Global Market Comments for July 14, 2008
1) The government announced an impressive support package for Fannie and Freddie which includes direct access to the Fed window and Fed buying of their paper. The bad news is that they needed a bail out package. Fannie is launching a $3 billion private debt issue this week. The Treasury ordered the main brokers to buy the whole issue and then exchange it for T-bills. What a fig leaf!?? The package provided about one nanosecond of support for the stock market.
2) Indymac bank failed on Friday after a depression style bank run. All of the ‘not too big to fail’ banks like WAMU (WM), Wachovia (WB) and National City (NCC) got slaughtered. Deposits over the FDIC insurance ceiling of $100,000 are receiving only 50 cents on the dollar. Funny how all real estate lending crisis always come back to the LA area, as did the S & L crisis in the nineties. What are the lenders smoking down there?
3) In 1998, 20% of S&P 500 earnings were from abroad. Now the figure is 50%. This is one of the explanations for our non recessionary recession.
4) Lehman is acting like a stock that is going to zero. It hit a new multi decade low today of $12.25, down from its one year high of $80. The July $10 puts, which expire on Friday, are trading at a staggering 250% implied volatility.