China to Take `Forceful’ Steps on Inflation, Wen Says
March 18 (Bloomberg) -- China’s Premier Wen Jiabao pledged to take “forceful” steps to damp inflation at an 11-year high, a sign that overheating remains the government’s main concern even as financial-market turmoil threatens global growth.
The government’s 4.8 percent inflation target for 2008 will be “difficult” to achieve, Wen said today at his annual press conference given at the end of the National People’s Congress meeting in Beijing. China will tackle soaring prices with “appropriate and forceful” measures, he said.
Stocks tumbled on concern China’s battle against inflation will slow its economy just as a recession looms in the U.S., the other main engine of global growth. Central bank Governor Zhou Xiaochuan said today there was scope to further raise interest rates and increase reserve ratios for commercial lenders.
“Fighting inflation remains the top priority for the Chinese government and there’s room for more tightening,” said James Liu, who helps oversee about $1 billion at APS Asset Management in Shanghai. “A slowing Chinese economy won’t be good for Asian neighbours as it will affect demand,” he said, citing commodities.
China’s benchmark CSI 300 Index was 6 percent lower at 2:08 p.m. in Shanghai, reversing an earlier gain.
‘Balance Point’
“We need to find the balance point between economic growth and inflation,” Wen said. Rapid price increases since late 2007 have caused “great difficulties” for low-income households and are now the “top concern” among Chinese people, he said.
Consumer prices in China jumped 8.7 percent in February from a year earlier on food costs and supply disruptions caused by the worst snowstorms in half a century. The economy expanded 11.4 percent in 2007, the fastest pace in 13 years.
“China’s economy is facing trouble now, because of domestic inflation and the U.S. subprime issue,” said Wu Kan, who manages the equivalent of $41 million at Dazhong Insurance Co. in Shanghai. “It will be difficult for us to see a growth rate of 10 percent or 11 percent this year.”
The government was maintaining its 4.8 percent inflation target for 2008 “because it helps stabilize consumer expectations,” Wen said. “When prices soar, expectations can be more horrifying than the increases.”
Chinese policy makers will need to use a package of measures to tackle inflation, Zhou told reporters in Beijing today. He said there was room to tighten all monetary policy tools including interest rates and reserve ratios.
Interest Rates
“The timing, scope and choice among different options requires skill,” said Zhou, whose tenure at the central bank was re-confirmed by the National People’s Congress yesterday. “It depends on our adjustments and wisdom.”
The People’s Bank of China increased interest rates six times in 2007 and lifted the amount of money commercial lenders must set aside on 11 occasions to a record 15 percent.
China will have to raise lending and deposit rates at least once this year, according to a March 12 survey of 12 economists by Bloomberg News. The country’s one-year key lending rate is at a nine-year high of 7.47 percent, while the deposit rate is at 4.14 percent, half of the February inflation rate.
The central bank is hoping for “positive real interest rates,” Zhou said today.
The government was “confident” it would be able to combat inflation with the appropriate policies, Wen said. “We still have 150 million tons to 200 million tons of grain reserves, and most industrial goods are still in oversupply.”
China’s Stocks Drop to Eight-Month Low; Consumer Shares Decline
March 18 (Bloomberg) -- China’s stocks fell for a fifth day, pushing the benchmark to its lowest in eight months, after the nation’s central bank governor said there is still room to raise interest rates to curb inflation.
Bright Dairy & Food Co. and Luzhou Laojiao Co. led consumer-related shares lower on concern higher rates will leave people with less to spend on everyday products such as milk and liquor.
The CSI 300 Index, which tracks yuan-denominated A shares listed on China’s two exchanges, declined 108.49, or 2.7 percent, to 3,856.79 as of 10:42 a.m. local time, set for the lowest close since July 19.
China’s tightened monetary policy is “good’’ and more adjustments will be made at “appropriate’’ times, central bank governor Zhou Xiaochuan told reporters during the legislature’s annual meeting in Beijing. There is still room to raise interest rates and increase reserve ratios for commercial lenders, Zhou said.
Consumer prices rose 8.7 percent in February from a year earlier, the fastest pace in 11 years, as food and energy prices jumped. The central bank raised interest rates six times last year.
A measure tracking consumer stocks dropped 3.8 percent today, the steepest decline among the CSI 300’s 10 industry groups.
