead of going to the mall.
The small gain that Wal-Mart reported was due to inflationary food prices...IMO.
Keep in mind the small gain at Wal Mart came at a time when they were drastically reducing prices to bring shoppers into the story. Translation: it failed.
Btw CR, bush today was throwing the speal about education for borrowers.
Gary - I asked the same question to a friend who works for a central bank. Answer: ECB has interevened 3 times to inject liquidity through such "fine tuning operations": in 1999, 2002 and 2003. Two of those cases were related to the introduction of the Euro and all three were for much lower amounts (7, 25 and 10 billion).
He shares the feeling that this suggests that something serious if afoot - maybe ECB knows more than it is saying.
btw, I am very glad that all this subprime is well contained.
Disclosure: Gold
Barley | 08.09.07 - 11:36 am | #
You'd think.... But even GOLD is levered with Dollars'
Its a RACE for CASH first....
for all you conspiracy theorists. take a look at this from Implode o meter: The “Plunge Protection Team” Working Overtime
Gary Dorsch is a very bright guy.
Libor is up 60 bps today.
remind me how many ARMs are adjusted based on Libor ?
remind me how many ARMs are adjusted based on Libor ?
2 trillion American..give or take a few hundred...but who is counting
Yes, but how often does the Fed take the kind of action described?
Yal - from a previous thread - put options are obviously more expensive today, but volatility is still fairly cheap, which means option plays are still cheap. Bear in mind there's still a ton of corporate buyback money to chew through, which will support and stabilize the market somewhat, but the rot in the financial system is clearly starting to show through, and the longer a meaningful adjustment is delayed, the more likely it is to be discontinuous (ie. one big thud) when it arrives. For what it's worth, down 200+ for the Dow by the end of the day is still my call. Apparantly there was a "medical emergency" over on the mortgages desk this morning - down 1,000 on the Dow would more accurately reflect what's going on in credit today, but there's just too much price insensitive corporate buyback money out there today for that to happen.
The longer-term LIBOR rates that most ARMS use moved up less than overnight.
Still, it's not helping.
The European Central Bank has responded by lending the market the euro equivalent of $130 billion.
Moral Hazard Enforcement Team?
The Fed really only added enough money today to cover maturing repos and yesterday's 10 year auction. It's interesting that most of the funding problems have been offshore, which probably reflects the greater degree to which US banks have been able to offload toxic waste to investors.
Another commentator also noted this, but seriously folks, have a look at the holdings in your money market and bond funds. Or better yet, have a couple drinks first, keep the bottle handy, then sit down with the prospectuses. You'll be shocked by the amount of potentially toxic waste held in supposedly conservative funds.
for all you conspiracy theorists. take a look at this from Implode o meter: 404 Not Found
1186671780.php
IMO this is silly for a number of reasons:
1) The behavior in the market can be easily explained by the huge hedge fund presence in the market as I've explained over and over again. There may be a PPT, but they're working for hedge funds, not the government.
2) If you can parse their behavior it's clear that the stock market is one of the factors preventing the Fed from lowering rates - if they did so we'd get Dow 50,000 followed by the "Hundred Year Depression". I seriously doubt the government would purposefully make the Fed's job harder.
3) If you look at past data it's unusual to have corrections with the amount of short interest. Short interest often feeds huge rallies and meltups. Short interest was at a low point when the NASDAQ crashed because it was all wiped out by a meltup. Currently we're unlikely to have a correction without a major shock (though I think we might see just that).
The article makes this statement:
The PPTs strategy is to offset weakness in the US housing market, with increased household wealth in the stock market, in order to avoid a recession.
Rising stock prices do not create wealth. They create the preception of wealth through inflated numbers on paper or a computer screen. This is an illusion that cannot be realized in the real economy (unless you're one of the first to sell).
This may encourage people to up their borrowing and spend even more than they make, but that's the problem not the solution.
What Turbo said, mostly. There is also a bond auction today. Estimating add need is as much art as science, and a very good Fed watcher I know offers a rough estimate of $5 bln as the extra increment in today's operations for aimed at overnight problems. The outstanding $29 bln in repos is not large, nowhere near a record. The balance of outstanding RPs is very likely to go up as the reserve maintenance period goes on, as part of the normal pattern.
