Summer Vacation Is Over. Which Way Into Fed Day?

[Pa(b)st Prime]

Allegedly the big boyz are back to-morrow. How the events of the past 6 weeks wouldn't cause them sleeplessness in East Hampton Village is beyond me. Then again I guess the definition of rich is not even caring about measly 15% haircuts in asset value.

So what's the trend for the first half the month?

 

[hbiawos]

Earnings are coming out of the big brokerages this week, so that should provide some volty---anyone looking for the Fed to cut on 9/18 is dreaming, imo.

 

[Spectre2007]

1560 and higher.. on spooz by the end of the year.

 

[Pa(b)st Prime]

Quote from Spectre2007:

1560 and higher.. on spooz by the end of the year.

Any thoughts about Treasuries?

 

[mschey]

Quote from hbiawos:

Earnings are coming out of the big brokerages this week, so that should provide some volty---anyone looking for the Fed to cut on 9/18 is dreaming, imo.

What brokerages report this week? A review of my earnings sheet has some retailers, and a few other companies but none of the brokers.

 

[Spectre2007]

Quote from Pa(b)st Prime:

Any thoughts about Treasuries?

the dam is being held up, with the FED being stubborn, all indications are that they will proceed with a traditional timeline of telegraphing intentions and then cut at the next meeting.

I anticipate they cut at the next meeting, and we should see the highs tested again. The bonds/notes held up surprisingly well, with the state of things. I would have expected a sharper rally a few weeks ago, I sense Asians must be unloading with any spurts in demand secondary to fear in the markets.

They are very close to overhead resistance and could easily break through. I see a reflexive rally with the FED cut, but we will attempt to test lows again the weeks after the cut.

Its hard to avoid macro implications, of the consumer and wealth destruction and tight lending practices. So the liquidity spiggot is tightening itself, while the FED and other other CB's inject liquidity.

The extent of damage in sentiment is still hard to gauge. Overall I sense a positive atmosphere in the consumer. Whether bonds break and test 4.4% which was pretty easy to do a few months back, is the question. My long term outlook is extremely bearish. But these short term countertrends can break your positions.

 

[stonedinvestor]

I've got one more weekend at the beach thank god (my kids school starts late) so summer is certainly NOT over yet.

Inverted Head & Shoulders Pattern Developing?
Well it's a bit of a long shot but in analyzing the charts one could make a boozed up call that the S&P although in a downtrend has put in a rare inverted head and shoulder pattern.

Right now in the SP500, the 200 day MA is advancing, just as it was in 2005 and 2006 when bottomed out near that key longer term moving average. Right now the SPY is finding resistance at the declining 50 day MA, just as it did in 2005 and 2006 just before making a higher low. The higher lows (preceding the break of the H&S neckline) in 2005 and 2006 came on lighter volume than the previous low, this may be occurring now.

However Basis Capital Fund Management Ltd., the Australian investment company has hired Blackstone Group LP to sell assets, sought bankruptcy protection for its second-biggest hedge fund.

The Sydney-based company's petition to liquidate the Basis Yield Alpha Fund stokes concern that the rout in the U.S. subprime market will lead other hedge funds to report losses when they disclose August valuations to investors next week, said James Chirnside, chief investment officer at Asia Pacific Asset Management in Sydney.

``We will see some blood,'' said Chirnside, who oversees $70 million of funds of hedge funds. ``The contagion spread and was at its worst by the middle of August.''

I have pointed out this danger zone timing wise for the hedge fund updates to shareholders, ie when some fat cats find out they are not quite as fat anymore... I was seeing the timeframe as being more towards next weeks market action but let's be aware if the S starts to hit the fan this week. Reading up over the past week on the home default situation I have a greater understanding now of how bad the situation is what I failed to realize in just adding up the numbers of foreclosures is how a bunch of foreclosures on a single block or in a small town affect the rest of the real estates value and the psyche of those considering to buy. It's bad out there.

Defaults on home loans by Americans with bad credit have forced more than 100 mortgage companies to close, while Bear Stearns Cos. also sought protection for two hedge funds. In Asia, Bank of China Ltd. said last week it had $9.7 billion of securities backed by U.S. subprime loans and Singapore's DBS Group Holdings Ltd. said it had S$2.4 billion ($1.6 billion) at risk from collateralized debt obligations.

