Nov 13, 08 Market Recap-Deleveraging still rolls over the markets

Chart courtesy of Google Finance
De-leveraging goes on.

Down swinging bond and stock prices dramatically evaporated hedge fund, broker and investor’s assets. So then it causes lenders unload their loans over margin call mechanism to save their funds. This action drives force liquidation and fund redemption.

Chart courtesy of Stockchart
Even the Dow gains +552.59 points (6.67%) today but fund redemption was still occurred in the first half intraday session before stocks rebound to the third highest level in history. Investors pulled $31.8 billion out of equity-based mutual funds during the week ended November 12, compared with an inflow of $2.2 billion the prior week, according to TrimTabs Investment Research.

Here is from CNN Money:

Before last week, equity-based mutual funds had not seen net inflows since the week ended July 23.

This week, investors took $21.3 billion out of funds that invest primarily in U.S.-based stocks, after putting in a total of $2.3 billion last week.

Meanwhile, funds that focus on non-U.S. stocks saw their outflows accelerate in the week ended Nov. 12, with $10.5 billion removed, versus $140 million taken out the previous week.

Bond-based funds also saw the flow of cash reverse, with investors pulling $6.3 billion out last week, after putting in $518 million a week earlier.

Hybrid funds, which try to strike a balance between stocks and bonds, also lost cash in the recent week. Investors took $2.2 billion out of hybrid funds this week; they put in $184 million the previous week.

Meanwhile exchange-traded funds (ETFs), unmanaged bundles of stocks that trade as a single unit on normal exchanges, were mixed. Investors poured $3.9 billion into ETFs that focus on U.S. stocks this week, versus $885 million a week earlier. But they removed $107 million from ETFs that focus on non-U.S. stocks, after putting in $2.05 billion last week.

The rebound in the second half intraday session was due to bargain hunting. Investors attempted to bottom fishing when stock prices look cheap enough. Moreover, markets were in the oversold condition after downed for three consecutive days as I have wrote yesterday. But the markets outlook are still gloomy amid recession fears. We will be likely entering into a bear market rally or short term rebound.

Related Posts :

11/12/2008 Market Recap - Markets were dominated by irrational selling
George Soros: 50–75 % of hedge funds will disappear in the coming months
The Global hedge funds lost $100 billion on redemptions in October (Update 1)

Sources :

CNN Money: Investors pull $31.8B out of stock funds, November 13, 2008: 4:52 PM ET

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George Soros: 50–75 % of hedge funds will disappear in the coming months (Update 1)

Soros Warns Lawmakers: Don't go 'overboard' on regulations;
House Committee questions hedge-fund role in crisis;
Report and analysis by Su Keenan of Bloomberg News
November 13, 2008 09:36 am EST
Before the House of Representatives committee on oversight and government reform in Washington D.C. today; George Soros was testifying about congress perception that hedge fund industry as the main factor of collapsing the current financial market.

The House Oversight and Government Reform Committee is attempting to assess the role of hedge funds in the financial crisis. Some lawmakers have urged a new role for hedge fund. It could be a pressing issue under the administration of President-elect Barack Obama. An estimated $2.5 trillion of hedge fund's assets operate mostly outside of government supervision. The Democratic Congressman Henry Waxman said, "Some say hedge funds have become a shadow banking system".

A roughly $60 trillion of credit default swaps actually played a large role in the credit crisis that brought the downfall of Lehman Brothers Holdings Inc. And hedge funds are major purchasers of complex derivatives such as credit default swaps.

The Lawmakers concern that hedge funds operate in a largely unregulated world, and, in part, were able to profit from the collapse of some of America's largest financial institutions.

The following is George Soros' responding to Henry Waxman and others. Via Telegraph:

George Soros, chairman of Soros Fund Management, is predicting 50 – 75 % of the hedge fund industry will disappear in the coming months in any case. Hedge funds will be "decimated" by the current financial crisis, and forced to shrink their portfolios by 50-75 %.

