Fed Decisions Ruins The Charts for the Bulls

Fed Lowers Rate by a Quarter Point to 4.25 Percent (Update4): “The Federal Reserve lowered its benchmark interest rate by a quarter-point to 4.25 percent, while signaling officials are open to further cuts if the housing slump and credit squeeze worsen.

Stocks fell and Treasury notes surged after the decision, which some economists said fell short of what's needed to spur lending and avert a recession. The central bank also pared the discount rate by a quarter-point to 4.75 percent, counter to speculation among investors that the Fed would make a deeper reduction.

"Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,'' the Federal Open Market Committee said in a statement after meeting today in Washington. The change ```should help promote moderate growth over time.''

The Fed dropped language from its previous statement that risks of slower growth and faster inflation were ``roughly'' balanced. The economy is faltering after a third-quarter surge as house prices drop, consumer spending slows and banks tighten lending standards for even their best customers.”

Treasuries Rise Most in Three Years as Fed Rate Cuts Disappoint: “Treasuries rose the most in more than three years on concern that the Federal Reserve's quarter- point reductions in borrowing costs won't be enough to avoid the risk of recession.

The rally pushed yields on two-year notes, more sensitive to expectations of further rate cuts than longer-maturity debt, back below 3 percent. The central bank lowered its target for overnight loans between banks to 4.25 percent and the rate it charges banks for direct loans to 4.75 percent, disheartening investors expecting a bigger reduction in the discount rate.”

U.S. Stocks Fall After Fed Cuts Benchmark Rate by Quarter Point: “U.S. stocks tumbled the most in a month as investors speculated the Federal Reserve's quarter- point interest-rate cut will fail to prevent a recession.

Bank of America Corp. and Citigroup Inc. led all 93 companies in the S&P 500 Financials Index lower, and homebuilder shares fell the most ever after the Fed said the housing slump is getting worse. Washington Mutual Inc., the largest U.S. savings and loan, posted its steepest drop in a month on plans to write down the value of its home-lending unit. Freddie Mac, the second-biggest mortgage-finance company, slid for a third day after forecasting a wider loss than analysts estimated.

The S&P 500 lost 38.31, or 2.5 percent, to 1,477.65. The Dow Jones Industrial Average retreated 294.26, or 2.1 percent, to 13,432.77. The Nasdaq Composite Index decreased 66.6, or 2.5 percent, to 2,652.35. Almost 14 stocks declined for every one that rose on the New York Stock Exchange. Treasuries rallied and the dollar weakened against the euro and yen.

“It should have been more aggressive,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at the Hartford in Hartford, Connecticut. “The market's instinctive reaction is that it's too little too late and that the Fed is behind the curve.””

Forget about too little too late. That’s not it at all. Its more that the cuts don’t matter much. They can’t ‘fix’ the situation. The cuts have little affect on what really matters: LIBOR and EURIBOR rates… these cuts won’t inflate risky assets because lenders of all kinds are cutting back on their risk exposures by tightening all their credit standards.

UBS Confessess, More SIVs go on Balance Sheet, Bond Sales Collapse

UBS to Sell Stakes After $10 Billion in Writedowns (Update4): “UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East.

Europe's largest bank by assets plans to raise 13 billion Swiss francs ($11.5 billion) selling bonds that will convert into shares to Government of Singapore Investment Corp. and an unidentified Middle Eastern investor, Chairman Marcel Ospel said on a conference call with reporters today.

UBS also plans to sell 36.4 million treasury shares that it previously intended to cancel, raising about 2 billion francs, and proposed replacing the 2007 cash dividend with stock, boosting capital by 4.4 billion francs. The convertible bond sale and dividend change must be approved by an extraordinary shareholders meeting in mid-February, the bank said.

UBS plans to raise a total of 19.4 billion francs through all the measures, which will improve its so-called Tier 1 capital ratio, a measure of financial strength, to more than 12 percent from 10.6 percent on Sept. 30.”