Bright Dairy, a Chinese partner of Groupe Danone SA, slumped 1.15 yuan, or 8.8 percent, to 11.98. Luzhou Laojiao, a sprits producer in southwest province of Sichuan, lost 2.60 yuan, or 4 percent, to 61.80. Heilongjiang Agriculture Co., a processor of grain products, declined 1.59 yuan, or 8.6 percent, to 16.84.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 1.1 percent to 3,780.08. The Shenzhen Composite Index lost 2.8 percent to 1,126.27.
Soybeans, Corn, Wheat Drop as Funds Sell Commodities for Cash
18 March 2008
March 18 (Bloomberg) -- Soybeans, corn and wheat futures in Chicago extended losses as slumping equity markets and credit market losses prompted investment funds to raise cash.
The UBS Bloomberg Constant Maturity Commodity Index fell 4.5 percent yesterday in New York, the biggest drop since Oct. 3, 1997, when the series began. The Reuters/Jefferies CRB Index plunged the most since at least 1956. Soybeans, corn and wheat declined after reaching records earlier this year.
“The worst is yet to come,” Hiroyuki Kikukawa, an analyst at IDO Securities in Tokyo, said by telephone today. “People want out of all markets and will try to keep cash in their hands for now.”
Soybeans for May delivery dropped the daily limit of 50 cents, or 3.8 percent, to $12.5275 a bushel, the lowest since Jan. 29, in after-hours electronic trading on the Chicago Board of Trade. The futures also fell by the limit in the past two days.
The most-active contract surged 65 percent in the past year, reaching a record $15.8625 on March 3, after U.S. farmers last year planted the fewest acres in more than a decade.
Soybean oil for May delivery fell the daily maximum of 2 cents, or 3.4 percent, to 56.56 cents a pound, declining by the daily maximum for the third straight day. The futures have gained 83 percent the past year, reaching a record 72.69 cents on March 4, on demand for biofuels and cooking oil.
Soybean oil, soybeans and palm oil on the Dalian Commodity Exchange, China’s main agricultural bourse, also fell by the daily maximum of 4 percent. Palm oil on the Malaysia Derivatives Exchange dropped as much as 10 percent.
Equity Markets
U.S. shares declined yesterday on concern the Federal Reserve won’t be able to stop credit losses from spreading following the collapse of investment bank Bear Stearns Cos. Markets in Asia extended losses today while gold and crude oil fell from records.
Corn for May delivery in Chicago lost as much as 7.25 cents, or 1.3 percent, to $5.32 a bushel and traded at $5.3225 at 12:23 p.m. Singapore time. The contract plunged the daily limit of 20 cents, or 3.6 percent, yesterday. Futures reached a record $5.795 on March 11 on record demand for ethanol and animal feed.
“The recent sell-off in the market has been taking out speculative premiums on soybeans and corn,” IDO Securities’ Kikukawa said. “This helps the markets return to reflect actual fundamentals.”
May-delivery wheat fell as much as 11.50 cents, or 1 percent, to $11.20 a bushel and traded at $11.28 as of 12:29 p.m. in Singapore, after losing the daily maximum of 60 cents yesterday. The futures, which reached a record $13.495 on Feb. 27, have more than doubled in the past year as demand increased and adverse weather curbed global production.
In the export market, Japan is seeking 92,000 metric tons of wheat, including 50,000 tons from the U.S., at a tender tomorrow.
KUALA LUMPUR, March 18 (Reuters) - Malaysian crude palm-oil futures fell to their daily limit of 10 percent on Tuesday as global grains and vegetable oil markets dropped sharply, dealers said.
The benchmark June contract on the Bursa Malaysia Derivatives Exchange fell 360 ringgit, or 10 percent, to 3,240 Malaysian ringgit ($1,015) a tonne.
Bloomberg tracked down Jim Rogers somewhere in Asia and he was none too pleased with the way the U.S. government has been throwing its money around.
On why Bear Stearns was bailed out:
You know the reason they did it this way was because, if Bear Stearns had to declare bankruptcy, you’d realize that Bear Stearns paid out billions of dollars in bonuses in January - six weeks ago. If he let them go into bankruptcy, they all would have had to send back their bonuses. This is what they’re doing, they’re doing it so they don’t have to give back their bonuses. That’s why they didn’t put them into bankruptcy. Jamie Dimon has gotten a great deal because the Federal Reserve is paying for it. The Federal Reserve is using taxpayer money to buy a bunch of Bear Stearns traders’ Mazeratis.