At least one of those hedge fund managers present – Ken Griffin from Citadel Investment Group – is already having a hard time of it. Citadel is experiencing its worst year on record, with two of its funds down by more than 30% year-to-date.
Mr Soros stopped short of placing total blame for the crisis on hedge funds, but he admitted that the funds had been an integral part of the financial market bubble which had now burst.

As a result of that bubble bursting he predicted "a deep recession is now inevitable and the possibility of a depression cannot be ruled out."

He went on to say that US financial regulators, such as the Federal Reserve, should take their portion of blame for the creation of that bubble in the first place, and called for regulation of financial engineering to be a high priority of President-elect Barack Obama's new administration.

George Soros warned against "going overboard" with regulations that could do more damage than good to the financial system. He also criticized the Bush administration's handling of the $700 billion financial rescue program.

A roughly 60% of $100 billion of the hedge funds' losses in October came from investor redemptions.

Related Posts :

George Soros: deep recession inevitable, depression possible
The Global hedge funds lost $100 billion on redemptions in October (Update 1)
It’s now hedge funds' turn on Capitol Hill

Sources :

Telegraph.co.uk: George Soros called to account by US politicians over global financial crisis, November 13, 2008 09:53PM GMT
The Washington Post: Hedge fund execs have mixed views on oversight, November 13, 2008; 3:36 PM
Bloomberg News Video: Video: Hedge Funds Under Pressure, November 13, 2008 09:36 am EST

Please Note!

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Spending in IT to slowdown; Microsoft to offer 0% Financing

The Current turmoil in worldwide financial markets will be affecting in company spending on information technology. A report was published on November 12, wrote that worldwide spending on information technology (IT) is expected to slow significantly next year because of the financial crisis.

Market intelligence firm IDC said worldwide IT spending will grow just 2.6 percent in 2009 compared with the previous year, down from the IDC's pre-crisis forecast of 5.9 percent growth. IDC expects IT spending to return to growth rates approaching 6.0 percent in 2012 but estimates more than 300 billion dollars in industry revenues will have been lost due to slower spending over the next four years.

The firm had also developed a "downside scenario" in the event the impact of the financial crisis is more pronounced. In this scenario, IDC lowered the forecast for worldwide GDP growth in 2009 to 0.3 percent, which is 1.5 percent lower than the current forecast and worse than any year since World War II. This produced a forecast of 0.1 percent growth in worldwide IT spending in 2009 with negative growth in the United States, Western Europe, and Japan.

While The Framingham, Massachusetts-based company said IT spending in the United States is expected to grow by just 0.9 percent in 2009, much lower than the 4.2 percent growth forecast in August. IT spending growth in Japan and Western Europe was also expected to hover around one percent in 2009.

The following chart shows that 35% of U.S. and Canadian IT organizations responded by cutting IT operational spending. However, the majority (54%) made no change, and 11% actually increased their IT spending between August and October.


The following chart shows that, according to our survey, 2009 IT operational spending will show zero growth at the median. At the 25th percentile (the bottom 25% of survey respondents), IT operational budgets will shrink by an expected 3%. But at the 75th percentile (the top 25%), IT operational spending will increase by 5%.


The following chart shows that the forecast for IT operational budget growth in 2009 will be at the lowest rate since 2004, when growth coming out of the previous recession was likewise flat. IT operational spending growth peaked in 2007 at 5.0% and then declined this year to 4.0%. As reported earlier in this study, however, a significant number (41%) of respondents do not expect to spend all of the money budgeted for this year, which means that the 2008 growth rate will almost certainly fall short of the budgeted 4.0% rate. That pessimism extends into 2009.


Gartner Inc, the world's leading information technology research and advisory company, on October 13, has slashed its global tech spending forecast for next year to growth of just 2.3 per cent.

The research outfit was forced to significantly downgrade its previous 5.8 per cent growth prediction for 2009 because of the financial storm currently thundering across the world’s economy markets.

