March 19, 2008: Commodities finally got slammed after racking up some massive gains over the last few months. Gold lost $59, Oil lost over $4 to close just above $104 a barrel. The stock markets were also volatile with the DOW losing almost 300pts just after yesterday’s 400+ point move. Volume was heavier on the NYSE making this a ‘distribution’ day. The Nasdaq lost 2.6%.
Financial, and home-building stocks were strong, while oil/gas, fertilizers, and steel stocks were weak. Monsanto lost 12%. Bidu.com’s recent rally was killed today when it lost 11%. Buenaventura (BVN) lost 10% as gold stocks sold off hard. Potash Sask. and National Oilwell Varco lost 10%.
Investors are running for the cover of US short-term treasuries in what could be described as a “panic” out of assets. The yield on the 3-month T-bill got as low as only 0.3% today. Has a massive “de-leveraging” begun? I hope not because there is an estimated $516 trillion in leveraged derivatives.
It was announced today that Fannie Mae and Freddie Mac’s reserve requirements were lowered from 30% to 20% and that $200 billion is available for purchasing mortgages. It’s estimated that this gives them the ability to buy or guarantee a massive $2 trillion in mortgages. In my opinion this is now putting ‘crap’ mortgages on the books of the US (and us, the taxpayers).
If the Federal Reserve plans to bail out every major financial institution that’s in trouble this could well run into the trillions of dollars. With real estate prices collapsing 20% since this summer in southern California and sizable losses in other ‘bubble’ areas like Florida, Nevada, Arizona, etc., this is threatening to take down the financial system as we know it.
The Fed is also signaling that it will do what ever it takes and will add more liquidity if needed. Will this ‘tsunami of liquidity’ be enough to help the $11 trillion US mortgage market? Can it save scores of shaky banks, brokerages and over-leveraged hedge-funds like Carlyle Capital ($21 billion fund who used 32:1 leverage!) from imploding?
Tags: commoditites, deleveraging
March 20, 2008 at 3:59 pm
I found this sight while trying to find something on the changes made this week in the % of capital needed to play the futures market. From what I understand the cash requirement to say short the dollar was increased and this is causing some of the sell off. I haven’t found the exact % of the change but I think it has something to do with the rising dollar and fall of commodity prices.
Oil demand has dropped for months now,but oil kept going up. I’ve looked at gasoline usage numbers and they have dropped for weeks,but on the business channels most guests keep saying oil usage is going up. If consumption is going down in the U.S,you can bet usage in the developing countrys is going down. A lot of people say gas at over $3 a gallon won’t change consumption,I don’t believe a word of it. With heating oil at a record high,you don’t think people are lowering their thermostats?
As for the housing market,I still believe it’s over blown. I heard the other day that 1 in 527 homes is in danger of foreclosure. About 16% of all the subprime borrowers never made a payment. I know for a fact,Florida has a big problem brought on by speculators and I think all the areas you mention have the same problem. Countrywide,all the home builders and some lending instituitions are feeling the pinch. and,the government is not going to bail them out. Does Bear Stearns at $2 a share sound like a bailout. Some will loose their homes as they shouldn’t have been loaned the cash in the first place.
I just thought I would add my opinion. Back to my first comment,the government or whoever changed the requirement for the amount of up front capital to leverage what ever has gone a long way in righting all the markets. This isn’ the first time the current White House crew have put in force something to correct what they view as an injustice. Remember the stock shorters getting hit pretty good?