On letting banks fail:
Investment banks have been going bankrupt since the beginning of time. What are you talking about? Let somebody go bankrupt - it’s not the end of the world. You remember what happened in the 70s when they tried this tactic - when Arther Burns kept printing money. Finally, interest rates had to go to over 20 percent and they had to bring in Paul Volcker who had to take draconian measures and put the country into a serious recession. How much more money do you think the Federal Reserve has?
On risks to the banking system:
In 1966, the entire Japanese financial community went bankrupt. Every broker in Japan was in bankruptcy. Japan came out of that and became one of the great powerhouses of the world. In 1907, everbody on Wall Street was bankrupt. Everybody was bankrupt in 1907. America recovered from that and had a very nice future. Are you telling me that we’re never going to have bankruptcies in the financial community again?
On Alan Greenspan’s role in this mess:
The first two central banks in America failed. Between Greenspan and Bernanke - I’ve written this, it’s in my book, long before this happened - they’re setting up the failure of the central bank. The demise of the Federal Reserve. The first two failed, this one is going to fail too - because of Greenspan and Bernanke. Greenspan laid the perfect foundation for Bernanke. Interestingly, four or five Bloomberg articles used quotes from this interview but none of the material above. They just used excerpts from the first part of the clip on the U.S. dollar and commodities.
Sixty funds are said to be prepping for bargain hunting that might restore liquidity to the banks and the mortgage-backed securities market
By Andrew Osterland March 17, 2008
A London hedge fund's offer last week to inject more capital into troubled mortgage lender Washington Mutual may be an omen of how the lifeless credit market will ultimately be revived. While bankers and investors may be looking to Ben Bernanke and the Federal Reserve to save the market, its saviors in the end are likely to be—God help us—hedge fund managers.
Indeed, Mr. Bernanke may be willing to pump another $200 billion into the banking system to ease the pain. But until trading resumes in the debt markets—particularly for mortgage-backed paper and syndicated loans—lenders will likely keep their cash in their pockets. “The Fed's moves increase liquidity,” said Chip McDonald, a securities lawyer with Jones Day. “It helps, but it isn't a cure.”
Some analysts say that unless the Fed is willing to set up a Resolution Trust Corp.-like agency to buy in troubled mortgages and structured-debt obligations—rather than just offering short-term financing for the holders—the markets aren't likely to revive anytime soon.
That's where hedge funds come in. While recent liquidations at high-profile funds like Carlyle Capital and Peloton have cast doubts on the health of hedgies, industry watchers say many of the funds remain extremely well capitalized. “Those funds that have used a lot of leverage are vulnerable,” said Brian Snider, senior vice president at hedge fund research firm Hennessee Group.
But Mr. Snider said that about 60 other hedge funds are preparing to go bargain shopping for distressed (read: mortgage-backed) debt and leveraged loans for sale by besieged financial institutions.
The London fund, Toscafund Asset Management, approached the board of Washington Mutual with an offer to participate in any consortium looking to recapitalize the mortgage lender, according to a report in the Wall Street Journal. Toscafund is part of Old Oak Holdings, which has a sizable stake in WaMu.
Such moves by hedge funds will help shore up the banks and begin to establish floors for “toxic” asset prices, industry experts say. “They're going to be buyers of paper from other hedge funds and from the investment banks,” said Mr. Snider. “People are expecting about $200 billion worth of mortgages will be sold.”
Dallas-based Highland Capital Management will be one of the buyers. The firm recently raised $1 billion to buy distressed collateralized debt obligations and buyout debt from the banks, according to Bloomberg. The firm has already invested more than $38 billion in assets—most of it in loans, bonds and structured products.
Other players poised to jump into distressed debt include funds organized by Goldman Sachs, Finstocks Capital Management, CapGen and Castle Creek. When the market starts to move, they are likely to put their money to work quickly.
“When there are forced liquidations and vultures start picking at the assets, people will start buying,” said John Garvey, head of PWC's financial services advisory practice. “A lot of people are going to make a fortune on this.”
The fund managers won't just be looking for distressed debt either. Sagus Partners, an Atlanta-based money manager, recently raised an undisclosed amount of capital to invest in the beaten-down stocks of small banks in the Southeast. The fund plans to invest three-quarters of the money in community bank stocks.
