Clipmarks | JICWyllie's 'financial markets' clips

Deflation Threat Returns as Asset Markets Decline

Mon, 06 Oct 2008 18:11:45 GMT

clipped by: JICWyllie

As Federal Reserve Chairman Ben S. Bernanke and his global colleagues fight the worst financial crisis since the 1930s, one danger is looming larger by the day: deflation.

With asset markets tumbling, commodity prices plunging the most in 50 years and banks keeping a tighter grip on credit, the ingredients for a sustained period of falling prices are coalescing.

The deflation scenario might go like this: Banks worldwide, stung by $588 billion in writedowns related to toxic assets -- especially mortgage-related securities -- will further reduce the flow of credit, strangling growth. That will push house prices lower, forcing additional losses and making banks even more reluctant to lend. As the credit crisis worsens, businesses will find it almost impossible to raise prices.

Oil, copper and corn drove commodities toward their biggest weekly decline since at least 1956 on Oct. 3, with the Reuters/Jefferies CRB Index of 19 raw materials tumbling 10.4 percent. T

Tags: economy, currencies, i-deflation, i-risks, i-increase

European banks tumble on credit fears

Mon, 06 Oct 2008 15:36:50 GMT

clipped by: JICWyllie

Clip Source: www.ft.com

European financial stocks cratered on Monday, as worries about the extent of the crisis in the sector deepened after finance ministers failed to reach a consensus on how to react.

“The banking system doesn’t work any more. It is just broken. Banks are arriving at a recession with no capital and the central bank is the lender of only resort. People are just unsure about what to do,” said Robert Quinn, European equity analyst at Standard and Poor’s.

EDITOR’S CHOICE

Q&A: Markets and the US election - Sep-30

Editorial comment: Europe’s banking confidence crisis - Oct-01

Insight: Seeds sown in murky finance - Oct-01

Lex: Icelandic banks - Oct-01

UBS to cut 2,000 more jobs - Oct-01

Lex: Irish banks - Sep-30

Dizzying falls across the sector came across the continent

Tags: economy, financial markets, i-losses, i-insolvancy, i-increase, i-accelleration, i-record

Finding Main Street good in the Wall Street crash

Mon, 06 Oct 2008 14:24:51 GMT

clipped by: JICWyllie

Clip Source: energybulletin.net

Every penny invested in the speculative bond, mutual fund, and stock markets is money that isn’t available to invest in the local economy. When people shift their money from trans-continental banks to local banks and credit unions, their money goes to work in their own neighborhood and strengthens the real, local economy where they live and work.

Retirement plans invested in stock market mutual funds and money market accounts benefit Wall Street by beggaring Main Street. If workers demand new retirement plans, invested in insured CDs at local banks and credit unions, then their retirement money goes to work immediately in the real, local economy.

Money invested in the speculative stock, mutual fund, and bond markets goes to other speculators, and doesn’t necessarily furnish even one dime to the real economy.

Going forward into the peak oil decline years, strong local economies are all that stand between us and collapse.

Tags: economy, financial markets, i-strategy, i-localisation

Wall Street's Perfect Storm

Mon, 15 Sep 2008 11:31:57 GMT

clipped by: JICWyllie
clipper's remarks: For the record ..

Clip Source: www.businessweek.com

The plunging prices of Merrill and AIG raised the possibility that the market had figured out that the two are harboring big new losses from mortgage-linked securities. Worse, if Merrill and AIG lost a lot of capital, Wall Street sees fewer ways to replace that capital since the Fannie and Freddie deals. Terms of the government's takeovers of Fannie and Freddie trashed the value of their preferred stock.

Until now, preferred stock has been a prime tool for daring investors to inject new capital into a company needing rehabilitation. The Fannie and Freddie deals indicated that preferred investors could lose big, along with common stock investors, in distressed takeovers. Both Merrill and AIG raised new capital early this year by issuing securities similar to preferred. Lehman also raised money from preferred investors, who are now likely to be wiped out in a bankruptcy. So now big issues of preferred securities may not be available to fill holes in balance sheets from new losses.

Tags: economy, financial markets, i-insolvancy, i-crisis, i-record, i-reported

Wall St. Goliath Teeters Amid Fear of Wider Crisis

Sun, 14 Sep 2008 09:17:39 GMT

clipped by: JICWyllie

Clip Source: www.nytimes.com

Adding urgency to the meeting were growing concerns that other big financial institutions like the insurance giant American International Group and the nation’s largest brokerage firm, Merrill Lynch, might face a similar crisis and also need billions of dollars in capital to strengthen their businesses. The group discussed the financial condition of other firms beyond Lehman and the overall state of the markets.

The spreading troubles were the latest sign that even the government’s extraordinary interventions into private enterprise during the last year have not been enough to halt the unraveling of storied companies that were widely viewed as unassailable until recently.

