by Zero Hedge - May 9th, 2010 11:55 pm
Courtesy of Cheeky Bastard
As I have said before in the comment section under numerous articles in the past month or so, Federal Reserve Bank decided that the surge in the dollar exchange against other currencies, but most importantly the Euro, can not sustain FEDs long term plans concerning the recovery of the US economy. In a statement issued late this night FED announced re-opening of swap facilities which will take the strain off the USD. Full statement can be read beneath.
Release Date: May 9, 2010
For release at 9:15 p.m. EDT
In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.
Federal Reserve Actions
The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.
These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.
Trade accordingly or do not trade at all; your choice, but the madness we have witnessed in the FX market shortly after the EMU members announced a 720 billion euros rescue package, and basically broke their own law by announcing sovereign bond buybacks in the secondary market and thus insured a massive QE program, will…
by ilene - May 9th, 2010 10:29 pm
By Mark Cuban
My last two posts were designed to stimulate discussion. But lets talk the real problem that regulators, public companies, investor/shareholders and traders face. The problem is that Wall Street doesn’t know what business it is in. Regulators don’t know what the business of Wall Street is. Investor/shareholders don’t know what business Wall Street is in.
The only people who know what business Wall Street is in are the traders. They know what business Wall Street is in better than everyone else. To traders, whether day traders or high frequency or somewhere in between, Wall Street has nothing to do with creating capital for businesses, its original goal. Wall Street is a platform. It’s a platform to be exploited by every technological and intellectual means possible.
The best analogy for traders? They are hackers. Just as hackers search for and exploit operating system and application shortcomings, traders do the same thing. A hacker wants to jump in front of your shopping cart and grab your credit card and then sell it. A high frequency trader wants to jump in front of your trade and then sell that stock to you. A hacker will tell you that they are serving a purpose by identifying the weak links in your system. A trader will tell you they deserve the pennies they are making on the trade because they provide liquidity to the market.
I recognize that one is illegal, the other is not. That isn’t the important issue.
The important issue is recognizing that Wall Street is no longer what it was designed to be…
Over just the past 3 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact
by ilene - May 9th, 2010 9:56 pm
Courtesy of Karl Denninger of The Market Ticker
I’m listening real-time to the "conference" this evening… these are "first blush" comments…
They’re throwing the kitchen sink at this, but it’s not real money for the most part – it’s "guarantees." Exactly how they get the rest of the €600 billion is open to question. Only €60 billion is "real money."
The intent is to play "Bazooka" on the speculators, and the instant reaction in the futures here in the US was ridiculous – +2% immediately on the re-open in all three primary indices, (DOW/NAZ/S&P500) and a similar amount in the Russell. While this sounds awfully good, it is in fact not even a 61.8% retrace of the plunge from Wednesday to the low on Thursday. Yeah.
The move in the Euro, which is where this is aimed, is less amazing.
Not even back to the middle of the channel. Gee, that’s impressive – NOT.
They keep referring to "Article 122", which is intended to deal with WAR and similar things – that is, incidents beyond the control of a given nation-state. But taking on too much debt (or lying about your debt) is not beyond one’s control – it’s a choice. Doesn’t matter in this case, obviously.
What’s also interesting is the repeated references to "consolidation" of finances in member states. This appears to be an oblique reference to a demandfor these nations to cut the crap with their budgets, which means an end of running huge deficits. Again, as I said before in my earlier Ticker, if they truly force everyone to stop the "borrow-and-spend" the euphoria of the market will soon give way to some pretty simple math – subtraction, specifically, of whatever was being "supported" in GDP in each of these nations from their respective GDP forecasts.
If is clear from the conference that this is EXACTLY what they are talking about being forced on all Euro members, beginning right now and to be completed – that is, back to no more than 3% fiscal deficits – within the next 2 years.
They’re also making repeated reference to setting this up as an SPV, which means there will be zero transparency or accountability. Bullish? I think not. How long before the speculators figure that one out?
Betcha it’s not long, and they start to probe this thing.
by Zero Hedge - May 9th, 2010 9:46 pm
Courtesy of Leo Kolivakis
Bloomberg reports, EU Crafts $962 Billion Show of Force to Support Euro, Halt Global Crisis:
European policy makers unveiled an unprecedented loan package worth nearly $1 trillion and a program of securities purchases as they spearheaded a drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro.
Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, governments of the 16 euro nations agreed to make loans of as much as 750 billion euros ($962 billion) available to countries under attack from speculators.
The ECB will also embark on “very significant operations,” European Union Economic and Monetary Commissioner Olli Rehn told reporters in Brussels after the 14-hour meeting. “The ECB has taken a decision to intervene in the secondary markets of government securities.”
Under pressure from the U.S. and Asia to stabilize markets, the European governments gambled that the show of financial force would prevent a sovereign-debt crisis and muffle speculation that the 11-year-old euro might break apart.
