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Behind Schwarzman Spat With Wasserstein Lies Rule 115 (Update1)
By Ian Katz
Dec. 8 (Bloomberg) -- An argument between two Wall Street titans seated in director’s chairs at Per Se restaurant in New York in October has escalated into a fight over an obscure accounting rule known as Statement No. 115.
Five weeks ago the dispute was over so-called fair-value accounting, which requires companies to record assets every quarter to reflect market value. In one chair was Blackstone Group LP Chairman Stephen Schwarzman, who said the standard had aggravated the worst financial crisis since the Great Depression. In the other was Lazard Ltd. Chairman Bruce Wasserstein, who said the rule gives investors an honest look at corporate earnings.
Now banks, which have been unsuccessful in getting regulators to revamp fair-value, also known as mark-to-market, are trying to win revisions to another U.S. Financial Accounting Standards Board requirement that could preserve billions of dollars of their capital.
“Financial institutions, which have been woefully incompetent in running their own firms, are now trying to avoid providing investors with accurate numbers depicting the large losses they have suffered under their mismanagement,” said Lynn Turner, the Securities and Exchange Commission’s former chief accountant, in an interview.
The Financial Services Roundtable, whose members include New York-based Citigroup Inc. and Bank of America Corp. of Charlotte, North Carolina, are proposing using Statement No. 115, which applies to so-called impaired debt and equity, for some securities that now fall under the fair-value rule.
‘Downward Spiral’
In a Nov. 12 letter to the SEC, Robert Traficanti, Citigroup’s head of accounting policy, gave an example of mortgage-backed securities the bank owns and said the rule change would reduce a third-quarter charge to earnings to $19.2 million from $76.2 million. The proposed switch “is a much better reflection of the losses we expect to incur,” he wrote.
By using standard 115, banks could take into account cash generated from underlying assets such as mortgages and not rely on a market price dictated by the fair-value rule.
Moving to the impaired debt and equity standard would help “stop the downward spiral caused by the inability of ivory tower accounting rules to recognize the economic value of an asset,” Scott Talbott, the Washington-based roundtable’s chief lobbyist, said in an interview.
Michael Williams, research director for Gradient Analytics Inc. in Scottsdale, Arizona, says the change could allow banks to avoid raising capital to comply with federal regulations.
For banks, Williams said, “the biggest worry they have is regulatory capital.”
Fair-Value Review
SEC Deputy Chief Accountant James Kroeker said the agency has been urged to clarify the impairment rules. “We’ve heard from investors that there’s room for improvement,” Kroeker told reporters at a conference in New York last month.
Kroeker is leading a study on fair value that the SEC is required to conduct under terms of the $700 billion federal financial-rescue package enacted in October. The SEC must submit a written report to Congress by Jan. 2 that evaluates how the rule can be improved and whether it has caused banks to fail.
Preliminary findings from the study show that investors want the SEC to issue “guidance” to clarify fair-value, SEC Chairman Christopher Cox said in a speech in Washington today.
“Most investors and many others agree that fair-value is a meaningful and transparent measure of investment for financial- reporting purposes,” Cox said at an American Institute of Certified Public Accountants conference. “The work that we’ve already done suggests that the accounting standard-setters could improve upon” rules for impaired securities, he said.
Schwarzman’s Lament
The SEC, which can overrule FASB, has declined to overhaul the fair-value rule, known as Statement No. 157, releasing clarifications in September that didn’t satisfy industry groups. The global credit crunch transformed the rule, which took effect a year ago, into a mainstream economic topic.
“Historians will look back some day and say that the government drove companies into bankruptcy by creating artificial losses,” former House Speaker Newt Gingrich, 65, who led the 1994 Republican takeover of Congress, said in a Bloomberg interview in October.
Those arguing for change include some of the companies suffering the most since the subprime-mortgage crisis began last year, including Citigroup and American International Group Inc. Critics, who say the fair-value rule doesn’t work when there are no buyers for toxic assets, include the 61-year-old Schwarzman, whose New York-based Blackstone manages the world’s largest private-equity fund and whose shares have fallen 72 percent this year in New York Stock Exchange composite trading.
‘Major Contributor’
The rule “and the way it’s been implemented has been a major contributor to the financial crisis,” Schwarzman said at the Oct. 30 discussion hosted by Fortune magazine at Per Se.
Wasserstein, 60, who has a better track record this year with Lazard declining 37 percent in NYSE composite trading, took the opposite position.
“Accounting has now become an exercise in creative fiction,” he said. “Saying assets are worth a lot doesn’t make them worth a lot.”
Wasserstein and Schwarzman both declined to comment.
Democratic legislators are less eager to overhaul fair-value than Republicans. In a September letter, 65 House lawmakers urged SEC Chairman Cox to suspend the rule; only seven were Democrats.
Two of Obama’s closest economic advisers, former Treasury Secretary Lawrence Summers and former Federal Reserve Chairman Paul Volcker, have expressed support for fair-value accounting. So have Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson, who said on Nov. 20 that he knows of “no better accounting method,” even as he welcomed “steps to review and modify its implementation during severe market stress.”
Models Hindered
Private-equity executives, including Schwarzman, say mark- to-market accounting unfairly forces them to value holdings even if they have no intention of selling them at that time, hindering the business model of fixing up companies and disposing of them years later for a profit.
Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois, compared the idea of forcing banks to price their assets now to a homeowner in California having to sell his house at the moment a fire is at his doorstep.
“If the bank knocked on your door and forced you to mark to market at that moment, you’d be bankrupt,” Wesbury said.
Citigroup Senior Vice Chairman William Rhodes and Deutsche Bank AG Chief Executive Officer Josef Ackermann are also fair- value critics. The two men, speaking in October in Washington on behalf of the Institute of International Finance, a global association of financial institutions, said the rule needs a review because it doesn’t work in illiquid markets.
Sour Grapes
Fair-value’s fans portray the complaints as sour grapes by banks that don’t want to admit how bad their subprime investments were.
Blaming the rule for the credit crisis “is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick,” JPMorgan Chase & Co. analyst Dane Mott wrote in a September report.
U.S. companies have used fair-value accounting since an earlier FASB rule took effect in 1993, Mott said at an SEC conference in November, and the newer rule simply defines the method and sets up a framework for how to implement it.
Matthew Schroeder, managing director for accounting policy at Goldman Sachs Group Inc., is another fair-value advocate. “For us, fair value is the oxygen of the firm,” he told the SEC in July. “It’s part of our fabric. We follow a daily discipline of marking to market at our firm. It can be done.”
Link - http://www.bloomberg.com/apps/news?pid=20601109&sid=aGLHt9Kw7JNo&refer=home
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Opec Members Nearing Compromise On Supply Cuts
OPEC members are inching toward a compromise that could lead them to cut oil supply, as the producer group prepares for one of its most closely watched meetings in years this week.
hi my friend, good evening. happy thanksgiving.
i m tryin to read this.
link slow opening.
re;
mick....
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https://cointellect.com/?code=97d56147
mick....
you had to get me started.....on bit coin...amazing..
I found this for doge coin pool mining with your laptop..plus alot of places to click links to earn bitcoin,but dont expect to get rich over night unless the market for these internet coins explodes..still very young..definatly something to keep our eyes on..here the link to the doge laptop mining software and to learn about it..all free!free laptop doge coin mining.
goto board /FOREX-TRADERS-5125 go through the post from the beginning..youll learn alot. anyways welcome new forex trader ..youll love it..!for now just try scalping. make a few pips ..get out.
if the trade turns on you ,dont hesitated to change positions..other wise ,you have a good chance of getting cleaned out..money management a big issue in forex trading..well good luck...welcome,and be careful.dont try to learn everything at once..its a long learning curve..try to use your charting abilities to help you...watch your economic calendar...always!enjoy basically commission free trades.
