16 Sept 2008
Lehman Brothers (LEH)… gone!
Bear Stearns… gone!
AIG (AIG)… fighting for its life!
Freddie Mac (FRE) and Fannie Mae (FNM)… bailed out!
Washington Mutual (WM)… grave being dug!
Wachovia (WB)… could be next!
UBS (UBS)… nearly gone!
Morgan Stanley (MS) running for the hills!
Goldman Sachs (GS)… run for the hills!
Thursday, September 18, 2008
Money Market
When a money market mutual fund's net asset value (NAV) drops below $1 per share. Money market funds aren't federally insured like bank deposits; therefore, fund assets have an implied promise to preserve capital at all costs and preserve the $1 floor on share prices. These funds are regulated by the Securities and Exchange Commission and Rule 2a-7 restricts what they can invest in based on credit quality and maturities with the hope of ensuring principal stability.
Breaking the buck is an extremely rare event that money market fund managers always want to avoid, but it can occur if the underlying fund investments (which are generally assumed to be completely safe) significantly drop in value. This can happen if the underlying investments suffer large losses, such as defaults or strong moves in interest rates. Several funds reached or approached this critical point (from an investor faith standpoint) during the credit crisis that occurred as a result of a drop in mortgage-related assets beginning in 2007.
the Reserve Primary Fund, a money market mutual fund whose assets have fallen 65 percent in recent weeks, fell below $1 a share in net asset value due to losses on debt issued to Lehman Brothers.
It's the oldest money market funds in the United States. Money market funds aren't supposed to lose money, Primary Fund from Reserve on Tuesday 16 Sept 2008, saw its holdings fall below its total deposits, a condition known as "breaking the buck" that hasn't happened to a money market fund since 1994, Money market funds are supposed to be conservatively invested and almost as safe as cash.
Breaking the buck is an extremely rare event that money market fund managers always want to avoid, but it can occur if the underlying fund investments (which are generally assumed to be completely safe) significantly drop in value. This can happen if the underlying investments suffer large losses, such as defaults or strong moves in interest rates. Several funds reached or approached this critical point (from an investor faith standpoint) during the credit crisis that occurred as a result of a drop in mortgage-related assets beginning in 2007.
the Reserve Primary Fund, a money market mutual fund whose assets have fallen 65 percent in recent weeks, fell below $1 a share in net asset value due to losses on debt issued to Lehman Brothers.
It's the oldest money market funds in the United States. Money market funds aren't supposed to lose money, Primary Fund from Reserve on Tuesday 16 Sept 2008, saw its holdings fall below its total deposits, a condition known as "breaking the buck" that hasn't happened to a money market fund since 1994, Money market funds are supposed to be conservatively invested and almost as safe as cash.
Credit market
17 Sept 2008, the four-week T-bill yielded just 0.245 per cent and the three-month bill 0.06 per cent, the lowest levels since 1954. Dramatic declines in US T-bill yields underline the level of risk aversion in global financial markets, as traders around the world move their funds into risk-free US government debt
A closely watched measure of global borrowing costs made its biggest jump in nine years Wednesday 17 Sept 2008 and another lending risk gauge rose to a level not seen since Black Monday in October of 1987, as banks grew increasingly wary to lend to each other and sell-shocked investors sought refuge in safe-haven short-term Treasury bills.
The London Interbank Offered Rate, known as the Libor, measures the interest rate at which banks are willing to lend to each other overnight or for longer periods. The Libor rise is simply the result of continued concern over the health of the banking system. Banks are demanding higher rates to lend to each other.
TED - The price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars having identical expiration months. The Ted spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing.
The TED spread is the difference between what the Treasury pays to borrow for three months and the amount banks charge each other for loans, measured by the spread between the interest rate on a three-month U.S. Treasury bill and the three-month Libor rate.
