Asian News

[Ichiro]

2aug-Bank of England Leaves Interest Rate at Six-Year High (Update1)

By Jennifer Ryan
Enlarge Image
Mervyn King, governor of the Bank of England

Aug. 2 (Bloomberg) -- The Bank of England left its benchmark interest rate at a six-year high today as policy makers assess whether five quarter-point increases in the past year are enough to quell inflation.

The Monetary Policy Committee, led by Governor Mervyn King, left the Bank Rate at 5.75 percent, the highest since April 2001, the central bank said today in London. The decision was predicted by all 60 economists surveyed by Bloomberg News.

The nine policy makers said at July's meeting, when they voted for an increase, that they planned to wait for new inflation and growth forecasts this month before deciding whether further moves are needed. Inflation has held above the bank's 2 percent target for a 14th month, while stock prices have tumbled as the U.S. subprime crisis spread to markets in Europe and Asia.

``The bank is going to want to give previous increases a chance to have an effect,'' said Dominic White, an economist at ABN Amro Holding NV in London who used to work at the U.K. Treasury. ``The likelihood is that the economy will hold up and that inflation may be more of a problem. Rates will probably go to 6 percent.''

The Standard & Poor's 500 Index posted its biggest monthly decline in three years in July, and the risk of owning corporate bonds rose in Europe by the most in at least three years yesterday as the fallout from subprime mortgage losses spread. In the U.K., the benchmark FTSE 100 index has fallen 5.8 percent as of yesterday's close since the bank's last decision July 5.

http://www.bloomberg.com/apps/news?pid=20601085&sid=a9SSgZoCfh4Y&refer=europe

[Ichiro]

2aug-European Stocks Rise, Led by Nokia, Societe Generale, Unilever

By Andreas Hippin
Enlarge Image
A Credit Suisse office in New York

Aug. 2 (Bloomberg) -- European stocks advanced after Nokia Oyj, Societe Generale SA and Unilever SA reported earnings that beat analysts' estimates and shares rallied in the U.S. market yesterday.

Nokia, the world's biggest maker of mobile-phones, jumped 7 percent, leading gains on the Dow Jones Stoxx 600 Index. Societe Generale rose the most since April, while Unilever headed for its biggest gain since March 2003.

U.S. stocks climbed yesterday after a surge in computer and consumer shares lifted the Dow Jones Industrial Average 150 points in the last 20 minutes of trading. Asian stocks rose today after higher profits from Astellas Pharma Inc. and Chi Mei Optoelectronics Corp. helped counter concern the rout in U.S. subprime mortgages is spreading.

``Markets are finding a bottom,'' said Gunther Westen, who helps oversee $55 billion as head of asset allocation and fund management at WestLB Mellon Asset Management in Dusseldorf, Germany. ``The fundamental situation is still very good in Europe and not too bad in the U.S.''

The Stoxx 600 Index advanced 0.6 percent to 376.49 at 12:01 p.m. in London. All 18 industry groups gained except a measure for oil stocks. The Stoxx 50 added 0.7 percent, while the Euro Stoxx 50, a measure for the euro region, increased 1 percent.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayF8i5Vy1DIg&refer=worldwide

[Ichiro]

3aug- AP-Stocks Slide Amid Credit, Economic Fears
Friday August 3, 3:57 pm ET
By Tim Paradis, AP Business Writer
Stocks Fall Following Concerns About Credit, Weaker-Than-Expected Economic Readings

NEW YORK (AP) -- Stocks fell sharply Friday amid fresh concerns that soured subprime mortgages will ignite a credit crunch and following weaker-than-expected economic readings. The Dow Jones industrials fell more than 230 points.


The final session of a volatile week also saw a notable rise in the bond market, with the yield on benchmark 10-year Treasury note falling to 4.70 percent from 4.77 percent late Thursday. Bond prices move opposite yields.

Stocks pulled back Friday afternoon after comments from Bear Stearns Cos. Chief Financial Officer Sam Molinaro stirred concerns that weakness in the credit market was widespread.

Coming off two straight days of triple-digit gains in the Dow, stocks fell earlier after the government said jobs growth was not as strong as expected last month and a trade group reported that the nation's service sector grew at a slower pace than expected in July.

Credit concerns, which have dogged investors for months and have roiled markets since last week, weighed on investor sentiment again Friday. Standard & Poor's Ratings Services lowered its credit outlook on Bear Stearns Cos. to negative from stable because of the investment bank's exposure to the distressed mortgage and corporate buyout markets. The stock at times fell to levels not seen since November 2005; in the early afternoon it was down $3.06, or 2.7 percent, at $112.57.

http://biz.yahoo.com/ap/070803/wall_street.html?.v=33

[Ichiro]

3aug-U.S. Economy: Job Gains Slow, Unemployment Rate Rises (Update5)

By Shobhana Chandra
Enlarge Image
Apprentices at Southern California Carpentry Center

Aug. 3 (Bloomberg) -- Employers in the U.S. added fewer jobs than forecast and the unemployment rate rose as the economy cooled in response to the worst housing recession in 16 years.

Job growth slowed to 92,000 in July, from 126,000 the prior month, the Labor Department said today in Washington. The jobless rate increased to 4.6 percent from 4.5 percent. A separate report from the Institute for Supply Management showed service industries, which include banks and retailers, expanded less than anticipated.

The slackening in hiring reflects a deepening slump in housing, which has pushed home prices lower and restrained economic growth for the past year. Outside of real estate and the government, the labor market continued its four-year expansion and futures suggest the Federal Reserve is unlikely to reduce interest rates in coming months. Treasury notes rose, the dollar weakened and stocks retreated.

http://www.bloomberg.com/apps/news?pid=20601068&sid=awWgd1yti3tg&refer=economy

[Ichiro]

3apr- AP-Stocks Fall Sharply Amid Credit Fears (Folks, this is the start of crash of the stock market due to the inability of the FEDS to understand the impact of the subprime problem. In th next few months, we will see a substantial increase in the number of house foreclosures)
Friday August 3, 4:06 pm ET
By Tim Paradis, AP Business Writer
Stocks Fall Following Concerns About Credit, Weaker-Than-Expected Economic Readings

NEW YORK (AP) -- Wall Street plunged anew Friday, hurtling the Dow Jones industrial average down more than 280 points after comments from a Bear Stearns executive reinvigorated the market's fears of a widening credit crunch.


The huge drop was a fitting end to two extraordinarily volatile weeks on Wall Street and followed back-to-back triple digit gains in the Dow. This time, the catalyst for a sharp skid was Bear Stearns Cos. Chief Financial Officer Sam Molinaro, who described conditions in the credit market as the worst he'd seen in more than two decades.

According to preliminary calcuations, the Dow fell 283.62, or 2.11 percent, to 13,179.71.

http://biz.yahoo.com/ap/070803/wall_street.html?.v=35

[buda]

Will it still bleed or should we be looking at this as a buying oportunity?

[Ichiro]

I would still wait but slowly I would add position to the I fund since that is where the major growth will be in the future. Besides, generally the stock market is down during the summer months and usually it picks from October. But, if Mr. Greenspan states anything crazy about the subprime problems or if the China stock market crashes which would both add to the fire, we will see another fast drop of 5% in the market. That is when I will back up my truck and add more money to the I fund.. The movement from the bottom will be very fast and most investors will miss this opportunity. But, if the economy slows even further, I am sure that the FED will lower the rates in September or October. This will cause the yen carry trade to speed up and the yen to appreciate to even below 115. Would you beleive that the Federal Goverment the budget rate for 2007 is 113.3 yen to the dollar...

But, as far as my Roth IRA investment, it is a different story. I am already adding $$$ to my Roth IRA with the Dodge and Cox International funds (DODFX). I willl keep my Roth Investments forever in DODFX and vEU. So, a temporary drop of 5% is a buying opportunity.. Lets say that there is a big sale at Walmart.

[Ichiro]

4aug-Dollar Falls on Economic, Credit Worries
Friday August 3, 4:43 pm ET
Dollar Trades Lower Against Major Currencies on Economic, Credit Concerns

NEW YORK (AP) -- The dollar slipped as the euro surged on Friday following a pair of discouraging U.S. economic reports and amid worries about a potential credit crunch.

The 13-nation euro rose to a high of $1.3818 before settling back at $1.3801 in late New York trading. That was up from $1.3693 the night before.


The dollar fell to 118.41 Japanese yen from 119.10 yen late Thursday, while the British pound climbed to $2.0447 from $2.0357.

Comments from Bear Stearns Cos. Chief Financial Officer Sam Molinaro Friday stirred concerns that troubles in the credit market are far-reaching. Worries about the U.S. lending climate have badgered markets since last week, and investors are concerned that weakness in the U.S. subprime mortgage sector will spread to global credit markets.

A pair of weaker-than-expected economic reports also did little to boost the dollar Friday.

The euro soared after a U.S. Labor Department report showed that hiring cooled in July, pushing the nation's unemployment up to 4.6 percent, a six-month high.

The fresh snapshot of employment conditions around the country also showed that new job creation slowed. Employers increased payrolls by 92,000 last month, the fewest add-ons in a single month since February.

Also Friday, a trade group reported that the nation's service sector grew at a slower pace than expected in July. The Tempe, Ariz.-based Institute for Supply Management said its index measuring change in the non-manufacturing sector, which accounts for 80 percent of U.S. economic activity, registered 55.8 in July.

That's the lowest level since March and down from 60.7 in June.

http://biz.yahoo.com/ap/070803/dollar.html?.v=3

[Ichiro]

VOLATILITY DELIVERS WAKE-UP CALL TO FINANCIAL SPHERE
by Joseph Russo
ElliottWaveTechnology.com
August 4, 2007

Likely resulting from decades of imprudent financial engineering, the uncertainty-surrounding discovery as to the potential extent of collateral damage from such shenanigans remains immeasurable and unknown.

Similar to those engineers about to embark upon months of intense investigation in attempt to determine cause of the sudden bridge collapse in Minnesota - the omnipotent financial sphere is just beginning to access whether or not the minor structural fractures, (which market volatility has so blatantly revealed) could possibly morph into a sudden and total collapse of similar dimension.

The Week in Review:

Highlighting the NASDAQ 100

General Equity Indices Threaten Notable Breakdowns going forward

Friday’s dismal weekly close did nothing to improve upon the numerous technical underpinnings that were riding on last week’s performance.

Although the NDX broke down below last week’s trendline, we graciously offer it a second such boundary to prove itself in the week ahead.

The low close beneath levels of the past seven weekly bars, has evoked a “sell-signal” basis the good old-fashioned 4-week rule. (John Murphy’s Technical Analysis of Financial Markets)

Breadth stinks quite frankly - as all of the major Bullish Percent Indices (including the Dow’s) have flagged sector-wide sell signals upon significant reversal breaches below their overbought 70-levels.

Despite capitulation-optimism surrounding high VIX/VXN readings relative to recent years, historically, the VIX becomes contrarian-bullish at levels above 30. Still a ways to go…

Apart from all of the plausible doom and gloom, longer-term uptrends remain firmly in tact, and at some point, a major reaction rally will prepare for take-off.

Although one should maintain general levels of optimism (after all, the bull is NOT dead yet) one should also be prepared for the absolute worst.

At the pilot’s request, please keep your safety belts securely fastened, and your seat backs in their standard upright positions.

post 2002 - Is Volatility attempting to return to historical NORMS – AGAIN!

Such question will be answered in due time, and will be contingent upon success of the financial spheres fresh layers of adopted rescue attempts.

http://www.financialsense.com/fsu/editorials/russo/2007/0804.html

[Ichiro]

PANIC IN THE STREETS,
FEAR IN THE AIR!
by Clif Droke
August 3, 2007


Did you hear that sound last week? That was the collective sound of millions of retail traders and investors screaming in fear and running, not walking, to the nearest bomb shelter as the stock market put in its internal low. Once again the ever-growing fear of the Main Street masses has led to capitulation at what looks to be another important stock market bottom in the making.



The June 29 edition of the Financial Times showed a picture on the front page of an exasperated Wall Street floor trader with his hands covering his face following a hard week of losses for equities. The S&P 500 was down over 5% in what was the biggest decline since the late February selling panic. The headline for June 29 read “’Wake up call’ for investors” in reference to the statement by Treasury Secretary Henry Paulson who said, “I think [investors] could use some more discipline. We are seeing a reassessment of risk and that is leading to a market adjustment.” When a high ranking member of the government pontificates on the dangers and excesses of the financial markets it means the worst has been seen in this latest correction and it’s time to look past the rhetoric and do some nibbling.



To illustrate the heavy fear hanging in the air over the latest “crisis of the hour,” here are a collection of headlines from that same newspaper over the past few days: “Subprime fears hit financial offerings,” “Subprime and credit fears give rise to volatility,” “Flight to quality over credit concerns,” “Shares battered as mortgage fears rise,” “Dollar rallies on US subprime fears,” “Bank debt fears spark big share price falls,” “Credit crisis puts heat on liquidity,” “S&P paints a gloomy picture for big banks,” “Credit gloom intensifies after double whammy,” “S&P plunges 2.3% amid earnings and housing gloom,” “Equity investors join exodus as mood darkens.”



I’m sorry, what was it again the press wants us to be afraid of? Oh yes, a credit crisis! (And if we believe the reports it’s going to get us all!) In reality, of course, this graphic display of fear and gloom show us that as investors we should be feeling the exact opposite of what the press is preaching, namely optimism over the U.S. stock market outlook.



The internal low of last week’s decline occurred on July 26, a day that saw the 52-week new highs/new lows on the NYSE fall to -620 in what was probably the lowest 1-day reading of net new lows in the last three years. This typically means investors have just about thrown in the towel on stocks, marking the worst part of the correction. Since then the number of stocks making new 52-week lows has gradually shrunk until today (August 2) when the hi-lo differential was -171, a vast improvement over the past two weeks when the average hi-lo disparity has averaged well over -300. Clearly the broad market is showing signs of gradual internal improvement.

http://www.financialsense.com/editorials/droke/2007/0803.html

[Ichiro]

THE BIG SHIFT-by Yiannis G. Mostrous
Editor, Growth Engines
August 2, 2007


From the start of 2007, my two main premises have been that the markets would be higher by the end of the year and that volatility would rise, so you should expect corrections--sometimes big ones. I'm two-for-two so far.

As everyone is aware by now, global markets are currently trying to price the problems emanating from the US subprime mortgage market into their valuations. As I wrote four to five months ago in The Silk Road Investor, everyone knows that the housing sector in the US is rapidly weakening and, most important, that the lending practices during the past four years have created some kind of credit bubble that's waiting to deflate.

But because of the endless financial engineering that's taken place--through the securitization of loans, for example--no one knows who holds what, what the real credit rating in these instruments is (where different kind of loans have been packaged and repackaged into collateralized debt obligations) and what the actual size of the various markets involved in the securitization scheme might be.

Consequently, the assumption being made by the majority of market participants is that the risk has been spread around. Therefore, any potential adjustment won’t be as painful as before. But given the lack of real knowledge regarding the situation, this remains more or less a speculation no matter how truthful it may be.

Nothing has really changed. Although the market is trying to assess the situation, the majority of the market participants are still in the dark regarding the details involved in the matter.

It's naive to equate volatility with a bear market as a lot of market observers often do. What volatility means is you'll need to bolster dynamic companies with large cap, high-quality investments and defensive sectors.

Asia on Top

The Asian financial crisis 10 years ago turned out to be a blessing for its economies. Every aspect of the region's financial apparatus was re-evaluated and restructured. And the region now has strong foreign exchange reserves, high household savings, little debt on most sovereign and corporate balance sheets, better governance and solid growth fundamentals.

http://www.financialsense.com/editorials/mostrous/2007/0802.html

[Ichiro]

AP-Dollar Falls to Euro
Monday August 6, 6:53 am ET
As Fed Meeting Looms, Dollar Falls to the Euro

FRANKFURT, Germany (AP) -- The dollar slipped lower against the euro Monday as markets looked toward the upcoming meeting of the U.S. Federal Reserve to see if interest rates might be lowered to ward off an economic slowdown.

The 13-nation euro rose to a high of $1.3839 in trading, just off its all-time high of $1.3852, before falling back to $1.3825, still above the $1.3801 it bought in late New York trading on Friday.

The dollar fell to 117.63 Japanese yen from 118.41 late Friday, while the British pound drifted lower to $2.0391 from $2.0447.

This week's Fed meeting is being held amid two weeks of market turbulence that has sent stocks tumbling.

The Fed's Open Market Committee's regularly scheduled August meeting on Tuesday may be key in settling investor anxiety.

The Fed is widely expected to maintain its benchmark rate of 5.25 percent, as it has done for the past year, in the face of increases by the Bank of England and the European Central Bank.

http://biz.yahoo.com/ap/070806/dollar.html?.v=1

[Ichiro]

AP-Most Asian Markets Fall
Monday August 6, 7:43 am ET
Most Asian Markets Drop in Wake of Wall Street's Plunge

TOKYO (AP) -- Many Asian and European stock markets fell Monday after Wall Street plunged at the end of last week on the lingering credit concerns that have roiled markets.

Stocks in Indonesia and Singapore fell 3 percent. Share prices in Hong Kong, the Philippines, and Thailand all fell more than 2 percent.


Chinese stocks meanwhile shrugged off the drops elsewhere to lift key indexes to record highs for the second straight session. The benchmark Shanghai Composite Index rose 1.5 percent to a record 4628.11, partly on bullish forecasts for rising profits at Chinese steel makers.

Tokyo's benchmark Nikkei 225 index shed 0.39 percent to 16,914.46 points, after hitting an intraday low of 16,675.39 points in the morning session.

Hong Kong's Hang Seng Index fell 2.67 percent to close at 21,936.73.

In Europe, London's FTSE 100 index managed to gain 0.3 percent to 6,240.30 and the German DAX 30 index edged up 0.2 percent to 7,451.50 as markets came off their earlier lows, but the French CAC-40 index was still down 0.5 percent at 5,567.96 and benchmark indexes were lower in Milan, Madrid, Zurich and Stockholm.

Wall Street's selloff on Friday set the tone for most Asian markets Monday, just as it had when it plunged earlier last week, said David Cohen, director of Asian forecasting at Action Economics in Singapore.

http://biz.yahoo.com/ap/070806/world_markets.html?.v=3

[Ichiro]

AP-Stocks Rise Following Pullback Friday
Monday August 6, 3:26 pm ET
By Tim Paradis, AP Business Writer
Stocks Gain Following Dow's 2 Percent Drop Friday; Volatility High Ahead of Fed Meeting

NEW YORK (AP) -- Wall Street was buffeted by volatility yet again Monday, surging higher even as investors wrestled with credit concerns ahead of Tuesday's Federal Reserve meeting.

Investors have been searching for signs of where the economy and the markets are headed after the fractious trading of the past two weeks. In a day devoid of economic news and with few earnings reports, investors early in the session seemed to avoid making big bets, though stocks later gained steam after midday.


The move comes ahead of the Fed's meeting on interest rates Tuesday. Policy makers are widely expected to hold the benchmark rate steady at 5.25 percent; as usual, the greater concern is with the Fed's economic assessment statement. This time, investors will be looking to see what the Fed says about credit.

