Gold Soars As A Liquidity Meltdown Occurrs
Wednesday, 17. September 2008, 23:33:40
Liquidity Was Sucked Out Of The World's Financial System Again Today
The Ted Spread is a metric of liquidity. The fact it blew sky high to 3.02 relates that money and cash is quickly going out of the financial system.
Jesse reports that the TED Spread Rises To New High For The Credit Crisis
My definition of the Ted Spread is an additional interest (above a 3-month US Treasury) that banks charge each other, to lend to each other.
Wikipedia Definition: "the TED spread is now calculated as the difference between the three month T-bill interest rate and three month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another."
Today, it widened to 302 basis points. What happens next is uncharted terrority. This metric reads such a dearth of liquidity, and lack of lending, that I suggest that one go immediately to gold, like in the gold ETF, GLD, purchased directly from the organization, and not through a brokerage account and that one immediately buty gold at BullionVault and GoldMoney.
One of the reasons for the liquidy crisis is the Option Arms in Washington Mutual's lending portfolio. The Jesse article Washington Mutual: Dead Man Walking, communicates that WaMu is so capital depleted that it is a zombie corporation; once an agent of securitization and financialization, now it is a financial Chernobyle, a soulless, capital-eating monster, dragging world stock markets lower.
Adrian Ash in GoldSeek article Gold Rises As Stock Markets Tumble, "Safe Haven" Bond Yields Sink Below Rising Inflation writes: "WaMu's bonds were downgraded to "junk" status Monday by the three major credit-ratings agencies. It's set to take a $19 billion hit from bad mortgage loans over the next 30 months.
J.P.Morgan is no longer looking to buy WaMu, says a source quoted by the Seattle Times. Bank of America chief Kenneth Lewis – who bought Merrill Lynch for $50bn at the weekend – told CNBC yesterday that he's not interested in WaMu, either.
"The failure of a bank its size would test the strength of the US deposit insurance system," says the Financial Times, "and its ability to maintain the confidence of the nation's savers."
Washington Mutual held some $143bn in FDIC-insured deposits at the end of June – three times the size of the Federal Deposit Insurance Corporation's funds."
Gold Soared
Mike Mish Sheldon in article Global Financial Seizures Continue, Gold Soars writes that: "Gold bulls have something to smile about today as it is soaring by more than $50 in the wake of renewed financial seizures. The markets have greeted the news Nationalization of AIG: Treasury to get 80% stake in return for $85 billion with a bang".
Proprietary Trader shows the chart of gold popping above $800.
The Russian Markets Were Halted
Continuing with Mr. Sheldon: "Bloomberg is reporting Russian Markets Halted as Emergency Funding Fails to Halt Rout.
Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country's debt default and currency devaluation a decade ago.
The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.
The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.
"The bond market remains effectively closed and banks are reluctant to lend to one another," said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. "The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further."
There Was A Massive Flight To Safety
And Mr. Sheldon moves on to report on the demand for short term US Government Treasuries: "Bloomberg is reporting Treasury 3-Month Bill Rates Drop to Lowest Since at Least 1954.
U.S. Treasury three-month bill rates dropped to the lowest since at least 1954 on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc.
Investors pushed the rate as low as 0.233 percent as the loss of confidence in credit markets deepened. Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman.
"People are extremely cautious with respect to who they're lending money to at the moment," said Richard Bryant, a Treasury trader at Citigroup Global Markets Inc., one of the primary dealers that trade government securities with the Federal Reserve. "They're willing to buy very short-dated Treasury instruments and forgo returns and in some cases pay for the privilege of knowing their money is safe."
Central banks around the world pumped more than $280 billion into the financial system this week as they sought to ease a credit-market seizure. The Fed offered the loan to AIG, the biggest U.S. insurer by assets, in exchange for control.
The AIG rescue "smacks of sweeping the problem under the carpet rather than solving it in a structural sense," said Padhraic Garvey, head of investment-grade debt strategy at ING Bank NV in Amsterdam, in a note to clients."
Global Money Market Rates Hit A 9-yr High As Money Market Managers Seek To Keep Capital In Their Firms
Mr Sheldon continues: "Business Standard is reporting Global money market rates hit 9-yr high."
This is a real danger signal to me. I hear a whooshing sound as money is being pulled right out of the financial system, some money is going to safety in gold, and some to covering carry trade losses.
Investors Abandoned US Investment Grade Corporate Bonds
Adrian Ash in GoldSeek article Gold Rises As Stock Markets Tumble, "Safe Haven" Bond Yields Sink Below Rising Inflation wrote September 16, 2008: Credit spreads on US investment-grade corporate bonds – a key measure of investor stress – jumped further on Tuesday, while the cost of two-year "swap" loans held almost 0.15% above government bond yields – "the highest since the beginning of the credit market meltdown," according to Manqoba Madinane at Standard Bank.
