Wednesday, October 29, 2008

Tough Tax Talk As The Swiss Play It Cool

I have to admit to.. and I will use a German word here.. Schadenfraude.

The German finance minister, Peer Steinbrück, said Tuesday that Switzerland should be placed on an international list of tax havens, this without even laughing, as his country moves from one cock-up to another.

Speaking to reporters in Paris after a conference on measures to combat tax avoidance, Steinbrück said Switzerland deserved to be on the list being drawn up by the Organization for Economic Cooperation and Development because Swiss investment conditions encouraged some German taxpayers to commit fraud.

Delphine Jaccard, a spokeswoman for the Swiss Finance Ministry, said in a statement, "Switzerland has taken account of the results of the conference and presently sees no reason to react." Switzerland, she said, "has already made agreements with several states, including Germany" relating to "the exchange of information for the implementation of domestic law of contractual states in cases of tax fraud."

"Switzerland is only prepared to cooperate with us if there is tax evasion," Steinbrück added. "But to prove this tax evasion we need the exact information that Switzerland has, but it will not deliver it. That is the problem."

Now I don't mean to go on a rant...but I will.

The Germans, once again, are vomiting forward the opinions on Switzerland’s whole financial system not just its taxation procedures. The whole idea that Switzerland should be forced into Europe by marginalising it is a typical bully boy tactic of a crumbling alliance.

I would have thought that the Germans should take a look at their own system first and show the rest of us their shining example in fiscal management.

For example Herr Steinbruck, take a look at the fine way your regulatory and market organisations have managed the VW/Porsche farce.

Porsche said on Monday that it had 43pc of VW's shares, and options relating to a further 32pc. That sowed panic among hedge funds who had sold the stock short. As they desperately tried to buy shares to cover their positions, the price shot up as high as 1000 Euros or 20 times the target of most analysts.

The squeeze leaves many with red faces. Start with the short sellers. They may have reckoned Porsche would pause on its buying campaign once it hit 51pc, leaving the shares to deflate for a while. But VW’s limited free float made that a risky bet – akin to picking up pennies in front of a steamroller.

German market overseers also look inept. Porsche doesn’t have to disclose its activities in the options market, even if those options would in practice enable it to lay its hands on the underlying shares. That leaves other investors largely in the dark.
The words 'piss', 'up' and 'brewery' come to mind.

German Index tracking funds were forced to buy VW shares to keep in line with the index weighting in what amounts to guaranteed losses for million of Germans. During all this time the market regulators sat on the fence and did nothing. No suspending of trading, no limits, nothing. Finally the Dax announced that all would end on Monday. I guess this waiting game is so the Herr Steinbruck can find a way of blaming their totally inept handling of the affair on someone else, the evil Swiss perhaps.

I am reminded of the chant when England beat Germany at football 5-1. "Let's all laugh at Germany."

Of course the Swiss banks, mainly UBS have smarted from losses and bad moves, but we have kept the bail outs in-house. If Europe is such a great idea then I would have expected to have Hungary (an EU member state) bailed out by its European 'partners' not so, the IMF did that.

By the way Herr Steinbruck, my house prices has not gone down 30%, and there are no foreclosure signs in my village.

I would suggest that before the European community starts being tough guys with Switzerland they get themselves into a position where corruption is routed out of the EU Commission, that the EU actually creates a regulatory system that works rather than just fleecing its members, that politicians stop taking money from the banks they are supposed to oversee and that governments create a workable tax system that doesn't tax the life out of its citizens, perhaps then they will not seek out 'tax havens'.

The whole EU community should take a long hard look at the way Switzerland runs its affairs. We have true democracy here with referendum on pretty much everything, we have a firm but fair regulatory system that protects against systemic risk.

The EU may also want to consider the rule here that if a lender is found to have not done sufficient investigation into the ability of the borrower to repay the loan, then the lender becomes liable.

This simple ruling adopted by the loud mouthed politicians in the EU scrambling to blame everyone else, would have killed this current crisis before it even started.

