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Monday, June 2, 2008

Financial Ninja Favs: May

In case you missed them, here are YOUR favorite Financial Ninja posts for the month of May:

1) Really Scary Fed Charts: MAY, False Alarm?
2) Bulltrap: ABCP and Level 3 Bombs
3) LIBOR Liars: UBS, HSBC, Royal Bank of Scotland (Update1)
4) MBIA Reports Scary Earnings: NEGATIVE Revenues
5) This Bear Market Rally is Over: EURIBOR Rises Again

As varied as all these posts might seem, they are all very closely related. Basically the debt fueled real estate bubble has burst and the Fed under Ben ‘Helicopter’ Bernanke is desperately trying to manage the fallout with new and innovative credit facilities.

In Really Scary Fed Charts: MAY, False Alarm? you can really see just how massive the credit bubble was and just how desperate the situation is for the entire financial system is.

The situation is so dire that financial institutions of the highest standing have resorted to creative accounting (or at least more so than usual) in an attempt to hide and postpone their losses long enough prevent a total collapse. In Bulltrap: ABCP and Level 3 Bombs I list the greatest offenders of mark-to-make-belief.

As if that wasn’t enough, these same institutions were caught red handed lying about their cost of funds in ) LIBOR Liars: UBS, HSBC, Royal Bank of Scotland. This has resulted in the dislocation of LIBOR, off of which $150 trillion of financial products are priced. The clowns over at the British Bankers’ Association decided NOT to fix how LIBOR was calculated. (Libor Status Quo May Spurt Market ‘Dislocations,’ Alternatives)

In the meantime MBIA continues to die a slow painful death but the ratings agencies just won’t pull the trigger… despite having had their credibility shredded numerous times. First Moody’s gets caught sending out fake ratings in CIFG, MBI, ABK and Moody’s: The Computer’s Made Us Do It and then Moody’s admits that one of their very own units, Moody’s Analytics, would have rated the monolines worse than junk in Ambac MBIA: Junk Rating Caa1.

This lack of transparency has naturally resulted in a lack of trust among financial institutions. Since most of them are dirty, they’ve inferred that the rest of them must be as well. LIBOR and EURIBOR have spiked as a result.

Despite all this, the S&P 500 and equities in general all rallied to within 10% of their record highs. I was a little early, calling a top around 1420. Prices made it to 1440 before being soundly rejected in This Bear Market Rally is Over: EURIBOR Rises Again.

Obviously none of the real financial problems have been solved despite a flurry of rate cuts and the creation of massive liquidity facilities. Hope for a quick solution and a quick recovery should be wearing thing just about now...

The rest of this year probably isn’t going to be very pretty for risky assets as the underlying economic data continues to deteriorate the world over.


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