ECB Offers Unlimited Cash as Bank Lending Costs Soar

[unlucky]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

I won't claim to be a central banking expert but I think the effect of the intervention on equities is entirely indirect. The main pressure right now is on the ABS markets (although today it looks like it could spread to quant equity funds). But I can think of a couple of ways intervention helps equities: it reduces forced selling by pressured ABS investors, it reduces losses in ABS (so helping financial equities) and it reduces effective short-term interest rates (so helping those who want to borrow to invest in equities).

All of those are indirect. There is also a psychological impact which is hard to predict - could be bad, could be good. The direct effect for now, I would guess, is on the ABS markets which is where the greatest pressure exists.

However the pressure is spreading. What is particularly discouraging is the drip-feed of bad news, mostly not officially announced, from all kinds of funds now which are seeing losses. This is a very, very big problem. These people need to get their losses on the table ASAP. (And eat them).

[bart]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

I track both TOMOs and TIOs on a daily basis, and here's the current picture.



Note that a TIO is very similar to a TOMO, but its from the Treasury instead of the Fed.

[WDCRob]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Bart, can you explain the dropoff projected for next week?

Use small words. Speak slowly. ;)

[bart]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Bart, can you explain the dropoff projected for next week?

Use small words. Speak slowly. ;)

The key is the "t" in temporary open market operations (tomo). Most TOMOs are only one day long and seldom do they go over 14 days or so.
TIOs vary between 2 and 23 days, with an average of about 8 days.

The chart does not attempt any predictions, it just shows what will happen if no new TOMOs or TIOs occur.

[Spartacus]

Re: a transparent attemt to avoid marking to market

IMHO the CBs are now actively trying to hoodwink the markets by hook or by crook

they're making the same type of play as was tried in vain in the Bear Stearns / Merril Lynch debacle - shut down the auction early so real prices cannot be found.

[WDCRob]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Bart, does this mean that they are effectively withdrawing money from the economy by not issuing new loans as the old ones expired?


"The U.S. Federal Reserve took the unusual step of refraining from undertaking an open market operation so far Tuesday, in the aftermath of last week's substantial infusions of liquidity into the banking system.

This marked a pause so far in the Fed's actions over the past three trading days when it injected a substantial amount of cash into the market to increase liquidity.

If the Fed does not undertake an open market operation on Tuesday, it will be the first working day in three months it has not done so.

The Federal Reserve refrained from undertaking a money market operation at its usual operating time of 9:30 a.m. ET, a New York Federal Reserve spokesman confirmed."

[bart]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Bart, does this mean that they are effectively withdrawing money from the economy by not issuing new loans as the old ones expired?


"The U.S. Federal Reserve took the unusual step of refraining from undertaking an open market operation so far Tuesday, in the aftermath of last week's substantial infusions of liquidity into the banking system.

This marked a pause so far in the Fed's actions over the past three trading days when it injected a substantial amount of cash into the market to increase liquidity.

If the Fed does not undertake an open market operation on Tuesday, it will be the first working day in three months it has not done so.

The Federal Reserve refrained from undertaking a money market operation at its usual operating time of 9:30 a.m. ET, a New York Federal Reserve spokesman confirmed."

In a word - yes... but only on the short term.

It also means that there is little demand for TOMO/repo loans. Yesterday for example, they offered almost $53 billion but only $2 billion was accepted/loaned... and it was only a one day loan offer.
Another way to look at it is that the Fed & Treasury are letting the markets alone.

[DemonD]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

My bankster just sent me an e-mail that it's $24 billion the Fed is tapping into and Canada is adding liquidity as well. Once created this liquidity needs to go somewhere, where's it going to flow? Stocks, Bonds or Real Estate.

Tet, still bullish? (not a snarky question, wondering your honest opinion).

[Jim Nickerson]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Tet, still bullish? (not a snarky question, wondering your honest opinion).

Well, I ain't Tet, but I will offer a comment. I bought a $175K of long ETF's Monday and vacated my -200% positions about 88K total Monday morning--so far GIGANTIC MISTAKE.

Nevertheless, whereas the markets (US Indices) were oversold last week they are in most ways moreso as of today's (Wed.) close, and based on Asia tonight I expect it will be blood in the stock exchanges tomorrow. I know it is late, but for anyone interested one might look on stockcharts.com at the indicators $NAA50R, $NAA200R, $SPXA200R, $SPXA50R, $NYA200R, and $NYA50R. These show how oversold the Nasdaq, SPX and NYA are and these indicators are getting on down there, not quite as badly as in July and October 2002, and remarkably the indices themselves are only off highs by -9.76%, -9.59% and ~-11% respectively. To me that is amazing. Also the McClellan summation indices are way down $NASI & $NYSI. The only problem is they can go even lower.

The big question in my mind is whether to sell on the opening in the morning--which if the market were to implode to the downside worsening as the day goes forth would be wise, or to ride this out for a bounce, then the question is will there be any bounce? Intraday or in the next few days. Whew!

Fortunately, I am not stuck with a lot of long positions in equities.

