PrefBlog

More news today on the LIBOR front … the ECB is offering unlimited Euros for a two week term at 4.21%. There was an instant reduction in two week Euro-LIBOR:

The rate banks charge each other fell to 4.45 percent from 4.94 percent, the European Banking Federation said today. The reluctance to lend money after the collapse of the U.S. subprime market pushed interbank euro rates for two weeks to the highest level in at least six years earlier this week.The additional cash “reflects the extra tightness in the market,” said Lena Komileva, an economist at Tullett Prebon in London. “However, it doesn’t address the fundamental issues of banks hoarding cash and while the central bank has succeeded in stabilizing the shorter term rates, it makes little impact on the longer term rates.”

Even the hawkish Bank of England opened the spigots:

The BoE, meanwhile, auctioned 10 billion pounds (more than $20 billion) of three-month funds on Tuesday. Notably, it accepted bids as low as 5.36 percent, which is 14 basis points below its 5.5 percent base rate. Three-month sterling Libor fell to 6.38625 percent from 6.43125 percent on Monday.

Two-week sterling Libor jumped by around a whopping 75 basis points to 6.51250 percent but that was only down to calendar effects over the turn of the year, and mirrored similar increases in two-week euro and dollar rates last week.

Naked Capitalism reprints a piece by Ken Rogoff from the Financial Times:

The real town/gown problem is one of horizon rather than perspective. Monetary policy has long and variable lags, particularly on slow-moving inflation expectations. Sharper Fed interest rate cuts today might well mute the housing price collapse, at least in nominal terms. However, if the Fed should ease too far, too fast, it could get hit by a boomerang a couple of years down the road, in the form of sustained higher inflation.

For the Fed, two to three years is the medium term, and it matters. For many financial market participants, two to three years is an eternity, and it does not matter.

Accrued Interest is driving himself crazy trying to forecast US Housing Prices. Bloomberg has a fascinating story today on the antics at a Californian sub-prime origination office. A complicating factor is foreign ownership, especially by snowbacks:

“Fifteen of my friends are on buying trips down here, and we’re all cheap,” Mr. Sirockman said. He brought his family to Scottsdale this month while he submitted a lowball all-cash offer for a three-bedroom home.

“I don’t want to take advantage of a guy who’s having trouble in the market and is losing his shorts,” Mr. Sirockman said. “But I have no problem with a guy from California who bought on spec and has five houses in Arizona and never lived in them.”
…
The market has shifted totally in the buyer’s favour, especially those offering cash, said Jeff Russell of Alberta. Last month, Russell snapped up a patio home next to a golf course in Scottsdale with a $299,000 check. It was listed at $463,000.
…
Mr. Sirockman also returned to Canada without a house after the owner of the Scottsdale home turned down his offer. No worries. Mr. Sirockman told the seller there were a thousand other homes like his on the market, and someone was going to deal.

When I need to hire a trader, I know who I’m going to invite over for an interview!

As noted on December 13, the consolidation of SIV assets by their major sponsoring banks has greatly reduced the need for the MLEC/Super-conduit (although it could still be useful in Canada!), but the plan is going ahead anyway:

The “SuperSIV” fund, set up to provide cash to structured investment vehicles hurt by subprime- mortgage holdings, plans to start buying assets “within weeks,” its sponsors said today.

The fund’s size, originally envisioned at about $80 billion, will be determined by “SIVs’ needs and evolving market circumstances,” Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said in an e-mailed statement. New York- based BlackRock Inc., the largest publicly traded U.S. asset manager, will oversee the fund.

BlackRock, I suspect, is going to have to earn its money the hard way. Now that the major sponsors have bitten the bullet, the urgency of the cash requirement has declined considerably, which gives considerable scope to traders playing games. The idea has been presented as pricing the assets to be bought at the levels of small transactions – rather than as a vulture fund – which may lead to a certain amount of cherry-picking as the banks’ traders try to pick off the fund. We shall see!

Another very active, negative day for preferreds. The Claymore ETF is now down for the month-to-date … but it looks as if Malachite Fund is hanging on to very good relative returns, anyway. So far! It is interesting to note that what I consider to be the four “main” HIMIPref™ indices (Operating Retractible, Split Share and the two Perpetuals) are all still up on the month – most of the damage to date has been done to the floating rate indices and especially the non-investment-grade issues.

As recently as the December 6 review of the Weston issues, WN.PR.E (to choose one) was quoted at 16.46-53 … it closed today at 15.10-17 after going ex-dividend Dec 12 for $0.296875. That’s a loss of almost 7.5%!

There were forty-seven other index-included $25.00-equivalent issues trading over 10,000 shares today.

This entry was posted on Tuesday, December 18th, 2007 at 11:13 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.