"I think a lot of it has to do with people sort of squaring up before the Fed on the short side, covering some shorts. I really wouldn't read too much into it," said Charles Norton, principal and portfolio manager at GNICapital, referring to the market's move higher and investors who sell stocks "short," betting that they will fall. Such investors can be forced to buy stock to cover their positions if they believe the market is poised to move higher.

In late afternoon trading, the Dow Jones industrial average soared 194.04, or 1.47 percent, to 13,375.95, after zigzagging throughout the session and rising more than 200 points. The blue chip index fell about 2 percent on Friday.

http://biz.yahoo.com/ap/070806/wall_street.html?.v=37

[Ichiro]

AP-Oil, Gas Plunge on Economic Worries
Monday August 6, 3:48 pm ET
By John Wilen, AP Business Writer
Oil, Gas Futures Fall Sharply on Economic Worries, Profit-Taking

NEW YORK (AP) -- Oil and gasoline futures plunged Monday on concerns about the economy's health and as investors sold to lock in profits from last week's record-setting rally.

September oil fell more than $3 a barrel, and gas futures slid more than 10 cents to settle below $2 a gallon. Both contracts extended declines that began Friday after the government issued weaker-than-expected employment numbers. That data added to the sentiment of a series of other government reports analysts say suggest the economy might be slowing.


"The weaker ... numbers are raising the prospect of softening U.S. commodity demand in general, and energy demand in particular," wrote MF Global UK Ltd. analyst Ed Meir in a research note.

But investors are also taking profits from the rally that sent oil prices to record levels last week, analysts said.

"It's all related to the (investment) funds dumping a portion of their long holdings," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

Light, sweet crude for September delivery fell $3.42 to settle at $72.06 a barrel on the New York Mercantile Exchange. The contract has fallen more than $6 from the intraday price record of $78.77 it set last week.

http://biz.yahoo.com/ap/070806/oil_prices.html?.v=18

[Ichiro]

Reuters-Mortgage delinquencies, defaults spreading: AIG
Thursday August 9, 2:02 pm ET

NEW YORK (Reuters) - American International Group (NYSE:AIG - News), one of the biggest U.S. mortgage lenders, warned on Thursday that mortgage defaults are spreading.


While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.

Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.

But it was clear the overall market was getting worse.

"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.

AIG shares were at $65.60, down 88 cents, or 1.32 percent, in afternoon trading on the New York Stock Exchange. The Standard & Poor's insurance index (^GSPINSC - News) was down 2 percent.

'PANIC MODE'

"The market's in a panic mode because the subprime crisis is spreading into other areas of the economy," said Bill Hackney, a managing partner of Atlanta Capital Management.

But Hackney said he was keeping AIG as one of his largest holdings because it had "the size and diversity to weather it."

http://biz.yahoo.com/rb/070809/aig_subprime.html?.v=8

[Ichiro]

AP-Dow Plunges 387 on Subprime Concerns
Thursday August 9, 4:46 pm ET
By Tim Paradis, AP Business Writer
Dow Plunges 387 on Following Renewed Subprime Mortgage Concerns

NEW YORK (AP) -- Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone -- institutions, investors, companies, individuals -- can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

The concerns that arose in Europe and spilled onto Wall Street underscored the potential worldwide ramifications of an implosion of some subprime loans and perhaps also weakened arguments that strength in the global economy could help keep profit growth going in the U.S. among large companies that do business overseas.

http://biz.yahoo.com/ap/070809/wall_street.html?.v=80

[Ichiro]

BERNANKE:-Up Against the Wall (Bernanke may throw in the towel and start lowering the interest rate if the sub prime situation gets any worse)
by Joe Duarte, MD
Joe-Duarte.com & IntelligentForecasts.com
August 8, 2007


The stock market has found support, near the 200 day moving averages for the major indexes. This is a positive, but not necessarily the end of the road for the current market’s story, as the potential for more problems in the credit market is out there. In fact, a recent set of events is worth noting, as we move forward into the Dog Days of August, a time when thin volumes and vacant trading desks can make for highly volatile markets.

Indeed, despite the Fed’s bare bones mention of “conditions” having “become tighter” in the credit markets, found in its Tuesday afternoon statement of no change in interest rates, the situation in the mortgage market continues to implode with the jumbo mortgage market now starting to feel the negative effects of the ongoing liquidity crisis. Elsewhere, one subprime mortgage lender, American Home Mortgage Investment, has filed for Chapter 11 bankruptcy protection.

And there’s more, according to the Wall Street Journal, there is also more trouble ahead for the mortgage sector as "Aegis Mortgage Corp., Houston, notified mortgage brokers that it is unable to provide funds for loans already in the pipeline, a spokeswoman said. And Luminent Mortgage Capital Inc. of San Francisco said it faced calls for repayments from creditors and is suspending its dividend."

So, here's where things stand, as we see them.

There are two major problems in the mortgage market, a cash crunch, and a credit crunch, and they are related. When subprime borrowers stopped paying their mortgages, cash became scarce. Lower cash flows made it harder to get credit. Interest rates started to rise. And now fewer people can borrow money to pay off their loans. And the vicious cycle is repeating, rising in a deadly spiral that has now reached the mortgage lenders themselves, who can't get loans to pay off their own loans. And since many of these companies had relationships with each other, when the first one went down, it's likely just a matter of time before the dominoes start to fall.

The big question then, is how long it will take for Morgan Stanley, Goldman Sachs, and Merrill Lynch to take a hit big enough for the Fed to come to their rescue.

According to the Journal, citing comments by Doug Duncan, chief economist of the Mortgage Bankers Association, anyone who does business in the mortgage market right now has to be willing to hold on to the loan for a long period of time, or hope that the loan is of a high enough quality that it can be bought by Fannie Mae or Freddie Mac. Duncan told the Journal for any other kind of loan, "there is no market."

So this seems to be a classic battle between Bernanke’s academia and the real world, and there are no winners, no matter how it turns out. If Bernanke lowers interest rates in the near future, the market will likely rally, but eventually some will wonder why he did it and the sellers will return, with the excuse being that if Bernanke bent to pressure the situation must be a lot worse than even people like Cramer were hinting at.

Still others will likely say that Bernanke had no spine, and the Fed is in danger of losing its credibility in its fight against inflation.

No matter what, the bottom of the pile borrowers won't get any help since they've already been foreclosed against. And the bankrupt, and possibly corrupt subprime lenders, might get a break that they may not have deserved, since their lax lending practices contributed to the current situation.

http://www.financialsense.com/editorials/duarte/2007/0808.html

[Ichiro]

IS THE END NIGH? ( A buying opportunity!!!)
by Puru Saxena
Editor, Money Matters
August 7, 2007


Over the past few days, the ongoing credit-crunch in the US has grabbed all the media attention and the capital markets have responded with sharp declines. At present, there is an ongoing debate as to whether the sub-prime debacle will sink the US into the next “Great Depression”. Not surprisingly, the bears are out of their dens again, forecasting the very end of capitalism! So, what should we make of the current situation and more importantly, how should we invest during these volatile times?

There is no doubt in my mind that the US economy is past its prime. Gone are the days when the international markets used to shudder in fear at the very thought of American investors withdrawing their capital from overseas. Remember, not so long ago, financial crises used to spawn in some far-flung “emerging” nations in Asia, Latin America and Eastern Europe. And the US establishment used to stand firm as the lender of last resort. This time around, however, it is ironic that the world’s most influential nation is weighing down on the global economy and causing a mini-panic in the markets. A few years ago, the US was a creditor nation, but today it is the largest debtor nation the world has ever seen. Previously, Americans used to fund other less fortunate nations, however these developing nations are now funding the American way of life by financing those horrendous deficits! Based on these facts, it is clear to me that over the coming years, the over-leveraged American society will have to undergo some sort of adjustment. Moreover, I suspect that this adjustment will not be easy. In other words, I expect the standard of living in the US to gradually decline in the years ahead.

http://www.financialsense.com/editorials/saxena/2007/0807.html

[Ichiro]

MBS MONETIZATION & US DOLLAR--- a mild panic!!!! ECB added $130B into their money fund!!!)--very interesting!!!
by Jim Willie CB
August 9, 2007

Fannie Mae is being groomed to be the central clearing house for mortgages and their bonds, sponsored by the USGovt and the US Federal Reserve. Fannie Mae (FNM) just requested permission to take on much greater volume of mortgages, in order to alleviate the secondary market flow of capital funds. Since the accounting scandal which peaked in September 2004, a limit was imposed on FNM on its holdings at $727 billion. In today’s climate, marred by credit seizure to some degree, FNM is deeply missed in its former prominent centrifuge role. A key question arises on the general inflation impact, if and when FNM expands its role and is the nexus (surely a hidden basement) of grandiose illicit monetization of mortgage bonds. If the banking maestros undertake to put a secretive floor on mortgage backed securities (MBS), a solid bid to prevent further breakdown, then vast amounts of new printing press money will enter the system. The mortgage finance sector desperately needs a bid on subprime MBS bonds so as to clear them upon liquidations. The bank wizards could start monetizing them, and work their way up the quality ladder toward Alt-A loans which are also in trouble.

### OVERNIGHT PANIC UPDATE ###

Overnight, in the US wee hours of Thursday morning, the Europeans suffered a shock wave. The Euro Central Bank added €94.8 billion (US$130.2 billion) into the money market funds as retail depositors forced a run on their banks, in a MILD PANIC. The overnight rates that banks charge each other to lend in dollars jumped to the highest level in six years. The dollar London Interbank Offered (LIBOR) rate rose to 5.86% today from 5.35% and in euros rose to 4.30% from 4.11%. The ECB response to the fastest increase in the dollar bank rate since June 2004 signals that lenders are reducing the supply of money as losses triggered by the US mortgage slump spread worldwide. In addition to BNP Paribas halting withdrawals, and Dutch investment bank NIBC Holdings said it had lost at least €137 million on subprime investments, more evidence that credit markets are not stabilizing. A Commerzbank commercial bond trader summed it up. “Liquidity in the market has completely dried up as investors are not recycling their money back because of subprime concerns. Levels have shot up dramatically since yesterday as issuers are trying to entice investors back.” The ECB provided the largest amount ever in a single fine-tuning operation, exceeding the €69.3 billion provided on 12 Sept 2001, the day after the terror attacks on New York. The US Federal Reserve accepted $12 billion in overnight repurchase agreements overnight simultaneously.

PNB Paribas, the French bank conglomerate closed three funds associated with US subprime toxic mortgages. The company made a bold plainly worded comment, a severe criticism of this fraud-ridden credit sector. “The complete evaporation of liquidity in certain market segments of the US securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating. The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above mentioned funds,… therefore unable to calculate a reliable net asset value (NAV) for the funds.” Export of US bond fraud to Europe has led to renewed shock waves.

Back in the Untied States, American International Group (AIG) announced that residential mortgage delinquencies and defaults are becoming more common among borrowers in the category just above subprime. AIG, the world’s largest insurer and one of the biggest mortgage lenders, said total delinquencies were 2.5% in its $25.9 billion real estate portfolio. It offered details. They cite 10.8% of its subprime mortgages were 60 days overdue, compared with 4.6% in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading. This no longer just a subprime problem, clearly.

http://www.financialsense.com/fsu/editorials/willie/2007/0809.html

[Ichiro]

AP-U.S. Stocks Head for Sharply Lower Open
Friday August 10, 8:43 am ET
By Tim Paradis, AP Business Writer
U.S. Stocks Head for Lower Open Amid Continued Credit Concerns; Central Banks Add Liquidity

NEW YORK (AP) -- U.S. stocks moved toward another opening plunge Friday after Thursday's huge sell-off and as bank regulators including the Federal Reserve injected cash into money markets, stoking concerns of a more pronounced liquidity crunch. Futures came off of their lows Friday after the Fed's move.


Early Friday, the Fed announced a three-day repurchase agreement, or "repo," to inject liquidity into the market. The Fed said early Friday it would accept $19 billion. The move occurred after the fed funds rate, the rate banks charge each other for overnight loans, ticked above 6 percent again Friday -- well above the Fed's target of 5.25 percent.

The Fed stepped in after the same occurrence Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system. In a repo, the Fed arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks.

http://biz.yahoo.com/ap/070810/wall_street.html?.v=16

[Ichiro]

AP-ECB Sends Additional $83.8B Into System (Bernanke is fighting the wrong war. Its major credit crunch, not inflation!!!!)
Friday August 10, 8:44 am ET
By Matt Moore, AP Business Writer
ECB Injects Additional $83.8 Billion Into Banking System Amid Jittery Credit Markets

FRANKFURT, Germany (AP) -- The European Central Bank injected another $83.8 billion into the banking system Friday amid signs that bad U.S. mortgages were digging deeper into the world economy.

But investors did not seem appeased, with major indexes plunging in London, Frankfurt, Paris and Tokyo.

ADVERTISEMENT
The 61 billion-euro move by the ECB, which had provided 95 billion euros ($130.7 billion) in funds to banks on Thursday, came after Japan's central bank injected 1 trillion yen ($8.4 billion) into money markets. Early Friday, the U.S. Federal Reserve announced a three-day addition of liquidity. The Fed had already intervened Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

It was the first time the U.S., European and Japanese central banks had taken such action together since the aftermath of the Sept. 11 terrorist attacks. The Australian, Hong Kong and Canadian central banks also joined in.

"This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market," the ECB said.

But edginess in global markets was reflected in sharp declines in global stock indices on Friday. London's FTSE 100 dropped 3 percent to 6,082.10, the CAC-40 in Paris fell 2.9 percent to 5,459.36 and Germany's DAX index down 1.7 percent to 7,329.99.

"Market concerns about the U.S. subprime crisis are continuing without any apparent respite," said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.

"Its fallout will not be limited to financial markets," he added. "The U.S. economy and with it, the rest of the world, will feel the negative consequences for quite some time."

http://biz.yahoo.com/ap/070810/europe_market_jitters.html?.v=5

[Ichiro]

Banking Stocks, Cheapest for Decade, Attract Matrix, New Star

By Alexis Xydias

Aug. 10 (Bloomberg) -- Shares of banks, hammered over the debacle in credit markets, are now at their cheapest in more than a decade. Some investors have noticed.

Concern that defaults among U.S. subprime borrowers will spread to other debt markets and curb mergers and acquisitions made banks the target of a two-week sell-off that wiped out $600 billion, or about 8 percent of their $8.36 trillion in market value. No other industry lost that much.

Banks ``are going to be able to muddle through what's going on right now,'' said David Katz, who helps oversee $1.6 billion as chief investment officer of Matrix Asset Advisors Inc. in New York and bought Merrill Lynch & Co. shares. ``You're getting them at the lower end of their valuations with very good fundamentals.''

Members of the Morgan Stanley Capital International World Financials Index, which includes companies from Citigroup Inc. to ING Groep NV of the Netherlands, trade at an average of 11 times earnings, the lowest since Bloomberg started compiling the data in January 1995. The ratio has fallen from 13 at the start of the year, and is the lowest among the 10 industries in the MSCI World, a global equity benchmark.

The MSCI World Financials Index dropped 8.3 percent in a two-week slump that started on July 20.

Citigroup that day said it increased reserves for bad loans and Kohlberg Kravis Roberts & Co.'s banks postponed a deadline to finance 9 billion pounds ($18.5 billion) for the buyout of Alliance Boots Plc amid poor demand from investors.

`Act of Faith'

The measure declined again yesterday after BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds as turmoil in credit markets makes it hard to value their holdings. The European Central Bank, in an unprecedented response to a sudden demand for cash from banks, the same day loaned 94.8 billion euros ($130.2 billion) to ease a credit crunch.

Gregor Logan, who helps oversee $41 billion at New Star Asset Management in London, is buying shares of banks he reckons can weather the subprime woes.


http://www.bloomberg.com/apps/news?pid=20601109&sid=anlVqDz.fKuw&refer=exclusive

[Ichiro]

AP-Stock Prices Tumble on Credit Worries (The FEDs has no choice but to cut rates before their September Meeting).
Friday August 10, 10:04 am ET
By Tim Paradis, AP Business Writer
Stocks Fall Amid Continued Credit Concerns; Fed and Other Central Banks Add Liquidity

NEW YORK (AP) -- Wall Street skidded further Friday as investors again succumbed to anxiety over tight credit conditions even after the Federal Reserve said it would do all it can to "facilitate the orderly functioning of financial markets."


The market, which has been gyrating for weeks over fears that credit is drying up, actually suffered a milder loss than expected in the early going, an indication that the Fed, which also injected cash into the banking system early Friday, had helped soothe investors somewhat. But the drop still showed the depths of fear that have investors yanking money out of stocks.

Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y.

But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting."

He noted that it was Fed rate cuts that soothed the market after the 1998 Russian debt crisis and the implosion of the hedge fund Long-Term Capital Management.

In early trading, the Dow Jones industrials dropped 82.92, or 0.62 percent, to 13,187.76, adding to a 387-point plunge on Thursday and extending a series of triple-digit moves that began in late July.

http://biz.yahoo.com/ap/070810/wall_street.html?.v=44

[Ichiro]

THE EMPLOYMENT PROBLEM--
by David Yu
Chartmentary.com
August 6, 2007


I've had business relationship with American Home Mortgage (AHM), and I know people who used to work there. It's disheartening to see AHM employees leave their local branch offices carrying their personal belongings in boxes. About 7,000 AHM jobs have been cut. And, that wasn't the first or the only time I've seen mortgage lenders shutting down their operations. As bad as it is now, it may have only just begun.

I mentioned in my previous chartmentary that half of all American private sector jobs created since 2001 have been in housing related industries (see my Jan. 1, 2006 The Year of Charting Dangerously article). The lower than anticipated 92,000 new job number released on Friday was perhaps just the tip of the iceberg. A great number of people working in housing related industries as contractors, loan officers, and real estate agents, etc. are self-employed. They don't have any claim on unemployment benefits once they leave their jobs. Most of them perhaps have never been accounted for as unemployed.

Lately, Wall Street and financial media's focuses have been on earnings, credit problems, and oil price. They've either downplayed or ignored recent job reports. The market, nevertheless, has been taking heed of the fundamental change of the employment condition. And the change is simply too ominous, and too important, to ignore.

Chart 1 shows the number of jobs created rose convincingly from the February-March 2001 bottom to the March-April 2004 top, which coincides with the period of housing market boom. This number leveled off in April 2004 and began to decline in September-October 2005. Readers with keen observation may have noticed that Chart 1 also shows payroll number in the 2nd quarter of 2000 stumbled below the 100,000 earmark and then proceeded to plunge into the negative territory. We all know what happened to the stock market then; it formed a major, multi-year, market top in March-April 2000.

http://www.financialsense.com/fsu/editorials/yu/2007/0806.html

[Ichiro]

10aug-msn money-Stocks struggle despite Fed help

((Althought the SEC is probing Wall Street banks for hidden subprime losses, they will not uncover bulk of it because they are hidden off the books in the overseas accounts due to creative accounting. An probe won't help, but an audit could disclose the extent of the subprime problem)).

The Federal Reserve offers $38 billion in assistance to prevent the credit markets from seizing up. But stocks tumble after news of growing problems facing Countrywide Financial and Washington Mutual. The SEC is probing Wall Street banks for hidden subprime losses.

