Thursday, September 18, 2008

Where from here ?

The FED opted to not changed rates at their regularly scheduled meeting on Tuesday. This was not a surprise to me as no matter how low rates are the liquidity "crisis" has more to do with counterparty risk then with not having access to the money.

Today we saw the last (of the big five) remaining Investment houses come under pressure. Goldman Sach's ended the day down 13.91% at $114.5 per share. This after falling to a low of $97.78 at one point. Morgan Stanley ended at $21.75 per share down 24.21% after hitting a low of $16.08.

``They're fish in the barrel, the short sellers have them targeted,'' said William Smith, whose firm Smith Asset Management Inc. in New York manages $80 billion, including Goldman stock. ``Morgan Stanley's probably going to wind up doing a deal, it's really a matter of survival.''

I agree with this statement. It very much reminds me of the Asian crisis when one by one each Asian currency took their turn being the brunt of short sellers. They all went, or had to establish currency regulations to prevent a run on the currency. It took a few years for it to play out and a few more for the economies to recover and I see the same thing here. I think it is only a matter of time before Goldman and Morgan Stanley team up with someone. The days of the stand alone investment house are over.

Think how John Thain is feeling right about now. If not for his moves over the weekend it would be Merrill squarely in the cross hairs of the market. Instead Merrill has a strong and respected partner and was taken over 70% above the previous close. I bet Goldman and Morgan Stanley would not mind that. I tend to believe what the top dogs at these firms are saying, everything is fine, and we are well capitalized etc etc. But the important thing is that the market smells blood and they want it and it seems to me will get it.

Glenn Schorr, an analyst at UBS AG, said today in a note to investors that the market reaction was ``insanity.'' Goldman and Morgan Stanley aren't at risk of running out of money because they keep plenty of cash on hand and can borrow from the Federal Reserve and a consortium of banks set up over the weekend, he said, noting that both have enough capital to absorb any losses.

Once again PERCEPTION IS REALITY and right now the reality is that the market is risk adverse.

The market has been extremely illiquid. In my core currencies I am having difficulties cutting and covering positions. The biggest problem is funding existing positions. Short date dollars are trading at a huge premium over Fed Funds. Foreign markets are desperate for dollars. To get those dollars they are moving to the forward FX market to obtain them. They S+B the foreign currency against Dollars (therefore B+S dollars). They are willing to do that at way below market rates because of their need for the dollars. Today for example short date Mexico was trading at a discount to dollars.

Back to the original question, where from here? Well I saw this morning that there was a hostile takeover offer from a Korean company Samsung Electronic to buyout a U.S. company SanDisk for 5.85 billion dollars. This was at a 73% premium over the closing price on Tuesday. Could this mean that U.S. companies are beginning to be viewed as under valued ? Possible, but once again time will tell.

As for the "Big Dollar" it got hit hard today. This I found kind of strange. Yes we have problems (lots and lots of problems) but with dollars at such a premium and everyone seeming to need them (and funding being in excess of 6%) I think it is only a matter of time before it regains some momentum to the upside.

Good Luck and Good Currency Trading.



Anonymous Anonymous said...

Read a quote from Rothschild in the Washington Post the other day -- "The time to buy is when blood is running in the streets."

Methinks we aren't there yet. I don't really see any blood in the streets, although I know a lot of bankers and investors feel otherwise.

But I do get the impression that a lot of US companies are undervalued.

6:10 PM  

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