RSS Feed
Twitter
Facebook
Email
HomeMarch 2009 Market Review
Posted by Larry Doyle on March 31st, 2009 7:47 PM |
The markets, overall, experienced a very solid rebound this month. Technically, the market got oversold bottoming out on March 6th when the S&P 500 hit the devilish level of 666!! Perhaps some divine intervention prevailed and shed a wee bit of grace on the market in the spirit of Saint Patrick. Perhaps not, as well. In any event, we rebounded close to 20% over the last three weeks. The bounce has allowed us to catch our breath but I caution everybody to remain on guard.
The rebound gained support from the following factors as well:
1. stabilization in the weekly unemployment claims at the 650k; level
2. improved figures in housing starts and new home sales;
3. speculation that the FASB will relax the mark-to-market; (more…)
Oppy’s Pain in the ARS!!
Posted by Larry Doyle on March 30th, 2009 12:46 PM |
There is little doubt the American populace is getting increasingly frustrated with the pace and level of government bailouts. Are we about to literally “go over the line?”
Is the United States about to allow a Canadian company to incorporate itself here in the U.S. for the purpose of receiving a bailout? Is this the height of hypocrisy or what?
I refer to the fact that Oppenheimer Holdings, a Toronto based investment company involved in the travesty surrounding the sale of ARS (Auction Rate Securities) is looking to incorporate in Delaware in order to receive federal bailout funds. From Bloomberg’s If Oppenheimer Gets Handout, Blame Canada:
Oppenheimer “is exploring becoming a U.S. corporation and a U.S. bank holding company in order to help resolve the ARS problem for our clients,” the company said in its annual letter to shareholders released last week. (Toronto’s Oppenheimer & Co. isn’t related to OppenheimerFunds Inc., a unit of Massachusetts Mutual Life Insurance Co.)
The “ARS problem,” of course, is the nasty pickle Oppenheimer has gotten itself into with customers who hold $929.6 million in auction-rate securities, the ill-fated investments that flat-lined in February 2008. The auction-rate meltdown left investors at Oppenheimer and many of its Wall Street brethren unable to liquidate positions that had been marketed as, well, pretty darned liquid, to customers who often had no clue about the product’s risks.
Why should U.S. taxpayers bail out an investment company that improperly marketed securities? Why shouldn’t Oppenheimer, and every other investment manager or bank that improperly – if not fraudulently – marketed ARPS, be forced to make their own investors whole? (more…)
Wall Street: Moving Business or Storage Business?
Posted by Larry Doyle on March 29th, 2009 11:39 AM |
A standing joke on Wall Street trading desks was a question posed by sales management to trading management.
Sales Manager, looking to sell products and generate commissions, would ask Trading Manager, looking to manage risk and maximize profits or minimize losses, “Are we here at Bank (fill in the blank) in the “moving” business or “storage” business?” Meaning, would the trading desk be competitive in pricing so as to allow the sales desk an opportunity to sell product (stocks, bonds, loans, et al).
This very question is at the heart of a rapidly developing conflict in the PPIP (Public-Private Investment Program) and an expectation of relaxing the FASB’s (Federal Accounting Standard Board) mark to market. (more…)
Dr. Edwin Vieira’s Amazing Crystal Ball, 2006
Posted by Larry Doyle on March 24th, 2009 9:52 PM |
I will admit that I am not a student of the Great Depression, but I have started reviewing that period. Obviously I, like every American, hope our economy stabilizes and we regain our footing and return to prosperity. While the pragmatic optimist in me believes that can happen, the trader and risk manager in me tells me to review the Depression, understand the dynamics, assess the risks of our current period, and prepare accordingly.
I hope and believe people who have been reading my work for a while appreciate that I am not an alarmist. Whether working on Wall Street as a trader and salesman or now writing for Sense on Cents, a measured, analytical approach has always generated the best results. In that vein, I discount speculators and salesmen who attempt to make a buck from heightened levels of anxiety. That said, the elevated levels of risk in our economy, markets, and global finance require an equally elevated sense of risk analysis and historical analysis.
Given some of the economic saber rattling emanating from China and the lessened fiscal support emanating from Europe, the threats of global protectionism are clearly growing. That scenario also occurred during the Depression. (more…)
Treasury Seeks Unprecedented Power
Posted by Larry Doyle on March 24th, 2009 8:47 AM |
I have written at length about the problems within the banking, insurance, hedge fund, and consumer finance industries over the last 6 months. While the bulk of the media focus has been on the banking industry – and primarily the large money center banks – the erosion in asset values at these other financial companies has been accelerating.
This past Sunday evening on my weekly radio show, NQR’s Sense on Cents with Larry Doyle, I spoke extensively about the massive financial shortfall within the insurance industry. In addition, relatively early on I warned that the hedge fund industry had likely been severely mismarking many investments. From a piece I wrote on November 12, 2008:
Give it time, because hedge funds do not have to report to anybody as to what their positions are and where they have them marked. There is no doubt they have positions that are grossly mismarked and have many positions that are totally illiquid. For many investors in these funds, these are truly “roach motels.” Hedge funds will sell what is most liquid when they can to meet redemption requests. We should expect a significant number of hedge fund liquidations, consolidations, and out and out disasters.