Briefly, and we mean briefly, stocks were up this afternoon. But the stresses of the financial markets have taken the market down again, despite multiple injections of cash into the U.S. financial system to foster confidence.

In an unprecedented move, the Federal Reserve injected a total of $38 billion in three moves into the banking system to keep the financial system operating smoothly. The last move came at about 1:45 p.m.

At 1:15 p.m. ET, the Dow Jones industrials were down 91 points to just under 13,180. The Nasdaq Composite Index was down 18 points to 2,538, and the Standard & Poor's 500 Index sagged more than 6 points to 1,447.

The Dow had been down 212 points at 10:30 a.m., then worked itself to a gain of 36 points at 12:20 p.m. Then it fell back a second time as the volatility that has taken over the market since the Dow peaked at 14,000 on July 19 continued.

http://articles.moneycentral.msn.com/Investing/Dispatch/070810markets.aspx

[Ichiro]

10aug-A BRIEF COMMENTARY ON FINANCIAL CRISES
by J. R. Nyquist

A financial crash is more than an economic glitch. It leads into dangerous political territory. It can trigger revolutions. Financial distress in the 1780s led to the French Revolution. Financial distress brought the Nazis and Japanese militarists to power before World War II. A financial earthquake may cause a political earthquake. A political earthquake, in turn, can set off a revolution, civil war, or even a world war. This is what history teaches.

It is economic distress that drives the average man to despair. Financial calamity changes his political outlook from cool detachment to naked fear. This signals opportunity to the political opportunist, the fanatic and the demagogue. These will always play on fear. America is a country that has enjoyed prosperity, and this has contributed to political moderation. The center holds as long as the economy runs smoothly. We do not know, however, what the effect of a major crash would have on an ethnically divided welfare society with an aging population supplemented by a rapidly growing foreign work force.

Then there are international and geopolitical consequences: Europe is economically tied to America. Money flows from one country to another, and so does financial trouble. This week the European Central Bank reached for $130 billion in emergency funds. The markets are jittery. Europe is nervous. American real estate prices are falling. There are growing losses connected with U.S. mortgages. The solution of lower U.S. interest rates is not an option because of Chinese threats to sink the dollar.

http://www.financialsense.com/stormwatch/geo/pastanalysis/2007/0810.html

[fedgolfer]

... thanks Ichiro. Normally news re: creative accounting from the big boys really irks me. In this case, i'm glad the chances of finding it are low. Those guys have written the tax code and sure know how to take advantage. However, I think Carl Levin's state is really hurting from the subprime fiasco... so there will be major digging from the Senate too.

[Ichiro]

10aug-THE SHODDIEST EXPORT-by Peter Schiff
Euro Pacific Capital
August 11, 2007


For years, Americans have been able to pay for enormous trade deficits by exchanging IOU's for imported consumer goods. Unfortunately for foreign creditors, a substantial percentage of those IOU’s have recently taken the form of mortgaged backed securities. ((this is bad because if the market continues to melt, the foreign creditors could start dumping those mortgaged backed securites. And what makes it even worse, is that if the fED lowers the interest, the US dollar will take a dive very fast ))

Sporting higher yields than Treasury bonds, investment grade ratings from reputable agencies, and juicy commissions for the investment banks that packaged them, these structured mortgage bonds have quickly become America’s greatest export. Ironically, amid all the recent hoopla about defective Chinese exports, America has proved that when it comes to flooding the world with shoddy merchandise, nobody beats the good old USA.

This week, several of Wall Street’s best foreign customers announced staggering losses on the American mortgaged backed securities they had been sold. The fundamental issue underlying these losses is that Americans borrowed more money than they can afford to repay. As initially low teaser rates expire and mortgage defaults increase, foreign lenders are discovering that the residential properties that collateralize the mortgage bonds are not worth anywhere near the loan amounts.

It will not be long before American borrowers come to a similar realization. When they do they will be faced with the shocking reality that all of their home equity is gone -- having disappeared just as quickly as did the paper profits of the Internet stock mania. However, this time around the situation is more dire. Although paper profits have vanished much as they did in 2001, all the mortgage debt, much of it about to get much more expensive to service, still remains.

When American homeowners come to grips with their diminished net worth, the excess consumption that has been the rule over much of the past decade will grind to a halt. If any money is left after making higher ARM payments, homeowners may actually decide to save some to repair their personal balance sheets. As consumer spending collapses, the U.S. economy will plunge into a severe recession, compounding the problems in the housing market and exacerbating the recession.

http://www.financialsense.com/fsu/editorials/schiff/2007/0810.html

[Ichiro]

WHAT WE KNOW-by Roger Conrad
Editor, Utility & Income
August 11, 2007

How do you solve a liquidity crisis? The simple answer is to inject more liquidity into the financial system. The hard part is not pouring in too much and thereby setting off a speculative boom in the markets that leads to a greater meltdown later on.

That's the dilemma facing the world's central bankers today, as the investment markets confront their worst crisis in half a decade. And unfortunately, the answer is no easier this time around than it was in the summer of 1998, the time of the last liquidity crisis.

That time around, the triumvirate of Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin and President Bill Clinton confronted the so-called "Asian Contagion" that had spread over a year and a half to engulf the entire world in a credit crunch. Their solution was to inject a huge amount of liquidity into the system to bail out the banks, and they used America’s financial and diplomatic muscle to pull the rest of the world along.

The bailout restored calm to the financial markets. But it was later blamed for creating a climate of risk-taking that led to the bubble of 1999, which saw the Nasdaq Composite double and subsequently crash in the bear market of 2000-02.

Here in summer 2007, it's deja vu all over again. Like Greenspan/Rubin/Clinton, the current team of Ben Bernanke at the Fed, Hank Paulson at the Treasury and President Bush has said a lot about letting the market action run its course. Earlier this week, Bernanke kept the widely watched fed funds rate at 5.25 percent. And, doubtless reflecting the views of Mr. Paulson, the president stated his opposition to a bailout of the mortgage industry and support of letting things play out.

http://www.financialsense.com/editorials/RConrad/2007/0811.html

[Ichiro]

11aug-Fed May Drop Rates Within Next Week -- Merrill Lynch

"The U.S. Federal Reserve may be forced to perform an emergency inter-meeting rate cut within the next week, according to Merrill Lynch analyst Joseph B. Shatz. Shatz told clients in a Thursday note Fed Funds futures point to a significant possibility that the Fed will drop its target rate from a current 5.25% due to a spat of recent concerns over global liquidity, including a move by the European Central Bank to inject €151 billion into European money markets over the past two days.""

Source: Marketwatch--Today's Wallstreet Breaekfast....

[Ichiro]

Yen Gains to Highest Since 2006 as Investors Exit Carry Trades

(((wow, the yen is at 113. Tomorrow, the Nikkei will take a beating...It appears that the FED will not reduce the interest rate--Helicopter BEN will not rescue the financial market...Now, if the China Market crashes, watch out!!!)))

By Min Zeng and Kim-Mai Cutler
Enlarge Image
A monitor displays the activity of the yen

Aug. 16 (Bloomberg) -- The yen rose to the highest since July 2006 versus the dollar as a global rout of stocks and credit markets pushed investors to sell riskier assets funded by loans in Japan.

The yen is the strongest most-actively traded currency today and reached the highest since March versus the euro as the carry trades unwound. Global stocks fell and companies from Australia to Canada sought emergency funds as they were unable to refinance debt. Currencies in New Zealand and Australia led the decline versus the yen, both falling more than 5 percent.

``The market is in panic mode,'' said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, the world's largest custodian bank with over $20 trillion in assets under administration. ``It is a full-blown unwinding of the carry trade. This is just the beginning.''

The Japanese currency advanced 2.1 percent to 114.21 per dollar at 11:38 a.m. in New York and earlier reached 113.60, the strongest since July 2006. The yen also gained 2.3 percent to 153.07 per euro and touched 151.98, the highest since March.

Japan's yen has rebounded from a record low of 168.99 per euro on July 23, and 124.13 per dollar on June 22, the weakest since December 2002.

http://www.bloomberg.com/apps/news?pid=20601087&sid=adtZAS4LJY8Y&refer=home

[Ichiro]

Brazil's Real Tumbles Up to 5.1 %; Treasury Cancels Debt Sale

((Folks, now the Yen is at 112.60 to the US$$. The Brazil's currency falls 5%. I would keep away from the emerging market for the time being.. If the China Market crashes, watch out!!! I just hope it does not turn ugly like the black Monday!!Helipcopter BEN never learns....))

By Adriana Brasileiro

Aug. 16 (Bloomberg) -- Brazil's currency sank as much as 5.1 percent, sending it to a five-month low as a rout in global credit markets prompted investors to dump risky emerging-market assets.

Brazilian bonds also plummeted, pushing up benchmark five- month yields to a three-month high and prompting the Treasury to scrap a weekly debt sale for the second time in three weeks.

The currency dropped to as low as 2.1325 reais per dollar, its weakest rate since March 5. The real was down 4.9 percent at 2.1292 per dollar at 12:39 p.m. New York time. It has plunged 9.6 percent in the past three days and 15.6 percent since July 23, when losses in the U.S. subprime loan market began eroding demand for other risky assets throughout the world.

``All emerging markets are falling because nobody dares to try to assess how deep and how far the damage will be,'' Gordian Kemen, a Latin America strategist at Lehman Brothers Inc., said in an interview. ``Emerging markets are far from the epicenter of this crisis but they offer more risk, and nobody is thinking about going back to risk now.''

The central bank didn't buy dollars in the currency market yesterday and the day before, after purchasing the U.S. currency daily since July last year to build up reserves.

http://www.bloomberg.com/apps/news?pid=20601083&sid=aaHuOBFJcUMs&refer=currency

[Ichiro]

Tokyo stocks plunge 5 pct on yen,energy stocks down-Fri Aug 17, 2007 2:07AM EDT

(nikkei drops 5% today. If yen appreciates beyond 113, expect another two to three % drop in the nikkei on Monday... The yen is appreciating very fast these days due to the yen carry trade but has a negative impact on the nikkei.)))

TOKYO, Aug 17 (Reuters) - The Nikkei plummeted more than 5 percent to post its biggest percentage loss in nearly six years on Friday as sharp gains in the yen triggered concern about Japan's economic outlook and profit prospects, pushing down exporters such as Toyota Motor Corp. (7203.T: Quote, Profile, Research).

A dive in commodity prices hit nonferrous metals stocks, trading firms and other energy-related stocks, pulling the broader TOPIX index down to its lowest in nearly 13 months.

http://www.reuters.com/article/marketsNews/idINTFA00285720070817?rpc=44

[Ichiro]

Fed Cuts Discount Rate to 5.75 Percent to Ease Credit Crunch

(Finally Helicopter BEN lowers the rates before it is tooo late!!!))

By Scott Lanman and Brendan Murray

Aug. 17 (Bloomberg) -- The Federal Reserve, in an unscheduled announcement, cut its discount rate and said it's prepared to take further actions to ``mitigate'' damage to the economy from the rout in global credit markets.

The central bank reduced the rate at which it makes direct loans to banks by 0.5 percentage point to 5.75 percent. Policy makers kept their benchmark federal funds rate target unchanged at 5.25 percent. It's the first reduction in borrowing costs between scheduled meetings of the Federal Open Market Committee since 2001 and Ben S. Bernanke's first as Fed chairman.

``Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,'' the central bank's Federal Open Market Committee said in a statement released in Washington. ``The downside risks have increased appreciably.''

In the statement, the committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMr45.9VOKes&refer=home

[Ichiro]

U.S. Fed's Cuts Discount Rate; Fed Board Statement (Text)

By Alex Tanzi

Aug. 17 (Bloomberg) -- The following is the text from the Federal Reserve's Open Market Committee and the Federal Reserve Board.

Federal Reserve's Open Market Committee

Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.

Federal Reserve Board

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiHUDlIJ1Ga8&refer=home

[Ichiro]

China May Raise Rates by Sept. 30 to Cool Growth (Update1)

((I hope this does not crash the Chinese stock market!!))

By Nipa Piboontanasawat and Patricia Chua
Enlarge Image
Zhou Xiaochuan, governor of the People's Bank of China.

Aug. 17 (Bloomberg) -- China will probably raise interest rates by the end of September to cool the economy after inflation accelerated to a 10-year high and record trade surpluses pumped cash into the financial system.

Rates will increase this quarter for the fourth time since March, 11 of 16 economists in a Bloomberg News survey said yesterday after the final economic data for July. Most expect the benchmark one-year lending rate to rise to 7.11 percent from 6.84 percent. The deposit rate is likely to be raised to 3.6 percent from 3.33 percent.

http://www.bloomberg.com/apps/news?pid=20601013&sid=aFQSLlvN3f_A&refer=emergingmarkets

[Ichiro]

ECB Should Scrap Plan to Raise Rates, Economists Say (Update2)


((If eCB raises their interest rate, it will crash their stock market.. ))


By Matthew Brockett
Enlarge Image
Jean-Claude Trichet, president of the ECB

Aug. 17 (Bloomberg) -- The European Central Bank should scrap plans to raise interest rates in September after markets around the world plunged, economists said.

``There is a big financial storm brewing,'' said Andrew Bosomworth, a fund manager at Pacific Investment Management Co. in Munich. If companies ``can't finance themselves, we may see bankruptcies. A forward-looking central bank should go on hold.''

Global stock markets tumbled yesterday, sending benchmark indexes in Europe and Asia to the lowest levels in five months, as concern deepened that a credit crunch sparked by the U.S. subprime crisis will curb company earnings and slow economic growth. Investors have pared bets on higher borrowing costs in the 13-nation euro region even after ECB President Jean-Claude Trichet signaled on Aug. 14 the bank remains on track to raise its benchmark rate next month.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a5CthDLKLFuM&refer=economy

[Ichiro]

Hong Kong Stocks Will Gain Most From Fed Cut: Michael R. Sesit

By Michael R. Sesit

Enlarge Image
A board displays the Hang Seng Index in Hong Kong

Aug. 17 (Bloomberg) -- The silver lining of a financial crisis is never easy to find. This time, Asian stocks, including Hong Kong shares, may benefit from the Federal Reserve's attempt to deal with the U.S. subprime mortgage debacle.

That is especially so if the Fed lowers official short-term interest rates to prevent the liquidity squeeze and credit crunch from harming U.S. economic growth.

Hong Kong is a special case in point. Because its dollar is pegged to the U.S. currency, the Asian city's monetary policy mirrors its American counterpart. That means whatever steps the Fed takes to stimulate the economy will be an unintended fillip to Hong Kong.

There, however, the similarities end. While U.S. growth has slowed to a 1.8 percent year-over-year rate, Hong Kong's gross domestic product is expanding at a 5.6 percent pace.

The U.S. budget deficit is 3.6 percent of GDP, and its current-account deficit equals 6.4 percent. Hong Kong, by contrast, sports a budget surplus of 1 percent of GDP and a massive current-account surplus equal to 11.4 percent of GDP.
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_sesit&sid=arkm3iytRxeQ

[Ichiro]

FEDERAL RESERVE DISCOUNT RATE CUT COMMENT
by David Urban
August 17, 2007

This morning, in a surprise move, the Federal Reserve cut its discount rate by 50 basis points from 6.25% to 5.75% in order to provide additional liquidity and restore normal operations to the discount window. The discount window is used to provide short-term liquidity to financial institutions and provide a source of funds for lending in the federal fund window.

During the recent panic, the Federal Reserve has been injecting the banking system with short-term flows of capital in order to keep the system liquid and functioning properly. The Federal Reserve will take collateral in return but it is the collateral and margin requirements which have been causing the most problems.

The Federal Reserve Board (FRB) noted in the first sentence that this rate cut was temporary so expect an increase or non-cut balancing out a cut in the Fed Funds rate when liquidity improves.

The more interesting points come later in the statement when the FRB notes that they have extended the borrowing term to 30 days, renewable by the borrower. This signals to me that there may be a couple of banks with problems in the system. If so, this provides additional liquidity and gives the banks more time to sort through their problems.

http://www.financialsense.com/fsu/editorials/2007/0817.html

[Ichiro]

Daily FX-Fed Bails Out Stocks With Rate Cuts, but Dollar May Tumble

((The yen will strenghten in the near future due to the rate cut by Helicopter BEN))
Friday August 17, 2:15 pm ET
By David Rodriguez, Currency Analyst strategist@dailyfx.com

The US dollar traded significantly lower against major trading counterparts, as a surprise Federal Reserve interest rate cut eased risk aversion across financial market. The greenback, which has gained significantly on the recent flight to quality, halved its earlier week gains and sunk below previous two-month highs on a simultaneous Dow rally.


The Euro bounced off of fairly significant technical support, trading as many as 180 points off of lows to $1.3500 at time of writing. Forex traders likewise eased recent British Pound tumbles, with Cable erasing overnight losses to stay at $1.9822. A bounce in the forex carry trade made the Japanese Yen the only major currency to lose against the dollar, with the greenback adding ¥3.00 off of lows to ¥114.44.

http://biz.yahoo.com/fxcm/070817/1187374535376.html?.v=1

[Ichiro]

RELIEF IS SPELT B-E-N --by Brady Willett
FallStreet.com
August 17, 2007

((Folks, it looks like the yen is heading below 110 in the near future due to the recent reduction of the discount rate by BEN and also the possibly of the interest rate increase by GOJ in September. Fukui's term as the GOJ is up next March 08. I just hope that the next GOJ is not too conservative....))

Yen carry is blowing up, global stock prices are in mini-crash mode, and the financial meltdown is threatening to spark an economic meltdown. Having gingerly danced with rhetoric and liquidity injections in recent days, the Fed started to boogie this morning. Here is the statement in its entirety:

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

The initial response to this move is, obviously, relief: financial market participants were – literally – screaming for help, and the Fed is now on the job. But after the initial rebound in the markets what will happen in the coming months is considerably less clear. Will today’s actions and any follow up actions be enough to stabilize bearish spirits?

http://www.financialsense.com/editorials/willett/2007/0817.html

[Ichiro]

Reuters-Buffett could buy parts of Countrywide: report

((As I stated earlier, Mr. Buffet will be buying these undervalued financial securites next to nothing. Also, Mr. Winters of the Wintergreen Fund is buying these foreign securites at substantial discount. In the long run, they will make big $$$ from buying these beaten up financial companies.))

Monday August 20, 10:42 pm ET

NEW YORK (Reuters) - Billionaire investor Warren Buffett may buy parts of beleaguered mortgage lender Countrywide Financial Corp (NYSE:CFC - News), some investors are speculating, according to The Wall Street Journal.



Countrywide's debt-servicing business and its portfolio of mortgages and mortgage-backed securities may be attractive to Buffett, the Journal reported on its Web site on Monday, citing unnamed investors.

Like many mortgage lenders, Countrywide has struggled with rising delinquencies and foreclosures, and an unwillingness among bankers to extend credit, and among investors to buy the loans it makes.

Countrywide, which is being closely monitored by U.S. regulators, sought to reassure investors earlier on Monday that it is safe to do business with the company.

http://biz.yahoo.com/rb/070820/countrywide_buffett.html?.v=1

[Ichiro]

STOCK MARKET GYRATIONS AND THE "YEN CARRY" TRADE
by Gary Dorsch
Editor, Global Money Trends Magazine
August 23, 2007

For long-term buy and hold investors in the US stock market, who simply sit through wild market gyrations, it’s good to know that you have “Plunge Protection Insurance.” The dynamic duo of US Treasury chief Henry Paulson and Federal Reserve chief Ben “B-52” Bernanke are working overtime these days, and using all the weapons in their arsenal to prevent a bear market from materializing, while Wall Street faces its worst financial crisis in many decades.

