what a change! Is it really so?

What is the difference between a)






and b)








On one side, the difference is Friday to the following Monday or one banking day later and of course the difference is due to the fact that the governments around the world have partial nationalized their banks by pumping trillions into them. Is that really the correct cure? What about the bad assets being still on their books? What about the some 800 or so trillions of derivatives outstanding? What about a recession? What about credit card delinquencies on the rise? I could name a couple of other items that still need to be solved somehow.

Well anyway, to start with this musing, I'd like to quote Dan Norcini's comment on Monday October 13 (www.jsmineset.com)
Quote
Now that the economic crisis is firmly behind us due to the concerted action of the G7 nations over the weekend, we can all breathe a collective sigh of relief and get back to counting the soaring revenues that will soon be flooding into corporate coffers and from thence to the government ushering in a new era of wondrous prosperity. I felt so much relief this morning that I decided that we are going to start a new campaign exhorting Americans to send voluntary contributions to the Federal government as a sign of their gratitude for all the hard work and dedication it took in putting this crisis behind us in such a short time. Please make all checks payable to "sheep-sheared R Us; P O Box BlackHole; Washington, District of Cronyism.
Unquote
Putting Dan's sarcasm aside it seems that the markets loved the action.

Well dear reader during last weekend most countries decided to help their banks and agreed with nationalization or partial nationalization of their banking system. Monday stock markets started in euphoria. The important stock exchanges increased around 10%. This is, historically seen, the highest increase ever in one day. Well the question now is if the problem is really solved. Is it? Well as you imagine I have my serious doubts. Why? Well over the past months we have been told several times that the problem is solved and a few days later we had to find out that the contrary is true. With all these outstanding derivatives I do not see how the problem can be solved already. Taking AIG as an example it is, in my opinion, crystal clear that the governments will have to inject more and more liquidity into the banks and markets. Over time nobody will believe anymore that a solution is possible. So my guess is that we bought only some time. To the rescue packages a few facts. According to official numbers the money injected (or should I say invested?) into the banking system, represented until Monday October 13, USD 688.— for each human living on mother earth. Well the number will increase. Please take note that the US part is not yet included. Well anyway this is just for starters. In my humble opinion, more injections should be expected. To give you another comparison, the amount Germany will inject is equal to Germany's one year tax income.

Well the question is where these loads of money are coming from and who will pay. In England, for example, many people ask themselves how it can be possible that the government can mobilize these huge amounts in practically one day while they were not able to find the funds to maintain hospitals, or the public transport system etc. over the past years. Well without doubt a good question. Again who will pay? Will we see inflation or hyperinflation? Will we see a combination of hyperinflation and deflation? Well many scenarios are possible. However, whatever scenario will occur, somebody has to pay.

To get an idea of what happen we may look at the Iceland case and compare it with the US. Of course there might be other countries that would fit into the same comparison too.

Iceland resembles in a way a microcosm of the US Economy, that like Iceland has relied heavily on significant inflows of capital, to fuel its growth and maintain it's newly inflated lifestyle and insatiable appetite for imported goods and growing energy use.



To attract foreign capital, its Treasury and Money Markets have been viewed as a safe haven for the more conservative capital that now amounts in the Trillions and then the higher yielding appeal of the Sub-prime related investments was offered to the more racy investors around the World, wanting to make fast money.



Iceland, apparently had the same idea, that like a Ponzi scheme (http://en.wikipedia.org/wiki/Ponzi_scheme) that is too good to be true, attracted tens of Billions of Dollars from offshore through on line savings accounts offering as much as 7% yield something a great many investors around the World viewed as a deal too good to pass up... Unfortunately, it became increasingly difficult for the Icelanders to deliver on their 7% promised yield and as early depositers began to withdraw funds, the Icelandic Kroner fell over the course of the last 9 months from 58 to the Dollar to 144 in recent days as the collapsing currency accelerated to the downside in a near freefall, as this whole mess became exposed and Iceland's Banks began collapsing one after the other, leaving investors savings in a in a mad scramble to be repatriated at any price.



