After Barclays purchase of Lehmans investment arm and Bank of America 50 Billion buyout, the Feds have written another cheque to supply money to the markets to help finance AIG illiquid situation. If AIG does not receive the money supply quick enough we are about to see an illiquid insurer turn to an insolvent corporation! Looking at the extent of AIG insurance coverage and CDS it gonna pack one hell of a punch to the Recession Americans were denying so bad. Even worst, would be a recession turned to depression. The news was received with happiness around wall street although there were no rate cut. Despite such adamant activity to defend the dollar, (sell down the gold futures and buy the dollar, the yen/ dollar rallied from 103 – 105 yesterday) the feds cleverly contradict themselves by giving out big chunk of taxpayers’ money that they fully utilized till deficit to the other financial banks.
Asia reacted strongly as well with all the liquidity and the bail-out plan mostly due to the fact that Foreign Funds from US do not need to pull back, the bailout in my humble view was already pre-determined on Sunday together with the OPR. The Credit default Swaps are shooting up like stars with the fear surrounding bank and the unwillingness to open up to the public.
Damm, why not just nationalize most of the banks still around and regulate the entire real estate and mortgage markets, issue re-employment schemes and benefits to the employees, pay fat bonus to CEO and Board directors.
Let’s take a look at the way Asia reacted. Sustainable rally I doubt.
•
Initial Report Before Confirmation •
Nikkei looks Up and Retrace a bit•
Tokyo Rises ; HSI^ retreats •
Is it a dead cat?•
China comeback?•
Japanese defensive stance, carry trade unwinding, stronger Yen?The offer from the states to AIG is imminent as the decline of AIG in the entire market would spur effects globally and turn the already slowdown into depression as it has services in over 130 countries, ranging from general insurance, Credit default swaps, derivates, mortgages, corporate loans and retirement and hedge funds, the fact that all the CDO unwinding and downgrade of bonds leads to CDS and the main provider for these mortgage backed bonds and CDO insurance is none other than the great AIG.
The credit mess is deleveraging and clearing up the only question pondering investors is till when we need to witness and bear the consequences of flawed financial experts. With listings in Tokyo and Ireland the impact there would be quite detrimental (I doubt there would be a safe spot for them) and if the money is not provided the fate of its 30000 employees would be questionable, looks like this time employment claims and reports on the US would look too good. And McCain thought it was sound!
AIG managed to raise 20 billion in capital yet is insufficient and require another 85 billion in terms of shares, warrants, etc which would dilute the company even further, are we going to see another battered MNC worth 2 dollars? Even Morgan Stanley is closely monitoring the Short Term Loan Rates that shot up to 6% two days ago and all these points that the illiquid situation is driving the debt management and bonds rating to the edge of another round of collapse. Morgan Stanley’s earning were on par with analysts expectations but still to avoid the fate of Lehman’s’ they are on the brink of considering being acquired or a merger. For your information there are only less than a handful of banks with AA ratings on Bonds and most of it left is in Australia, evaluate the economy yourself.
Globalization is indeed a double edged sword, the Chinese have a saying that “water can keep u afloat and can make u drown.” MNC have enjoyed earnings too good for too long thru good management of debts and premiums until they forgotten that it is all about book-keeping when dealing with money and when the debt gets out of control they are going to fail themselves.
The feds’ efforts of pushing money into the banks will only allow the bank to generate more money with the liquidity provided through arbitrage of interest rates differences between loan and deposits. At the same time, this will cease bankers to provide emergency funds to the market. These are the actions of corporation’s desperation to save themselves first instead of bail others. The extent of financial failure is so bad that the feds have paid JPMorgan according to CNBC just to help settle the dust in Lehman, how reluctant to bail Lehman , the feds did not give in submissively but instead fought against the tides only to know that the tides where fully against them.
•
take a lookNo safe-haven
In the market now, there would not spare anyone as the giants sneeze we catch a cold worst still pneumonia, the Money markets which were thought to be the safest are under siege as well, latest news were about a 14 year old Reserve have fallen to less than 1 dollar per share making them to withheld all withdrawals, this is only the initial stage of Lehman’s debt write offs, the unfolding of Lehman’s assets and debts will soon roam the market with more pain and blood, the weakness of AIG may save US from Armageddon or Mayhem but it will not bring them under refuge from financial sell down. More blood has to be shed, markets have to correct, and the only choice we have to make now is to preserve our purchasing power, to hold cash or convert into commodities? Are u a long term holder of US equity, are you able to take a 5 year hold? Are u willing to take a dive of up to 30 % or 40% of your capital? These are questions that we must ask ourselves!!!
What would happen when stock market capitulation takes place, the ratio between bank assets and Stock market Capitalization is almost 1:1 , the relief i take is that the significance of equity protectionism is being upheld at the cost of a different asset class, but will this spark the era of massive Asian-American MNCs? Middle Eastern owned American corporations? LBO is not out of the picture yet!!!! There would be a price for everything. 
Posts