“I asked Chairman Bernanke if he would use all the tools available to him and he said, Absolutely,” said US Senator Christopher Dodd on Aug 21st, after a meeting with Paulson and Bernanke, the top commanders of the “Plunge Protection Team” (PPT). “Historically the federal funds rate has tended to follow movements in the discount rate,” Dodd added, alluding to the PPT’s most potent weapon.

In today’s world of extreme market volatility and information overload, the memory span of the average hedge fund trader has been reduced to about 24-hours. Yet just two weeks ago, the global stock markets went into a mini meltdown, after BNP Paribas, France’s biggest bank, froze 2 billion euros in three hedge funds it manages, because they contained toxic US sub-prime mortgage debt that couldn’t be sold.

It was the second time that the American sub-prime debt bomb exploded in Europe. Earlier, Germany’s IKB Bank, said it expected to lose a fifth of its 17.5 billion euro ($24 billion) stake in US sub-prime mortgages. To stop IKB from un-raveling, the Bundesbank cobbled together several banks to provide 3.5 billion euros to cover the bank’s losses, and prevented Germany’s biggest banking crisis in 75 years.

In July, Bear Stearns declared that two of its hedge funds that owned toxic US sub-prime slime were headed for bankruptcy. Ahead of the next round of quarterly earnings reports in October, traders are wondering if other banks and investment firms that are exposed to billions of dollars of the toxic sub-prime mortgages, will come clean and show the full extent of their losses.


http://www.financialsense.com/fsu/editorials/dorsch/2007/0823.html

[Ichiro]

WILL CREDIT CRISIS CALM DOWN
BEFORE THE REAL STOCK CRASH?
by Christopher Laird
PrudentSquirrel.com
August 23, 2007


After basically being up on and off 24/7 for two weeks – I am amazed at the speed of the onset of the credit crisis. I also had a feeling last night, thinking about all this chaos, that it is rather bizarre. Weird and eerie is another view. There is no doubt that we have seen real fear like never since 1929 in credit markets. That almost spread to equities, with some scary drops – like 600 and 800 point down days in the Hang Seng and the Nikkei.

As happened in the February 27 crashes, the US markets were the ones that more or less held ground- So far. As that seemed to continue to be the case, again, the Asian markets seemed to calm, and also the European markets. Now, I would also suggest that the US ‘Working Group on Markets’ and the BOJ market management teams both put serious floors under equities. Many times in the past two weeks we would see the Dow headed for a really bad day, but all of a sudden a serious reversal. I particularly remember that day when the Dow was rapidly down 150 points, but made most of that up in the last hour and ended down something like a few points. You are not going to tell me that the traders really did that one. A floor was put in.

I am not really one of these people who believe in conspiracies, but that does not mean that the Working Group on Markets is not what is seriously mitigating things. Hey, they admit they do it. They certainly have the horsepower and brains to pull it off, with Paulson and so on, market traders par excellence.

The only trouble is, how many times can this work? I think it is rather clear that, now that mortgage derivatives have been scattered world wide, and are being written down to 10 cents on the dollar, some more anarchy must ensue. We may have sort of weathered the first real test, but at great cost, and likely many hidden losses out there. We are not out of the woods yet by any imagination. The bad derivatives are about $2trillion worth of subprime and Alt A (one level higher). 20% of these are in arrears. Then we have the trouble spreading to even good mortgage derivatives, as investors flee these regardless of quality. That has caused jumbo loans (exceeding 400k US) to become hard to get and at 9%! Good luck to the high end real estate market.

Obviously, mortgages are not all going to lose 90% of their value, or are they? Maybe, if we have a real depression, and that is quite possible given the scope of this credit crisis – way larger than the LTCM episode – maybe if we have a real depression most mortgage derivatives will lose 90% value. We are talking something in the range of $10 trillion worth of new mortgages in the last 5 years that are becoming a big weight around all the holders of the paper.

http://www.financialsense.com/fsu/editorials/laird/2007/0823.html

[Ichiro]

NATOMY OF A BOTTOM
by Puru Saxena
Editor, Money Matters
August 22, 2007


After going through all the technical and sentiment data available, I am more convinced than ever that a major bottom was formed in the markets last week. Below I present the reasons –

a. Volatility Index (VIX) which measures market fear surged to 37 intra-day on Thursday before reversing and settling at 30. On Tuesday, it fell further to 28 - we may have seen the top in the VIX.

b. On Thursday, over 1,000 US stocks recorded fresh 52-week lows and only 10 stocks hit new highs - this extreme reading is a symptom of a severely oversold market

c. The Put/Call ratio, which measures the number of put options (bets on the market declining) versus call options (bets on the market rising) reached 1.3 which is even higher than the level recorded at the bear-market double bottom in October 2002 and March 2003. The current reading indicates that the majority of market participants are positioned for a further fall and not many are betting on a rise. Such a high level of bearishness is a great "bullish" contrarian signal.

d. The latest survey done by Investors Intelligence shows that the level of bullish advisers has shrunk to 43% from close to 60% which is consistent with previous market bottoms

e. The Bank Index in the US (a leading indicator) also bottomed last Thursday and has been leading the advance off the lows

f. The Fed cut the "Discount Rate" by 50% and this is a sign that it will probably cut its Fed Funds Rate at its next meeting. Rate cuts are bullish for assets and negative for the US Dollar.

g. Finally, Thursday marked a "key" day reversal. In other words, after being down significantly during the day on massive volume, US stocks managed to close higher representing panic and capitulation.

http://www.financialsense.com/editorials/saxena/2007/0822.html

[Ichiro]

Reuters
Bank of China's subprime exposure rattles Asia
Friday August 24, 9:09 am ET
By Mike Peacock and Jan Dahinten

LONDON/SINGAPORE (Reuters) - Three Asian banks' heavy exposure to the limping U.S. home loan sector reinforced global credit wobbles on Friday but Germany, France and Italy saw no signs of new problems.


Shares in Singapore's DBS Group Holdings (SES:DBSM.SI - News), state-controlled Bank of China (HKSE:3988.HK - News) and its Hong Kong subsidiary, BOC Hong Kong (HKSE:2388.HK - News), all dived after they revealed a combined exposure to the U.S. subprime mortgage market of almost $13 billion. (nHKG273224)

The news raised fears that Asian banks, generally risk averse following the Asian financial crisis 10 years ago, were more vulnerable to the crisis than investors had thought.

Stock markets from Sydney to Seoul fell in response, handing Asia its first losing session since a major drop last Friday.

European stocks followed suit and U.S. stock futures pointed to a lower open on Wall Street as rising confidence was brought up short by Countrywide Financial (NYSE:CFC - News) chief Angelo Mozilo's assessment the United States could be dragged into recession.

Japan's top financial diplomat tried to pour oil on troubled waters, saying the worst of the market adjustment was over, although it would linger for some time, and there was no wider economic danger.

"(Volatile markets) should not negatively affect the economy," Naoyuki Shinohara, vice finance minister for international affairs, told reporters.

EUROPE MORE POSITIVE

French Economy Minster Christine Lagarde was also upbeat, saying France's banks faced no substantial risks from exposure to subprime loans. "The situation in the banking sector is absolutely healthy," she told a news conference.

In France, BNP Paribas (Paris:BNPP.PA - News) said it would reopen next week three investment funds frozen this month because U.S. subprime market volatility meant it could not value some assets.

German Finance Minister Peer Steinbrueck was equally sanguine. He said there was no evidence his country's banks faced further problems, or that the liquidity crisis was wreaking wider economic damage.

http://biz.yahoo.com/rb/070824/economy_credit.html?.v=3

[Ichiro]

Dollar May Fall to Record Within Six Months, Goldman Sachs Says

By Ye Xie
Enlarge Image/Details

Aug. 24 (Bloomberg) -- The dollar may decline to a record low against the euro in the next six months because U.S. economic growth will slow, forcing the Federal Reserve to cut interest rates, according to Goldman Sachs Group Inc.

From the current level of $1.3568 per euro, the U.S. currency will weaken to $1.43 per euro in the next three to six months, Goldman Sachs said in a research note yesterday. New York-based Goldman, the world's biggest securities firm by market value, lowered its dollar forecast from a prior estimate of $1.35. The dollar set a record low of $1.3852 per euro on July 24.

Concern about losses in investments related to mortgage securities has bolstered expectations the Fed will cut its benchmark interest rate from 5.25 percent at its Sept. 18 policy meeting. Traders are certain the Fed will cut its key rate to at least 5 percent by Sept. 18, futures show.
D
``Financial conditions are tightening at a time when clearly there's some downside risk to the growth,'' said Jens Nordvig, a senior currency strategist at Goldman Sachs in New York. Fed rate cuts ``will drag the dollar lower.''


http://www.bloomberg.com/apps/news?pid=20601083&sid=aGU1K0tcAeQI&refer=currency

[Ichiro]

Bank of China Shares Fall in Hong Kong on Subprime (Update6)

By Luo Jun
More Photos/Details

Aug. 24 (Bloomberg) -- Bank of China Ltd. had its biggest drop since going public last year after the nation's second- biggest bank said it holds almost $9.7 billion of securities backed by U.S. subprime loans, the most of any Asian company.

The 5.4 percent decline in Hong Kong erased $10 billion of Beijing-based Bank of China's market value. Almost 1.5 billion shares were traded, more than four times the daily average over the previous six months.

``Bank of China disclosed numbers that no stockholders wanted to hear,'' Warren Blight, a Hong Kong-based analyst at Fox-Pitt Kelton (Asia) Ltd., said in a research note today. ``The market is likely to be very surprised by the scale of the exposure.''

The collapse in securities backed by subprime mortgages has caused losses at lenders around the world, helping send Asian banking stocks lower in the past month. Industrial & Commercial Bank of China Ltd., the world's largest bank by market value, said yesterday it had $1.2 billion of subprime-related securities.

Defaults on home loans to people with poor credit have prompted a sell-off of debt-backed securities that spread to wider credit markets and wiped more than $5.5 trillion off the value of equities worldwide.

Losses related to subprime loans damped enthusiasm for Bank of China even after it reported a 51 percent increase in first- half profit. The shares have fallen 10 percent in Hong Kong this year, the fourth-worst performance among companies on the benchmark Hang Seng index.

http://www.bloomberg.com/apps/news?pid=20601013&sid=ai2vazmTzqvY&refer=emergingmarkets

[Ichiro]

Japanese Recession Risk Leaves Goldman Wondering: William Pesek

By William Pesek

More Photos/Details

Aug. 24 (Bloomberg) -- Here we go again!

That's likely to be a common reaction as investment banks such as Goldman Sachs Group Inc. wonder aloud about the risk of a Japanese recession. If the world's second-biggest economy grinds to a halt, it will be no small blow to a financial system that has gotten used to flying on several engines, not just the U.S.

The good news is that the odds don't favor that happening. ``It is too early to conclude that a recession is inevitable,'' Naoki Murakami, an economist at Goldman Sachs Japan Ltd., wrote in an Aug. 22 note to clients.

Such statements aren't as reassuring as investors might hope amid so many global challenges. The meltdown in the U.S. subprime-mortgage market hasn't just sent the yen soaring, but raised big questions about the health of the U.S. economy.

Japan's recovery is solid enough to withstand swings in global mark

http://www.bloomberg.com/apps/news?pid=20601039&sid=ahsH0SqcUUVM&refer=columnist_pesek

[Ichiro]

EXPECTING SHORT-TERM TOP
Chart Spotlight
by Carl Swenlin
DecisionPoint.com
August 24, 2007

In my August 17 article, Looking For A Retest, I speculated that we would get a bounce from the extreme price lows hit in mid-August, but that a retest of those lows needed to occur before we could be reasonably certain that the completion of a solid bottom had been accomplished. As it happened, the bounce was initiated before I posted the article. At this point I think the evidence suggests that the reaction rally has just about run its course, and that we should be expecting a price top to mark the beginning of a decline into the retest of recent lows.

The evidence of which I speak can be seen on the chart below (and on many other short-term indicator charts). There are two versions of the Swenlin Trading Oscillator (STO) -- one is calculated from advance-decline breadth (STO-B) and the other from volume (STO-V). On the chart I have outlined two corrective phases -- the February/March correction, and the current correction, which, in my opinion, is not yet complete.


Note that there were three separate down thrusts in February/March. The first was into the initial price low, which also registered the lowest of the STO readings. The second was the retest of the first price low, which registered a slightly lower price accompanied by higher STO readings. The third move down was a pullback after a breakout. Note that the breakout was accompanied by very high STO readings, indicating an initial impulse for a new rally, and after that third pullback, the price configuration was clearly bullish.

The current correction has a more bearish slant. The price decline has been more violent, and the second down thrust has led to a much lower price low. The market has rallied out of that low, but you can see that the STO has reached overbought territory, and we should be expecting a short-term top leading to a retest of the correction low. There is no guarantee that the support will hold, so it is no time to be trying to pick a bottom.

http://www.financialsense.com/editorials/swenlin/2007/0824.html

[Ichiro]

OUR MONETARY SYSTEM IS DEBT-BASED
by Anthony M. Cherniawski
The Practical Investor, LLC
August 24, 2007


Many people still don’t know that fact. They think of Fort Knox and the gold that is reported to be there and somehow are reassured that all is well. But what is stored there has nothing to do with our currency. Look at a $20 bill. The inscription above Andrew Jackson says, “Federal Reserve Note.” What is a note? It is a promise to pay. In what, you ask? Well, therein lies the tale.

Michael Nystrom has just published an article, entitled, “Our Debt Money System Explained.” Once you have a basic understanding of our monetary system, lets examine what happened this last week and try to put it into a perspective of what is really going on.

On Wednesday, August 22nd, four of the largest U.S. banks borrowed $2 billion from the Federal Reserve’s Discount Window. This came three days after Deutsche Bank borrowed an unspecified sum from the Discount Window. The terms of the loan were altered by the Fed. Interest rates on these loans were reduced from 6.25% to 5.75%. The normal 1-day term was lengthened to 30 days. This may sound normal, but in fact, it is unprecedented. The normally conservative Forbes Magazine commented on this move.

The Federal Reserve Discount Window is considered the credit line of last resort, so why are these major banks borrowing at a considerable loss there? Mish’s Brave Face Masks Bold Lie may have something there. "Basically this is a PR move coordinated by Fed to hide the fact that going to (the Fed) window is (an) emergency move. It hides the fact that some banks have to."

Was it Deutsche Bank? Or one of our own? Needless to say, there is more to this story that we don’t know. In any event, Dr. Bernanke is prescribing bleeding the patient (more loans) as a cure for anemia.

The Nikkei recovers partially, but not out of the woods.

The news of the Bank of Japan’s involvement in the subprime debacle may have been the catalyst for last week’s rout in the Nikkei. After four days of rally, the Nikkei pulled back by .4% this morning. There still appears to be some unfinished business on the downside for the Nikkei. Investors are still flighty and the rally may be attributed to short-sellers covering their positions.

The Shanghai index seems unstoppable…

…but the news of the Bank of China holding $13 billion of subprime debt is rattling some. Is this the end for the Chinese stock market? The recovery from last week’s sell-off suggests not. Bank of China’s Hong Kong shares fell 8.1% on Friday as it reported heavy involvement in subprime loan. But on Mainland China, where the press is heavily censored, Bank of China’s shares rose.

http://www.financialsense.com/fsu/editorials/cherniawski/2007/0824.html

[Ichiro]

INVESTMENT FLASH: BULL MARKET IN CASH
by Paul J. Lamont
August 23, 2007

It looks as if the Summer of 1929, has finally past. We are now experiencing "forced selling and unwinding of leverage on assets" that we stated would follow.

Fed Injections

On Monday, it was reported that the Fed has been injecting short term cash onto the balance sheet of Deutsche Bank. Two days later, Citigroup, J.P. Morgan Chase, Bank of America, and Wachovia all said they had borrowed $500 million each. According to Foundations of Financial Markets and Institutions by Fabozzi, Modigliani and Ferri; “Banks temporarily short of funds can borrow from the Fed at its discount window…Continual borrowing for long periods and in large amounts is thereby viewed as a sign of a bank’s weakness” because the Fed is “the bank of last resort.” Banks are borrowing from the Fed because they can’t get the money anywhere else, not as they claim: “it is important at this time to take a leadership role in demonstrating the potential value of the Fed's primary credit facility and to encourage its use by other financial institutions.” As we warned last November as the credit boom comes to an end: “‘severe macroeconomic repercussions’ are highly likely and that ‘banking system capital’ will be impaired.” To think the Fed will save the day is to ignore the lessons of 1929: “the Federal Reserve can print money, but it cannot create credit or confidence. ‘Money’ is therefore hoarded, by either the public or the banks themselves (if they are concerned about an increase in redemptions).”

http://www.financialsense.com/fsu/editorials/lamont/2007/0823.html

[Ichiro]

AP-Experts See Modest Impact in Bush Plan
Friday August 31, 6:19 pm ET
By Alan Zibel, AP Business Writer
Experts Predict Bush Plan Will Have Modest Impact on Mortgage Market's Credit Crunch ((It is good that President Bush finally got involved with the Subprime problem because helicopter Ben is not too aggessive with reducing the federal funds rate. If Greenspan was in charge, he would had already reduced the federal funds rate by .50))

WASHINGTON (AP) -- President Bush's plan to help financially struggling homeowners likely will have a modest impact on a worrisome global credit crunch, economists said Friday.

The White House's proposal -- to have a government agency created during the Great Depression to insure mortgages assist homeowners at risk of default -- is symbolic more than substantive, says Nigel Gault, chief economist at Global Insight.

ADVERTISEMENT
Expanding the activities of the Federal Housing Administration "makes it clear that the federal government is going to do something," Gault said. "How much it will ultimately do is not clear."

The Department of Housing and Urban Development estimates the plan will allow 80,000 homeowners to refinance into lower-rate loans over the next year.

That's less than 1 percent of the estimated 2 million homeowners research firm RealtyTrac estimates will foreclose in 2007.

The change affects a "fairly limited number of the troubled households," said Celia Chen, director of housing economics at Moody's Economy.com.

The new FHA Secure program would offer government-guaranteed loans to mortgage-holders in default because they couldn't afford to keep up payments after interest rates on their mortgages reset at much higher levels.

FHA currently insures 3.7 million loans, many of which were made to low-income borrowers with risky credit although this will be the first time the FHA backs loans for borrowers in default.

However, only borrowers who made monthly payments on schedule before the rate resets kicked in will be eligible for the new loans, the FHA said, bringing "much-needed liquidity to the mortgage market."

Experts said most homeowners confronting financial woes likely wouldn't meet that criteria, which also requires income verification of the ability to make payments and a down payment of at least 3 percent.

