[rostov]

MrBill,

Thank you. Didn't know you had a bloomberg terminal. I know the bandwidth is limited, but do you have the current charts of 1m + 3m LIBOR for the past 6mths or 1year?

Looking at the posts in this thread, it would seem to imply that since around the July/August period, the cost of money has increased due to lending (thus credit) being stopped, and banks attached a high cost (LIBOR rate ramps/spikes) as a result. To keep the banking system going, the Fed needed to pull this rate down back then, but because lending trust is still not restored, we today are still faced with distrust in the banks and therefore the banks still attach a high cost to each other, and thus the Fed's pre Dec-11 moves.

Looking forward (and seeking your historical experiences way back since 1945s till now), what then, when interest rates are forced DOWN due to lending dry-up?

BTW, thanks for your very own experience securing lending at terrible times. Why did you succeed when the rest didn't? Collateral quality differences?

[MrBill]

Daryl wrote:
$this->bbcode_second_pass_quote('', 'B')y the way, nice looking charts, Mr. Bill. And a question. How does today's Euro rate translate back into the old $/DM rate? I can't remember how to do that. Are we past the old 1979 lows for the dollar yet? I believe that was around 1.76 DM or something.

[MrBill]

$this->bbcode_second_pass_quote('rostov', 'M')rBill,

Thank you. Didn't know you had a bloomberg terminal. I know the bandwidth is limited, but do you have the current charts of 1m + 3m LIBOR for the past 6mths or 1year?

Looking at the posts in this thread, it would seem to imply that since around the July/August period, the cost of money has increased due to lending (thus credit) being stopped, and banks attached a high cost (LIBOR rate ramps/spikes) as a result. To keep the banking system going, the Fed needed to pull this rate down back then, but because lending trust is still not restored, we today are still faced with distrust in the banks and therefore the banks still attach a high cost to each other, and thus the Fed's pre Dec-11 moves.

Looking forward (and seeking your historical experiences way back since 1945s till now), what then, when interest rates are forced DOWN due to lending dry-up?

BTW, thanks for your very own experience securing lending at terrible times. Why did you succeed when the rest didn't? Collateral quality differences?

[Daryl]

Thanks for info on DM. For some reason I don't recall the dlr being sold off that low in '95. I must have been entertaining too many clients at night and drinking too much. I must say, the ECB has performed way above my expectations when the politicians were negotiating the Bundesbank out of existence at Maastricht. Still I agree with you, they have benefitted from a relatively benign environment. We will see what happens to European monetary unity when a large convulsion occurs. Perhaps an overvalued Euro could be an upcoming problem of that nature.

BTW, if you ever need it, I chased down the dlr/dm historical rate data.

http://www.bundesbank.de/statistik/stat ... &year=1996

[MrBill]

[align=center]How the markets really work[/align]

don't miss the link! ; - )


$this->bbcode_second_pass_quote('', '
')Energy Weekly

Softening fundamentals gaining momentum

Shifts towards softer fundamentals are underway

The oil complex has declined sharply over the past week with WTI declining to below $90/bbl for the first time since mid-October owing to a substantial weakening in timespreads. This weakening has occurred as the shifts toward a cyclical softening in oil fundamentals that we have embedded in our forecasts are taking place, namely, increasing supply from the Arab Gulf, a potential
decline in crude oil demand as the strong heavy fuel oil market has finally cracked, and deterioration in the US and Chinese economic outlook with risks relative to this outlook increasingly skewed to the downside.

These shifts reinforce our view of near-term price weakness

These factors reinforce the near-term downside risk to oil prices that we have emphasized over the past month and that are embedded in our near-term price forecasts.

