$365 bln of Lehman CDS is going to be settled tomorrow

From Kathy Lien:

The big event risk for the stock market and the US dollar is the Lehman Brothers’ Credit Default Swap settlement on October 21. The fear that European banks may be forced to pay out on the default protection has prevented the Euro and British pound from rallying despite the recovery in US stocks. The estimated payout on the CDS could be as high as $365 billion, more than a half of the US government’s $700B bailout plan. The settlement should be most if not all in US dollars, which is why there has been a strong demand for dollars against the next 2 most actively traded currencies. If the CDS settlement triggers no bankruptcies, then the stability that we are beginning to see in the financial markets may last.

Related Posts :

1. 10/20/2008 - As Oil heading toward $50, Buy DUG
2. Bernanke: More stimulus help is "appropriate" (Update 1)

Source :

Kathy Lien: Lehman CDS Auction Prevents Euro and Pound from Rallying, October 20, 2008

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10/20/2008 - As Oil heading toward $50, Buy DUG

ProShares UltraShort Oil & Gas ETF(DUG) was opened lower about -6 points early this morning. OPEC plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s. The plan sends crude toward $50 a barrel (See the news).

Chart courtesy of Stockcharts

Related Posts :

Sweden guarantees $200 billion in bank loans, Oil Heads Toward $50, India Lowers Key Rate for the First Time Since 2004

Sources :

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Bernanke: More stimulus help is "appropriate" (Update 1)

Photo courtesy of International Herald Tribune
The chairman of the Federal Reserve, Ben Bernanke, said on Monday he supported a second round of additional spending measures to help stimulate economy.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by Congress at this juncture seems appropriate," Bernanke told the House Budget Committee.

The Fed chairman said the economic outlook was still so uncertain that the optimal size, composition and timing for any new stimulus plan were unclear.

But the Fed chairman said Congress should try to develop a plan that would have its maximum impact when the economy is most likely to be at its weakest. Many if not most private forecasters contend that the economy has already entered a recession, which would seem to argue for measures that would bolster overall spending as soon as possible.

"If Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers," Bernanke said. "Such actions might be particularly effective at promoting economic growth and job creation."

Bernanke also cautioned that "any program should be designed, to the extent possible, to limit longer-term effects on the federal government's structural budget deficit."

In his comments, Bernanke essentially reiterated the grim economic outlook he provided in a speech last week. "The pace of economic activity is likely to be below that of its longer-run potential for several quarters."

Bernanke and his colleagues at the Federal Reserve meeting later this month, and many economists believe they could again lower rates. Earlier this month, the Fed along with the European Central Bank and other central banks all reduced primary lending rates by a half percentage point.

While three months libor has plummeted 36 basis points to 4.02 percent this morning. It gives a signal that credit market has been eased due to the global government actions. Here is the list of full libor (via Across the Curve) :

	10/20	10/17	Change
Overnight	1.51250	1.66875	-.15625
1 Week	2.71875	3.15625	-.43750
2 Weeks	3.08125	3.08125	-.41250
1 Month	3.75125	4.18125	-.43000
2 Months	3.93375	4.30625	-.37250
3 Months	4.05875	4.41875	-.36000
4 Months	3.99250	4.29500	-.30250
5 Months	3.90125	4.20375	-.30250
6 Months	3.82875	4.13000	-.30125
9 Months	3.76875	4.02250	-.25375
12 Months	3.71250	3.97250	-.26000

Chart courtesy of Econompic Data
Related Posts :

1. Sweden guarantees $200 billion in bank loans, Oil Heads Toward $50, India Lowers Key Rate for the First Time Since 2004
2. Overnight Libor Starting to Look Like Overnight Libor

Sources :

1. International Herald Tribune: Bernanke says more stimulus help is "appropriate", October 20, 2008
2. Across the Curve: Full Libor Posting, October 20, 2008

Please Note!
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Sweden guarantees $200 billion in bank loans, Oil Heads Toward $50, India Lowers Key Rate for the First Time Since 2004

The Swedish central bank (Riksbanken)
Photo courtesy of Focus on Sweden
Sweden pledged on Monday as much as 1.5 trillion kronor to guarantee bank loans and created a fund that may buy shares in banks as it looks to revive lending in the financial system.