Iceland's markets sold off precipitously, as the whole country had gotten pretty rich on Iceland's deregulated banking binge, were now left with deflated values,
If it were not for the Russians and Swedes coming to Iceland's rescue, the country would be in default and is technically bankrupt today, because it cannot make good on deposits, as tens of billions are totally lost...


it certainly erupted

Well dear reader does this remind you of anything? Although the US and possibly other countries too, have not reached the levels of near total insolvency similar to Iceland yet and therefore still have a currency that has not yet collapsed, we clearly can see the apparent parallels.

frost and cold weather to be expected



Well dear reader, last week I wrote about preparing or increasing food stocks. You probably thought that I might be too neurotic and maybe exaggerating. Well some of you know that I tend to sound like someone who is exaggerating from time to time. However, unfortunately, it turned out that my exaggerations proved to be true in most cases. Now it seems that my neurotic touch regarding food storing might maybe not be that neurotic at all. Icelanders rushed into the stores to buy whatever food they were able to buy. Before reading the following information piece about Icelanders, I'd like to mention the following. Having a food stock is not that bad an idea. Try to store food that can be stored up to 2 or more years. Assuming that food prices will increase further, buying food today would mean buying it at lower prices. If we are lucky and will not have to face disruptions in the food chain, we still can use our stock whenever we like. If we would have to face situations like the Icelanders have to, holding a food stock would certainly be an advantage.


Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

Oct. 13 (Bloomberg) -- After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

``We have had crazy days for a week now,' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.'

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.



Iceland's foreign currency market has seized up after the three largest banks collapsed and the government abandoned an attempt to peg the exchange rate. Many banks won't trade the krona and suppliers from abroad are demanding payment in advance. The government has asked banks to prioritize foreign currency transactions for essentials such as food, drugs and oil….
http://bloomberg.com/apps/news?pid=20601087&sid=aVFtDRGwcc50&refer=home


Now to opinions of others
From Adrian Douglas
Quote
Imagine a country such as Venezuela announced that it was bailing out an investment bank, then just days later said it was nationalizing its mortgage industry, and then just days later that it was bailing out its biggest insurance company, and then just days later its government pledged 700B$ to inject into its failing banks, and then just days later its stock market fell 20%. Would you feel comfortable having your money invested in such a country, in its stock market, in its bond market or in its currency?
I hope you answered “No” or “Hell, No!” to the above question! So why should you feel any different about the situation if the country is called “America”?

Many investors are starting to think that after this stock market rout and with a G7 package things will begin to improve. That is not the way things work! 20 years of excesses with even more monetary excesses about to be heaped upon us as a “rescue package” do not get unwound in 5 days. This is just the beginning. The bond market is the biggest market in the world (if we ignore the ridiculous, unregulated casino peddling OTC derivatives!). When the bond market heads south the money that has to find a safe haven somewhere else is in the trillions. Just a small percentage of this capital will blow the precious metals to unimaginable levels.
Unquote

Following Nouriel Roubini's opinion
Bloomberg (October 14, 2008) Roubini Sees Worst Recession in 40 Years, Rally's End
http://www.rgemonitor.com/blog/roubini

Well dear reader, one can try to find out what the plan behind all these movements are. I mentioned in my past musings that there are several high government people who could have a particular interest in helping particular financial institutions. Following a very interesting article from William Engdahl, exploring a bit the background of the monopoly moves.
Behind the Panic: Financial Warfare and the Future of Global Bank Power

What’s clear from the behavior of European financial markets over the past two weeks is that the dramatic stories of financial meltdown and panic are deliberately being used by certain influential factions in and outside the EU to shape the future face of global banking in the wake of the US sub-prime and Asset-Backed Security (ABS) debacle. The most interesting development in recent days has been the unified and strong position of the German Chancellor, Finance Minister, Bundesbank and coalition Government, all opposing an American-style EU Superfund bank bailout.
http://www.globalresearch.ca/index.php?context=va&aid=10495


Dominic Lawson: It all went wrong when we left the gold standard
http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-it-all-went-wrong-when-we-left-the-gold-standard-960268.html


Securities Lending
Dear reader, I strongly recommend to check if you agreed to have your investments in the securities lending program of your bank or broker. If that is the case I strongly recommend canceling it immediately. What is security lending? Well if you hold investments such as stocks or bonds, with the security lending agreement you normally allow your bank or broker to lend out your shares, for certain time. The party that takes the ownership of the investments will pay a lending fee, which depends on the time the investment is lent out and depends on the respective demand. That means if there is high demand for a specific investment the fee will be higher. Your bank or broker will do the lending in their name and not in yours. Until the investment is back in your portfolio there are counterparty risks you run. Normally your bank or broker guarantees that you will get back your investment. In this case your bank or broker is the counterparty risk. That means that in this case the counterparty risk could be OK. However the additional income one can earn by participating in the securities lending programs are so insignificant that it really does not make sense to run any counterparty risk. Therefore I strongly recommend not to participate at all.