Long-dated oil price strength suggests a spike in near-dated prices much below the $80/bbl-$85/bbl range is much less likely

Much of the previous price rally in oil to record nominal highs resulted from a substantial rise in long-dated oil prices, which have remained exceptionally resilient despite the recent weakness on the front end. We maintain that the long-dated price strength has been grounded in fundamentals as increasing cost inflation and uncertainty have been priced in. As a result, we believe long-end prices are unlikely to decline meaningfully from current levels. This also suggests that a downside spike in near-dated prices much below the $80/bbl-$85/bbl range is much less likely despite the
anticipated fundamental weakness, as we do not believe this weakness will be severe enough to shift the long-dated timespread into contango.

[drew]

Thanks Bill, that was pretty funny! (and I'll bet quite true too)

Drew

[MrBill]

Nothing much to add here to be honest. I think last week's four day rally in the S&P 500 was for all the wrong reasons. Now it looks toppish again. Sort of like a cascading water fall. Not a precipitous drop, but a series of rapids on the way down.

The market has pretty much accepted the Fed will give them another 25 basis point cut. Helicopter Ben may try to get 'ahead of the curve' by dropping 50 bps again, but then what little inflation fighting credentials he might have had will be in tatters. December 11th can only disappoint.

Paulson's plan to arrange a 90-day moratorium on mortgage foreclosures, and to lock-in below market teaser rates on 2-28 loans for say 5 to 7 years for homeowners that keep up with their payments is really robbing Peter to pay Paul.

One this discriminates against those that locked in higher fixed rates or those that have already started paying higher ARMs. As well would be a nice little subsidy to those who could afford a higher reset, but may be spared this eventuality. Not to mention those would be homeowners that are renting and might also get their foot on the property ladder, as well as qualify for nice taxpayer benefits like an interest rate deduction, if home prices fell.

Thinking about capital ratios. Of course, all those low priced loans on those banks' books will curb the ability for new lending at higher rates, and so will be a drain on earnings for many years to come. They then drag the pain out so long as those borrowers keep making payments on their first mortgage. That is to say nothing about second mortgages or consumer loans made against home equity. Obviously this bunch of loans will not be paid in full or on time, so another hole in the banks' lending portfolio.

But I suppose like a drowning man at sea, the equity investor is grabbing at anything that looks like it floats at the moment even if it too will become water logged and submerge as well. Let them have their respite, the reality of their dire straits will sink in soon enough.

Crude got a little over-sold on the technicals, but looks like yesterday was a little bit of a correction as market players await more concrete news from OPEC. What is there left to say? OPEC does not want to add supply, and if, then only a token 500.000 bbls per day. We're not sure it is needed in any case. 321 crack margins are very narrow and the contango in the crude has unwound quite a bit. The need for prompt delivery seems to be moderating or is that just paper longs closing positions ahead of year-end? Flat price may depend more on the direction of the US dollar which seems to have found short-term support against the euro at $1.4620.

I am looking for new inputs for direction, but at the moment it seems to be re-occuring themes re-emerging rather than new events taking center stage.

[seahorse2]

I decided that if one wants to play the agri business, Monsanto and Syngenta are about the only ways to do it with publicly traded stocks.



Syngenta

Monsanto

[Daryl]

Looks like a break of a double top in the daily oil chart to me Mr. Bill Don't know what the regular charts looks like. I only have access to USO, the oil ETF. If that formation is confirmed and fills out, we could be falling another 10pct from here......

[topcat]

Other potential agri-bus plays:

Archer-Daniels

UAPH (chemicals - just received a buy-out offer)
AGU (offered to buy out UAPH)
DE (John Deere)
MOS (fertilizer)
LNN
POT (more fertilizer)
TRA

All of the above (expect AGU) are at yearly highs. Some have doubled/tripled this year. (per IBD 12/04/07)

The fertilizer market is streched thin, many are telling farmers to buy there products before year-end and stockpile it until use next year.

[MrBill]

$this->bbcode_second_pass_quote('Daryl', 'L')ooks like a break of a double top in the daily oil chart to me Mr. Bill Don't know what the regular charts looks like. I only have access to USO, the oil ETF. If that formation is confirmed and fills out, we could be falling another 10pct from here......

