Dear CIGAs,
Lehman's conference call declaring no problems due to sufficient capital and a fine core business has the equity market up 250+ points and Lehman's shares are in the process of erasing previous losses. The general financials are following suit.
The Fed works with perception. The perception today is outlined in the title of this missive.
The implication that the Fed is the guarantor of all things financial is a repeat of the Weimar situation as the tools being applied will have the same results.
Federal Reserve: Wall Street's new safety net
by William Neikirk
Rushing to prevent a stock-market meltdown, the Federal Reserve has suddenly turned itself into Wall Street’s financial safety net.
It is a new and controversial role for the nation’s central bank — and it could be an expensive one if it doesn’t succeed in easing a credit crunch and a crisis of confidence in the markets.
“We are in uncharted waters,” said Joel Naroff, a Holland, Pa. economic consultant. “The financial system looks nothing like it did 10 to 20 or 30 years ago with new financial products and the internationalization of capital flows. The Fed is facing issues that are new.”
Chairman Ben Bernanke announced Sunday night that Wall Street’s largest investment banks could borrow directly from the Fed just as commercial banks now do—and use questionable collateral, such as mortgage-backed securities, to boot.
Many critics say that the central bank is pledging to rescue Wall Street without demanding an end to excesses that contributed to today’s jittery markets, creating a “moral hazard” that could lead to more excesses.
More…
Jim Sinclair’s Commentary
The equity markets and the financial sector stocks love the Fed so why doesn’t everyone?
To understand the following article make sure you first understand the following:
Inflation is two fold. First it is the expansion of monetary aggregates which always result in price inflation.
Deflation is debt failure first. Debt failure clear of no monetary expansion will reduce prices.
We now have unprecedented monetary inflation on top of price inflation coming from the monetary and fiscal stimulus of 2000 to present.
We are headed to some degree of the Weimar experience, which can be summed up as debt failure, collapse in business activity and an explosive rise in prices for goods and services while a currency collapse took place.
That is a mouthful, but also totally accurate concerning the present situation.
Foreign investors veto Fed rescue
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:13pm GMT 17/03/2008
As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.
Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."
The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.
Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.
It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.
More…
Jim Sinclair’s Conclusion
The bottom line of today is simple. Short rates will go to practically zero as the Formula takes hold of the US dollar and the credit market. Today's drop to 2 1/4 percent is a statement to that effect.
The Fed will take valueless collateral from everything that comes under the character as a financial entity via investment banks, not simply commercial banks.
The predictable and absolute result will be gold at $1650 and the dollar at .5200.
I have no doubt about this, nor should you.