When Houdini was performing his tricks he said the essence of magic was misdirection, get your 'mark' to concentrate on something else while you performed your 'magic'. This is a classic case of misdirection. Blame the tax havens for your problems so they won't notice you trying to shovel away the excrement you have left on your own doorstep.

Thanks Herr Steinbruck, for your opinions, but next time we want them we will ask... just don't hold your breath.

Bears Sent Running In Markets Rally

Was yesterday the bear killer day? It certainly looked like that in the last hours trading of the Dow and the FTSE held its own too.

The Dow rose 880 points and the FTSE was up 200 points. On the face of it looked like a huge rally even as consumer confidence figures sagged in the US. The story coming from traders, however, was that the rally was caused by a lack of sellers than a surge in buyers so it would be premature to say that this is the end of the fall in prices.

David Buik of BGC Partners described the movement in the markets as “madness”.

“What happened yesterday, in my opinion, is that we had no redemptions, no hedge fund selling in New York, and there was also talk of interest rates cuts in Japan. It was a hysterical rally based on nothing

“I would be immensely cynical about this. We are going to see very volatile times. We have to remember that the only asset that is liquid at the moment is equities. If you can't sell your property, borrow money or sell commercial paper, what can you do –- you can just sell equities. That’s why we’ve seen these equities crash below sensible levels of valuation. It will take time to iron out."

The US Fed today is expected to cut rates and many are saying that yesterday's rally was pricing in this cut.

The Euro bourses were skewed by the German Dax's embarrassingly bad handling of the Volkswagen affair. The situation was caused by huge shorting of VW which was seen as being overvalued because of Porsche buying stocks at bargain levels. When the market realised that there was not much float of shares for shorters to cover a scramble for shares sent VW shares to ridiculously high levels.

To give you an idea VW was valued at $102bn at one stage. To justify these numbers they would have to sell 64 million cars per year. Considering that sales of cars in the world are just north of 40mn you can see how silly the valuation became.

The Dax has received huge criticism around the world and the whole debacle could cost German investors billions, it s also expected to bring down a number of hedge funds who will have sustained huge losses.

Unconfirmed rumours in the US that Goldman Sachs had exposure to the farce caused the shares of Goldman to dip significantly although much of these losses were retraced in yesterdays rally.

As for today's trading all eyes are on the Fed announcement at 18.15 GMT but anything other than a complete surprise of a higher rate cut or no rate cut is unlikely to massively affect the market.

The thing to watch for those trading the indices is how this rally holds up. If this was just a bear rally it could fizzle out fairly quickly, if we see more strength today then we could be seeing a bottom forming.

Volatility is a risky business, of course, so be careful. 5 CFD contracts on the Dow at its lows yesterday would have yielded about £20,000, tasty profits but if you had been the wrong way you would have a lot of explaining to do to your bank manager.

Our mantra at the moment is 'Stops and Limits'. By all means take a dip in the market but make sure you are protected on the downside as if you get this market wrong it will bite your arm off.

Wednesday, October 22, 2008

Mortgage Brokers Ball.. 80's Deja Vu?

Possibly the most despised financiers in America, the nation's mortgage bankers, widely blamed for playing a central role in the global financial meltdown were whooping it up this week at a glittering annual convention

"We're all still here and we're still standing," declared Kieran Quinn, outgoing chairman of the association, who took the floor to a pounding chorus of Coldplay's Viva La Vida. He arrived shortly after a colour guard in full military regalia hoisted a US flag while an opera singer belted out The Star-Spangled Banner.

It reminds me of the coverage of the 'The Predator's Ball' the nickname for the annual conference thrown by Michael Milken for the private equity head honcho's of their day.

The last such event was much the same as the latest Mortgage Brokers Ball (doesn't have the same ring does it). In an environment where Drexel (Milken's firm) was under investigation and the public and politicians were rounding against him and his clients, bold statements were made.