[MrBill]

Flumuxed I am! The rally since the third week in November has me quite confused. Confused is the wrong word. I am having a hard time believing the stock market is rallying on the back of interest rate cut expectations because the US economy is heading into a recession? But apparently this is not only not unprecidented, but quite normal.

$this->bbcode_second_pass_quote('', 'J')ust because most economists on Wall Street predict the U.S. economy will slow next year, or sink into recession, doesn't mean their market strategist colleagues won't be right in their forecast of a record for the Standard & Poor's 500 Index.

The benchmark for American equities climbed in eight of the 10 years the economy grew less than 1 percent since Harry Truman was in the White House 60 years ago, data compiled by Bloomberg show. Six of those increases coincided with periods when the Federal Reserve was cutting interest rates.

The worst housing slump in 16 years will lead policy makers to reduce the target rate for overnight loans between banks this week for the third time since September, futures trading shows. Wells Capital Management, Morgan Keegan & Co. and Russell Investment Group, managers of more than $500 billion, say lower borrowing costs will spur growth by the end of next year and drive stocks to the longest rally in two decades.

(continued)

Cohen, whose firm is the biggest investment bank by market value, is pinning her forecast on a ``friendly'' Fed that will reduce borrowing costs enough to reignite economic and profit growth. Since the 1950s, the Fed has cut rates at least three times on 12 occasions, according to Bespoke Investment Group LLC. Higher stock prices followed in 11 of them, with the S&P 500 posting an average gain of 19.2 percent, according to Harrison, New York-based Bespoke.


Previous Cycles


In six years when the rate cuts coincided with annual economic growth of less than 1 percent, the index rose an average 23 percent, Bespoke's figures show.

(continued)

The gloomy outlook for the U.S. economy also is driving down stock valuations. The S&P 500 tumbled 10 percent last month, the first so-called correction in four years, as mortgage delinquencies grew and home prices dropped.

[rostov]

$this->bbcode_second_pass_quote('MrBill', 'F')lumuxed I am! The rally since the third week in November has me quite confused. Confused is the wrong word. I am having a hard time believing the stock market is rallying on the back of interest rate cut expectations because the US economy is heading into a recession? But apparently this is not only not unprecidented, but quite normal.

[MrBill]

$this->bbcode_second_pass_quote('rostov', '
')We gave back nearly 50% of what was rallied from the low of SPX1410 since that time, and that was like a knife through butter on the 3x(50,100,200)dma (dailies). I was not thoroughly convinced that the institutions were buying the 2nd leg, so it's going to be interesting to see what the next 2 weeks is going to be like on the holders of positions since the 1st week (that one had massive legs carrying it)

There is no lack of liquidity in the system right now (50b swimming around), so is it trust? Only one way to find out beyond January 2008?

[MrBill]

[align=center]Central Banks Ride to the Rescue of Capital Markets[/align]

$this->bbcode_second_pass_quote('', 'S')everal top central banks including the Federal Reserve and the European Central Bank on Wednesday announced the launch of a new temporary term auction facility designed to address elevated pressures in short-term funding markets.

Under the program, the Federal Reserve will auction short-term funds to depository institutions against a wide variety of collateral that can be used to secure discount window loans. The program also includes establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank.

The Bank of England also joined in the announcement issued by the Federal Reserve in Washington.

The first auction under the program will be $20 billion in 28-day term funds on Monday, settling December 20, with a second auction of $20 billion in 35-day funds scheduled for December 20, settling on December 27. Subsequent auctions are scheduled on January 14 and 28.

"Experience gained under the temporary program will be helpful in assessing the potential usefulness of augmenting the Federal Reserve's current monetary policy tools -- open market operations and the primary credit facility -- with a permanent facility for auctioning term discount window credit," the Fed said.

