6.875%: LIBOR Tags All Time High

From The Big Picture :

"The money markets have completely broken down, with no trading taking place at all. There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending."

-Christoph Rieger, a fixed- income strategist, Dresdner Kleinwort.

The London interbank offered rate reached an all time high yesterday on the failure of the bailout plan, and the market sell off. For those of you new to the site, this interest rate is frequently used by banks to lend money to each other. When this spikes, it means that credit is very tight.

What did the Fixed Income Markets see that the Equity markets completely missed? Was it availability of credit, the dollar, or unrealized risk?

Most likely, all of the above.

Note that the line below is where LIBOR first started breaking out -- late 2005. For those of you who believe that markets are future discounting mechanisms, what did that tell you?

Sure, markets remained irrational for quite a while, but there was no escaping the inevitable . . .

LIBOR 5 year Chart

Chart via Bloomberg
TED Spread Chart since 1984

via Bill Laggner Bearing Asset.com
Excerpt :

"The cost of borrowing in dollars overnight surged the most on record after the U.S. Congress rejected a $700 billion bank rescue plan, heightening concern more institutions will fail.

The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said. The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record. Rates in Asia also rose...

Credit markets have seized up, tipping lenders toward insolvency and forcing U.S. and European governments to rescue five banks in the past two days, including Dexia SA, the world's biggest lender to local governments, and Wachovia Corp. Money- market rates climbed even after the Federal Reserve yesterday more than doubled the size of its dollar-swap line with foreign central banks to $620 billion. Banks borrowed dollars from the ECB at almost six times the Fed's benchmark interest rate today."

Source :

Libor Surges Most on Record After U.S. Congress Rejects Bailout
Gavin Finch and David Yong
Bloomberg, Sept. 30 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=alszNo3N0CHo&

Related Posts :

1. Dollar Rally Could be Short Lived
2. TED Spread: Back in "Credit Hell"

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
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Lehman Sells Neuberger Berman For $2.5 billion (LEH)

By John Carney, ClusterStock.Com, Sep 29, 08 12:03 PM.

Lehman has agreed to sell its Neuberger Berman money management unit to private-equity firms Bain Capital and Hellman & Friedman for $2.15 billion. That's quite a discount from a few months ago, when people were estimating that Neuberger could garner as much as $7 billion. The money-management unit is typically described as Lehman's "crown jewel." (Insert totally expected "getting kicked in family jewels" joke here.)

Update:

DealBook has some details :

• The sale includes a fixed-income business and some alternative asset holdings but not Lehman’s holdings in various hedge funds.
  
  
• Unsurprisingly, these two private equity firm's aren't buying Lehman’s own private equity businesses. UPDATE :
  Sources close to the deal say that the DealBook version of this is not entirely accurate. Some of the private equity operations of Lehman are in fact going with the new Neuberger entity.
  
  
• The company will operate as a new independent firm, Neuberger Investment Management, with $230 billion in assets under management.
  
  
• "George Walker, Lehman’s global head of investment management, will head the newly independent company, while Joseph Amato will continue to lead Neuberger Berman itself," DealBook writes.

The Wall Street Journal says the process was delay because of "protracted negotiations with Neuberger's money managers." They're consent to the deal was essential, since many could just leave the firm and take their clients with them. Dealing with those wealthy and relatively autonomous money managers is described as "herding cats."

Related Posts :

Lehman (LEH) May Sell Neuberger In Emergency Cash Raising Move

Please Note!
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You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Roubini: Risk of Financial Armageddon As High As Ever

By Henry Blodget, ClusterStock.Com, Sep 29, 08 2:55 PM.

Even before the House blocked the Bailout, Nouriel "Dr. Doom" Roubini pronounced it worthless. The risk of a complete systemic meltdown is as high as ever, says Nouriel. So perhaps we should be encouraged that the market basically yawned when the Bill was blocked.

It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).

Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…

Want to ruin what's left of your already clobbered afternoon? Read on >

Related Posts :

1. Fed Pumps Further $630 Billion Into Financial System
2. Dollar Goes Down Along with Bailout Plan
3. House Rejects $700 Bn Financial Bailout

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Fed Pumps Further $630 Billion Into Financial System

According to Bloomberg, September 29, The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn't be repaid by counterparties, driving up the cost of short-term loans between banks.

According to Federal Reserve Bank on September 26,To assist in the expansion of these operations, the Federal Open Market Committee has authorized a $10 billion increase in its temporary swap facility with the ECB and a $3 billion increase in its facility with the Swiss National Bank. These expanded facilities will now support the provision of U.S. dollar liquidity in amounts of up to $120 billion by the ECB and up to $30 billion by the Swiss National Bank.

In sum, these changes represent a $13 billion addition to the $277 billion previously authorized temporary reciprocal currency arrangements with other central banks. In addition to the swap lines with ECB and the Swiss National Bank, temporary swap lines previously have been authorized with: the Bank of Japan ($60 billion), the Bank of England ($40 billion), the Reserve Bank of Australia ($10 billion), the Bank of Canada ($10 billion), the Bank of Sweden ($10 billion), the National Bank of Denmark ($5 billion), and the Bank of Norway ($5 billion).

These arrangements have been authorized through January 30, 2009.

Source : Jesse's Café Américain

Related Posts :

1. Dollar Goes Down Along with Bailout Plan
2. House Rejects $700 Bn Financial Bailout

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Dollar Goes Down Along with Bailout Plan

By Kathy Lien, An SA Author.