Banks Now Hoard Cash As Distrust Abounds
Mr. Sheldon communicates: "The cost of borrowing in dollars for three months has jumped the most since 1999, with banks hoarding cash amid concern that more financial institutions will fail.
The London Inter-Bank Offered Rate, or Libor, rose 19 basis points to 3.06 per cent, the British Bankers’ Association (BBA) said today. The increase was the biggest since September 29, 1999. The overnight dollar rate fell 1.41 percentage points to 5.03 per cent today. It soared 3.33 percentage points yesterday, the largest increase in its history. It was at 2.14 per cent a week ago.
“Everybody is worrying about which bank is going to go bankrupt next," said Ronald Tharun, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany’s biggest state-owned bank. "There’s almost nothing being traded in the money markets. Nobody trusts anyone else."
Credit markets seized up as the collapse of Lehman Brothers Holdings and the US government’s rescue of the American International Group (AIG) spurred concern that more financial companies may collapse. HBOS, the UK’s biggest mortgage lender, slid as much as 52 per cent today on speculation that it may not have access to funding. The shares rebounded after two people familiar with the situation said the Lloyds TSB Group is in talks to buy the bank.
The cost of borrowing in the euro for three months rose half a basis point to 4.97 per cent today, the European Banking Federation said. That’s the highest level since December 5, 2000.
Global Systemic Distrust
"There’s almost nothing being traded in the money markets. Nobody trusts anyone else."
Welcome to the wonderful world of derivatives and 30 times leverage Mr. Bernanke. Not many can claim to threaten the world's financial system. It took years of hard effort, but you, Greenspan and the Fed, in conjunction with fractional reserve lending, managed to pull it off. You and the Fed should be proud. Stand up and take a bow."
The Liquidity Vacuum Is Likely To Go Viral And Cause A Systemic Risk Breakdown
Moneymill in article Overnight Dollar Squeeze Posing Systemic Risk Bankruptcy Fears Mount relates: "There’s extreme worry about the tightness in overnight funding. Interbank dollar funding is tight across the world, from Asia, to Europe, to US. While spreads have eased somewhat today, there’s still an undeniable need for further injections. With 235 billion in total over the past two days, central banks may not be so willing to add the vast sums needed. They must, however, because the situation is dire. And the hope and expectation is that they will act soon.
Lets look at the spike in the chart; that’s for 16th September. The TED spread today has reached the highest levels since Black Monday of 1987.
The fear is that the lack of will for short term funding will cause cash squeeze for banks and other financial institutions; overnight rates are around 5-6 percent, more than twice the Fed’s target. This is by far the most important problem for financial markets right now, as short term rates have only responded slightly to massive liquidity pumping recently.
This is the kind of situation that used to occur in the developing and thirld world, in places such as Argentina, Turkey, during past financial crises. There’s no question that the market is clearly and unmistakably worried about the system’s stability, and unless some way is found to ease the short term, a cascade of bankruptcies is possible.
With Reserve Primary Fund breaking the buck, and Lehman paper promising more failures, there has been a general flight from money market funds, and as they create a lot of the liquidity in short term money markets, there’s an incredible shortage of cash everywhere."
A Liquidity Event Means That One Will Not Be Able To Obtain One's Funds And Monies, Or When One Does Have Access It Will Not Be At Full Value, Or That One May Have To Wait For A While To Receive It
I, the Resourceful Bear relate that Fed Funds are trading at 3%, 100 basis points above the target level. The TED spread has widened to the highest level since 1984. Money is being redeemed from money marekt funds as these invest in commercial paper and issuers of commercial paper which can fail. The risks to investing in anything except for gold are increasing dramatically.
Peak US Treasuries May Have Occurred As Evidenced By A Number Of Factors
Given the following factors, Peak US Treasuries likely occurred today September 17, 2008:
1) The drop on the interest rate on the 10 Year US Government Note, as seen in the ongoing Yahoo Finance chart of ^TNX, to 3.4100. This is near the March 17, 2008 low of 3.33,
2) Peak Dollar has been achieved,
3) The smack down in seen in the Stockcharts.com presentation of $TNX weekly, suggest a market top is in for benchark 10 Year US Note ... $TNX Weekly
4) Gold is rising, suggesting that the marketplace is going to call interest rates higher and bonds lower.
5) The Federal Reserve is not going to lower its Central Bank lending rate, next FOMC meeting is on 10/29.
6) The fact a liquidity vacuum has formed, portending a liquidity event.
Soon it will be safe to go 250% inverse of the 10 Year Note with DXKSX ... DXKSX
The Yield Curve Steepened
Stockcharts.com reports that the Dynamic Yield Curve Steepened
The yield curve measured in ETFs and the yield curve measured in rates is de-inverting; this is inflationary ... Yield curve in ETFs ... and ... 30 Year/2Year
When the bond market perceives inflation, or when it is concerned that the U.S. Government is a credit risk, or when it is concerned that the Fed is no longer going to raise interest rates, then it will declare a defacto interest rate hike, which will be seen in the Long Term US Treasuries,TLT, going down; I expect a market top has been made in TLT ... TLT Weekly ... and TLT Daily
Here is my quote: "A steepening yield cureve is a bond killer and a gold thriller".