[rostov]

My good mother of <fairy>, MrBill, the pump UP since the Asian morning (ASX 1st, with RBA trying to relax the banking sector markets) for the SPX and finally leading up to the FTSE/DAX cycle was awesome, which led a gap up on the even before the 9am announcement. Dailies show a gap UP from yesterday's close, slicing the 50/100/200dmas with a huge pin.

I don't get it. Unlike 1999 (where they had much more liquidity to add), this year they only have like 50b or so swimming in the system. They now want a global approach to hide their debts from outside their own circle by increasing their circle to 3 CBs (Canada, EU, USA), but here's the thing that worries me : isn't this just recycling it among the existing systems that are effectively having the same credit TRUST problems?

Where are the sovereign funds outside the system in this scenario? China? SA? Singapore?

Anyway, it was a nice 2nd chance morning to lunch time BANK sell (BIX, BKX showed that the retailers were handed over), so let's see where this closes after the lunch pump. The 1483 seems heavily contended for as a support and target, and the currencies went ape as well. Very exciting times for a bear market to the New Year.

Editted to add:
1) MrBill, what was the US LIBOR action like on the Fed's announcement, and how does that affect your current lending?

[seahorse]

Mr. Bill,

I know you've argued long, hard, and convincingly, about the benefits of free market capitalism, the problem I see is this, no matter where I look, I don't see it. Whether we are talking about the combined, concerted action of our central banks, national oil companies, pegging currencies, etc., there's little about the big picture that has anything to do with true free market capitalism.

[MrBill]

RE: Libor rates versus Fed funds

3 mos. Libor is 5.0575% vs. the Fed funds target rate of 4.25% which is approximately +81 bps spread. That compares with the discount rate of 4.75% where banks can borrow directly from the Fed's Open Window. That 31 bps spread shows that banks would sooner forego going to the Fed for reputational reasons, prefering instead to borrow from one another at Libor instead.

Plus not all banks have access to the Fed, and not all Interbank lending takes place at Libor, but usually a spread over Libor. That spread over Libor has increased between 35-70% in the run-up to a year-end liquidity squeeze (based on my own observations and talking to other banks). Hence why the Fed is launching a special auction on December 20th (my birthday) to tide the Interbank market over year-end with another $40 billion in fresh funds.

Will it be enough? I don't know? Although rallying immediately after the announcement stock markets ended lower, and Asia is opening this morning deep in the red.

Despite a 25 bps rate cut to the Fed funds target rate, 3 mos. Libor has only gone down from 5.15% to 5.0575% (or 10 bps) versus lows of 4.87% earlier in November. The Fed's rush to 3.50% (thrown about as a likely target by next summer) is not being matched by a willingness on behalf of banks to lend to one another, much less to tapped out consumers.

Of course, a lower Fed funds target rate offers immediate financial assistance to borrowers with debt tied to that benchmark, so it does have an impact outside the banking system. But for the money multiplier effect to work properly banks have to be willing to lend new money. That is not showing up, yet.

$this->bbcode_second_pass_quote('seahorse', 'M')r. Bill,
I know you've argued long, hard, and convincingly, about the benefits of free market capitalism, the problem I see is this, no matter where I look, I don't see it. Whether we are talking about the combined, concerted action of our central banks, national oil companies, pegging currencies, etc., there's little about the big picture that has anything to do with true free market capitalism.

[mkwin]

Whats your take on Gold and Oil in the short-term MrBill? I am suprised this cash injection and interest rate cuts in the US and Uk didn't send gold higher, any thoughts?

It also looks like the UK is following the US into a housing lead recession, what index would you advise to short to get the best exposure to this?

Cheers.

[MrBill]

$this->bbcode_second_pass_quote('mkwin', 'W')hats your take on Gold and Oil in the short-term MrBill? I am suprised this cash injection and interest rate cuts in the US and Uk didn't send gold higher, any thoughts?

It also looks like the UK is following the US into a housing lead recession, what index would you advise to short to get the best exposure to this?

Cheers.