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Strategies & Market Trends : Steve's Channelling Thread
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To: jaall who wrote (9846)1/4/2001 7:38:35 PM
From: pompsander  Read Replies (2) of 30051
 
Frankly, I agree that there is more going on then meets the eye. The Fed cuts the discount rate by another 1/4 point today after "receiving appropriate requests from member banks". Right. They could have cut 50 basis points on the discount rate yesterday with a simple phone call to a few of the bank govs. asking for it.

No, here is my conspriacy theory of the week. Write it down. The California utility crisis is behind much of this discount rate move. Today S and P and Moody's downgraded PG and E's and SocalEdison's commercial paper. They can't roll that paper over when it matures if it is not commercial grade....which it is not now. So, what would they do to meet their financing needs? They would call on their standby letters of credit with....surprise...Bank of America, Wells Fargo, etc. Since we are talking about over 11 billion dollars of current short term liability and more to come if the California Legislature does not find a way to bail them out, what can be done? Pump massive liquidity into the interbank system to provide cheap and easy funds to these banking entities suddenly discovering they are on the hook!

Everyone remember Governor Davis' meeting with Mr. Greenspan two weeks ago? What do you think they were talking about...Hmmmm?

So, how to play it? If Greenspan is commited to avoiding any and all problems with the utility industry until this blows over, more liquidity should mean better capital markets..even if somewhat artificial.

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