Jesse in article This Is What a "Flight to Quality" Looks Like shows investment demand is great for the short term Treasuries compared to the longer term ones.
For A Change, Rising Gold Pulled The Currency Trader's Chains
The Yahoo Finance five day ongoing chart of of UUP and DRR compared to GLD documents that Peak Dollar has been achieved ... UUP, DRR, GLD
Jesse in article Charts In the Babson Style At Midweek 17 September 2008 provides this chart of the US Dollar and also this Chart of the US Dollar.
Here is my chart for Peak Dollar which occurred on September 11, 2008 close at 80.22 ... $USD
The INO.com Dollar, Dow and Gold Page shows the Dollar and Dow down and gold up.
The Yahoo Finance five day ongoing chart of EUR/USD relative to GLD, XME and EFA shows that gold and the metal manufacturing stocks rose 11% while the world shares fell 4%.
The Yahoo Finance five day ongoing chart of the USD/JPY relative to the EUR/JPY shows the investment demand for gold pushing the USDJPY down and the EURJPY up.
The MSN Finance ongoing chart of GLD relative to overall US Stock market, VTI documents that gold has become the measure and means of garnering and accumulating wealth ... MSN GLD compared to VTI
The James Chen, FX Solutions USD/CHF was Chart of the Day on the GlobalView site.
Gold Rose To Take The EUR/USD Higher
Greg Michalowski in article Resistance Level In The EURUSD relates: "The EURUSD has moved up to the 100 bar moving average on the 4 hour chart".
Rising Gold Sent The USD/EUR Falling
The Yahoo Finance five day ongoing chart of USD/EUR relative to GLD communicates the fall of the US Dollar
Rising Gold Stabilized The EUR/JPY
The Yahoo Finance five day ongoing chart of the EUR/JPY
Rising Gold Sent The USD/JPY Lower
The Yahoo Finance five day ongoing chart of the USD/JPY
The Chart Of The US Dollar Shows Peak Dollar Has Been Acheived
The chart of the US Dollar, USD communicates that the Dollar Rally is over ... $USD
Peak Dollar means that the Milton Friedman neoliberal floating currency exchange regime "has met its Waterloo".
The US Dollar will now fall in a death spiral lower with all currencies lower together.
The Yen, FXY, and gold, GLD, will compete for title of world currency.
Jesse in article China: "The World Urgently Needs a Financial System ... Not Dependent on the United States" writes: "Sounds like China would like to change the US dollar rating to "Good Bye". These historic changes happen more slowly than most would think but they tend to move with an irresistible force. And Jesse provides the Chris Budckely Reuters report: China Paper Urges New Currency Order After "Financial Tsunami".
Here are Jack Chan's charts from his JC's Buy And Sell Signal Chart Site
FXI No wonder China is so up in arms, their shares lost 12% today.
$USD It's on the edge of support
GLD He gave his buy signal on gold today.
TLT Manifested a harami at 98.49
AIG Has Been Nationalized ... The Result Is That The US Taxpayers Now Own An Insolvent Insurance Company
As reported by Eddy Elfenbein, The Federal Reserve acted using Section 13-3 of its Charter to "loan" AIG Billions, and in return bought a controlling interest in the organization.
AIG's stock market value will be further reduced from its September 16, 2008, price of $3.75, level by short sellers.
The US Taxpayers now own AIG's
1) "insurance liabilities" where it underwrote all kinds of risks other than the traditional car, home, natural disaster, and life risks.
2) its level two assets and level three assets
3) its counterparty risk on its credit default swaps.
The employees have a new employer: the US Government.
On the bright side, the US is now the official shirt sponsor of Manchester United, the U.K.'s legendary football (soccer) club, as AIG spent $100 Million to sponsor the team; the deal still has two more years to run.
Elaine Meinel Supkis in article Uncle Sam Now Owns AIG covers the Bloomberg Hugh Son and Erik Holm report 'Fed Takes Control of AIG With $85 Billion Bailout' which relates: "The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the bankruptcy of the nation's biggest insurer and the worst financial collapse in history".
Ms Supkis relates: " OK: does the US government have $85 billion dollars? Does it have $1?
NO! The US government has to sell bonds called 'Treasuries' in order to create money and who buys these things? Why, everyone seeking either power over the US government or people who want to park their cash somewhere before they decide use it to buy up the much cheaper, broken bits of the economy once it reaches rock bottom! This is because everyone expects this to be an exact duplicate of the Great Depression.
