A Financial Emergency Is Coming Very Soon From Credit Gridlock Or Any Number Of Causes
Saturday, 26. April 2008, 19:59:26
A Financial Emergency is coming soon; it could come from Treasury repo fails, or Credit Default Swaps and counterparty risk, or 'commerical lenders' such as COF, IX, GE, CIT, BKCC, GCA, ADVNB, NEWS, WRLD, together with 'commercial banks' such as BAC, C, UBS, and WB, burdened with consumer debt, "simply not being able to provide loans -- capital at any cost", or a large number of "letters of credit" not be renewed by money center banks, such as Bank of America and Citigroup; the "credit crunch" will morph to become "credit gridlock" -- an implosion in the comercial credit marketplace. The outcome will be two fold: first, a company's stock values will immediately fall as news is made public that its credit lines are cut; and secondly, "liquidation" -- companies lacking liquidity will be shutting down literally overnight, in "Bear Stearns fashion"; declaring bankruptcy; and selling any assets for pennies on the dollar.
The Financial Emergency may mean that one may not have immediate access to one's money market fund, or brokerage accounts which is a concept developed by MarketWatch's Herb Greenberg in his March 17, 2008 article How To Keep Your Investments Safe.
The Financial Emergency could come any day; at that time gold will soar; I suggest that one 'dollar cost average' purchases of gold at BullionVault.com, as I believe as John Lee writing in Kitco.com relates "I am very confident the downside is $850-$890/oz, while the upside is anyone's guess".
The current chart of gold, $gold shows it perched on the edge of a massive head and shoulders pattern; prices typically fall from such formations; gold's support is lower at $850 and $840.
The current chart of the US Dollar, $USD, shows that it has risen to its 50 day average to close at 72.80, and could easily move higher to $73.50 and even $74.00; in as much as gold moves inversely of the US dollar, it definitely looks like gold is going lower.
I conclude by saying that I ascribe to Liquidation Thesis; it holds that the the soon coming financial emergency will provide the "necessary adjustment to the distorted and imbalanced U.S. and global economies" that Mr. Noland forsees; and I believe that gold will soon emerge as the sole means of wealth accumulation and preservation; and as such I encourage that one 'dollar cost average' buy gold at BullionVault.com
Related article
The capital provisioning infrastructure is burned out and bone dry reports IBD's Reinhardt Krause in Raising Capital Is Getting Harder For Banks:
"For companies that have done the most (capital raising), we think they've used up much of their dry powder. If they did have to raise more capital over the next few quarters, it might be more difficult for them," says Brad Hintz, analyst at Bernstein Research, and a former chief financial officer at Lehman Brothers, LEH.
The most likely scenario, say observers, is that banks will have to take more painful steps to raise cash, mainly highly dilutive common-share offerings.
Early on in the credit crisis, banks went hat-in-hand soliciting foreign governments for capital. But, sovereign wealth funds have provided less money of late. In November, Citigroup, C, raised $7.5B from the Abu Dhabi Investment Authority of the United Arab Emirates. UBS took in $10 billion from the Government of Singapore Investment Corp. Merrill Lynch, MER, shored up its balance sheet selling $6.6 billion in convertible securities to the Kuwait Investment Authority, and $5 billion in common stock to Singapore's Temasek. While Citi has raised $44.1 billion, it still needs another $10 billion to $15 billion to shore up its balance sheet, says Oppenheimer analyst Meredith Whitney. Citi has said it wants to slash assets by more than $400B over the next three years, (which Richard says Citi will not, repeat definitely not be able to do).
Those deals were cut before banks began disclosing the full extent of their mortgage-related investments. Sovereign wealth funds are still losing money on some of their big bets, and are wary of doubling down until it is clear the housing market has bottomed, analysts say.
Falling share prices have increased the cost of raising new capital, analysts say.
One hurdle to raising more money from foreign government funds involves the terms of deals struck late last year as the credit crisis unfolded. Banks agreed to compensate the funds if the banks sold more stock at lower prices. (Richard this is a type of 'put option'; the first of which was where Citi, took back whole portfolios of loans sold off to hedge funds, at the price the funds originally bought them at). Usually a bank gets less capital from the foreign fund involved in the first deal, or gives the fund more convertible stock, further diluting common shareholders. "You're caught in a bit of a bind if you've signed one of those agreements," Hintz said. "You probably can't go back there too many times."
Some banks have raised capital via private equity. Buyout firm TPG led a $7 billion injection of capital into Washington Mutual. Corsair Capital was involved in National City's $7 billion common stock issuance. Despite rumblings that more banks are talking to private-equity firms, analysts say most aren't ready to accept buyout firms' steep price. In its TPG deal, WaMu roughly doubled shares outstanding, including preferred shares that will convert to common. Regulators are wary of private equity firms' involvement in the banking industry.
