Australia cut overnight cash rate by 1%

Australia extends biggest rate-cut round since 1991;
Report and analysis by Susan Li of Bloomberg News
Video courtesy of Bloomberg via ClipSyndicate
According to Bloomberg, Glenn Stevens, Governor of Reserve Bank of Australia today announced the overnight cash rate cut by 1% to a six-year low of 4.25 percent, the fourth reduction in as many months and an extending the biggest round of reductions since the nation was last in a recession in 1991.

Four of 21 economists surveyed by Bloomberg News forecast today’s move and 15 tipped a three-quarter point cut.

Stevens also said monetary policy is now “expansionary” to help restore consumer and business confidence, which has been battered by this year’s 44 percent slump in the benchmark stock index and the biggest drop in house prices since 1978. Three percentage points of cuts since September save borrowers with an average A$250,000 ($159,000) home loan more than A$500 a month.

The Reserve Bank expects the inflation rate will fall back within its target range of between 2 percent and 3 percent in 2010.

Related Posts :

Merrill Lynch : Australia is the most vulnerable to economic crisis, Swiss in 2nd rank

Sources :

Bloomberg: Australia Extends Biggest Rate-Cut Round Since 1991 (Update3), December 2, 2008 00:56 EST

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Mortgage delinquencies will nearly double in 2009

TransUnion LLC., An Credit reporting agency, released data today severe delinquencies among mortgage holders increased more than 50 percent from year-ago levels during the third quarter. At the end of Q3, 3.96 percent of homeowners were 60+ days in arrears, compared to 2.56 percent one year earlier; historically, the severe delinquency rate has held the line at roughly 2 percent.

The agency also said that severe delinquencies could reach as high as 4.7 percent before this year is out, an estimate that reflects the effect of job loss and an extended recession. With an estimated 7.6 million U.S. households currently owing more on their home than it is worth, according to a recent study by First American CoreLogic, very few of these households will be able to refinance, even if incomes remain stable. There are a lot more loans that will be resetting throughout 2009 through 2011.

TranUnion said it now expects as many as 7.8 percent of homeowners in Florida to be delinquent by the end of this year, and another 7.7 percent of Nevada borrowers to find themselves in a similar position.

The agency forecast that North Dakota would see a 1.4 percent severe delinquency rate, followed by South Dakota, at 1.6 percent, Montana at 1.7 percent, Vermont at 1.8 percent and Wyoming at 2 percent.

California, Nevada, Florida and Arizona accounted for 38.4 percent of all originations in 2006, according to HDMA data. North Dakota, South Dakota, Montana, Vermont and Wyoming totaled just 0.6 percent of the entire market for mortgages — in fact, four of the five states were the very bottom of the market share table, according to HDMA data.

Sources :

1. The Wallstreet Journal: Delinquent Mortgages Set to Nearly Double in 2009, December 2, 2008, 9:57 A.M. ET
2. Housing Wire: Mortgage Delinquencies Set to Soar: Report, December 2, 2008

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Goldman Sach (GS) could face $2 billion losses in the Q4 of 2008

According The Wallstreet Journal today, Goldman Sach (GS) could face its first losses since it went public offering in 1999 by as much as $2 billion losses in the fourth quarter ended on November 30. Analysts polled by Thomson Reuters, on average, forecast Goldman will lose $1.06 per share for the quarter.

On November 3, Merrill Lynch analyst Guy Moszkowski predicted Goldman Sachs Group Inc (GS) will likely post a fourth-quarter loss, its first ever as a public company, due to the "stressed" equity environment over the past two months, which will also weigh on Morgan Stanley's (MS) quarterly results.

The Journal report said Goldman could face other write-downs as well, such as on its investment in Industrial & Commercial Bank of China. The Chinese bank's stock fell nearly 28 percent during Goldman's fiscal fourth quarter, which will likely lead Goldman to take a write-down of about $700 million on its stake in the bank.

A spokesman for Goldman declined to comment, noting that Goldman does not provide earnings guidance and does not comment on outside forecasts.

Goldman has received $10 billion as part of the government's $700 billion bank investment program.

Sources :

1. The Wallstreet Journal: Goldman Faces Loss of $2 Billion for Quarter, December 2, 2008
2. Business Week: Ahead of the Bell: Goldman Sachs faces $2B loss, December 2, 2008, 9:09AM ET

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Deutsche Bank (DB) has refused government bailout

Chart courtesy of Stockchart
Deutsche Bank (DB) has refused government bailout even its shares have tumbled by 81% since its peak on May 11 in the last year.

The Bank still confidences its condition is still rigid and can benefit from the current financial crisis. In the third quarter of this year where the collapse of Lehman has been the biggest catalyst of the global financial meltdown, but Deutsche Bank posted $534 million profit (€414 million).

The bank is trying to reduce lending from its balance sheet and claims its assets are far removed from toxic assets like mortgage backed securities and it still navigates through the crisis very well.