USD
Well dear reader you know that I do see the USD much lower. I mentioned as well that the USD will disappear anyway. Be it the AMERO or any other kind of currency. As I strongly believe that the USD will not exist anymore in the not too distant future, I recommend building up positions outside the US. My favorite position is precious metals. Gold and Silver should soon go up considerably. Furthermore I prefer the Swiss Franc. Short term Swiss Government bonds in Swiss Francs might be worth a consideration. Please take note that the net interest paid out by these bonds is low. However in a crisis interest payment normally is not the most important factor. More important is certainly the safety of the investments.

In that sense I like to mention that losing an opportunity costs a lot less than losing real money due to an investment that went sour. Therefore when risks are high, I prefer to be on the sideline in a conservative investment and thus maybe running the risk to lose an opportunity to earn nice profits.
Well dear reader lots of things are not OK these days. Following an interesting link to an essay of Jim Willie. He has his particular way of saying what he thinks. In my opinion it is an excellent read. Of course, as always, he can be right or not. Maybe he is too much on the conspiracy side. However, as there is a lot we might not understand going on, some of what Jim writes might be true. Please read on
http://www.321gold.com/editorials/willie/willie100908.html

On the following link you can find an excellent explanation why the USD increased over the past weeks
http://jessescrossroadscafe.blogspot.com/2008/10/short-term-imbalance-in-dollar-assets.html


Equity


Enrico Orlandini at www.dtanalysis.com has the following comments
If the market continues to fall, I think there will be ramifications that very few could
have anticipated. The current administration must find someone to blame, and soon,
before the rest of the world blames the US, and American citizens catch on to the
truth. Americans have avoided the truth for three decades, since the Kennedys were
killed, and the awakening is always painful. I believe that Bush will soon become
desperate and will take desperate measures. Here’s one possible scenario:
-McCain is out of the White House; when the Democrats come in, they will
start a witch hunt with Bush republicans as the target.

-Paulson has already stated that he’ll use the money for purposes other than
what he outlined to Congress.

-The market doesn’t like any of this and will have a drop of 1,000 points or
more, one day soon.

-This will mysteriously coincide with some event in the Middle East, or the US,
and will require an escalation of the war.

-Bush will suspend the US Constitution stating that there is a real threat to the
US and he will rule by Martial Law, thereby annulling the November election,
should it even occur before.

I know this sounds extreme, but we are passing through uncharted territory and you
can throw the book away. Your ability to project accurately will be put to the test.
When you see the type of volatility that we are seeing now, it is an indication that real
problems are just below the surface and may just see the light of day.
and his statistic




Morgan Stanley

Well dear reader on Monday I prepared the following information about Morgan Stanley. On Tuesday it was already old news as the US Government decided to part nationalize (or invest) in banks too. Morgan Stanley is amongst those banks that receive money and the government as shareholder. Morgan Stanley would have had enormous problems to get the needed money to survive. Now at least they can breathe again for a couple of weeks.

Following the old piece of information:
Now Morgan Stanley Needs "$60 Billion" Of New Equity
Henry Blodget
Oct 11, 08 7:32 AM
A few days ago, Morgan Stanley was apparently well-capitalized. Then rating agency Egan-Jones said the firm needed $30 billion of new equity. Then Moody's threatened a downgrade. Then the $10 billion Mitsubishi deal seemed ready to fall apart. Now Egan-Jones says Morgan Stanley needs $60 billion.

So what's the real number? Or, more pertinently, what will it be on Monday morning, when Morgan Stanley tries to reopen for business? God only knows.

In any event, Hank Paulson had better get ready to write one hell of a massive check.

Morgan Stanley's current market cap, by the way, is only about $11 billion. So, by all rights, Mitsubishi's $10 billion should buy it one half of the firm (instead of the one-quarter that Mitsubishi agreed to).

If Egan-Jones first estimate of $30 billion is right, Hank will have to write a $20 billion check and Morgan Stanley's current shareholders will end up with one-quarter of their firm. If Egan-Jones's new estimate is right, Hank will have to write a $50 billion check, and Morgan Stanley's current shareholders will end up with 16% of the firm. And that's if the Mitsubishi deal goes through and Hank doesn't demand warrants and a huge preferred dividend for his trouble, which, by all rights, he should.

