Finance – Page 4 – Gavinsblog.com

Was the Fed duped?

The Big Picture speculates that Bernanke was caught out by Societe Generale dumping futures contracts. The WSJ Market Beat blog tends to agree.

Did Bernanke know about the fraud on Monday? Did Societe Generale tell the Bank of France, who then would have told the ECB? Did the ECB inform the Fed?

The dumping of all those futures contracts, says the WSJ, certainly contributed to the market falls on Monday and Tuesday. What now for the presumed Fed Cut on January 30? IF Bernanke knew of the fraud, then he acted partly on that basis, if he didn’t then he acted without knowing the full picture.

This story will run, and is certainly bigger than the individual fraudster himself.#

Update:

According to this breaking Bloomberg story: Federal Reserve policy makers didn’t know about a $7.2 billion trading loss at Societe Generale SA prior to their Jan. 21 decision to reduce interest rates.

Policy makers were convinced by late December that increasing volatility in financial markets reflected a weakening U.S. economy and that further rate reductions were needed, said the official, who spoke on condition of anonymity.

The Federal Open Market Committee convened a conference call at 6 p.m. on Jan. 21 after stock markets in Asia and Europe tumbled. Members voted to cut the federal funds rate by three quarters of a percentage point, the most since the Fed began using the rate as its main tool of monetary policy in 1990, to 3.5 percent. Chairman Ben S. Bernanke and his colleagues concluded that losses in financial markets may result in reduced credit for companies and consumers, the official said.

Quote of the day

Jim Cramer, in an article about the Fed chairman Ben Bernanke, brought up George Bush’s views on the US economy. He constantly says it is fundamentally sounds, even if things are not going quite so well.

Says Cramer:

I’m not surprised by President Bush’s sunny economic outlook—this president would praise the Weimar Republic’s hyperinflation as great for Home Depot and the wheelbarrow industry.

Booya!

Talk of recession

In the run up to the Fed meeting this week, the chatter on investing websites and finance blogs is increasingly talking about recession in the US. This is linked to the subprime crisis, and going by Google Trends, talk of a recession has been gradually growing, at least with regard to searches.

Red is subprime and blue is recession. The biggest recent rise of recession talk was linked to the Fed cutting the rate 0.5%, rather than the expected 0.25%. And people in Washington DC, rather than those in New York seem more worried about recession, maybe because the DC property market has been hit hard.

Interesting statistics, at least. Let’s see what way the chatter goes this week.

Update: The Big Picture has further thoughts on recession sentiment.

Finance question

I am somewhat confused. During the run on Northern Rock I understood that the Bank of England disclosed information because they were obliged to by EU regulations. They could not keep it secret, as apparently had happened in the past. But Charlie McCreevy made some comments today that confused me:

Mr McCreevy said in a speech that Britain’s transparency rules were too strict…The announcement of the rescue, which spurred customers to line up outside branches and withdraw more than £2 billion pounds over three days, was the fault of the UK’s “gold-plating” of EU disclosure rules, Mr McCreevy said.

If it was the BoE’s fault, why does the EU need to review transparency rules? And if the BoE were partly to blame for the run on Northern Rock by “gold plating” disclosure rules, could it be the case that an Irish bank has had to turn to the Central Bank here for funds, but this information has not been disclosed in order to prevent a run?

Maybe A Random Walk can help.

Cutting the rate

The Fed cut the rate by .5%. I love days like today.

Cross your fingers for all the investment bank results this week…

Meltdown

A Random Walk talked about Cramer’s outburst earlier this week. The decision on interest rates is later today, and it looks like a hold with futures pointing to a rate cut later in the year.

Cramer’s own show is legendary – but his investment advice on individual firms seems to change with the wind.

Google Apple merger

Some of you may remember that as far back as August 2005, I speculated that Google and Apple seemed like a good fit, and could potentially merge at some point. I was heavily criticised for expressing the idea.

But watching stuff like this really makes me wonder. The partnerships between the two firms continue to grow, and Schmidt hints at more announcements in the coming months.

As I said before, in terms of pure philosophy at least, Apple and Google share the “technology anyone can use” idea. While there are no synergies per se, you must remember that Google at least is heavily reliant on its core philosophy, as outlined in it’s SEC filing before it floated. If their aim is to organise the world’s information, I don’t see how owning or merging with Apple would interfere with that idea, in fact I imagine it would assist it.

This remains in the realm of speculation, but I do remember Schmidt himself, when the iPhone was first announced, jokingly speculating as to what a merged Google/Apple would be called. Applegoo? He laughed. Hmm.

Category: Finance