The ongoing financial turmoil and financial discussion thread

[Phanuthier]

Originally Posted by Phanuthier

The Tribute (i.e. LA Times, Chicago Tribune) are fighting off bankrupcy and trying to negotiate with their creditors to stay alive.

Also there,

(No comment on this? And the market goes up 3-4% despite this big hit?)

Sony plans for a deep recession: http://www.nytimes.com/2008/12/10/te...10sony.html?hp
Is Nvidia just trying to run parallel to AMD? I know Nvidia has been trying to break the GPU industry, I guess if you're ever going to do it, its during a recession. Especially if AMD doesn't survive this thing. http://sev.prnewswire.com/computer-e...8122008-1.html

This thing is looking deeper and deeper. I'm starting to fall a little more towards Claeren's side. I knew there was a solvency problem, and bond rates would support Claeren's stance as well... but I dunno. I'm certainly learning quite a bit from this thing, thats for sure. I could use any opinions here.

[TimSJ]

Prime drops to 1.5% this morning..

[Bertuzzied]

Originally Posted by TimSJ

Prime drops to 1.5% this morning..

Larger then expected cut and the market does nothing. ouch!!

http://www.calgaryherald.com/Bank+Ca...922/story.html

Well thats what happens when you suspend Parliament at a time of crisis.

[Bobblehead]

I posted this in the Prime thread, but it probably fits better here.


Royal Bank has announced a new stock offering in an attempt to increase liquidity.
http://www.financialpost.com/story.html?id=1050259

RBC's "Tier 1 ratio" was about nine per cent, and "it seems like the market wants more," said Ohad Lederer, an analyst at Veritas Investment Research in Toronto. The RBC share issue could herald similar fundraising by a couple of other banks, Mr. Lederer said.

RBC said its Tier 1 capital ratio would rise to 9.9 per cent with the issue, or would rise to 10.1 per cent if the underwriters exercise the over-allotment option. The minimum Tier 1 capital ratio in Canada is seven per cent, but the big domestic banks range from 9.1 to 10.5 per cent.

The big banks complained about the ratios when the markets were hot, but they are in better shape because of them now.

[Finner]

Originally Posted by Flames in 07

So for the economists in the crowd:

http://ca.news.finance.yahoo.com/s/0...-economic.html

where it says this:

Former IMF chief economist Kenneth Rogoff wrote recently that a two-year run of moderate inflation in the six-per-cent annual range - three times the Bank of Canada's sacrosanct target - might be good for the world because it would allow the mountains of debt that has piled up over the last decade or so to be paid off in debased currency.

Grauman said central bankers - especially those that have exhausted monetary policy because they have chopped their rates effectively to zero - can try and reduce longer-term interest rates and ignite inflation by printing money to buy up government bonds.

There is a risk that once the genie is out of the bottle, inflation will get out of control.



My questions are:

First of all, what is 'debased currency'?

Second of all, how does reducing long term interest rates increase inflation. Aren't they opposite things? ie wouldn't interest rates and inflation hold hands together?

Basically they are saying governments should just start printing money to pay down the debt they owe. You are essentially paying off debt with more worthless dollars.

So say the US owes one trillion in debt? The government essentially "creates" 1 trillion and gives it to whomever they owe. US dollars become worth a little less (because there are more in circulation), but you no longer have to worry about paying back that debt.

[I-Hate-Hulse]

A sobering article about Japan's "Lost Decade" and the similarities between it an the current meltdown in the US. Talks about whether the 1-2 year recovery period that people are talking about could really be more like 8-12.

http://www.theglobeandmail.com/servl...eRequested=all

[Nancy]

Originally Posted by TimSJ

Prime drops to 1.5% this morning..

Not to nitpick, but in order to avoid confusing this with the Prime Rate that you and I pay to the bank, this is usually referred to as the B of C "Key Rate."

Not sure how much of this cut you or I will actually see from our own banks. Have any of the banks matched yet?

[Bobblehead]

Originally Posted by I-Hate-Hulse

A sobering article about Japan's "Lost Decade" and the similarities between it an the current meltdown in the US. Talks about whether the 1-2 year recovery period that people are talking about could really be more like 8-12.

http://www.theglobeandmail.com/servl...eRequested=all

It says to continue reading I would need to purchase the article.


Although I think I can guess the atricle based on your summation. And while it is a valid worry, you need to remember that Japan was the first to go through this type of thing and as a result there was no experience to try and use to figure out what to attempt.

This crisis has that crisis to use for clues on what may be better approaches, and indeed I have seen discussion on the current crises relate directly back to Japan.

For example, with the US bailout funds, there was talk of the conditions to put on the funds before banks could access them. I Japan they tried that, but some of the conditions were so onerous that the banks didn't want to take the funds for fear of losing their business. As a result it took a long time before Japan reduced the conditions, banks felt safe to access the funds, and liquidity started to ease.

Every crisis is different, and has its own set of challeneges, but it is these kind of real life case studies that have already occurred that should help keep this crisis from lasting as long as the Japanese one.

[Bobblehead]

Originally Posted by Nancy

Not to nitpick, but in order to avoid confusing this with the Prime Rate that you and I pay to the bank, this is usually referred to as the B of C "Key Rate."