IT spending will hit $3.5tr next year. Developed economies, especially the United States and Western Europe, will be the worst affected, but emerging regions will not be immune, according to Gartner's senior veep and head of research Peter Sondergaard.

Hardware will take the biggest hit, said Gartner, with overall sales dipping four per cent next year.

It predicts the IT service sector will be flat in 2009, telecoms will modestly grow 3.9 per cent, while software will rise 8.6 per cent, down from a 13.5 per cent revenue increase this year.

Tech spending in North America will climb a meagre 0.5 per cent compared to a previous forecast of 5.3 per cent growth, according to Gartner.

Western Europe IT spending will drop 0.8 per cent. The firm had previously forecast spending to grow 2.8 per cent in the region.

Meanwhile, the Asia Pacific will see an IT spending increase of 8.3 per cent, down from an 11 per cent growth prediction.

According to WSJ today, Microsoft Corp. will provide zero-percent financing for three years to qualifying customers buying between $20,000 and $1 million of its business-solutions products.

The software giant's move comes as lenders are tightening their technology-financing terms for businesses amid the global credit crunch.

ETFs/Stocks :

Intl Business Machines Corp.  IBM   $78.43  -1.31 (-1.64%)
Intel Corporation             INTC  $13.36  -0.16 (-1.18%)
Microsoft Corporation         MSFT  $19.52  -0.78 (-3.84%)
Dell Inc.                     DELL   $9.62  -0.88 (-8.38%)
Hewlett-Packard Company       HPQ   $29.43  -1.71 (-5.49%)
Advanced Micro Devices, Inc.  AMD    $2.31  -0.26 (-10.12%)
Sun Microsystems, Inc.        JAVA   $3.68  +0.06 (+1.66%)
Oracle Corporation            ORCL  $16.40  -0.07 (-0.43%)
SAP AG (ADR)                  SAP   $34.10  +0.20 (+0.59%)

Sources :

MSN: IT spending to slow in 2009: IDC, November 12, 2008 07:07 PM GMT
Computer Economics: 2009 IT Spending Forecast: No Growth, November 2008
ChannelRegister.co.uk: Gartner cuts 2009 IT spending forecast, October 14, 2008 12:14 GMT
The Wall Street Journal: Microsoft to Offer 0% Financing For Its Business Software, November 13, 2008, 10:47 A.M. ET

Please Note!

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

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Jodi Rell: Connecticut's deficit to top $2.5B in 2010

According to WFSB.com, Jodi Rell, Governor of the great State of Connecticut, has spelled out the sobering facts of the state budget.

“The national economic woes have left us much more than sobering,” she said. “It's left us with a hangover we're going to deal with for decades.”

A new report from the Office of Policy and Management predicts the state deficit for the next two budgets to come with staggering deficits.

“The forecast for our economy is indeed very bleak,” Rell said.

Connecticut will be in the red more than $2.5 billion in 2010, she said, and more than $3 billion in 2011. The numbers, she said, are based on the amount of money it will cost for state government to just maintain services and programs.

“We'll see fewer revenue dollars in 2010 and 2011 than we're seeing now,” Rell said.

Sources :

WFSB.com: Rell: State Facing Deficit Of Billions, November 12, 2008 9:18 pm EST

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Bank Executives pledge to not use the taxpayer money to pay their executive bonuses

Do you believe the Bank Executives' pledges that they will not use the taxpayer money to pay their executive bonuses?

Here is from Associated Press via FoxBusiness:

Executives from four financial institutions that have received a total of $75 billion in federal bailout funds are promising they won't use the money to pay their executives and employees.

The executives made the pledge Thursday in an appearance before the Senate Banking Committee. Lawmakers have reacted in anger to reports that banks might use the bailout money to pay bonuses to their executives, acquire other banks or finance other business takeovers.

Jon Campbell, regional banking president for Wells Fargo & Co.(WFC) , told the committee his company doesn't need the government's investment to pay for bonuses or compensation and will not use it for that.