Whatever the outcome, there is a growing consensus on Wall Street that the government may not be able to save every big firm whose failure would pose a risk to the system.

Clip Source: www.nytimes.com

“Investors are like hyperactive first graders playing musical chairs,” said Sam Stovall, chief investment strategist at Standard & Poor

Tags: economy, financial markets, i-crisis, i-risks, i-increase

Sean O'Grady:Credit crunch: 'It's just the end of the beginning'

Thu, 28 Aug 2008 18:29:12 GMT

clipped by: JICWyllie

Clip Source: www.independent.co.uk

According to ING, the total value of assets written down by Planet Earth's big banks is $502bn. The total value of capital raised by the same: $351bn. That deficit, of $151bn could easily get much much bigger.

Well, there are two new looming threats to keep us awake at night. First, the certainty that what one might term the "normal" writedowns and losses associated with an economic downturn will add to the strains on banks' balance sheets just when they are at their weakest.

Which brings us to the second nightmare. Will the banks be able to raise the capital required for them to regain their strength as losses mount?

The team at Capital Economics calculates that £65bn more is needed in the way of fresh capital, that is if the banks are to carry on functioning at their current rates of lending and to sort out the remaining damage from the credit crunch.

if UK bank lending drops by just 5 per cent, that will easily be enough to tip the economy into recession.

So recession here we come.

Tags: economy, financial markets, i-losses, i-increase, i-forecast

Insight: The global spending spree has hit a brick wall

Thu, 28 Aug 2008 13:30:55 GMT

clipped by: JICWyllie

Clip Source: www.ft.com

The US consumer is not the only one feeling down and out. Since the start of the year, higher food and energy prices have undermined consumer confidence not only in Detroit but also in Dusseldorf, Delhi and Dalian. The upshot: a global slump in personal spending is unfolding, portending rockier times for the global economy and world financial markets.

At best, global private consumption expenditures – roughly $32,000bn in nominal dollars in 2007 – are expected to rise by 2-4 per cent this year. That compares with an 11 per cent jump in 2007, and contrasts sharply with the boom in personal spending this decade.

Global consumption surged 63 per cent between 2001 and 2007, a bonanza fuelled by easy global credit conditions and soaring equity and housing prices.

consumer spending in developing nations doubled between 2000 and 2007, from $4,500bn to $9,000bn last year

Lost on the “decouplers” is this – the mood among many consumers in the developing nations is just as foul as it is in the US.

Tags: economy, consumers, i-spending, i-decrease

Nassim Nicholas Taleb: the prophet of boom and doom

Wed, 27 Aug 2008 12:33:37 GMT

clipped by: JICWyllie

Clip Source: business.timesonline.co.uk

The sub-prime crisis is not over and could get worse. Even if the US economy survives this one, it will remain a mountain of risk and delusion. “America is the greatest financial risk you can think of.”

Its primary problem is that both banks and government are staffed by academic economists running their deluded models. Britain and Europe have better prospects because our economists tend to be more pragmatic, adapting to conditions rather than following models. But still we are dependent on American folly.

“Complex systems don’t allow for slack and everybody protects that system. The banking system doesn’t have that slack. In a normal ecology, banks go bankrupt every day. But in a complex system there is a tendency to cluster around powerful units. Every bank becomes the same bank so they can all go bust together.”

Clip Source: business.timesonline.co.uk

Accept that the world is opaque, majestically unknown and unknowable. From its depths emerge the black swans that can destroy us or make us free.

Tags: economy, financial markets, i-losses, i-increase, i-forecast

Credit crunch: List of at-risk US banks increases sharply as lenders' profits shrink by 87%

Wed, 27 Aug 2008 12:14:27 GMT

clipped by: JICWyllie

Clip Source: www.guardian.co.uk

An official "watch list" of potentially troubled US banks has lengthened from 90 to 117 as the credit crunch wreaks havoc throughout the financial industry.

the quarterly list was the longest since mid-2003 and is asking its members to increase contributions to a dwindling bail-out fund.

So far this year, nine US banks have collapsed including California's IndyMac Bancorp, the third largest failure of a high-street bank since the FDIC was created 75 years ago.

Profits at US banks fell 87% to $5bn in the second quarter.

Chastening times have taken their toll on the FDIC's resources. Its bail-out fund has dwindled from $53bn to $45bn. At 1.01% of insured deposits, this is below its target level of 1.15%. Under a "restoration plan" banks will be asked to increase their contributions.

Tags: economy, financial markets, i-losses, i-increase

Surge of bond deals lifts credit risk premiums

Mon, 18 Aug 2008 13:27:30 GMT

clipped by: JICWyllie

Clip Source: www.ft.com

Multi-billion dollar debt sales from AIG and Citigroup led a sudden wave of US bond deals last week that lifted corporate credit risk premiums across the market – in contrast to an improving picture in Europe.