Except there is one huge difference: in the Great Depression, our government was 100% solvent. The financial and industrial powers of the US were so vast that it took barely no effort at all to conduct not one but two major wars across the entire planet earth. And to arm all the allies at our own expense. And to rebuild the entire planet after the war! Wow!
But this time around, we are the exact opposite: we are a bankrupt empire causing waves of desperate inflation across the planet. These waves are fixed by all our trade rivals and even outright enemies buying up all our government debts and holding dollars. China, for example, holds the #2 hoard of US Treasuries in order to have leverage over the issue of Taiwan as well as to protect their investments in the US as they buy up American infrastructure and systems. This is also true of the Arab oil kings and sheikhs. They also need security and this is the traditional tool they use. Japan has a huge trade surplus with the US so they hold Treasuries and are the #1 holders of this and rival the Chinese when it comes to holding dollars.
These entities along with London which is also a huge holder of US Treasuries, are still extending credit to our government. The Chinese are doing this totally maliciously since this is their 50 year plan to bankrupt the US. They figured this out back in the 1980's and I watched the glee they felt when they read, 'The Rise And Fall Of Great Powers' by Kennedy. They correctly understood that the real battles before wars are in trade and the winner is whoever builds and holds the most industrial production in their own nation's backyard, not overseas! BINGO. They got it perfect."
The deal here is simple: AIG is bankrupt but none of the derivative beast parts will be triggered. AIG will remain an entity and nothing will have to be sold off suddenly nor will the provisions insured by AIG be triggered: the nasty credit default swaps will remain in the swamps and not come ashore. Their crocodile mouths slaver with anticipation of eating flesh. But can't, not just yet, anyway."
Worldwide Chaos And Destruction Of Wealth Is Being Unleashed As Derivatives Are Being Setttled
Tiffany Kary and Chris Scinta of Bloomberg in article JPMorgan Gave Lehman $138 Billion After Bankruptcy relate: "JPMorgan Chase & Co. gave $138 billion this week in Federal Reserve-backed advances to the broker dealer unit of Lehman Brothers Holdings Inc. to settle Lehman trades and keep financial markets stable amid the biggest bankruptcy in history, according to a court filing.
One advance of $87 billion was made on Sept. 15 after the pre-dawn bankruptcy filing, and another of $51 billion was made today, Lehman said in court documents. Both advances were made to settle securities transactions with customers of Lehman and its clearance parties, according to the filing.
The advances were necessary ``to avoid a disruption of the financial markets,'' Lehman said in the filing."
Ms. Supkis remarks: "What are these 'Federal Reserve-backed advances'? HAHAHA. JP Morgan can't spare a dime for anyone. Its own Derivatives Beast is gigantic! No, the Federal Reserve gave the responsibility for the payment of this money to JP Morgan and they, in turn, used it to lock down the Lehman Derivative Beast which would suddenly become visible and eat JP Morgan's crew of gnomes and pirates. So everyone is happy with this fiction. Note the huge numbers here: $138 billion! WOW. That is...honking huge, isn't it? Nearly as big as the great scam of the US government giving us $600 per family so we could hand every penny of it over to Exxon Mobile."
Nels Pratley in Guardian article Is This The Death Knell For derivatives? remarks that "Warren Buffett worked out years ago. His 2002 letter to his Berkshire Hathaway shareholders made headlines by condemning derivatives as "financial weapons of mass destruction". The passage comprised only a couple of pages of the lengthy letter but read it again today - it is the best guide to understanding how Wall Street has arrived at today's mess."
Ms. Supkis remarks: "Risk is being transfered to the US government. End of story. Buffett was correct back in 2002. I noticed this problem developing back in 1996. I can't prove this since the NYT has erased all my postings from back then. But I did know this wasn't going to work. For I was tracking the business in Japan back then and I saw correctly that future problems with international banking would come pouring out of Japan. This was due to them discovering the utility of the 0% interest scheme back then."
Investment Bankers As A Group Fell 12% So Far This Week
The chart of the investment bankers, KCE, documents the death of financialized capitalism which came into existance with the repeal of the Glass Steagall Act .... KCE.
Summary
The monsters that live in the Cave of Wealth and Death that Ms. Supkis describes are now inhaling, and sucking up all available cash, money and liquidity out of the world's financial system; soon they will be coming out to devour the world.
Soon, very soon, the markets are going to freeze up, that is, the Institution of Finance, Commerce, Trade, and Investment is going to have a massive stroke.
I suggest that one go immediately to gold, like in the gold ETF, GLD, purchased directly from the organization, and not through a brokerage account and that one immediately buy gold at BullionVault and GoldMoney.
Keywords
mortgage backed securities, financialization, securitization, mortgage loans, cdo, cdos, liquidity crisis, liquidity evaporation, liquidity vacuum, evaporation of liquidity, counterparty risk, implosion, systemic risk event, financial system meltdown, financial system breakdown, ofheo, wamu, wm, real estate loans, financial stabililty threatened, means, meaning, safehaven, safe haven, implosion, liquiditymeltdown, liquidity meltdown,
The Ted Spread is a metric of liquidity. The fact it blew sky high to 3.02 relates that money and cash is quickly going out of the financial system.
