 |
|
|
|
|
|
|
|
|
|
||||||||||||||||
 |
 |
 |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
 |
 |
||||||||||||||||||||||||
|
|||||||||||||||||||||||||
Gone with the
|
||||||||||
FORTIGENT, LLC
Economic & Market Update: September 22, 2008
Chip Norton Managing Director of Fixed Income & Economic Analysis
“Gone with the
Last Week’s Highlights: Lehman Brothers files for bankruptcy Merrill Lynch merges with Bank of America Treasury rescue package for mortgages Treasury rescue insurance program for money market funds Federal Reserve floods market with liquidity FOMC – leaves rates unchanged at 2.0%
Stocks: Dow closes up 368 to 11,388 from 10,462 Thursday low Bonds: Treasury 10-yr from 3.26% to 3.81% Bill 3-mo T-Bill moves from 0.07% to 0.97% Oil: Crude ends $105 from $91 Dollar: $1.43 euro, slight weakness Leading Indicators: -0.5% - more than expected
Economics This Week: Date Item Est. Comment 9/24 Existing Homes Sls 4.93m Down slightly 9/25 New Homes Sales 520k Stronger data expected 9/26 Q2 Final GDP 3.4% A strong quarter
From Prop Desk to Teller Window In a Weekend
We start this Monday on a relative calm note (after last week, every week is a relatively calm week) after having been hit with the perfect storm of storms. Indeed, there was such a sea change you’d need a new government bureaucracy just to sort it all out--oops, forgot, we’ll have few of those real soon.
As we head into this week, the headline story is how Goldman Sachs and Morgan Stanley will now be fast tracked approved as bank holding companies which will allow them to become commercial banks and take investors’ deposits. While a big news story, they have both been moving in that direction for years anyway (Morgan has a bank charter in Utah). However, this strategy allows the new business plans a catalyst of sorts and of course allows them emergency fund access at the Fed. According to Goldman, they are largest and most profitable of the U.S. securities firms, and will become the fourth-largest bank holding company. The firm already has more than $20 billion in customer deposits in two subsidiaries and is creating a new one, GS Bank USA, that will have more than $150 billion of assets, making it one of the 10 largest banks in the U.S. Morgan Stanley, which was/is the second-biggest securities firm until this week, had $36 billion of deposits and three million retail accounts at the end of August. Both firms already know banking very well.
The new move also shifts their regulatory oversight from the SEC to the Federal Reserve. What this all means and how it will work will play out over the next few weeks. But at the least, this plan allows for liquidity and capital access in a market that is devoid of both.
Congress Weighs In…As usual
The other big story over the weekend was the weigh in by the politicians. As expected, they all needed to put their “value added” stamp on the events by telling the world they would need more control over the process before any vote would take place or before any money is spent. I guess it seems reasonable to ask a few questions before you open the checkbook for about $700 bill. In reality, we all know that most estimates are a little thin, so let’s just talk a round $1 trillion while we’re at it. By the way, has anyone figured out how much our taxes are going to rise post all of the financing for this deal? If you thought a 40% federal tax bracket was the new 35%, I think you’ll need to think again.
The danger in this past weekend’s political posturing, of course, is that it does little to build confidence in the financial markets. The markets need confidence more than anything at the moment and the comments from the “Hill” did little to inspire that--from this observer’s perspective. For example, what if the rescue package gets delayed as Congress debates the merits of oversight and control for, say, the next few weeks? Are worldwide market participants patient enough to wait it out or do they simply take down a notch or two just to remind everyone how serious this really is. Ultimately, the vote will take place, the first round of funds appropriated and off we go into the new Resolution Trust Corporation and or Money Fund Assurance Corp. or whatever names they devise.
Money Fund Update
As you know, at least two money funds, The Reserve Primary Fund and the Bank of New York Institutional Cash Reserves fund, run by Bank of New York Mellon Corp., “broke the buck,” meaning the per-share value fell below $1. In addition, Putnam Investments closed its $15 billion Prime Money Market Fund because of "significant redemption pressure" and others have halted redemptions such as UCM Institutional and American Beacon. Many other fund families had to shore tier fund’s NAV with Letter of Credit and other funding lines last week. At this point it appears the Treasury program will cover all funds as of last Friday the 19th. This means it appears that the Reserve Fund won’t be covered but Mellon may be under the plan. Details have not been formalized as of this writing.
Here are more details from the Treasury on how and who they will cover:
"While these details are being finalized, Treasury is making the following clarifications: 1. All money market mutual funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940 and are publicly offered and registered with the Securities and Exchange Commission will be eligible to participate in the program. 2. Eligible funds include both taxable and tax-?exempt money market funds. The Treasury and the IRS intend to issue guidance that will confirm that participation in the temporary guaranty program will not be treated as a federal guaranty that jeopardizes the tax-?exempt treatment of payments by tax-exempt money market funds. 3. The temporary guaranty program will be designed to provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008. 4. Further details on other aspects of the temporary guaranty program and the required documentation for funds to participate will be provided in the coming days.
Peter Crane of Crane Data says that “Though the Treasury program should help funds that have halted redemptions, such as Putnam Prime MM Institutional, and now UCM Institutional Money Market Fund and American Beacon Money Market Portfolio, it doesn't appear it will help shareholders of The Reserve Primary Fund.
About Fortigent: Fortigent, LLC delivers a fully integrated and customizable business-to-business outsourced wealth management solution to banks, trust companies, and independent advisory firms. Services include an "open architecture" investment platform with particular expertise in alternative investments, a flexible unified managed account program, and consolidated wealth reporting. Fortigent's web-based portal interface allows access to proposal and rebalancing tools, client portfolio reporting and accounting, as well as industry articles, research papers, and other practice management and business development resources.
On the Net: Fortigent – http://www.Fortigent.com
The information provided is general in nature and is not intended to be, and should not be construed as, investment, legal or tax advice. Fortigent makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based upon information that Fortigent considers reliable, is not guaranteed as to accuracy or completeness.
Not FDIC Insured ?No Bank Guarantee ?May Lose Value (c) Fortigent, LLC |
| Contact Us |