Just like the Mortgage Brokers Ball Milken and others relayed the sentiments that 'we are still here' and it's 'business as usual'. That was the last such Ball as Drexel was, effectively, closed down by the government and Milken went to jail. Insider traders like Boesky and Levine joined him for a stretch and everyone got a little depressed that the gravy train had stopped.

The media rounded on Milken, Michael Thomas of the New York Observer. He had, variously, called Milken 'scum' a 'pig' and, oddly, 'beetle'. Commenting on Milken's impending sentencing he wrote "Whatever Judge Wood gives Mr. Milken won't be enough" and he hoped that life inside - and an introduction to buggery - would help him remember all the other crimes he had committed. 'The prospect of having one's sphincter enlarged to the circumference of the Holland Tunnel by the rigors of the prison social calendar often works wonders when it comes to refreshing memories'. Asked why he hated Milken so much he said "He looks like someone you would like to hate" adding” You don't have to know what a junk bond is to become infuriated by one".

The mortgage boys would do well to look back at this period of history and take some lessons in how things could turn out for them soon.

In a normal year, nobody would take much notice of a gathering of home loan originators. But a noisy group of protestors were on hand to remind the mortgage bankers of their unpopularity. Campaigners outside the conference centre wielded placards reading "grand theft bailout" and "jail greedy bankers - let them rot".

Bill Hackwell of Answer, a protest coalition involved in the demonstration, said: "We wanted to make sure they didn't think it was going to be business as usual as they meet to work out how to cover themselves."

It is clear to all now that unscrupulous lenders gave inappropriate mortgages on customers who could never afford to repay them. The MBA's own figures show that 9.1% of mortgages on US family homes are in arrears - the highest figure since records started 39 years ago.

Although it looked like business as usual at the conference with some admitting errors were made, some in the industry were not prepared shoulder all of the blame.

"There's certainly no lack of blame to be shared around the entire global economy," one said. "To say one industry is responsible for all this is a little simplistic."

His view was echoed by Ted Eric May, managing partner of law firm Sheldon May which specialises in servicing the mortgage industry: "Politicians and the general public are looking for easy people to blame. All of us are to blame. Our society has gone from living within our means to borrowing without restraint."

Inside the conference's exhibition hall stories of reckless lending were discussed. Phillip McCall, a mortgage fraud investigator, cited a case of a warehouse worker who applied for a mortgage, claiming an income of $7,500 per month: "Basic common sense is going to tell you someone in a warehouse is not going to be earnings $90,000."

This kind of application was left unchecked by mortgage lenders, but there is a point for apportionment of blame here. The warehouse worker, by falsely claiming his income was this high, committed fraud. This story is by no means a solitary case, one wonders if those who took out such fraudulent mortgages will be prosecuted.. I very much doubt it.

The last High Yield Bond Conference (the official name for the Predator's Ball) had a record attendance of 3,000 issuers and investors and the mood was optimistic. Milken had said previously that he was 'proud' to be in the High Yield Bond business and talked about raising '$6 out of every $10' to build homes for Americans to achieve their home-ownership dreams.

Sipping a drink as a guitarist played gentle melodies in the conference's foyer, Cary Burch, the chief executive of mortgage software provider LSSI, said mortgage lending was a force for good: "I'm proud to be part of this industry. It's been great to help people achieve their home-ownership dreams."

At least it was only a financial crisis that has come to haunt us from the 80's and not florescent socks and shoulder pads...

Source HF Markets - Online Trading

Monday, October 20, 2008

Hedge Fund Manager Cashes In His Chips

I think there are many traders out there who are trading on the basis that one day they can hang up their connection, put away the charts, clean out the account and set off for the sun. One hedge fund trader is doing just that and he has a few things to say before he goes.

Andrew Lahde, founder of California’s Lahde Capital, used his farewell letter to investors to round on the US “aristocracy” able to pay for their children to gain a top-class education. Mr Lahde, who has made tens of millions of dollars from his highly successful bets against the financial and property sectors during the past two years, also called for the legalisation of cannabis and said he was now dropping out to spend time with his money.

