by Calculated Risk on 9/16/2008 07:10:00 PM

See the headline at the WSJ.

by Calculated Risk on 9/16/2008 06:20:00 PM

Form the NY Times: Federal Reserve May Act Alone in Rescuing A.I.G.

The fate of the American International Group now lies with the Federal Reserve ... If the Fed decides not to intervene, A.I.G. will likely file for bankruptcy by Wednesday, these people said.
...
A.I.G.’s collapse seemed so likely on Tuesday that the company hired the law firm Weil, Gotshal & Manges ... to draw up bankruptcy papers.

Something will probably happen tonight.

by Calculated Risk on 9/16/2008 05:35:00 PM

From MarketWatch: Money market giant freezes redemptions

One of the ... largest money market funds has put a seven-day freeze on redemptions after the net asset value of its shares fell below $1. Primary Fund [from The Reserve] ... $62 billion fund ... the value of the fund's share is 97 cents.

This is because of investment in Lehman bonds. I suspect this will be more common if AIG fails.

by Calculated Risk on 9/16/2008 05:20:00 PM

From Bloomberg: Treasury Said to Be Considering AIG Conservatorship

The U.S. Treasury is considering taking over American International Group Inc. under a conservatorship as one option to address the insurer's crisis, according to two people briefed on the discussions.

I doubt this will happen, but who knows these days ...

by Calculated Risk on 9/16/2008 04:02:00 PM

Morgan Stanley reports decent results: Morgan Stanley Reports Third Quarter Results

Net income for the quarter was $1,425 million, or $1.32 per diluted share, compared with $1,543 million, or $1.44 per diluted share, in the third quarter of fiscal 2007.

For those interested, Morgan Stanley will hold a conference call today:

Morgan Stanley will hold its third quarter investor conference call today, Tuesday, September 16, 2008 at 5pm Eastern time. The call will be hosted by Colm Kelleher, Executive Vice President and Chief Financial Officer and will be available at www.morganstanley.com or by dialing 1-877-391-6850 (passcode 75875470#) within the United States.

by Calculated Risk on 9/16/2008 02:44:00 PM

From Bloomberg: Fed Said to Reverse Stance, Consider a Loan Package for AIG

The Federal Reserve is considering extending a ``loan package'' to [AIG] ... according to a person familiar with the negotiations.

Another heavy news day ...

by Calculated Risk on 9/16/2008 02:39:00 PM

From the Financial Times: Russia halts trading after 17% drop

Russia authorities halted trading on the country’s stock exchange on Tuesday after it plunged 17 per cent in a broad-based sell-off.

At 1700 local time, the rouble-denominated Micex index had fallen 17.5 per cent to 881.17 and the RTS index dropped 12 per cent to 1,131.120 as the falling oil price, margin calls on local investors and a broader sell-off in emerging markets stocks drove shares down.

by Calculated Risk on 9/16/2008 02:14:00 PM

From the Fed:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.

by Calculated Risk on 9/16/2008 01:00:00 PM

UPDATE: The NAHB has updated their site - the NAHB initially reported September at 17.

The NAHB reports that builder confidence was at 18 in Septemer, up slightly from August. Usually housing bottoms look like a "V"; this one will probably look more like an "L". (this refers to activity like starts and sales, but will probably also be apparent in the confidence survey).

Click on graph for larger image in new window.

Current sales activity and Traffic of Prospective Buyers increased slightly.

NAHB Press Release: Builder Confidence Rises In September

Builder confidence in the market for newly built single-family homes rose for the first time in seven months this September, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI gained two points to 18, rising from its record low of the previous two months.
...
“Nearly half of the builders in our September survey indicated that they expect to see a positive impact from the tax credit in their market areas,” said NAHB Chief Economist David Seiders. “Of those respondents, 20 percent said their market has already experienced some of this effect. Meanwhile, consumer confidence has risen and more households are saying that now is a good time to buy a home. All of these factors, along with the recent downward movements in mortgage rates, suggest that new-home sales will be stabilizing in the final quarter of the year.”

by Calculated Risk on 9/16/2008 12:21:00 PM

From Reuters: Washington Mutual stock rises; merger talk disputed

Britain's Daily Mail newspaper, citing no sources, reported that JPMorgan was expected to make a bid for Washington Mutual. But two people familiar with the matter told Reuters that JPMorgan was not in active talks at the moment to buy the largest U.S. thrift.

Here is the Daily Mail article: JPMorgan Chase in new bid for Washington Mutual. The Daily Mail's headlines and stories can be funny. They make most bloggers look calm.

by Calculated Risk on 9/16/2008 11:10:00 AM

From CNBC Headline: New York Fed Meeting Now to Discuss Fate of AIG. A Government Bailout is Back on the Table

Who knows ...

by Calculated Risk on 9/16/2008 10:28:00 AM

Since the Fed is meeting today, here is the latest Fed Fund probabilities from the Cleveland Fed.

Click on graph for larger image in new window.

Until the last couple of days market participants anticipated no change in the Fed Funds rate in Septemeber. Now, because of recent events, there is significant uncertainty.