GL
;)
Talking Points:
Dollar Hobbled, Equities Bolstered by Bullard’s QE Comments
Euro Fundamental Backdrop Deteriorating Faster than Currency Suggests
British Pound Jumps Higher after Rate Forecasts Rebound Sharply
Dollar Hobbled
COT: British Pound Speculators Flip to Net Short Position
British Pound speculators have flipped to a net short position. Flips sometimes precede trending moves.
[url] http://www.dailyfx.com/forex/technical/article/cot/2014/10/13/British-Pound-Speculators-Flip-to-Net-Short-Position-.html
[/url][tag]Speculators Flip[/tag]
Fundamental Forecast for Dollar:Bullish
Risk trends remain the top priority this week, but the deciding factor is conviction
The Fed’s Bullard stirred hope for a QE Taper delay, but that is unlikely and exposes ‘hope’
See the fundamental and technical forecast for the US Dollar in our updated 4Q Forecast Trading Guide
Amid extreme financial market volatility swings and talk of US stimulus plans, the US Dollar finished out a second consecutive week in the red. Yet, despite the past few weeks retreat, the currency’s larger three-month bull trend is still dominating the landscape. That technical view matches the fundamental backdrop. While there have been a few headlines and updates to cool the Dollar’s exceptional climb, there hasn’t been enough of turn the tides back towards the bear’s favor. Moving forward, the anxiety of a fragile global investor sentiment, a reinforced path of monetary policy and a possible second wave decline for the the Greenback’s largest counterparts will all support the currency’s medium-term view.
When liquidity returns next week, the first concern for market participants will be the bearings for broader sentiment. Investor confidence passed through two stages this past week. The first half was dominated by heavy selling in capital market assets that confirmed an important break that ended the previous week. Yet through the second half, a rebound for the higher return / higher risk segment and retreat for safe havens developed. In fact, through this heavy swing in confidence, the US currency never seemed to truly find grip through its safe haven status.
There is a difference between an unfavorable move in capital markets and a motivated ‘risk unwind’. The latter speaks to conviction and a motivation that is more elemental to the financial system. After a five-and-a-half year climb from the bottom of the worst economic and financial collapse in generations, it is difficult to unmoor complacency and convince market participants to cut exposure and feed speculative shorts. Yet, the recent scope of selling riskier assets and the tremendous rise in implied (expected) volatility herald a more motivated shift is building. Against record leverage, decades low participation and a cooling economic backdrop; investors are increasingly aware of the medium-term gap between price and value.
As the motivation shifts from a modest ‘risk off’ to a more systematic deleveraging, liquidity becomes the primary concern for market participants. That leverages demand for US Treasury, money markets and the Dollar itself. It may take time to reach this intensity, but implications are acute and the structural deficiencies to our current situation large enough that it planning is important. As we await the mass’s verdict on the market’s course and potential, a few other factors should be considered while trading the Dollar. The first consideration is a recent flush of hope that the Fed could backtrack on its tightening regimen.
This past week, St. Louis Fed President James Bullard – not a voter this year and more on the hawkish side with a recent call for a 1Q 2015 rate hike – turned heads when he suggested the FOMC should consider delaying its final Taper of QE3. His suggestion is more targeted towards tepid inflation, but the market in withdrawal and desperate for support reads it as a capital market boon. Realistically though, this isn't a popular opinion and the Yellen sounded very confident of an October 29 final move at the last meeting. Furthermore, delaying a few months a scaled down stimulus isn't’ the same as an increase for encouraging risk trends. We will see little more on this topic with the media blackout period coming ahead of the next meeting.
A final consideration for those trading the Majors: counterpart activity. This past week’s shudder in risk has clearly exposed the Euro-area’s troubles. Whether a trigger for global risk aversion or a direct counterbalance for the Dollar, this has considerable potential. We also have Chinese and UK 3Q GDP data on tap. – JK
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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a bit? lol,skipping halloween this year..,its already too real.
bit coin..dont know much about it ,but i can see that..1 world currency.?ill look more into this bit coin..tradable on the currency market?
Russia's Sovereign Debt Downgraded by Moody's and brings
Moody's rating in line with those of the other two major ratings
firms, Standard & Poor's and Fitch Ratings.
Top Equities Stories Of The Day
little scary now, russia can't make ah buck do to ukraine takeover.
re;
hey mick..
good to see you.i believe the currency market might be rip for my trading style..(scalping)so ,what better place to hang out while watching the tics go by..Et toi?
answer;
where does bitcoin fit in your virtual currency.
this is the new dollar believe it or not!
hey mick..
good to see you.i believe the currency market might be rip for my trading style..(scalping)so ,what better place to hang out while watching the tics go by..Et toi?
i was watching streaming/ sawer you my old friend/ whatzzz up?
it was used before to save the country..but it also was helped by tobacco during the times..so put infrastructure and Mariana for 2015 and all financial problems will be gone.then we will enter into a new era.. sleep,eat and be merry.maybe then we wont be so concerned on spying on our neighbors..
it was used before to save the country..but it also was helped by tobacco during the times..so put infrastructure and Mariana for 2015 and all financial problems will be gone.then we will enter into a new era.. sleep,eat and be merry.maybe then we wont be so concerned on spying on our neighbors..
New Iraqi Diar and the RV...
.
keeping up with
Forex chats boards on the Dinar
Hammerman Cc Chat Emailed to US Mon. AM 03/19/2012
[7:50:31 AM] kt: Bluwolf is working with hammer on the bank package
[7:50:47 AM] kt: ust told hammer we would rv today at 14.38
[7:51:11 AM] kt: He is hoping, but thinks it might be later in the week.
[7:51:58 AM] kt: some banks are showing 14.38 and others are showing 4.40.
Scattered around and not all banks showing on screens (back)
[7:52:46 AM] kt: hammer has seen ust treasury swift code instructions to banks.
knows they are real
[7:53:27 AM] kt: Blaino agrees, got same intel, and his best source knows and
believes in PP.Blew his mind and now he believes in them.
4 hours ago
Treasury Bubble Talk Grows as U.S. Gets Free Money (Update3)
By Michael J. Moore
Dec. 11 (Bloomberg) -- The rally in Treasuries that pushed yields on bills below zero percent this week is adding to concerns that the $5.3 trillion market for government debt is a bubble waiting to burst.
Investors seeking safety from losses in equity and credit markets charged the Treasury zero percent interest when the government sold $30 billion of four-week bills on Dec. 9, the same day three-month bill rates turned negative for the first time since the U.S. began selling the debt in 1929. Yields on two-, 10- and 30-year securities touched record lows this month.
“Treasuries have some bubble characteristics, certainly the Treasury bill does,” said Bill Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., which oversees the world’s largest bond fund. “A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk?” he said in a Bloomberg Television interview yesterday.
The 30-year bond returned 23.6 percent since September, including reinvested interest, more than it earned in any one year since gaining 34.1 percent in 1995, according to Merrill Lynch & Co. index data. Treasuries of all maturities gained an average of 11.9 percent this year, compared with a 41 percent drop in the Standard & Poor’s 500 Index and a loss of 15.3 percent in Merrill Lynch’s broadest corporate bond index.