More about Morgan Stanley
Found on www.lemetropolecafe.com (once again I strongly recommend to subscribe to the service. It cost you less than 200 Dollars per year and you get excellent information on a daily basis. In case there are certain parts that are difficult to understand, please let me know and I will try to clarify it)
Quote
The REAL number that Morgan Stanley needs? Morgan Stanley is a walking corpse being kept alive by the hope of a Treasury bailout that will cost $100's of billions.
I just did a cursory anlaysis of MS's balance sheet. "Cursory" because their disclosure sucks. But here's a breakdown as per their latest 10-Q:
http://www.morganstanley.com/about/ir/shareholder/10q0808/10q0808.pdf
They report $420 billion in short term assets and $372 billion in long term investments. Of that:
We have no idea what a detailed breakdown of most of the $372 in long term investments look like, but I'm guessing Mitsubishi looked at it and ran. It's probably safe to assume - and I'll ignore the short term investments but rest assured its less than where they carry it. Let's assume the long term stuff needs a 30% markdown. That would be quite generous based on what we're seeing with Lehman's liquidation. A 30% markdown means Morgan Stanley has a $111 biilon asset deficit just with the on-balance-sheet assets. They have a book value of $36 billion. So the net black hole on balance sheet is NEGATIVE $75 billion.
Check out the off-balance sheet disclosures:
$217 billion in commercial and resi mortgage assets that were transferred off balance sheet because the assessed risk exposure via credit default swaps and other accountning mechanisms was deemed minimal according to GAAP. As we've seen, starting with Enron and moving forward, that's a really bad assumption.
They also have $6 trillion in "nominal" derivatives exposure. As we've come to see, "notional" becomes "actual" when there is counter-party default. Lehman, Bear and AIG are terrific examples of $100's of billions of counterparty default exposure.
So, is $60 billion enough capital for Morgan Stanley? Looks to me like it's low by several multiples. I'm sure that's why Paulson is looking at nationalizing Morgan Stanley. Does anyone really want their tax money being used to keep Morgan Stanley alive. Just think about your tax money being used to pay huge bonuses to Morgan Stanley employees in a couple months.
And guess what? I assure you that Goldman Sachs in right in line behind Morgan Stanley looking for a bailout and I'm sure that's why both of them received the rushed approval by the Fed of bank holding company status.
This is going to cost taxpayers trillions.
Unquote

Derivatives
Dear reader I have been warning about derivatives for a couple of times now. Although it might sound like a rotten disk, some more about this topic. Please read the following article which should show you the extend of the possible problem
http://www.independent.co.uk/news/business/news/a-163516-trillion-derivatives-timebomb-958699.html

Oil


Byron King believes that Oil could drop under USD 70 per barrel. He thinks that we could even see USD 65 over the next 2 months.
He believes that prices will fall due to the world wide recession that is in it's beginning phase.
Byron believes that we will be in the USD 80s/90s for up to 12 months. After the 12 months he sees much higher prices.
Well dear reader, we are already close to USD 70 per barrel. If oil prices will stay at this level for some time, it will mean that there is no rush to search new reserves. Being at Peak, as I believe, low oil prices will only lead to much higher prices later on. Low oil prices lead to postpone important projects into the future. Important projects that should be started now as we will need the effects in the not too distant future.
Investment wise, I think that one can consider to start building up positions in oil and natural gas. Although it seems that there is no need to rush into it, maybe starting slowly should do fine.


Gold


Gold and silver prices reach a major tipping point
In an unprecedented move last week, central banks practically stopped
lending gold to banks and other participants in the precious metals market.
Last week the one-month gold lease rate rocketed to 2.6%, the highest since May 2001 and way
above its five-year average of 0.12%, according to the London Bullion Market Association.
A major turning point for gold and silver prices is at hand.
Gold and silver went through a severe correction this summer just like the correction in 1975.
Please read this excellent article on below link
http://www.ameinfo.com/171121.html