That’s a pretty massive write down and some serious dilution. UBS is trading up pre-market. Go figure.

Societe Generale Takes On $4.3 Billion of SIV Assets (Update3): “Societe Generale SA, France's second-biggest bank by market value, will bail out its $4.3 billion structured investment vehicle after losses related to the collapse of the U.S. subprime-mortgage market.

Societe Generale will take on assets including $387 million of bonds backed by subprime mortgages, the Paris-based lender said in an e-mailed statement today. The company rose 1.6 percent to 108.19 euros ($159.25) as of 1:35 p.m. in Paris.

The rescue of Societe Generale's SIV follows similar actions by London-based HSBC Holdings Plc and Rabobank Groep NV in Utrecht, Netherlands, to limit losses from a potential fire sale of assets. The falling value of Societe Generale's Premier Asset Collateralized Entity Ltd., or PACE, pushed it close to having to name a trustee to protect senior debt holders, Standard & Poor's warned on Dec. 7.”

Putting these assets on their balance sheets limits the amount of capital these institutions can throw around in new loans to businesses and consumers.

Global Bond Sales Tumbled 66% Last Quarter, BIS Says (Update1): “Governments and companies reduced sales of bonds and money-market securities by 66 percent to a net $396 billion worldwide in the third quarter as credit markets slumped, the Bank for International Settlements said.

Borrowing declined from a record $1.17 trillion in the second quarter, according to a report today by the BIS, which has monitored financial markets for central banks since 1930. The BIS figures subtract maturing debt from sales.

The biggest financial institutions cut lending after writing down more than $70 billion on securities related to bad U.S. home loans. Europe and emerging markets led the decline, with borrowing in Germany, France and the U.K. dropping 77 percent to $61 billion. That compares with a 56 percent decline in the U.S. to $165 billion. Emerging market borrowing plunged to $1.4 billion from $67.1 billion in the second quarter.”

This will definitely have a negative impact on the future earnings of the entire financial sector.

UK: Definately The Next Important Victim

Crude looks like a potential double top and Gold looks a little toppy too, with a lower high after $850 held. Could there be a bigger US dollar bounce in the cards?

U.K. House Prices Decline, Worst Streak Since 1995 (Update2): “U.K. house prices fell for a third month in November, the worst performance in more than a decade, and services growth slowed, increasing speculation the Bank of England will cut interest rates tomorrow.

The average cost of a home in Britain declined 1.1 percent to 194,895 pounds ($400,000) from a month earlier, a report by HBOS Plc showed today. Prices last fell for three months in a row in 1995. Services from banking to travel grew at the slowest pace in four years last month, according to an index by the Chartered Institute of Purchasing and Supply.

The pound fell to a four-year low against the euro as banks including Barclays Capital switched their forecasts to predict the Bank of England will reduce its benchmark rate. While Governor Mervyn King says he's still concerned about inflation, rising credit costs are threatening to drag down the housing market and hobble growth in Europe's second-largest economy.”

Again… There can be no doubt. The real estate bubble is bursting in the UK. The same mess that is currently causing so much misery in the US will occur in the UK.

“The U.K. economy is slowing from its fastest pace in three years as the financial services industry reels from the subprime slump and rising credit costs discourage consumers with record debt.”

The credit crunch is definitely causing casuallities…

U.K. Consumer Confidence Falls Most Since 2004, Nationwide Says: “U.K. consumer confidence fell the most in at least three years in November as higher borrowing costs and rising prices discouraged spending, Nationwide Building Society said.

An index of sentiment taken from a survey of 1,001 people declined 12 points to 86, the largest drop since the gauge was introduced in May 2004, Britain's fourth-biggest mortgage lender said today in an e-mailed statement. A measure showing willingness to spend fell 14 points to 63, the lowest recorded.