Rising Supply
Rising supply of government debt to pay for the bailout of the economy and financial system has done little to damp demand. Treasury Assistant Secretary Karthik Ramanathan said in a speech yesterday in New York that the U.S. may introduce new financing methods to meet borrowing needs of $1.5 trillion to $2 trillion in the financial year that ends in September.
While supply has increased, rates on three-month bills fell 2.89 percentage points in the last year to 0.01 percent today, after trading as low as negative 0.05 percent on Dec. 9. The rate on four-week bills plummeted from a peak of 5.175 percent on Jan. 29, 2007. The three-month bill yield was unchanged today.
An investor who bought $1 million in three-month bills at the closing rate of negative 0.01 percent on Dec. 9 would realize a loss of $25.56 when the securities mature. Bills are sold at a discount and appreciate to par at maturity.
Even at the low yields, the government received bids for four times the amount of four-week bills it auctioned this week, according to the Treasury.
‘Insatiable Demand’
“There is basically insatiable demand for Treasury bills,” Ira Jersey, a New York-based interest-rate strategist at Credit Suisse Group AG, said in a Bloomberg Television interview. “There is a number of reasons for this, not only angst over deflation and what’s going on with risky assets, but there is also just a lot of cash that does not want to take any credit risk.”
Hunger for Treasuries increased as financial companies reported $984 billion of losses and writedowns related to the collapse of subprime mortgages since the start of 2007. The losses froze credit markets and helped send the U.S., Europe and Japan into the first simultaneous recessions since World War II.
Gross said he regrets not buying Treasuries in the past year. “If we went back 12 months and we had known then what we know now, it would have been all invested in Treasuries,” he said in the interview.
David Rosenberg, the chief North American economist at New York-based Merrill Lynch, said last week that demand for Treasuries had reached the “bubble” phase like in technology stocks in 2000 and real estate six years later.
Waive Fees
Record-low yields on government debt have led money-market funds to waive fees to keep returns positive. If the Federal Reserve cuts its 1 percent target rate for overnight loans between banks, as is expected next week by all but two of 56 economists surveyed by Bloomberg, some Treasury fund returns may turn negative, said Peter Crane, president of Crane Data LLC, a research firm in Westborough, Massachusetts.
Treasuries have “absolutely” entered a bubble, said David Brownlee, who oversees $15 billion as head of fixed income at Sentinel Asset Management in Montpelier, Vermont. “There is very little rationality in my mind to bills trading at zero.”
Sentiment among investors in Treasuries turned negative for the first time in four months, according to a JPMorgan Securities Inc. survey of clients. The firm’s weekly index fell to minus 6 on Dec. 8, from this year’s high of 27 a month ago. The figure is the difference between the percentage of investors betting prices will rise and those expecting a decline.
Deflation Speculation
Speculation that the recession will result in deflation, or a prolonged slide in prices, is also driving demand for Treasuries. Consumer prices fell 1 percent in October, the most since records began in 1947, and may drop 1.2 percent in November, according to a Bloomberg survey of economists.
Deflation may worsen the economic downturn by making debts harder to pay and countering the impact of Fed rate cuts. Deflation also makes bonds more valuable, even with yields at record lows.
Treasuries may actually be “fairly valued,” Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York, said in a report yesterday. Even so, yields will likely rise in mid-January as investors’ focus turns to prospects for an economic recovery, he wrote.
The U.S. pledged $8.5 trillion, more than half of the country’s gross domestic product, to spur lending and limit the damage of the recession.
Economists forecast higher bond yields as those efforts take effect over the next year. The yield on the 10-year note will rise to 3.66 percent by the end of 2009 from 2.67 percent today, according to 50 estimates in a Bloomberg survey. That would result in a loss of 3.88 percent as bond prices decline.
“At some point we are going to get some signal, some indication that this massive policy response is getting some traction,” said Mitchell Stapley, who oversees $22 billion as chief fixed-income officer for Grand Rapids, Michigan-based Fifth Third Asset Management. “The flight out of Treasuries is something that will be breathtaking.”
Link - http://www.bloomberg.com/apps/news?pid=20601213&refer=home&sid=a9yyu08y5TMc
Stocks Rally Worldwide, Dow Hits One-Month High on Obama Plan
By Whitney Kisling
Dec. 8 (Bloomberg) -- Stocks rose around the world, sending the Dow Jones Industrial Average to a one-month high, as President-elect Barack Obama pledged to boost the economy with the biggest public-works spending package since the 1950s.
The Standard & Poor’s 500 Index extended its gain from an 11-year low last month to 21 percent. U.S. Steel Corp. and Alcoa Inc. climbed at least 17 percent, while Chevron Corp. added 4.9 percent, as Obama’s plan to improve infrastructure triggered gains in commodities. General Motors Corp. jumped 21 percent as lawmakers agreed in principle with the White House to provide funds to shore up the car industry.
“Hopefully it helps get the economy turned around, jumpstarting private spending with public spending,” said Bill Stone, who helps oversee about $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “That’s the whole point of this is to try to get that jumpstart going.”
The S&P 500 surged 3.8 percent to 909.7, with all 10 industry groups advancing. The Dow added 298.76 points, or 3.5 percent, to 8,934.18 and earlier rose above 9,000 for the first time in a month. The Nasdaq Composite Index increased 4.1 percent to 1,571.74. Five stocks gained for each that fell on the New York Stock Exchange.
The S&P 500 has climbed in nine of the 11 trading sessions since Nov. 20, in part on speculation the Federal Reserve will cut interest rates and Congress will step up efforts to boost the economy. The benchmark index is still down 38 percent in 2008 after the collapse of the subprime mortgage market reduced average profits for five straight quarters.
‘Mad Bull’
All 10 industry groups in the S&P 500 have risen at least 9.2 percent since the U.S. benchmark sank to its 11-year low on Nov. 20. Financial stocks led the rally, climbing 46 percent collectively, followed by consumer discretionary and telephone companies.
Today’s gains put a technical end to the 13-month bear market that began after the S&P 500 reached a record close of 1,565.15 in October 2007. An advance of more than 20 percent from a low is the standard definition of a bull market.
“If it’s a bull it’s a mad bull, a very confused bull,” said John Carey, a Boston-based fund manager at Pioneer Investment Management, which oversees about $200 billion. “People are looking at the ruins of the stock market and saying there’s awfully cheap stocks. That’s different from strong conviction prices are moving in an upward direction because of improving fundamentals.”
The S&P 500 Financials Index is still down 53 percent this year, as credit-related losses and writedowns at banks and financial firms climbed to $981.2 billion worldwide amid the worst economic slump since the Great Depression.
‘Dramatic Action’
Obama said Dec. 6 he will boost investment in roads, bridges and public buildings to create or preserve 2.5 million jobs after companies cut payrolls at the fastest pace in 34 years last month.
“There’s an awareness now that this is across the board,” Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, told Bloomberg Television. “A Band-Aid here and a Band-Aid there is not going to form a solution. You’ve got to really take some dramatic action, and I think that’s what investors are responding to today.”
U.S. Steel Corp. helped lead gains among raw material producers in the S&P 500 with a 24 percent advance to $35.79, its biggest gain in at least 17 years. The second-largest U.S. steelmaker was raised to “conviction buy” by Goldman Sachs Group Inc. analysts, who predicted steel prices are on the verge of rebounding after supply cuts outpaced the global collapse in demand.