The Yield Alpha Fund in question has assets of $100 million. That's down from $436 million at Jan. 31, Basis Capital asked a Cayman Islands court for permission to liquidate the fund, according to a petition filed in New York. These court decisions about where the trials take place- in the Caymans or here where almost all of the mortgages are will be HUGE for the future of investing. I'd like to see the funds have to face their creditors here in the US and close the loophole of caribbean investing.

As to the brokers reporting: Revenue Shrinks

Business conditions for securities firms are worse than in the second half of 1998 and revenue from investment banking and trading could fall 47 percent in the final six months of this year, Standard & Poor's said in a statement last week.

In a separate report, Moody's Investors Service estimated revenue losses of 10 percent or less due to loan markdowns for the five largest U.S. investment banks in the second half of 2007.

So which take to believe? If you look at a chart of the broker dealer index and overlay the S&P you will see such out performance that if you have a revert to mean bone in you as I do... you got to be nervous.

Creditors of the Basis fund include JP Morgan Chase Bank NA, Goldman Sachs International, Citigroup Global Markets Ltd., Morgan Stanley, Lehman Brothers International (Europe) and Merrill Lynch International, according to court documents. Those creditors all issued default notices to Basis Yield following its June 2007 devaluations.

``These funds are coming out of the woodwork and you have so many of them, no one is really sure how much exposure to the subprime market is out there,'' said Charles Wiggins, senior dealer at Custom House Global Foreign Exchange in Sydney.

Basis Capital, founded in 1999 by Steve Howell and Stuart Fowler, had more than $1 billion in assets as recently as May. Losses at the Yield Alpha Fund could exceed 80 percent, according to the petition filed yesterday. The fund had delivered an annual return of 18.7 percent for the year ended June 30, 2006, according to a report by research company Lonsec Ltd. Hummmm 18% on a mortgage portfolio and we have to wipe these bankers bottoms? They asked for it in my opinion...

The news helped pushed the yen higher as investors sold higher-yielding assets in Australia, the U.S. and Europe.

``This report revives concerns over how much deeper the subprime-mortgage losses will be,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. He said investors will unwind so-called yen carry trades, in which they borrow money in Japan and then buy currencies including the dollar so they can invest in higher-yielding assets in other countries.

And that's the REAL problem here for the stock market-- the simultaneous unwinding of the yen carry trade at the same time as the housing collapse & mortgage meltdown that 1, 2, 3 punch is what has this bull so staggered.

Defaults on subprime loans in the first quarter climbed to the highest since 2002, according to the Mortgage Bankers Association. The defaults led investors to shun securities backed by subprime mortgages.

Almost half of all CDOs sold in the U.S. in 2006 contained subprime debt, according to a March report by Moody's Investors Service. That's 50% of all the CDO's folks! Do the math.

The Yield Alpha Fund has fewer than 49 creditors, according to the petition, which was filed under Chapter 15 of the U.S. bankruptcy law. Using Chapter 15, a foreign-based company can win protection from U.S. creditors while it liquidates or reorganizes overseas.

Judge Robert Gerber in Manhattan will hear a request on Sept. 6 to temporarily bar U.S. lawsuits while the company makes its case for permanent Chapter 15 protection. Basis was granted a restraining order protecting it from lawsuits until that hearing.

The fund invested in high-yield corporate and structured credit securities, including mortgage-backed bonds and collateralized-debt obligations, according to court documents.

At least Blackstone is getting work...

In July, Basis hired Blackstone as an adviser in an effort to avoid a fire sale of assets. Bear Stearns also hired Blackstone to liquidate two hedge funds that collapsed following losses in subprime mortgages. Bear Stearns sought bankruptcy protection for the funds last month. How much Blackstone makes when they don't avoid the fire sale/ bankruptcy is unclear but so far 0 for 2.

Investors in the Yield Alpha Fund should know within two weeks if they have any ``hope'' of a return on their investments, said Paul Billingham, a liquidator for the Basis fund at accounting firm Grant Thornton.

``We are not quite sure what assets are in the fund,'' Sydney- based Billingham said. ``There were a number of counterparties that secured the assets and the value of those was changing.''

How many other hundreds of funds are in the same predicament?

And that Bank of China Ltd. with $9.7 billion of securities backed by U.S. subprime loans... that's a big nut... that situation has to be watched carefully.