Other hedge funds may look for combinations of preferred stock with warrants or convertible debt—especially in the banking sector, said Mr. McDonald.
The thinly stretched banks will be looking for investments they can count as tier one or tier two capital. Most likely that will mean convertible debt that allows fund managers to arbitrage between the debt and common stock of companies. “The hedge funds will help people survive,” said Mr. McDonald. “And they'll weed out others that won't.”
Chinese Premier Wen Jiabao said Tuesday that the government is fully confident in controlling inflation this year, although it will not be an easy job.
He made the remarks at a press conference following the conclusion of the annual session of the National People's Congress (NPC), the country's top legislature. Wen acknowledged that it will be hard for China to attain its goal of holding the rise in consumer price index (CPI) at about 4.8 percent and controlling price hikes this year, which was made even more difficult by the worst sleet and snow disaster in decades in the first two months of this year.
"But we have no plan to change this goal," he told reporters.
The premier explained that it shows the resolve of the government to control price rises and curb inflation by setting the goal, and it will help stabilize the people's expectations for price rises by doing so.
"With price rises at a very rapid pace, the expectations for price hikes are usually more fearful than the price rises themselves," he said.
In addition, China has set this goal because it has confidence in what it has, he said, referring to the country's grain reserves of 150 to 200 million tons and general oversupply of major industrial products.
"As long as we take right policies and effective measures, we are fully confident that we can control the trend of excessive rises in prices," he said.
China's CPI rose 4.8 percent year-on-year in 2007 in China, mainly due to large increases in the cost of food and housing, Wen told the NPC annual session while delivering the government work report on March 5.
The key inflation indicator rose 8.7 percent in February over the same month last year, the highest monthly increase in nearly 12 years.
The figure was mainly pushed up by soaring food prices and the severe winter weather that wrought havoc in south China from January to February.
Food prices surged 23.3 percent in February, with pork prices up 63.4 percent, and vegetable prices rising 46 percent, contributing to about 80 percent of the CPI increase. Non-food prices edged up only 1.6 percent from a year earlier.
The February index was 1.6 percentage points higher than last month.
High street banks went with begging bowls to the Bank of England yesterday, seeking more than £23 billion in emergency loans as fears over the global credit crunch deepened.
Shares in the banks lost more than £14 billion in a brutal day’s trading that pushed the FTSE 100 index to its lowest close in two and half years.
The sell-off was sparked by the emergency rescue of Bear Stearns, America’s fifth-biggest bank, which was snapped up by rival JPMorgan for only $240 million – 3 per cent of what it was worth last week.
But the rescue, an attempt to quell the panic, only heightened fears that a threatened US recession would wreak havoc on the global economy and could even bring down a British bank.
The worst hit of Britain’s banks was HBOS, which lost more than 12 per cent of its value. Barclays lost 9.3 per cent while Royal Bank of Scotland was down 8.7 per cent.
As the markets opened for trading yesterday, the Bank of England said immediately that it would make a further £5 billion available as panic caused interbank lending virtually to dry up.
But as soon as the offer was announced, the bank was deluged with requests for almost five times that amount, with demands totalling £23.6 billion.
As the conditions for banks deteriorate, they are passing on the pain to consumers, making it tougher to get mortgages and personal loans. Credit card companies are also expected to tighten lending criteria even more. Personal loan rates have increased from an average of 14.4 per cent on a £1,000 loan before the credit crunch to 18.9 per cent now.
The plunging stock market wiped about £8 billion off the value of the UK’s 200 largest final-salary pension schemes. The funds had a collective surplus of £15 billion at the end of Friday but that had been reduced to £7 billion as the markets closed yesterday, according to the pensions advisory company Aon Consultants.
Analysts said that the Bank of England needed to do a lot more to stem the crisis.
Simon Maughan, of the brokerage firm MF Global said: “It requires much stronger leadership. The Bank has to stop worrying about the price of bread and start worrying about the banking system”.
David Jones, the chief market strategist at IG Index, the spread-better, said: “The problem is the unknown. If a major US investment bank is worth $60 a share a week ago and then $2 seven days later – what other skeletons are still to come out of the closet?”
10 comments:
End of Wall Street as we know it
Why the Fed can't put out the fire?