Commodities Rally
Olympic Steel Inc. gained 25 percent to $19.02 after Goldman raised it to “buy” from “neutral.” AK Steel Holding Corp., the fourth-largest U.S. steelmaker, added 26 percent to $8.99.
Alcoa Inc., the largest U.S. aluminum maker, jumped $1.43 to $9.58. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, added 19 percent to $20.01.
Raw materials producers in the S&P 500 climbed 7.7 percent as a group for the biggest advance among 10 industries.
Commodity prices rebounded from last week’s losses on speculation Obama’s spending on roads, bridges and school repairs will boost demand. Copper rallied more than 9 percent, while crude climbed 7.1 percent to $43.71 a barrel.
Exxon Mobil Corp., the world’s largest oil company, climbed 3.9 percent to $79.60. Chevron, the second-biggest, increased $3.67 to $78.09.
Chesapeake Energy Corp. surged 24 percent to $14.08 for the steepest gain since April 1999. The second-biggest independent U.S. natural-gas producer said it will cut spending and plans to build cash resources because of a plunge in energy prices.
Construction, Automakers
Construction-equipment makers rallied, with Caterpillar Inc., the world’s largest maker of backhoes and excavators, adding 11 percent to $42.42. Manitowoc Co., the construction- crane maker based in the Wisconsin city of the same name, rose 18 percent to $8.80.
GM, the largest U.S. automaker, rallied the most in the Dow average, adding 85 cents to $4.93. Ford Motor Co., the second- biggest, surged 24 percent to $3.38.
Congress and the Bush administration are close to agreeing on the details of a $15 billion, short-term rescue plan for the auto-industry that will probably be passed and signed into law this week, House Financial Services Committee Chairman Barney Frank said.
House Speaker Nancy Pelosi also dropped her opposition to drawing on $25 billion in funds from the Energy Department intended to help carmakers develop more fuel-efficient vehicles, according to a Democratic aide who declined to be identified.
Merger Speculation
NYSE Euronext jumped 23 percent to $26.21. Deutsche Boerse AG said it explored a merger offer for the world’s biggest owner of stock exchanges. The talks “ended without any conclusion,” Deutsche Boerse said.
NASDAQ OMX Group Inc. increased 9.1 percent to $25.47. The FTSE/Mondo Visione Exchanges Index, which tracks 17 of the world’s publicly traded exchanges, rose 14 percent.
JPMorgan Chase & Co. gained 9.4 percent to $36.49 after it was raised to “buy” from “neutral” by Ladenburg Thalmann Inc. analyst Dick Bove, who said the bank’s acquisition of Washington Mutual Inc. should contribute “meaningfully” to earnings.
End to ‘Hysteria’
“Additionally, the hysteria surrounding the banking industry is likely to come to an end in 2009 as these companies continue to report earnings,” Bove wrote in a note.
Bank of America Corp. rallied 17 percent to $17.84, while Citigroup Inc. added 9.9 percent to $8.47. The S&P 500 Financials Index advanced 6.9 percent.
Sun Microsystems Inc. climbed after agreeing to let its biggest shareholder pick two new independent directors, giving Southeastern Asset Management Inc. more authority to guide a restructuring. Sun, the server maker that has lost 79 percent of its value this year, rallied 9.7 percent to $3.83.
3M Co. posted the biggest decline in the Dow average after the maker of products from Post-it Notes to electronic road signs said it may need to cut more jobs next year, after eliminating 2,300 this quarter. 3M slipped 4.1 percent to $57.38.
Obama’s plan to boost the economy with a “substantial” infrastructure stimulus package triggered a global rally, with the MSCI World Index jumping 5.5 percent.
Global Rally
Benchmark indexes in Germany and France added 7.6 percent and 8.7 percent respectively, while Tokyo’s Nikkei 225 climbed 5.2 percent.
Siemens AG, Europe’s largest engineering company, jumped 10 percent to 49.40 euros. Hochtief AG, Germany’s biggest builder, added 16 percent to 30.94 euros. Royal Dutch Shell Plc, Europe’s biggest energy producer, advanced 8.3 percent to 1,691 pence in London.
Komatsu Ltd., the world’s No. 2 maker of construction machinery, rose 11 percent to 1,007 yen. India’s biggest mortgage lender, Housing Development Finance Corp., added 5.7 percent to 1,511.95 rupees.
Stocks had fallen so far this year that 2,267 companies around the globe offered profits to investors for free as of the open of trading today. That’s eight times as many as at the end of the last bear market, when the shares rose 115 percent over the next year.
Bank of New York Mellon Corp., Danieli SpA in Buttrio, Italy, and Seoul-based Namyang Dairy Products Co. held more cash than the value of their stock and debt as the slowing world economy wiped out $32 trillion in capitalization this year. Companies in the MSCI World Index traded for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39 percent sold at a discount to shareholder equity as of the open, data compiled by Bloomberg show.
Link - http://www.bloomberg.com/apps/news?pid=20601087&sid=a4ieRPJ34pW8&refer=home
Behind Schwarzman Spat With Wasserstein Lies Rule 115 (Update1)
By Ian Katz
Dec. 8 (Bloomberg) -- An argument between two Wall Street titans seated in director’s chairs at Per Se restaurant in New York in October has escalated into a fight over an obscure accounting rule known as Statement No. 115.
Five weeks ago the dispute was over so-called fair-value accounting, which requires companies to record assets every quarter to reflect market value. In one chair was Blackstone Group LP Chairman Stephen Schwarzman, who said the standard had aggravated the worst financial crisis since the Great Depression. In the other was Lazard Ltd. Chairman Bruce Wasserstein, who said the rule gives investors an honest look at corporate earnings.
Now banks, which have been unsuccessful in getting regulators to revamp fair-value, also known as mark-to-market, are trying to win revisions to another U.S. Financial Accounting Standards Board requirement that could preserve billions of dollars of their capital.
“Financial institutions, which have been woefully incompetent in running their own firms, are now trying to avoid providing investors with accurate numbers depicting the large losses they have suffered under their mismanagement,” said Lynn Turner, the Securities and Exchange Commission’s former chief accountant, in an interview.
The Financial Services Roundtable, whose members include New York-based Citigroup Inc. and Bank of America Corp. of Charlotte, North Carolina, are proposing using Statement No. 115, which applies to so-called impaired debt and equity, for some securities that now fall under the fair-value rule.
‘Downward Spiral’
In a Nov. 12 letter to the SEC, Robert Traficanti, Citigroup’s head of accounting policy, gave an example of mortgage-backed securities the bank owns and said the rule change would reduce a third-quarter charge to earnings to $19.2 million from $76.2 million. The proposed switch “is a much better reflection of the losses we expect to incur,” he wrote.
By using standard 115, banks could take into account cash generated from underlying assets such as mortgages and not rely on a market price dictated by the fair-value rule.
Moving to the impaired debt and equity standard would help “stop the downward spiral caused by the inability of ivory tower accounting rules to recognize the economic value of an asset,” Scott Talbott, the Washington-based roundtable’s chief lobbyist, said in an interview.
Michael Williams, research director for Gradient Analytics Inc. in Scottsdale, Arizona, says the change could allow banks to avoid raising capital to comply with federal regulations.
For banks, Williams said, “the biggest worry they have is regulatory capital.”
Fair-Value Review
SEC Deputy Chief Accountant James Kroeker said the agency has been urged to clarify the impairment rules. “We’ve heard from investors that there’s room for improvement,” Kroeker told reporters at a conference in New York last month.
