Charts and News for Monday -- Stormy Weather Edition
About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.
Now that the two companies are at risk, how their rescue is handled will ultimately test the world’s faith in American markets. It could also influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say.
“No less than the international perception of the credit quality of the U.S. government is at stake,” said Richard Hofmann, an analyst with CreditSights, an independent research house with offices in London and New York."
Also at stake is Americans’ future ability to gain access to credit. If foreign companies and governments abandon United States investments, home, auto and credit card loans will be much more difficult to come by.
Never Have So Many Short Sellers Made So Much Money With Stocks Worldwide Investors worldwide are betting more than $1 trillion on a collapse in stock prices.
Economist’s View on Why The Economy Is as GOOD as It Is (and not worse … yet)
Perhaps most importantly, however, is the massive liquidity injections from the rest of the world, or what Brad Setser calls “the quiet bailout.” In the first half of this, global central banks accumulated $283.5 billion of Treasuries and Agencies, something around $1,000 per capita. This is real money – I outlined the likely implications in January. Foreign CBs are happily financing the first US stimulus package; will they be happy to finance a second? Do they have a choice? Their accumulation of Agency debt is also keeping the US mortgage market afloat. Do not underestimate the impact of these foreign capital inflows. If the rest of the world treated the US like we treated emerging Asia in 1997-1998, the US economy would experience a slowdown commensurate with the magnitude of the financial market crisis. The accumulation of US assets is also forcing an expansion of foreign CB’s balance sheets, creating global monetary stimulus that allows the rest of the world to decouple from the US economy, supporting continued US export growth
Commercial filings for the first half of 2008 are up 45 percent from last year, as the national climate for commerce continues to deteriorate amid rising energy and food costs, mounting job losses, tighter credit and a reticence among consumers to part with discretionary income.
From April through June, 15,471 U.S. businesses called it quits, according to data from Automated Access to Court Electronic Records, an Oklahoma City bankruptcy management and data company.
This past week started with concerns about another systemic meltdown of the U.S. financial system as the insolvency of Fannie and Freddie was revealed and as IndyMac went bust (this third largest bank collapse in U.S. history). But the week ended with a remarkable rally of financial stocks as better than expected results from Wells Fargo, JP Morgan and Citi soothed the fears that major financial institutions were in even more distress than already predicted by market analysts.
Unfortunately, this massive rally of financial stocks in the latter part of the week is just another temporary bear market rally that will fizzle away once the onslaught of bad financial and macro news builds up again.
Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead.
This calculation assumes that the oil exporters will export about 45 million barrels a day of oil.
Each $5 increase in the average price of oil increases the oil exporters’ revenues by about $80 billion, so if oil ends up averaging $125 a barrel this year rather than $120 a barrel, the increase in the oil exporters revenues would be close to a trillion dollars.
Authorities forecast that the sweeping traffic restrictions, and measures to shut down polluting factories, would help clear smog over Beijing in time for the Games, which begin Aug. 8.