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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (10084)	9/26/2008 1:06:42 AM
From: Hawkmoon	1 Recommendation Read Replies (1) \| Respond to of 33421

999 out of 1000 people do not realize the extreme gravity of this situation. Those that do are dumbfounded by this. I don't know how the work out will develop. Yeah.. and most of them are calling their representatives to protest against the bailout (which I believe will send a signal that will restore some confidence and provide breathing space for unwinding these derivative exposures). Btw.. I see the municipal bond market has also seized up. Maybe that will send the signal to "main street" that something has to be done ASAP: ft.com US muni market hit by capital freeze By Nicole Bullock in New York Published: September 25 2008 22:48 \| Last updated: September 25 2008 22:48 Financing for US states, cities and other municipalities has ground to a halt and borrowing costs have risen as the latest chapter of the credit crunch unfolds. The upset in the public finance market is a symptom of the overall lock-down on capital this week as the bankruptcy of Lehman Brothers and uncertainty about a Federal bail-out has indiscriminately drained liquidity from the financial system. “It’s the nature of what the borrowing is for – building a hospital and making sure Johnny and Susie have a school that is open – that makes a freeze in the muni-market significant,” said Thomas Doe, CEO of Municipal Market Advisors (MMA). “If you can’t get access to the capital markets, you may have to raise taxes to generate the revenue for those projects.” In the last two weeks, roughly $10bn in new municipal issuance has been shelved, including two issues from the state of New York. “It’s difficult to say at this point what the long-term impact of the recent turmoil on Wall Street will be on the municipal bond issuers,” said Matt Anderson, spokesman for the division of the budget for New York state. “We’re hopeful that any delays in bond sales are simply temporary and that we can go forward with these transactions as soon as market conditions become more advantageous.” Yields on fixed-rate 30-year municipal bonds of the highest quality, or triple A rated, were 5.24 per cent on Wednesday, the highest in six years and up from 4.85 per cent on September 12, the last trading day before Lehman Brothers filed for bankruptcy, according to the MMA AAA benchmark index. The Lehman bankruptcy has also disrupted the market for variable rate demand notes (VRDNs), which municipalities use for short-term funding needs. VRDNs are structured in a way that enables buyers to sell them back to the dealer. Many funds exercised that option when Lehman collapsed, sending yields soaring towards 8 per cent, Mr Doe said. Traditionally, this rate is in the low single digits. Lehman was a counterparty to swaps contracts used for interest–rate hedging strategies with many municipalities. It remains unclear how those hedges will be unwound and what effect it will have on issuers and the municipal bond market in general. The municipal bond market, once a sleepy corner of the investment universe, has been at the centre of the credit crisis almost since it began. Yields surged this year when bond insurers, which had guaranteed about half of the market, ran into trouble because they had also guaranteed risky mortgage debt. The collapse of the auction-rate securities market in February forced many municipalities to refinance, sometimes at higher rates. Even when the municipal finance machine gets up and running again, investors expect a different market, reflecting the takeovers, mergers and collapses among investment banks that have changed the shape of Wall Street. “The primary market will be greatly reduced. There is less underwriting and buying capacity,” says Tom Spalding, a portfolio manager at Nuveen Investments. “Even when we get back to so-called normal, there will be a premium necessary to entice buyers.”

To: John Pitera who wrote (10084)	9/26/2008 7:41:44 AM
From: carranza2	1 Recommendation Respond to of 33421

999 out of 1000 people do not realize the extreme gravity of this situation. Because it has not been adequately explained. It is impossible for the average person to figure these things out on their own without a lot of time and study. And time is of the essence. The way the bailout has been presented naturally does not inspire confidence for it has been a naked request for a huge amount of money without an adequate explanation for why it is needed. Of course it ran into trouble for no one can be expected to support a huge increase in debt without a compelling reason for it. So far, this compelling reason has not been made clear. It took me a substantial amount of time to get a handle on these derivatives. I can explain what I do know, however, to those to whom I speak to and they seem to capture the basics well enough. If it is indeed about bailing out CDS risk, then the folks who are to pay for it need to know what it is and why the underlying debt needs to be made good. Otherwise it is doubtful that the bailout will gather the necessary political momentum to pass. Some honesty would help, beginning with an admission of the absolutely incredible failure of regulation that has led to the present crisis.

To: John Pitera who wrote (10084)	9/26/2008 3:31:17 PM
From: Stoctrash	2 Recommendations Respond to of 33421

PPT now replaced w/ CCT...Controled Crash Team. If you'd have asked me 12 months ago a "what if" and told me the names whom went zero and then told me the SPX would be above 1200 and I'd say your nuts!! Crash up on the news of a plan ...then crash down when it's fact?? seems like it to me, bwtfdik Be safe everyone, its a gun fight out there now. Look at WB getting toasted today.

To: John Pitera who wrote (10084)	9/27/2008 12:28:50 AM
From: John Pitera	1 Recommendation Read Replies (3) \| Respond to of 33421

For those that missed this..... Only a 50% collapse in US equity prices will serve as the evidence that we need a comprehensive package to enable a workout of these credit excesses and extremes to be viable. A workout that really is no use to anyone except those fat cat investment bankers that have already embarked upon their rather large yachts and ocean going vessels to Tahiti to put all this unpleasantness behind them. After all, If Gaugain could find peace and serenity in Tahiti.... and Marlon Brando could duplicate that scarce commodity of serenity.... well why not head off to that safe sanctuary. ---- We probably need a really vicious 50% hit to our US equity markets to bring the fear of GOD into mainstreet. This event is being treated as far to much of a theoretical execise in how capitalism can structure these workouts.------ John