Kroeker is leading a study on fair value that the SEC is required to conduct under terms of the $700 billion federal financial-rescue package enacted in October. The SEC must submit a written report to Congress by Jan. 2 that evaluates how the rule can be improved and whether it has caused banks to fail.
Preliminary findings from the study show that investors want the SEC to issue “guidance” to clarify fair-value, SEC Chairman Christopher Cox said in a speech in Washington today.
“Most investors and many others agree that fair-value is a meaningful and transparent measure of investment for financial- reporting purposes,” Cox said at an American Institute of Certified Public Accountants conference. “The work that we’ve already done suggests that the accounting standard-setters could improve upon” rules for impaired securities, he said.
Schwarzman’s Lament
The SEC, which can overrule FASB, has declined to overhaul the fair-value rule, known as Statement No. 157, releasing clarifications in September that didn’t satisfy industry groups. The global credit crunch transformed the rule, which took effect a year ago, into a mainstream economic topic.
“Historians will look back some day and say that the government drove companies into bankruptcy by creating artificial losses,” former House Speaker Newt Gingrich, 65, who led the 1994 Republican takeover of Congress, said in a Bloomberg interview in October.
Those arguing for change include some of the companies suffering the most since the subprime-mortgage crisis began last year, including Citigroup and American International Group Inc. Critics, who say the fair-value rule doesn’t work when there are no buyers for toxic assets, include the 61-year-old Schwarzman, whose New York-based Blackstone manages the world’s largest private-equity fund and whose shares have fallen 72 percent this year in New York Stock Exchange composite trading.
‘Major Contributor’
The rule “and the way it’s been implemented has been a major contributor to the financial crisis,” Schwarzman said at the Oct. 30 discussion hosted by Fortune magazine at Per Se.
Wasserstein, 60, who has a better track record this year with Lazard declining 37 percent in NYSE composite trading, took the opposite position.
“Accounting has now become an exercise in creative fiction,” he said. “Saying assets are worth a lot doesn’t make them worth a lot.”
Wasserstein and Schwarzman both declined to comment.
Democratic legislators are less eager to overhaul fair-value than Republicans. In a September letter, 65 House lawmakers urged SEC Chairman Cox to suspend the rule; only seven were Democrats.
Two of Obama’s closest economic advisers, former Treasury Secretary Lawrence Summers and former Federal Reserve Chairman Paul Volcker, have expressed support for fair-value accounting. So have Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson, who said on Nov. 20 that he knows of “no better accounting method,” even as he welcomed “steps to review and modify its implementation during severe market stress.”
Models Hindered
Private-equity executives, including Schwarzman, say mark- to-market accounting unfairly forces them to value holdings even if they have no intention of selling them at that time, hindering the business model of fixing up companies and disposing of them years later for a profit.
Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois, compared the idea of forcing banks to price their assets now to a homeowner in California having to sell his house at the moment a fire is at his doorstep.
“If the bank knocked on your door and forced you to mark to market at that moment, you’d be bankrupt,” Wesbury said.
Citigroup Senior Vice Chairman William Rhodes and Deutsche Bank AG Chief Executive Officer Josef Ackermann are also fair- value critics. The two men, speaking in October in Washington on behalf of the Institute of International Finance, a global association of financial institutions, said the rule needs a review because it doesn’t work in illiquid markets.
Sour Grapes
Fair-value’s fans portray the complaints as sour grapes by banks that don’t want to admit how bad their subprime investments were.
Blaming the rule for the credit crisis “is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick,” JPMorgan Chase & Co. analyst Dane Mott wrote in a September report.
U.S. companies have used fair-value accounting since an earlier FASB rule took effect in 1993, Mott said at an SEC conference in November, and the newer rule simply defines the method and sets up a framework for how to implement it.
Matthew Schroeder, managing director for accounting policy at Goldman Sachs Group Inc., is another fair-value advocate. “For us, fair value is the oxygen of the firm,” he told the SEC in July. “It’s part of our fabric. We follow a daily discipline of marking to market at our firm. It can be done.”
Link - http://www.bloomberg.com/apps/news?pid=20601109&sid=aGLHt9Kw7JNo&refer=home
absolutely keep[ your eye on it and buy it around 1.0
gl
Yeah, I see what you're saying! That'd require me to be in on a Friday, which is something I try not to do (for lack of volume).
If it hasn't broken by Monday evening, I may have to take a closer look...maybe save some dry powder for that! ;)
Im long usd /chf right now ..
I can see a triangle breakout that could be worth 500 pips or more..not sure if it will do another leg down or break out this leg..time will tell
be care full though and do your own DD...
;)
USD: Jobless Claims wreaking havoc this morning!
Jobless Claims Jump to Highest Level Since 2005:
http://www.cnbc.com/id/23934766
I was long USD/CHF overnight...good thing I tightened my stop loss way up this morning, before the news! Half my profit would have vanished.
Syria masses three army divisions on Lebanese border
March 23, 2008, 7:56 PM (GMT+02:00)
DEBKAfile’s military sources report that the Syrian deployment is backed by the concentration of pro-Syrian Palestinian factions in the Beqaa valley of Lebanon, amid rising war tensions between Hizballah and Israel.
Hassan Nasrallah declared Hizballah would wage “open war” with Israel at the end of the 40-day mourning period the group observed for Imad Mughniyeh who was killed in Damascus February 12. His deputy has maintained that Hizballah had “100 percent solid evidence" that Israel had killed Mughniyeh, which Israel has consistently denied.
Monday, March 24, Nasrallah will address a big memorial rally in South Beirut. The Israeli army is on high alert for a possible Hizballah attack from Lebanon. The Magen David Adom ambulance service is on emergency standby across the country.
BULLET: OIL: World oil prices fell in Asia Monday after the..
OIL: World oil prices fell in Asia Monday after the OECD cut its growth
forecast for the US economy in 1Q and 2Q, pointing to a slowdown in oil
demnand.
In morning trade, New York's main oil futures contract, light sweet
crude for delivery in May, tumbled $1.41 to $100.43 per barrel. The
contract closed at $101.84 on Thursday, at one time sinking to below the
psychologically important 100-dollar level. Markets were closed Friday
for a public holiday.
London's Brent North Sea crude for May delivery fell $1.03 to
$99.35 per barrel, after settling at $100.38 on Thursday.
Analysts said prices may hover around the $100 mark as the market
mulls further economic data out of the US.
Forex - US dollar firmer in quiet, rangebound Asian morning trade
TOKYO (Thomson Financial) - The US dollar was firmer against other major currencies in Asian morning trading Monday, continuing its rebound late last week, but was held within narrow ranges, with Asian players unwilling to move the market because of a lack of fresh trading leads and in the absence of players from further afield because of public holidays.
At 9.41 am (0041 GMT) in Tokyo, the dollar was at 99.77 yen, compared to 99.56-99.66 yen in late trading in New York last week. The euro was at 1.5403 dollars, compared to 1.5426-1.5436 dollars in New York.
The US currency was well bid after a survey showed last week that Philadelphia-area manufacturing activity was not as weak as expected and commodity prices continued to fall.
The Federal Reserve Bank of Philadelphia said its Philly Fed manufacturing index improved to minus 17.4 in March from minus 24.0 in February. The median estimate for this month among economists surveyed by IFR Markets was minus 20.0.
But investors are now awaiting more US economic data, including the release later today of the National Association of Realtors existing home sales figures and the S&P/Case-Shiller home price indices on Tuesday.
