I think we’re all getting a quite vivid sense that President-elect Obama’s way of handling tough situations is to set his jaw, furrow his brow, stare purposefully forward, say reassuring things, but on no account to make any clear statements of intent, or to actually do anything. At least one of the consequences of this extremely risk-averse approach to leadership, is that financial markets are | Read More »
The 30-year T bond is priced to yield 3.34% this morning. The 10-year note is at 2.83%. These are extraordinary numbers, and they’re still falling fast. Three-and-six month bills are already at or near zero. This is powerful and continuing evidence that markets are uncertain and fleeing from risk. The midcurve and long-end are multi-trillion dollar asset classes that have increased in value by something | Read More »
This is just a brief note to make you all aware that it’s being a very remarkable week in the Land of Fixed-Income and Monetary Policy. I’ll post much more on this topic as soon as I can, but the Federal Reserve has qualitatively changed the nature of their response to the financial crisis. As of this week, they’ve embarked on what is called “quantitative | Read More »
There are words you don’t ever want to use in polite company, and deflation is one of them. Unfortunately, it’s a serious possibility that we now need to consider. Yesterday, the Bureau of Labor Statistics reported that the overall level of consumer prices declined by about 1% in October. The so-called “core inflation rate” declined by 0.1%, the first such decline in more than twenty-five | Read More »
I’ve been trying for days to form a perspective on what’s happening in global markets, without much luck. And I’m not talking to or reading anyone who feels very differently. Stock markets are plunging again in Europe and Asia, indicating a growing concern with falling economic output and a coming global recession. The dollar and yen continue to strengthen. Oil and gold continue to fall. | Read More »
This is a brief note to warn you all candidly that the news background for financial markets is very unfavorable this morning. European and Asian stock markets are in free fall, down around 10% as I write. That’s not a typo. Trading in S&P index futures is limit-down, and has been halted in Europe. Unless conditions change in the next few hours, expect to see | Read More »
This story caught my eye because, ever since the acute financial crisis began around Labor Day, news about how China is handling it has been very sparse. And that matters a great deal, because China’s reactions to the crisis are key to understanding whether the global financial system has fundamentally changed in recent years. The question, of course, being this: has the economic dynamism of | Read More »
There are always unintended consequences. And they’re always so easy to see in hindsight. So the government announces that banks will not be allowed to fail. What do you do if you’re a rational investor? You reason that there’s a floor under the debt-securities issued by these banks. You figure you might be able to exchange them for honest-to-goodness Treasury paper later on. So you | Read More »
I’ll go out on a ledge and say that the financial world has taken a step back from the ledge. A semblance of non-insanity has been apparent in capital and bond markets this week. Now that governments across the world have made credible commitments to prevent financial meltdown (defined broadly as chains of insolvencies among tightly-interconnected counterparties), the violent panic attacks of last week have | Read More »
The major news this morning affecting financial markets is that the Treasury is making a drastic change in its approach to the current crisis. You know about the $700 billion Troubled Assets Relief Program (TARP). As originally conceived, the idea here was to contrive ways of purchasing assets like mortgage-backed securities from banks and Wall Street firms. The purchases were to have been done at | Read More »
This post will be brief, as duty calls. You don’t need me to point out the broad carnage in financial markets this morning. It’s going to be a tough day. Margin calls will drive a lot of selling. We may get a brief respite rally after all of the weaker hands get washed out. Time frame for this would be the next several weeks. No | Read More »
The news background is relatively benign this morning. Stock markets in Asia and Europe are stronger, after five days of relentless and at times violent selling. Credit markets are just as dysfunctional as ever, but not much worse. There are several things to watch over the next several days: corporate earnings, global countermeasures to the crisis, and further aggressive actions by the Fed and Treasury. | Read More »
We’re now well into the third week of extremely disordered conditions in global capital markets, with no end in sight. The world’s stock markets have started to respond to the prospect that a long period of capital-unavailability will reduce economic growth. Henry Paulson’s $700 billion rescue plan, which seemed so radical mere days ago, is now seen to be too little, too late. Had Congress | Read More »
Here it is. That’s the Fed’s announcement of two new facilities. The Commercial Paper Funding Facility (CPFF) will create credit, to be made available to a “Special Purpose Vehicle” (SPV), as authorized under Section 13(3) (the “unusual and exigent circumstances” section) of the Federal Reserve Act. The SPV is authorized to purchase three-month dollar-denominated commercial paper from eligible issuers. There isn’t a lot of detail | Read More »
So why is the stock market up this morning? Because the Fed released a plan under which they will become direct purchasers of term commercial paper. CP, loosely, is a short-term borrowing (less than 270 days) by creditworthy businesses, and it’s unsecured more than half of the time. (Sometimes it’s secured by assets.) Over the last three weeks, issuance of CP has been severely impaired, | Read More »
Now that we’ve gotten through an ugly spasm of political theater and legislative sausage-making and enacted the Paulson rescue plan, it’s time to ask whether it’s working, and how we’ll be able to tell. As I’ve said before, there are two different crises in the financial world. We have an acute credit crisis that directly affects capital markets and is now in the process of | Read More »
The ground is shifting in the acute financial crisis that started around Labor Day, and erupted like a boil into public consciousness about three weeks ago. While Congress continues its indecision over whether to respond with forceful measures, the crisis has begun to have a powerful impact on the Main Street economy. None other than Warren Buffett (who’s been around for a lot of years | Read More »
Several of our conservative friends have pointed to the very large reduction in the LIBOR interest rate between Tuesday and yesterday as evidence that the credit crisis is easing. LIBOR is one those arcane things no one but geeks should need to understand. It’s a notional interest rate published at 11:00 AM GMT every day in London. It represents an adjusted average of the “offers” | Read More »
Yesterday’s somewhat anticlimactic news from Capitol Hill was that the Senate passed a new (and disgustingly pork-laden) version of the Paulson rescue proposal. Asian stock markets fell on the news, although overnight-dollar interest rates also fell somewhat. The action moves back to the House of Representatives, which is expected to vote on the new draft on Friday. In failing to pass the previous version the | Read More »
Treasury Secretary Paulson gets the Oscar for Worst Salesmanship in Support of a Financial Rescue Plan (Super-Heavyweight Division). I think you’d be hard-pressed to find one person out of twenty who understands that Paulson’s bailout plan is not a transfer of tax money from the middle class to the wealthy. It’s not the slightest surprise that more than half of Congress would find it impossible | Read More »
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