Saying he was “in this game for the money”, Mr Lahde went on to mock those who traded with him.

“The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking.”

“These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

“All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

Basically he is saying that all of the finacial woes are a result of a class system designed to make the US 'aristocrocy' richer and the average guy poorer.

I must admit, it is a tempting prospect to agree with. I wonder how many of the regulatiry, wall street and government elite were sons or daughters of rich parents and alumni of the 'top' schools.

On government he says:

"On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions.

These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.

Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken."

After this Mr Lahde goes on to back hemp and points out that this is not marijuana....

After reading this the words 'Burn' and 'Out' came to mind.

Tuesday, October 14, 2008

Devil Bankers.. Are We Really That Bad?

In the last weeks a new game is being played from Monaco to Minnesota, it is called 'bash-the-banker' The press have been full of it (literally), letting everyone in the profession know that we are soulless scum who have brought on the end-of-days.

My personal experience was speaking with an actor at a wedding of a school friend who blamed me for all the ills in the world. A few gin and tonics had passed my lips so he got some back, but saying that 'a few hundred years ago you would be sitting at the end of my bed in a three pointed hat and pointy shoes amusing me' may have being going a bit too far.

I can see his point, however, our profession has not covered itself in glory but I do take exception to us all being lumped in together. I have neither invested in nor created a CDO and I put down 20% for my mortgage...

Thanks to a friend, who has always had a leaning towards taking the mickey out of what I do for a living, I am now the proud owner of a t-shirt that proclaims that I am a 'Merchant Banker'. For those of you reading this from the US or, in fact, anywhere outside London you may not get the joke. 'Merchant Banker' is cockney rhyming slang for a word that sounds like 'banker' but is a little further down the picking order, alphabetically, and suggests I am not a nice person. I shall wear it with pride.

I guess that people are just very angry and looking for someone to blame and we as industry practioners are in the firing line. Here are some choice musings from upset people:

Irish Green Party backbencher Paul Gogarty described bankers as "scum" as he told the House he was only supporting the (Irish rescue deal) legislation through 'gritted teeth'. Thanks Paul, we spend enough time dissing politicians so right back at ya..

In the marvelously entitled 'Banks Are Scum' blog the author says:

"You cannot print money and throw it at the scum filth on Wall Street. The fact is this is not a capitalistic based economy. The rule is simple, you f*** up, you fix up. I despise, HATE for want of a better word, the people in government and criminal bankers who have led all astray over the last 300 years. The scum must swing by the neck till the last bit of life has been extricated from their demon bodies."

Gulp... 'swing by the neck until you be dead'... A bit harsh..

The Hollow Mantras of Vision blog says:


Their capitals not mine, and I am to a woman.. does that let me off?

I could go on but I think the above gives you a good picture of how we are seen in this current environment.

How the mighty have fallen. The highest searched article on this site has, for some time, been 'How to Become a Hedge fund Manager' in recent weeks this has dropped off the radar and, if the Internet rhetoric is to be believed, it will now be searched about as many times as 'how to perform a frontal lobotomy on myself'.

I actually think a lot of this nonsense is a bit of schadenfreude from those with a socialist leaning having their fifteen minutes of fame. Listening to many predictions in the deepest darkest recesses of the net where radicals of every belief lurk, bankers have 'brought on the end of times', are 'causing world poverty' and are 'the hidden malice out to control the world for their own evil ends'.

David Icke even thinks we are all lizard tongued parts of a secret world order.

Oh well, we can't be popular all the time. Bankers are just average Joes at heart people...don't hate the player, hate the game.

I am just off to eat a mouse, beat up an old lady and insert microchips into the local yokels while shorting a bank stock until it's bankrupt. I may also meet up with my other banking buddies and sacrifice a lamb.

I will see you all later at our next secret annual summit where we can discuss the next hideously clever plan to rule the world.

