Opening Bell: 11.07.08

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No U.S. Prostitution Charges Against Spitzer. (NYT)
It turns out Spitzer didn't use any public money after all, according to the NY Prosecutors office. They've dropped the charges on Spitzer due to lack of evidence (which it turns out is still important in the justice system, who knew?), but they're not commenting on whether this will in turn signal an end to the investigations being run by the FBI and the IRS.
I don't want to speak for the group Mr. Spitzer, but well done. Flying hookers all over the eastern seaboard won't get you in the history books as President, but you'll definitely be remembered. And loved. Hugs? No?
Three-Month Dollar Libor Falls to Lowest Since 2004, BBA Says. (Bloomberg)
"The TED spread, which measures the difference between the cost of three-month loans and the yield on U.S. Treasury bills of the same maturity, dropped below 200 basis points for the first time since Sept. 12, the last day before the collapse of Lehman Brothers Holdings Inc."
Japan Takes Hit Overnight On Oil, Automotives. (Reuters)
The Nikkei closed down 3.6% on continued world-wide economic woes as oil prices sunk due to weakening demand. Toyota issued a profit warning, which went over well on the market, leading to a loss of 9% on the day.
Sovereign Funds to Lose 25% This Year: Morgan Stanley. (CNBC)
The news here isn't that the wealth funds are down so much, but I wonder how much downside the managers had accounted for in their models. The estimate by Morgan Stanley has SWFs controlling as much as $2.3 trillion across the market as of October, which is a chunk of change.
Given the relatively recent emergence and gravitas of these wealth funds, the modeling question weighs heavy because we don't know what happens when the downside exceeds whatever it is that they have expected: political retribution? Are we going to see an Oil squeeze like we did in the 70's?


BA Losses Heavy In First-Half.
British Airways is reporting a first-half loss of £49MM ($79MM) on high oil prices and weak economic conditions. The more concerning aspect of this is, of course, what it means for US airlines going forward. When things get tough in the Airliner world they generally either look for a bailout or file for bankruptcy, but the government can't just out money ad infinum and shareholders/regulators/creditors will only allow for so many reorganizations.
European Stocks, U.S. Index Futures Advance. (Bloomberg)
Hopes that the employment report will give the FED more room to lower interest rates is holding up the futures market, while higher commodities are lifting the FTSE (up 1.29% at print).
Related, economic reports today could be a pain the ass: we're seeing the Employment report at 8:30, the Pending Home Sales Index report at 10, and Consumer Credit report at 3.
AIG Looking For Less Nazi Like Terms From U.S. Government. (WSJ)
"Negotiations remain fluid" ... Wait, who is this? CG is that you? CG! Bark twice if you're in Milwaukee!
I digress. If AIG fails it's going to set off a chain of systematic default risk exposure worldwide that's going to, yet again, drag markets down - but worse it's going to seize the credit markets. It looks like AIG is currently outstanding $81.2B having borrowed under two different agreements; the loans were made under duress according to AIG, and were seen internally as a bridge until they could liquidate holdings to right-size.
While their intentions where pure, market conditions have led to circumstances that are creating a hostile selling environment: a combination of liquidity issues and finding buyers with the kind of BSD that are not only willing but able in this climate are challenging.
The loan terms appear "onerous" and completely out of line with the terms under the 700B package that was passed down recently; I think the US Gov may have been in a bit of a "mood" when they put this together. If this does turn into a pissing match, given the relative stupidity of the US Government in all things finance (proven, not conjecture) I can see where they would challenge that the fallout wouldn't be that bad: they haven't seen Armageddon yet for all the talk of "bad times".
--William Richards

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