Jesse reports that the TED Spread Rises To New High For The Credit Crisis
My definition of the Ted Spread is an additional interest (above a 3-month US Treasury) that banks charge each other, to lend to each other.
Wikipedia Definition: "the TED spread is now calculated as the difference between the three month T-bill interest rate and three month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another."
Today, it widened to 302 basis points. What happens next is uncharted terrority. This metric reads such a dearth of liquidity, and lack of lending, that I suggest that one go immediately to gold, like in the gold ETF, GLD, purchased directly from the organization, and not through a brokerage account and that one immediately buty gold at BullionVault and GoldMoney.
One of the reasons for the liquidy crisis is the Option Arms in Washington Mutual's lending portfolio. The Jesse article Washington Mutual: Dead Man Walking, communicates that WaMu is so capital depleted that it is a zombie corporation; once an agent of securitization and financialization, now it is a financial Chernobyle, a soulless, capital-eating monster, dragging world stock markets lower.
Adrian Ash in GoldSeek article Gold Rises As Stock Markets Tumble, "Safe Haven" Bond Yields Sink Below Rising Inflation writes: "WaMu's bonds were downgraded to "junk" status Monday by the three major credit-ratings agencies. It's set to take a $19 billion hit from bad mortgage loans over the next 30 months.
J.P.Morgan is no longer looking to buy WaMu, says a source quoted by the Seattle Times. Bank of America chief Kenneth Lewis – who bought Merrill Lynch for $50bn at the weekend – told CNBC yesterday that he's not interested in WaMu, either.
"The failure of a bank its size would test the strength of the US deposit insurance system," says the Financial Times, "and its ability to maintain the confidence of the nation's savers."
Washington Mutual held some $143bn in FDIC-insured deposits at the end of June – three times the size of the Federal Deposit Insurance Corporation's funds."
Gold Soared
Mike Mish Sheldon in article Global Financial Seizures Continue, Gold Soars writes that: "Gold bulls have something to smile about today as it is soaring by more than $50 in the wake of renewed financial seizures. The markets have greeted the news Nationalization of AIG: Treasury to get 80% stake in return for $85 billion with a bang".
Proprietary Trader shows the chart of gold popping above $800.
The Russian Markets Were Halted
Continuing with Mr. Sheldon: "Bloomberg is reporting Russian Markets Halted as Emergency Funding Fails to Halt Rout.
Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country's debt default and currency devaluation a decade ago.
The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.
The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.
"The bond market remains effectively closed and banks are reluctant to lend to one another," said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. "The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further."
There Was A Massive Flight To Safety
And Mr. Sheldon moves on to report on the demand for short term US Government Treasuries: "Bloomberg is reporting Treasury 3-Month Bill Rates Drop to Lowest Since at Least 1954.
U.S. Treasury three-month bill rates dropped to the lowest since at least 1954 on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc.
Investors pushed the rate as low as 0.233 percent as the loss of confidence in credit markets deepened. Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman.
"People are extremely cautious with respect to who they're lending money to at the moment," said Richard Bryant, a Treasury trader at Citigroup Global Markets Inc., one of the primary dealers that trade government securities with the Federal Reserve. "They're willing to buy very short-dated Treasury instruments and forgo returns and in some cases pay for the privilege of knowing their money is safe."
Central banks around the world pumped more than $280 billion into the financial system this week as they sought to ease a credit-market seizure. The Fed offered the loan to AIG, the biggest U.S. insurer by assets, in exchange for control.
The AIG rescue "smacks of sweeping the problem under the carpet rather than solving it in a structural sense," said Padhraic Garvey, head of investment-grade debt strategy at ING Bank NV in Amsterdam, in a note to clients."
Global Money Market Rates Hit A 9-yr High As Money Market Managers Seek To Keep Capital In Their Firms
Mr Sheldon continues: "Business Standard is reporting Global money market rates hit 9-yr high."
This is a real danger signal to me. I hear a whooshing sound as money is being pulled right out of the financial system, some money is going to safety in gold, and some to covering carry trade losses.
Investors Abandoned US Investment Grade Corporate Bonds
Adrian Ash in GoldSeek article Gold Rises As Stock Markets Tumble, "Safe Haven" Bond Yields Sink Below Rising Inflation wrote September 16, 2008: Credit spreads on US investment-grade corporate bonds – a key measure of investor stress – jumped further on Tuesday, while the cost of two-year "swap" loans held almost 0.15% above government bond yields – "the highest since the beginning of the credit market meltdown," according to Manqoba Madinane at Standard Bank.
Banks Now Hoard Cash As Distrust Abounds
Mr. Sheldon communicates: "The cost of borrowing in dollars for three months has jumped the most since 1999, with banks hoarding cash amid concern that more financial institutions will fail.