"Jeeves, fire up the limo and get the pilot to make ready the jet... it is time to spend a few months on the yatch"

Monday, October 13, 2008

The Beginning of the end?

The games begin for another week,we have much news to digest and its only noon.

First off the Uk has bail out 3 major banks to the tune of £37bn as, Europe-wide, governemnts use taxpayers money to boost confidence in the markets and take control of the banking sector.

In return for the British government's cash, which could make it the main shareholder in at least two of the banks, they will be forced to curtail the bonuses that many believe encouraged a risk-taking culture that precipitated the global financial crisis. They will also scrap dividends.

Finance Minister Alistair Darling said extreme times called for extreme measures and that he was prepared to make even more money available if necessary.

"It's necessary because we are going through quite extraordinary circumstances the world over, and I'm determined to do everything we can to stabilise our banking system and make it stronger," he said.

"And in return for it, of course, there will be restrictions on what happens in boardroom pay, and we're also getting guarantees in relation to increased lending to businesses, as well as to mortgages, too." The measures are being echoed across Europe.

Under the UK plan, Royal Bank of Scotland will boost its capital by 20 billion pounds, with the government taking 5 billion pounds in preference shares and a share issue of 15 billion pounds underwritten by the government.

HBOS and Lloyds TSB will also participate in the government scheme "upon successful merger," the Treasury said.

The UK Treasury laid out a series of conditions attached to the bailout, including a commitment by the banks to lend to homeowners and small businesses at 2007 levels, limits on executive pay, and government input on new board appointments.

Forcing the banks to lend may seem a nightmare waiting to happen, but if normal (as in pre-liar loan mortgages) credit screening is done correctly then there shouldn't be an issue. The problem I can foresee is that 'normal' credit screening for small business in an environment where times are very tough may make it difficult for the banks to comply.

Also, it must be a very interesting time in the banking sector right now, as an employee. Perhaps those who are mid level will be thankful that they are not going the way of Lehman employees but top level traders must be reveiwing their options.

If I were trading at a bank that had been beiled out right now, I would be very concerned about my package. Can you imagine a scenario where The Sun newspaper gets a hold of a story on Tim Trader making £1mn a year with a nice picture of him driing his Ferrari to work? You wouldn't have to look to far to find someone like that.

The banks in the middle of these bail outs consequently have a problem with staff retention. The reason that traders get paid so much is similar to the football world. If one club is prepared to pay a player more - off he pops, breaking his contract.

Top traders are not known for their loyalties and will be seeking to work for companies where their bonuses are not capped. Could be a good thing, as maybe some of these big banks will get back to being banks.

In other news that created the great headline 'Major Central Banks Offer Unlimited Dollars', central banks on Monday pledged to pour 'unlimited' amounts of dollars into the system to un-freeze credit markets.

"The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment," the Federal Reserve said in a statement.

"Funds will be provided at a fixed interest rate, set in advance of each operation," it added.

The sizes of the reciprocal currency arrangements (swap lines) between the Fed and the Bank of England, the European Central Bank and the Swiss National Bank will be increased to accommodate whatever quantity of U.S. dollar funding is demanded, the statement also said.

FTSE is up, Dow futures are up...happy days..

Source: HF Markets - Online Trading

Wednesday, October 08, 2008

Asian Markets Crumble.. Panic Selling?

Big news out of Asian this morning with markets falling by massive levels as credit fears intensified, selling snowballed and authorities around the world scrambled to find ways to contain the crisis.

The UK government announced a liquidity scheme for banks under which at least 200 billion pounds ($350 billion) will be made available to financial institutions, plagued by bad debts and a crisis of confidence.

We hate to mention the word 'capitulation' for the third day in a row but the raft of announcements and bail outs are doing little to soothe investors. Sellers drove the Nikkei down 9.4 percent, its biggest one-day percentage fall since the crash of October 1987.