However, these market moves mask a rapidly worsening picture for European economies and credit markets versus the US, which some analysts see as a bigger trend that will gather pace.

Stephen Dulake, European credit strategist at JPMorgan Chase, calls this change “macro risk reversal”.

“Europe is becoming increasingly more risky than the US,” he said.

“Negative economic surprises in our in-house index are at a four-year high in Europe and we’re seeing accelerating profit warnings across industrial sectors.”

the worse outlook for Europe does not mean an entirely positive outlook for the US. “Many risks still hang over the credit markets, including a slow but deliberate deterioration in fundamentals,” say analysts at Lehman Brothers.

Tags: economy, financial markets, i-losses, i-risks, i-increase

Inflation set to reach 7 per cent, warns Chelsea

Sun, 17 Aug 2008 14:04:25 GMT

clipped by: JICWyllie

Clip Source: www.independent.co.uk

Soaring food, rent and petrol bills mean that the average UK householder could face annual retail inflation of 7 per cent, according to a new report to be published tomorrow by the Chelsea Building Society.

Darren Stevens, a Chelsea director, said that recent price increases could double the annual inflation for all goods and services by the end of the year to 7 per cent, pushing it to the highest level for 17 years.

The Bank's Governor, Mervyn King, predicted that inflation would peak at 5 per cent at least and that gross domestic product growth is likely to hover around zero for the next year. He avoided saying "recession", but warned that the economy required a "painful" adjustment.

Financial markets took this as a sure sign that the UK is heading for recession and that interest rate cuts will come sooner rather than later, prompting sterling's sharp falls.

Tags: economy, currencies, i-inflation, i-increase, i-record, i-forecast

Credit Card Debt: This Popping Bubble Is Really Going to Hurt

Sun, 17 Aug 2008 12:26:13 GMT

clipped by: JICWyllie

Clip Source: www.alternet.org

While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards.

Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy.

Clip Source: www.alternet.org

Also, let us not forget that our credit card companies have been colonizing markets throughout the world. As the New York Times explained in a series on debt, "As the American blessing of credit cards became widespread, so did the American curse of debt."

Tags: economy, consumers, financial markets, i-debt, i-crisis, i-forecast

Mechanism for Credit Is Still Stuck

Wed, 13 Aug 2008 16:28:30 GMT

clipped by: JICWyllie

Clip Source: www.nytimes.com

A year after financial tremors first shook Wall Street, a crucial artery of modern money management remains broken. And until that conduit is fixed or replaced, analysts say borrowers will see interest rates continue to rise even as availability worsens for home mortgages, student loans, auto loans and commercial mortgages.

The conduit, the market for securitization, through which mortgages and other debts are packaged and sold as securities, has become sclerotic and almost totally dependent on government support. The problems, intensified by bond investors who have grown leery of these instruments, have been a drag on the economy and have persisted despite the exercise of extraordinary regulatory powers by policy makers.

Bond investors first stopped buying private home mortgage deals, then shunned commercial mortgages. Now, they are becoming wary of credit card debts and auto loans.

“It appears that every time we peel away this onion, there is another layer,”

Tags: economy, financial markets, i-losses, i-increase, i-forecast

Fannie Mae admits it may need fresh capital

Sat, 09 Aug 2008 15:59:26 GMT

clipped by: JICWyllie

Clip Source: www.independent.co.uk

The possibility of a US government takeover of Fannie Mae, the mortgage finance giant, moved a step closer yesterday after the company said it may not have enough capital to make it through next year.

The company plunged to a larger-than-expected $2.3bn loss in the three months to the end of June, as American homeowners defaulted on their mortgages in record numbers.

The company said it saw no let-up to the problems in the housing market and in the global credit markets, where it has a big portfolio of investments that have also declined in value. In fact, things had got worse in July,

Fannie's capital cushion could be wiped out by additional losses in 2009. That would require it to raise additional funds. Fannie shares slipped 8 per cent in morning trading in New York as shareholders feared they could be wiped out by any rescue fundraising. The US Treasury has said it would do whatever it takes to ensure that Fannie and Freddie do not fail,

ncluding injecting taxpayers' money

Tags: economy, financial markets, i-policy, i-subsidy, i-losses, i-increase

At Freddie Mac, Chief Discarded Warning Signs

Tue, 05 Aug 2008 16:31:24 GMT

clipped by: JICWyllie

Clip Source: www.nytimes.com

The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others.

That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.

Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations.

Mr. Syron received a memo stating that the firm’s underwriting standards were becoming shoddier and that the company was becoming exposed to losses,

According to many executives, Mr. Syron was also warned that the firm needed to expand its capital cushion, but instead that safety net shrank.

Syron

collected more than $38 million in compensation since 2003.

Tags: economy, financial markets, i-policy, i-mistakes