That won't help borrowers who are already in over their heads, including those with weak credit who were able to get so-called "liar loans" because the income stated on their loan applications was never verified, says mortgage industry consultant Brian Chappelle.

http://biz.yahoo.com/ap/070831/risky_mortgages_government_help.html?.v=1

[Ichiro]

Daily FX-Bank of Japan Still Grappling With Deflation, Risk Seeking Likely To Take Yen Lower
Friday August 31, 6:18 pm ET

((Folks, let me tell you that Japan is still in Deflationary environment... prices of everyday goods are still dropping... the consumers are worse off than a year ago...and the recent drop of the NIkkei is causing many individual investors to move their money to a money market funds. ))


By Richard Lee, Currency Strategist strategist@dailyfx.com

The Japanese yen has appreciated quite a bit over the past two months, as risk aversion has pervaded the forex markets and led carry trades to unwind.

However, after a choppy day of trading in the yen crosses, it appears that Fed Chairman Ben Bernanke has somewhat assured investors that he will support the markets in times of distress, which has left the low-yielding currency down slightly from Thursday?s New York close. Starting out next week, Japanese capital spending is anticipated to remain strong, but show a slowdown from the quarter prior, while wage growth is predicted to soften further, which will not bode well for consumer spending. With two drivers of economic growth - business investment and consumption - showing diminishing power, the picture does not look good for Japan. Furthermore, the most recent inflation report showed that the Bank of Japan is still grappling with persistent deflation.

http://biz.yahoo.com/fxcm/070831/1188598757102.html?.v=1

[Ichiro]

THE DICHOTOMY OF M1 AND M2
by David Yu
Chartmentary.com
August 31, 2007

((Folks, you better watch the M! money supply rate... If it dips in the negative, watch out!!! ))

I'm sure we'll read every possible analysis about the "imminent" rate cut on the benchmark Fed Fund's Rate before (and possibly even more after) the next FOMC meeting. As a technician, I'm really apathetic about this speculative obsession. Trading on guessing what the FOMC will do has very little, if anything, to do with the study of probability based on statistical data. Money would probably be better spent, and enjoyably so, in Vegas. And, as a fundamentalist, I don't believe the rate cut is going to solve the real problems anyway. There's no need to dispense my resources jut to go through this exercise in futility.

One useful exercise that I go through faithfully, however, is keep track of money in the hands of the public, a.k.a the M1 Money Supply. Since the housing market top in the 2nd half of 2005, the 52-week ROC (Rate of Change), or the year-over-year change, of M1 had started to dipped into the negative territory (see Chart 1). And, since the beginning of this year, the ROC had begun to fall below minus 2% (blue circle). Overall, it's been oscillating with greater volatility (higher up-and-down fluctuations from week to week) around 0% (no change) for almost 2 years. I've looked through past 26 years worth of data, and I've seen nothing like this. I'm concerned this unprecedented pattern may be foreshadowing more serious problem ahead.

http://www.financialsense.com/fsu/editorials/yu/2007/0831.html

[Ichiro]

FINANCIAL MARKETS ON CRACK
by Kevin Duffy
Bearing Asset Management
August 29, 2007

(This is a very interesting info....FED acting as a fireman))

Critics of paternalist government were hardly surprised August 17th when the Federal Reserve responded to the hopes, tantrums and demands of the investor class (led by the likes of Larry Kudlow, Jim Cramer, and Barton Biggs) by lowering the discount rate from 6.25% to 5.75%. Cramer immediately predicted the largest single day Dow Jones Industrials Average point gain ever (wrong) and Dow 14,500 by the end of the year, up nearly 11% from Friday's close. He also recounted the tread marks on his back from fighting the Fed's response in October, 1998 to the Long-Term Capital Management fiasco, professing his allegiance to "don't fight the Fed" this time.

This is now the third time in 9 years the Fed has acted as "fireman" as many believe is part of its job description:

http://www.financialsense.com/fsu/editorials/bearing/2007/0829.html

[Ichiro]

AP-Security Tight as APEC Meeting Begins
Sunday September 2, 12:52 am ET
By Charles Hutzler, Associated Press Writer
Security Tight in Sydney as Officials Start APEC Meeting to Focus on Trade, Global Warming

SYDNEY, Australia (AP) -- Police tightened security Sunday as senior officials from Pacific Rim nations began meetings to prepare for a summit of regional leaders that will tackle trade and global warming.

The annual Asia-Pacific Economic Cooperation forum -- with its focus on trade and a membership that includes powerhouses China, Japan and the United States -- is a magnet for anti-globalization and environmental protesters.

President Bush, who arrives Tuesday, and anger at the Iraq war are also drawing protesters.

Parts of Sydney began to resemble a besieged camp, with police erecting a 10-feet-tall security fence, dubbed by local media the Great Wall of APEC near the summit site.

http://biz.yahoo.com/ap/070902/apec.html?.v=2

[Ichiro]

AP
Social Security Scandal Angers Japanese
Sunday September 2, 5:18 am ET
By Mari Yamaguchi, Associated Press Writer
Japanese Angry Over Their Troubled, Mismanaged Social Security System


((Japan's financial system is a big mess. Unlike the USA, they have few internal auditors who would review the internal control system.))

TOKYO (AP) -- After reading a book this year about serious flaws in Japan's pension system, retired deliveryman Yoshikazu Hirano thought he'd check his own records just to be safe. He's glad he did: The 74-year-old discovered the government had shortchanged him by 460,000 yen ($3,770) in benefits he accrued while driving a truck for three years in the 1950s and 60s.


Hirano wasn't alone. Shortly afterward, the government confessed to losing track of pension records linked to an astounding 64 million claims -- igniting a scandal that has punished the ruling party at the polls and eroded confidence in the ability of the world's second largest economy to support its growing legions of elderly.

Hirano, who is single and lives outside Tokyo, felt defrauded. "Had I not asked, I would have never gotten the money back," he said.

The pension mess, fully disclosed in May, has landed on one of the world's fastest-aging societies: 21 percent of its 127 million inhabitants are 65 or older and some 25 million retirees are collecting pensions, rising to 35 million by 2040.

http://biz.yahoo.com/ap/070902/japan_pension_mess.html?.v=5

[Ichiro]

aP-Wall Street Watches for More Fed Clues
Sunday September 2, 2:33 pm ET
By Madlen Read, AP Business Writer
Returning From Labor Day Weekend, Wall Street Will Watch for More Fed Clues, Await Jobs Data

((Bank of England and European Central Bank might to lower rates Thursday. If they do, I am sure that the FED will lower the FED rAtes, too. If they all do, watch out.... the market will explode upwards. If not, the market will drift slowly downwards)).


NEW YORK (AP) -- Wall Street investors left for Labor Day weekend pleased about the prospects of an interest rate cut, but they're likely to come back wanting more evidence that rates are indeed about to come down.

ADVERTISEMENT
The market has been in better spirits, for the most part, over the past two weeks than in midsummer, when fears that lending troubles would freeze up credit sent stocks tumbling. Although the Fed has injected cash into the banking system and lowered the discount rate -- the rate it charges commercial banks for loans -- Wall Street's fears haven't been completely assuaged.

The Dow Jones industrials and Standard & Poor's 500 finished slightly lower in a week where they plunged and later recovered. The Nasdaq finished the week higher.

Fed Chairman Ben Bernanke has not come right out and declared that a rate cut will happen, but many investors believe he has telegraphed it by saying the central bank will "act as needed." Traders who bet on the Fed's next move are not only pricing in a 100 percent chance of a quarter-point rate cut at its next meeting on Sept. 18, but also are pricing in a 100 percent chance of similar move in October.

The Fed has not reduced the benchmark fed funds rate since 2003, when it declined from a low 1.25 percent to 1 percent. Starting in 2004, the central bank made gradual rate increases until the summer of 2006, when it began holding the benchmark rate at 5.25 percent -- the highest it's been since early 2001, but historically, fairly moderate.

Investors will be curious to see if the Bank of England and European Central Bank decide to lower rates Thursday. Rate cuts abroad could signal a similar move from the Fed.

http://biz.yahoo.com/ap/070902/wall_street_week_ahead.html?.v=3

[Ichiro]

Yen Pares Fall on Speculation Subprime to Weigh on Carry Trade

By David McIntyre and Stanley White

Sept. 3 (Bloomberg) -- The yen pared a decline on speculation measures from the U.S. government and Federal Reserve will fail to solve the subprime mortgage crisis and discourage investors from riskier bets funded by loans in Japan.

Fed Chairman Ben S. Bernanke said Aug. 31 the central bank is ready to take ``additional actions'' after widening losses on mortgages to homeowners with poor credit made banks reluctant to lend. U.S. President George W. Bush pledged at the end of last week to help people with delinquent mortgages keep their home. The yen gained 2.5 percent against the dollar last month as subprime woes sparked an unwind in so-called carry trades.

``The markets had expected much more from Bernanke and Bush,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``Their policies largely remained unchanged. There emerged great uncertainty as to what they're going to do against institutional investors. This will weigh on the dollar.''

Japan's currency was at 115.74 per dollar at 9:47 a.m. in Tokyo from 115.77 late in New York Aug. 31. The yen traded at 157.77 per euro from 157.79 last week. The U.S. currency may move between 114.50 and 116.50 yen this week, Muramatsu said.

http://www.bloomberg.com/apps/news?pid=20601101&sid=a0P.Fe_H6hds&refer=japan

[Ichiro]

Japan's Capital Spending Drops on Services Companies (Update1)

By Lily Nonomiya

Sept. 3 (Bloomberg) -- Corporate investment in Japan unexpectedly declined in the second quarter after services providers pared back spending.

Capital spending sank 4.9 percent in the three months ended June 30 after advancing 13.6 percent in the first quarter, the Ministry of Finance said in Tokyo today.

The report may hinder the Bank of Japan case that the economy is strong enough for it to raise the key overnight call rate in two weeks. Companies may pare spending even more in the coming months if the U.S. housing recession curbs demand in Japan's largest export market.

``The U.S. housing recession is a risk factor and may slow foreign demand,'' said Naoki Iizuka, senior economist at Mizuho Securities Co. in Tokyo. ``It is too early to conclude that capital spending will be a problem for the Japanese economy,'' he said, adding that a change to the sample used by the finance ministry may have distorted the reading.

http://www.bloomberg.com/apps/news?pid=20601101&sid=agMA2r7zrUO0&refer=japan

[Ichiro]

Mizuho Changes Forecast, Calls for Dollar to Weaken to 106 Yen

(when the FED reduces the fund rate, the $$ will drop to less than 110 yen.))

By Kosuke Goto and Shigeki Nozawa

Sept. 3 (Bloomberg) -- Mizuho Corporate Bank Ltd. predicted the dollar will fall to a two-year low of 106 yen, reversing its forecast for gains, as a housing slump and mortgage losses force the Federal Reserve to cut interest rates.

The currency has declined for two months against the yen, slumping to a 14-month low of 111.61 yen on Aug. 17, on concern credit-market losses and increased financing costs will slow the economy. Traders have increased bets the Fed will lower borrowing costs, diminishing the appeal of dollar-denominated assets.

``The turmoil in the financial markets will continue this year,'' Masaki Fukui, a senior economist and currency analyst in Tokyo at a unit of Japan's second-largest lender, said in an interview today. ``The chain reaction of anxieties will adversely affect the real economy in the U.S., buffeting the dollar.''

The U.S. currency traded at 115.80 yen as of 9:33 a.m. in Tokyo from 115.77 on Aug. 31 in New York. It has dropped 6 percent versus the yen this quarter. Fukui's previous prediction was for 119 yen by year-end.

The Fed will be forced to cut rates from 5.25 percent three times this year to 4.50 percent by December, Fukui said. Interest-rate futures show traders see a 78 percent chance the Fed will reduce its rate to 4.50 percent by year-end, up from 26 percent a week ago and zero a month ago.

http://www.bloomberg.com/apps/news?pid=20601083&sid=avYtzJjGUPWQ&refer=currency

[Ichiro]

Yen Falls as BOJ May Delay Rate Increase, Helping Carry Trades

By Stanley White and Kosuke Goto
Enlarge Image/Details

Sept. 3 (Bloomberg) -- The yen fell against the 16 most- active currencies on speculation the central bank will delay raising interest rates, prompting investors to buy higher- yielding currencies with money borrowed in Japan.

The currency dropped the most versus Australia's dollar after an unexpected gain in that nation's home building bolstered the central bank's case for rate increases. A Japanese government report showed a slump in business spending, encouraging fund managers to resume so-called carry trades.

``It's becoming easier to sell the yen,'' said Takuma Kurosawa, global markets treasurer at HSBC Bank in Tokyo. ``Many of the world's central banks have to remain hawkish to stem inflation. Hedge funds may gradually return to the carry trade.''

The yen fell to 95.31 against the Australian dollar at 2:36 p.m. in Tokyo from 94.76 late in New York on Aug. 31. Against New Zealand's dollar, it dropped to 81.60 from 81.23. It was at 158.15 against the euro from 157.79 and may fall to 158.20 today, Kurosawa said.

Trading will be ``about 60 percent'' of the average as U.S. markets are closed today for a holiday, said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney.

http://www.bloomberg.com/apps/news?pid=20601083&sid=aphREYHZGA3w&refer=currency

[Ichiro]

Asian Currencies Gain on Speculation Funds to Return to Region

By Jake Lee

Sept. 3 (Bloomberg) -- Asian currencies gained, led by the Philippine peso, on speculation global investors will increase holdings of the region's assets, betting it can withstand a global credit crisis.

Philippine central bank Governor Amando Tetangco said the peso will ``remain firm'' this year, spurred by investment in stocks and bonds. The South Korean won traded at a one-week high as the economy expanded at the fastest pace in almost four years in the second quarter.

``Global demand will support these economies and that should be good for the currencies,'' said David Cohen, an economist at Action Economics in Singapore. ``The Korean economy is regaining momentum after a pause at the beginning of the year, and that should contribute to the strengthening of the won.''

The peso strengthened 0.3 percent to 46.380 against the dollar as of 12:09 p.m. in Manila, according to Tullett Prebon Plc, the world's second-largest inter-dealer broker. The won rose as much as 0.1 percent to 937.70, according to Seoul Money Brokerage Services Ltd. The Indonesian rupiah rose 0.1 percent to 9,389.

Trading in Asian currencies may be less than normal today due to a U.S. holiday, said Cohen.

http://www.bloomberg.com/apps/news?pid=20601083&sid=aw.zC9qjhXQ0&refer=currency

[Ichiro]

M&A, Bernanke set to push European stocks higher
Mon Sep 3, 2007 1:17AM EDT


LONDON (Reuters) - European shares look set to extend their rally on Monday as merger news picks up, with France poised to announce a deal between GDF (GAZ.PA: Quote, Profile, Research) and Suez (LYOE.PA: Quote, Profile, Research) and after the Federal Reserve chief soothed markets with a vow to limit damage to the U.S. economy from financial turmoil.


Investors interpreted Fed Chairman Ben Bernanke's remarks at a meeting of central bankers on Friday as a sign the bank would cut rates at its September meeting, sparking a 1 percent rally on Wall Street.

http://www.reuters.com/article/marketsNews/idUKL0324565220070903?rpc=44

[Ichiro]

DO INVESTORS REALLY WANT THE FED TO LOWER RATES?
by Hans Wagner
TradingOnlineMarkets.com
September 6, 2007

Investors trying to beat the market are closely following the trends in interest rates, especially the Federal Funds Rates. With many of the market traders and talking heads calling for a cut in the Fed Funds rate, do investors follow their advice or make their own assessment. Let’s look at what the theory says about the link of interest rates and the market. Next we will look at the impact of inflation will have on rates and finally a chart that compares Fed Funds rates, the 3 month Treasury Rate and the S&P 500.
The Theory

In theory changes in interest rates and movements in the stock market move in opposite directions. Assuming investors are rational people, when interest rates decrease should encourage them to move money from the bond market to the stock market, as bonds will be returning less as rates are lower. Also, businesses will be able to borrow at lower rates to finance growth and expansion, which should lead to future growth and as a result higher stock prices.

The other effect a cut in interest rates is psychological. Investors and consumers see lower interest rates a sign that they can borrow more cheaply, meaning they can spend more. This in turn should contribute to higher corporate profits, expansion of the economy and therefore higher stock prices.

The discounted cash flow model is one method used to value securities. This approach takes the sum of all expected future cash flows from a company and discounts them at a capital value rate to derive the current value. To obtain the stock price one takes the sum of future discounted cash flows and divides this value by the number of shares available.

Using this method and investor can compare the return on two investments; let’s say a treasury bond and a stock. If the money they get from bonds is less than the money they get from the stock they should buy the stock. On the other hand if the money they get from bonds is greater than the bond then they should buy the bonds.

Basically the higher the interest rate, the lower will be the value and therefore the price of a payment in the future. A rise in the interest rate causes stock prices to fall. And a fall in interest rates causes the price of a stock to rise.

http://www.financialsense.com/fsu/editorials/wagner/2007/0906.html

[Ichiro]

CENTRAL BANKS CONTINUE ON PATH OF MONETARY INFLATION
by Toni Straka, CEFA
PrudentInvestor.blogspot.com
September 6, 2007


The European Central Bank donned its two masks again on Thursday. With one hand the ECB decided at its monthly meeting of the governing council to leave the key interest rates unchanged while the other hand continued to create fresh money, showering bidding banks with 42.2 billion Euros in a new overnight tender that drew an average rate of 4.13% or 13 basis points more than the current key overnight rate.

The Bank of England (BoE) left its key interest rate unchanged at 5.75% too.

In the USA the Federal Reserve allotted a total of new $23 billion in a 1- and 2-week tender besides replacing yesterday's 1-day repo.

And they want to make us believe markets are returning to normal. Money market rates tell a very different picture and I rather rely on the data than the propaganda coming from central banks. And in this reality banks are scrambling to borrow funds at rates significantly higher than what the priests of ever expanding credit would like to see implemented.

http://www.financialsense.com/fsu/editorials/straka/2007/0906.html

[Ichiro]

TOO BIG TO BE BAILED OUT
by Peter Schiff
Euro Pacific Capital
September 7, 2007

Now that home mortgage defaults are spreading like wildfire from coast to coast, there is a growing sense of certainty that the government will attempt to bail out homeowners and lenders. The ideas put forward last week by President Bush may be the camel’s nose pushing under the bottom of the tent. However, just as some things are too big to fail, this problem is far too big to fix.

First of all, one has to consider the moral hazards inherent in any bailout. Immediate relief in the form of debt reductions and more favorable loan terms will create a powerful incentive to default. Why would anyone stretch to make a burdensome mortgage payment while others are being rewarded for failing to make theirs?

Even without the incentives of a government bailout luring more people into default, policy makers simply have no idea as to the scope of the problem. Before this home mortgage correction runs its course, nearly every homeowner in the country who had availed themselves of an adjustable rate mortgage or a home equity loan will be in need of a bailout. Even a sizable percentage of those with traditional fixed rate mortgages will find themselves in danger. With millions, or perhaps tens of millions, of home owners on the rocks, there is simply no way the government can structure a bailout without bankrupting the country or destroying the currency.

http://www.financialsense.com/fsu/editorials/schiff/2007/0907.html

[Ichiro]

Fed May Cut to 5 Percent Without Promising More: John M. Berry

By John M. Berry

Enlarge Image/Details

Sept. 7 (Bloomberg) -- If Federal Reserve officials cut their 5.25 percent target for the overnight lending rate when they meet on Sept. 18, it will be by only a quarter-percentage point with no promise of more to come.