The London Inter-Bank Offered Rate, or Libor, rose 19 basis points to 3.06 per cent, the British Bankers’ Association (BBA) said today. The increase was the biggest since September 29, 1999. The overnight dollar rate fell 1.41 percentage points to 5.03 per cent today. It soared 3.33 percentage points yesterday, the largest increase in its history. It was at 2.14 per cent a week ago.
“Everybody is worrying about which bank is going to go bankrupt next," said Ronald Tharun, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany’s biggest state-owned bank. "There’s almost nothing being traded in the money markets. Nobody trusts anyone else."
Credit markets seized up as the collapse of Lehman Brothers Holdings and the US government’s rescue of the American International Group (AIG) spurred concern that more financial companies may collapse. HBOS, the UK’s biggest mortgage lender, slid as much as 52 per cent today on speculation that it may not have access to funding. The shares rebounded after two people familiar with the situation said the Lloyds TSB Group is in talks to buy the bank.
The cost of borrowing in the euro for three months rose half a basis point to 4.97 per cent today, the European Banking Federation said. That’s the highest level since December 5, 2000.
Global Systemic Distrust
"There’s almost nothing being traded in the money markets. Nobody trusts anyone else."
Welcome to the wonderful world of derivatives and 30 times leverage Mr. Bernanke. Not many can claim to threaten the world's financial system. It took years of hard effort, but you, Greenspan and the Fed, in conjunction with fractional reserve lending, managed to pull it off. You and the Fed should be proud. Stand up and take a bow."
The Liquidity Vacuum Is Likely To Go Viral And Cause A Systemic Risk Breakdown
Moneymill in article Overnight Dollar Squeeze Posing Systemic Risk Bankruptcy Fears Mount relates: "There’s extreme worry about the tightness in overnight funding. Interbank dollar funding is tight across the world, from Asia, to Europe, to US. While spreads have eased somewhat today, there’s still an undeniable need for further injections. With 235 billion in total over the past two days, central banks may not be so willing to add the vast sums needed. They must, however, because the situation is dire. And the hope and expectation is that they will act soon.
Lets look at the spike in the chart; that’s for 16th September. The TED spread today has reached the highest levels since Black Monday of 1987.
The fear is that the lack of will for short term funding will cause cash squeeze for banks and other financial institutions; overnight rates are around 5-6 percent, more than twice the Fed’s target. This is by far the most important problem for financial markets right now, as short term rates have only responded slightly to massive liquidity pumping recently.
This is the kind of situation that used to occur in the developing and thirld world, in places such as Argentina, Turkey, during past financial crises. There’s no question that the market is clearly and unmistakably worried about the system’s stability, and unless some way is found to ease the short term, a cascade of bankruptcies is possible.
With Reserve Primary Fund breaking the buck, and Lehman paper promising more failures, there has been a general flight from money market funds, and as they create a lot of the liquidity in short term money markets, there’s an incredible shortage of cash everywhere."
A Liquidity Event Means That One Will Not Be Able To Obtain One's Funds And Monies, Or When One Does Have Access It Will Not Be At Full Value, Or That One May Have To Wait For A While To Receive It
I, the Resourceful Bear relate that Fed Funds are trading at 3%, 100 basis points above the target level. The TED spread has widened to the highest level since 1984. Money is being redeemed from money marekt funds as these invest in commercial paper and issuers of commercial paper which can fail. The risks to investing in anything except for gold are increasing dramatically.
Peak US Treasuries May Have Occurred As Evidenced By A Number Of Factors
Given the following factors, Peak US Treasuries likely occurred today September 17, 2008:
1) The drop on the interest rate on the 10 Year US Government Note, as seen in the ongoing Yahoo Finance chart of ^TNX, to 3.4100. This is near the March 17, 2008 low of 3.33,
2) Peak Dollar has been achieved,
3) The smack down in seen in the Stockcharts.com presentation of $TNX weekly, suggest a market top is in for benchark 10 Year US Note ... $TNX Weekly
4) Gold is rising, suggesting that the marketplace is going to call interest rates higher and bonds lower.
5) The Federal Reserve is not going to lower its Central Bank lending rate, next FOMC meeting is on 10/29.
6) The fact a liquidity vacuum has formed, portending a liquidity event.
Soon it will be safe to go 250% inverse of the 10 Year Note with DXKSX ... DXKSX
The Yield Curve Steepened
Stockcharts.com reports that the Dynamic Yield Curve Steepened
The yield curve measured in ETFs and the yield curve measured in rates is de-inverting; this is inflationary ... Yield curve in ETFs ... and ... 30 Year/2Year
When the bond market perceives inflation, or when it is concerned that the U.S. Government is a credit risk, or when it is concerned that the Fed is no longer going to raise interest rates, then it will declare a defacto interest rate hike, which will be seen in the Long Term US Treasuries,TLT, going down; I expect a market top has been made in TLT ... TLT Weekly ... and TLT Daily
Here is my quote: "A steepening yield cureve is a bond killer and a gold thriller".