One bullish indicator I follow is the Equity Put/Call ratio CBOE, and for the last two days, it has ended at above 1.0, specifically 1.08 Tueday, and 1.05 Wednesday. When above 1.0 or even in the high .90's this has often been a good indicator of "fear" near what has been at least a temporary bottom. Perhaps it is grasping at a straw. And it can get even higher, the highest I have recorded is 1.33 just before the bottom in 08/04. I don't have data back to 2002.

Whew!!

[EJ]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Stocks Tumble After Fed Adds Liquidity
Wednesday August 15, 8:03 pm ET
By Madlen Read, AP Business Writer Dow Fails to Hold Above 13,000; Fed's Cash Injections Can't Pacify Credit Concerns NEW YORK (AP) -- Wall Street tumbled again Wednesday after the Federal Reserve added more cash to the banking system but failed to quash investors' jitters about problems in lending.

I sure hope everyone was listening when I sent out our newsletter warning July 25. I never do that, so I hope the message came across.

This is no run-of-the-mill, the Fed will fix everything correction. That's what the markets still think it is. In the newsletter I warned of an event that will make 1987 look benign.

As a friend, and I want you out of harm's way.

Those of you still heavily invested in the stock market, betting against the tulip, get our your diapers.

Eric

[DemonD]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

I'm out.

Not completely. I'm almost thinking this maybe one of those times where I sell and the markets spring back up.

But yeah divested my main taxable mutual fund holding today.

I am maintaining my Roth stock positions (one index fund and 2 large cap dividend paying stocks).

I rebalanced my 401k back in feb/march, and when the stock market went up through july, i was kind of kicking myself, but now I'm glad I locked in those gains.

Out of the other 7 individual stocks I hold, most have been holding up well in this correction and their fundamentals are still very strong, even to ride out a recession. Also the amount of money I have tied up in these individual equities is not so much that even a depression-type event would dent my holdings, now that I've gone to cash. There have been even a few stocks that have taken such a beating that I've considered buying some more, or starting a position in long-watched oil and mining companies (although I'm going to wait... I explain why 3 paragraphs down).

My total unrealized loss is going to end up being about 500 bucks on the fund I'm selling today; fortunately my realized gain will end up being about 13% (not bad for one year holding).

One thing I've been reading, here on other places, is that the yen-carry unwind is taking the value of the dollar up versus all currencies (except the yen). This is something I was not aware of. And since the consensus seems to be that the carry unwind is just getting started, it seems like equities have further to go to the bottom as the yen and dollar strengthen against the world's currencies.

Also, as a fundamental investor, I believe the market has more to go on the downside. I firmly believe earnings and news from 3Q results are going to have a negative effect on the stock market, as the 3Q is the first quarter we are going to see effects of credit contraction.

One (semi OT) note: I was thinking how the government could encourage a reversal of all this borrowing and kapooming. And I doubt it would happen, but if they made interest income like dividend income (taxable 10-15%) and made up for it by ending mortgage interest tax deduction, this would be a great incentive for americans to stop borrowing and start saving.

My one final question is that there seems to be a lot of bullish sentiment still from the money managers I hear interviewed on LA business radio. So that would mean this market downturn is a real, fundamental one, not a psychological effect. There was an article today on Bill Miller (legg mason value trust fund, noted for beating the S&P 500 15 years in a row in a streak that ended last year), and how he's a net buyer. I personally don't believe in Miller's infallability (buying homebuilders whaa?), but he is a respected fund manager for a very large mutual fund. What will happen when managers turn bearish?

And as I conclude, at the start of this post the dow was down 100. As I'm finishing, the DJIA has turned positive. Thank you Fed or GS or Chinese automatic computers or quant funds whoever turned green switch on so I could get out with most of my investment slightly higher. And I've decided to wait until 1:20 to submit reply and... well the dow finished down, but my mutual fund ended in the green.

[Spartacus]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

the earliest commentary turned out to be wrong, apparently - the FED has not taken in questionable paper, only "the highest quality(??) " paper,

and not really that large an amount.

My first reaction was the US FED was aiding and abetting those who did not want CDOs to be exposed to the free market - the FED wanted to avoid mark to market, just like the auctions that were called off halfway through.

But I was wrong - the US FED is not doing that themselves, it seems. Not directly.

My feeling is that the money is being pushed out there - the FED can't control where it goes. the bonars are in the hands now of people who CAN buy the cr*ppiest paper.

Can someone explain to me what this infusion of cash indicates? Has credit contracted so much that they needed to inject some cash into the system to help the banks meet redemptions? Is this because they see some impending deflation and want to fight it before anything happens? Are they simply trying to help prop up their respective stock markets? What do you all think the significance of this event is?

[DemonD]

Re: ECB Offers Unlimited Cash as Bank Lending Costs Soar

Also, as a fundamental investor, I believe the market has more to go on the downside. I firmly believe earnings and news from 3Q results are going to have a negative effect on the stock market, as the 3Q is the first quarter we are going to see effects of credit contraction.

Looking like a pretty good prediction, at least for today. Not that it wasn't repeated or called by other people in other places. Just feel like patting myself on the back a little bit today.