Here is from The New York Times:

To the investors who have pounded Deutsche’s stock, this view is just willful denial that the bank can avoid what befell its peers. To Deutsche executives, who have largely ruled out tapping government bailout funds, it is justified by the bank’s continuing profitability through the maelstrom.

Stefan Krause, Deutsche’s chief financial officer, said in an interview. “And therefore we can only say that so far we have navigated through the crisis very well.”

As a result, Deutsche has — to the immense frustration of some German politicians — turned down a piece of the 500 billion euro bank rescue package that the government approved in October. At a time when banks are being asked to lend more for the sake of the overall economy, Deutsche says it is watching out for its shareholders and insisting that it will do right by doing well.

“The spirit of the package was to help banks that need help,” Mr. Krause said.

Deutsche’s is a high-risk strategy. Though the chief executive, Josef Ackermann, has not categorically ruled out a state recapitalization, turning to public coffers could cost him his job, some analysts said.

“For Deutsche, this would be such a U-turn that there would be a problem with credibility,” said Simon Adamson, a banking analyst at CreditSights in London.

For now, the bank is walking a fine line, trying to shrink its balance sheet by reducing lending while simultaneously assuring the German government and its best clients that the money spigot remains open for well-run businesses.

In a shift from years when it liked to portray itself as an investment banking powerhouse with other businesses attached, Deutsche has taken to highlighting its “stable” businesses — principally retail banking and asset management — as investment banking became virtually synonymous with the financial crisis. The implication is that it needs less capital on hand than a pure investment bank.

Deutsche has also countered that unlike Citigroup or UBS, its assets are far removed from mortgage-backed securities. And to the extent that it dabbled in such so-called toxic waste, it did not accumulate it in the off-the-books vehicles that caused so much woe elsewhere.

“We are not an asset holder,” Mr. Krause said. “We are a trader.”

Deutsche’s strategy highlights the problem various rescue programs were meant to fight. Banks are trying to increase their cash cushion, which can starve even well-run businesses of credit.

Mr. Krause said he had given each banking division targets for reducing lending. Mainly, he said, Deutsche will crank back lending for ventures that are now out of fashion, like leveraged buyouts.

Related Posts :

Credit Suisse Predicts Deutsche Bank Will Have More Writedowns in H208

Sources :

The New York Times: Deutsche Rejects a Rescue, Even as Its Shares Tumble, December 1, 2008

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Paul Tudor Jones' Investment has temporarily suspended redemptions from the $10bn BVI Global Fund

The Contagion effect of the financial crisis now starts to force hedge funds to collapse. According to Reuters yesterday, Hedge-fund pioneer Paul Tudor Jones' Tudor Investment has temporarily suspended redemptions from the $10 billion (6.7 billion pound) BVI Global Fund as it splits the hedge fund into two.

The average of hedge funds are on track for the worst performing on record as deleveraging continues roll over the markets and investors are strapped for cash they pull money out of hedge funds. Hedge funds severe an average losses above 20% this year.

Here is from Bloomberg:

Tudor is proposing to put hard-to-sell investments, mostly corporate bonds and loans from emerging markets, into a new fund called Legacy, Jones said in a Nov. 28 letter to investors. BVI Global, the flagship fund Tudor started in 1986, would focus on easier-to-trade stocks, bonds, commodities and currencies.

More than 80 firms have liquidated funds, restricted redemptions or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages. Investors asked to pull 14 percent of their money from BVI Global as it lost 5 percent this year through November, according to the letter. That compared with an 18 percent loss through October of the Multi-Strategy Index compiled by Hedge Fund Research Inc.

“The few hedge funds that have liquidity, cash and have done well are the only source of money for investors at the moment,” said Tammer Kamel, president of Toronto-based Iluka Consulting Group Ltd.

Tudor won’t charge investors a performance fee until the Legacy assets exceed the high watermark, or peak value, of the BVI Global fund. The firm would sell off the assets in Legacy next year and return money to clients, who will be charged a performance fee of 1.5 percent instead of the industry standard of 2 percent. Redemptions for BVI Global will be suspended until March 31.

The hedge-fund industry may shrink as much as 45 percent by the end of this month to $1.1 trillion from its peak of $1.9 trillion in June because of investor redemptions and market losses, Morgan Stanley analyst Huw van Steenis said in a Nov. 24 report.

Hedge funds have posted losses averaging 22 percent this year through Nov. 24, according to Chicago-based Hedge Fund Research’s HFRX Global Hedge Fund Index. Investors such as pension funds and university endowments are pulling their holdings from hedge funds after they “over-committed” to private-equity investments, van Steenis said.

According to Empirical Research Partners, total Investor’s redemptions from hedge funds and mutual funds are expected could reach about US$1 trillion (€ 800 billion) by the end of this year.

On November 13, George Soros said Hedge funds will be "decimated" by the current financial crisis, and forced to shrink their portfolios by 50-75 %.