The short answer to the opening question of this thread is: we should rally until wed. On Thurs I believe I saw St Lois Fed head Pool (who either was bound and gagged and shipped out of town at the last meeting or really did have another engagement and couldn't vote) speaks. He's been a pest in the past and if someone other than a major brokerage or hedge fund was going to rain on our parade this week it will likely be Pool on Thursday. ~ stoney

 

[Bruto Blukowski]

What is James Grant's record for calling the Fed on rate hikes and cuts?

The question is - How many surprise cuts in between meetings are coming?


"Market Monitor"-James Grant, Editor of "Grant's Interest Rate Observer"

Friday, August 31, 2007

PAUL KANGAS: My guest "market monitor" this week is James Grant, editor of the popular publication, "Grant's Interest Rate Observer." Welcome back to NIGHTLY BUSINESS REPORT, Jim.

JAMES GRANT, EDITOR, "GRANT'S INTEREST RATE OBSERVER": Thank you, Paul.

KANGAS: What kind of marks do you give Federal Reserve chief Bernanke on his speak today?

GRANT: I give him an "A." I thought he was terrific. He said that the Federal government would think long and hard before resuming its sadly accustomed role as first responder to the scene of a financial accident. That is, the Fed was not reflexively going to cut its funds rate just because somebody on Wall Street demanded it. As you know, in the old days, under Chairman Greenspan, the Fed was all too typically prone to cut its rate because of some financial crack-up. And knowledge that it would do that of course egged on people to take greater and greater risks with more and more debt. So I think Mr. Bernanke did a great service to the Fed and mostly to the country.

KANGAS: On a scale of one to 10 with 10 the best, what is your grade on his overall performance so far, other than the speech?

GRANT: He is OK.

KANGAS: You know this wouldn't last.

GRANT: He is in the price fixing business and he has not objected to that, as I hoped a keen intellectual would object to it. What he is doing is fixing an interest rate as if the Federal government had special knowledge to invent (ph) most effectively. The world over, markets are active and the discovery of prices and of course the sun never sets on open outcry markets. And yet the Fed persists in this business of setting its funds rate as if it knew. Well it doesn't know. I fully expect that the funds rate is going to be coming down because I think these debt troubles are much worse than the Fed is acknowledging.

KANGAS: It'll be cut, the Fed funds will be cut on the September 18th meeting?

GRANT: I believe it will. I believe it is going the way after (ph) that for what it's worth.

KANGAS: Really, several cuts before the year is over is what you're saying?

GRANT: I think so, yes.

KANGAS: Is that because the economy is in that bad a shape?

GRANT: I think the economy is weakening -- the growth in the economy is weakening. I think these debt troubles are not really a disturbance of Wall Street. They have to do with lending and borrowing in all departments, the credit (ph) markets and indeed, all over the world. This country's economy moves on debt just as the proverbial army does on its stomach.

_____________________

http://www.pbs.org/nbr/site/onair/transcripts/070831c/

 

[trefoil]

I don't really care what Jim Grant's record is on calling the Fed, 'cause he writes like an angel. Best writer on Wall Street, and I really wish I could afford a subscription to his rag. John Dizard of the FT is my best consolation.
I'm happy to agree with him on the Fed cutting. Also on the idea that having a central bank setting interest rates is, to put it politely, silly.

 

[stonedinvestor]

Quote from trefoil:

I don't really care what Jim Grant's record is on calling the Fed, 'cause he writes like an angel. Best writer on Wall Street, and I really wish I could afford a subscription to his rag. John Dizard of the FT is my best consolation.
I'm happy to agree with him on the Fed cutting. Also on the idea that having a central bank setting interest rates is, to put it politely, silly.

Best writers on Wall Street? How could you not include the stonedinvestor in your pantheon of
English major wannabe's? The point Grant is missing is not so much the fixing of interest rates being absurd but the targeting of an inflation rate! If one must have a " comfort zone " for inflation why not have a realistic HIGHER one? How much better would everything be if the Fed would just set a higher target for inflation? I feel in some subtle form Ben B will do just that eventually and he can
embark on cutting rates ASAP.

The dollars reaction to such moves will be fascinating to watch... endless devaluation.... or the opposite- a nice dollar move and an overdue one. ~ SI