Investment Bank Risk Outlook at Worst Levels Since Bear Stearns Crisis

The talking heads may speak to a bottom in financials for the equity trading crowd, aka the patsies at the table, but the pros are betting that the outlook is quite gloomy.

Counterparty credit index weakest in three months
Tue Jun 24, 2008
12:42pm EDT

NEW YORK, June 24 (Reuters) - Concern about the counterparty risk of major investment banks jumped to the highest level in almost three months on Tuesday, as worries about the impact of bond insurer downgrades weighed on the market.

The CDR Counterparty Risk Index, which measures the average credit spread of the 15 largest credit derivative dealers, widened 6 basis points on Tuesday to 131.57 basis points, its weakest level since April 1, and 24 basis points wider on the week, according to Credit Derivatives Research, which manages the index.

Lehman Brothers was the weakest performer on the day, with its credit default swaps widening 13 basis points on Tuesday, according to CDR. Merrill Lynch's credit default swaps widened 12 basis points and ABN Amro widened 10 basis points, CDR said.

All banks included in the index were weaker on Tuesday, said Dave Klein, manager of indexes at CDR.

The counterparties included in the index are ABN Amro Bank, Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz), Barclays Bank Plc (BARC.L: Quote, Profile, Research, Stock Buzz), Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), Credit Suisse Group (CSGN.VX: Quote, Profile, Research, Stock Buzz), Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz), Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), HSBC Bank Plc (HSBA.L: Quote, Profile, Research, Stock Buzz), Lehman, JPMorgan, Merrill Lynch, UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) and Wachovia Corp. (WB.N: Quote, Profile, Research, Stock Buzz)

Reporting by Karen Brettell; Editing by Leslie Adler

Home Sales Confirm that the US Is Now in Recession

There should be no doubt that we are in a recession. Here is more confirmation. There is some room for questioning whether it started in the first quarter of 2008 or earlier. The government's distortion of inflation information makes precise determination difficult because it tends to insufficiently deflate GDP numbers.

The question now is the depth and duration. Wall Street and the Feds will deny we are in recession until they think we are well into it and then start calling bottom.

We believe strongly that the worst of this downturn is yet to come, although we might see some relief if oil prices sell off sharply. We don't see what will cause that however. 'Hope' is not a trading plan.

A Rising Wedge on the SP Hourly Chart Ahead of the FOMC Announcement

The last time we posted one of these we were shorting repeatedly at resistance and got a nice ride down. This time we are not because of the imminent Fed announcement. We *might* change that stance if we break sharply higher ahead of 2:15, depending on a number of other things including how far and how fast. SP Futures Hourly Chart - 17 June

We are just scalping ahead of the FOMC in the index options, but added quite a bit to our short oil/long gold cross trade. We might alter the proportions on the announcement.

We will wait to place more durable equity positions until we see something decisive. With the exogenous event of the Fed announcement ahead this *could* be a V-bottom.

Keep an eye on the dollar, and especially the cross trades with the yen and swiss franc, and the euro as always.

Here is the chart on DUG which is the oil/gas ultrashort ETF.

Children of the Corn

There has been a sharp increase in the price of corn.



Here is one source of demand

"The scientific problem with corn ethanol is that it contains one-third less energy than gasoline. So a motorist has to purchase one-third more fuel to go the same distance. If you total up all of the fossil fuel that goes into making and transporting ethanol -- nitrogen-based fertilizer and herbicides, fuel to run farm machinery and delivery trucks, natural gas for the distilling process at ethanol plants -- it takes more energy to produce ethanol than the fuel provides."

What is the point of ethanol? Doesn't make sense?
Follow the money to Big Agriculture, a few powerful corporations with armies of lobbyists.

Here is another source of new demand.

Corn is widely used as feed for livestock. It adds to the costs.



The effect is being felt in other grains and basic feed products





The cost of oil feeds heavily into the production of many crops and products.



But the government says there is no increase in the price of food. It might be the 'substitution factor' they use.
You know, when beef is expensive you switch to pork, when pork is expensive you switch to chicken...



Bon Appétit



Truth be told, higher commodity prices are just a symptom of the relentless
debasement of the US dollar by the Federal Reserve over the last fifty years.
Now we are debasing it further to bail out Wall Street banks who gambled and lost.
Free markets? Don't make us laugh.



Again and again, we take from the weak and defenseless, from our future,
to feed the insatiable greed of ruthless and selfish men.



The privileged few and vested interests thank you for your support.



Future generations may not.



Think.