Officials have already disappointed many market participants by refusing to cut the target in response to turmoil in financial markets. And they will surely disappoint those hoping for a half-point cut at the next meeting of the Federal Open Market Committee.

While the Fed might decide on a rate reduction as a bit of insurance against having growth weaken too much, there's no sign of serious problems in the economy outside of housing.

New information can still influence the meeting's outcome because the impact of the financial market dislocations on the economy remains so uncertain. But right now there's no worry among Fed officials that the economy is about to fall out of bed, or that some major financial institution is going belly up.

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_berry&sid=avsPSp2cXT0U

[Ichiro]

Bernanke's Job Is Cake Compared With Fukui's: William Pesek

By William Pesek

More Photos/Details

Sept. 7 (Bloomberg) -- Few people in their right mind would want to be a central banker these days.

Rarely have monetary-policy makers faced a more daunting assortment of things that could go awry. They include a global credit crunch, swooning stock markets, out-of-whack currencies, hedge-fund blowups and whether to fret more about inflation or recession -- or both.

Nowhere are the risks bigger and the stakes higher than in Tokyo, where the Bank of Japan faces an unprecedented balancing act.

Modern history knows of no other major economy holding short-term interest rates at, or near, zero for almost a decade. The BOJ has even gone further, adding additional yen to the financial system when zero rates failed to boost demand for credit.

Only now are the side effects of that policy becoming clear. Aside from a chronically undervalued yen, ultra-low Japanese rates are exporting bubbles around the globe.

``Overinvestment amid conditions of ample global liquidity was a major factor in causing the subprime issue,'' BOJ board member Atsushi Mizuno said Aug. 30. The market turmoil ``is proof that keeping rates at levels that stray from fundamentals could actually cause instability.''

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=aF2mpScI1TOs

[Ichiro]

Daily FX-=Carry Trades: Expect More Losses
Friday September 7, 5:43 pm ET
By Kathy Lien, Chief Currency Strategist strategist@dailyfx.com

None of the Japanese Yen crosses have been spared from today?s massive and widespread exodus out of carry trades. With the exception of CHFJPY, every other yen cross lost a minimum of 200 pips.

Risk aversion is back and we expect it to be here to stay. Unless the Fed steps in with an intermeeting rate cut, the Dow will want to test the 13,000 level by the end of next week. As currencies and equities continue to move together, this should have a negative impact on the Yen crosses as well. When Asian traders return to the markets on Sunday night, we expect them to react the same way as US and European traders.

http://biz.yahoo.com/fxcm/070907/1189201408006.html?.v=1

[Ichiro]

Daily FX-US Dollar: Will the Fed be Proactive or Reactive?
Friday September 7, 5:26 pm ET
By Kathy Lien, Chief Currency Strategist strategist@dailyfx.com

- US Dollar: Will the Fed be Proactive or Reactive?
- Carry Trades: Expect More Losses
- Euro Breaks Out, Headed Towards All Time Highs

US Dollar: Will the Fed be Proactive or Reactive?
Volatility has rocked the financial markets after the shockingly weak non-farm payrolls report. Economists were looking for companies to add 100k jobs last month, but they ended up firing more people than they hired. The Federal Reserve can no longer pretend that the subprime and credit crisis is not having an impact on the overall economy. It is and in a very serious way. At the end of trading today, Countrywide Financial announced job cuts of up to 12k. The only choice that they have at this point is between cutting interest rates by 25 or 50bp. After today?s non-farm payrolls number, the interest rate curve is pricing in 75bp of easing. There are even rumors about the possibility of an emergency intermeeting cut. The chance of this is low since the FOMC meeting is only 7 trading days away. The bigger question will be whether the Fed chooses to be proactive or reactive. If they really want to do more than put a band aid on the problems that the US economy currently faces, they will need to surprise the markets with a half point cut, but based upon the measures that we have seen from Bernanke so far, it is more likely that the Fed to play it safe with by cutting interest rates 25bp.

http://biz.yahoo.com/fxcm/070907/1189200641471.html?.v=1

[Ichiro]

Daily FX
USDJPY Could Show Brief Recovery to 114.00 on Japanese GDP Contraction
Friday September 7, 4:22 pm ET
By Terri Belkas, Currency Analyst strategist@dailyfx.com

SEP 9


How Will The Markets React?

Normally, final readings of GDP don?t tend to garner too much attention, as initial and secondary estimates tend to pinpoint the figure relatively accurately. However, the story will be quite different for Japan as Q2 GDP is anticipated to be revised down to an annualized rate of -0.7 percent, reflecting contraction in the economy for the first time in two and a half years. The reason? Capital spending during the second quarter unexpectedly dropped at a rate of 4.9 percent after rocketing 13.6 percent higher during the previous period.

http://biz.yahoo.com/fxcm/070907/1189196577979.html?.v=1

[tsptalk]

Wow, USDJPY 113.50?? That's not good.

[JOVARN]

If a rate cut happens sooner then later the dollar will increase, that is not good for the I funders such as myself.

I am 40% I and 60 S and it wont take muck for me to go back to G

[Ichiro]

If the FEDS reduces the federal rate by .5%, the USDJY will be below 110 in the next few days and that is one of the reasons why the NIkkei is doing so poorly.. The individual Japanese investors who thought that blue chip Nikkei stocks were safe are now bailing out of the Japan Stock Market. I am sure that former PM Koizumi will replace PM Abe in the near future to restore confidence in the economy....

[Ichiro]

Abe Quits as Japan's Prime Minister; No Successor Yet (Update4)

((It is about time that PM ABE resigned since Japan's economy is going down hill. I am pretty sure that Koizumi will be the next PM. Any other candidate will cause Japan's economy to fall into a recessionary environment and the NIKKEI will drift sideways)).

By Sachiko Sakamaki and Hideko Takayama


Sept. 12 (Bloomberg) -- Japanese Prime Minister Shinzo Abe resigned after failing to regain public support following his party's defeat in Upper House elections in July.

``I've decided to create a new situation by resigning,'' Abe, 52, said at a televised news conference broadcast nationally. The Liberal Democratic Party will hold an election for a new president Sept. 19, according to party officials who declined to be identified. LDP Secretary General Taro Aso, 66, declined to comment on whether he'll seek the party's leadership.

A prolonged period of political instability puts at risk the government's plan to raise revenue, cut spending and balance the budget by 2011. Unpopular budgetary controls are required to stop the expansion of the world's largest public debt. The opposition Democratic Party of Japan opposes raising the sales tax and wants more spending in rural areas.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aaAVwMOArTK8&refer=worldwide

[Ichiro]

Bernanke Says `Saving Glut' Still Helps Lower Rates (Update5)

By Scott Lanman

Sept. 11 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the ``global saving glut'' is still helping to keep interest rates low, and they may not rise much in the event that the pool of excess capital dwindles in coming decades.

While theory suggests that yields, adjusted for inflation, would rise as saving diminishes, ``factors other than the saving- investment balance affect long-term interest rates,'' Bernanke said in a speech in Berlin. ``We are again reminded of the need to maintain appropriate humility in forecasting.''

Nations such as China have invested the proceeds of trade surpluses in U.S. Treasuries, driving yields lower. China has a record $1.3 trillion of foreign-exchange reserves and household savings that amount to almost one-fifth of its economy. Investors abroad hold half of Treasuries outstanding, helping drive benchmark 10-year note yields down to 4.37 percent on average in the past five years, from 6.82 percent in the 1990s.

http://www.bloomberg.com/apps/news?pid=20601068&sid=ah0GNLWMyByg&refer=economy

[Ichiro]

European stocks down 1 pct, banks hit again
Fri Sep 14, 2007 4:51am EDT



By Anshuman Daga

LONDON, Sept 14 (Reuters) - European shares extended losses
in morning trade on Friday, hit by new worries over financing
for banks after UK mortgage lender Northern Rock (NRK.L: Quote, Profile, Research) issued a profit warning and tapped the Bank of England for funding.



Shares in Northern Rock plunged 25 percent as it became the
biggest British casualty so far of the credit squeeze sparked by
the crisis in the U.S. subprime mortgage market.

Recently battered banks were again standout losers, with
HBOS (HBOS.L: Quote, Profile, Research) down 3 percent, BNP Paribas (BNPP.PA: Quote, Profile, Research) fell 2.1
percent and Barclays (BARC.L: Quote, Profile, Research) declined 3.1 percent. Retail shares were also lower.

http://www.reuters.com/article/marketsNews/idINL1477584020070914?rpc=44

[Ichiro]

AP-Dollar Falls in Asia on Credit Problems
Friday September 14, 3:06 am ET
Dollar Falls Against Yen on Reports of Credit Problems at Britain's Largest Mortgage Lender

TOKYO (AP) -- The dollar fell against the yen Friday in Asia on reports of credit problems at Britain's largest mortgage lender.

The dollar was trading at 114.98 yen midafternoon, down from 115.29 yen late Thursday in New York. The euro fell to US$1.3874 from US$1.3927.


The BBC and the Financial Times reported that Northern Rock had tapped the U.K. central bank's emergency funding, reviving fears of global credit woes and sending the dollar lower against the yen.

Worries about a credit crunch set off selling of high-yielding currencies like the dollar.

"The market is still sensitive to such news," said Masashi Kurabe, senior foreign exchange manager at Bank of Tokyo-Mitsubishi UFJ.

http://biz.yahoo.com/ap/070914/asia_dollar.html?.v=1

[Ichiro]

WALL STREET MAY GET WHAT IT WISHES FOR
by David Yu
Chartmentary.com
September 14, 2007

((The anticipated reduction of .25% iinterest rate is already factored in the stock market. Unless the FED reduces rate by .50%, I really don't think that the market will move much on Tuesday)),


Lately, it's almost impossible not to be reminded of the rising probability of a recession by the Wall Street cheerleading squad, which used to dispute vehemently any notion of a recession just a couple of months ago. As it gets closer to the FOMC meeting next week, the R word has been thrown around by experts and Wall Street pundits more frequently than the re-run of Frasier. They're apparently hoping the onslaught of this recession campaign would sway the Fed to cut its overnight lending rate more drastically. The market, nonetheless, appears to have already priced in 0.25% rate cut and moved on since the end of August. Unless the Fed does something unexpected, the market seems no longer driven by the highly anticipated rate cut. The revival of yen carry trade may be the driving force behind recent rally.

I mentioned in Rally by Carry Trade on 9/11/2007 that recent intraday charts of the SPX (S&P 500 Index) and the Dollar-Yen Exchange Rate were moving almost tick for tick. The longer term chart also shows synchronized movement between the SPX and the exchange rate. I use 11-day simple moving average on Chart 1 to smooth out the curve of the daily % change of the SPX and the yen. They show almost identical pattern since the end of August (blue dotted box), when the intraday SPX reached above 1480 for the first time since 8/9/2007. What's interesting is that this is all happening while the Dollar's sinking like a stone against most other major currencies.

http://www.financialsense.com/fsu/editorials/yu/2007/0914.html

[Ichiro]

IT'S NOT MY FAULT
by Anthony M. Cherniawski
The Practical Investor, LLC
September 14, 2007


“GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORESEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005.”

Former Federal Reserve Chairman Alan Greenspan admits he "didn't really get it" that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network. (Source: DRUDGE REPORT FLASH 2007®)

Really? Back in February 2004 (USA Today), he said, “… a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.” Unfortunately, his comments were taken out of context and he never corrected the error. Without mentioning that interest rates might possibly go back up (starting in June 2004) and only looking at past history a statement was made that encouraged the acceptance of adjustable rate mortgages at precisely the wrong time in history.

Money market freeze – the new monster that nobody saw coming.

http://www.financialsense.com/fsu/editorials/cherniawski/2007/0914.html

[Ichiro]

Yen Gains Against Pound, Euro as Credit Losses Damp Confidence

By Anchalee Worrachate and Kosuke Goto

Sept. 25 (Bloomberg) -- The yen gained versus the pound and the euro on speculation credit market losses will damp business and consumer confidence across Europe.

The yen climbed against all 16 of the most-active currencies as investors unwound carry trades, reducing holdings of higher- yielding assets funded by loans from Japan. The pound snapped a three-day advance against the dollar after the Independent newspaper reported the U.K.'s deposit protection plan doesn't have enough cash to cover a failure of a lender such as Northern Rock Plc.

``The yen's gain suggests risk level is picking up again,'' said Chris Turner, head of currency research at ING Financial Markets in London. ``The market remains very vulnerable to bad news about banks and the financial sector, and it is reacting strongly to the U.K news today.''

http://www.bloomberg.com/apps/news?pid=20601083&sid=am5b9sBaZrmU&refer=currency

[Ichiro]

Japan's Five-Year Notes Fall; Gain in Stocks Cuts Risk Aversion

By Theresa Barraclough and Oliver Biggadike

Sept. 25 (Bloomberg) -- Japan's five-year notes fell for a fourth day as gains in stocks limited demand for the relative safety of government securities.

Yields on the debt climbed to the highest in almost six weeks as stocks extended their gains after the Federal Reserve's half percentage point cut in interest rates on Sept. 18. The Nikkei 225 Stock Average has climbed 3.8 percent since then on speculation the cut in rates will support global economic growth.

``Rebounding stocks are prompting people to reverse flight- to-quality bets that they had put on,'' said Tsutomu Kawasaki in Tokyo, a fund manager who helps oversee the equivalent of about $20 billion in Japanese bonds at Pension Fund Association, which has more than 1,600 corporate pension funds as members in Japan. ``Bond yields will probably be adjusted higher a bit more.''

The yield on the 1.1 percent note due in September 2012 gained 3 basis points to 1.235 percent as of 4:57 p.m. in Tokyo at Japan Bond Trading, the nation's largest interdealer debt broker. The price fell 0.14 yen to 99.366 yen.

http://www.bloomberg.com/apps/news?pid=20601009&sid=ahyjrCTT8ANE&refer=bond

[Ichiro]

European shares led down by financials, data eyed
Fri Sep 28, 2007 4:52am EDT

FRANKFURT, Sept 28 (Reuters) - European shares fell on Friday, led lower by weaker financial shares that outweighed gains in resource stocks, ahead of a slew of economic data later in the session.

Stricken British mortgage lender Northern Rock (NRK.L: Quote, Profile, Research) fell 4.2 percent after reports the bank had borrowed a further 5 billion pounds ($10.12 billion) from the Bank of England. Tate & Lyle Plc (TATE.L: Quote, Profile, Research) fell more than 25 percent after the British sugar and sweetener maker cautioned on its outlook.

By 0831 GMT, the pan-European FTSEurofirst 300 index (.FTEU3: Quote, Profile, Research) was down 0.23 percent at 1,547.84 points.

The FTSEurofirst index was broadly unchanged over the week, but has fallen 3.6 percent since the beginning of the third quarter, which ends on Friday.

http://www.reuters.com/article/marketsNews/idINL2874015420070928?rpc=44

[Ichiro]

AP-Dollar Lower Against Yen in Asia
Friday September 28, 4:43 am ET
Dollar Lower Against Yen in Asia on Selling by Japanese Exporters

TOKYO (AP) -- The dollar fell versus the yen Friday in Asia, with selling of the greenback by Japanese exporters overwhelming buying by investment trusts.

The dollar was trading at 115.05 yen midafternoon, down from 115.59 yen late Thursday in New York. The euro rose to US$1.4166 from US$1.4160.


The market was dominated by trading to settle accounts at the end of Japan's fiscal first half, traders said, but once the seasonal factor fades, the dollar may weaken further on lingering concerns over the U.S. economic outlook.
http://biz.yahoo.com/ap/070928/asia_dollar.html?.v=1

[Ichiro]

Commodities Head for Biggest Monthly Increase in 32 Years

By Millie Munshi

Sept. 28 (Bloomberg) -- Commodities headed for the biggest monthly gain in 32 years, led by wheat, crude oil and gold, as the dollar's slump enhanced the appeal of energy, grains and precious metals as a hedge against inflation.

The 19-commodity Reuters/Jefferies CRB Index was up 8.7 percent this month, the most since July 1975. Wheat climbed to a record in September amid a global grain shortfall, boosting corn and soybeans. Oil also hit a record, and gold reached a 27-year high. The Federal Reserve cut borrowing costs to bolster the U.S. economy, sending the dollar tumbling.

``The Fed has signaled pretty clearly that they will answer the problem of a slowing economy with greater liquidity,'' said Chip Hanlon, who manages $1 billion at Delta Global Advisors Inc. in Huntington Beach, California. ``We're in a bullish phase for commodities.''

The CRB Index rose to 334.50 at 12:35 p.m. New York time from 308.76 on Aug. 31. Wheat reached a record $9.5125 a bushel today. Crude oil climbed to $83.90 a barrel, the highest ever, on Sept. 20 and approached the record today. Gold rose as high as $752.80 an ounce today, the highest since January 1980.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPttN5PY7Uhg&refer=home

[Ichiro]

Fed to Cut Rates Again Before January, History Shows (Update3)

((Well, folks, it looks like the dollar will dip below 110 if the FED reduces the federal rate by another .5 again before 31 Dec.. That sure will be a plus for the I fund..))

By Elizabeth Stanton
Enlarge Image/Details

Sept. 24 (Bloomberg) -- Government bond traders, who predicted six of the last seven recessions, say the Federal Reserve will lower interest rates again before the end of the year as the economy comes to a standstill.

Since the Fed last week lopped half a percentage point off the central bank's target for overnight lending between banks -- the first orchestrated decline in so-called federal funds since 2003 -- traders have pushed the yield on Treasury two-year notes to almost three quarters of a point below the designated 4.75 percent funds rate. In the three previous occasions during the past 20 years when that has happened, policy makers have cut borrowing costs.

``The U.S. economy needs to grow at 2.5 to 3 percent or else it stalls,'' said Bill Gross, manager of the $104.4 billion Total Return Fund, the world's biggest bond fund. ``Historically every time we get close to stall speed the Fed lowers short rates.''

The latest government data show unexpected job losses in August, sagging core retail sales and no relief in sight for the moribund housing market. Now that U.S. gross domestic product probably is growing at an annualized rate of less than 2 percent, speculation is rampant that another Fed rate cut is assured before January.

Even former Fed Chairman Alan Greenspan provided encouragement to traders when he said in an interview two days after the central bank's Sept. 18 rate decision that the odds of a recession remained ``somewhat more'' than one in three.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a5XiMQI6nAHk&refer=economy

[Ichiro]

Plosser Says Fed's Rate Cut May Spur Inflation (Update1)

(( The cheap foreign made goods will cost even more in the future since the foreign currency such as yen and euro will appreciate....))

By Scott Lanman and Anthony Massucci
Enlarge Image/Details

Sept. 26 (Bloomberg) -- Federal Reserve Bank of Philadelphia President Charles Plosser said last week's interest-rate cut could cause inflation to accelerate and that policy makers must be ready to reverse course if needed.

``Cutting the funds rate has the potential for aggravating inflation, there's no question about that,'' Plosser told the New Jersey Technology Council late yesterday. Should inflation or price expectations rise in coming months, ``the outlook will be affected and policy may have to be adjusted.''