To raise cash, many banks have issued preferred equity, which gives investors dividends or interest payments. Many banks have raised capital via "perpetual" preferred stock, which does not mature like bonds. While issuing common stock dilutes existing shareholders, dividends and interest payments in preferred offerings dilute earnings.
IBD's Chart shows banks have raised $260B in capital
Keywords
CreditGridlock
The Financial Emergency may mean that one may not have immediate access to one's money market fund, or brokerage accounts which is a concept developed by MarketWatch's Herb Greenberg in his March 17, 2008 article How To Keep Your Investments Safe.
The Financial Emergency could come any day; at that time gold will soar; I suggest that one 'dollar cost average' purchases of gold at BullionVault.com, as I believe as John Lee writing in Kitco.com relates "I am very confident the downside is $850-$890/oz, while the upside is anyone's guess".
The current chart of gold, $gold shows it perched on the edge of a massive head and shoulders pattern; prices typically fall from such formations; gold's support is lower at $850 and $840.
The current chart of the US Dollar, $USD, shows that it has risen to its 50 day average to close at 72.80, and could easily move higher to $73.50 and even $74.00; in as much as gold moves inversely of the US dollar, it definitely looks like gold is going lower.
I conclude by saying that I ascribe to Liquidation Thesis; it holds that the the soon coming financial emergency will provide the "necessary adjustment to the distorted and imbalanced U.S. and global economies" that Mr. Noland forsees; and I believe that gold will soon emerge as the sole means of wealth accumulation and preservation; and as such I encourage that one 'dollar cost average' buy gold at BullionVault.com
Related article
The capital provisioning infrastructure is burned out and bone dry reports IBD's Reinhardt Krause in Raising Capital Is Getting Harder For Banks:
"For companies that have done the most (capital raising), we think they've used up much of their dry powder. If they did have to raise more capital over the next few quarters, it might be more difficult for them," says Brad Hintz, analyst at Bernstein Research, and a former chief financial officer at Lehman Brothers, LEH.
The most likely scenario, say observers, is that banks will have to take more painful steps to raise cash, mainly highly dilutive common-share offerings.
Early on in the credit crisis, banks went hat-in-hand soliciting foreign governments for capital. But, sovereign wealth funds have provided less money of late. In November, Citigroup, C, raised $7.5B from the Abu Dhabi Investment Authority of the United Arab Emirates. UBS took in $10 billion from the Government of Singapore Investment Corp. Merrill Lynch, MER, shored up its balance sheet selling $6.6 billion in convertible securities to the Kuwait Investment Authority, and $5 billion in common stock to Singapore's Temasek. While Citi has raised $44.1 billion, it still needs another $10 billion to $15 billion to shore up its balance sheet, says Oppenheimer analyst Meredith Whitney. Citi has said it wants to slash assets by more than $400B over the next three years, (which Richard says Citi will not, repeat definitely not be able to do).
Those deals were cut before banks began disclosing the full extent of their mortgage-related investments. Sovereign wealth funds are still losing money on some of their big bets, and are wary of doubling down until it is clear the housing market has bottomed, analysts say.
Falling share prices have increased the cost of raising new capital, analysts say.
One hurdle to raising more money from foreign government funds involves the terms of deals struck late last year as the credit crisis unfolded. Banks agreed to compensate the funds if the banks sold more stock at lower prices. (Richard this is a type of 'put option'; the first of which was where Citi, took back whole portfolios of loans sold off to hedge funds, at the price the funds originally bought them at). Usually a bank gets less capital from the foreign fund involved in the first deal, or gives the fund more convertible stock, further diluting common shareholders. "You're caught in a bit of a bind if you've signed one of those agreements," Hintz said. "You probably can't go back there too many times."
Some banks have raised capital via private equity. Buyout firm TPG led a $7 billion injection of capital into Washington Mutual. Corsair Capital was involved in National City's $7 billion common stock issuance. Despite rumblings that more banks are talking to private-equity firms, analysts say most aren't ready to accept buyout firms' steep price. In its TPG deal, WaMu roughly doubled shares outstanding, including preferred shares that will convert to common. Regulators are wary of private equity firms' involvement in the banking industry.
To raise cash, many banks have issued preferred equity, which gives investors dividends or interest payments. Many banks have raised capital via "perpetual" preferred stock, which does not mature like bonds. While issuing common stock dilutes existing shareholders, dividends and interest payments in preferred offerings dilute earnings.
IBD's Chart shows banks have raised $260B in capital
Keywords
CreditGridlock
WIDGETIZE