You all know my biases about financial news-reporting: much of what you read and hear is either old news that is no longer actionable, or it mistakes cause for effect, or it’s just totally wrong, or all of the above.
The most fundamental market in the world, on top of which everything else rides, is the overnight repo market. The mainstream business press rarely reports anything about it. Maybe because it’s not glamorous like the stock market, or something.
But repo is the canary in the coal mine. It reliably predicted major short-term disruptions last summer, late last fall, and during the Bear Stearns flap.
And repo is getting ragged, weird, and illiquid again. Corporate bond issuance has become very slow. Central-bank demand for short-term agency paper is also unusually low.
Part of this is probably the late summer doldrums, with the B-players manning the trading desks while the A-players are on the beach. But the money markets have been so prescient during this whole crisis that I thought you all should be keeping a weather eye out for some kind of financial disruption in the next few weeks.
There’s plenty of talk that the disruption will involve Fannie Mae and Freddie Mac. Again. There are a lot of other rumors, but it’s still too early to talk about them in public.
-Francis Cianfrocca
Dan McLaughlin
Moe Lane
Neil Stevens
Steve Maley
I have been waiting for the other shoe
hunter (Diary) Tuesday, August 19th at 4:12PM EST (link)Since last August.
Disruption is in the air.
Who was that lefty twit who cliamed that history was over when the cold war was ended?
The question in my mind is whether it is time to move from moneymarkets to gold?
hunter
Gold, that's dropped 20% lately? (nt)
Neil Stevens (Diary) Tuesday, August 19th at 4:30PM EST (link)RS contributing editor, technical administrator, and “a hardy variety of crabgrass.”
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“I rejoice that America has resisted.” – William Pitt, the Elder
Viva the Revolution....RonPaul,RonPaul, RonPaul.....;^)...n/t
Attack Mode (Diary) Tuesday, August 19th at 4:33PM EST (link)n/t
“Land of the Free and Home of da Whopper” Peter Griffin…Family Guy
conform and celebrate diversity….or else!!!
Steel-Belted Radial Right Winger
“I’ll create 5 million jobs from out of unicorn farts and pixie dust” Justatron paraphrasing Obamessiah…yes I love it that much.
I've long been telling my Ron Paul friends...
birdmojo (Diary) Tuesday, August 19th at 4:39PM EST (link)If society goes to hell, you’d be far better off having invested in bullets, whiskey, and beef jerky than something as silly as soft metal.
Man is free at the moment he wishes to be. –Voltaire
The Dollar is still the best money in the world
Francis Cianfrocca (Diary) Tuesday, August 19th at 4:42PM EST (link)That’s why all the foreign central banks are so anxious to hold so much of it.
If a firm funds its day-to-day operations thru repo, it's
streetwise (Diary) Tuesday, August 19th at 5:05PM EST (link)a sitting duck.
I read an article recently (about Bear, I think) that highlighted this.
True, it’s cheap funding, but can vaporize when the ** hits the fan.
Er.
dt (Diary) Tuesday, August 19th at 5:16PM EST (link)If I’m missing your irony, I apologize, but I think you may be referring to Francis Fukuyama. If so, and if you weren’t joking, you should know that he is no “lefty twit.”
What a lot of people have been funding with overnight money...
Francis Cianfrocca (Diary) Tuesday, August 19th at 5:59PM EST (link)…is leveraged purchases of risk-bearing debt, in hopes of getting higher yields.
You’ve also heard a lot about the “structured investment vehicles.” These essentially were funds that borrowed short-term by issuing commercial paper (some of which was purchased by money-market funds), and then used the proceeds to buy mortgage-backed and other kinds of collateralized paper.
If you’re thinking that’s what banks have always done for a living (borrow short and lend long), you’re absolutely right. But the difference is that the SIVs were constructed so as not to appear on the sponsoring banks’ balance sheets. That’ll never happen again.
It’s strictly a beta-capture game intended to capitalize on the long period of historically low risk premia that abruptly ended early in 2007. The financial world still hasn’t figured out what to do next, which is why the credit crisis continues.
Nothing wrong with borrowing short & lending long, IF
streetwise (Diary) Tuesday, August 19th at 8:52PM EST (link)the lending is composed of a sound, prudently diversified portfolio of good credits, not a go-go, flavor-of-the-month collection of structures that no one understands issued by ephemeral LLC’s and partnerships and whatnot that no one has ever heard of.
But don’t get me started!
That aside...
mikefisk (Diary) Wednesday, August 20th at 8:55AM EST (link)…whisky isn’t too bad of an investment even in good times, let alone catastrophe.
“Once within the maw of Leviathan, degree of digestion is irrelevant.” – Michael Fisk
9.25, -4.77
Good credits vs ...
skorrent Wednesday, August 20th at 9:31AM EST (link)“structures that no one understands issued by ephemeral LLC’s and partnerships and whatnot that no one has ever heard of.” Are you trying to badmouth Algore’s Cap-and-Trade creations?
Won't be a surprise
olderthangandalf Wednesday, August 20th at 9:49AM EST (link)It’s more than just the Ted spread. Everyone is watching Freddie and Fannie to see if they get bailed out, and the equity holders reamed. A former IMF muckety-muck has predicted the fall of a major Wall Street bank (as in Lehman, or even Citi) within a few months. It’s a given that many not-too-big-to-fail regional banks are going to go under, straining the FDIC’s fund. You have the Nouriel Roubini types claiming that there is no equity left in the banking sector once the accrued losses are marked to market. If you look at the Case-Schiller data, it seems like there’s a very good chance that housing prices are not done falling.
Something bad is going to happen. Odds on, several bad things are going to happen. All the same, I feel more confident than I did last spring that the system will more or less survive without anything like a 1929 crash or a depression. The recession will be longer and tougher than many now expect, but as of today it doesn’t feel like it will be game changing the way the 30s were.
That’s assuming, of course, that the Democrats and the Fed don’t impose “cures” that make the whole thing much worse than it needs to be.
You're thinking of Francis Fukuyama
Joshua Persons (Diary) Wednesday, August 20th at 9:56AM EST (link)And his book The End of History and the Last Man . He wasn’t actually claiming that there would be no future events, although it’s probably his own fault that people think he did, what with the name of the book and all.
Formerly jpers36
NARF
Alas, Goreacle LLC escapes the definition
streetwise (Diary) Wednesday, August 20th at 10:30AM EST (link)because we have heard of him all too often.
Given the sound financial basis of any enterprise that appeals to human gullibility, I fear that Goreacle securities are good investments!
Given that tonight Fox News is flogging
The_Gadfly (Diary) Wednesday, August 20th at 7:10PM EST (link)the possibility that the Fed may be bailing out the FMs and that investors may drive stock prices to zero, maybe it’s it time to air some those rumors in public, even if for the purpose of dispelling them.
Granted Sheppard is mostly a good looking airhead who reads the news, but I figured that meant something was up so I came here looking for the straight scoop from you.