Fed steps in to provide liquidity to market

Sub Prime financing, rate increases, credit debt have thrown the market into termoil. This has caused a worldwide credit problem. Read below for more info:

Fed injects $35 bln, conducts 2nd operation
By Tamawa Kadoya
29 minutes ago

The U.S. Federal Reserve on Friday provided the banking system with $35 billion in two cash infusions, the largest amount of liquidity in at least four months, adding ample funds for the second day running as financial markets fretted over credit conditions.

Before Wall Street's opening bell, the Fed infused $19 billion in a market operation that was conducted more than an hour before its usual time.

The Fed also took the unusual step of making a rare statement after the first operation -- the first time it's done so since the September 11, 2001, terror attacks -- in an effort to calm investors' fears.

By late morning, the Fed injected $16 billion in a second market operation -- an unusual occurrence for a Friday. The last time the Fed conducted two operations on a Friday was more than two years ago.

U.S. stock indexes sharply cut their morning losses after the Fed's second liquidity injection, which occurred shortly before 11 a.m. (1500 GMT) At midday, stocks still were down, but were well off their intraday lows.

In its statement after Friday's first market operation, the Fed said it would provide liquidity as needed "to facilitate the orderly functioning of financial markets.

"In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets," it said.

The last time the central bank made a similar statement was after the September 11, 2001, terror attacks, when it also said it would do what was necessary to keep markets functioning normally. The Fed made a similar vow in October 1987 following a precipitous decline in U.S. stock markets.

Central banks worldwide have now injected at least US$323.3 bln in the past 48 hours to prevent markets from spinning into a global liquidity crunch. Short-term interest rates spiked in response to banks' decreased willingness to lend to each other.

The Fed has now added a total of $35 billion of temporary reserves to the banking system through 3-day repurchase agreements, compared with adding $7.5 billion through 3-day repurchase agreements last Friday.

That followed Thursday's total injection of $24 billion in two separate operations.

"Today's action indicates that (Fed policy-makers) are being more pro-active to ensure financial stability," said David Katz, chief investment officer at Matrix Asset Advisors in New York.

The fed funds rate was trading at 6 percent in early morning trade, but fell back to 5.25 percent shortly after the operation, in line with the target set by the central bank. It was last trading at 5.25 percent.

The Fed said all of the collateral accepted in the 3-day repos on Friday was mortgage-backed debt.

The Fed added a total of $84.5 billion to its reserves this week, compared with a total of $50.25 billion last week.

Also read what the world banks are doing:

Central banks pour money into bank system
59 minutes ago
FRANKFURT/WASHINGTON (Reuters) - The Federal Reserve and European Central Bank pumped money into the banking system for a second day on Friday to ward off a global credit crisis and the Fed said it stood ready to do more if needed.

UPDATE: The Fed has now added 65 Billion to its reserves today.

Lots of Economic news today!

Stock Market dropped like a brick this AM. Here's why...

From the AP:

Stocks plunge on rising credit anxiety
By TIM PARADIS, AP Business Writer
7 minutes ago

Wall Street plunged in early trading Thursday, yanking the Dow Jones industrials down more than 180 points after a French bank said it was freezing three securities funds that struggled to find liquidity in the U.S. subprime mortgage market.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone — institutions, investors, companies, individuals — can't get money when they need it unnerved a stock market that has suffered through weeks of intense volatility triggered by concerns about available credit.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst — although the bank's loan of more than $130 billion in overnight funds to banks at a bargain rate of 4 percent was intended to calm investors, Wall Street saw the step as confirmation of the credit markets' problems.

The Federal Reserve followed suit, adding $12 billion to U.S. markets to help ease liquidity constraints, according to Dow Jones Newswires.

Bonds rose sharply as investors again sought the relative safety of Treasurys, with the yield on the benchmark 10-year note falling to 4.78 percent from 4.89 percent late Wednesday. Bond prices move opposite yields.

Thursday's plunge continued an erratic pattern of triple-digit moves in the Dow for several weeks. There has been more panic and gambling in those moves rather than conviction — even when the Dow has finished up more than 280 points in a session, those gains have evaporated at the first mention of trouble in housing, subprime lending or the credit markets.

In early trading, the Dow fell 185.02, or 1.35 percent, to 13,472.84 after falling more than 200 points.

The Dow on Wednesday finished 2.45 percent below the record close of 14,001.41 reached on July 19. Since passing 14,000, the blue-chip index has been highly volatile — in the 14 trading days since that record close, 10 have seen a triple-digit gain or loss.

Also Thursday, the broader Standard & Poor's 500 index fell 24.25, or 1.62 percent, to 1,473.24, while the Nasdaq composite index lost 28.58, or 1.09 percent, to 2,584.40.

The dollar was mixed against other major currencies, while gold prices fell. Light, sweet crude fell $1.03 to $71.12 per barrel on the New York Mercantile Exchange.

Just heard on CNN: Mutual funds are now affected by the European Bank move.

Stay tuned!

More on the Market from McClatchy

And part of the leadoff of Kevin Hall's McClatchy article:

A steady stream of recent data shows mixed signals about where the U.S. economy is headed. The old sage himself, Alan Greenspan, suggests recession could be looming.

When Greespan speaks, the World listens!

Here's some more of Hall's article:

Fasten your seat belts - some economic chop could be coming.

