News Business Cycle Investor

Nov 18 2008 Berkshire's Credit Risk Soars on $37 Billion Bet ... Warren Buffett is risking $37b for a $4.85b premium that four major stock markets including S&P500 will not be lower in 10 years time. Historically, holding major US index for 8 years never lost money (click chart) and Berkshire will invest the premiums so this looks like a low risk decision unless there will be another stock market "tsunami" at the wrong time

Nov 17 2008 Japan is now in recession

Nov 16 2008 G-20 Calls for Action on Growth, Overhaul of Financial Rules. The group set a March 09 deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies ... they are going to wait for new US President Obama

Nov 14 2008 Europe Economy Falls Into First Recession in 15 Years

Nov 13 2008 George Soros: statement to the US House of Representatives ... hedge funds industry insider's analysis of the financial crisis and possible reforms

Nov 13 2008 US House or Representatives - Hedge Funds Hearing ... insightful views from key industry players

Nov 11 2008 International Accounting Standard Board Expert Advisory Panel ... discussion of "fair value" accounting

Nov 9 2008 G-20 Ready to Urgently Boost Growth, Stimulus Needed ... commitment to a coordinated monetary and fiscal support at the upcoming Nov 15 summit in Washington

Nov 6 2008 BOJ Helpless as Yen Rises on Carry Trade ... rapid unwinding of foreign currency bets with borrowed Yen

Nov 6 2008 Bank of England Cuts Key Rate by 1.5 Percentage Points to 3% ... more than expected

Nov 4 2008 Dollar Libor Drops as Central-Bank Cash, Rate Cuts Thaw Lending ... interbank lending is working again

Nov 4 2008 October 2008 PMI down to 38.9% ... a serious slowdown for third consecutive month: high inventories, very weak Backlog of Orders

Oct 31 2008 Cost of shipping (Baltic Dry index) down 90% since July 08 ... another bubble has burst making trade cheaper in a slowing global economy

Oct 31 2008 Ben Bernanke's speech at the UC Berkeley/UCLA Symposium: The Mortgage Meltdown, the Economy, and Public Policy, Berkeley, California

Oct 31 2008 Bernanke Urges `Backstop' for Mortgage-Bond Market ... an attempt to make debt safer at lower rates

Oct 30 2008 U.S. Economy Shrank in the Third Quarter by -0.3% ... less than expected -0.5%

Oct 30 2008 Treasury, FDIC Said to Consider Guarantees to Stem Foreclosures ... having recapitalized banks the attention is now likely to turn to consumers

Oct 29 2008 Fed Cuts Rate to 1% - a half-century low

Oct 29 2008 Fed May Cut Rate to 1% today ... markets jump more than 11%

Oct 23 2008 Developing nations seek IMF support ... speculative capital is withdrawing from risky markets (Argentina, South Korea, Pakistan, South Africa, Belarus, Hungary, Ukraine, Russia, Iceland) crashing their currencies

Oct 21 2008 US moves toward new fiscal stimulus ... Bernanke is acting again quickly

Oct 14 2008 Drama Behind a $250 Billion Banking Deal ... Paulson's preference shares (part of $700bn TARP program) came with 5% dividend rising to 9% after five years and the right to convert to common non-voting shares equivalent to 15% of the initial investment

Oct 9 2008 SEC Begins Mark-to-Market Study - to be completed by January 2 2009 ... it would be reasonable to expect a significant change to the controversial accounting "fair value rule" FASB 157

Oct 9 2008 Overnight US Commercial Paper Rates Drop on Global Rate Cut, Fed Backstop Plan ... this should help stabilize the business credit

Oct 9 2008 Mutual Fund Withdrawals a Record as Investors Flee ... the retail investors are making a panic exit: Dow plunges -40% since its November 2007 peak to 2003 levels below 9,000.

Oct 8 2008 US, European and Asian Central Banks cut interest rates ... markets recover for a moment and fall again on negative sentiment

Oct 8 2008 Fed will bypass ailing banks and lend directly to American corporations for the first time since the Great Depression ... this will help businesses in times when banks do not want to even lend to each other overnight

Oct 7 2008 UK banks are to be partially nationalised ... UK and Europe is catching up with the US rescue plan

Oct 3 2008 $700bn Paulson Plan to bailout banks and $149bn of tax breaks approved by Congress and President - markets drop fearing recession ... the size of the package equals approximately 7% of GDP but negative sentiment in the market is stronger at present

Oct 3 2008 Commodities CRB Index down 31% since July 2 2008 record on slowing demand ... and with it commodities linked currencies

Oct 1 2008 US Senate approves revised $700bn Paulson package (Bill 1424); now the Bill goes back to the House. Additions include tax breaks, temporary increase on deposit insurance from $100K to $250K. Orders SEC to study the effect the "fair-value" requirement has on bank failures and balance sheets ... yet in initial response stock markets declined on uncertainty

Oct 1 2008 The revised Paulson's Plan: H.R. 1424 Economic Stabilization Act

Oct 1 2008 George Soros alternative to Paulson's plan: invest in preference shares with warrants; not in toxic debt ... this would maintain the ownership status quo of the depressed securities whereas Paulson's plan allows redistribution. Warren Buffett made recently similar preference shares investments in GE and Goldman Sachs

Oct 1 2008 Europe considers 300 billion euros fund to bail out banks and prevent loss of depositors ... the systemic risk is clearly global; interbank Libor rates jump to an all time record before second vote on the U.S. $700bn Paulson's rescue package

Sept 30 2008 Oil drops 28% in 3Q on slowing economy concerns ... the swing is too big to be based only on fundamentals - more likely leveraged players who control majority of the future oil contracts have been moving out of the sector deflating the speculative bubble