17 Sept 2008, three-month Libor in U.S. dollars jumped 19 basis points to 3.0625% the biggest jump since September 1999. The London Interbank Offered Rate, known as the Libor, measures the interest rate at which banks are willing to lend to each other overnight or for longer periods. The Libor rise is simply the result of continued concern over the health of the banking system.
According to some estimates, loans and derivative contracts totaling roughly $150 trillion more than $20,000 for every person on Earth are indexed or tied to Libor in some way. As a result, big changes in the Libor rate have major global implications for the cost of borrowing.
The so-called TED spread widened to 302 basis points Wednesday 17 Sept 2008, that's a few ticks higher than it was on the day of the Oct. 20, 1987 stock market collapse, when it rose as high as 300 basis points. Prior to the crisis, normal is below 25 basis points for the TED spread.
CDS are a common type of derivative contract that pay out in the event of default When the difference, or spread, between rates on these contracts and rates on U.S. Treasury bonds increases, that suggests investors are willing to pay more to protect against defaults.
Gold futures jumped $70 an ounce Wednesday 17 Sept 2008, the biggest daily gain in dollar terms in more than two decades. That represents gold's biggest one-day jump in dollar terms since at least 1980, the earliest year historical data were available on the Comex. Gold futures started trading in the U.S. in 1974.
A closely watched measure of global borrowing costs made its biggest jump in nine years Wednesday 17 Sept 2008 and another lending risk gauge rose to a level not seen since Black Monday in October of 1987, as banks grew increasingly wary to lend to each other and sell-shocked investors sought refuge in safe-haven short-term Treasury bills.
The London Interbank Offered Rate, known as the Libor, measures the interest rate at which banks are willing to lend to each other overnight or for longer periods. The Libor rise is simply the result of continued concern over the health of the banking system. Banks are demanding higher rates to lend to each other.
TED - The price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars having identical expiration months. The Ted spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing.
The TED spread is the difference between what the Treasury pays to borrow for three months and the amount banks charge each other for loans, measured by the spread between the interest rate on a three-month U.S. Treasury bill and the three-month Libor rate.
17 Sept 2008, three-month Libor in U.S. dollars jumped 19 basis points to 3.0625% the biggest jump since September 1999. The London Interbank Offered Rate, known as the Libor, measures the interest rate at which banks are willing to lend to each other overnight or for longer periods. The Libor rise is simply the result of continued concern over the health of the banking system.
According to some estimates, loans and derivative contracts totaling roughly $150 trillion more than $20,000 for every person on Earth are indexed or tied to Libor in some way. As a result, big changes in the Libor rate have major global implications for the cost of borrowing.
The so-called TED spread widened to 302 basis points Wednesday 17 Sept 2008, that's a few ticks higher than it was on the day of the Oct. 20, 1987 stock market collapse, when it rose as high as 300 basis points. Prior to the crisis, normal is below 25 basis points for the TED spread.
CDS are a common type of derivative contract that pay out in the event of default When the difference, or spread, between rates on these contracts and rates on U.S. Treasury bonds increases, that suggests investors are willing to pay more to protect against defaults.
Gold futures jumped $70 an ounce Wednesday 17 Sept 2008, the biggest daily gain in dollar terms in more than two decades. That represents gold's biggest one-day jump in dollar terms since at least 1980, the earliest year historical data were available on the Comex. Gold futures started trading in the U.S. in 1974.
Wednesday, September 17, 2008
Notes for the bear market
In the last seven bear markets, the Standard & Poor's 500 Index tumbled an average of 33%, according to S&P.
The never-ending tug-of-war between risk and reward always disrupts investors when anxiety and uncertainty get the upper hand.
The fundamentals will come back into play when market panic is gone, and that's when you want to do some buying base on fundamentals.
.
The never-ending tug-of-war between risk and reward always disrupts investors when anxiety and uncertainty get the upper hand.
The fundamentals will come back into play when market panic is gone, and that's when you want to do some buying base on fundamentals.
.
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