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Irish trader in the US
Quick note to potential readers. I meant to post this a couple of days ago, but had technical difficulties.
It's apparantly a trader's account of his day last Friday and this Monday gone.
On a side note, Tuesday in the Irish stock market took a massive rebound (up from a massive downturn) seemingly because of Brian Cowen's full bank guarantee. I bet it won't last though. Irish stock market seems very volatile at the moment.
For those too lazy to trawl through the forum he posted on, I've got the three posts he made below (all his own words): http://www.thepropertypin.com/viewto...p?f=19&t=13791
Friday
In NY right now the brown stuff is really hitting the wall.
There are no t-bills or agencies available, none.
The overnight market is bananas....if this goes on much longer then there will be major major trouble.
At the moment, the sept t-bill, maturing in 3 days is trading above par, ABOVE PAR!!!....
I.E you have to pay money to lend overnight if you even have the cash which isn't there, everyone is hoarding everything and terrified...this has never happended before
Libor is 186 basis points above the fed and the municipal tax free rate is a whopping, enormous 7.96%
This rate is normally 70% of 3 month libor, so it should be about 3.50%
This is the rate the municipalities are paying in auction rate bonds, i.e. no one is buying.
The futures market is totally dislocated. Market makers are pricing it to close out the market as they don't want the business...the TED spread is over 300 bps, the highest level ever, the scariest thing the market has seen.
I'm not sure if this makes sense to many people over there as this stuff is a different market, but to put it simply the US is tethering on the edge of the abyss, if this doesn't calm down asap, there won't be much standing. Let’s see how the public service works when they don't get paid in the next few months as reserves dry up. Infrastructure can't be repaired or maintained....
you think that 1929 was bad, that was only equities and thier only a fraction of the fixed income market,
Weapons of mass destruction, now very very apt!!
Translation
Basically all this means is that no one is lending money to anyone, no one has money, the whole system is clogged,
Credit is the blood that keeps the economy ticking, it keeps everything moving.
All banks borrow money in the short term market and lend it then out for longer maturities, that’s banking 101.
They borrow money from insurance companies, other banks, pension funds, countries, money market funds, joe public, etc.
They then lend this money out for longer periods. Every bank operates this way, everyone!...
Right now no one is lending money, the banks have assets and so forth but they don't have short term liquidity, it just isn't there. So think of it like this,
Say I am in a situation where I am guaranteed 100 dollars in 1 month, if I pay 10 dollars now, its a no brainer, you borrow the cash and make the investment, wait a month and collect the 100 dollars, making risk free money.
At the moment, right now, people are being offered this but are saying no, they would rather have the cash on hand than lend it, risk free.
So where are they putting their money, into risk free assets, such as treasury bonds (long term government debt) and also into treasury bill (aka t-bills -- short term government debt). These are considered risk free (of course there is always risk but this is the closet thing in reality to it and then some will argue that the USA is risky due to its debt -- that’s another story)
Everyone is buying these bonds and bills; no one is taking any risk what so ever. They may lend overnight but that is about it. Would you lend to a bank and find out 3 days later it’s bankrupt and lose your money or even have it tied up temporarily until you get it back - no. That's what's happening. The demand for these instruments is so great; that people are actually paying money to lend to the government by buying these instruments...it makes no sense.
Another analogy -- I have 100 dollars and I want you to take it and use it for a month and then pay me back. Normally you would pay me interest. Now, the situation is that I am paying you to take my money to mind it for me as I don't trust anyone else to mind it. This is the situation above....no body trusts nobody.
The TED spread measures the fear in the market. Usually, well, over the last few years this was about 10-20, basically not much fear. Now it is over 300. That’s an enormous increase. It has never been as high as this. 1951 was the last time it got close!!.
Now we have to also consider the government intervention.
How does a central bank add and take "money" into the system. You have heard the term "open market operations". Basically the central banks do this by buying and selling their own t-bills and treasury bonds.
Add money -- buy all the debt back in exchange for cash
Take out money -- sell debt in exchange for cash
So every investor is buying these instruments as well as the government so there is a squeeze as supply remains constant but demand shoots up. Add into the mix that we are approaching quarter end, no one is taking any risk and hoarding their cash in the form of securities as they won't leave it anywhere else.
