Safe Havens

We are seeing a significant unwinding of positions for the sake of liquidity, a selective liquidity crisis.

Certainly there is an ample supply of liquidity available to a select few market players who can access it via the Fed's special facilities.

But for those who need that liquidity to work out solvency problems there is apparently a pound of flesh to pay for it in the sale of assets at distressed prices, or so we have heard.

And the hedge funds are being slowly strangled.

This is the flaw in the Fed and Treasury scheme to support the overall economy, as has been learned over and over in the Third World. They are giving their relief supplies to warlords and mercenaries to distribute to the rest of the country.

Perhaps that image is overdone. We'd have to ask those who are sitting across the table from Goldman Sachs.

Better to be independent we think, than to rely on the rational judgement of these sharks. But what price independence? And where is safety?


From today's Daily Pfennig, Chris Gaffney at Everbank:

I just don't get those that say the dollar will be a "safe haven" during this time, how can the country that is causing the Tsunami, have a "safe haven currency"? I would think the currencies of Japan, Singapore, Switzerland, and China would be the safe havens... With the euro experiencing perceived problems, investors are a little skittish toward the euro... But, remember this, the euro is the offset of the dollar...

Gold started to move back off its recent lows, but the move to hard assets wasn't as dramatic as I thought it would be. After all, if investors are looking for a 'safe haven', how much safer can you get than gold? One argument which I have heard against gold is that you can't get paid any interest on your gold holdings, but if you are willing to earn a negative real yield on US treasuries, an investment in gold actually becomes even more attractive. Logically, events like those that occurred this weekend should set off a buying frenzy in the metals markets...

So precious metal prices are down, just when you would expect them to be rising. And judging from the calls to the desk, supplies of minted coins for both Gold or Silver are getting harder to find. Our metal dealers tell us that the mints just haven't been able to keep up with demand for gold and silver coins, but prices for these commodities continue to slide. Just doesn't make any sense to me... Investors should have a portion of their investments in gold or silver, as a hedge against inflation, and against a possible meltdown of the current financial system.

AIG Cut Two Levels by Rating Agencies Precipitating Fresh Concerns

Duck and cover. Watch out for curveballs tomorrow.

We're seeing a lot of forced selling for liquidity. At some point it will abate, and we could see a spectacular turn in the markets. Whether it will stick is another matter altogether.

Stay frosty.

Rating agencies downgrade AIG, more cuts possible
Sep 15, 2008 10:29pm EDT
Reuters

HONG KONG, Sept 16 - The rating on embattled insurance giant American International Group Inc. was slashed by at least two notches by the three top global rating agencies, who also warned more downgrades could follow.

The triple strike jolted the insurer even as it is struggling to find funding sources at a time of global financial tumult which has brought two of the biggest Wall Street investment banks to their knees.

Moody's Investors Service cut AIG's rating to A2 from Aa3, a two-notch downgrade. Standard & Poor's Ratings Services lowered the rating to A-minus from AA-minus, a three-peg reduction and Fitch Ratings reduced its standing to A from AA-minus, a two notch cut.

AIG's ratings are still investment grade, although all three agencies said more downgrades could follow.

The announcements were made during Asia time on Tuesday, hours after New York state officials pieced together a $20 billion lifeline which would give the company temporary respite.

AIG's troubles, much like those of some of its Wall Street peers, stem from guarantees it wrote on mortgage-linked derivatives that have left it with a total of $18 billion in losses over the past three quarters.

In recent days, AIG has explored a wide range of options to shore up capital and avoid rating cuts.

JPMorgan and Goldman Sachs are exploring putting together a syndicated $70 billion to $75 billion credit facility for AIG, among other options.

This additional funding is critical for the insurer's survival in the longer term.

Another Soiree at Tim's Crib - NY Fed Hosts Session on AIG

Fed holds fresh AIG crisis talks
By Francesco Guerrera in London, Aline van Duyn
and Julie Macintosh in New York, and Krishna Guha in Washington
September 15 2008 21:54

The New York Fed is hosting a fresh set of crisis talks to deal with the problems at AIG, the troubled insurer. JPMorgan Chase, representing AIG, and Goldman Sachs, representing potential principal investors, are in the building working to come up with some kind of funding facility for AIG.

The Fed has convened the parties and is facilitating their discussions. But it has not asked JPMorgan and Goldman to provide $70bn in funding for the company, and at this stage has not discussed itself lending indirectly to AIG via back-to-back transactions intermediated by the investment banks, one possible way of channeling liquidity to AIG.

US authorities earlier on Monday threw a $20bn lifeline to AIG, one of the world’s largest insurers, just hours after the collapse of Lehman Brothers, and Bank of America’s $50bn rescue takeover of Merrill Lynch. (US Authorities = State of NY and they just altered the regulations to allow AIG to throw itself $20bn - Jesse)

The deal between AIG and New York State insurance regulators allows the company to access $20bn of capital from its own subsidiaries in a desperate attempt to stave off a liquidity crisis and credit downgrades.

The move came as fears over AIG’s financial health sent its shares into a tail-spin on Monday. The stock fell as much as 70 per cent in morning trading in New York to an intra-day low of $3.50. By the close of trading it was 56 per cent lower at $5.15.

The move announced by the New York governor, David Paterson, is designed to give AIG, whose balance sheet has been savaged by billions of dollars in writedowns and credit losses, some time to clinch a deal to raise capital through a share sale and asset disposals.

AIG and its advisers spent the weekend hammering out plans to raise up to $40bn in capital, which the insurer needs to shore up its balance sheet and prevent crippling ratings downgrades... (and what happened?... Jesse)

The US central bank is putting intense pressure on weak financial institutions to strengthen their financial positions, if necessary by accepting a takeover.

It emerged on Monday that Fed and Treasury officials encouraged Merrill’s tie-up with BofA, telling John Thain, its chief executive, on Friday that his bank would be next to come under attack once Lehman failed and it had to find a solution quickly. (Did anyone not who was following the action NOT figure this one out? - Jesse)

Mr Thain, who had been party to an intense round of discussions with the Fed over the fate of Lehman, said: “Over the course of those discussions it became clear that it would make sense to explore options for us.” (Maybe it was when Hank Paulson did his Sam Kinison imitation for John that he got the message. Hey John. You know why you are going to do this deal with BofA? Because if you don't you're FUUUUUUUUUUUUUUUUUUUUUCCCCCCCCCCKKKKEEEEEDDDDDDDDDDD!!!- Jesse)

At Lehman’s European headquarters in London, Tony Lomas, PWC’s partner leading the administration, said: “It seems amazing that a business as huge as this can fail in this way.” (Tony has subsequently been seconded to the Britsh Tourist Authority as Director of Australian services, Earl's Court Exhibition Center. - Jesse)

Charts in the Babson Style for 15 September 2008

Some signficant carnage for the bulls, but not over the brink just yet.

Goldman reports tomorrow morning, and we also get the CPI which looks like a low and outside number.

Ben and his Merry Prankster at the Fed might be trimming interest rates a bit to help the banks.

VIX did a moon shot today so we are in 'dead cat bounce' territory. It can go higher.