Executives from Goldman Sachs Inc. (GS), Bank of America (BAC) and JP Morgan Chase & Co.(JPM) made similar pledges.

Sources :

FoxBusiness: Bank Executives Promise Not to Use Bailout Money for Pay, November 13, 2008

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George Soros: deep recession inevitable, depression possible

By Reuters
November 13, 2008 11:07 am EST

George Soros, chairman of Soros Fund Management, testified at a House Oversight and Government Reform Committee hearing on Thursday. Highlights:

• Said "a deep recession is now inevitable and the possibility of a depression cannot be ruled out."


• Said hedge funds were an integral part of the financial market bubble which now has burst.


• Said hedge funds will be "decimated" by the current financial crisis and forced to shrink their portfolios by 50-75 percent.


• Said Fed, Treasury Department and the SEC must accept responsibility to prevent market bubbles from growing too big in future.


• Said impossible to prevent market bubbles from forming, but they can be kept within "tolerable bounds."


• Said financial engineering should be regulated and new products approved by regulators, and that such regulation should be a high priority of the new Obama administration.


• Said a recent IMF credit facility not large enough to stabilize markets.

Related Posts :

George Soros: crisis underscores need for regulation

Sources :

Reuters: Soros says deep recession inevitable, depression possible

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Germany is entering into the second recession

German enters recession after economy contracted 0.5% in third quarter;
Germany, Spain, Italy, France follow Estonia, Ireland into recession;
Analysis by Dominic Bryant of BNP Paribas - Bloomberg Video

Germany is entering into the second recession in six years after German Federal Statistical Office reported on Thursday that the GDP fell 0.5% in the third quarter after a 0.4 % decline in the second quarter. The commonly accepted definition of recession is two consecutive quarters of contraction in GDP.

The office also reported that exports as a pillar of German growth had declined. Compare to a year earlier, Germany’s real GDP climbed 1.3 percent in the third quarter. “Real” data are adjusted for price changes.

The Exports fell more sharply than expected in the third quarter amid a slowing in the global demand.

The slowdown in Germany had become increasingly obvious as the credit crisis reached a new and particularly destructive phase.

ETFs/Stocks :

iShares MSCI Germany Index Fund ETF  EWG  $16.66  +0.43 (2.65%)

Related Posts :

Economists forecast zero growth for German economy next year

Sources :

The Wall Street Journal: Germany Slips Into Recession, November 13, 2008 7:41 A.M. ET
Breitbart: Germany falls into recession in July-Sept. quarter+, November 13, 2008 07:58 AM EST
The New York Times: Tough Times Seen for Big Economies; Germany Contracts, November 13, 2008
Bloomberg Video: Video: German Enters Recession After Economy Contracted 0.5% In Third Quarter; Germany, Spain, Italy, France Follow Estonia, Ireland Into Recession, November 13, 2008 02:38 am EST

Please Note!

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Morgan Stanley: Gold may be over $1000 an ounce in 2011

According to Morgan Stanley, gold may climb above $1000 an ounce in 2011 as global mine output drops, mining cost rise and demand increases. Mining production actually peaked in 2001 and has since been declining.

Since global markets concern about deflation, gold has been corrected from its record high at $1,032.70 an ounce in March 17; to $714.45 an ounce at 3:22 p.m. Singapore time today.

Meanwhile agriculture commodities will be the least affected by slowing global growth compared with industrial metals and energy, and corn and soybeans are ``oversold by far.

ETFs/Stocks :

SPDR Gold Trust ETF             GLD  $70.50  +0.50 (0.71%)
Market Vectors Gold Miners ETF  GDX  $19.87  +0.47 (2.42%)

Related Posts :

[Video] Metals Outlook: Gold Rising on China Stimulus Plan

Sources :

Bloomberg: Gold May Top $1,000 in 3 Years, Morgan Stanley Says (Update2), November 13, 2008 02:47 EST

Please Note!

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

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