Europe’s failure to contain Greece’s fiscal crisis triggered a 4.1 percent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings Inc.’s collapse. It prompted President Barack Obama to call German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday to urge “resolute steps” in Europe to prevent the crisis from cascading around the world.
Under the loan package, euro-area governments pledged to make 440 billion euros available, with 60 billion euros more from the EU’s budget and as much as 250 billion euros from the International Monetary Fund, said Spanish Economy Minister Elena Salgado.
“We are placing considerable sums in the interests of stability in Europe,” Salgado told reporters after chairing the meeting.
In my last comment, I said European leaders will do whatever it takes to shore up the financial system and avoid debt deflation. With this move, they’re sending a strong signal that they will do whatever it takes to support the EMU, and curb any speculative attacks on the euro and European sovereign debt.
by ilene - May 9th, 2010 9:38 pm
Courtesy of Mish
European finance ministers with a bit of help from the IMF combined to form a $645 Billion Fund to Fight the "Wolfpack"
European Union finance ministers moved toward agreement on an unprecedented loan package worth at least $645 billion to prevent Greece’s fiscal woes from triggering a broader sovereign-debt crisis and shattering confidence in the euro.
Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, the 16 euro governments sketched out plans to make 440 billion euros ($570 billion) available, with 60 billion euros more from the EU’s budget, according to three officials at the talks in Brussels. An additional, unspecified sum may come from the International Monetary Fund, the officials said.
“We are going to defend the euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair the meeting yesterday. “We think we have a duty for more stability for our currency. We will do whatever is necessary.”
“Europe is getting its act together,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Time will tell if this statement is enough to satisfy the European bond market vigilantes.”
“In the night, when the markets are opening, we cannot afford a disappointment,” said Finance Minister Anders Borg of Sweden, one of 11 EU nations not in the euro. “We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.”
Government officials said they won’t push the independent ECB to, for example, buy government bonds. President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure. Trichet is in Basel, Switzerland, for a scheduled meeting of central bankers from the Group of 10 nations. Vice President Lucas Papademos is attending the Brussels talks.
I do not know what tomorrow or even next week brings, but what I do know is you cannot defend the Euro by printing 440 billion of them.
Flashback December 2, 2004: Euro slips after Trichet remarks
European Central Bank president Jean-Claude Trichet has raised the possibility of intervention in currency markets to halt the euro’s rise against the US dollar.
The euro had earlier hit a record high of $1.3384, though it fell back below $1.33 later after
by ilene - May 9th, 2010 8:36 pm
Courtesy of The Pragmatic Capitalist
Markets are set for another Monday Melt-up as another Sunday evening comes to an end with a new Greek bailout plan. Bloomberg is reporting that the latest and greatest bailout will amount to a staggering $645B:
“European Union finance ministers moved toward agreement on an unprecedented loan package worth at least $645 billion to prevent Greece’s fiscal woes from triggering a broader sovereign-debt crisis and shattering confidence in the euro.”
I don’t have much of an opinion on this as of now, but the market certainly appears to like the news as S&P Futures trade higher by 1.8% and the Euro rockets higher by 1.2%. Of course, we’ve seen the same thing in response to each of the last few bailouts and the markets were quickly rattled in the subsequent days. This plan looks like it could have some near-term positives though it ultimately kicks the can down the road. We’ll have more details as they’re released.
by ilene - May 9th, 2010 8:15 pm
Courtesy of JESSE’S CAFÉ AMÉRICAIN
"German Chancellor Angela Merkel accused the financial industry of playing dirty. ‘First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to launch recovery packages, which increased our debts, and now they are speculating against these debts. That is very treacherous,’ she said. ‘Governments must regain supremacy. It is a fight against the markets and I am determined to win this fight.’"
The story of this crisis is the people versus the Banks. The largest mistake that Europe made was in bailing out their biggest banks, and not simply nationalizing them. But that would not have resolved the problem of the gangs of the New York and London, and their partners in the hedge funds and the ratings agencies.
The same man who wrote, "Power tends to corrupt, and absolute power corrupts absolutely" also wrote:
"The issue which has swept down the centuries and which will have to be fought sooner or later is the People versus the Banks."
I do not wish to sound pessimistic, but it will be a surprise if the US under the Obama Administration does anything meaningful and significant to curb the abuses of the large Wall Street firms. While the corruption in the campaign financial process and the revolving door between government and the Street remains open the progress to reform will remain a diversion at best.
Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.
The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.
The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice’s Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.
by ilene - May 9th, 2010 7:54 pm
You get paid a really big premium for ignorance at the NYT, just ask Thomas Friedman who undoubtedly gets paid more than 99 percent of his generation. Thomas Friedman likes to tout the fact that there are still good paying jobs for people without skills in every column he writes.