The guarantee for the equivalent of $205 billion will cover "more or less all types of bonds, bank certificates and other loan obligations" with an original maturity of between 90 days and five years, the Finance Minister Anders Borg and Mats Odell, Sweden's financial markets minister, said in Stockholm. The government raised the guarantee on bank deposits to 500,000 kronor from 250,000 kronor on Oct. 6 to ease concern about the stability of the financial system. That is financed by an existing bank deposit guarantee fund which has 18 billion kronor.

The India Central Bank
Photo courtesy of Flickr
While India's central bank unexpectedly cut the nation's key lending rate by one percentage point Monday, its latest move to boost liquidity in the face of the global credit crisis. The Reserve Bank of India cut the benchmark repo rate from 9 percent to 8 percent, its first cut since March 2004, according to Goldman Sachs.

The bank, which until recently had focused on tightening the money supply to battle double-digit inflation, said the move was necessary to alleviate pressure from the global crisis and maintain domestic financial stability.

"The global financial situation continues to be uncertain and unsettled," the bank said in a statement. "Even as countries directly affected by the turmoil have taken aggressive action to manage the crisis, confidence and calm is yet to be fully restored in the financial markets."

"India too is experiencing the indirect impact of the global liquidity constraint as reflected by some signs of strain in our credit markets in recent weeks," the bank added. India's key wholesale price inflation slowed more than economists expected to 11.44 percent in the week to Oct. 4, a four-month low. Crude oil prices have halved since their peak in July. The Reuters/Jefferies CRB Index of 19 commodities dropped to the lowest in four years on Oct. 17.


Meanwhile Options contracts that allow holders to sell 1,000 barrels of oil for $50 each by December traded for $500 on the Nymex on today due to OPEC plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s. The plan sends crude toward $50 a barrel, up from $10 on Oct. 3. Oil rose a second day today, gaining 2.4 percent to $73.60 a barrel at 10:53 a.m. in London.

Related Posts :

1. Will Hungary be the next Iceland?
2. Netherlands Injects ING $13.4 Billion, China's Economic Growth Slowed, South Korea Guarantees Foreign Deposits
3. Iceland Meltdowns

Sources :

1. International Herald Tribune: Indian central bank unexpectedly cuts lending rate, October 20, 2008
2. International Herald Tribune: Sweden guarantees $200 billion in bank loans to revive financial system, October 20, 2008
3. Bloomberg: OPEC Plans Supply Cut as Crude Oil Heads Toward $50 (Update2), October 20, 2008 06:52 EDT
4. Bloomberg: India Lowers Key Rate for the First Time Since 2004 (Update3), October 20, 2008 07:43 EDT

Please Note!
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Will Hungary be the next Iceland?

Photo courtesy of Newser
There are many rumors amid Hungary will be the next Europe Country to go bankruptcy following Iceland meltdown due to its high leverage ratio. According to Newser, The Hungarian government secured a $6.7-billion loan last Thursday from the European Central Bank in an attempt to stave off an Icelandic-style national meltdown. The EU newcomer's troubles derive from loans denominated in euros or Swiss francs, rather than the softer Hungarian forint. Frozen credit markets have left Hungary's government and citizens struggling to repay their debts.

While according to International Herald Tribue, Fitch Rating Agency downgraded Hungary's outlook to negative from stable on last Friday as the effects of the global financial crises increased the country's credit risk. Fitch said global financial turbulence and the likelihood of a recession in the euro zone have increased Hungary's credit risk because of its high external debt, wide current account deficit and large external financing needs. Fitch said Hungary's gross external debt stood at 99 percent of its gross domestic product, one of the highest levels in Eastern Europe.