Plosser, who doesn't vote on rates this year, is the first official to express concern about the Fed's Sept. 18 decision to lower the benchmark interest rate by a greater-than-forecast half-point. The reduction, while ``appropriate'' because of slowing job growth and falling home prices, shouldn't lead to further moves unless data become ``much weaker,'' he said.


http://www.bloomberg.com/apps/news?pid=20601068&sid=aCw9scWxBA8A&refer=economy

[Ichiro]

Dollar Falls to Record Low Against Euro on Inflation, Fed View

By Min Zeng


Sept. 28 (Bloomberg) -- The dollar fell to a record low against the euro for a seventh straight day as slowing inflation encouraged traders to speculate that the Federal Reserve will cut borrowing costs a second time this year.

The U.S. currency weakened to $1.42 per euro for the first time since the 13-nation currency debuted in 1999 after a government report today showed core consumer prices last month had their smallest annual gain since February 2004. Former Fed Chairman Alan Greenspan said the chance of a U.S. recession is higher now than a few months ago.

``Continued dollar weakness probably is still in the cards,'' said Ihab Salib, who helps oversee $3 billion in international bonds in Pittsburgh at Federated Investments Inc. ``I expect another 3 to 5 percent depreciation in the dollar against major currencies including the euro and yen over the next two to three years.''

http://www.bloomberg.com/apps/news?pid=20601101&sid=aZ4vhVzMnz6M&refer=japan

[Birchtree]

Japan's nationwide core consumer price index fell for the seventh straight month, falling 0.1% in August from a year earlier. That suggests Japan has yet to escape from deflation. A lack of inflationary pressure will likely cast doubt on the Bank of Japan's decision to raise rates in the comoing months.

[James48843]

Yes, that dollar is fluttering down.

You would think that at some point it would hit bottom. But not anytime soon, I fear.

Makes our exports cheaper.

But it's too bad we don't make anything anymore.

[Ichiro]

FEDWATCH: THE DISCOUNT WINDOW HAS MOVED
by Anthony M. Cherniawski
The Practical Investor, LLC
September 28, 2007

(( I gotta work today to close the FY07 budget year...On Thursday I will be off to Hawaii to recuperate from all the stress from the year end closing of books. From Ichiro, the Budget Analyst)))

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The original $2 billion borrowed at the Fed discount window has been repaid. Two weeks ago, yet another $7.2 billion borrowed by other banks was outstanding. This week, there are no outstanding loans at the Federal Reserve Discount window. End of story…or is it?

The Federal Reserve has another tool called the Federal Temporary Open Market Operations (FOMO), which is used to influence the Federal Funds market. The purpose of FOMO is, “To implement monetary policy, short-term repurchase and reverse repurchase agreements are used to temporarily affect the size of the Federal Reserve System's portfolio and influence day-to-day trading in the federal funds market.”

The chart at the left tells us about continued “liquidity injections” or repurchase agreements between it and member banks. The Fed may enter a repurchase agreement to provide credit for a bank in exchange for assets that are “repurchased” by the Fed. Likewise, the Fed can enter into reverse repurchase agreements to reduce the amount of credit outstanding.

What this chart may be telling us is that the Federal Reserve Discount Window may have been getting a little too much negative publicity. In order to keep things quieter, the Fed may have simply moved the Discount Window transactions to the Federal Open Market Window, where scrutiny is less pervasive.

http://www.financialsense.com/fsu/editorials/cherniawski/2007/0928.html

[Ichiro]

STAGFLATION REVISITED
by Peter Schiff
Euro Pacific Capital
September 28, 2007

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Currently, Wall Street is divided into two camps: those who feel the Fed should fight recession, and those who feel it should fight inflation. The former feel that a recession can only be avoided if the Fed rescues the economy from the imploding housing market. To these analysts, inflation is not a problem as it will be contained by slower growth. The other camp maintains that the housing slowdown is not significant enough to derail the otherwise healthy U.S. economy, and should therefore not distract the Fed from its primary mission of fighting inflation. As usual on Wall Street, both camps have it wrong.

Both camps incorrectly assume that inflation (rising prices) and recession are somehow mutually exclusive. By concentrating solely on the demand side of the price equation, Wall Street ignores the impact of supply. In reality, strong growth increases the supply of goods and helps keep a lid on consumer prices. Weak growth reduces the supply of goods and has the opposite effect.

Similar to the 1970s we are experiencing what economists call "stagflation," a period when economic contraction occurs simultaneously with high inflation. Now that Bernanke has pulled the rug out from under the dollar, our currency has become a monetary black hole into which foreign lenders will be increasingly reluctant to trust their savings. The threat of substantial exchange rate losses will compel foreigners to demand greater compensation for loans to Americans. Thus what the Fed giveth in lower short-term rates, foreign creditors will take away in higher long-term rates. Higher long-term interest rates, tighter lending standards, and a reduction in the availability of credit will suppress asset values and consumer spending pushing the economy deeper into recession.

However, as the dollar falls, far fewer foreign products will be imported into the United States, and more domestic products will be exported from the United States. A reduction in the domestic supply of goods will offset the diminished demand brought about by the recession, causing consumer prices to rise. So while Americans will indeed buy fewer products, they will pay much higher prices for those that they do. The bottom line is that consumer prices will be headed much higher, not just despite the recession, but as a direct result of it!

http://www.financialsense.com/fsu/editorials/schiff/2007/0928.html

[CorMaGa34]

Enjoy your vacation Ichiro! :cool: and thanks for your posts!

[Ichiro]

AP-Stocks Surge on Hopes for Rate Cut
Monday October 1, 3:27 pm ET
By Joe Bel Bruno, AP Business Writer
Wall Street Surges After Manufacturing Report Raises Prospects for Another Interest Rate Cut

NEW YORK (AP) -- Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months as investors moved back into stocks at the start of the fourth quarter. The blue chip index rose more than 200 points as it surged to a new trading high.

While the beginning of the new quarter was an incentive for institutional investors to buy, the market was also encouraged that the worst might be over from the summer's credit and stock market turmoil. And new economic data might nudge the Federal Reserve toward another interest rate cut at its Oct. 30-31 meeting.

Investors bought financial shares on the belief that the industry has generally weathered the recent credit market upheaval. Both Citigroup and Switzerland's UBS AG issued third-quarter profit warnings, but indicated the current period might see a return to normal earnings levels.

The market grew more optimistic that the Fed might lower rates to boost the economy after a report showed that manufacturing grew in September at the slowest pace in six months. The Institute for Supply Management said its index of manufacturing activity registered at 52.0 in September, below forecasts for a reading of at least 52.5.

"People are getting more confident there is going to be an October rate cut," said John C. Forelli, portfolio manager for Independence Investment. "To some degree, it looks like Citi kitchen-sinked the quarter, and that from here going forward will be calmer. That's underpinning the financials."

Enthusiasm about acquisition activity picked up after Nokia unveiled an $8.1 billion offer to buy navigation-software maker Navteq Corp. The deal was seen as a signal that corporations are feeling comfortable in making big moves despite recent market turbulence.

In late afternoon trading, the Dow rose 212.08, or 1.53 percent, to 14,107.71. The Dow surpassed its closing record of 14,000.41 set in mid-July, and moved into record territory, rising as high as 14,115.51 and eclipsing its previous intraday high of 14,021.95 set July 17.

Broader market indexes also rose sharply. The Standard & Poor's 500 index rose 21.54, or 1.41 percent, to 1,548.29, nearing its all-time trading high of 1,555.90 reached in July. The Nasdaq composite index rose 40.70, or 1.51 percent, to 2,742.20.

http://biz.yahoo.com/ap/071001/wall_street.html?.v=36

[Ichiro]

AP-Dollar Rises Against Yen in Asia
Monday October 1, 3:09 am ET
Dollar Rises Against Yen in Asia Amid Yen-Carry Trades

TOKYO (AP) -- The dollar rose against the yen Monday in Asia despite better-than-expected Bank of Japan "tankan" data, as the yen-carry trade emerged again and strengthened the greenback.

The U.S. dollar was trading at 114.98 yen midafternoon, up from 114.74 yen late Friday in New York. The euro rose to US$1.4258 from US$1.4160.


The BOJ's quarterly survey of corporate sentiment for September showed that the survey's index for large manufacturers stood unchanged at 23, beating forecasts for a fall to 21.

http://biz.yahoo.com/ap/071001/asia_dollar.html?.v=1

[Ichiro]

Dollar Falls to Record Low Versus Euro as Bets on Fed Cut Mount

By Bo Nielsen and Ye Xie

Oct. 26 (Bloomberg) -- The dollar fell to a record low against the euro on signs climbing oil prices and a slump in housing are hurting U.S. consumer confidence, bolstering the case for the Federal Reserve to cut interest rates again.

The U.S. currency posted a third straight weekly drop versus the euro on speculation the housing recession will erode corporate earnings. Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its first quarterly loss in 25 years as borrowers defaulted.

``The dollar-negative momentum continues to build up,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``We had a string of pretty ugly numbers, both from the real economy side and the financial side. That is weighing on the dollar.''

The dollar traded at an all-tome low of $1.4394 per euro at 4:38 p.m. in New York, from $1.4324 late yesterday. It declined against 15 of the 16 major currencies this week, falling 4.5 percent against South Africa's rand. Ruskin said the dollar may reach $1.50 per euro in March.

The dollar has dropped against all of the 16 most-actively traded currencies this year. The U.S. Dollar Index, measuring its performance against its six major peers, has lost 8 percent in 2007 and set a record low of 76.977 today.

Sales of previously owned homes fell last month by almost twice as much as economists forecast, while the median price dropped the most in almost a year, statistics from the National Association of Realtors showed this week.

``http://www.bloomberg.com/apps/news?pid=20601101&sid=a3nh7CXba5To&refer=japan

[Ichiro]

China Will Probably Raise Rates After 11.5% Expansion (Update1)


((Folks, this reminds me when BOJ constantly raised the interest rates during the bubble days in the late 1980s before Japan' stock market crashed....We need to keep an eye on China since we have many inexperienced investors there. ))


By Nipa Piboontanasawat and Patricia Chua

Oct. 26 (Bloomberg) -- China's central bank will probably increase borrowing costs for the sixth time this year to cool the stock market and inflation after the economy grew 11.5 percent in the third quarter.

The benchmark one-year lending rate will increase to 7.56 percent from 7.29 percent, according to 16 of 17 economists surveyed by Bloomberg News. The deposit rate will likely rise to 4.14 percent from 3.87 percent.

Inflation in September was 6.2 percent, more than double the bank's target, and the benchmark stock index has almost quadrupled in the past year. President Hu Jintao is trying to prevent a sudden slowdown that might throw millions out of work, drive up bad loans and undermine Communist Party rule.

``There are still more inflationary risks than deflationary ones,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. ``Now is a good time for the central bank to raise rates again.''

Three economists expect rates to increase as early as today or the weekend after the government released data for the three months ended Sept. 30 yesterday. Economic growth topped 11 percent for a third straight quarter.

http://www.bloomberg.com/apps/news?pid=20601089&sid=a_rdOFgzFnLk&refer=china

[Ichiro]

Dollar Falls to Record Low Versus Euro as Bets on Fed Cut Mount

By Bo Nielsen and Ye Xie

Oct. 26 (Bloomberg) -- The dollar fell to a record low against the euro on signs climbing oil prices and a slump in housing are hurting U.S. consumer confidence, bolstering the case for the Federal Reserve to cut interest rates again.

The U.S. currency posted a third straight weekly drop versus the euro on speculation the housing recession will erode corporate earnings. Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its first quarterly loss in 25 years as borrowers defaulted.

``The dollar-negative momentum continues to build up,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``We had a string of pretty ugly numbers, both from the real economy side and the financial side. That is weighing on the dollar.''

http://www.bloomberg.com/apps/news?pid=20601083&sid=a3nh7CXba5To&refer=currency

[Ichiro]

Hong Kong Monetary Authority Intervenes to Defend Peg (Update1)

((I think pretty soon other CBs will be entering their currency market to defend their currency since a high currency will be bad for their export market))).

By Aaron Pan
Enlarge Image/Details

Oct. 26 (Bloomberg) -- The Hong Kong Monetary Authority sold its currency for the second time this week to defend a 24- year-old fixed exchange rate, as a record stock rally increased pressure for appreciation.

The city's de facto central bank sold HK$775 million ($100 million) today after the Hong Kong dollar touched HK$7.75 per dollar, the top of its permitted trading range. The HKMA sold the same amount on Oct. 23, the first time it had intervened in the currency market in more than two years.

Foreign investment in the city's stock market and initial public offerings by Chinese companies have pushed the Hong Kong dollar up 0.8 percent against the U.S. dollar since June 30, fueling speculation the government may abandon the link. Hong Kong Chief Executive Donald Tsang and HKMA Chairman Joseph Yam have said this year they are committed to the peg.

http://www.bloomberg.com/apps/news?pid=20601083&sid=ar7bs6LEBF3M&refer=currency

[Ichiro]

Japan's Economy Can't Afford 43% Housing Plunge: William Pesek

By William Pesek

Enlarge Image/Details

Oct. 24 (Bloomberg) -- If housing starts fell 43.3 percent in the U.S., you can imagine the machinations it would cause.

Equity markets would plummet, Treasury Secretary Henry Paulson would be sent out to talk up the economy and Ben Bernanke would be hastily arranging conference calls with Federal Reserve officials. The dollar would almost certainly go into freefall.

When housing starts dropped by that amount in Japan, the response was of a completely different nature. The August decline to the lowest in 40 years was taken in stride and, rather than hinting at interest-rate cuts, Bank of Japan officials went on the speaking circuit reminding investors they still hope to raise borrowing costs.

Yes, Japan, as it's often said, is different. Yet the subdued response to recent data -- and Japan's exposure to the U.S. subprime-loan crisis -- may prove to be more about complacency than genuine confidence in the economy.

``We now believe the Japanese economy is already in recession,'' says Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.

There are reasons to discount Japan's housing slump. One is that building approvals are taking four times as long under new rules, raising concern that sales may drop at construction, property and home-equipment companies. The delay relates to the June 20 introduction of regulations imposed in response to a 2005 scandal involving falsified earthquake-resistance data.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a3EXKmXnxR5o&refer=columnist_pesek

[Ichiro]

A DIFFERENT KIND OF RECESSION
by Andy Sutton
My2CentsOnline.com
October 26, 2007

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In a recent interview with Britain's Telegraph newspaper, Jim Rogers, the world-renowned investor declared the United States to be in recession. He didn't stop there. He has taken the next step and rid himself of the downtrodden US Dollar in favor of Chinese Yuan, Japanese Yen and the Swiss Franc. A bold move? A lone voice in a sea of complacency? Not so; Rogers is just the latest in a growing line of credible voices to abandon the US and its struggling currency.

The one thing that is puzzling is why there are so many folks who claim we are in a recession, yet there are even more who say things have never been better. How can there be such a dichotomy when a recession is clearly defined as two consecutive quarters of negative GDP growth? Once again we find ourselves staring the riddle of nominal vs. real directly in the face.

Prior recessions, particularly those in the 20th century have typically been consumer-centered. Inflation led to overproduction and misinterpretation of false demand. Eventually some crisis or trigger would lead to a wholesale reinterpretation of supply and demand dynamics. Consumers would react by retreating. Meaning consumers spent less money, increased savings, and which resulted in a contraction in GDP.

So far in the 21st century, we’ve seen plenty of inflation, but the overproduction this time is largely abroad. Our domination of manufacturing has been over for nearly two decades now. This means that any snap adjustments in demand cause problems abroad with mounting inventories as opposed to wreaking havoc on our economy.

Additionally, what has really served to distort things is the nearly direct manner in which money has been placed into the hands of the consumer. Rising home prices were the perfect vehicle for creating additional (albeit fictitious) credit. Most people view their home as their biggest asset even though they may actually own a very small percentage of it. This illusion of wealth made many consumers willing to take on additional debt that was poured into the economy vis a vis consumer spending. Total consumer debt has exploded in the US since the beginning of the 21st century:

http://www.financialsense.com/fsu/editorials/sutton/2007/1026.html

[Ichiro]

THE UNWINDING
by David Yu
Chartmentary.com
October 23, 2007


When the Tokyo Nikkei 225 Index dropped more than 400 points on Tuesday and Wednesday last week, the Japanese yen appeared ready to challenge the critical resistance of 86 (0.0086 per US Dollar). I alerted my readers, in my Wednesday's Follow-Up to last Sunday's Carry Trade Challenges, of a possible global selloff when the yen breaks through 86. The confluence of the Japanese yen pushing towards this critical resistance and the Dollar to yen exchange rate testing the vulnerable 38.2% Fibonacci Retracement support of 116.34 indicated a probable massive unwinding of the yen carry trade last week.

The Japanese yen had since jumped 2.2% to 0.00879 per US Dollar, and the Dollar had declined to below 114 per yen. And, the markets around the world sold off on Friday. The Dow Jones World Index dropped 1.65% on Friday with, most notably, 2 of the Dow Jones China indexes plunged more than 3% each. The selloff back in the U.S. slashed 366.94 points, or 2.64%, off the Dow Jones Industrial Average, which had turned back the clock and brought us right back to 9/18/2007, the day the Fed cut 0.50% off the Fed Fund's rate.

So, here we are. After all the re-inflation efforts by the Fed, we're now 217 points below the 9/18/2007 DJIA closing price. And, we're stuck with the Dollar at all time low and the oil price at all time high. It seems that the Fed's so called brilliant "surgical strike" had wreaked havoc for the Main Street and done nothing to save Wall Street from the inevitable. Consumers are now paying 44% more for eggs and 21% more for milk over the past 12 months. The USDA's thrifty food plan costs for a family of 4 (with children 3-5 years old) showed an increase of 5.54% in August, from the same month a year ago. And, that increase was just for food. August was also the month before the Dollar began to fall off the cliff. The bottom 50% in the U.S. are already fighting over the remaining 12% income. The last things they need are higher food and energy prices.

O.K. moving forward... The SPX (S&P 500 Index) lost 2.56% on Friday. 1.50% of the loss came in the afternoon session. As bad as that was, the money flow in the afternoon session had actually improved, except for the Consumer Goods and the Tech sectors (see Chart 1). This divergence indicates investors, who believed in buying on the dips, might've come back to do so in the afternoon.

http://www.financialsense.com/fsu/editorials/yu/2007/1023.html

[Silverbird]

A DIFFERENT KIND OF RECESSION
In a recent interview with Britain's Telegraph newspaper, Jim Rogers, the world-renowned investor declared the United States to be in recession. He didn't stop there. He has taken the next step and rid himself of the downtrodden US Dollar in favor of Chinese Yuan, Japanese Yen and the Swiss Franc. http://www.financialsense.com/fsu/editorials/sutton/2007/1026.html

How is Jim Rogers acquiring Chinese Yuan when its not a freely traded currency? Or am I behind the times?:confused:

[Ichiro]

Eventually the Chinese Yuan will be a freely convertible currency if they are to maintain a huge trade surplus with the other countries. But, It will take time. They are slowing changing but at a slower pace. I do hope that the different classes of Chinese stocks disappear in the near future...

Silverbird, what do you think?

