Everyone is waiting for the next "shoe to drop" in the financial markets. No one knows when or what it will be but the market spends an inordinate amount of time thinking and speculating about it. Here is another scenario:
Citigroup, Inc. releases a press release at 2:00 AM on Sunday Morning on Thanksgiving Weekend. It is noteworthy for its simplicity and brevity. It reads:
"Citigroup, Inc., announced this morning that it will no longer provide credit support to the multiple Structured Investment Vehicles that have been carried off balance sheet. While Citigroup, Inc. previously supported these vehicles through various means in order to maintain market stability, the bank is under no legal obligation to do so, and has decided to use our capital for other purposes."
The silence is deafening - for a moment - as the market takes a couple of seconds to digest and understand the implications of this. At the close on Monday, the first money market fund "breaks the buck" and trades at less than a dollar a share. Panic sweeps the staid world of the money markets, accelerated when the great mass of individual investors finally realize that a dollar in a money market fund does not equal a dollar of cash.
Thursday, November 8, 2007
No More Bloody Shoes
Saturday, October 20, 2007
Contrarian Thought of the Day - October 20, 2007
I have been in a particularly contrarian mood lately so I am going to publicly disagree with whatever conventional wisdom I happen to read about. I hate hearing and reading the same point of view all day with everyone saying the same thing over and over. Don't take this personally if you are on the other side of these issues.
The Structured Investment Vehicle (SIV) Bailout Plan
This is a good thing. Psychology and confidence is everything in the financial world. Do you have any idea how much actual cash a bank keeps on hand to back your checking account? How about nothing up to a maximum of 10%. No public money is being used in this bailout so what's it to you. "We bought the sandwiches, and that's it," a Treasury official was quoted in the Wall Street Journal. The real question is will it work? Or is this the 21st century equivalent of Richard Whitney's walking onto the floor of the New York Stock Exchange in October 1929 and announcing that he was buying stocks.