If you want to buy these bonds now, you can't. They are just not available. This hasn't happened in living memory.
The FED is giving money to the system through these TAF auctions as are the ECB and BOE et al. These auctions are increasing. They are also taking more junk from the banks as collateral as well as extending the period of time that they will lend for. Why, because they know the gravity of the situation.
Also, and here is an interesting fact.
Last week there was aprox 10 billion pledged at the FED discount window. This was collateral in the form of bonds that was pledged there by banks as a safety measure. The fed is the lender of last resort. They will lend you money in exchange for acceptable collateral at very punitive terms and conditions.
This week there is over 40 billion.
What does this mean, banks are scared shitless....I repeat shitless....
So, banks don't have the money....if something isn't done or people don't calm down very very soon, we will have a credit meltdown. Banks will seize up and the economy will grind to a halt. Flows of money will stall. Simple as.
Most banks are surviving on a day to day basis. Maybe week to week. At this moment, there are very few banks confident in their ability to survive under these conditions for over 3 months. I would not put my money near any financial stock for quite a while. Yes you may day trade and make something, but I would strongly oppose anyone with any sense doing this.
Hopefully it will all calm down soon, if not, well......lets not worry too much; it is Friday after all...
Monday
Update on things:
Today has been the worst day in living memory of everyone here.
I repeat, nothing comes close to this.
We have had one day crashes but nothing of this magnitude.
As one senior person has put it,
"the dominios are in line, the first few have been tipped, now all we can do is wait..."
There is no cash out there. NONE....
The banks are very worried, the central banks even more so, the regulators are terrified and the government is like a rabiit in the headlights.
The irish market is the worst preforming market today in the western world. We are truly pariahs. No one will touch us.
I would like to see what spreads the government would get right now on the debt it needs to issue..The euro won't help much.
The FED along with every where else has opened the floodgates, if this doesn't ease up soon, it will get very dark indeed. Even if it does, we are never returning to the glory days.
Cash is king, only the foolish will enter the market now. Yes, you can make a fortune, but you could lose everything. Sensibility dictates that you stand on the sidelines. VaR numbers are sky-rocketing. The libor and futures market is so dislocated that doing anything could, and probably will, make things worse.
And tommorrow will open terribly.
It's apparantly a trader's account of his day last Friday and this Monday gone.
On a side note, Tuesday in the Irish stock market took a massive rebound (up from a massive downturn) seemingly because of Brian Cowen's full bank guarantee. I bet it won't last though. Irish stock market seems very volatile at the moment.
For those too lazy to trawl through the forum he posted on, I've got the three posts he made below (all his own words): http://www.thepropertypin.com/viewto...p?f=19&t=13791
Friday
In NY right now the brown stuff is really hitting the wall.
There are no t-bills or agencies available, none.
The overnight market is bananas....if this goes on much longer then there will be major major trouble.
At the moment, the sept t-bill, maturing in 3 days is trading above par, ABOVE PAR!!!....
I.E you have to pay money to lend overnight if you even have the cash which isn't there, everyone is hoarding everything and terrified...this has never happended before
Libor is 186 basis points above the fed and the municipal tax free rate is a whopping, enormous 7.96%
This rate is normally 70% of 3 month libor, so it should be about 3.50%
This is the rate the municipalities are paying in auction rate bonds, i.e. no one is buying.
The futures market is totally dislocated. Market makers are pricing it to close out the market as they don't want the business...the TED spread is over 300 bps, the highest level ever, the scariest thing the market has seen.
I'm not sure if this makes sense to many people over there as this stuff is a different market, but to put it simply the US is tethering on the edge of the abyss, if this doesn't calm down asap, there won't be much standing. Let’s see how the public service works when they don't get paid in the next few months as reserves dry up. Infrastructure can't be repaired or maintained....
you think that 1929 was bad, that was only equities and thier only a fraction of the fixed income market,
Weapons of mass destruction, now very very apt!!
Translation
Basically all this means is that no one is lending money to anyone, no one has money, the whole system is clogged,
Credit is the blood that keeps the economy ticking, it keeps everything moving.
All banks borrow money in the short term market and lend it then out for longer maturities, that’s banking 101.
They borrow money from insurance companies, other banks, pension funds, countries, money market funds, joe public, etc.
They then lend this money out for longer periods. Every bank operates this way, everyone!...