Well dear reader you certainly agree with me that gold should have gone up considerably during the last days. Please do not forget that the Central Banks and the PPT or with the official wording, The Presidents Working Group for financial Markets, does everything to control a substantial rise in the gold price because this would show everybody that the FIAT currency (http://en.wikipedia.org/wiki/Fiat_currency) experiment is dead. So it should not come as a surprise that we do not yet see the rise I expect. Well we know now that they will do whatever they can to control the mess (Paulson himself said this), we have to be ready for any surprise attack. Doing whatever they can could even mean a confiscation of Gold. We will see. Well anyway, Gold is insurance against bailouts, busted banks, money market funds like Reserve Funds which have missed their promised payback, conflagration in the OTC credit default and other varieties of credit derivatives, enormous and unprecedented flood of newly and electronically created US dollars everywhere.

band-aid

Well dear reader this musings will be rather short, as I did not have access to the Internet for a couple of days. I am still working through the latest information pieces. Well anyway following what I have prepared.



First I would like to apologize for the bad news I am delivering. I really would love to write about nice and good “stuff” (maybe I should start with another blog and another topic in order to be able to do so). Well, anyway, writing about what is happening unfortunately there is not much positive to report about right now.

To start I’d like to give one piece of information I received today. This piece of information seems to me to be of highest importance. Last week I mentioned about the possibility of having to face unexpected banking holidays with a system break down following. Well it seems that the Italian Prime Minister was too honest by declaring that:
“world leaders are considering a radical plan to deal with the global financial crisis, Bloomberg reports: "The idea of suspending the markets for the time it takes to rewrite the rules is being discussed." He argues that the solution "can't just be for one country, or even just for Europe, but global."
http://acus.org/atlantic_update/belusconi-close-markets-rewrite-rules

Berlusconi: Close Markets From Steve Scherer at Bloomberg: Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they ``rewrite the rules of international finance.'' ``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global.'' . . . Group of Seven finance ministers and central bankers are meeting in Washington today, and will stay in town for the International Monetary Fund and World Bank meetings this weekend. European Union leaders may gather in Paris on Oct. 12, three days before a scheduled summit in Brussels, Berlusconi said today, while Group of Eight leaders may hold a meeting on the crisis ``in coming days,'' he said. Berlusconi didn't give any details about what kind of rules leaders were looking to change, except to say that leaders are ``talking about a new Bretton Woods.'' The Bretton Woods Agreements were adopted to rebuild the international economic system after World War II in a hotel in Bretton Woods, New Hampshire. The aim of the agreements was to establish a monetary management system, initially by pegging currencies to gold. The IMF was set up later to help manage the international financial system. http://dancirucci.blogspot.com/2008/10/berlusconi-close-markets.html



Well dear reader Berlusconi is an interesting person indeed. What do you believe? Was he too honest or did he exaggerate? Well, although Berlusconi does not seem to be that honest at all times, to me it seems that this time he was maybe too honest indeed. Well I guess that he did not consider his words enough and just spoke out what really is going on.

Well dear reader, this can have dramatic implications for everybody. It could mean that we will have to face these unexpected banking holidays I mentioned last time. It could mean that the whole economy will be on halt for a couple of days. Over the last couple of days I started to buy food in order to have at least sufficient food for the next 3 months. Over the coming days I will buy more. If everything will be on halt, it will mean that your credit card will not be accepted neither. So having some food reserves might not be that bad an idea.

Now let’s go to what I prepared over the week:

Well dear reader I used already in a previous post the expression “what a week”. This past week was certainly another one of those. Well when I wrote last week that I am really worried I did not yet know what is going to happen in Europe. On Wednesday I was really shocked when I saw the news about the quasi bailout or semi nationalization of the biggest banks from England. Names such as HSBC, Lloyds TSB, Royal Bank of Scotland, Barclays etc. have received a commitment from the English government to help them. So far only HSBC informed that they do not intend to use the offer (at least not for the moment being). Seems like all the other financial institutions do need the hand from the government. Incredible indeed. Unbelievable it seems but it is the naked truth. What really worries me dear reader is that I see all these banks falling, disappearing or in deep troubles and all this before the event that for me was for the past months or years the event to be worried most about, has not yet happened at all. Yes dear reader the event I thought will trigger all this bank failures has NOT yet happened and even so, we have already this huge mess. I dare not think about what is going to happen once this particular event will blow up in full. Well to be fair, what we have seen now since the failure of Lehman might have to do with the event I am talking about. Yes I am talking about the mind blowing Derivatives. The notional amount of some 700 to 800 trillion of outstanding derivatives is clearly a time bomb to blow up any time. Maybe in a couple of weeks we will have to admit that Lehman was the event that lit the fuse on this time bomb. Well let's cross the fingers and hope with the latest actions some confidence can be regained. At least for some time.

