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To: Terry Maloney who wrote (343073)	9/9/2007 5:58:33 PM
From: Giordano Bruno	Read Replies (1) \| Respond to of 436258

US Dollar: Will the Fed be Proactive or Reactive? Volatility has rocked the financial markets after the shockingly weak non-farm payrolls report. Economists were looking for companies to add 100k jobs last month, but they ended up firing more people than they hired. The Federal Reserve can no longer pretend that the subprime and credit crisis is not having an impact on the overall economy. It is and in a very serious way. At the end of trading today, Countrywide Financial announced job cuts of up to 12k. The only choice that they have at this point is between cutting interest rates by 25 or 50bp. After today’s non-farm payrolls number, the interest rate curve is pricing in 75bp of easing. There are even rumors about the possibility of an emergency intermeeting cut. The chance of this is low since the FOMC meeting is only 7 trading days away. The bigger question will be whether the Fed chooses to be proactive or reactive. If they really want to do more than put a band aid on the problems that the US economy currently faces, they will need to surprise the markets with a half point cut, but based upon the measures that we have seen from Bernanke so far, it is more likely that the Fed to play it safe with by cutting interest rates 25bp. The weak non-farm payrolls number has sent stocks, carry trades and the Dow tumbling. The dollar has been completely stripped of its safe haven status as job losses point to weak spending in the months to come as well as the risk for a recession. Retail sales are the most important release on the economic calendar next week. After today’s payrolls number, everyone will be looking for consumer spending to confirm that the economy is continuing on a downward spiral but we actually don’t think that retail sales in August will be that bad. The last time job growth was negative was in August 2003. That month retail sales jumped 1.6 percent but in September and October, spending fell -.8 percent and -.5 percent respectively. Therefore it may be another month before we see a meaningful contraction in spending.

To: Terry Maloney who wrote (343073)	9/9/2007 8:34:13 PM
From: stan_hughes	Read Replies (2) \| Respond to of 436258

Kanuckistan is not immune to all this horseshit in the credit markets, but IMO they will still be able to skate on by for now -- what remains to be seen however is how Canada and its export trade fares if the US takes a serious brodie off the recession bridge -- September 7, 2007 Some Short-Term Canadian Debt Paper Is Snagged in Credit Crisis By IAN AUSTEN OTTAWA, Sept. 6 — Few of the Canadian investors left holding a once-arcane and now troubled form of short-term debt are risk takers. The unhappy owners of the debt, known as asset-backed commercial paper, include the government-owned Mortgage and Housing Corporation (257 million Canadian dollars, or $243.6 million) ; the post office (37.9 million Canadian dollars directly and 27 million more in its pension fund); Toronto’s airport authority (249 million Canadian dollars); the charter airline and tour operator Transat (154.5 million); and the Ontario Teachers’ Pension Plan (about 60 million). Their unhappiness stems from a common source. The turmoil in the credit markets, particularly in the United States, as well as an unusual Canadian regulation have all but shut down the market for about 34 billion Canadian dollars ($32.3 billion) in commercial paper. Until last month, this debt paper had been regarded by many as a safe alternative to cash. Now, if a proposed restructuring led by the industry succeeds, investors in the commercial paper who would ordinarily have been repaid in 30 to 60 days will find their holdings transformed into long-term notes with maturity dates measured in years. Such a possibility is unlikely to harm big investors who generally hold a small part of their cash and cash equivalents in commercial paper. But it could squeeze smaller investors who need the cash to run their businesses. It will also create headaches for money market funds that are banned by regulators from holding long-term notes. “There are investors who need their cash and weren’t expecting a two-year wait,” said Huston Loke, managing director for global structured finance at DBRS, a Toronto-based debt-rating agency. The whole matter has become something of an embarrassment for DBRS, the country’s leading rating agency. While other agencies, notably Standard & Poor’s, refused to rate the asset-backed paper because of its potential for a liquidity crisis, DBRS took on the task. The Canadian problem differs from the subprime mortgage crisis in one respect: the assets underlying the paper were regarded as generally solid. They were for the most part credit card receivables, auto loans and good-quality mortgages. Issuers consolidate them and then slice the debt up into short-term units with 30-to-90-day maturities. To make commercial paper an attractive way to hold cash, its issuers also line up banks to guarantee its liquidity if the issuers are not able to roll over the paper to other investors at maturity. But in Canada, the banks have to support commercial paper only when they decide that there is a “general market disruption.” Last month’s problem began after an issuer, Coventree, could not roll over notes and was unable to persuade its bankers to step in. How the market got there is more complex. Marlene K. Puffer, managing director of Twist Financial and a former finance lecturer at the University of Toronto, said the paper’s reputation as a safe way for companies and funds to park cash in the short term came from those who first issued it. When the paper initially became available in the late 1980s, it was sold by several of Canada’s large, and financially solid, chartered banks. The banks not only issued the paper, they also guaranteed it. “Implicitly, the assumption was that the banks would not walk away from their own paper,” she said. Seemingly secure, the commercial paper found lots of buyers. A series of multibillion-dollar annual Canadian government budget surpluses meant that Ottawa issued little or no short-term government debt. The asset-backed commercial paper quickly filled a void for some investors, and predictably, third parties like Coventree began competing with the banks as issuers. The current crisis has shown that those third-party issuers rely on mostly foreign banks as a backstop. With limited exposure in Canada, those banks generally have little to lose by refusing to declare a general market disruption to support the commercial paper. (Unlike this third-party paper, the market for commercial paper issued by Canadian banks remains healthy and active.) The potential that banks might not support third-party paper, Ms. Puffer said, was no secret. But the credit ratings applied by DBRS, she said, generally overcame investor concerns. nytimes.com