What a Week...........

The US administration and Congress are trying to Save the World's Financial Markets from a Total Collapse.....

Those that follow this blog know that I don't follow or trade news, to me its all built into the daily charts, simple I trade, ...............but I feel I have to chime in on the events of this week.

These are just my personal thoughts and speculations.

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What was witnessed in the last seven days will not be witnessed again by anyone alive today.

THAT, is how big this is/was.

In my humble opinion, we were days away from a Global Banking Meltdown that would have seen many major banks and corporation simply disappear into bankruptcy.

A Summary if you will.......

On top of Bear Stearns deal, the historic monetary policy moves by the Federal Reserve Bank's Board of Governors and Ben Bernanke, and last but CERTAINLY not least, the federal bail out of Fannie Mae and Freddie Mac..............we add the following events of this week for your reading pleasure......

Lehman is gone

Merrill Lynch is now owned by BofA

Morgan Stanely is about to merge with some other bank......

That's three of the top five Wall St Bankers, gone or part of other entities.

AIG, which it turned out, was THE weak link, is now owned by the Fed/Treasury

....and we, in all probability, averted at least one MAJOR Money Center Bank (read Citi, in my opinion), from failing by the end of next week.

Not one of those Lehman Holdings bankruptcies, where the subsidiaries are allowed to be sold off..........................

Nope, this would have been announced on a Friday after 6PM Pacific Time, and which ever bank it was, would have re-opened with "federal" in it's name on Monday morning. (Remember FDIC insurance covers only personal accounts up to $100,000.00 per depositor/bank. If I have four $100K accounts, $400k in total, I only get back $100k................and businesses lose everything.)

We know it would not have been JPMorgan Chase, the Fed is already partner's with them on the Bear Stearns theft,....uhhh., I mean "deal".

Bank of America just bought Merrill so that's not it.

WellsFargo is a solid bank, not in any real trouble, so its not them.

Maybe it would have been foreign, like UBS.........possibly

My bet is still on Citi though, and THIS IS NOTHING BUT MY OPINION AND ITS BASED ON NOTHING OTHER THAN PURE SPECULATION ......hello, big brother, I'm talking to you.

Breaking the Buck

The sign that something had to be done immediately came late Tuesday/early Wednesday when the Reserve Primary Fund, one of the world's largest Money Market Funds BROKE THE BUCK!!!!!.

To "Break the Buck" essentially means that the value of your money market fund at the bank was reduced from $1.00/dollar deposited, to in this instance $0.97. That's essentially devaluing the USD by 3%.

I don't care what any one says, the "breaking of the buck" by more Money Market Fund Managers this coming week, would have begun a run on the major banks.

Money Market depositors are usually happy with their small but "guaranteed" interest from Money Market accounts, but they never stop to think that ......................hey it is a fund, ..................its value could go down.

Their next statement would have shown the value of their Money Market Savings accounts go DOWN, .........negative NOMINAL INTEREST RATES.

We've had negative real interest rates for a while but negative nominal, where it costs you money to keep your money in a Money Market Fund.

Had the US Government sat on their hands, in my opinion, the runs on major banks, throughout the world would have been apocalyptic.

I think there would have been a world financial collapse so fast and so swift that many of the larger economies of the world would have been thrown into a decades long depression, in my humble opinion.

I noticed something was weird early in the week when my ECNs were quoting me ridiculously wide spreads most FX Pairs, relative to last week

Why?..............it turns out some big FX dealers (read Global Banks) had backed out of the market, either partially or completely, to see what was going to happen. Which ever bank makes a big market in the Pound was probably one of the Interbank dealers that sat out, because I was getting 12 pip spreads and Cable, 18 on the Guppy and more on Sterling/Swiss.

What does all this mean to FX traders next week..............more on that later.

Whoosh, sorry for the long post.