Not sure how much of this cut you or I will actually see from our own banks. Have any of the banks matched yet?

http://www.financialpost.com/news/story.html?id=1052266

TD has decided to pass on to customers only part of the hefty cut in interest rates by the Bank of Canada.

The bank will pocket a third of the rate cut to improve its own profit margins, while customers will see the prime lending rate reduced by only .5 per cent, instead of the full .75 per cent rate cut announced by the central bank.

and further down....

In research papers and interviews the bank has been a leading advocate of the view that Canada is moving towards a model seen in other countries where institutions pick and choose how much of a rate cut to pass on to consumers.

This is creating new competitive dynamics in Canada's retail banking market that have little precedent, with rival banks watching each other closely and engaging in an elaborate game of chicken to determine who will cut most.

[Nancy]

Isn't the thing, though, that the link between the key rate and prime is anything but direct.... and that bank's don't necessarily get to choose what they can lend out for. When they write a 5 year variable rate mortgage, they have to sell a bond or other instrument on the same 5 year term with enough spread to cover both the credit risk and transaction costs, and provide some profit as well. So they have to find some suckers who are willing to lend them money at some rate under prime, which may be getting more difficult to do?

[Regorium]

http://biz.yahoo.com/ap/081211/congress_autos.html

A $14 billion emergency bailout for U.S. automakers collapsed in the Senate Thursday night after the United Auto Workers refused to accede to Republican demands for swift wage cuts.

Carnage tomorrow?

[Slava]

Originally Posted by Nancy

Isn't the thing, though, that the link between the key rate and prime is anything but direct.... and that bank's don't necessarily get to choose what they can lend out for. When they write a 5 year variable rate mortgage, they have to sell a bond or other instrument on the same 5 year term with enough spread to cover both the credit risk and transaction costs, and provide some profit as well. So they have to find some suckers who are willing to lend them money at some rate under prime, which may be getting more difficult to do?

Well that is the LIBOR rate....the key rate is down at 1.5% in Canada, but the LIBOR is about 2.2%. In other words the banks are borrowing at a higher percentage and this cuts directly into their spread.

[Slava]

Originally Posted by Regorium

http://biz.yahoo.com/ap/081211/congress_autos.html



Carnage tomorrow?

I don't think it will be pretty, although not as bad as when the full bailout package failed in October.

[Top Shelf]

Nikkei down 554, US futures down 360

I wouldn't be surprised if there is big annoucement early next morning. Might be something like they are going to dip into that 700 billion TARP fund, who knows.

But I think we will some sort of action before close.

[Table 5]

I dunno, I still don't see this falling through in the long term. One way or another, the companies will get help. The UAW has to come to their senses.

[Incinerator]

Have we seen this movie before? I got my ammo ready to buy buy buy! The big week-long rally is coming once they finally sort this out like the $700 billion deal

[V]

Was this result unexpected? I haven't been following this very closely, but the FX markets went bonkers at the same time as the result was announced.

I just made a killing within one hour, 45% on my money because I was on the right side of a USD/JPY trade at the time. Crazy stuff .

[ikaris]

Originally Posted by fotze

Wow!

I try to avoid the sweeping anti-union comments but that is insane
. That will make union sympathizers say "let them rot".

I don't see how anyone could not fault the unions in this considering the reasonable request that the Republicans put forward.

Also, when factoring in that Ford doesn't need the money immediately as they have cash and that GM is owned by a cash rich company (http://www.forbes.com/home/2008/12/0...0gerstein.html), why don't we just let Chrysler die?

[Claeren]

The brutal thing is that all the bailout will/could do is postpone the pain.

Unless the government/treasury is going to become one of the worlds largest customers of automobiles 'bailout' is a deceptive term.


Either way industry is dead in America. Either way the consumers, taxpayers, government and most of the companies that used to sell real worldclass products are all tapped out and hedged to the max.

That debt has to either be re-paid (deflationary and painful) or destroyed (deflationary and painful) or paid off with printed money (inflationary and painful) and the pain is going to be pretty significant.


I think at some point reality is going to hit the markets like a ton of bricks, far far too many people are like 'this is a great buying opportunity, I am going to be RICH!' with these new lows and it will only be a true low when people (not just CNN over-reporting the story) are actually thinking 'holy cow I gotta get out of this, there is no hope....'. 90% of the traders I meet are almost happier these days because they think they can't lose, that is always a recipe for disaster.

Early next year when one of the auto-companies fails and unemployment is shooting past 10% (15%?) stocks will start to look overvalued again, and then as 3rd quarter '08 results shrink into 4th quarter '08 results that shrink into 1st quater '09 results stocks will also start to look expensive again, instead of undervalued. (With notable exceptions I am sure, but overall....) And when the USA is trying to trim a $1.5 TRILLION dollar deficit next year and interest rates start to shoot upwards at some point (whether next year or in 10 years) I am pretty sure it is not going to be a party in equities....

I am still pretty confident that at some point this gets a LOT worse before it gets better.


(And my posts always read more doom and gloom than I mean them too, I don't think there is no hope, i just think reality is setting into peoples minds and the highly leveraged must become less leveraged. It is just math?)



Claeren.

[I-Hate-Hulse]

Goldman Sachs just issued their oil forecast for 2009: $45