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Monday, October 27, 2008

Global markets listen to more chin music

Items of Interest:

Lest you’re feeling financially inadequate, know you’re not alone... [countries around the world] are listening to similarly sullen chin music. — Todd Harrison, Minyanville
Todd Harrison / Minyanville:
Monday Morning Quarterback: The Great Wonder of the World -- Lest you’re feeling financially inadequate, know you’re not alone. This year alone, Brazil is down 51%, China is off 67%, India is 58% lower and Canada (-32%), France (-46%), Germany (-49%), Hong Kong (-60%), Italy (-48%), Japan (-53%), South Korea (-50%), Singapore (-54%), Switzerland (-36%) and the U.K. (-42%) are listening to similarly sullen chin music.

Heck, Argentina lost 26% this month (-58% for the year) and Russia (-76%) was forced to close their exchange with hopes of stemming the supply.

And that’s just the equity side of the equation. The largest contagion of our lives has now cast an eye toward the currency markets. The Yen is at 13-year high against the dollar (+12% for the month), the Mexican Peso is at a record low, the Brazil real lost a third of its value since August, the South Korea Won is at a ten-year low against the dollar and according to some reports Europe is on the brink of currency crisis meltdown...
Global Stocks Decline on Economy Concerns; Treasuries Rally -- Stocks tumbled, extending the MSCI World Index's biggest monthly drop on record, as concern grew that government efforts to stabilize financial markets won't avert a global recession. Treasuries rose as investors sought the safety of government bonds.

U.S. shares slid, deepening the market's worst monthly slump in 70 years. Europe's Dow Jones Stoxx 600 Index declined 3 percent as German business confidence decreased more than forecast this month. Hong Kong's Hang Seng Index sank as much as 15 percent, the most since the 1989 Tiananmen Square crackdown, after money-market rates rose.
[Persian] Gulf Bank Customers Rush for Deposits After Currency Losses -- Customers rushed to withdraw money from Gulf Bank KSC, Kuwait's second-biggest bank, after clients defaulted on currency contracts and the central bank was forced to guarantee deposits...
IMF and Ukraine agree to $16.5 billion loan -- The International Monetary Fund and Ukraine said on Sunday they had reached an agreement in principle for a $16.5 billion loan package to ease the effects of the global financial crisis.

But analysts said politicians would have to set aside differences to adopt a set of financial measures needed to clinch the deal and secure the loan. The former Soviet republic is in the throes of the latest bout of political turmoil that has gripped it since the 2004 "Orange Revolution."

With Ukraine facing its third parliamentary election in as many years, the hryvnia currency has slumped to a record low. Analysts are concerned over the ability of the government, firms and banks to refinance with global lending at a standstill...
South Korea Cuts Rate by Record as Markets Slump, Economy Flags -- South Korea slashed interest rates by a record amount and pledged extra tax cuts and spending to tackle the nation's biggest crisis since it needed an International Monetary Fund bailout 10 years ago.

The Bank of Korea cut the benchmark rate by 75 basis points to 4.25 percent at an emergency board meeting in Seoul today, the second reduction in less than three weeks. Vice Minister Kim Dong Soo said the government will increase spending to bolster an economy that last quarter grew at the weakest pace since 2004...
U.S. New-Home Sales Unexpectedly Rise as Prices Drop -- Sales of new houses in the U.S. unexpectedly rose in September from a 17-year low, propelled by a drop in prices ahead of the latest turmoil in financial markets.

Purchases increased 2.7 percent to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington. The median sales price decreased to a four-year low.

The drumbeat of builder bankruptcies since the middle of last year and frozen credit markets signal a collapse in mortgage lending that may extend the housing recession into a fourth year...
FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt -- As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street's drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.

Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don't have to pay for increased interest payments and penalties.

No Bailouts

These come in municipal bond and derivative deals that have turned poisonous. Unlike JPMorgan, which has benefited from federal bailouts, the towns and schools the bank has financed have received no help from Washington...
Banks Beware: Here Come the Lawsuits -- Bank of America to pay $8 billion; JPMorgan, Wells Fargo may be next...
"Side Bets" Blow Up

60 Minutes / CBS News:
The Bet That Blew Up Wall Street -- Steve Kroft On Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis

As Steve Kroft reports, essentially they are side bets on the performance of the U.S. mortgage markets and the solvency on some of the biggest financial institutions in the world. It's a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages.

It would have been illegal during most of the 20th century, but eight years ago Congress gave Wall Street an exemption and it has turned out to be a very bad idea...
CBS News:
A Look At Wall Street's Shadow Market -- 60 Minutes: How Some Arcane Wall Street Financial Instruments Magnified Economic Crisis

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