Investment-blog.net: Stocks, Emerging markets, Bonds, Currencies and Commodities

” The premiums that lenders demand from each other for loans are on the rise this week, signaling that banks are very nervous about having enough funds ahead of the year-end.The Federal Reserve and European Central Bank have gone to great lengths to assure lenders they will maintain strong liquidity in overstressed capital markets as the year moves to its finish. But this has not been enough to persuade banks to lend to each other at attractive rates, so London interbank offered rates have reached sharp highs.”

This is a signal that banks’ immediate funding worries are so severe that even extraordinary measures taken by central banks to maintain liquidity are not sufficiently reassuring to the lenders. Banks appear to be hoarding cash in the event they will need to write down more bad debt backed by souring mortgage collateral.

“There is a definite liquidity crisis,” said Mirko Mikelic, a portfolio manager for Fifth Third Asset Management. “There is thought to be about $1 trillion in asset-backed commercial paper coming due before the year-end. Banks don’t want to loan to each other.”

The decline in issuance was notably linked to a fall in issuance of mortgage-backed and asset-backed securities, as well as a decline in issuance of collateralized debt obligations, SIFMA said.

“As anticipated, much weaker market conditions are affecting issuance volumes,” said Michael Decker, SIFMA’s senior managing director for research and public policy. “Global demand and employment and income gains are compensating for some of the difficulties in the housing sector, but fragile market conditions will persist, affecting issuance and demand into 2008.”

That said, municipal and corporate bond issuance remain strong, SIFMA said. Long-term municipal issuance totaled $324.4 billion in the first nine months of the year, up from $265.8 billion in the same period a year earlier. Issuance in this segment of the bond market was boosted by low interest rates as well as “solid credit quality of state and local governments,” SIFMA said.

Since August, the Federal Reserve, the European Central Bank, and other central banks have pumped hundreds of billions of dollars into money markets in an effort to unclog credit that had started to freeze up amid fears of mounting losses on investments tied to subprime mortgages.

“This massive easing of liquidity—both its quantity and price—has miserably failed to stem a severe liquidity crunch that is now back to the summer peaks, as evidenced for example in the interbank market,both in U.S, and Europe, by the sharp widening of Libor rates—at a variety of maturities—relative to equivalent maturity government yields and/or policy rate; such sharp rise of spreads to summer levels signals a worsening of the liquidity crunch,” he writes.

Firms start cutting cost. First, Second largest bank of America; Bank of America cut jobs since Sept. Now Citi.

http://search.yahoo.com/search?p=citi+cut+jobs&fr=ush1-finance

It just announced that is going to cut again for reducing costs.

Freddie Mac Plans to Sell $6 Billion in Stock and Cut Its Dividend in Half to Bolster Finances

Freddie Mac engages in mortgage purchasing, credit guarantee, and portfolio investment activities in the United States. It purchases single family and multi-family residential mortgages, and mortgage-related securities from lenders in the primary mortgage market that originate mortgages for homebuyers, including mortgage banking companies, commercial banks, savings banks, community banks, credit unions, state and local housing finance agencies, and savings and loan associations.

Banks don’t want (or can’t) for Freddie, it would create another big bankruptcy case and banks are losing more money. Freddie is just one of those troubling firms who are trying to raise capital.

Home prices falling everywhere

Home prices fell in September in all 20 major cities covered by the Case-Shiller price index, even in cities that had been holding up before the August freeze in mortgage markets, Standard & Poor’s reported.

“There is no real positive news in today’s data,” said Robert Shiller, chief economist at MacroMarkets LLC, and the co-developer of the index. Shiller said it’s nearly impossible to forecast when the market could turn around.

This is very simple chain that we don’t need to figure out so hardly. Banks tighten up the loan restriction and don’t want to loan each other, other business would also stuck. Housing market, consumption, and companies crash would generate more and bigger holes for them to fill in. If Fed and Banks fail to provide full liquidity for market, things will get worse and wrose.

Did you like this? If so, please bookmark it,

about it, and subscribe to the blog RSS feed.

Possibly Related Posts:

• Why Crude Oil Prices will Decline
• 15 reminders of how happy talk misled us a decade ago
• “How I made a million in the stock market”
• Lower Rates: tough to get. Mortgage applications find it’s harder to qualify.
• The massive stimulus package bodes well for battered blue chips like AT&T, GE, and Microsoft as well as biotech and green energy shares

Did you like this? If so, please bookmark it, about it, and subscribe to the blog RSS feed.