Markets in Tokyo and Hong Kong plummeted 5 percent to 7 percent, and Jakarta tumbled 9 percent, after another dismal session on Wall Street that saw the Dow Jones industrial average notch its biggest five-day points fall ever.

European markets were sharply lower on the open, the FTSE down 100 points, the DAX down 168 points and the other Euro bourse are following suit.

The FTSEurofirst 300 index of top European shares has already lost 7.9 percent this week, on track to record its worst weekly performance since mid-2002. The index is down 33 percent year-to-date.

"I think for a few more days we are in a Mark Twain situation where we are more worried about the return of our money than the return on our money," Guy Monson, Managing Partner & CIO at Sarasin & Partners, told "Squawk Box Europe."

About the UK government's plan, "what we're really looking at is a giant backstop to the entire banking system," Monson said, adding that now "we have a banking system which is run directly by state guarantee".

Banks continued to get hammered, but news from other sectors of the economy was no better, with aluminum producer Alcoa reporting a lower-than-expected quarterly profit on softening demand on Tuesday after the bell, and saying it was halting major capital projects in the face of uncertain markets.

And Toyota Motor will likely post a 40 percent slide in annual profit, missing its profit estimates on weak sales in North America and slower growth in China, the Nikkei business daily reported.

Many have called the situation in Asia a 'panic' and some commentators in Europe are suggesting that panic selling is now in place in the Euro bourses. This then is the point at where a bottom may form, however we said some time ago that the charts were telling us a bottom would be around 4000, however, even we scoffed at our own prediction.

Still we can take solace in the fact that some people made really, really bad calls. Here are some from July 08:

Binky Chadha, Deutsche Bank’s New York-based chief strategist says "the S&P 500 will end the year at 1,650, up 29 percent from June 30".

Ian Scott, Lehman’s (err hmm) global strategist, is predicting "an advance of 27 percent to 1,630".

David Bianco at UBS said the index will increase at least 25 percent.

At the time Peter Sorrentino's a Cincinnati-based senior money manager at Huntington Asset Advisors, which oversees $16.7 billion, said “A monkey with an abacus is probably better at the end of the day,”. Nice one Pete..

In the search for a bottom many commentators are now giving us their opinions and Marc Faber, the so-called Dr. Doom, has joined the search party. "The market has become extremely oversold," said the author of the Gloom Boom & Doom Report. "I think we're at one of the most oversold conditions ever, maybe not quite as oversold" as during the Black Monday period of Oct. 19, 1987.

Faber sees a rebound beginning in early 2009, and advised investors to look to emerging markets stocks as the catalyst.

"If you're playing for a recovery in the global economy whenever that comes, I think you will have to position yourself in emerging economies' stock markets," he said.

He also favors investing in gold on the belief that global central banks will loosen monetary policy and drive down the value of their currencies.

Traders looking for plays in this market could do worse than look at the credit markets rather focusing on the indices for a guideline as to where we are.

"While everyone was focused on a major equity decline it was the best improvement in credit quality that we've seen in eight weeks across the board," said Kevin Ferry on Tuesday, of Cronus Futures Management. "All measures of both liquidity and systemic risk improved yesterday."

From our point of view we see the time is right to have your trading fingers at the ready, nobody can predict when it’s going to happen but at some point very soon this market is going to bottom out. The volatility that we will see will continue but higher highs and higher lows are on the horizon.

When the points are counted in 12 to 18 months time we will have seen the opportunities from here as the trading period of a lifetime and there will be some traders who will have made a fortune.

Download the system, fund the account and wait for the starter’s gun.

Take heed, however, this market is all over the place and risk is rife so please remember, it's 'Ready, Aim, Fire!" not "Fire, Ready, Aim!”

Source: HF Markets Online Trading

Tuesday, October 07, 2008

Countries In Trouble.. Capitualtion Surely?

Yesterday was just one of those days. An 800 point intraday fall on the Dow with a 300 point recovery in the afternoon session is the type of market that traders dream of, stockbrokers lose hair over and governments hate.