Right now no one is lending money, the banks have assets and so forth but they don't have short term liquidity, it just isn't there. So think of it like this,
Say I am in a situation where I am guaranteed 100 dollars in 1 month, if I pay 10 dollars now, its a no brainer, you borrow the cash and make the investment, wait a month and collect the 100 dollars, making risk free money.
At the moment, right now, people are being offered this but are saying no, they would rather have the cash on hand than lend it, risk free.
So where are they putting their money, into risk free assets, such as treasury bonds (long term government debt) and also into treasury bill (aka t-bills -- short term government debt). These are considered risk free (of course there is always risk but this is the closet thing in reality to it and then some will argue that the USA is risky due to its debt -- that’s another story)
Everyone is buying these bonds and bills; no one is taking any risk what so ever. They may lend overnight but that is about it. Would you lend to a bank and find out 3 days later it’s bankrupt and lose your money or even have it tied up temporarily until you get it back - no. That's what's happening. The demand for these instruments is so great; that people are actually paying money to lend to the government by buying these instruments...it makes no sense.
Another analogy -- I have 100 dollars and I want you to take it and use it for a month and then pay me back. Normally you would pay me interest. Now, the situation is that I am paying you to take my money to mind it for me as I don't trust anyone else to mind it. This is the situation above....no body trusts nobody.
The TED spread measures the fear in the market. Usually, well, over the last few years this was about 10-20, basically not much fear. Now it is over 300. That’s an enormous increase. It has never been as high as this. 1951 was the last time it got close!!.
Now we have to also consider the government intervention.
How does a central bank add and take "money" into the system. You have heard the term "open market operations". Basically the central banks do this by buying and selling their own t-bills and treasury bonds.
Add money -- buy all the debt back in exchange for cash
Take out money -- sell debt in exchange for cash
So every investor is buying these instruments as well as the government so there is a squeeze as supply remains constant but demand shoots up. Add into the mix that we are approaching quarter end, no one is taking any risk and hoarding their cash in the form of securities as they won't leave it anywhere else.
If you want to buy these bonds now, you can't. They are just not available. This hasn't happened in living memory.
The FED is giving money to the system through these TAF auctions as are the ECB and BOE et al. These auctions are increasing. They are also taking more junk from the banks as collateral as well as extending the period of time that they will lend for. Why, because they know the gravity of the situation.
Also, and here is an interesting fact.
Last week there was aprox 10 billion pledged at the FED discount window. This was collateral in the form of bonds that was pledged there by banks as a safety measure. The fed is the lender of last resort. They will lend you money in exchange for acceptable collateral at very punitive terms and conditions.
This week there is over 40 billion.
What does this mean, banks are scared shitless....I repeat shitless....
So, banks don't have the money....if something isn't done or people don't calm down very very soon, we will have a credit meltdown. Banks will seize up and the economy will grind to a halt. Flows of money will stall. Simple as.
Most banks are surviving on a day to day basis. Maybe week to week. At this moment, there are very few banks confident in their ability to survive under these conditions for over 3 months. I would not put my money near any financial stock for quite a while. Yes you may day trade and make something, but I would strongly oppose anyone with any sense doing this.
Hopefully it will all calm down soon, if not, well......lets not worry too much; it is Friday after all...
Monday
Update on things:
Today has been the worst day in living memory of everyone here.
I repeat, nothing comes close to this.
We have had one day crashes but nothing of this magnitude.
As one senior person has put it,
"the dominios are in line, the first few have been tipped, now all we can do is wait..."
There is no cash out there. NONE....
The banks are very worried, the central banks even more so, the regulators are terrified and the government is like a rabiit in the headlights.
The irish market is the worst preforming market today in the western world. We are truly pariahs. No one will touch us.
I would like to see what spreads the government would get right now on the debt it needs to issue..The euro won't help much.
The FED along with every where else has opened the floodgates, if this doesn't ease up soon, it will get very dark indeed. Even if it does, we are never returning to the glory days.
Cash is king, only the foolish will enter the market now. Yes, you can make a fortune, but you could lose everything. Sensibility dictates that you stand on the sidelines. VaR numbers are sky-rocketing. The libor and futures market is so dislocated that doing anything could, and probably will, make things worse.
And tommorrow will open terribly.
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