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Consumer confidence was able to break a three month streak of declines by inching slightly higher during the month of March. 
While the stock market is rallying, the credit markets are still working on the assumption of absolute disaster. Where is such a dire forecast coming from?
Deutsche Banks published a study that shows the gloomy reality that the credit markets are predicting. They used the iBoxx index of investment grade corporate bonds and found that default rates in Europe are priced at 38%, in the US at 40% and at 51% in the UK. All of these readings are worse than in the Depression.
Continue reading Why are credit markets forecasting absolute disaster?
As more details were unveiled yesterday about the Public-Private Partnership proposed by Secretary Timothy Geithner to deal with the "Toxic Assets" currently on the balance sheets of many of the major banks, the equity markets around the world experience what can only be described as euphoria. Equity markets in the United States experienced one of the biggest one-day rallies in history. Obviously, Wall Street likes the plan at first glance.
However, Paul Krugman, the liberal Noble Prize winner, wrote an editorial in The New York Times attacking the plan as "Cash for Trash." Subsequently, Newt Gingrich, the former Republican Speaker of the House, announced on Fox News that he agreed with Professor Krugman. When senior figures on both left and right agree, it may be wise to look past the euphoria.
Continue reading The Geithner Private-Public Partnership: The cure may be worse than the disease!
There are very few people on this planet that can honestly say that they have not been affected in some way by the economic firestorm caused by underappreciating risk.Continue reading Serious Money: Don't overlook these regional banks!
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Continue reading Hedge Fund Apocalypse: Massive short squeeze on Citi could wipe out dinosaur funds
Japan, the world's second largest economy is facing a sharp downturn. To try and stimulate its economy, Japan is using the financial tools used by the US and UK. The Bank of Japan( BoJ) said that it is increasing its purchases of JGB's (Japanese Government Bonds) from y 1,400 billion to y 1,800 billion per month. A central bank buying its bonds has the effect of creating new money that will flow into the economy. Japan is careful to say that this is not "quantitive easing" or just printing money, but in reality it will have the same effect.
Continue reading Bank of Japan is buying Japanese government bonds
There is an old saying: "never fight the Fed." If you had been short this bond market, you probably could be wiped out in one afternoon. When the Federal Reserve made its announcement a short time ago that they were buying long term securities the futures on the long bond jumped 4.25 basis points, or more that $4000.00 on just one contract. If you were long say 10 contracts you would be sitting on a $40,000 profit this afternoon.
In my previous post on the Financial Stability plan presented by the Obama administration, I mentioned the dangers involved with dealing with some of the sharpest players on Wall Street. I used the analogy of not knowing who the sucker is when you sit down at the poker table because it turns out to be you!
It turns out that the taxpayer bailout money was used to pay bonuses of about $450 million to a small group of employees at the business unit that lost $40.5 billion last year at AIG and caused the crisis in the first place. Apparently, this appears to be a contractual obligation of AIG which cannot be abrogated.
Continue reading Bonuses in the AIG poker game: We stole it fair and square
Son says to his father: "Dad, can I have $20.00 to go to the movies?" Dad says: "I just gave you $20.00 a few days ago, what happened to that money?" Son says: "I spent it and I'm broke again."
Just change the names to Freddie and the US Treasury. Freddie is broke again. and wants another $30 billion from the US Treasury."Look I only lost $23 billion this time." From what has occurred in the past ,this is a sure bet.
Continue reading Freddie Mac wants another $30 billion from government
When Mr. Dimon says, "When I hear the constant vilification of corporate America, I personally don't understand it," he sounds like Greenspan when he said: "there is a flaw in the model -- that defines how the world works."
Both men are going merrily along without a clue about what the American people and their representatives in Congress are up in arms about.
Continue reading Mr. Dimon 'misspoke' when he used the term 'vilification'
More wonderful and weird tidings: Bain Capital, the brainiac Boston buyout fund, has hired salvage consultancy AlixPartners to extricate any remaining value from its bankrupt buy-out, Outback Steakhouse Incorporated. Outback is the originator of mega-calorie Blooming Onion, and is apparently too many calories for Bain, as the company reported a quarterly loss of a whopping $750 million. Continue reading Doomsday Scenario: Bain eats onion, no-name groceries hot, pension fund fracas
Federal Reserve Chairman Ben Bernanke spoke today to the Council on Foreign Relations in Washington, D.C. on the state of the economy and our financial system. In the speech, the chairman acknowledged that the financial system requires a total overhaul as opposed to just additional regulation for banks. He said, "We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components."
This vast overhaul would have to address the shadow banking system as well as the international ramifications associated with these activities. If this regulatory framework is not comprehensive, the activities that caused the current crisis could simply take another unregulated form or move offshore.
Continue reading The Bernanke speech: Regulate the system, not just banks!
After a week of heavy selling, Wall Street is moving higher today despite news that the Federal Reserve expects to see the economy continue to deteriorate.Continue reading According to the Federal Reserve, the worst has yet to come
Whether or not you agree with his actions, James Baker is one of the toughest negotiators ever to hold public office. Once US Treasury Secretary under President Reagan, now he has offered a tough, frank solution to our banking crisis. Mr Baker has always been straightforward in his approach and has a talent for cutting to the heart of difficult problems. Bold, decisive action is his trademark.
Continue reading James Baker's solution to the banking crisis
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