-
One Sign of Hope: Cash on Hand
Tweet Share on Facebook September 18, 2008 CommentBill Stone, the investment strategist at PNC Wealth Management, sees one reason for hope, given everything going wrong in the market today: There's more cash lying around now than during the last bear market.
Moving Forward
While there is much discussion about the lack of liquidity within some financial companies, this is not for the lack of cash in the economic system. Our measure of household cash as a percentage of the stock market (S&P 1500) capitalization is currently above the levels of the end of the last bear market (September 2002). This underscores our belief that there is plenty of "fuel" for a rally once the extreme risk aversion fades.
-
Everyday Investors: Hold Tight
Tweet Share on Facebook September 18, 2008 CommentOn days (and in weeks) like this one, it's hard for average investors to hold on as they watch the value of their stocks sink under what seems like an endless onslaught of scary headlines.
Most still should, according to stock guru Jeremy Siegel and other experts from the Wharton business school.
The whole thing is worth a read, but here are some highlights:
Stocks are still the best bet for long-term investors, offering better returns than bonds or cash, says Wharton finance professor Jeremy Siegel. But with all the turmoil in the financial services industry, he's not betting on quick gains in the S&P 500. "I don't think it will be up this year," he says, adding, however, that the market "is searching for a bottom. All we need is a few weeks of calm to return and I think we will have a very good base for a rally in the market."
-
AIG Failure Helps Rivals in China
Tweet Share on Facebook September 18, 2008 Comment (2)Citigroup's Bob Leung says Asian insurance customers aren't going to stand for a company in as much trouble as AIG, and better-positioned rivals are lining up to steal business even though there's "little risk to policyholders' money" at AIG's Asian life insurance franchise.
[W]e expect strong domestic players such as China Life, Samsung Life, HSBC/Hang Seng Life in Hong Kong and Cathay Life in Taiwan to benefit from faster new business premium growth as consumers seek out stronger players.
China Life (LFC) is his favorite, with "the strongest balance sheet in the region" and a first-half solvency margin at over 300 percent and solid premium income. That means it can think about buying up battered rivals in China or abroad. China Life shares are up about 4 percent today.
Leung also notes the government's $85 billion bailout of AIG isn't a complete fix, and notes that Asian regulators might want tougher standards for their insurers than they do in the United States.
-
Credit Spreads Ignore Cash Infusion
Tweet Share on Facebook September 18, 2008 Comment (1)What does a $247 billion cash infusion buy you? Not a whole lot just yet.
The TED spread, a closely watched gauge of credit risk that measures the spread between three-month treasuries and the interbank lending rate, jumped to 490 basis points Thursday even after global central banks agreed to pump $180 billion in liquidity into the financial system. According to Reuters, that's more than double the spread at any other time during this 13-month crisis.
-
Who's (Still) to Blame
Tweet Share on Facebook September 18, 2008 Comment (3)Talking heads are screaming about "naked" short sellers driving down the banks, but don't believe it. Naked shorts may shave off some points, but the blame still lies with the same few culprits:
1) The banks themselves. Investment banks, by nature, are supposed to be the best risk managers in the world if they're at all interested in long-term survival. They weren't, and a few years of unsustainable profits from building, trading, and selling risky mortgage debt are currently destroying what just two years ago were the safest bets on Wall Street.
2) Regulators. The Federal Reserve, the SEC and the Treasury Department are now in a frenzy to fix a problem that could have been halted over the last decade. The rise of securitization went broadly unchecked. Now, after the damage has been done, they're finally getting some teeth.
-
Financial Crisis Spreads Globally
Tweet Share on Facebook September 18, 2008 CommentBanking's failure is spreading globally and is beginning to echo the crisis that swept across markets in the late 1990s. The difference this time is that America leads the way down.
Russia injected $19.5 billion into its markets, but they'll remain closed until Friday as frightened investors take flight. FT.com says a missed payment by a midsize commercial bank yesterday sparked the market closure but not before $800 billion in equity value was wiped out.
England is suffering, too. Wall Street also sold billions in risky securities to willing buyers overseas. Unsurprisingly, their banks are following ours into decline. Lloyds's $22 billion buyout of HBOS, backed by the British government, hints at the severity of the problem. The combined company, now the U.K.'s largest lender, said it would continue current lending and expand when the crisis subsides, Lloyds officials said. It's essentially the same story as the United States: The government steps in to facilitate a takeover to prevent further calamity (memories of Northern Rock presumably apply) as banks without large chunks of deposits and retail operations look for safety among formerly more mundane commercial rivals. (See Wachovia/Morgan Stanley).
-
Bill Gross Loses Big on AIG
Tweet Share on Facebook September 17, 2008 Comment (3)On September 8, bond guru Bill Gross's Pimco Total Return Fund gained 1.3 percent, netting something like $1.7 billion in a single day on mortgage bets placed before the government took over lenders Fannie Mae and Freddie Mac.
Yesterday, the fund lost 1.4 percent, its biggest drop in more than three years, on AIG's failure, according to Bloomberg.
-
AIG Bailout: Is It Working?
Tweet Share on Facebook September 17, 2008 Comment (9)Obviously, it's a bit early to tell whether the government's $85 billion bailout of American International Group will keep the financial sector from falling in on itself, but after watching the market's reaction today, things could be better.
As of 3 p.m. EST:
Stocks:
- Dow: -2.07 percent
- Nasdaq: -3.33 percent
Shares of the last two investment banks standing:
- Goldman Sachs: -22 percent
- Morgan Stanley: -27 percent
-
AIG: The Biggest Bailout
Tweet Share on Facebook September 17, 2008 Comment (33)The Federal Reserve extended an $85 billion loan to American International Group to be paid back as AIG sells off some business in the biggest government takeover so far in the ongoing credit crisis. The deal is designed to let the Fed unwind AIG's hugely complex business in an "orderly manner, with the least possible disruption to the overall economy." The government will take a 79.9 stake in the firm, along with the right to suspend dividends.
The terms for lending are steep—the Libor overnight rate banks lend to each other, plus an extra 8.5 percent—and will last for two years. Robert Willumstad, AIG's CEO, will be replaced by Edward Liddy, former chairman of Allstate Corp.
-
Report: Greenberg Wants AIG Back!
Tweet Share on Facebook September 16, 2008 CommentSometimes even when you're wrong, you're right!
In this morning's post, I took a little mental vacation and forgot to add the word "former" in front of the title of Hank Greenberg, who ran troubled insurer AIG for 38 years until he was forced out in 2005 under fire for alleged financial misconduct (which he denies).
Turns out I might have been right the first time.