"The recent rebound of the dollar reflected partly the market's view that the credit crunch might have passed through its very worst phase following the bailout of Bear Stearns by JP Morgan," said Ryohei Muramatsu, head of Group Treasury Asia at Commerzbank in Tokyo.
"But it would still be premature to judge that last week's movement signals a fully fledged rebound of the dollar, because the rise seems to have been the result of active position-adjustment ahead of the long Easter holiday break," he said.
But John Noonan of Thomson/IFR Markets thinks last week's price action in all of the asset markets was extraordinary, and could mean a sea change for the correlations that drive the forex market.
"For months and months this would correlate with the Australian dollar, New Zealand dollar and Canadian dollar gaining at the expense of the yen, as investor enthusiasm would spill over to carry-trade demand," Noonan said.
"Last week the Australian dollar, New Zealand dollar and Canadian dollar fell between 2 percent and 3 percent against the yen, suggesting that correlations are changing, and radically so," he said.
Wall Street staged a strong rally last week and the Dow Jones Industrial Average ended the week up around 3.5 percent.
The New York Mercantile Exchange's benchmark oil futures contract dipped briefly below 100 US dollar per barrel level last week.
UK, France Heads To Urge More Market Transparency At Summit -AFP
LONDON (AFP)--U.K. Prime Minister Gordon Brown and French President Nicolas Sarkozy will call for increased transparency in financial markets after a London meeting this week, Downing Street said Monday.
The meeting between the two, set for Thursday, the second day of Sarkozy's two-day state visit to the U.K., will also focus on reform of major international institutions such as the International Monetary Fund and the U.N. Security Council, Brown's office said in a statement.
Brown and Sarkozy will call for "full and immediate disclosure of write-offs by banks," the statement read, noting that "events in recent weeks, especially the collapse of (U.S. bank) Bear Stearns (BSC), has demonstrated the scale of the problem and the effect on market stability of difficult to value assets and of undisclosed loans becoming known in a piecemeal fashion.
"Brown and Sarkozy are increasingly concerned that confidence in financial markets is being affected by uncertainty over the scale of bad debts on banks' books."
Along with German Chancellor Angela Merkel, European Commission chief Jose Manuel Barroso and then Italian prime minister Romano Prodi, Brown and Sarkozy said in January following a mini-summit in London that financial institutions should make "prompt and full disclosure of losses."
The British and French leaders will also on Thursday call for reform of major international financial institutions, a long-time interest of Brown's, in a bid to make the IMF and Financial Stability Forum work closer together.
"As permanent members of the Security Council, they will call for reform of the Council to make it more representative of the 21st century, including permanent representation for Africa," said the Downing Street statement.
Among other things they will discuss, the pair will talk about the need to reform the E.U., which is in the process of ratifying a controversial new treaty that has faced heavy opposition in the U.K., and will consider other ways they and other countries can promote financial stability.
Downing Street also said that the two leaders will "discuss how the international community can best deal with post-conflict reconstruction and failing and rogue states."
Brown last week mooted a 1,000-strong rapid-reaction force of police, judges and administrators to deploy to such areas, and will ask Sarkozy about the possibility for a French contribution.
Also on the agenda is "greater burden-sharing" in Afghanistan, where U.K. and the U.S. have called for fellow NATO members to commit more troops and resources in a bid to quell an insurgency waged by the Islamist Taliban militia.
According to a report in The Times newspaper over the weekend, Sarkozy will tell Brown that he plans to send an extra 1,000 soldiers to Afghanistan, where there are currently 1,600 French troops. The U.K. has about 7,800 soldiers in the country.
UK PRESS: The financial crisis enveloping the world banking sector
has left sovereign wealth funds, controlled by governments from
Singapore and China to Abu Dhabi and Kuwait, nursing multibillion-dollar
losses after helping to bail out major western banks, the Guardian
reported over the weekend. In recent months, banks including Citigroup,
Morgan Stanley and UBS have turned to investment funds, including the
Government of Singapore Investment Corp (GIC), its sister fund, Temasek,
and China Investment Corp, for funding that western investors were
unwilling to give as stockmarkets plunged. But the dramatic fire sale of
the US investment bank Bear Stearns and subsequent stock-market run on
HBOS this week have depressed banking stocks further and deepened the
climate of fear in the world's stock-markets.
JAPAN/CHINA: Japan's finance minister told his Chinese counterpart
Sunday that a more freely traded yuan will benefit China's economy, in a
sign that Tokyo doesn't consider the currency's recent sharper climb
good enough, the Nikkei reported. the Chinese currency, in the three
months through February, gained an annualized 16% against the U.S.
dollar, much faster than a 6.9% rise in the entire 2007. Friday the yuan
stood around CNY7.06 per dollar. But comments from Japanese Finance
Minister Fukushiro Nukaga indicate Japan, which is one of the Group of
Seven leading industrialized countries, still sees the need for faster
yuan appreciation to help address trade disputes or cool China's
accelerating inflation.
Action Insight Weekly Review and Outlook
Focus Turned to Commodities Crash, Dollar Rebounded
Markets' sentiment shifted sharply from panic dollar selling to commodity currency crashes last week. Indeed, after diving to new record low against Euro and Swissy, and as low as 95.77 against the yen, dollar rebounded strongly and closed the week higher. Fed's smaller than expected 75bps cut in the federal fund rate played a role in dollar's rebound. But more important, sharp reversal in commodity prices, including an 11% fall in gold prices from it's record high of 1032/oz and more than $13 dive in Crude oil prices was more important to the dollar's bounce. Meanwhile, even though extreme volatility is seen in the Japanese yen, following roller coaster ride in the equity markets, the Yen still managed to end higher against most major currencies except the greenback. The net result is that commodity currencies and respective yen crosses are the biggest loser last week, topping the weekly top movers chart.
Currency Heat Map Weekly View
The global financial markets were extremely nervous early last week, following the sale of emergency cut in discount rate from Fed by 25bps to 3.25% as well as the news of sale of Bear Sterns to JPMorgan Chase. At that point, it seemed that Fed was extremely concerned with the deepening of credit market problems and markets were betting on 100bps cut from Fed in the federal funds rates. Though, the Fed surprised most by cutting 75bps only on Tuesday. Stocks and Dollar rebounded from there and was also boosted further by better than expected quarterly results from Lehman Brothers and Goldman Sachs.
Fed's decision to cut 75bps to 2.25% was not unanimous, with Plosser and Fisher preferring "less aggressive" actions. In the accompanying statement, Fed acknowledged that economic activity has "weakened further", with slowing consumer spending and softening labor markets. Financial markets are still under "considerable stress". Tight credit conditions and deepening housing contraction will likely weigh on economic growth over the "next few quarters." But, the Fed said that the move, together with recent efforts to boost liquidity in the markets, " should help to promote moderate growth over time and to mitigate the risks to economic activity." But again, " downside risks to growth remain." Inflation is still described as elevated but members expect inflation to moderate in coming quarters. Uncertainty on the outlook increased and Fed will continue to monitor inflation developments carefully. Fed also voted unanimously to cut discount rate by 75bps to 2.5%. After all, the tone of the statement remains dovish and further easing is still expected as the statement noted Fed will "act in a timely manner as needed to promote sustainable economic growth and price stability."
Data from US were mixed last week. Empire state manufacturing index tumbled to -22.23 in Mar but Philly Fed index recovered more than expected to -17.4 in Mar. Industrial production dropped more than expected by -0.5% in Feb. Headline PPI was tamer than expected, slowing to 6.4% yoy in Feb but core PPI climbed to 2.4% yoy. Housing starts dropped another -0.6% to 1065k. But building permits tumbled sharply by -7.8% to 16 year low of 978k annualized rate. Q4 current account deficit was slightly narrower than expected at -172.9b. TIC recorded 62.0b capital inflow in Jan.