China to Take `Forceful’ Steps on Inflation, Wen Says
March 18 (Bloomberg) -- China’s Premier Wen Jiabao pledged to take “forceful” steps to damp inflation at an 11-year high, a sign that overheating remains the government’s main concern even as financial-market turmoil threatens global growth.
The government’s 4.8 percent inflation target for 2008 will be “difficult” to achieve, Wen said today at his annual press conference given at the end of the National People’s Congress meeting in Beijing. China will tackle soaring prices with “appropriate and forceful” measures, he said.
Stocks tumbled on concern China’s battle against inflation will slow its economy just as a recession looms in the U.S., the other main engine of global growth. Central bank Governor Zhou Xiaochuan said today there was scope to further raise interest rates and increase reserve ratios for commercial lenders.
“Fighting inflation remains the top priority for the Chinese government and there’s room for more tightening,” said James Liu, who helps oversee about $1 billion at APS Asset Management in Shanghai. “A slowing Chinese economy won’t be good for Asian neighbours as it will affect demand,” he said, citing commodities.
China’s benchmark CSI 300 Index was 6 percent lower at 2:08 p.m. in Shanghai, reversing an earlier gain.
‘Balance Point’
“We need to find the balance point between economic growth and inflation,” Wen said. Rapid price increases since late 2007 have caused “great difficulties” for low-income households and are now the “top concern” among Chinese people, he said.
Consumer prices in China jumped 8.7 percent in February from a year earlier on food costs and supply disruptions caused by the worst snowstorms in half a century. The economy expanded 11.4 percent in 2007, the fastest pace in 13 years.
“China’s economy is facing trouble now, because of domestic inflation and the U.S. subprime issue,” said Wu Kan, who manages the equivalent of $41 million at Dazhong Insurance Co. in Shanghai. “It will be difficult for us to see a growth rate of 10 percent or 11 percent this year.”
The government was maintaining its 4.8 percent inflation target for 2008 “because it helps stabilize consumer expectations,” Wen said. “When prices soar, expectations can be more horrifying than the increases.”
Chinese policy makers will need to use a package of measures to tackle inflation, Zhou told reporters in Beijing today. He said there was room to tighten all monetary policy tools including interest rates and reserve ratios.
Interest Rates
“The timing, scope and choice among different options requires skill,” said Zhou, whose tenure at the central bank was re-confirmed by the National People’s Congress yesterday. “It depends on our adjustments and wisdom.”
The People’s Bank of China increased interest rates six times in 2007 and lifted the amount of money commercial lenders must set aside on 11 occasions to a record 15 percent.
China will have to raise lending and deposit rates at least once this year, according to a March 12 survey of 12 economists by Bloomberg News. The country’s one-year key lending rate is at a nine-year high of 7.47 percent, while the deposit rate is at 4.14 percent, half of the February inflation rate.
The central bank is hoping for “positive real interest rates,” Zhou said today.
The government was “confident” it would be able to combat inflation with the appropriate policies, Wen said. “We still have 150 million tons to 200 million tons of grain reserves, and most industrial goods are still in oversupply.”
China’s Stocks Drop to Eight-Month Low; Consumer Shares Decline
March 18 (Bloomberg) -- China’s stocks fell for a fifth day, pushing the benchmark to its lowest in eight months, after the nation’s central bank governor said there is still room to raise interest rates to curb inflation.
Bright Dairy & Food Co. and Luzhou Laojiao Co. led consumer-related shares lower on concern higher rates will leave people with less to spend on everyday products such as milk and liquor.
The CSI 300 Index, which tracks yuan-denominated A shares listed on China’s two exchanges, declined 108.49, or 2.7 percent, to 3,856.79 as of 10:42 a.m. local time, set for the lowest close since July 19.
China’s tightened monetary policy is “good’’ and more adjustments will be made at “appropriate’’ times, central bank governor Zhou Xiaochuan told reporters during the legislature’s annual meeting in Beijing. There is still room to raise interest rates and increase reserve ratios for commercial lenders, Zhou said.
Consumer prices rose 8.7 percent in February from a year earlier, the fastest pace in 11 years, as food and energy prices jumped. The central bank raised interest rates six times last
year.
A measure tracking consumer stocks dropped 3.8 percent today, the steepest decline among the CSI 300’s 10 industry groups.