[Ichiro]

AP-Housing Slump Likely to Worsen
Friday October 26, 4:27 pm ET
By Martin Crutsinger, AP Economics Writer
Current Housing Slump Expected to Worsen Still Before Possible Turn Around

WASHINGTON (AP) -- The current housing slump, which began in late 2005, probably has another year to go before things turn around. Before it is over, home prices -- which had soared during the boom years -- will probably have fallen by the largest amount of any downturn in the post World War II period.

The problems in housing have been a serious drag on the overall economy -- slashing more than a full percentage point off growth in some quarters. And those adverse effects will get worse in coming months, many private economists believe, reflecting the fallout from the severe credit crunch that hit in August.

The betting is that the overall economy will be able to avoid a recession, but it will be a close call with the point of maximum danger still ahead.

"I think the housing market has got another year of very weak sales, falling construction and lower home prices. And all of that assumes that the economy holds together reasonably well and we don't have a recession," said Mark Zandi, chief economist at Moody's Economy.com.

http://biz.yahoo.com/ap/071026/housing_prospects.html?.v=7

[Ichiro]

Daily FX-US Dollar At Record Low, Oil At Record High - Will These Extremes Moderate Next Week?

Friday October 26, 6:03 pm ET

By Terri Belkas, Currency Analyst strategist@dailyfx.com

The US dollar fell to yet another record low against the Euro on Friday as traders remain overwhelmingly bearish on the greenback. However, the markets have remained bullish on nearly everything else, including commodities. In fact, oil continued to trade near record highs above $90/bbl on Friday amidst escalating tensions between the US and Iran as well as Turkish warnings of a broader assault on Kurdish militants in Iraq.

The US dollar will find little support given the sharp rally in oil, and economic data isn’t helping the case either. The University of Michigan Consumer Confidence survey exacerbated fears of a consumer-led recession in the US, as the October reading was unexpectedly revised down to 80.9 – the lowest since June 2006. Stock market tumbles undoubtedly played a hand in the deterioration in sentiment, and further market routs will only leave consumers more pessimistic. Will the dollar’s woes ever end? Within the next few days: probably not. Indeed, the currency faces major event risk this coming week from the FOMC rate decision, the release of Q3 GDP, and non-farm payrolls.

http://biz.yahoo.com/fxcm/071026/1193436196807.html?.v=1

[Ichiro]

AP-Buffett Sees Subprime Woes Lingering
Thursday October 25, 12:58 pm ET

By Kelly Olsen, AP Business Writer

Buffett Projects Problems in US Subprime Market Will Affect Consumers for Up to 2 Years

DAEGU, South Korea (AP) -- American billionaire investor Warren Buffett said Thursday problems in the U.S. subprime mortgage market will likely weigh on consumers for up to two years, but the U.S. economy will weather the storm.

The subprime crisis "is having an impact," the chairman and chief executive of Berkshire Hathaway Inc. said on his first visit to South Korea. "It will have more of an impact."

Rising default rates among U.S. mortgage holders with poor credit histories have rattled global credit, stock and currency markets since August and raised concerns about a possible recession in the U.S. economy, a major export market for Asian companies.

"In the next 6 months, one year, two years the problems in the mortgage market can cause a lot of problems with consumers and hurt buying power in the United States," he said at a press conference after arriving earlier in the day from China on his private jet. Buffet rarely travels overseas.

However, the U.S. economy has often had to face various difficulties and the present was no exception, Buffett said.

"Overall the economy will make progress," he said.

Buffett came to Daegu, located about 300 kilometers (185 miles) southeast of Seoul, to inspect TaeguTec Ltd., which is owned by privately held Iscar Metalworking Cos., the Israeli industrial tool manufacturer that his company purchased 80 percent of last year for $4 billion in its first overseas acquisition.

Buffett, who received a hero's welcome from TaeguTec employees, also expressed pessimism on the U.S. dollar.

"We still are negative on the dollar relative to most major currencies," he said.

http://biz.yahoo.com/ap/071025/skorea_warren_buffett.html?.v=13

[Silverbird]

Eventually the Chinese Yuan will be a freely convertible currency if they are to maintain a huge trade surplus with the other countries. But, It will take time. They are slowing changing but at a slower pace. I do hope that the different classes of Chinese stocks disappear in the near future...

Silverbird, what do you think?

Well...the problem is China is holding on to over $1 trillion in dollar reserves, and the Party wants some control over the economy, so that they still have legitimacy. But they don't want to stop the growth either, or take out the bottom from their dollar house of cards. Slowly, they are buying up Euros (which gets the Europeans in a tizzy!) and buying up equities (and got toasted for it with anything "safe" that contained subprime loans). Pollution and other social problems are also a huge challenge for a Party that is supposed to exist for the sake of the people. The currency is one of the few things they still have control over. But in controlling it, they are playing a dangerous game that is getting very expensive to keep playing. The latest Party meeting does not indicate a radical change in the works - I expect currency control to continue. The G7 can grumble about the Yuan. But no one wants the bottom to drop out from under the dollar. China's stuck watching the stew they started, keeping it from boiling over is going to be quite a challenge.

[Ichiro]

DEEP FED RATE CUTS MEAN NO US RECESSION IN 2008
by Nadeem Walayat


December 11, 2007


The US Fed's reaction to date to the housing bust and US subprime mortgage credit crisis is by making deep cuts in US interest rates that today will see at least a further 0.25% cut bringing the rate down to 4.25%, off 1% from the 5.25% high just 3 months ago.

The US Fed is clearly in full blown panic mode, with the aim of the cuts to avert a potentially deep US recession.



The US Fed will continue cutting interest rates during 2008, regardless of the consequences to the US dollar and inflation (which has a little further to rise going into 2008). The cuts are ensured by the worst housing market conditions since the great depression which is a harbinger of a deep recession unless emergency preventative action is taken now. Therefore the primary observable goals of the interest rate cuts are to:



Can the US Fed Avert a Recession ?

The consensus commentary is clearly shifting in favour of a US recession during 2008. However apart from a recession in the housing sector and job losses expected in the financial sector. The stock market (Dow Jones) trading near its all time high seems to be suggesting that the worries are over stated.

The job losses expected are unlikely to result in a US recession, the housing market credit crunch will impact on growth but only to perhaps shaving 2% or so of GDP growth therefore 2008 looks set to achieve growth in the region of 1.5% to 3% and thus avoid a US Recession. Also, the falling dollar is already having a positive impact on exporters that looks set to continue to benefit from the on going dollar devaluation during 2008.

Implication for the Financial Markets

US Dollar - The dollar's bear market will persist during 2008, until signs emerge that the US housing market decline is coming to an end.

Global Stock markets - My expectation is that the worlds stock markets as measured by the main indices will rally strongly during 2008 on the premise that the US will avoid a recession as well as a consequence of the growth spiral. The global P/E ratio analysis of 18th Nov, suggested which markets looked more favourable in terms of price / earnings and growth prospects. Already the stock markets have rebounded strongly a midst an atmosphere of gloom and doom, analysis of the 12th of Nov, suggested an imminent low in advance of the resumption of the bull market into year end.

US Housing Market - As mentioned above, the rescue plans will ensure that the housing market will remain depressed for many years, much as Japan experienced during its bad debts crisis that was prolonged due to government intervention.

Financial Sector - Whilst the bad news and bad debt provisions is far from over, selective large banks with little exposure to the US housing mortgage market look good value, analysis of 19th Nov looked at several UK based banks that have since performed strongly.

In Summary

The US and much of the western world is going to go through a rough patch during 2008. The US in my opinion does look set to avoid a recession, and much of the funds that were flowing into the housing markets and now pouring into treasuries will seek higher returns elsewhere. Those higher returns look set to be found in the stock market as investors realise that the economic picture is not so bad, and that the stock market instead of falling as the growing consensus suggests, will continue to trend higher and attract more converts seeking higher returns.

http://www.financialsense.com/fsu/editorials/walayat/2007/1211.html

[Ichiro]

THE BAILOUT BEGINS IN EARNEST ITS EFFECT WILL BE MORE INFLATION
by Monty Guild
Guild Investment Management, Inc.
December 11, 2007

THE U.S. DOLLAR

As we predicted, the drumbeat of PR for the dollar has begun in earnest, and this was and is to be expected.

No governmental financial authority anywhere wants the dollar to fall in a straight line without any rallies and without any slowdown. Now an effort has begun to give the dollar a rally; and it has been successful so far. The battle to slow down the dollar decline will include:

*

Intervention by central banks to protect their dollar holdings.
*

Jawboning by central bankers and finance ministers in every country to try and give the dollar a further rally.

Long-term, we remain bearish on the U.S. dollar. We should however, remember that even the dollar can rally, and it occasionally does. It rallied for eleven months beginning in December 2004. Then it had a spectacular decline from late 2005 until quite recently.

THE CREDIT CRISIS - A BAIL OUT IS UNDERWAY

In the last two weeks there have been several capital injections into the weak banks and brokers.


ECONOMICS

Certainly, the U.S. economy is just beginning its profits recession. U.S. corporate profits will be down for at least two quarters, and for even longer in the housing and finance sectors.

Companies will also have to deal with CPA's being much more vigilant about making their clients write off submerged bad debts and accounting for unpriced, or mark to model investments. Therefore, it is an easy call to say that the recession in U.S. profits and U.S. GDP growth is just beginning. We can expect the news media in coming months to be full of negative news about corporate profits.

THE EASIEST SOLUTION TO SOLVING THE CURRENT PROBLEMS IN THE NEWS IS TO...CREATE MORE INFLATION

Most of the problems have to do with the bad debt clogging the U.S. financial system and contributing to a situation where credit is not available to some borrowers. This can have long-term economic consequences and should be cured as quickly as possible. The recent government intervention will not be a major part of the clean up.

For this reason, we are happy to see the sovereign wealth funds and hedge funds step up and buy heavily discounted assets at what they think are bargain prices. Will they be followed by other opportunistic investors?

http://www.financialsense.com/editorials/guild/2007/1211.html

[Ichiro]

AP-Dollar Falls Against Most Currencies

Wednesday December 12, 6:25 am ET

Dollar Sinks in Europe After Third Interest Rate Cut This Year by the US Federal Reserve

FRANKFURT, Germany (AP) -- The dollar fell against most currencies Wednesday following the third interest rate cut this year by the U.S. Federal Reserve.

The 13-nation euro bought $1.4687 in morning European trading, up from $1.4675 in New York late Tuesday. The British pound also rose to $2.0442 from $2.0356.

The dollar climbed to 111.16 Japanese yen from 110.82 yen.

The Fed on Tuesday cut its benchmark federal funds rate to 4.25 percent and signaled that more cuts were possible if a severe downturn in the housing market and a crisis in mortgage lending worsen.

The central bank also reduced its discount rate, the interest it charges to make direct loans to banks, by a quarter-point to 4.75 percent.

The cut was the third since September amid mortgage problems in the U.S. that have tripped up borrowers and caused a credit crisis among banks -- fueling wider fears about the health of the U.S. economy.

http://biz.yahoo.com/ap/071212/dollar.html?.v=1

[Ichiro]

Bank of America Cuts 2007 Yen Forecast on Outflows (Update1)

By Yumi Teso

Dec. 12 (Bloomberg) -- Bank of America N.A. lowered its forecast for the yen against the dollar on speculation Japanese investors will purchase higher-yielding assets overseas with their year-end bonuses.

The second-largest U.S. bank predicts the yen will end 2007 at 110 per dollar compared with a previous forecast of 108, according to a report published yesterday. Money flowing offshore may reduce the Japanese currency's 3.4 percent gain this quarter from 111.01 as of 3:28 p.m. in Tokyo.

Japan's key interest rate has stayed at 0.5 percent, the lowest among industrialized nations, since February, with futures contracts showing an increase is unlikely over the next 12 months. Winter bonus payments will average about $7,665 per person, the Nikkei newspaper said last month. At least 37 investment trusts that can be invested fully or partly in foreign assets will be launched between Dec. 14 and Dec. 27, Bank of America said.

``We see a capital outflow of as much as $7.2 billion or so in December, putting pressure on the yen'' to weaken, said Tomoko Fujii, a senior economist and strategist at Bank of America in Tokyo. ``Japanese investors don't have an attractive place to put money in Japan.''

Carry Trades

Japan's overnight lending rate is lower than the benchmark 8.25 percent rate in New Zealand and Australia's 6.75 percent, making the yen a favorite funding currency for so-called carry trades, where investors borrow money cheaply to put money into higher-yielding assets elsewhere. The Federal Reserve yesterday cut the target overnight lending rate between banks by a quarter-percentage point to 4.25 percent.


http://www.bloomberg.com/apps/news?pid=20601083&sid=aPkZ6VXtkr70&refer=currency

[Ichiro]

Asian Currencies: Won, Rupiah Fall as Fed Rate Cut Disappoints

By Yumi Teso and Aaron Pan

Dec. 12 (Bloomberg) -- South Korea's won and Indonesia's rupiah fell against the dollar on speculation the Federal Reserve's interest-rate cut yesterday was too small to avert a recession that will curb demand for Asian assets.

The won declined for a third day as Asian stock markets tumbled after the Fed lowered its benchmark rate by a quarter- point to 4.25 percent, disappointing some investors who expected a larger reduction. Sales of Korean stocks by overseas investors exceeded purchases today by the most since Nov. 22, according to stock exchange data.

``We're seeing a bit of a pullback in Asian currencies today with the dollar a touch higher,'' said Steven Chang, vice president for global markets at State Street Bank & Trust Co. in Hong Kong. ``In the near term, dollar-won will be driven by what's happening with interest rates.''

The won weakened 0.3 percent to 926.60 per dollar as of the 3 p.m. end of trading in Seoul, the weakest close since Nov. 29, according to Seoul Money Brokerage Services Ltd.

Indonesia's rupiah fell the most in three weeks as the Jakarta Composite Index of equities slid 0.7 percent.

``The rupiah will follow the regional stock market downtrend given the Fed decision,'' said Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta. ``It's a reflection of risk aversion here.''

The currency lost 0.4 percent to 9,305 per dollar, according to data compiled by Bloomberg. The decline was the biggest since Nov. 21 when crude oil prices rose to a record $99.29 a barrel.

http://www.bloomberg.com/apps/news?pid=20601083&sid=acqhLDiLqiIU&refer=currency

[Ichiro]

Asian Currencies Weaken as U.S. Dollar Gains on Rate Outlook

By Yumi Teso

Dec. 17 (Bloomberg) -- Asian currencies led by the Singapore dollar fell against the U.S. dollar on concern accelerating inflation will give the Federal Reserve less room to cut interest rates next year.

The Singapore dollar was the biggest loser among the 10 most active currencies in Asia outside Japan as traders reduced bets the Fed will lower interest rates. U.S. 10-year government bonds yielded 1.45 percentage points more than the similar- maturity Singapore debt, compared with 1.33 points a week ago.

``It's a rebound in the U.S. dollar after stronger than expected data,'' said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. ``From the interest-rate perspective, the dollar has drawn some support across the board.''

The Singapore dollar dropped 0.7 percent against the U.S. currency to S$1.4534 as of 11:30 a.m. local time, the biggest slide since Aug. 16, according to data compiled by Bloomberg. The currency may reach as low as S$1.4570 this week, Yoshida said.

Interest-rate futures on the Chicago Board of Trade show 80 percent odds policy makers will lower the target overnight lending rate between banks a quarter-point to 4 percent in January, compared with 96 percent chances a week ago.

Malaysia's ringgit also depreciated. The currency halted a four-week rally to the strongest in more than a decade as Asian stocks slid. Traders reduced bets the Fed will cut its key rate in January after U.S. consumer prices rose last month by the most since September 2005 on record energy costs.

Stock Sales

``The U.S. cannot afford to be too aggressive in rate cuts in the face of inflation risks,'' said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. ``Funds may pull out of Asian markets and the dollar will get some support.''

http://www.bloomberg.com/apps/news?pid=20601083&sid=aBVwZyCkHWbg&refer=currency

[Ichiro]

Asian Stocks Fall for Fourth Day; BHP Billiton, HSBC Lead Drop

(((BAD news---first it was the sub prime mess and now its inflation....))))
By Hanny Wan and Chan Tien Hin
Enlarge Image/Details

Dec. 17 (Bloomberg) -- Asian stocks fell for a fourth day, led by BHP Billiton Ltd. and HSBC Holdings Plc, on concern accelerating inflation will derail global growth and limit further interest-rate cuts.

BHP dropped the most in six weeks after halting a planned share buyback. HSBC and Cheung Kong (Holdings) Ltd. paced losses in Hong Kong, where interest rates track those set by the Federal Reserve, after U.S. consumer prices rose the most since 2005. Centro Properties Group plummeted 76 percent in Sydney after the owner of U.S. shopping malls said it was struggling to pay debt.

``Sentiment in the region is getting worse,'' said David Ng, who helps manage $954 million at Hwang-DBS Asset Management Sdn. in Kuala Lumpur. ``First we had slowing U.S. growth; now add on inflation fears. That makes for a bad combination.''

The MSCI Asia Pacific Index lost 2.1 percent to 153.44 as of 2:18 p.m. in Tokyo, extending a three-day, 5.1 percent drop. Nine of the index's 10 industry groups dropped. The measure is set for its lowest annual gain in five years.

Australia's S&P/ASX 200 index declined 3.5 percent, the biggest drop among Asia's benchmarks. Japan's Nikkei 225 Stock Average fell 1.5 percent to 15,289.40. Mitsubishi UFJ Financial Group Inc. led banks lower after a research report by Nomura Holdings Inc. said the country's three largest lenders were being asked to contribute too much to a subprime-asset bailout fund.

Accelerating Inflation

The Standard & Poor's 500 Index fell 1.4 percent on Dec. 14 after a report showed U.S. consumer prices increased 0.8 percent in November, faster than forecast and the highest pace since September 2005. European inflation accelerated last month to 3.1 percent, the fastest pace since May 2001.

http://www.bloomberg.com/apps/news?pid=20601084&sid=arvP1tw1BMjM&refer=stocks

[Fivetears]

Asian stocks dive anew on U.S. recession fears
Asian stocks tumbled anew on Friday after the latest salvo of sour signals about the U.S. economy pummeled Wall Street, sending the benchmark S&P 500 sprawling 3 percent lower to a 15-month nadir. Fears about a possible recession in the United States, Asia's biggest export market, also sent government bond surging to multi-year highs and pushed U.S. crude oil prices below $90 a barrel. The dollar struggled near a 2- year low against the yen after U.S. Federal Reserve Chairman Ben Bernanke told lawmakers that more interest rate cuts may be needed to counter a worsening economic outlook.
http://news.yahoo.com/s/nm/20080118/bs_nm/markets_global_dc_1;_ylt=AlAj.VU0E3kqvpoyN3wtniME1 vAI

[Foghorn]

The Nikkei is rallying hard to get into the green. Lets see if Japan can make it and keep it green. Then it will be up to the FTSE to see if it too can rally or open in the green.

Lets see what happens tomorrow in the USMs.

Foghorn

TOKYO, Jan 18 (Reuters) - Japan's Nikkei average turned positive in afternoon trade on Friday, lifted by expectations for measures by President George W. Bush to boost the flagging U.S. economy.
The dollar's gain against the yen also helped exporters to pare earlier losses.

From:
http://www.reuters.com/article/marketsNews/idCATFA00294820080118?rpc=44