Euro pulled back sharply after surging to new record high against the dollar. Though it's generally mixed against other currencies only. Though, weaker than expected Service PMI, which dropped from 52.3 to 51.7 in Mar, prompted some concern of further slowing in the Eurozone economy. Manufacturing PMI was also mildly lower from 52.3 to 52.0. Q4 employment growth slowed from 1.9% yoy to 1.7% yoy.
Carry trade and stock markets continued to be a key driver in the Japan yen in an extremely volatile week. Masaaki Shirakawa was selected to fill the vacancy left by Fukui as acting BoJ governor before the government can settle on the successor to Fukui. There were also speculations flying around that BoJ would cut rates from the current 0.50% as soon as in Apr and believe Shirakawa won't be impediment to policy easing. The main focus will be on the quarterly Tankan survey due Apr 1.
Sterling continued to be among the weaker ones against most major currencies. MPC minutes released reveal that BoE's decision to keep rates on hold earlier this month was done by a 7-2 vote, instead of an 8-1 vote as markets expected. Blanchflower and Gieve voted for a 25bps rate cut. BoE is still facing the dilemma of rising inflation and slowing growth. However, the minutes also highlighted dissenter's concern about delayed actions. Markets generally expect another 25bps cut in Q2 but opinions on the timing is divided. The dovish vote split raised the chance that it will happen in Apr and further worsening in the financial markets and upcoming economic data.
However, retail sales came in much better than expected by rising 1.0% mom in Feb, with yoy rate just mildly down from 5.6% to 5.5%. Employment report showed unemployment rate unchanged at 5.2% in Jan and claimant count unchanged at 2.5% in Feb. CPI climbed further from 2.2% yoy to 2.5% yoy in Feb but core CPI slowed slightly from 1.3% yoy to 1.2% yoy. After all, the timing of the next cut from BoE is still debatable.
From Canada, Feb headline CPI slowed more than expected from 2.2% to 1.8%. Meanwhile, core CPI unexpectedly climbed from 1.4% yoy to 1.5% yoy.
05:31 USD/JPY, EUR/JPY: Freshly Bid As Shorts Continue To Cover Tokyo, March 21. Afternoon trading in Tokyo has seen USD/JPY and the JPY crosses trade higher still. USD/JPY is up at 99.70/73, the high of the session, and EUR/JPY at 153.80/85, also the high of the session. Short-covering is seen to be driving these two markets as well as the JPY crosses higher. The crosses may be in the lead, taking their cue from the stock market and the Nikkei now up 1.62%. The end of morning trading saw the index up 1%. USD/JPY players are driving the market through offers noted from 99.50 and especially the 99.65 level. More are seen up to 99.80, around 100 and ahead of 100.20-25. Some stops are seen mixed in now above 100.00 and then above 100.25. Support below was strong at 99.00, the low of the session with Japanese importers good buyers into the Tokyo fix. EUR/JPY looks to be moving more with stocks, having risen from an early low of 153.03. Topside stops are eyed above 153.90 and 154.00, 153.87 the high in New York overnight. More are eyed above 155.00. Next technical resistance is not seen till 155.17, the high in London yesterday.
Orders Board
05:03 GMT March 21st USD/JPY bidding interest from around 99.00, trails down to 98.45. Stops below 98.40. Topside offers heavy between 99.65-80 and trailing up to 100.25. Stops above 100.25.(hi)
05:02 GMT March 21st EUR/JPY bidding interest from around 153.00. Topside stops above 153.90, 154.00. More above 155.00 and 155.20.(hi)
05:00 GMT March 21st EUR/USD bids below at 1.5395, 1.5390, 1.5370 and 1.5350 mostly from profit-takers. Offering interest above 1.5450, stops above 1.5475 and 1.5500.(hi)
04:59 GMT March 21stNearby option expirations today include vanilla USD/JPY 99.85, 100.00, 100.30, 101.25, 102.00 and EUR/USD 1.5100 and 1.5500 strikes.(hi)
12:23 GMT March 20th EUR/GBP Further buy interest is noted at 0.7780. RH
12:23 GMT March 20th EUR/GBP Further buy interest is noted at 0.7780.
12:23 GMT March 20th EUR/USD Demand is tipped at 1.5420.
10:10 GMT March 20th EUR/GBP Bids are tipped at 0.7800. RH
10:09 GMT March 20th EUR/USD French name reported as the best of the sellers amid the recent dumping.
10:04 GMT March 20th USD/CHF 1.0150 hit but offers are reported to have been found in decent size to stall the intraday appreciation into the NorAm open.
Yen Outlook
04:40 GMT March 21st USD/JPY and JPY crosses were more buoyant today with Japanese importers better at the Tokyo fix today and with commodity market weakness generally continuing to put a bid under USD against many other pairs. A more buoyant stock market here in Japan and abroad also looks to be buoying the JPY crosses which took a big beating this week. EUR/JPY has bounced significantly off lows seen yesterday and have other JPY crosses. At writing, the Nikkei is up 1%. The DJIA closed trading yesterday up 2.16%.
USD/JPY traded quietly in a 99.00-67 range today, rising into the fix. With no other major markets open, many are sidelined and flows were mostly related to settlements at the Tokyo fix. The pair does remain buoyant however, suggesting shorts look to cover and importers ready to buy on dips towards 99.00 and towards the spike low yesterday in London of 98.45. Offering interest remains strong from the 99.65-80 area with more trailing up to 100.25. Stops are eyed above 100.25. EUR/JPY traded similarly between 153.03-69, GBP/JPY 196.70-197.75, AUD/JPY 89.16-83 and NZD/JPY 78.40-88.
01:57 USD/JPY: Easier As Early Demand Finally Abates Tokyo, March 21. USD/JPY has eased off a bit with early, importer-side demand at the Tokyo fix finally having abated. USD/JPY is currently trading around 99.40, still well above its 99.00/05 lows very early this morning however. Although standing bids cannot be seen, dealers do note continuing interest from Japanese importers towards 99.00 and below towards the 98.45 spike low overnight. Stops are eyed below 98.40 but more bids are tipped at 98.30 and towards 98.00. Topside, plenty of offers are seen, especially from 99.65 to 99.80, around 100.00 and then up to 100.25. Stops are eyed above the latter level though.
01:53 GBP/USD: Holding Rather Well Despite Credit Concerns, Endeavor Tokyo, March 21. GBP/USD is holding up rather well today despite on-going concerns over the credit situation in the UK, up rather well today despite on-going concerns over the credit situation in the UK, perhaps exacerbated by news overnight that the BoE was looking to provide more liquidity to the UK money market following talks between the clearing banks and BoE Gov King. Reports of major losses on JGB trading positions by the Endeavor fund also looks to have been discounted. GBP/USD is currently indicated at 1.9840/44, having traded between 1.9830-65 this morning in Asia and towards the top of yesterday"s overnight range. Technical resistance above is seen at 1.9879, GBP/USD"s Ichimoku kijun line, and then ahead of 1.9900. Support below is seen towards 1.9800.