Bright Dairy, a Chinese partner of Groupe Danone SA, slumped 1.15 yuan, or 8.8 percent, to 11.98. Luzhou Laojiao, a sprits producer in southwest province of Sichuan, lost 2.60 yuan, or 4 percent, to 61.80. Heilongjiang Agriculture Co., a processor of grain products, declined 1.59 yuan, or 8.6 percent, to 16.84.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 1.1 percent to 3,780.08. The Shenzhen Composite Index lost 2.8 percent to 1,126.27.
Soybeans, Corn, Wheat Drop as Funds Sell Commodities for Cash
18 March 2008
March 18 (Bloomberg) -- Soybeans, corn and wheat futures in Chicago extended losses as slumping equity markets and credit market losses prompted investment funds to raise cash.
The UBS Bloomberg Constant Maturity Commodity Index fell 4.5 percent yesterday in New York, the biggest drop since Oct. 3, 1997, when the series began. The Reuters/Jefferies CRB Index plunged the most since at least 1956. Soybeans, corn and wheat declined after reaching records earlier this year.
“The worst is yet to come,” Hiroyuki Kikukawa, an analyst at IDO Securities in Tokyo, said by telephone today. “People want out of all markets and will try to keep cash in their hands
for now.”
Soybeans for May delivery dropped the daily limit of 50 cents, or 3.8 percent, to $12.5275 a bushel, the lowest since Jan. 29, in after-hours electronic trading on the Chicago Board of Trade. The futures also fell by the limit in the past two days.
The most-active contract surged 65 percent in the past year, reaching a record $15.8625 on March 3, after U.S. farmers last year planted the fewest acres in more than a decade.
Soybean oil for May delivery fell the daily maximum of 2 cents, or 3.4 percent, to 56.56 cents a pound, declining by the daily maximum for the third straight day. The futures have gained 83 percent the past year, reaching a record 72.69 cents on March 4, on demand for biofuels and cooking oil.
Soybean oil, soybeans and palm oil on the Dalian Commodity Exchange, China’s main agricultural bourse, also fell by the daily maximum of 4 percent. Palm oil on the Malaysia Derivatives Exchange dropped as much as 10 percent.
Equity Markets
U.S. shares declined yesterday on concern the Federal Reserve won’t be able to stop credit losses from spreading following the collapse of investment bank Bear Stearns Cos. Markets in Asia extended losses today while gold and crude oil fell from records.
Corn for May delivery in Chicago lost as much as 7.25 cents, or 1.3 percent, to $5.32 a bushel and traded at $5.3225 at 12:23 p.m. Singapore time. The contract plunged the daily limit of 20 cents, or 3.6 percent, yesterday. Futures reached a record $5.795 on March 11 on record demand for ethanol and animal feed.
“The recent sell-off in the market has been taking out speculative premiums on soybeans and corn,” IDO Securities’ Kikukawa said. “This helps the markets return to reflect actual fundamentals.”
May-delivery wheat fell as much as 11.50 cents, or 1 percent, to $11.20 a bushel and traded at $11.28 as of 12:29 p.m. in Singapore, after losing the daily maximum of 60 cents yesterday. The futures, which reached a record $13.495 on Feb. 27, have more than doubled in the past year as demand increased and adverse weather curbed global production.
In the export market, Japan is seeking 92,000 metric tons of wheat, including 50,000 tons from the U.S., at a tender tomorrow.
KUALA LUMPUR, March 18 (Reuters) - Malaysian crude palm-oil futures fell to their daily limit of 10 percent on Tuesday as global grains and vegetable oil markets dropped sharply, dealers said.
The benchmark June contract on the Bursa Malaysia Derivatives Exchange fell 360 ringgit, or 10 percent, to 3,240 Malaysian ringgit ($1,015) a tonne.
Jim Rogers on the Bear Stearns bailout
Bloomberg tracked down Jim Rogers somewhere in Asia and he was none too pleased with the way the U.S. government has been throwing its money around.
On why Bear Stearns was bailed out:
You know the reason they did it this way was because, if Bear Stearns had to declare bankruptcy, you’d realize that Bear Stearns paid out billions of dollars in bonuses in January - six weeks ago. If he let them go into bankruptcy, they all would have had to send back their bonuses. This is what they’re doing, they’re doing it so they don’t have to give back their bonuses. That’s why they didn’t put them into bankruptcy. Jamie Dimon has gotten a great deal because the Federal Reserve is paying for it. The Federal Reserve is using taxpayer money to buy a bunch of Bear Stearns traders’ Mazeratis.
