[RT] sp 500, RealTraders Email List Archive

Ben

----- Original Message -----
From: Mark Simms
Date: Tuesday, March 18, 2008 6:17 am
Subject: RE: [RT] George Friedman's take on the Fed action
To: realtraders@xxxxxxxxxxxxxxx

> RE: "For all the apparent gloom, the markets are doing
> surprisingly well.
> Between this liquidity crisis, soaring oil prices and the
> falling dollar,
> the equity markets are in fact remarkably calm. But that is
> a leading indicator and it might change on a dime."
>
> Exactly....we are still in the early stages of a down-turn.
> Wait till the corporate profits disappear....and then the
> layoffs begin in
> earnest.
> The fed might be able to prevent the catastrophic event, but it
> won't be
> able to control / reduce the duration of the economic pain to come.
> So, It might be safe to say "you ain't seen nothin yet".
>
>
> _____
>
> From: realtraders@xxxxxxxxxxxxxxx
> [mailto:realtraders@xxxxxxxxxxxxxxx] On
> Behalf Of robert pisani
> Sent: Tuesday, March 18, 2008 2:56 AM
> To: realtraders@xxxxxxxxxxxxxxx
> Subject: [RT] George Friedman's take on the Fed action
>
>
>
> Another related view:
>
> >The Federal Reserve System tried to reshuffle the financial
> deck
> >late March 16. For the next 24 hours, the global financial
> markets
> >tried to figure out where the Fed's action left the system. At
> the
> >end of the day, they were not happy. But at the same time, they
> were
> >not suicidal. That represents a victory for the Fed.
> >
> >It is important to understand what the Fed was trying to
> achieve. In
> >essence, its goal was not complicated. It was trying to manage
> the
> >collapse of a financial institution -- Bear Stearns -- such
> that it
> >did not default on its clients, individual and institutional.
> The
> >threat it faced was of bank failures, in which depositors would
> lose
> >their savings. If Bear Stearns had been unable to carry out
> >financial transactions on Monday morning because of a lack of
> cash,
> >its clients effectively would have found their assets frozen.
> And
> >that would have touched off a ripple through the financial
> system
> >that might have caused a series of uncontrollable failures.
> >
> >The Fed did two things to prevent this scenario. First, it
> >engineered a buyout of Bear Stearns by JPMorgan Chase at $2 a
> share.
> >The Fed was not at all interested in protecting investors in
> Bear
> >Stearns, who were nearly wiped out. Nor were they interested in
> >protecting Bear Stearns employees. The Fed was interested in
> having
> >JPMorgan Chase -- a huge bank with a strong balance sheet -- in
> >effect guarantee the liquidity of Bear Stearn's account-holding
> >clients, thus avoiding the threat of falling dominoes.
> >
> >The Fed's second move was to redefine the rules of access to
> >low-cost, short-term financing from the Federal Reserve.
> >Historically, such financing has been confined to banks. It has
> now
> >been extended to brokerage houses. By doing this, the major
> >brokerage houses can access money from the Fed for 90 days, up
> from
> >30. That sets the stage for an orderly consolidation of the
> system,
> >in which major banks with strong balance sheets use short-term
> Fed
> >money to acquire weak and failing institutions without having
> to
> >pull liquidity out of the system by using their own money or
> trying
> >to borrow money from banks. In effect, the Fed created a
> situation
> >where other institutions in the same condition as Bear Stearns
> can
> >be merged into healthier entities without the need for this
> >weekend's urgent scramble.
> >
> >JPMorgan Chase got a pretty good deal out of the move. For less
> than
> >a quarter billion dollars, it acquired the marketing strength
> and
> >customer base of a major financial institution, something that
> could
> >well be valued in the tens of billions once things settle down.
> We
> >are not clear on what Bear Stearns' debt structure was but its
> >Manhattan building alone is said to be worth three times what
> Bear
> >Stearns went for. Obviously there are a lot of liabilities
> traveling
> >with Bear Stearns, but we suspect that given Fed financing,
> JPMorgan
> >Chase was not engaging in charitable activity. Indeed, there
> already
> >are rumors that Bear Stearns' shareholders might resist the
> >takeover. But by the time that happens, if it even does, the
> deal
> >will be well down the road. In the meantime, its clients were
> served
> >Monday morning.
> >
> >The Fed is working to create a system for dealing with weak
> >institutions that neither allows defaults to clients nor sucks
> >liquidity out of the system as acquiring institutions raise
> money to
> >make acquisitions. Just as the Fed effectively brokered this
> >acquisition, we expect it to be brokering other ones in the
> coming
> >days and weeks using its new tools. Alternatively, now that it
> is
> >known that the Fed will protect clients as it would protect
> bank
> >depositors, there will be fewer failures than otherwise. This
> is
> >because the kind of pressure that built up on Bear Stearns last
> week
> >may not happen again.
> >
> >Those old enough to remember companies like Bache remember
> similar
> >actions before. What the Fed has done is in fact not
> unprecedented.
> >What is new is that it now regards brokerage houses and equity
> >markets as being on par with banks and money markets. That is
> >important, but not earthshaking.
> >
> >The S&P 500 has shed about 20 percent of its value since
> October
> >2007. In 2000-2001, the S&P fell about 40 percent before
> beginning
> >to recover -- and the 2001 recession was not a transformative
> event.
> >It was just another recession and a mild one at that.
> Obviously, the
> >markets may continue to fall. But we are still struck by how
> well
> >they are holding up in the face of remarkably negative
> sentiment and
> >a sense of intense crisis.
> >
> >We do not predict the market, but we do regard the equity
> markets as
> >a guide to future behavior of the economy. Given negative
> sentiment
> >and the failure to fall more than it has, it seems to us that
> the
> >markets are saying that the liquidity crisis is being managed.
> For
> >all the apparent gloom, the markets are doing surprisingly
> well.
> >Between this liquidity crisis, soaring oil prices and the
> falling
> >dollar, the equity markets are in fact remarkably calm. But
> that is
> >a leading indicator and it might change on a dime.
> >
> >We continue to believe that petrodollars and Chinese dollars
> are
> >stabilizing the American system. And the Fed now has reduced
> the
> >threat of structural failure of financial institutions. As we
> have
> >said, a recession is to be expected after six years of
> expansion.
> >But the latest actions by the Fed strike us as evidence that
> while a
> >recession may be likely, it won't be catastrophic.
>
>
>
>
>
>