Who's In Charge?

Alistair Darling revealed his plans yesterday to "beef up" financial regulation, in the wake of the Northern Wreck fiasco.Rather perversely, despite the Financial Services Authority (FSA) being given a drubbing for it slack lustre approach to the Northern Wreck fiasco, the government wants to give the FSA more powers. Darling also rejected the Treasury Select Committee's call for the Bank of England to play a greater role in monitoring individual institutions. Instead the Government plans to legislate to make the Bank of England's role in financial...

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Ducking The Question

Philippe Bordenave, the chief financial officer of French bank BNP Paribas, ducked questions about the possibility that BNP may bid for beleaguered Societe Generale yesterday.Quote:"We have had no time. When they published their announcement our first priority was to avoid the risk of being tarred by the same brush so we decided to immediately issue a statement and to publish very rapidly our results.Since then, it was last Thursday, my team and I have worked around the clock to get the figures that we are publishing today. During that very short...

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The Euro5BN Man Hits Back

Jerome Kerviel, known as the Euro5BN Man, who is alleged to be behind the Euro5BN loss at Societe Generale has claimed that many of his colleagues were also guilty of fraud.He admitted to prosecutors that he breached legislation, but said that he was not the only worker at the bank to flout the law.His lawyers claim that he had "committed no dishonest act", and had been made a scapegoat by the bank. Co-workers, including security checkers and managers, have been implicated in the futures trader's dealings.Prosecutor Jean-Claude Marin said: "There...

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SocGen Emulates Northern Wreck

In the fallout from last week's alleged fraud at Societe Generale, shares in the bank continued to underperform the market falling 3.7% today.Prompting French Economy Minister, Christine Lagarde, to say that there was no need for Societe Generale to merge with another bank.However, SocGen's problems have spurred longstanding market speculation that it could be taken over by BNP Paribas. There is also speculation that SocGen might be vulnerable to a break-up bid.Northern Wreck, SocGen...who's ne...

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French Lessons

The recent SocGen scandal whereby Jerome Kerviel has been fingered by directors of Societe Generale, one of France's most banking prestigious institutions, as being solely responsibly for losing Euros5BN has provided a little "light relief" for other banks and investors caught up in the turmoil in the world's financial markets.However, the matter does raise some rather intriguing questions about how Soc Gen has handled itself during this crisis.Firstly, and most obviously, how was a relatively junior trader able to get away with such large scale...

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On Vacation Until February 4

Bonddad is doing something new and unique -- I am taking a vacation. This is the first vacation I have taken in, well, a really long time. Between a law practice, graduate school, blogging, family commitments and getting married in May I am pretty tired and need to recharge my batteries for the Spring. Where am I going? That's is ultra-top secret. I can tell you it involves sunshine, tanning lotion and the company of the future Mr$. Bonddad. We are going somewhere near the equator. Over the last week -- thanks in no part to me but an incredibly...

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Weekend Haggis

You're probably expecting pictures of a Beagle and two Weimeraners, aren't you? Well, today we're going to do something a bit different. Last Saturday, Bonddad and the future Mr$. Bonddad were at the Burns supper. This was my first and it was a ball. And we feasted on Haggis. But before the pictures of the Haggis, here is the poem to the Haggis:Fair...

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Banks Need a Ton of Cash In Case of Insurers Downgrades

From Bloomberg:Banks may need to raise as much as $143 billion to meet regulators' requirements should rating firms downgrade bond insurers, Barclays Capital analysts said.Banks will need at least $22 billion if bonds covered by insurers led by MBIA Inc. and Ambac Financial Group Inc. are cut one level from AAA, and six times more for downgrades by four steps to A, Paul Fenner-Leitao wrote in a report published today. Banks own $820 billion of structured securities guaranteed by bond insurers, the report said.``This is a huge amount, but the assumptions...

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What Inflation?

From the WSJ:Fed rate cuts lower borrowing costs throughout the economy and effectively increase the money supply. But cheaper greenbacks can also have a downside: inflation. In particular, natural resources traded globally in dollar terms tend to rise if demand in foreign countries remains solid, making it necessary to purchase the same amount of...

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Co-ordination

It seems that the central banks just don't get this global economy thing. Despite the fact that the Western world is linked financially, and despite the fact there is a complete loss of confidence in the banking/finance sector, central banks still refuse to co-ordinate their policy.The Fed, earlier this week, cut rates by 0.75% and is likely to reduce them by another 0.5% next week. Yet the Bank of England, at best, is likely to only reduce rates by 0.25% next week and the ECB (as usual with its head in the sand) refuses to make any change at all.When...

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Was It All Just an Illustion?

Ever since I have been writing about the economy (about 4 years) I have focused on the mammoth increase in US debt during this expansion. It has led me to question the underlying vitality of this expansion as a whole.Let's start with a few basic charts.Above is a chart from of total household debt. Notice the curve is almost parabolic over the last...

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Today's Markets

Today was a consolidation day after yesterday's big rally. If you look at the charts, you'll see a very tight trading range with very little movement.Looking at the daily charts gives further evidence of consolidation. Yesterday the averages printed a large upward moving bar on strong volume. Today we have smaller bars on smaller volume. It is...

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How Bad Will Employment Get?

Let's start with a graph from the St. Loius Federal Reserve. This is a chart of the percentage change in employment from a year ago.Notice the job growth has been extremely weak, especially compared to the last two expansions. That leads to an important question: assuming an economic slowdown, how bad will employment become?"If payrolls are leaner...