With a couple of trading days like we have had the market and investors are beginning to wonder whether we have reached the point of capitulation, basically the point where people say 'to hell with it' and dump everything. Scarily it doesn't look that way.

Having spoken with a number of friends who are traders and brokers very few are reporting that clients are calling up to dump stock. One stockbroker said "It's bizarre really, even though the market has plummeted we have been getting more calls from clients who want to average down than we have from clients wanting to dump."

This lack of total capitulation is being attributed in some respects to the Internet and financial TV shows. One broker said "I was around in 87 and the scariest thing was that we just did not know what was going on. In today's market, clients are watching the same information as we are and because of this they are less likely to panic".

A broker at a small company specialist said "The media have caused some of my clients to lose lots of cash. The tabloid press should be ashamed. I suppose we should be used to them sensationalising everything but they have to take some responsibility for retail clients getting shafted. Some companies with sound balance sheets a great product and little exposure on a macro scale are being killed when there is no need for it, when the dust settles the regulators should look at these so-called experts and bring them to book."

This particular broker saves his most venomous comments for the financial bulletin boards, "You have people on these bulletin boards spouting absolute lies, plain cold lies. How can a broker be fined or have his livelihood taken away if he misleads a client but an anonymous numpty on an Internet site can say whatever he wants, market manipulation in affect, and nothing happens, double standards in the name of free speech. It makes me sick"

It seems that much of the criticism of the media, regulators and government from those inside the industry, stems from the belief that a clear concise plan is not in place. This may be on the way in the UK at least after the Chancellor met with senior officials from the UK's top banks.

The chief executives of Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS last night met the chancellor, Alistair Darling, and other senior members of the Tripartite Authorities.

The banks are understood to have told Mr Darling that they broadly back a plan for the Government to take equity stakes in return for capital injections.

Analysts yesterday predicted the Government might need to pump between £30bn and £50bn into the banks.

Sources said last night they expect a plan of action to be hammered out over the next couple of days. The cash injection would be in the form of preference shares, and it is possible the Government would hand over some cash now while also saying there would be a pot of cash available if banks need money several months down the line.

“There is a realisation that some of the more radical options have to be put on the table,” a senior banking source said.

While unenthusiastic about part nationalisation, the banks hope that if the Government helps to bolster their capital it might provide a much-needed boost of confidence to investors.

The worry for the industry and now, believe it or not, actual nation states, is that the governmental money coming into the banks will be followed by massive regulatory changes.

Iceland agreed yesterday to guarantee it banks in a similar move to Ireland, part of the reason for this is that if the Icelandic banks are to benefit from selling toxic assets under the US bail-out plan they had to make this move and they fear that US oversight may be the consequence.

There was even talk of Iceland becoming bankrupt. The trigger for the panic over Iceland's solvency came Monday, when the government pumped €600 million ($827 million) into Glitnir Bank hf, the country's third-biggest bank by market capitalization, taking a 75% stake.

Meant to reassure financial markets, the bailout instead heightened concerns that Iceland might have to prop up its other banks too, but that it lacks the resources to do so.

Iceland has a population of just 300,000 and a gross domestic product in 2007 of around $20 billion -- less now that the currency has fallen so sharply. Its major banks have foreign-currency liabilities totaling $120 billion.

"If the Icelandic government is forced to bail out those banks, its debt could go up to astronomical levels as a share of GDP," says Ben May, an economist at London consultancy Capital Economics.

That concern has pushed up the cost of buying insurance on debt issued by Iceland's government to a level that normally indicates a borrower is in severe distress. On Friday, traders said it cost $1.5 million up front plus $500,000 a year to insure $10 million of Icelandic debt against default. That is up from $271,000 a year with no up-front fee a month ago, according to Markit Group, a credit-information firm.

"There is skepticism that Iceland's finances could cope with a systemic banking failure," said Gavan Nolan, a credit analyst at Markit.

When there is potential for a country to go bust, you have to admit, capitulation cannot be far off, if it has not already reached that point this week.