Photo courtesy of Newser
Some 60 percent of domestic loans by Hungarian banks are in currencies other the forint, mostly Swiss francs and euros, boosting their need for foreign currencies.

Despite cutting Hungary's outlook from stable to negative, Fitch reaffirmed Hungary's foreign currency ratings, saying the response by Hungarian authorities to recent events was strong.

"Hungary's credit ratings are supported by its robust institutional fundamentals, relatively rich and diverse economy, strong debt management capacity and untarnished debt service record," Fitch said.

The ratings agency also welcomed efforts announced by Hungarian Finance Minister Janos Veres to cut the 2008 state budget deficit from the earlier target of 3.8 percent of GDP to 3.4 percent and bring down the 2009 deficit aim from 3.4 percent of GDP to 2.9 percent.

Hungary's short term position is much less leveraged than Iceland's. Hungarian private sector credit is at 62 percent of GDP, compared with 407 percent in Iceland, or that short-term external debt obligations are at 112 percent of reserves, compared with 1,705 percent in Iceland.

According to Bloomberg today, Iceland, Ukraine and Hungary are lining up to borrow from the IMF, helping the agency reassert its role as lender-of-last-resort to troubled nations. Strauss-Kahn this month predicted that aid could soar into the "hundreds of billions" from the current $17 billion.

Related Posts :

1. Netherlands Injects ING $13.4 Billion, China's Economic Growth Slowed, South Korea Guarantees Foreign Deposits
2. Iceland Meltdowns
3. George Soros: Global Capital Meltdown

Sources :

1. Newser: Hungary Gets $6.7B Loan to Avert Meltdown, October 17, 08 8:33 AM
2. International Herald Tribune: Hungary's currency, stock market down sharply, October 17, 2008
3. Bloomberg: Strauss-Kahn Gets Trichet's Backing Amid IMF Probe (Update1), October 20, 2008 03:16 EDT

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.

Netherlands Injects ING $13.4 Billion, China's Economic Growth Slowed, South Korea Guarantees Foreign Deposits

The following story from Bloomberg:

ING Groep NV, the biggest Dutch financial-services firm, will get 10 billion euros ($13.4 billion) from the Netherlands after warning Oct. 17 of its first quarterly loss and falling the most in Amsterdam trading since 1991.

ING will scrap this year's final dividend and sell the government non-voting preferred securities that won't dilute existing shareholders and will lift the bank's core Tier 1 capital to about 8 percent, the Amsterdam-based company said today in a statement. The securities pay 8.5 percent annual interest, Dutch Finance Minister Wouter Bos told reporters today.

ING, which fell a record 27 percent after saying it will post a loss of 500 million euros in the third quarter, is the first to draw on the 20 billion euros that the Dutch government made available to financial firms on Oct. 10. While the government will appoint two representatives to ING's supervisory board, have a say in executive compensation and get a share of company profit, ING hasn't been nationalized, Chief Executive Officer Michel Tilmant told reporters today.

Governments from Washington to London to Berlin have rushed to shore up banks' capital and unlock lending since credit markets froze up following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. In the U.S., Treasury Secretary Henry Paulson plans to spend $250 billion of a $700 billion financial rescue package on buying non-voting preferred equity stakes in banks.

The Dutch government bought local units of Fortis and ABN Amro Holding NV earlier this month for 16.8 billion euros. Zurich- based UBS AG agreed last week to sell a stake of 6 billion Swiss francs ($5.2 billion) to the government and split off as much as $60 billion of risky assets. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank before its shares plunged this year, may sell as much as 20 billion pounds of stock to the government unless investors agree to buy shares.

Meanwhile according to The New York Times, Economic growth in China slowed to 9 percent in the third quarter of this year, the slowest pace in more than five years, as industrial production and construction slackened because of weak exports, a slumping real estate market and temporary restrictions imposed during the Beijing Olympics.