The Fed will probably leave rates unchanged (although a 50bps cut is possible), but the wording of the announcement will probably show more concern about the slowing economy and credit markets, and less concern about inflation.

by Calculated Risk on 9/16/2008 09:13:00 AM

Still no announcement from AIG. Shares are trading around $2.32, 50% off the close from yesterday.

by Calculated Risk on 9/16/2008 08:59:00 AM

At least they are still making money ...

From the WSJ: Goldman's Net Drops 70%

Goldman Sachs Group Inc. posted a 70% drop in fiscal third-quarter net income on declining client activity and asset valuations as return on equity fell. ... For the quarter ended Aug. 29, [Goldman] reported net income of $845 million ... Net revenues fell 51% to $6.04 billion ... many worries remain as Goldman's latest numbers show even a firm that in the past was seen as golden is being badly hurt by deteriorating market conditions.

Goldman managed to avoid most of the housing and credit related problems, but the overall business is weak.

by Calculated Risk on 9/16/2008 08:32:00 AM

From the BLS: Consumer Price Index

On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in August, following a 0.8 percent increase in July. The index for energy fell 3.1 percent in August after three consecutive sharp increases.

Core inflation:

The index for all items less food and energy increased 0.2 percent in August after increasing 0.3 percent in July.

Interesting, the BLS reported a sharp decline (1.1 percent) in the lodging away from index, suggesting pricing weakness for hotels.

This is a little bit of good news, and takes some of the pressure off the Fed. However, the CPI has still increased 5.1% (SAAR) during the first eight months of 2008 - way too high for comfort.

by Calculated Risk on 9/15/2008 10:36:00 PM

Click on graph for larger image in new window.

The Shanghai SSE composite index fell below 2000 tonight (still trading). This is the lowest level since late 2006. The index is off about two-thirds from the peak.

This is a stunning stock market crash, and it's not just the Shanghai composite - it's an Asian market rout:

The Hang Seng is off 6%.

The Nikkei 225 is off 5%.

The Seoul Composite is off close to 6%.

by Calculated Risk on 9/15/2008 09:56:00 PM

Some interesting details from the NY Times: Fed Takes Steps to Aid A.I.G

The complex discussions, continuing into the night as a deal was hoped for before United States markets open on Tuesday, involved New York state regulators, federal regulators, private equity firms and Wall Street banks that rely on A.I.G.’s ability to honor its derivatives contracts ...
emphasis added
...
The urgency of the talks grew by late Monday as A.M. Best Company, a credit rating organization specialized in insurance and health-care companies, downgraded the credit of A.I.G. and several of its major subsidiaries. Fitch Ratings also downgraded A.I.G.’s credit Monday evening.

Standard & Poor’s downgraded its long-term and short-term counterparty ratings on A.I.G. Monday evening.

But none of those downgrades appeared to be trigger events requiring A.I.G. to post billions of dollars of collateral to its swap counterparties.
...
People briefed on the matter said that if JPMorgan and Goldman Sachs were able to raise a $75 billion credit line by Tuesday, it could avert the all-important debt downgrades by Standard & Poor’s and Moody’s.

AIG seems to be hanging by a thread.

by Calculated Risk on 9/15/2008 07:26:00 PM

From the Wells Fargo 8-K filed with the SEC today:

In connection with the filing today by Lehman Brothers Holdings Inc. (Lehman Brothers) of a Chapter 11 bankruptcy petition, Wells Fargo & Company (the Company) will record other-than-temporary impairment and take a non-cash charge to earnings in third quarter 2008 for investments in senior unsecured notes and perpetual preferred securities issued by Lehman Brothers. The Company’s investments in the notes and preferred securities are included in securities available for sale at a cost of approximately $90 million and $109 million, respectively. The notes currently trade at 25-30 cents on the dollar. The preferred securities currently trade at less than one percent of par value. The Company estimates that as of September 12, 2008, it had approximately $50 million of unsecured counterparty exposure to Lehman Brothers. The Company has no direct lending exposure to Lehman Brothers, and the Wells Fargo Advantage Money Market Funds do not have any direct exposure to Lehman Brothers.

So the $90 million in notes is worth about $25 million, and the $109 million in preferred securities is essentially worthless. With the unsecured counterparty exposure, this loss could be close to $200 million. Just last week, Wells Fargo reported $450 million (or so) in losses associated with Fannie and Freddie.

The Lehman confessional is open!

by Calculated Risk on 9/15/2008 07:17:00 PM

From MarketWatch: Fitch Ratings downgrades AIG to 'A'

Fitch Ratings said late Monday that it downgraded American International Group because the insurer's ability to raise capital for its holding company has become "extremely limited."

Fitch also kept AIG on Rating Watch Negative.

by Calculated Risk on 9/15/2008 05:15:00 PM

From Bloomberg: WaMu Rating Lowered to Junk by S&P on Mortgage Losses (hat tip Justin)

Washington Mutual Inc. ... had its credit rating cut to junk by Standard & Poor's because of the deteriorating housing market.
...
``Increasing market turmoil and the related impact from managing its concentrated mortgage franchise in this troubled housing and credit cycle led to the downgrade,'' S&P wrote.

And the beat goes on ...