Overwhelmingly, it was the ECB, not the Fed, that responded to the problem in money markets today.
Reaching here but what the hell at this point stupidity seems to be the call of the day:
Why with all the foreclosures going on,why don't the markets band together and set up a program or bond fund to refi all this toxic waste...wouldn't that make sense since the wall of card is crashing down.
yes we will not save all..but I think at this point it is beyond the stupid home owner that is in trouble it is the global market that is in trouble..ehh! just a Niquil induced thought.
Roubini
RGE - Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch
Turbo,
Thanks.
btw, buybacks are not allowed on the last hour of the day. will be intersting.
quote from another board:
"There are credible(?) reports that a number of quant hedge funds are collapsing. This was mentioned in the WSJ last night, but the report seemed skeptical. I just heard from a credible source that Goldman is liquidating its Alpha fund. Radiant and Renaissance are rumored to be in big trouble. This is probably one of the reasons for the huge release of liquidity by the Fed and ECB.
This is causing all sorts of screwey market behavior. These guys were long some stocks, and short others. The longs are going down and the shorts up (e.g., homebuidlers up today?). The SPY, as an average, is not a particularly metric to see what is going on.
Another indication - see the post 'One Shoe Dropping'.
Cassandra Does Tokyo
Dealbreaker also has some dirt on this."
Yal - I didn't know that, thank you. Explains some of the ugly closes we've been seeing, and the extent to which corporate buybacks are supporting this market.
GS just announced problems with one of its funds - not the alpha fund though. I guess, yesterday's rumors were on the right track, if not completely right.
Borkafatty,
Because you'd be refinancing people into more mortgages they can't afford. That's the problem.
Home prices are too high for median incomes. Without teaser rates and no doc loans, people can't qualify for mortages.
There is just no easy way out of this situation. Home prices have to fall and current borrowers have to default.
Because you'd be refinancing people into more mortgages they can't afford. That's the problem.
Yes I agree...but there has to be some kind of fix...this is what happens when you let former Junk Bond King Michal Milkin in the mix...but you didi not hear that from me
Dear retailer:
My cost of borrowing money has basically doubled since 2004, and there's no more MEW left, so you were next in line for cuts.
Joe Consumer
There is just no easy way out of this situation. Home prices have to fall and current borrowers have to default.
So what your saying is what is coming to roost is inevitable...I have to agree.
I just think that unless you're willing to lose money by offering people unprofitable loans, its impossible to "refinance" a large portion of the borrowers who are defaulting out there.
Turbo,
-200 on the dow. I think it will stay.
there seem to be a lot of sale + short covering at the same time keeping the indices somewhat tame.
Yal,
Where did you get this info?
"There are credible(?) reports that a number of quant hedge funds are collapsing. This was mentioned in the WSJ last night, but the report seemed skeptical. I just heard from a credible source that Goldman is liquidating its Alpha fund. Radiant and Renaissance are rumored to be in big trouble. This is probably one of the reasons for the huge release of liquidity by the Fed and ECB."
Worse than subprime? Holy Toledo.
Borrowers of alt-A mortgages may be of higher caliber than their subprime counterparts, but that hierarchy doesnt necessarily hold for the bonds backed by the two types of loans. In fact, some alt-A securities are trading in line with comparable subprime-backed bonds, according to several market participants.
Weve historically been very wary of alt-A because of the decreased levels of subordination in the transactions, said a buyside source. We are much bigger believers in subprime.
FT.com / Mergermarket - ABS investors favor subprime yields over alt-A despite selloff
Alt-A "AA" securities acting like "B"s.....hmmmm
Black Mesa hedge fund warns of massive portfolio liquidation - MarketWatch
btw, If anyone knows south Utah - Black Mesa is a great place for backpacing - one of the emptiest places in the lowest 48....
but I am thousands of miles away now...
jesus chrits, 1m LIBOR at 5.541%...
Yet consumer credit is growing at a galloping speed. What is J6P spending the money on?
clue here: American Express Announces a First for Credit Card Industry - Monthly Mortgage Payments
US financial market are struggling, US dollar is appreciating against most of the developing countries money. It is clearly reflecting on other businesses like retail...
p shaped conservatories north east