The report is the second to suggest pessimism among consumers deepened in November after contagion from the U.S. subprime slump raised credit costs for Britons with record debt, and oil prices rose close to $100 a barrel.”

There you have it. People are finally waking up to the fact that they’ve fucked themselves into a nasty little debt corner. Most baby boomers probably did not envision their retirement to be indefinitely postponed… The sudden realization that they are nothing more than debt slaves has noticeably dampened their moods.

U.K. Rate Forecasts Change to `Cut' on Signs of Slowing Growth: “U.K. economists at Barclays Capital, Lloyds TSB Group Plc and Royal Bank of Canada changed their predictions for the Bank of England rate decision tomorrow and forecast a cut after reports signaled the economy is weakening.

Simon Hayes at Barclays, Kenneth Broux at Lloyds TSB and Richard McGuire at Royal Bank of Canada said the central bank will lower its benchmark interest rate by a quarter point to 5.5 percent. All three previously forecast no change. Global Insight Inc., RIA Ltd., Wachovia Corp. and Ideaglobal also altered their predictions, saying the bank will reduce the rate.

U.K. services from banks to airlines expanded at the slowest pace in four years last month, house prices declined in their worst streak since 1995 and consumer confidence fell the most since 2004, separate reports showed today. The new forecasts widen the split among economists, who are the most divided on the central bank's decision since June 2004.”

Bank of Canada cut. The UK will probably cut. Slowly rates the world over will go down in an attempt to ease the credit crunch.

Fannie Mae, Freddie Mac 'Closed The Gap', Florida Screwed

Fannie Mae and Freddie Mac successfully closed the gap, and another headline out of Florida. (Florida Report: SUBPRIME CRISIS from The Mess That Greenspan Made)

Florida's Pension Fund Holds Same `Suspect' Debt as Frozen Pool: “Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals.

The State Board of Administration, manager of $37 billion in short-term assets, including the pool, also oversees the $138 billion Florida Retirement System. The board purchased $3.3 billion of debt whose top ratings were reduced following the collapse of the subprime mortgage market, according to documents obtained by Bloomberg News through an open records request.

Like the hundreds of school districts and towns unable to access $14 billion frozen in the Local Government Investment Pool, Florida's 1.1 million current and retired state workers rely on the board's management to boost returns on the funds that pay their pensions. That has left them vulnerable to the same potential for losses. A state-created home insurer and the treasury are also at risk.

“These were highly inappropriate investments for taxpayers' money,” said Joseph Mason, a finance professor at Drexel University in Philadelphia. “This is the tip of the iceberg for pension funds. We know the paper is sitting there. There are substantial subprime-related losses that haven't shown up yet.””

… and to think: This is only the BEGINNING.

Libor Spikes Again, More Moodys Downgrades

Despite daily, desperate, massive injections of liquidity Libor is still spiking higher. Be worried. No es bueno. More downgrades from Moody’s are pending and the Florida school boards have decided to reject any losses on their frozen funds…

This little short covering bounce in equities has run its course. If not today, then very soon…

Bloomberg Charts:

1 month Libor - US0001M

Asset Backed Commercial Paper (ABCP) - FCPOAB

One-Month Pound Libor Soars as Banks Seek Year-End Funding: “The cost of borrowing in pounds for a month climbed the most in more than 10 years as banks sought funds to cover their commitments through to the start of 2008 amid a credit squeeze.

The London interbank offered rate that banks charge each other for such loans due after the end of the year jumped 63 basis points to 6.72 percent, the highest since December 1998, the British Bankers' Association said today.

Soaring bank lending rates reflect growing concern about the strength of financial institutions after more than $60 billion of writedowns this year linked to U.S. subprime-mortgage defaults. The European Central Bank, Bank of England and the Federal Reserve all offered emergency funds last week in an attempt to soothe concerns that credit conditions will deteriorate at the end of the year.

Today is the first day on which a cash loan of one month in pounds will cover a borrower's needs through the end-of-year holiday period.”

