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Tuesday, September 16, 2008


It's not holding. Bovespa is too low for this to stop, AIG's impending failure is causing total terror, and overnight dollar lending rates shot sky high regardless of the liquidity injection. Other central banks are throwing money in the pot trying to stave off a coordinated plunge. US-traded firms will be filing with the SEC about Lehman-related losses, and that will be followed over the next few days by AIG-related losses.

If Bovespa can consolidate around 42,000 maybe this week will see the worst of it. This morning I doubt that's going to happen. Fifteen percent chance?

Banks and financials with money aren't going to want to lend to anyone exposed to the rolling losses, so I don't know that interbank lending can be restored to any sort of normalcy for a while.The battle is to preserve the real economy by maintaining money flows to non-financial firms. Lending to well-funded firms with decent balance sheets is actually more attractive than lending to the big players at this point. However debt-loaded firms are going to take a hit, and the fears over all that European corporate bond debt that's got to be refinanced over the next two years are growing like kudzu.

Oh, and Goldman? Three words. Level three assets.

Regarding oil, China's abrupt turn on diesel and gasoline imports in August explains a lot. China reports that internal supply shortages have eased with the price hikes. Dated Brent spot now at $87 and change and WTI Cushing spot at $91 and change. Heating oil futures at $2.70+ and gasoline futures below $2.50.

US CPI headline comes in -0.1 for August, but food is +0.6, etc. In other words, only the energy drop makes it look positive. All items ex food and energy is +0.2.

Goldman? Three words. Level three assets.

Ditto Morgan-Stanley and Citibank. J.P. Morgan isn't so great either, but they seem to be the Fed's fairhaired child right now (along with BoA).
Also of interest, the Russian stock exchange was closed by authorities after a 17% loss. Between the falling oil price, the political uncertainty brought on by the invasion of Georgia, and the financial uncertainty brought on by repeated Russian government seizure of foreign investments, the market got hammered. It will be interesting to see what Putin does when he figures out that he's just gotten a lot poorer ...
Bob - I think people are overestimating GS strength in comparison to most financials.

John - Oh, yeah, baby. The logical result of a series of actions just chomped Putin's butt. I have been following the Russian collapse with great interest.

In further darkly humorous news, Chavez did not get good response when he pleaded for money from the businessmen he had been working over for years, so he seized Banco Santander's Venezuelan ops in early August. Needless to say, Venezuela is not in a good position to raise capital - and they need it to reinvest in the oil ops. Now, with oil prices falling, they are facing a truly difficult future.
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