Jesse in article This Is What a "Flight to Quality" Looks Like shows investment demand is great for the short term Treasuries compared to the longer term ones.
For A Change, Rising Gold Pulled The Currency Trader's Chains
The Yahoo Finance five day ongoing chart of of UUP and DRR compared to GLD documents that Peak Dollar has been achieved ... UUP, DRR, GLD
Jesse in article Charts In the Babson Style At Midweek 17 September 2008 provides this chart of the US Dollar and also this Chart of the US Dollar.
Here is my chart for Peak Dollar which occurred on September 11, 2008 close at 80.22 ... $USD
The INO.com Dollar, Dow and Gold Page shows the Dollar and Dow down and gold up.
The Yahoo Finance five day ongoing chart of EUR/USD relative to GLD, XME and EFA shows that gold and the metal manufacturing stocks rose 11% while the world shares fell 4%.
The Yahoo Finance five day ongoing chart of the USD/JPY relative to the EUR/JPY shows the investment demand for gold pushing the USDJPY down and the EURJPY up.
The MSN Finance ongoing chart of GLD relative to overall US Stock market, VTI documents that gold has become the measure and means of garnering and accumulating wealth ... MSN GLD compared to VTI
The James Chen, FX Solutions USD/CHF was Chart of the Day on the GlobalView site.
Gold Rose To Take The EUR/USD Higher
Greg Michalowski in article Resistance Level In The EURUSD relates: "The EURUSD has moved up to the 100 bar moving average on the 4 hour chart".
Rising Gold Sent The USD/EUR Falling
The Yahoo Finance five day ongoing chart of USD/EUR relative to GLD communicates the fall of the US Dollar
Rising Gold Stabilized The EUR/JPY
The Yahoo Finance five day ongoing chart of the EUR/JPY
Rising Gold Sent The USD/JPY Lower
The Yahoo Finance five day ongoing chart of the USD/JPY
The Chart Of The US Dollar Shows Peak Dollar Has Been Acheived
The chart of the US Dollar, USD communicates that the Dollar Rally is over ... $USD
Peak Dollar means that the Milton Friedman neoliberal floating currency exchange regime "has met its Waterloo".
The US Dollar will now fall in a death spiral lower with all currencies lower together.
The Yen, FXY, and gold, GLD, will compete for title of world currency.
Jesse in article China: "The World Urgently Needs a Financial System ... Not Dependent on the United States" writes: "Sounds like China would like to change the US dollar rating to "Good Bye". These historic changes happen more slowly than most would think but they tend to move with an irresistible force. And Jesse provides the Chris Budckely Reuters report: China Paper Urges New Currency Order After "Financial Tsunami".
Here are Jack Chan's charts from his JC's Buy And Sell Signal Chart Site
FXI No wonder China is so up in arms, their shares lost 12% today.
$USD It's on the edge of support
GLD He gave his buy signal on gold today.
TLT Manifested a harami at 98.49
AIG Has Been Nationalized ... The Result Is That The US Taxpayers Now Own An Insolvent Insurance Company
As reported by Eddy Elfenbein, The Federal Reserve acted using Section 13-3 of its Charter to "loan" AIG Billions, and in return bought a controlling interest in the organization.
AIG's stock market value will be further reduced from its September 16, 2008, price of $3.75, level by short sellers.
The US Taxpayers now own AIG's
1) "insurance liabilities" where it underwrote all kinds of risks other than the traditional car, home, natural disaster, and life risks.
2) its level two assets and level three assets
3) its counterparty risk on its credit default swaps.
The employees have a new employer: the US Government.
On the bright side, the US is now the official shirt sponsor of Manchester United, the U.K.'s legendary football (soccer) club, as AIG spent $100 Million to sponsor the team; the deal still has two more years to run.
Elaine Meinel Supkis in article Uncle Sam Now Owns AIG covers the Bloomberg Hugh Son and Erik Holm report 'Fed Takes Control of AIG With $85 Billion Bailout' which relates: "The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the bankruptcy of the nation's biggest insurer and the worst financial collapse in history".
Ms Supkis relates: " OK: does the US government have $85 billion dollars? Does it have $1?
NO! The US government has to sell bonds called 'Treasuries' in order to create money and who buys these things? Why, everyone seeking either power over the US government or people who want to park their cash somewhere before they decide use it to buy up the much cheaper, broken bits of the economy once it reaches rock bottom! This is because everyone expects this to be an exact duplicate of the Great Depression.
Except there is one huge difference: in the Great Depression, our government was 100% solvent. The financial and industrial powers of the US were so vast that it took barely no effort at all to conduct not one but two major wars across the entire planet earth. And to arm all the allies at our own expense. And to rebuild the entire planet after the war! Wow!
