Monday, December 24, 2007

Flying money is everywhere

The money is flying fast and furious as more and more schemes and emergency bailouts are brought forward to the market.
Citibank’s 4.9% sale to Abu Dhabi sovereign fund, Merrill Lynch scores $4.4 billion from Temasek of Singapore and a further $1.2 Billion to another firm today.

Morgan Stanley sets the stock price for a 5 billion bailout from the Chinese Government

Banks are in trouble and I’m telling you once again to diversity between banks, avoid the weakest banks, take out 2-3 months of cash if you have any savings and of course buy the anti dollars, Silver and Gold.

Who are the weakest banks? It is not entirely clear as many companies have yet to fully disclose their exposures to bad paper, I would certainly put Washington Mutual and CountryWide on my avoid list, In Canada CIBC looks to have the worst exposure and the National Bank has already taken considerable write downs considering it’s size. At this point the safest most conservative of the Canadian Banks looks to be TD.

In the U.S. the first of the new wave of low rate credit auctions intended to ease the credit constraints received bids from 93 different banks. These banks put bids in for over $60 billion when only $20 billion was up for auction ensuring the additional auctions planned for January should be fully subscribed. Some commentators have speculated the terms on this credit is destined to become long term.

The ECB has offered $500 billion in 2 week loans to European banks in order to ease them through any holiday liquidity issues. (Egad, that’s like the entire Canadian Federal debt.) Why is it no one will loan me enough for a ton of Silver or my dream farm below prime?

Very shortly I fear this will become an insolvency crisis not a liquidity crisis, borrow as the might from this emergency short term money pool, banks who have taken large loses from subprime products will eventually have to come clean with a full accounting.

The scariest news is the from the bond insurers. MBIA admitted to having a total of $30.6 billion in complex mortgage securities with $8.1 billion of those being the highest risk varieties, including CDOs backed by other CDOs. Should MBIA be downgraded every single one of its insured bonds will also be downgraded. When this paper starts going under the companies net worth of $6.5 billion will evaporate leaving bond holders and stock holders with nothing, already shares have plunged to near the $20 range from a 52 week high of $72.02.

Other insurers are in trouble and downgrades in this industry would be like pulling the lynch pin from some piece of machinery, expect gears, cogs and wheels to start falling off any time after.

Canadian markets can however breath a small sigh of relief from the claim today that a deal to unfreeze $33Billion in ABCP has been worked out. This is not a bail out however, people who guessed badly will take loses but it does give hope that normal trading of this paper in the spring will allow many organizations to recoup some or all of their investments.

It’s a quiet day in the markets so far, Gold and silver are holding their gains from Friday and the office is not likely busy so please get your asses over to your coin dealer and buy your own Christmas gift. If you care, I’d like a couple of Sovereigns or perhaps a bag of Libertads, or DOS Pesos.