MichaelDes
Registered User
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Is a weak dollar really that bad for the U.S.? Will it not allow U.S. products to appear discounted globally. If China dumped the greenback would they be shooting themselves in the foot...
If you have big lumps to invest, you had better get your timing right...
http://ie.youtube.com/watch?v=EBZ81hmZuNk
Please watch it takes 9 minutes to realise the true facts.
i watched the clip.How are the banks losing so much money though? I don't understand that.
US banks borrow $50bn via new Fed facility
By Gillian Tett in London
Published: February 18 2008 20:34 | Last updated: February 18 2008 20:34
US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch.
The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.
US officials say the trend shows that financial authorities have become far more adept at channelling liquidity into the banking system to alleviate financial stress, after failing to calm money markets last year.
However, the move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.
“The TAF ... allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America’s banking system.”
The Fed announced the TAF tool on December 12 as part of a co-ordinated package of measures unveiled by leading western central banks to calm money markets.
The measure marks a distinct break from past US policy. Before its introduction, banks either had to raise money in the open market or use the so-called “discount window” for emergencies. However, last year many banks refused to use the discount window, even though they found it hard to raise funds in the market, because it was associated with the stigma of bank failure.
The Fed has not yet indicated how long the TAF will remain in place.
But the popularity of the scheme is prompting speculation the reform will stay in place as long as the financial stresses last.
“Some Fed officials have expressed an interest in keeping and possibly expanding the TAF,” says Michael Feroli, economist at JPMorgan.
Nevertheless, Mr Feroli said banks now appeared to be using the TAF instead of other funding routes, meaning that the overall level of reserves in the system was remaining constant. “The banking system certainly has its problems, however the notion that ... banks have trouble maintaining reserves stems from a superficial reading of the Fed’s statistical reports,” he said.
Or, more accurately the FED has reduced the money going to the SOMA market and redirected it to the TAF.
Strange how the FT article completely omits any mention of SOMA.
Recent Declines in Nonborrowed Reserves
The H.3 statistical release indicates that nonborrowed reserves of depository institutions have declined substantially since mid-December to a level that is now negative. This development reflects the provision of a large volume of reserves through the Term Auction Facility (TAF) and has no adverse implications for the availability of reserves to the banking system.
By definition, nonborrowed reserves are equal to total reserves minus borrowed reserves. Borrowed reserves are equal to credit extended through the Federal Reserve's regular discount window programs as well as credit extended through the TAF. To maintain a level of total reserves consistent with the Federal Open Market Committee's target federal funds rate, increases in borrowed reserves must generally be met by a commensurate decrease in nonborrowed reserves, which is accomplished through a reduction in the Federal Reserve's holdings of securities and other assets. The negative level of nonborrowed reserves is an arithmetic result of the fact that TAF borrowings are larger than total reserves.
I agree that trying to time the market can be foolish but I also think that there's a fair argument to be made for increased buying when fear abounds and valuations look attractive. Look at Warren Buffet - Berkshire Hathaway has been sitting on a $40billion cashpile and is only in recent months putting that cash to work to take advantage of the market sell-off (which has been relatively indiscriminate in the search for safety and liquidity) to buy value.
The big question is where to find that value. If the Fed's rate cutting (which may be followed by the other big central banks over the course of this year) results in another bubble inflating, the next few months are a great opportunity to position yourself to benefit from the upswing. I think some of the emerging markets may be a fair bet, but I also wouldn't be surprised if some of the European large caps benefit too. If confidence comes back into the market and provided the economic outlook here in Ireland doesn't become too grim, the ISEQ may well have a rebound too. What do you think?
Why are the markets rallying (in particular the DowJ)? I just don't understand it. With all this negative info coming out of the U.S. in the last few days (inflation up, consumer confidence down, housing sales down, commodities like oil and wheat sky high, the dollar at an all time low) how can this be out weighed by a share buy back from IBM? Forgive the oxymoron but is everyone a contrarian investor now?! I presume now that the ISEQ & DOWJ are around their 50 day moving averages they will turn tail? Any opinions?
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