On letting banks fail:
Investment banks have been going bankrupt since the beginning of time. What are you talking about? Let somebody go bankrupt - it’s not the end of the world. You remember what happened in the 70s when they tried this tactic - when Arther Burns kept printing money. Finally, interest rates had to go to over 20 percent and they had to bring in Paul Volcker who had to take draconian measures and put the country into a serious recession. How much more money do you think the Federal Reserve has?
On risks to the banking system:
In 1966, the entire Japanese financial community went bankrupt. Every broker in Japan was in bankruptcy. Japan came out of that and became one of the great powerhouses of the world. In 1907, everbody on Wall Street was bankrupt. Everybody was bankrupt in 1907. America recovered from that and had a very nice future. Are you telling me that we’re never going to have bankruptcies in the financial community again?
On Alan Greenspan’s role in this mess:
The first two central banks in America failed. Between Greenspan and Bernanke - I’ve written this, it’s in my book, long before this happened - they’re setting up the failure of the central bank. The demise of the Federal Reserve. The first two failed, this one is going to fail too - because of Greenspan and Bernanke. Greenspan laid the perfect foundation for Bernanke. Interestingly, four or five Bloomberg articles used quotes from this interview but none of the material above. They just used excerpts from the first part of the clip on the U.S. dollar and commodities.
It could be the hedgies that ride to the rescue
Sixty funds are said to be prepping for bargain hunting that might restore liquidity to the banks and the mortgage-backed securities market
By Andrew Osterland
March 17, 2008
A London hedge fund's offer last week to inject more capital into troubled mortgage lender Washington Mutual may be an omen of how the lifeless credit market will ultimately be revived. While bankers and investors may be looking to Ben Bernanke and the Federal Reserve to save the market, its saviors in the end are likely to be—God help us—hedge fund managers.
Indeed, Mr. Bernanke may be willing to pump another $200 billion into the banking system to ease the pain. But until trading resumes in the debt markets—particularly for mortgage-backed paper and syndicated loans—lenders will likely keep their cash in their pockets. “The Fed's moves increase liquidity,” said Chip McDonald, a securities lawyer with Jones Day. “It helps, but it isn't a cure.”
Some analysts say that unless the Fed is willing to set up a Resolution Trust Corp.-like agency to buy in troubled mortgages and structured-debt obligations—rather than just offering short-term financing for the holders—the markets aren't likely to revive anytime soon.
That's where hedge funds come in. While recent liquidations at high-profile funds like Carlyle Capital and Peloton have cast doubts on the health of hedgies, industry watchers say many of the funds remain extremely well capitalized. “Those funds that have used a lot of leverage are vulnerable,” said Brian Snider, senior vice president at hedge fund research firm Hennessee Group.
But Mr. Snider said that about 60 other hedge funds are preparing to go bargain shopping for distressed (read: mortgage-backed) debt and leveraged loans for sale by besieged financial institutions.
The London fund, Toscafund Asset Management, approached the board of Washington Mutual with an offer to participate in any consortium looking to recapitalize the mortgage lender, according to a report in the Wall Street Journal. Toscafund is part of Old Oak Holdings, which has a sizable stake in WaMu.
Such moves by hedge funds will help shore up the banks and begin to establish floors for “toxic” asset prices, industry experts say. “They're going to be buyers of paper from other hedge funds and from the investment banks,” said Mr. Snider. “People are expecting about $200 billion worth of mortgages will be sold.”
Dallas-based Highland Capital Management will be one of the buyers. The firm recently raised $1 billion to buy distressed collateralized debt obligations and buyout debt from the banks, according to Bloomberg. The firm has already invested more than $38 billion in assets—most of it in loans, bonds and structured products.
Other players poised to jump into distressed debt include funds organized by Goldman Sachs, Finstocks Capital Management, CapGen and Castle Creek. When the market starts to move, they are likely to put their money to work quickly.
“When there are forced liquidations and vultures start picking at the assets, people will start buying,” said John Garvey, head of PWC's financial services advisory practice. “A lot of people are going to make a fortune on this.”
The fund managers won't just be looking for distressed debt either. Sagus Partners, an Atlanta-based money manager, recently raised an undisclosed amount of capital to invest in the beaten-down stocks of small banks in the Southeast. The fund plans to invest three-quarters of the money in community bank stocks.