00:00 NEWS: MoF Flow Data - Japanese Continue Foreign Bond Buy-Spree Tokyo, March 21. Data from MoF for the week-ended March 15 show Japanese investors continuing to buy foreign bonds en masse. The buys are especially striking with most years showing net sales from around end-January to the end of the Japanese fiscal year in March as institutional investors in particular repatriate coupons and principal. This does not look to be the case. If there has been any repatriation, most of this has been just coupons with principal re-invested. Data for the latest week show net purchases of Y931.3 bln by Japanese investors. They did sell a net Y31.5 bln in foreign stocks however, ending a series of weekly net buys.
On the other side of the ledger, foreign investors continued to sell out Japanese stock holdings, dispensing of a net Y993.0 bln. They did purchase a net Y85.3 bln in Japanese bonds.
23:53 EUR/JPY: Still Thin But Relative Stability Eyed Today Tokyo, March 21. With most major markets closed today for Good Friday, EUR/JPY is likely to re- gain some measure of stability. It currently trades 153.25/30, roughly in the middle of the 151.70-155.17 range seen yesterday in London and New York. The market does remain thin but the lack of participants and expectations that early trading in Tokyo will be dominated by importer settlements into the fix will likely give the cross some measure of stability.
On a technical level, the 151.70-85 region looks to be shaping up as key support. Along with the low overnight, this area is now a double bottom with the low of 151.82 on Monday. A break below could trigger quite a few stops and fresh sales as it would confirm for many the piercing of the neckline of a head-and- shoulders pattern in development since January 22 when it traded up to create the first shoulder from 152.10 to the mid-159 level on January 30. After falling towards 154.00, it created a head topped off ahead of 161.50 on February 27. Falling off from this level, many see a right shoulder created on the bounce to just above 159.00 on March 5 and 12. If confirmed, a nine big figure decline in EUR/JPY could be in store. Whatever the case, key support is seen at 151.70-85. Topside, resistance is eyed towards and above 155.00, highs from overnight.
19:44 FOREX: Trsry Reaches Agreement with Abu Dhabi, Singapore SWF San Francisco, March 20. After meetings today, the US Treasury has reached an agreement with Abu Dhabi and Singapore sovereign wealth funds, with the treasury stating that it wants the IMF and OECD to build on the principles for the funds. The Treasury calls for more disclosure as well as strong internal controls and risk management.
Forex activity is grinding to a halt with most flow tied to short-covering on USD/JPY and JPY crosses. The rise in stocks today, with the DJIA up over 250 pts into the close, is underpinning the JPY cross bounce.
20:39 FOREX: Fed Custody Holdings Hit New Record High San Francisco, March 20. It must be argued that aside from the threat of intervention, the massive shift into the USD from central banks, as reflected in Fed custody holding data, continues to be a factor behind the USD rebound. Fed custody holdings for the week of March 19 have risen $11.492 bln or over $2 bln per trading day to take custody holdings to fresh record highs of $2.173 tln. Fed custody holdings have now risen by $115 bln since the week of January 9th just before the shift back to the USD became quite evident and aggressive. Average holdings rose $17.282 bln to $2.168 tln.
In the latest reserve data, Russian announced that reserves rose $7.6 bln the week of March 14 to new record highs of $502.1 bln. India"s forex reserves rose by $2.225 bln the week of March 7th to $303.46 bln, and new record highs.
23:30 AUD/USD: Bounces As Shorts Cover Amid Talk Of Option Defense Sydney, March 20: The AUD/USD has made a strong recovery from the morning"s 0.9116 low after talk emerged that an investment bank was defending a 0.9115 option barrier. The market got short ahead of large stops building below 0.9100 and the option defense along with some local corporate buying for hedge settlement has forced the shorts to cover. Hourly resistance is found at 0.9170. The AUD/USD trades 0.9151/56.
19:42 AUD/USD: Rumors of Hedge Funds in Trouble San Francisco, March 19. There are rumors this afternoon of up to three hedge funds in trouble which some are loosely linking to the commodity bail out as the funds clear positions to offset losses. One of the rumors is that the funds got the Fed rate cut call wrong yesterday, having anticipated a 100 bp rate cut. Nevertheless, the commodity fall is seen fuelling further capitulation trades into the weekend and in Asia tonight and next week and this is seen keeping pressure on AUD/USD. Reports of UK fund losses on JGBs have already circulated this afternoon regarding Endeavor Capital.
Gold is still probing lows around $940 and USD/CAD has just rallied to fresh highs of 1.0158, helping to weigh on AUD/USD which trades at 0.9130. The market is now watching Monday"s low around 0.9129 which if breached, targets 0.9000.
21:02 USD/JPY: NY Traders" Forecasts for Asian Trading San Francisco, March 19. USD/JPY trades at 99.90 this afternoon with two-way flows containing price action today with a firmer dollar supportive but cross flows capping gains. Forecasts for the topside of tonight"s range start at 99.50 and extend to 100.85. Forecasts for the base of the range start around 98.75/80 and extend to 98.60.
EUR/JPY is currently at 154.74 and continues to attract heavy demand on dips though risks remain to the downside as leveraged trades are unwound. Forecasts for the topside of the range start at 155.50 and extend to 157.20. Forecasts for the base of the range are all clustered around 154.00/10.
USD/JPY- I think it will keep flirting with 100 mark for couple more days, but will definitely break below it on the confirmation of Fed interest rate cut, doesn't matter whether it is .5 or .75%. The dollar is going to be in the gutter (if not already in, LOL) and I am ready to short it. I love Forex, money to be made either way.
07:28 FX OPTIONS: Opening Comments - JPY Vols Spike on Spot Slide London, March 13. The USD took another hit overnight, but most noticeably against the JPY, as carry reversals and risk aversion dominated trade. This time behind news that Carlyle Capital is nearing collapse. Spot USD/JPY hit levels 2 pips shy of key 100.00. Vols have rallied, with 1 month atmf going through at highs of 17.5 on the European open vs levels in the low 14.0"s late Wednesday (spot in lower 102"s). At the other end of the curve - 1 year atmf has gained over 1.0 vol to trade 12.0-12.1. 1 month 25 delta risk reversal out to high 4.0"s and 1 year r/rev to the lower 5.0"s from 4.75 Wednesday (JPY calls). Vols in EUR/USD also higher, although gains more limited with spot reaching 1.5587 from 1.5572 late Wednesday. 1 month atmf vol opens 10.4/10.7 vs 10.25 on the break above 1.55 yesterday. 1 month atmf Cable vol to new recent highs around 9.4 from 9.3 yesterday, with spot reaching 2.0322 overnight. Vols in EUR/CHF benefit from risk aversion as spot slips back to 1.5717 from highs at 1.5875 yesterday. 1 month atmf opens in the mid
07:18 EUR/JPY: Edges Back Up Above 156.00 But Still Fragile, Stks-USD Tokyo, March 13. EUR/JPY has managed to trade back up above 156.00, if only barely. The cross currently trades 156.05/08. It fell from an early high of 158.16 to as low as 155.54 this afternoon in tandem with USD/JPY. A relatively bid EUR/USD provided some support but, given stock market weakness and the plunge in USD/JPY, this support was not enough. To wit, sell-side flows in EUR/JPY look to have helped cap EUR/USD at 1.5587 in Asia, still a fresh record high.
EUR/JPY is likely to continue to trade lock-step with USD/JPY, especially should USD/JPY see another leg down below 100.00. And this could come as soon as tonight given current momentum and the speed of the move down after breaking below key support at 101.30-40. EUR/JPY continues to see good support at the 155.50-60 level, a double bottom now along with the 155.59 spike low seen on Tuesday. A break below this level targets moves towards the 154.00 level, lows seen on February 7.
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