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BetOnMarkets Afternoon Report

Discussion in 'Market Predictions and Reports' started by Erik, Sep 25, 2008.

  1. Erik

    Erik BetOnMarkets Representative

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    US markets have opened up in positive fashion, pulling up European markets in the process. Last night’s stark warnings from President Bush seems to have improved the chances of a deal being done before Monday of next week. While Congress sweats the detail, it does at least appear that the speech has increased traders confidence of progress, albeit with understandable caution. The news has helped boost financial stocks with RBS in the UK leading banks higher, offsetting fresh concerns about the consequences of the Lloyds take over of HBOS. Volatility appears to be low for the second day in a row, perhaps another sign of the cautious optimism creeping into the financial system. Many are expecting a ‘bailout rally’ similar to last Friday when the Bush/ Paulson plan is finally passed and while this may happen, the effect may be short lived. Once the subprime problem has been largely addressed, there is still the issue of banks being under funded and the even greater problem of a weakening global economy. The latter in particular seems to have been playing second fiddle to the problems specific to the credit markets.

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  2. Erik

    Erik BetOnMarkets Representative

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    Another dramatic weekend saw not one, but four banks receive government bail outs hit the newswires this morning. Monday is quickly becoming a dangerous day for traders as news breaks over the weekend and governments choose to act while markets are closed. Although Bradford and Bingley is grabbing headlines in the UK, governments in Belgium, the Netherlands and Luxemburg had to throw billions at Fortis, while German has guaranteed loans to Hypo Real Estate. In the US, investors waved goodbye to Wachovio as a takeover by Citigroup gets assistance from the FDIC.

    All of this comes on top of the disappointment over the terms of the agreed $700bn US bail out package. It appears that Wall Street will not get all of what they wanted quickly enough. The biggest disappointment to be the fact that not all of the money is to be released immediately, with a large chunk to be made available “should it be needed”. To make matters worse, the oil heavy FTSE is having to contend with oil prices coming off the boil by around $6 a barrel.
    Although markets are understandably jittery today, none of the weekend’s banking failures could be seen as black swans. Bradford and Bingley, Fortis and Wachovia have all be on the “red” list for some time. Although there are other banks still on red alert, the remaining high risk banks are smaller and in many ways this purge could signal a turning point along with the passing of the US bail out plan, even if it disappoints.

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  3. Erik

    Erik BetOnMarkets Representative

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    Although the sub prime mess originated in the US, this has always been a global credit crunch. European banks were some of the biggest buyers of sub prime securities so when the crisis developed, any one of the world’s major banks could have been holding toxic assets. This in turn led us to the historical coordinated action by the world’s central banks today. Each government has attempted to deal with the crisis with specific interventions in their area but only a coordinated act like the rate cuts we have seen to day could truly hope to have any real impact.

    Markets still do not know what to make of today’s dramatic intervention. UK banks such as Lloyds and Barclays are off their lows of the day, but traders are not exactly piling in like no tomorrow. This might possibly be a function of fears about the UK ‘part nationalisation’ bail out severely crimping any hope of significant shareholder return over the coming years. With an electorate footing the bill and politicians possibly having a say in the running of affairs, juicy dividends for shareholders may be a thing of the past. European markets are still down around 2-3% on the day and the Dow is swinging 50 points in the blink of an eye. Around the quiet period and intermediate high of August, the FTSE had a daily range of around 60 points. Today it is moving that much every 15 minutes. These are extraordinary times and many technical indicators are flashing at levels never seen before. At best central governments are hoping that the coordinated rate bomb has stopped Armageddon, there is now no hope of the UK, US, Irish and Spanish economies avoiding recession. The worse case doesn’t bare thinking about. If today’s coordinated intervention doesn’t at least start breath life into the frozen money markets, one has to wonder what surprise moves the global governments can take next.

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