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I'm Coining a New Fed Term -- "Panic Slashing"

Panic Slashing: When the Federal Reserve realizes its economic models are way off and news events expose its public pronouncements of "everything is alright" as complete bunk, the Fed engages in "panic slashing" -- quickly lowering rates to a negative rate of return after adjusting for inflation in the hopes that someone (anyone) will actually start to make consumer loans and to save the markets from those embarrassing things called "losse...

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Was Yesterday a Short-Term Market Bottom?

In yesterday's daily wrap-up (which is right below this post) I posted Fibonacci levels based on daily charts of markets. My basic theory there is with the Fed cutting rates (maybe the phrase "panic slashing" is better) and the market in a clear down up down with lower highs and lower lows, this would be a technically appropriate time to see a market...

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Beleagured Darling Offers Concession

The beleaguered and under siege Chancellor of the Exchequer, Alistair Darling, in a desperate attempt to reprieve his Northern Wreck/CGT shattered reputation is today going to offer concessions on his less than popular plans to overhaul capital gains tax (CGT).Darling will offer concessions to reduce the impact on business of his proposal to impose a single 18% CGT rate, in place of the 10% rate which applied to many business assets.The concession is expected to reduce by 50% the CGT rate on profits on the first £750K of gains.We shall see if that...

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Today's Markets

Wow -- one heck of a wild ride on the street today. The markets opened lower, but then rallied hard after about 11 CST.I think this observation makes the most sense in explaining today's rally:"There does come a point and time when the market itself recognizes that it got out of hand, and that is when bargain-hunters can come in," said Peter Cardillo,...

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Please Visit Some of My Links

Traffic is really up over the last few days, which is understandable given the overall situation. Over on the right hand side of the web page I have some links to various economic and market blogs. These are blogs I read everyday and I have always found them very informative. I would encourage you to click on a few to see what you think. Right now the best thing anyone can do is to accumulate as much knowledge about what is happening. While it may not make the ride easier, at least you'll understand what is going ...

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Major Market Fibonacci Levels

This is a "for what it's worth" post. Below are the 5 year charts of the SPYs, QQQQs and IWM with Fibonacci levels and Fibonacci fan levels. None of these are guaranteed to occur. But these are levels that other people will be looking at in the market, so it's good to know where they a...

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Why A Rate Cut Won't Help, pt. V

From the WSJ:The glum news from U.S. banks continued with steep declines in fourth-quarter profit at five large lenders, led by Bank of America Corp. and Wachovia Corp., while mortgage-related woes plunged regional bank National City Corp. to a steep loss......The results capped a miserable earnings season for the banking industry, which was riding high until the mortgage meltdown triggered huge write-downs on investments, forced banks to begin hastily rebuilding loan-loss reserves, and exposed how far many lenders strayed from their roots during...

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Apple Reports Disappointing Projections

From the WSJ:Attention turns Wednesday to the tech sector, as Apple reported a 58% fiscal first-quarter profit rise, but it steered the market to expect it will earn 94 cents a share in this quarter, well below analyst estimates of $1.09."The company is low-balling the Street on the March quarter, but this is not a good environment to lowball the market,"...

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What A Real Fed Chairman Looks Like

From Bloomberg:European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation even after stock markets plunged and the U.S. Federal Reserve cut interest rates to avert a recession.``Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,'' Trichet told the European Parliament in Brussels today. This is my kind of central bank...

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Why A Rate Cut Won't Help, pt. IV

Let's take a look at money supply. I'll be using MZM which is:A measure of the liquid money supply within an economy. MZM represents all money in M2 less the time deposits, plus all money market funds.Here is a chart from the St. Louis Federal Reserve of the total MZM money supply:Notice that starting in late 2005 the total started increasing and...

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Interest Rates

The Fed's cut in interest rates yesterday by 0.75%, has put pressure on the Bank of England (BoE) and ECB to follow suit and act in a co-ordinated manner to stabilise the world's financial system.Mervyn King, Governor of The Bank of England, gave a warning last night that the UK economy faced its toughest period in more than a decade during 2008. He also gave a hint that rates would be cut, at next week's BoE MPC meeting, by noting that the current rates were bringing downward pressure on demand.Despite expectations of a cut in UK interest rates,...

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Read This Now

From Herb Greenberg:Here's the money quote:I wrote here last month that the Fed did the right thing by cutting just a quarter of a percent a few weeks before the holidays. That would give them a chance to see how the consumer was really doing.They got the answer pretty fast: The consumer is doing horribly. The value of their homes, especially in the most inflated parts of this country, has deflated. The availability of credit via their homes or other sources has deflated. The value of their 401ks and IRAs has deflated.As a result, their confidence...

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Today's Markets

First, read this post from Afraid to Trade. He notes that today we had one of the most amazing gap fills he has ever seen -- a sentiment I agree with.A look at the daily charts shows the Fed's rate cut worked. Although the markets opened lower ona bug gap down, all the averages spent the rest of the day rallying to fill the gap, slowly working their...

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Why A Rate Cut Won't Help, pt. III

Below I mentioned that many financial firms are writing down debt. Today we have several announcement on those matters.From the WSJ:Wachovia Corp.'s fourth-quarter net income plummeted 98%, as the company's deteriorating lending portfolio forced it to dramatically increase its loan-loss provision. The company also saw its bad loans and delinquencies surge......The company increased its loan-loss provision to $1.5 billion from $206 million. Wachovia, the fourth-largest U.S. bank by consolidated assets, last month raised its loan-loss provision...

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Why A Rate Cut Won't Help, pt. II

Let's look at what got us into this mess.Look specifically at the rates from the early 2000s. I drew a line from those levels all the way back to the beginning of the chart. Notice that rates were not that low for about 40 years.Let's look at what else happened during that time. Here is a chart of total household debt outstanding:And here is a chart...

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