Sept 30 2008 Gerard Minack: it's only a matter of time before central banks ease their policy rates. Inflation is no longer the main game. Likewise, the Administration in the US will probably submit a modified plan to Congress ... the US ability to reduce rates is limited at current low 2%; Europe & Australia has more room to reduce rates

Sept 29 2008 Call to suspend "mark to market" or "fair value" accounting responsible for 70% of the crisis ... this became an issue in November 2007. The alternative to FAS 157 is "held to maturity" valuation

Sept 29 2008 FED injects $630b ... just hours before the failed vote

Sept 29 2008 U.S. House rejects Paulson's $700b Plan ... Republicans voted against a bill proposed by Republican Administration - strange. A political game before November 08 elections may put at risk global economy. Dow drops 7%: the biggest fall ever

Sept 29 2008 Citigroup buys Wachovia Bank averting its collapse

Sept 29 2008 The $700b Paulson's plan agreed; ready for House and Senate vote this week... markets are not certain if it will pass and work

Sept 29 2008 Bradford & Bingley Plc, the U.K.'s biggest lender to landlords is nationalized... the crisis is still spreading

Sept 29 2008 Fortis - largest Belgian financial institution rescued in EU16 billion bailout... the crisis is spreading globally just before the USA Government's $700b package is put for approval

Sept 28 2008 Banks must contribute stock warrants to participate in Paulson's proposed $700 billion troubled-asset purchase plan ...one more hurdle removed for the approval of the package

Sept 28 2008 Paulson's $700b rescue Plan - Discussion Draft for Congress

Sept 26 2008 Washington Mutual Inc. was seized by government regulators and its branches and assets sold to JPMorgan Chase & Co. in the biggest U.S. bank failure in history...if the $700b package is not approved we could see more of that

Sept 26 2008 Mortgage-backed securities lost $887bn and major financial institutions market capitalisation dropped $702bn in July 2007 to March 08 period - according to OECD's Adrian Blundell-Wignall in “The Subprime Crisis: Size, Deleveraging and Some Policy Options". ...interestingly Paulson proposed similar size $700bn rescue package

Sept 23 2008 Fed has relaxed rules for minority stakes in banks to encourage Private Equity investment...and they know how to invest big having gained "experience" in building equity bubble in 2007

Sept 22 2008 The end of Investment Banks era: Goldman Sachs and Morgan Stanley become depositors banks...will need to reduce leverage and find new depositors; watch out for smaller/regional commercial banks takeovers

Sept 20 2008 US Treasury (Paulson's Plan) announces unprecedented $700bn rescue package... effective nationalisation of bad mortgages. The "socialist" capitalism is alive - what has happened to Adam Smith's invisible hand and free market?

Sept 18 2008 limiting short selling busts the markets

Sept 17 2008 Mortgage applications in the U.S. jumped last week as refinancing soared on falling interest rates...we have been pointing out for the last few quarters that mortgage interest rates were rising while Fed was reducing rates. If this new trend of lowering mortgage rates is sustained, we should eventually see easing of the housing market pains

Sept 15 2008 Bank of America Corp., the biggest U.S. consumer bank acquired Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America's oldest financial companies... now only two US independent investment banks are left: Goldman Sachs and Morgan Stanley

Sept 15 2008 USA government took control of American International Group Inc. in an $85 billion bailout to prevent the bankruptcy of the nation's biggest insurer and the worst financial collapse in history... AIG was to big to let it bankrupt

Sept 15 2008 Lehman Brother - 4th largest US Investment Bank Files for Biggest Bankruptcy... who will be next?

Sept 07 2008 The U.S. government seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades...50% of USA mortgage market just has been nationalised; long term shareholders lost 95% value

July 30 2008 Paulson announced a plan to encourage banks to issue a new form of debt known as a covered bond... popular in Europe and may play important role in the "post credit crisis" US

Feb 26 2008 Is fair value accounting really fair?...Accounting rule FAS 157 is arguably one of the reasons for rapid deepening of the current credit crisis and subprime collapse. It added to the reported accounting losses. The requirement to "mark to market" unsold assets - a non cash flow item - will be hotly debated topic when or before this crisis is over

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Sept 29 2008 Citigroup buys Wachovia Bank averting its collapse

Sept 29 2008 The $700b Paulson's plan agreed; ready for House and Senate vote this week... markets are not certain if it will pass and work

Sept 23 2008 Fed has relaxed rules for minority stakes in banks to encourage Private Equity investment...and they know how to invest big having gained "experience" in building equity bubble in 2007

Sept 22 2008 The end of Investment Banks era: Goldman Sachs and Morgan Stanley become depositors banks...will need to reduce leverage and find new depositors; watch out for smaller/regional commercial banks takeovers

Sept 20 2008 US Treasury (Paulson's Plan) announces unprecedented $700bn rescue package... effective nationalisation of bad mortgages. The "socialist" capitalism is alive - what has happened to Adam Smith's invisible hand and free market?

Sept 18 2008 limiting short selling busts the markets

Asset Allocation | Research | US Index Funds | Stock Market Timing | ETF | Dow Jones DJIA | S&P 500

Business Cycle Investor

Information Sources:

News that matter...Editor's comments

Sept 22 2008 The end of Investment Banks era: Goldman Sachs and Morgan Stanley become depositors banks...will need to reduce leverage and find new depositors; watch out for smaller/regional commercial banks takeovers

Sept 20 2008 US Treasury (Paulson's Plan) announces unprecedented $700bn rescue package... effective nationalisation of bad mortgages. The "socialist" capitalism is alive - what has happened to Adam Smith's invisible hand and free market?

`Asset Allocation` | `Research` | `US Index Funds` | `Stock Market Timing` | `ETF` | Dow Jones DJIA | S&P 500