Well dear reader it seems that not only Iceland and England are nationalizing or semi nationalizing its banks. It seems that many countries jump into the same action. Germany, the US and so on. The list is growing.

These ministers are trying to fix the uncountable leaks in the dyke with band-aids. My guess is that it will work as well as in the past days. Meaning it will not work at all. Remember New Orleans after Katrina? Remember the anarchy that ruled in these days? Well my guess is that, like in New Orleans after Katrina, anarchy will brake out in several places. Most probably we will not see any pictures or TV reports about it, as it will be censored (like the protests that happened a week ago in NY).



This is maybe the place where you can find help



Now to what happened last week
As usual from www.prudentbear.com
For the tumultuous week, the Dow (down 36.3% y-t-d) and S&P500 (down 38.8% y-t-d) sank 18.2%. There was no place to hide. The Morgan Stanley Consumer index dropped 14.5% (down 26.2%) and the Utilities were hit for 20.3% (down 39.2%). The Transports declined 9.4% (down 18.1%), and the Morgan Stanley Cyclical index fell 15.4% (down 41.5%). The small cap Russell 2000 declined 15.6% (down 31.8%), and the S&P400 Mid-Caps dropped 16.9% (down 35.9%). The NASDAQ100 fell 13.7% (down 39.1%), the Morgan Stanley High Tech index 15.9% (down 41.6%), and the Semiconductors 13.6% (down 39.7%). The Street.com Internet Index (down 34.8%) and the NASDAQ Telecommunications index (down 38.3%) each fell 14.8%. The Biotechs dropped 15.8% (down 21.4%). The Broker/Dealers collapsed 25.6% (down 57.7%) and the Banks sank 21.7% (down 40.3%). With Bullion down $13.60, the HUI gold index dropped 7.8% (down 39.4%).

The following fellow has been clearly the „master“ last week






From Jim Sinclair, http://www.jsmineset.com/
Dear Friends,
According to news reports, the G7 on one weekend of mutual understanding will restructure the entire world monetary system and make the present consequences of more than one quadrillion one thousand one hundred forty-four trillion dollars of notional value rotten garbage go away.

A few of the characteristics of the problem that will be solved in two days of deliberation of the G7, but they mistakenly think they are still the Sun of the World a

Behind the curtain of silence the subprime loan problem, better described as a global meltdown of credit and default derivatives, continues. The reason for this condition is an attempt to value that for which there is no value. It is spreading globally as a product of the limitless manufacturing PRIMARILY (above 75%) by USA financial entities.
Keep in mind that over the counter derivatives created between 1999 and 2007 generally have the following characteristics:
Without regulation.
Without listing on public exchanges.
Without standards.
Therefore not in the least bit transparent.
Therefore without an open market of the bid/ask type.
Dealt in by private treaty negotiations.
Without a clearinghouse
Unfunded without financial guarantee of any kind.
Functioning as contracts of specific performance.
Financial character or ability to perform is totally dependent on the balance sheet of the loser in the arrangement.
Evaluated by computer assumptions made by geek, non market experienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
Now in the credit and default category alone considered by accepted authorities as totaling more than USD$20 trillion in notional value.
Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it.
The US dollar has improved based on the well crafted Urban Myth that Euroland has more problems than the USA. That like all great lies of history becomes true by experts, saying it loud and often. This method of the transition of nonsense into manufacturer truth is known as Spin. It was one of the most important imports from Germany in 1945. Some think this method of spin exceeded the imports of Dr. Von Braun.
The first plan crafted for the dollar recovery was experts assuring everyone that Euroland, as the source of this problem, clearly would have to have more problems than the USA, with a finger clearly pointing at UBS.
Next many interventions took place with fanfare galore. I love the picture of the Congressional personality high fiving on the passage of the bailout bill.
Since then the Secretary of the US treasury has announced investments in bankrupt banks four times, each time as a new intervention cure of problem.
The best of all might be the collapse of FASB this weekend as the overseers of fair accounting making values where there is none.

