News round-up: 14 Oct 2008

Now that we have seen our massive 1000-point rally, we can come back down to earth and worry about the real economy effects that the credit crisis has already wrought and ho well money markets are going to respond to all this monetary stimulus. While I wholeheartedly support, many of the financial manoeuvres in the dark, I remain concerned that some of them are inflationary and may yet not be able to restart the money markets as anticipated. While gold has dropped in price due to this relief rally, it still remains a hedge against falling fiat currencies in an environment where the Fed is lending unlimited amounts to the BoE, ECB, ad Swiss National Bank.

Yesterday, you will have noticed a blurb in the Sydney Morning Herald relaying the information that lending rates in Oz had fallen 71 basis points. Very nice. However, this as yet to be the case for LIBOR, where the move has thus far only been 7 basis points. Granted we had a holiday in the U.S. and bond markets were closed as a result. But, 7 basis points does not a better interbank market make. We need to see something of the 71 basis point magnitude today and tomorrow or there is going to be trouble.

In the meantime, note that Paul Krugman, the recent Nobel Prize Laureate believes we will experience a global recession. I agree. The damage has been done. The monetary authorities are merely trying to avoid depression. This does not augur well for long-term returns in shares. Below, you will see that Jeremy Grantham argues that shares are far from undervalued as a whole. This is a stock picker’s world now. Index trackers, beware!

Also as an ode to Krugman, I have a section reserved for him from prior Krugman missives surfaced by Mark Thoma over at Economist’s View.


Ode to Krugman
Nobel winner Krugman says world recession likely – Reuters
Gordon Does Good – Paul Krugman (In praise of the British crisis reaction)
Thoughts about Thinking – Paul Krugman via Mark Thoma (this is something I very much agree with. Too much math and too little history led us to where we are today.)
In Defense of Macroeconomics – Paul Krugman via Mark Thoma
Why I’m an Economist (Sigh) – Paul Krugman via Mark Thoma
Incidents from My Career – Paul Krugman via Mark Thoma
“The Accidental Theorist” – Paul Krugman via Mark Thoma
How Bubbles Happen – Paul Krugman via Mark Thoma
Dead Parrot Society – Paul Krugman via Mark Thoma
Honoring Paul Krugman – Economix, NY Times, Edward L. Glaeser

Credit Crisis
An unlimited guarantee requires unlimited access to financing … – Brad Setser (Can you say inflation?)
U.S. to buy stakes in banks to fight credit crisis – Reuters
Brown offers Europe a lesson in leadership – FT (Gordon Brown: people love him now. Has he done a personality transplant?)
Willkommen im Staatskapitalismus – Zeitenwende
Gold Prices Fall as Demand for Haven Drops Amid Equity Rally – Bloomberg
The 1934 Securities Exchange Act and all that – Bronte Capital (a very sobering reality check regarding banking and hedge funds in London)
Policymakers save world in the final reel – Gillian Tett, FT
Early signs of spring as money markets thaw – SMH (7 bps is punk)
Give ‘Em Enough Hope… – Financial Armageddon
Grantham: Don’t Get Back Into the Market Yet – Money News

Goldman Sachs and Morgan Stanley Are Buying. Who’s Selling? – WSJ (looks like U.S. regional might be the ticket)
Mitsubishi UFJ Acquires 21% Stake in Morgan Stanley – Housing Wire (For what it’s worth, I am not at all bullish on Morgan Stanley)
International fallout from Lehman $300 billion: German regulator – Reuters
Manulife Discloses C$250 Million of Credit Losses – Bloomberg
Lloyds TSB: Its capital raising – Telegraph
HSBC shares may be boosted by nationalisation elsewhere – Telegraph

Steinbrueck Says Bank Chiefs Shouldn’t Make More Than EU500,000 – Bloomberg (this person should stop talking now)
Pelosi says another economic stimulus needed – Reuters (I’m all for stimulus but c’mon people)
U.S. election: Obama lays out details of $60bn economic plan – Politics

The Real World
Credit: A Secular Change in Trend – Financial Armageddon
California cities issue fines on foreclosed properties – Guardian
When an Expansive Waterfront View Promises More Than It Can Deliver – NY Times

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