Related Posts :

1. Total redemptions could reach about US$1 trillion by the end of this year
2. George Soros: 50–75 % of hedge funds will disappear in the coming months (Update 1)

Sources :

1. Reuters: Tudor's BVI Global Fund halts withdrawals, December 1, 2008 9:07 am EST
2. Bloomberg: Tudor’s BVI Halts Withdrawals, Plans Hedge-Fund Split (Update3), December 1, 2008 14:31 EST

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Citigroup: gold could blast through $2000 an ounce by the end of 2009

To prevent asset deterioration according to aggressive rate cut from the Central Bank that ahead forward to ZIRP, Mr. Gartman on October 30, suggested investors to invest in gold.

Morgan Stanley on November 13 also said 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.

The US bank Citigroup on November 27 predicted that gold will be poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity. Here is the news via Telegraph:

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank's chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

"Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don't think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes," he said.

"This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised."

"What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We're already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore," he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. "If true, this is a very material change," he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. "People have started to question the value of government debt," he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

ETFs/Stocks :

SPDR Gold Trust ETF             GLD  $75.65  -4.66 (-5.80%)
Market Vectors Gold Miners ETF  GDX  $22.50  -4.07 (-15.32%)

Related Posts :

1. Dennis Gartman Letter: Suggests investing in gold
2. Morgan Stanley: Gold may be over $1000 an ounce in 2011

Sources :

Telegraph: Citigroup says gold could rise above $2,000 next year as world unravels, November 27, 2008 7:29AM GMT

Please Note!

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Breakdown of US $8.5 trillion of the government rescue packages

The Fed on November 25 was committing up to $800 billion a new rescue package to unfreeze credit for homebuyers, consumers and small businesses. The government has provided more than $8.5 trillion in financing to unlock credit markets after almost $1 trillion in writedowns and credit losses at the world’s biggest banks and financial institutions.

The Following is breakdown of US $8.5 trillion of the government rescue packages via Global Research:

Table courtesy of Global Research
Key dates in the federal government's campaign to alleviate the economic crisis:

1. March 11: The Federal Reserve announces a rescue package to provide up to $200 billion in loans to banks and investment houses and let them put up risky mortgage-backed securities as collateral.


2. March 16: The Fed provides a $29 billion loan to JPMorgan Chase & Co. as part of its purchase of investment bank Bear Stearns.


3. July 30: President Bush signs a housing bill including $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners.


4. Sept. 7: The Treasury takes over mortgage giants Fannie Mae and Freddie Mac, putting them into a conservatorship and pledging up to $200 billion to back their assets.


5. Sept. 16: The Fed injects $85 billion into the failing American International Group, one of the world's largest insurance companies.


6. Sept. 16: The Fed pumps $70 billion more into the nation's financial system to help ease credit stresses.



7. Sept. 19: The Treasury temporarily guarantees money market funds against losses up to $50 billion.


8. Oct. 3: President Bush signs the $700 billion economic bailout package. Treasury Secretary Henry Paulson says the money will be used to buy distressed mortgage-related securities from banks.


9. Oct. 6: The Fed increases a short-term loan program, saying it is boosting short-term lending to banks to $150 billion.


10. Oct. 7: The Fed says it will start buying unsecured short-term debt from companies, and says that up to $1.3 trillion of the debt may qualify for the program.


11. Oct. 8: The Fed agrees to lend AIG $37.8 billion more, bringing total to about $123 billion.


12. Oct. 14: The Treasury says it will use $250 billion of the $700 billion bailout to inject capital into the banks, with $125 billion provided to nine of the largest.


13. Oct. 14: The FDIC says it will temporarily guarantee up to a total of $1.4 trillion in loans between banks.


14. Oct. 21: The Fed says it will provide up to $540 billion in financing to provide liquidity for money market mutual funds.


15. Nov. 10: The Treasury and Fed replace the two loans provided to AIG with a $150 billion aid package that includes an infusion of $40 billion from the government's bailout fund.


16. Nov. 12: Paulson says the government will not buy distressed mortgage-related assets, but instead will concentrate on injecting capital into banks.


17. Nov. 17: Treasury says it has provided $33.6 billion in capital to another 21 banks. So far, the government has invested $158.6 billion in 30 banks.


18. Nov. 23: The Treasury says it will invest $20 billion in Citigroup Inc., on top of $25 billion provided Oct. 14. The Treasury, Fed and FDIC also pledge to backstop large losses Citigroup might absorb on $306 billion in real estate-related assets.


19. Nov. 25: The Fed says it will purchase up to $600 billion more in mortgage-related assets and will lend up to $200 billion to the holders of securities backed by various types of consumer loans.

Source: Associated Press

Related Posts :

Citigroup gets $20bn bailout + $306bn of trash assets guaranteed

Sources :

1. Global Research: Government bailout hits $8.5 trillion, December 1, 2008
2. Bloomberg: GMAC Puts Individuals After Institutions in Bond Plan (Update2), December 1, 2008 12:26 EST
3. Bloomberg: Fed Commits $800 Billion More to Unfreeze Lending (Update5), November 25, 2008 15:20 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.

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.