FASB to release fair value guidance this weekend
Friday October 10 2008
NEW YORK, Oct 10 (Reuters) - The Financial Accounting Standards Board, which sets U.S. accounting rules, is likely to release formal guidance on mark-to-market accounting this weekend, it said at a meeting on Friday.
The board's guidance is intended to formalize clarifications issued by FASB and the U.S. Securities and Exchange Commission last month, which told companies they could rely on internal estimates, rather than fire-sale prices, to value assets trading in illiquid markets.

At a special meeting on Friday to consider the reforms, the FASB directed its staff to rework and clarify certain parts of its proposal, but stuck to the general concepts issued earlier.
FASB members said at the meeting they wanted to make sure companies were not completely disregarding market transactions in illiquid markets, but rather using them as one of many inputs
To read more
http://www.forbes.com/reuters/feeds/reuters/2008/10/10/2008-10-10T222949Z_01_N10520600_RTRIDST_0_FINANCIAL-FASB-FAIRVALUE.html

From RGE Monitor Newsletter
It is as if the approval of the $700bn Troubled Asset Relief Program (TARP) was a complete non-event for the markets. Money and credit markets around the world effectively seized up in the aftermath of Lehman’s default, which in hindsight proved to be a truly systemic event. In order to stop contagion from spreading to the non-financial corporate sector, on October 7, the Federal Reserve announced the establishment of a new special purpose vehicle (SPV) whose aim is to buy investment grade commercial paper directly from eligible companies (list tbd.) Yields on the shortest CP maturities declined and T-Bill yields increased but the stress in interbank and credit markets continued to build throughout the day

Unquote
And
According to commentators, the heavy-duty CDS settlement auctions taking place this month weigh heavily on market sentiment. On October 6, the auction of (now government guaranteed) GSE bonds resulted in high recovery values from 91-99 cents on the dollar, meaning that payouts by protection sellers are in the range of 1-9 cents on the dollar. On an estimated $200-500bn notional amount outstanding, payouts are a cumulative $2-5bn. More worrisome is Lehman’s settlement on Friday, October 10. Its defaulted bonds are currently trading at 10 cents on the dollar, meaning that payouts on an estimated $400bn gross amount insured could reach $360bn. The outlook for WaMu bondholders recovery value is similarly bleak (ISDA auction taking place on October 23.)

Meanwhile, the Credit crisis is killing the carry trade. Currency and stock markets around the world are taking their last breaths for this cycle, with some already having fallen into cardiac arrest (trading halts) or needing life support (government liquidity injections). Currencies plunged versus the dollar and more so against the yen - the carry trade's two most popular funding currencies - as investors and banks deleverage. High yield alone no longer protects countries from currency depreciation - fundamentals such as indebtedness matter too (finally). Even the Indonesian rupiah and Brazilian real weakened despite recent policy rate increases to a whopping 9.50% and 13.75% respectively. EUR/USD dropped to $1.34 and the USD touched 100 yen on October 6, the day DJIA fell below 10000. Other developed markets suffered similar percentage losses, but emerging markets took the biggest hit: the MSCI Emerging Markets Index slumped 11%, the biggest intraday loss since 1987. According to S&P, the world's stock markets have lost $10.5 trillion this year as of end-September. VIX shot up to an all-time high level of 58 on October 6 and remains above 50, new territory for the volatility indicator. Worse, even this record high
07:07 Fed cuts federal funds target rate by 50bp to 1.5%; part of coordinated global rate cut
Statement from the Fed: "Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability."

Joining the Fed in the coordinated action: Bank of Canada, Bank of England, ECB, Bank of Sweden and the Swiss Nat'l Bank, which each cut the benchmark interest rate by 50bp.
Though not cutting rates, the BoJ says it welcomes the policy decision made by the central banks and hopes that these actions will contribute to securing the stability of both the financial systems and economies of these countries.
Credit-card issuers face mounting losses, rising funding costs - WSJ
A "Heard on the Street" column says the unusual two-headed monster could mean trouble for card issuers and banks with big card businesses. Rising losses are normally coupled with declining funding costs as interest rates fall. Higher profit margins allow card issuers to avoid trouble. But at the moment, interest rates are going up, hurting margins. The column concludes that card issuers very much need calm to be restored in the world's credit markets.
US banks' troubled big loans triple in 2008

WASHINGTON, Oct 8 (Reuters) - The value of troubled large loans held by U.S. banks more than tripled in 2008, while the volume of syndicated credit commitments worth $20 million jumped at the fastest rate in a decade, bank regulators said on Wednesday.