But China has more options than most countries to cope with slower growth. For starters, inflation is slowing at the consumer level — the government said on Monday that it was 4.6 percent in September, down from 4.9 percent in August and the fifth monthly decline.

With less to fear from rising prices, China’s central bank has already begun reducing regulated interest rates and loosening restrictions on bank lending. With the government running a large budget surplus, the finance ministry has begun lowering taxes on stock and real estate transactions and on exports of textiles and electric machinery.

While South Korea announced Sunday that it would guarantee up to $100 billion in foreign debt held by its banks and would pump $30 billion more into the banking sector.

“The government has decided to join in global coordinated efforts to stabilize financial markets,” Kang Man-soo, minister of strategy and finance, said at a news conference after a series of emergency financial meetings. “And we will continue to provide pre-emptive, decisive and sufficient measures to this end.”


Related Posts :

1. Never Fight the Fed, Treasury, ECB, BOE and Bank of Japan
2. Iceland Meltdowns

Sources :

1. Bloomberg: ING Gets $13.4 Billion Injection From the Netherlands (Update2), October 19, 2008 17:20 EDT
2. The New York Times: South Korea to Guarantee Some Foreign Debt, October 19, 2008
3. The New York Times: China’s Economic Growth Is Slowest in 5 Years, October 19, 2008

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.

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Crash 2008 : Three Main Lessons

Here is the stuff from BloggingStocks :

If you are upset about what's happened to your portfolio, that's in the past and we must now look forward. Here are a few lessons to help you consider what to do next.


1. Get Your "Sleep-At-Night" Allocations Right. The most important investment decision we make is what percentage of our nest egg to put into cash and bonds.

Everyone today wishes they'd put 100% of their money in cash or bonds. But bond investors shouldn't sleep as well as they think -- the protection comes at a very high price. Bonds provide the lowest rate of return and over the years. Inflation eats away a lot of the value of the monthly income. From 1925 through 2003, U.S. bonds only appreciated 5.4% per year, or 61 times, while stocks appreciated nearly 10.4% per year, or 8,000 times.

Stocks are volatile, but over long periods you get paid for the sleepless nights. You just need the time to wait out these markets. Money you need for the next five years should be in bonds or cash. The panicked sellers didn't get these allocations right. If you're 50 years old and lamenting over the equity values in your 401K, remember, you're not allowed to touch it for 10 years anyway. That's a long time!

2. There Is No Oz. Sick of hearing the fortunetellers and soothsayers on CNBC predict what's going to happen to XYZ stock, the economy, unemployment rates and any other future events? Let's take it a step further. If you're in mutual funds or have a financial advisor picking stocks or funds, why are you paying someone to predict the future for you?

Repeat after me: There is no Oz. Wall Street depends upon you believing that it can help you navigate through uncertainty when in fact it can't. The fees charged by your broker and the mutual funds you're in will siphon off 50% of your nest egg over 15 years without you knowing it. Since there's no Oz, put together a portfolio of ETFs and index funds that charge .2% per year. If you can't do it, find someone who will for a fixed yearly fee. You'll have twice as much money when you need it.

3. Rebalance. Now more than ever. The fortunes of tomorrow will be made from today's decisions. Want to participate? Then rebalance your portfolio. A portfolio that began 2008 with 50% U.S. stocks and 50% in bonds would be today, about 36% U.S. stocks and 64% bonds and down 17.5%. That's if no one was trying to be a hero by stock picking and market timing.

Rebalancing means getting your allocations back to 50/50. But you have to sell 20% of your bonds and use it to increase your U.S. stocks by 40%. History says you'll be rewarded. But it's hard to do. Perhaps Warren Buffett's recent op-ed in the New York Times will make it easier to consider buying stocks.

Related Posts :

1. Never Fight the Fed, Treasury, ECB, BOE and Bank of Japan
2. Warren Buffet : Buy American. I Am

Source :

BloggingStocks: Three main lessons from the Crash of '08, October 18, 2008 1:42 PM

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.

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