The same can be said for a number of private equity shops. Consumer finance companies with large holdings of a variety of consumer assets are fighting for their lives as delinquencies and defaults on these assets ratchet higher. (more…)
Confidence
Posted by Larry Doyle on March 21st, 2009 10:07 AM |
Our economy, markets, and global finance are impacted by a wide array of factors. While various analysts will focus on the differing magnitudes of a variety of these factors, I know of nobody who would not say that ultimately the greatest factor of all is “confidence”. While there is a monthly Consumer Confidence Survey generated by the University of Michigan, confidence is not measured by hard data.
Regrettably, we are currently suffering a crisis of confidence. The crowd in Washington has not helped instill confidence with its scattered approach to legislation and policy.
Over and above the problems in Washington, our global economy is suffering from increasing protectionist measures. Our current administration may talk about free trade and open markets, but their actions speak otherwise. Those actions impact global confidence. Other countries and regions are equally guilty of the same issues. (more…)
Quantitative Easing? Welcome to Vegas!!
Posted by Larry Doyle on March 19th, 2009 9:07 AM |
The Federal Reserve has ZERO room to maneuver on its interest rate policy given the fact that its interest rate tool, the Fed Funds Rate, is currently set at 0-.25%. Could that rate be set at a negative level? Well, let’s just say that it has never happened with any central bank in the world. With no more arrows left in its interest rate quiver, what is a Federal Reserve to do to manage an economy? Let’s enter the world of “quantitative easing.”
Quantitative easing by any central bank is a policy in which that bank grows its balance sheet to purchase assets (government bonds, mortgage securities, government agency debentures, etc). The purpose of purchasing these assets is to drive the prices for these assets higher which in turn brings the interest rates on these assets lower (bond prices and interest rates on those bonds have an inverse relationship). The hope the Federal Reserve holds is that in bringing rates down (government rates and mortgage rates dropped by .3% to .5% yesterday) consumer and institutional demand for money will go higher and spur the economy in the process. (more…)
The Fed Levers Up
Posted by Larry Doyle on March 18th, 2009 6:30 PM |
When the economy experiences a massive delevering process, the void in the economy needs to be filled. There has been and will continue to be ongoing debate about the effectiveness of the stimulus plan, Obama’s proposed budget, ongoing government bailouts of a variety of industries, and moves made by the Treasury and Federal Reserve. Has enough been done? Is too much being done? Are our global partners pulling their weight? Are protectionist measures likely to exacerbate our economic problems? The answers to these questions will not be known for years.
Today’s action, Fed’s New Steps Shake Up Markets, is a sign that as everybody is delevering (selling assets purchased with borrowed money), the Federal Reserve is levering up. The Fed has indicated they will purchase billions more than previously advertised in U.S Treasury securities, mortgages, and consumer related assets. Why? By making these purchases, the Fed will attempt to drive the rates for these products lower and reignite consumer and institutional demand for credit. The market responded in startling fashion as 10yr government rates dropped an unprecedented .50% !! Equity markets responded by moving higher by 1-2%. (more…)
AIG and LTCM
Posted by Larry Doyle on March 18th, 2009 3:50 PM |
A precursor to the turmoil roiling our economy and markets today occurred on a smaller, but certainly very dramatic, scale in 1998. The meltdown of the hedge fund Long Term Capital Management brought the market to its knees at the time. LTCM was effectively taken over by a consortium of Wall Street banks at the behest of New York Federal Reserve Chairman, William McDonough. The firms injected approximately $3 billion dollars in order to stabilize LTCM and then unwound it in an orderly fashion.
The lessons learned in the LTCM crisis were obviously not learned well enough because we are experiencing them again a multiple hundred fold. The centerpiece of our current fiasco is AIG (known here at Sense on Cents as “Ain’t It Great”).
The dramatic story of Long Term Capital Management is captured in a book I strongly recommend for anybody interested in the history of the financial markets. When Genius Failed, by Roger Lowenstein, is a great read and truly captures the intrigue, egos, and tension of that period. As the current turmoil unwinds I look forward to the books published on this period as well. (more…)
Let’s Revisit Europe: The Weakest Link
Posted by Larry Doyle on March 17th, 2009 5:15 AM |
I thank our loyal reader in Michigan, Mr. Fiscal Liberal, for sharing with us a piece written by Simon Johnson, the former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
Mr. Johnson writes about the growing problems in Europe. I am hard pressed to see how the European situation, both in the East and West, can not end badly. There are too many economies that are effectively insolvent or on the brink of insolvency. I believe this is the region of the world which will experience increased economic strife leading to social unrest and political change. Can the problems in Europe be contained given the massively interconnected world of global finance?
Thank you again FL for sharing this very enlightening piece from Simon Johnson!!
G-20s Real Agenda Should be Saving Europe from Itself
By Simon Johnson
Last Updated: 10:28AM GMT 16 Mar 2009The media coverage of the G20 finance ministers meeting this weekend was dominated by the apparent battle between those who support more fiscal stimulus and those who want to impose more regulations on the financial system.
This, we are led to believe, is the big debate facing the full G20 heads of government summit early next month: the US is pushing for a bigger global fiscal stimulus (2pc extra government spending from everyone, to be monitored by the IMF), while the continental Europeans are holding out for greater regulation. Gordon Brown is trying hard to cast himself as the broker for any apparent deal. (more…)