Yen Rises as Moody's Prepares Rating Cuts on Subprime Losses: “The yen rebounded from a two-week low against the dollar after Moody's Investors Service said it is preparing the biggest credit-rating cuts since subprime-mortgage defaults rocked financial markets.

The yen rose versus all 16 most-traded currencies as investors retreated from carry trades and sold higher-yielding assets bought with loans from Japan. The yen also advanced as Bank of Japan Governor Toshihiko Fukui signaled interest rates may have to rise.”

This is one of many clues that last weeks short covering rally is running out of steam.

Moody's May Cut Ratings on $105 Billion of SIVs (Update1): “Moody's Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market, foreshadowing losses for investments that pay Florida teachers and money market funds.

Moody's may lower ratings on $105 billion of debt sold by structured investment vehicles after the net asset values of 20 SIVs sponsored by firms including New York-based Citigroup Inc. declined to 55 percent from 71 percent a month ago, Moody's said in a statement Nov. 30. The assets were valued at 102 percent in June.

“The assets that SIVs hold are continuing to decline in value,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, Switzerland's second-biggest bank by assets. “As they do that it's creating more problems for the holders.”

School districts, towns and cities across Florida were denied access to their money after the State Board of Administration halted withdrawals from the Local Government Investment Pool on Nov. 29 to stem a run on the fund, which had $2 billion in SIVs and other debt tainted by the subprime collapse, state records show.

Downgrades would make it more difficult for SIVs, companies that use short-term debt to invest in higher-yielding assets, to obtain financing. Three of the funds defaulted in the past four months. Treasury Secretary Henry Paulson is working with Citigroup, New York-based JPMorgan Chase & Co. and Bank of America Corp. in Charlotte, North Carolina, to form an $80 billion fund to help bail them out.”

Can you say fire sale? A downgrade of this magnitude will force the holders of this structured debt to liquidate en masse.

Florida Schools Struggle to Pay Teachers Amid Freeze (Update4): “School districts, counties and cities across Florida sought to raise cash after being denied access to their deposits in a $14 billion state-run investment fund.

The Jefferson County school district was forced to take out a short-term loan to cover payroll for the 220 teachers and other employees in the system after $2.7 million it held in the pool was frozen yesterday. At least five other districts also obtained last-minute loans, said Wayne Blanton, executive director of the Florida School Boards Association.

“The unthinkable and the unimaginable have just happened here in Florida,” said Hal Wilson, chief financial officer of the Jefferson County school district, located 30 miles (48 kilometers) east of the state capital Tallahassee. “What we just experienced here is a classic run-on-the bank meltdown.”

Florida's State Board of Administration, manager of the Local Government Investment Pool, halted withdrawals yesterday at an emergency meeting after $13 billion was pulled out this month from participants. Governments from Orange County, home of Disney World, to Pompano Beach asked for their money back following disclosures that the fund held $1.5 billion of downgraded and defaulted debt.”

Florida Governments Reject Idea of Accepting Losses on Pool: “A newly formed advisory panel composed of Florida school and local government officials with money frozen in a state-run investment pool said they won't accept a return of less than 100 percent of their investment.

Members of the new panel, on a conference call late yesterday with officials from the agency that runs the fund, rejected a proposal to survey pool participants to determine whether they would accept as little as 90 cents on the dollar of their deposits in order to access their money in December.

“The very fact that you're out here talking to us about taking less than 100 percent is in my mind unacceptable,” said MaryEllen Elia, superintendent of Hillsborough County Public Schools, which has $573 million tied up in the pool, more than any other school district. “You need to figure out how to make the taxpayers in Florida whole. It isn't going to be fixed by asking us to take less than what we put in there.””

When all else fails, just WILL the losses away. Just refuse to accept them. Make them unreal with the force of your mind alone. Just concentrate really really hard on the big fat negative sign and force it to disappear.