The rejection of the $700B bailout plan by the House of Representatives came completely out of the left field, driving a knife through both US equities and the US dollar. For the Bush Administration, it certainly feels like they are moving one step forward and taking two steps back, but the severity of the financial crisis makes it absolutely necessary for Washington to put economics ahead of politics.

Although traders were initially dissatisfied with Congress’ approval of Paulson’s plan, they were counting on a bailout. The combination of a huge liquidity injection by the Federal Reserve today and the hope that the bailout plan would move forward kept stocks from falling further. However those efforts and the sleepless weekend of debates turned out to be futile after the House rejected the bailout bill.

In fairness, there was no was guarantee that Paulson’s plan would have helped average Americans, but at least it could have brought some stability to the financial markets. Unfortunately it is now back to the drawing board for Paulson, who has to meet with Bush, Bernanke and Congress to discuss their next steps.

Volatility in the financial markets benefits no one, especially as more than $1 Trillion in market value has been wiped out from US stocks today. The VIX, which measures equity market volatility, shot to the highest level in 6 years while gold prices jumped 3.8 percent. LIBOR rates have also skyrocketed while the TED spread continued to widen, indicating that as a result of the House’s rejection of the bill, investors both domestically and internationally have become more risk averse. Those who are willing to part with their cash are demanding a high premium.

Dow 10,000 Could Mean 100 USD/JPY

dow092908 The Dow Jones Industrial Average closed down more than 770 points while the S&P500 dropped more than 8 percent. This is the largest single day drop in the Dow ever, and the largest percentage decline in the S&P500 in 20 years.
We have long argued that if the Dow hit 10,000, USD/JPY could fall to 100. That correlation remains intact today as the plunge in US equities drags USD/JPY towards 104.00. In the September 19th edition of the Daily Currency Focus, we argued that the US dollar could fall by another 5 percent. At that time, USD/JPY was trading at 107.40, and to many people a 5 percent move lower, which is the equivalent of 530 pips, seemed like a farfetched possibility. However, since then the dollar has already fallen close more than 300 pips, making a move towards 102 within reach.

With the US stock market plunging and the US government looking to raise the national debt, in addition to hammering out the bailout plan, the Bush Administration will have to work extra hard to reassure foreign investors.

Gold Becomes a Hedge for Inflation and the US Economy

Now more than ever, the US needs to rely on foreign funding. If Central Banks and Sovereign Wealth Funds around the world start to lose confidence in the US financial markets or the US government, we could be looking at a complete freeze in lending that expands beyond the banking sector.

According to an article in the Wall Street Journal, central banks are already loading up on gold as European central banks cut their sales to the lowest level in almost 10 years. Gold prices are up more than $35 an ounce today as a hedge for inflation and a hedge for the US economy. Everyone is starting to realize that commodities are the only assets that have no counterparty or credit risk. Gold prices first jumped on inflation fears after the Federal Reserve’s liquidity injections this morning. Having more than doubled swap limits from $290B to $620B, the Fed is trying to tell the market that it is serious about providing liquidity, and given today’s sharp volatility, it will continue to do aggressively in the coming days.

TARP Drama Gets More Dramatic - Time to Play Defensive

For everyone from traders, investors and banks to the average American, the latest development in the TARP soap opera means one thing – which is that it is time to become more defensive. The Treasury has failed to restore confidence in the financial markets and it could be some time before there is stabilization.

This is the new age of conservatism, which means tighter terms for loans on credit cards, cars and homes as well as more penny pinching by US consumers. Expect this to lead to more layoffs and less expansion efforts by US companies. In fact, the longer the US government takes to agree on a plan, the greater the recessionary risks.

Looking ahead, we still expect more weakness for the US dollar, particularly against the Japanese Yen. House prices, Consumer confidence and Chicago PMI are due for release on Tuesday.


Related Posts :

House Rejects $700 Bn Financial Bailout

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

House Rejects $700 Bn Financial Bailout

Click to Enlarge

From Bloomberg :

The House rejected the legislation yesterday in a 228 to 205 vote, sending the Dow Jones Industrial Average tumbling 778 points for its biggest point drop ever and erasing more than $1 trillion in market value. The Standard & Poor's 500 Index fell 8.4 percent, the most since Oct. 26, 1987.

Click to Enlarge

Livechart by http://www.eSignal.com

To pick up the 12 votes needed to pass the bill in the House, the bill will need some cosmetic changes, lawmakers and political analysts say. Ninety-five Democrats joined the 133 Republicans who voted against the bill. Both sides are looking for changes.

House Republican conservatives are likely to keep pressing for a mandatory insurance program they initially proposed for mortgage-backed securities. They may also try to force the Securities and Exchange Commission to suspend mark-to-market accounting and require bank regulators to assess the real value of the troubled assets, lawmakers say.

Either measure could drive away Democratic votes.

House Republicans are also lobbying the White House to get the Federal Deposit Insurance Corp. to play a greater role in shoring up the financial system, said a House Republican aide.

Under the plan, the FDIC would issue lenders certificates they could use as capital, which the banks would have to pay back with interest. The proposal would give the FDIC more say in how the institutions are run. Democrats may balk at that.

``We can certainly work,'' said Dodd. Senators, he said, will ``hopefully come back Wednesday and get a different result.'' The measure is expected to get far more support in the Senate than it did in the House.

Source : Bloomberg


Related Posts :

1. Warren Buffett Reveals Bailout's Dirty Little Secret
2. Buffett On The Bailout: The CNBC Interview
3. A Defense of the Paulson Plan
4. The Theory behind the Rescue Plan

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.