Other hedge funds may look for combinations of preferred stock with warrants or convertible debt—especially in the banking sector, said Mr. McDonald.
The thinly stretched banks will be looking for investments they can count as tier one or tier two capital. Most likely that will mean convertible debt that allows fund managers to arbitrage between the debt and common stock of companies. “The hedge funds will help people survive,” said Mr. McDonald. “And they'll weed out others that won't.”
Wen says fully confident in controlling inflation
(Xinhua)
Updated: 2008-03-18 11:34
Chinese Premier Wen Jiabao said Tuesday that the government is fully confident in controlling inflation this year, although it will not be an easy job.
He made the remarks at a press conference following the conclusion of the annual session of the National People's Congress (NPC), the country's top legislature.
Wen acknowledged that it will be hard for China to attain its goal of holding the rise in consumer price index (CPI) at about 4.8 percent and controlling price hikes this year, which was made even more difficult by the worst sleet and snow disaster in decades in the first two months of this year.
"But we have no plan to change this goal," he told reporters.
The premier explained that it shows the resolve of the government to control price rises and curb inflation by setting the goal, and it will help stabilize the people's expectations for price rises by doing so.
"With price rises at a very rapid pace, the expectations for price hikes are usually more fearful than the price rises themselves," he said.
In addition, China has set this goal because it has confidence in what it has, he said, referring to the country's grain reserves of 150 to 200 million tons and general oversupply of major industrial products.
"As long as we take right policies and effective measures, we are fully confident that we can control the trend of excessive rises in prices," he said.
China's CPI rose 4.8 percent year-on-year in 2007 in China, mainly due to large increases in the cost of food and housing, Wen told the NPC annual session while delivering the government work report on March 5.
The key inflation indicator rose 8.7 percent in February over the same month last year, the highest monthly increase in nearly 12 years.
The figure was mainly pushed up by soaring food prices and the severe winter weather that wrought havoc in south China from January to February.
Food prices surged 23.3 percent in February, with pork prices up 63.4 percent, and vegetable prices rising 46 percent, contributing to about 80 percent of the CPI increase. Non-food prices edged up only 1.6 percent from a year earlier.
The February index was 1.6 percentage points higher than last month.
From The TimesMarch 18, 2008
High street banks hold out their begging bowls
High street banks went with begging bowls to the Bank of England yesterday, seeking more than £23 billion in emergency loans as fears over the global credit crunch deepened.
Shares in the banks lost more than £14 billion in a brutal day’s trading that pushed the FTSE 100 index to its lowest close in two and half years.
The sell-off was sparked by the emergency rescue of Bear Stearns, America’s fifth-biggest bank, which was snapped up by rival JPMorgan for only $240 million – 3 per cent of what it was worth last week.
But the rescue, an attempt to quell the panic, only heightened fears that a threatened US recession would wreak havoc on the global economy and could even bring down a British bank.
The worst hit of Britain’s banks was HBOS, which lost more than 12 per cent of its value. Barclays lost 9.3 per cent while Royal Bank of Scotland was down 8.7 per cent.
As the markets opened for trading yesterday, the Bank of England said immediately that it would make a further £5 billion available as panic caused interbank lending virtually to dry up.
But as soon as the offer was announced, the bank was deluged with requests for almost five times that amount, with demands totalling £23.6 billion.
As the conditions for banks deteriorate, they are passing on the pain to consumers, making it tougher to get mortgages and personal loans. Credit card companies are also expected to tighten lending criteria even more. Personal loan rates have increased from an average of 14.4 per cent on a £1,000 loan before the credit crunch to 18.9 per cent now.
The plunging stock market wiped about £8 billion off the value of the UK’s 200 largest final-salary pension schemes. The funds had a collective surplus of £15 billion at the end of Friday but that had been reduced to £7 billion as the markets closed yesterday, according to the pensions advisory company Aon Consultants.
Analysts said that the Bank of England needed to do a lot more to stem the crisis.
Simon Maughan, of the brokerage firm MF Global said: “It requires much stronger leadership. The Bank has to stop worrying about the price of bread and start worrying about the banking system”.
David Jones, the chief market strategist at IG Index, the spread-better, said: “The problem is the unknown. If a major US investment bank is worth $60 a share a week ago and then $2 seven days later – what other skeletons are still to come out of the closet?”
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