Easy money everywhere, we are safe – for now

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Oct 14 2008
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It was nice to hear the Malaysia’s Central Bank (Bank Negara) is ready to provide liquidity to financial institutions should they need the money although the Central Bank did not commit on the dollars and cents that it could cough up to “rescue” them. I’m sure the central bank should have tens of billions ready in the vault for such purpose. It was also nice to read that British PM Gordon Brown’s administration injected ₤37 billion ($63 billion) into Royal Bank of Scotland Group PLC (RBS), Lloyds TSB Group PLC and HBOS PLC (Lloyds & HBOS are to be merged) in exchange for 60 and 43.5 percent stake respectively.

Spain also help by buying the rest of the three-quarters stake it doesn’t already in Philadelphia-based thrift Sovereign Bancorp Inc. for $1.9 billion. The much awaited and greatest news came from Japan and EU nevertheless. The cash-rich Japan says it is ready to offer money to any crumbling financial institutions around the world (Hello! Anybody interested?) This is what I called “Cash is King” and what could be the better time to scoop stakes in such banks if not now? Europe (Britain, France, Germany, Netherlands, Portugal, Spain & Austria) has committed a whopping $2.3 trillion to protect their banks.

Dow biggest gains recordNaturally the Dow Jones jumped a mind-boggling 932.42 points *Wow!* (11.08%) to 9,387.61 – the biggest point gain ever. The S&P 500 index climbed 104.13 points (11.58%) to 1,003.35 while the Nasdaq composite index rose 194.74 points (11.81%) to 1,844.25. Percentage-wise, this is the biggest one-day rally since 1933’s Great Depression. It was green screen all over traders’ monitor and the U.S. stock market made a $1.2 trillion paper gains alone on Monday with 3,030 stocks advanced versus 160 declined. It was cheers when the Fed was reported to begin providing “unlimited” dollar funding with the assistance from the European Central Bank, the Bank of England and the Swiss National Bank. In short it means no matter how much of U.S. dollar is required, the European central banks will provide it. Cool huh?

Meanwhile Treasury Secretary Henry Paulson has summoned nine banking chief executives to Washington, basically to tell them how much the Treasury is buying into their companies. Some of the big banks were not happy to be told to swallow the money despite the fact that many didn’t want the money. But like it or not the Treasury will buy $25 billion in preferred stock in Bank of America, Merrill Lynch, J.P. Morgan and Citigroup; between $20 billion and $25 billion in Wells Fargo (fight it Warren Buffett!); $10 billion in Goldman and Morgan Stanley; $3 billion in Bank of New York Mellon; and about $2 billion in State Street. Preferred shares mean such paper carries a coupon of 5% annual dividend that rises to 9% after five years although the holders do not enjoy voting rights.

US stock performance 900 points gainIt was definitely a nice view to have people flashing their billions and trillion to you and it would be disastrous for the stock markets to be in the red with such huge initiatives. The question remains if the 900+ point jump was a one-off time thingy with the long over-due technical rebound bundled in or if the stock markets have finally recover from the nightmare. While it was a happy day, nobody can tell for sure that the worst is over and we should pop the Champaign. Has the tsunami stocks gone for good? What say you? Oh yeah, by the way, please vote on what you think of the current economy crisis – it’s on the right-side of this website.

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