He’s in top form today, getting just almost everything wrong about the current economic situation as he tells readers: "My generation, ‘The Baby Boomers,’ turned out to be what the writer Kurt Andersen called ‘The Grasshopper Generation.’ We’ve eaten through all that abundance like hungry locusts."
Of course those who know anything about the economy know that the vast majority of baby boomers have not fared especially well. In the years before the baby boomers entered the workforce wages for most workers rose consistently between 1-2 percent a year, after adjusting for inflation. However wages began to stagnate in the mid-70s, when the oldest baby boomers were in their mid-twenties and the youngest were not yet teenagers. Baby boomers entered this labor market and most saw very little gain in living standards relative to what their parents had. Many had to go heavily into debt to buy and hold a home, to send their kids through college or to cover the cost of a serious illness.
There were gains in living standards during the last three decades, but they overwhelmingly went to the people at the top. This included the Wall Street crew, corporate executives, highly educated professionals, like doctors and lawyers, and elite columnists like Mr. Friedman. This was not an accident. These people designed economic policies that were intended to redistribute income upward. The government became openly hostile to unions. It pushed trade policies that made our factory workers compete with low-paid workers in Mexico and China while leaving our doctors and lawyers largely protected from the same sort of competition. The government also deregulated sectors like airlines, telecommunications, and trucking that offered good paying jobs for millions of workers without college degrees. The result of these and other deliberate policies was to ensure that most of the gains from productive growth went to those at the top rather than the vast majority of baby boomers.
by ilene - May 9th, 2010 7:29 pm
Courtesy of Tyler Durden
From Le Monde:
AFP | 09.05.10 | 21h58
L’Allemagne a proposé dimanche soir la mise sur pied d’un vaste plan d’aide financier pouvant être utilisé pour les pays de la zone euro, d’un montant total de 500 milliards d’euros et impliquant le FMI, a indiqué à l’AFP une source diplomatique européenne. “L’Allemagne a mis sur la table une proposition totale de 500 milliards d’euros”, a-t-elle indiqué. Elle comprendrait les 60 milliards d’euros de prêts octroyés par la Commission européenne, dont il était question ces derniers jours, ainsi que 440 milliards qu’apporteraient si nécessaire les pays de la zone euro et le Fonds monétaire international. Cette dernière enveloppe serait constituée “de prêts bilatéraux, de garanties pour des emprunts et de lignes de crédit du FMI”, selon la même source. Il s’agirait par son ampleur, s’il fait l’objet d’un accord, d’un plan d’aide sans précédent dans l’histoire.
Germany proposed on Sunday evening the establishment of a comprehensive plan of financial aid can be used for countries in the euro area, totaling 500 billion euros and involves the IMF, told AFP European diplomatic source. “Germany has put on the table a proposal of 500 billion euros,” she said. It would include 60 billion euros in loans from the European Commission, he was in the last day, and 440 billion would accrue if necessary, the euro zone countries and the International Monetary Fund. This envelope would be established “bilateral loans, collateral for loans and lines of credit from the IMF,” the source said. It would be in scale, if the subject of an agreement, an assistance plan is unprecedented in history.
by Zero Hedge - May 9th, 2010 7:13 pm
Courtesy of asiablues
By Dian L. Chu, Economic Forecasts & Opinions
A seasonal stocks timing strategy--“Sell in May and Go Away”--holds that if you shift your holdings out of stocks into bonds and return to the market in November every year, you’ll come out way ahead.
In such strategies, stocks are sold at the start of May and the proceeds held in bonds or a deposit account; stocks are bought again in the autumn, typically around Halloween.
Econompic recently compared the strategy--sell S&P 500 in May and then invest in the long government / credit bond index, versus a buy and hold S&P 500 strategy (note that these returns include reinvestment of dividends), and here are the results from 1974 to present:
The strategy seems to work, which defies the efficient-market hypothesis. Basically, it works because of seasonal factors. End-of-the year bonuses, the Santa Claus rally, and first-quarter reports typically help lift stocks from November to April. May through October tend to be sketchy, and generally brings a period of portfolio housekeeping.
Coincidentally, Econompic posted this finding on May 4, 2010, two days prior to the “flash crash” on May 6, when Dow dropped 1,000 points and sparked a $1 trillion decline in stock values around the world.
Early on, according to stories circulating around the trading floor, Dow’s a thousand points of fright is the result of a “fat finger” trade that entered a sell order for billions when it was supposed to be for millions.
However, according to the preliminary federal investigation of trade data, the flash crash apparently involved “a series of high volume trades” in S&P futures originated on the Chicago Exchange, which seems to suggest “fat finger” is an unlikely catalyst.
More plausible, it was some big fat cats cashing in amid rising risks from Greek debt contagion, coupled with structural problems in the trading mechinism, rather than fat finger, that caused the six minutes of terror on that fateful day at Wall Street?