Sunday, September 16, 2007

One Hell of a Week...

“It’s going to be one hell of a week...”
- anonymous investment banker

This could be a very, very emotional week around the world. How the financial markets express it will set the trend for the rest of the year, in my opinion.

First, we have the following story from which the above quote was lifted:

World’s banks hit for $30billion in credit crunch
Louise Armitstead and David Smith

THE world’s investment banks are to reveal a $30 billion (£14.9 billion) hit from bad debts as they unveil results that give the first real insight into the impact of the debt crisis.

City analysts predict the banks will have to write down as much as 10% of the $300 billion of leveraged loans currently agreed but not yet syndicated when they report third-quarter results to the market.

Banks are also expected to announce further hefty provisions to cover their exposure to commercial paper, including the so-called conduits and SIVs, a type of highly leveraged investment fund. In some cases profits for the third quarter could have been almost wiped out by a combination of exposure to bad debts and complicated commercial paper.

Kian Abouhossein, banking analyst at JP Morgan, said: “The hits will essentially mean that some investment banks will have made almost no money over the last quarter. Profits will be close to zero..."

And of course, the ongoing emotional panic centered on the United Kingdom's Northern Rock bank:

Crisis at Northern Rock Comes to a Head
by Michael Shedlock

...Northern Rock is getting what it deserves. Taking on massive amounts of long term mortgage loans financed by short term borrowing in an overheated housing market is begging for trouble. Beg for trouble long enough and eventually it will find you. Expect to see more of these kinds of events on both sides of the Atlantic...

Add to the mix the constant stream of "terror" and "war" related memes fed into the global mediastream via the Iraq, Iran and Afghanistan brands of "news" and you have the potential for an explosive week to the downside as the herds of men and women who make up markets, countries and civilizations across the globe choose to express their fears and anger through bank runs and snap military "decisions" that might wind up coming back to haunt us all.

Keep a close eye on September 18th-19th. Folks might use the excuse of the Federal Reserve meeting to panic one way or the other.

If we get out of this week clean, then, in market parlance, we will be successfully climbing a wall of worry and one can expect a nice run through the end of the year, more or less.

If we see panic begin to take over, then, my friends, we have moved from Act I to Act II of the Great Unraveling. Here's hoping the playwright has a few more scenes in Act I, allowing us all more time to finish preparing for what comes next.

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