Adversely rated credits or loans that are likely to result in some loss for the lender without corrective action, spiked to $373.4 billion from $114.1 billion in 2007.

The data shows a "significant deterioration in credit quality," said the annual credit report published by the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp and the Office of Thrift Supervision.

The report assessed syndicated loans and loan commitments of at least $20 million that are shared by three or more regulated financial institutions.

Large loans rose to $2.8 trillion in credit commitments, 22.6 percent more than in 2007. That is the largest percentage growth since 1998 and reflects the merger and acquisition financing boom that continued through the first half of 2007.

The agencies said the large loan portfolio experienced nominal growth in the last half of 2007.

"The impact of the volume of syndicated loans with structurally weak underwriting characteristics is evidenced by the rise in criticized credits this year," the agencies said…

LONDON — Britain on Wednesday announced a rescue package for its beleaguered banks, which the prime minister described as more extensive than America’s bailout plan and which could leave the country’s top lenders partly owned by the government.


Britain’s government offered banks like Royal Bank of Scotland, Barclays and HSBC Holdings up to £50 billion, or $87 billion, to shore up their capital in exchange for preference shares. It will also provide a guarantee of about £250 billion to help banks refinance debt and the Bank of England will double the amount it lends to banks under the special liquidity scheme to £200 billion

http://www.nytimes.com/2008/10/09/business/worldbusiness/09britain.html?_r=1&partner=rssyahoo&emc=rss&oref=slogin


UK banks: what's really happening

http://www.moneyweek.com/news-and-charts/the-banking-sector-turns-into-the-public-sector-13778.aspx


AIG
Money used already. Well dear reader I believe that AIG is possibly a good example showing us that the amounts promised for the bailouts might not be sufficient at all. We possibly might see other companies in the same situation soon.
The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated U.S. insurance subsidiaries of the American International Group (AIG), under section 13(3) of the Federal Reserve Act.
Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.
As expected, drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities....


USD
http://jessescrossroadscafe.blogspot.com/2008/10/shhhhhh-here-is-secret-worth.html


USD bye-bye
Brazil, Argentina abandon US dollar
Tue, 07 Oct 2008 08:03:52 GMT



Brazil and Argentina have launched a new payment system in their bilateral trade, doing away with the US dollar as a medium of exchange.

The two Latin American nations started the Payment System on Local Currency (SML) on Monday following a last month agreement inked by their presidents to use local currencies in a bid to end transaction in dollars.

On Thursday, Argentine Central Bank President Martin Redrado and his Brazilian counterpart Henrique de Campos Meirelles signed the enforcement of the agreement for the SML, under which exports and imports between the two countries will take place with the Brazilian real (BRL) and the Argentine peso (ARS)….
Well dear reader the USD might go up for a couple of weeks. The best explanation I have come across for this temporary strength is that most debts worldwide are denominated in USD. Now that many companies are faced with the fact that they have to pay back their debt it means that they have to buy USD to cover the debts. Therefore the higher actual demand. Well my expectation is clearly that we will see a much lower Dollar soon. Anyway don't forget that the US, Canadian and Mexican leaders signed a couple of years ago a contract to introduce a common currency the AMERO. I do of course not know if in the actual crisis and thereafter these plans will be implemented. Maybe not anymore.


Gold
Gulf central banks look to gold as uncertainty rises
Dubai: Central banks in the Gulf and elsewhere in the world will likely turn to gold as the global banking crisis boosts the metal's appeal as a buffer against dire economic conditions, industry sources said on Tuesday.
http://www.gulfnews.com/business/Commodities/10250412.html


Well dear reader as mentioned in one of my past posts, we do see a lot of volatility in the precious metal sector. Two weeks ago I wanted to let you know that I would buy (at 840) but as I posted on Monday, the price was already back to 880. Now we are close to 840 again and I think it is a good entry point. If you can stock up, I would do so.

Equities


Well we have seen markets go down. A bear market rally could always happen and would not surprise me at all. However I clearly believe that we are in a long term structural bear market. Therefore, although there might be rallies from time to time, I would not speculate on the long side believing that we are in a bear market.

Oil
I believe that we see excellent prices to build up positions which should do well over the next couple of months. Of course the worldwide recession could have an impact for some time. However I do clearly see higher prices over the coming months.