Source: Online Trading - HF Markets

Monday, October 06, 2008

More Bail-Outs In scramble To Save The System

The 'bail-out' package was approved, brought into law and the Dow futures have promptly fallen 200 points leaving the Dow a smidgen off going under 10,000 points. If the main index goes below this figure it will be the first time since October 2004.

European bourses are not fairing any better as the EU governments show their usual leadership qualities by stuttering and stumbling from one cock-up to another. The Germans and French ruled out an EU-wide rescue package similar to the US last week and will look to veto any such package saying there would be no 'blank cheque' and then the Germans promptly bailed out Hypo Real Estate to the tune of 30 billion Euros.

The government and the Bundesbank came up with that old chestnut that Germany's second-biggest property lender, "is too big to fail". They met with banks and insurers in Berlin all day yesterday to discuss a revamped rescue package after private banks on Saturday withdrew their support for a 35 billion-euro rescue package brokered a week ago.

The most interesting lesson being learned from all this, to the delight of Euro-Skeptics is that when times are good the EU promotes closer economic ties, peace love and harmony but when the EU is really needed each country has employed the EFH Directive 2008.

European leaders meeting in Paris this weekend pledged to bail out their own nations' banks, while stopping short of a regional rescue effort in a classic interpretation of the 'Everyman For Himself' Directive.

This has been manifested in the most recent round of takeovers and mergers.BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium after a government rescue of the Brussels and Amsterdam-based company failed.

Belgium and France on Sept. 30 threw Dexia SA, the world's largest lender to local governments, a 6.4 billion-euro lifeline. UniCredit SpA, Italy's biggest bank, plans to boost its capital by as much as 6.6 billion euros and the Icelandic government is reportedly trying to arrange a 10 billion-euro injection into its banking system.

Instead of having a coordinated effort to settle savers worries countries are scrambling to give confidence. Ireland guaranteed 100% of depositors fund last weeks, this despite estimates that if the system failed the 400bn Euros required to pay depositors would by twice the GDP of the country. Talk about leverage risk!

Germany followed suit and said it would fully guarantee personal savings in a bid to ease concerns about stability.

Gordon Brown showed astonishing naivety by increasing the UK guarantee to just £50,000 from £30,000. What message does that send out?

It basically says that the extra £15,000 is all the risk the UK government is wiling to take. It points at a weakness in the UK banking system that the UK government is not prepared to underwrite. Many see this as another sign that Brown is not the man to steer us through this crisis.

Fully guaranteeing savers would have sent a message to the public and to the rest of Europe for that matter, that the UK stands behind its financial system with confidence. An increase of £15,000 has completely the opposite effect. Anybody holding money above this figure in a UK bank account must be considering a move to Ireland or Germany.

Points to watch for Dow traders this week are:

In the coming week, there are a few key economic reports, including the Fed's minutes from its last meeting released Tuesday. Consumer credit is also reported Tuesday. Pending home sales are released at 10 a.m. Wednesday, and weekly jobless claims and wholesale trade are reported Thursday. On Friday, international trade and import prices data are released.

Traders are also watching the U.S. banking sector where Wells Fargo , one of the healthiest U.S. banks, swept in with a merger offer Thursday night to beat out Citigroup's bid for Wachovia. Citigroup is protesting Wachovia's new merger deal. Its own plans to merge with Wachovia, attractive to Citi for its wealth of deposits, was brokered by the FDIC.

Bernanke speaks at the National Association of Business Economists meeting in Washington Tuesday, and Lehman Brothers CEO Richard Fuld will be on Capitol Hill answering questions on his firm's demise before the House Oversight Committee. On Tuesday, former AIG officials come before that committee.

Politician watch is the name of the game this week. Many are suggesting that the US bail-out package has come too late to stop some major problems in the market manifesting themselves in more bank failures. We will see how the politicians in Europe respond now but expect lots of back-peddling and more bold statements.

This week will be yet another roller coaster.

Good luck!