But this time around, we are the exact opposite: we are a bankrupt empire causing waves of desperate inflation across the planet. These waves are fixed by all our trade rivals and even outright enemies buying up all our government debts and holding dollars. China, for example, holds the #2 hoard of US Treasuries in order to have leverage over the issue of Taiwan as well as to protect their investments in the US as they buy up American infrastructure and systems. This is also true of the Arab oil kings and sheikhs. They also need security and this is the traditional tool they use. Japan has a huge trade surplus with the US so they hold Treasuries and are the #1 holders of this and rival the Chinese when it comes to holding dollars.
These entities along with London which is also a huge holder of US Treasuries, are still extending credit to our government. The Chinese are doing this totally maliciously since this is their 50 year plan to bankrupt the US. They figured this out back in the 1980's and I watched the glee they felt when they read, 'The Rise And Fall Of Great Powers' by Kennedy. They correctly understood that the real battles before wars are in trade and the winner is whoever builds and holds the most industrial production in their own nation's backyard, not overseas! BINGO. They got it perfect."
The deal here is simple: AIG is bankrupt but none of the derivative beast parts will be triggered. AIG will remain an entity and nothing will have to be sold off suddenly nor will the provisions insured by AIG be triggered: the nasty credit default swaps will remain in the swamps and not come ashore. Their crocodile mouths slaver with anticipation of eating flesh. But can't, not just yet, anyway."
Worldwide Chaos And Destruction Of Wealth Is Being Unleashed As Derivatives Are Being Setttled
Tiffany Kary and Chris Scinta of Bloomberg in article JPMorgan Gave Lehman $138 Billion After Bankruptcy relate: "JPMorgan Chase & Co. gave $138 billion this week in Federal Reserve-backed advances to the broker dealer unit of Lehman Brothers Holdings Inc. to settle Lehman trades and keep financial markets stable amid the biggest bankruptcy in history, according to a court filing.
One advance of $87 billion was made on Sept. 15 after the pre-dawn bankruptcy filing, and another of $51 billion was made today, Lehman said in court documents. Both advances were made to settle securities transactions with customers of Lehman and its clearance parties, according to the filing.
The advances were necessary ``to avoid a disruption of the financial markets,'' Lehman said in the filing."
Ms. Supkis remarks: "What are these 'Federal Reserve-backed advances'? HAHAHA. JP Morgan can't spare a dime for anyone. Its own Derivatives Beast is gigantic! No, the Federal Reserve gave the responsibility for the payment of this money to JP Morgan and they, in turn, used it to lock down the Lehman Derivative Beast which would suddenly become visible and eat JP Morgan's crew of gnomes and pirates. So everyone is happy with this fiction. Note the huge numbers here: $138 billion! WOW. That is...honking huge, isn't it? Nearly as big as the great scam of the US government giving us $600 per family so we could hand every penny of it over to Exxon Mobile."
Nels Pratley in Guardian article Is This The Death Knell For derivatives? remarks that "Warren Buffett worked out years ago. His 2002 letter to his Berkshire Hathaway shareholders made headlines by condemning derivatives as "financial weapons of mass destruction". The passage comprised only a couple of pages of the lengthy letter but read it again today - it is the best guide to understanding how Wall Street has arrived at today's mess."
Ms. Supkis remarks: "Risk is being transfered to the US government. End of story. Buffett was correct back in 2002. I noticed this problem developing back in 1996. I can't prove this since the NYT has erased all my postings from back then. But I did know this wasn't going to work. For I was tracking the business in Japan back then and I saw correctly that future problems with international banking would come pouring out of Japan. This was due to them discovering the utility of the 0% interest scheme back then."
Investment Bankers As A Group Fell 12% So Far This Week
The chart of the investment bankers, KCE, documents the death of financialized capitalism which came into existance with the repeal of the Glass Steagall Act .... KCE.
Summary
The monsters that live in the Cave of Wealth and Death that Ms. Supkis describes are now inhaling, and sucking up all available cash, money and liquidity out of the world's financial system; soon they will be coming out to devour the world.
Soon, very soon, the markets are going to freeze up, that is, the Institution of Finance, Commerce, Trade, and Investment is going to have a massive stroke.
I suggest that one go immediately to gold, like in the gold ETF, GLD, purchased directly from the organization, and not through a brokerage account and that one immediately buy gold at BullionVault and GoldMoney.
Keywords
mortgage backed securities, financialization, securitization, mortgage loans, cdo, cdos, liquidity crisis, liquidity evaporation, liquidity vacuum, evaporation of liquidity, counterparty risk, implosion, systemic risk event, financial system meltdown, financial system breakdown, ofheo, wamu, wm, real estate loans, financial stabililty threatened, means, meaning, safehaven, safe haven, implosion, liquiditymeltdown, liquidity meltdown,
WIDGETIZE