The Dow Jones industrial index fell more than 416 points, or 3.29 percent, in trading Tuesday. The tech-heavy Nasdaq composite was off by 3.86 percent, and the S&P 500 was off by 3.47 percent. It was the largest one-day drop for markets since Sept. 17, 2001, the first day trading resumed after the Sept. 11 terror attacks


Tuesday's drops mirrored a global decline in stock markets as the investor mood turned bearish. Investors, who have been murmuring about a coming "correction" for weeks, are concerned that the U.S. and Chinese economies may be entering a period of cooling.


The drop underscores how connected the U.S. economy is now with the broader global economy. U.S. exchanges sank following a nearly 9 percent drop Tuesday on China's Shanghai Composite Index. It was the Shanghai's biggest one-day drop in a decade, and investors worried that interest rates may soon rise to douse China's sizzling economic growth.


Higher lending rates in China matter to average Americans. Most large American corporations either manufacture there or purchase from Chinese contract manufacturers. Higher lending rates in China would slow economic activity there and raise the cost of doing business. The costs could be passed back to Americans as pricier imported goods.


Adding to the economic uncertainty, oil prices are climbing again, due in part to the Bush administration's escalating war of words with Iran. Just weeks ago, some analysts projected a return to $40-a-barrel oil, but it now trades around $60 a barrel. AAA reports that unleaded gasoline averaged $2.37 a gallon nationwide on Tuesday, compared with $2.14 a month ago.

My question is: when you cut out the middle class, won't this hurt the economy of the US as well as the world?

Market Correction - Will it continue?

There has been some good news in the, over night, Chinese market which was expected by many market experts. But some Asian countries and Europe are still down spooked by what happened in our market yesterday. Are we really in a correction? Will this down trend continue?

From the AP:

Asian, European markets drop for 2nd day Chinese stocks bounced back Wednesday after their biggest decline in a decade, but stock markets elsewhere in Asia and Europe fell for a second day amid investor jitters about possible slowdowns in the Chinese and U.S. economies.

Shares in Japan, South Korea, Singapore, Malaysia, India, Australia and the Philippines all tumbled more than 2 percent after Wall Street suffered its worst day since the Sept. 11, 2001, terrorist attacks.

But as the day progressed, several Asian markets trimmed big early losses, and analysts said the sell-off was most likely a temporary correction to cool overheating markets, although they warned that markets would likely remain volatile for awhile.

"We don't need to worry about a big reduction from here, but this correction could continue for the next couple months," said Shinichi Ichikawa, an equity strategist with Credit Suisse First Boston in Tokyo.

In China, the Shanghai Composite Index rose 3.9 percent Wednesday to close at 2,881.07, rebounding from its 8.8 percent plunge Tuesday — its biggest drop in a decade.

Bullish comments in China's state-controlled media appeared to reassure anxious domestic investors, who account for virtually all trading. China will focus on ensuring financial stability and security, the official Xinhua News Agency cited Premier Wen Jiabao as saying in an essay due to be published in Thursday's issue of the Communist Party magazine Qiushi.

Chinese authorities also denied rumors of a 20 percent capital gains tax on stock investments — speculation that had played a role in Tuesday's plunge.

Still, investors dumped stocks across much of Asia Wednesday, partly unnerved by the 3.3 percent drop in the Dow Jones industrial average overnight. Comments Monday from former U.S. Federal Reserve Chairman Alan Greenspan, who said a recession in the U.S. — a huge export market for Asian companies — was "possible" later this year, also worried some investors.

And from Bloomberg:

China's Market Sideshow Turns Into Main Event: William Pesek
Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman & Co., wasn't exaggerating when he called Tuesday's global slide ``a bloodbath in the equity markets.''

Here, it's impossible to overstate the Chinese and Japanese parts of the equation. China needs to be explored because there's as much hype involved in its outlook as potential; Japan because of the global bubble caused by the so-called yen-carry trade.

First, the China angle. ``Fueling interest in the emerging markets has been China itself,'' said Joseph Quinlan, New York-based chief market strategist at Bank of America Capital Management.

U.S. Investors

That's particularly true of U.S. investors. Over the past two years, Quinlan said, U.S. investors sank just over $10 billion into Chinese equities. The 9.2 percent plunge in the Shanghai and Shenzhen 300 Index on Tuesday came at a time when U.S. investors have never been more exposed to emerging markets.

In 2006, Quinlan said, U.S. purchases of emerging-market equities totaled a record $52.7 billion. That followed a stock- buying record of nearly $39 billion in 2005. In 2006 alone, U.S. purchases of Chinese equities jumped to $5.2 billion from $4.9 billion in 2005.

All this means that on a relative basis, China has become the key emerging market for the U.S. ``To a significant degree, as China goes, so go the emerging-market returns of U.S. investors,'' Quinlan said.

There you have it -- the world's most developed markets are more vulnerable than ever to the policies of officials in Beijing, regulators in Shanghai and companies throughout the most populous nation. Yes, China has vast potential. It boasts 10 percent-plus growth, $1 trillion in currency reserves and 1.3 billion people, many of whom are becoming richer by the day.

Brave New World

Yet it also has a banking system that's still a transmission mechanism to funnel money into politically connected companies, little transparency, negligible press freedom and a central bank that reports to the Communist Party. China censors the Internet, undermining innovation in an economy that badly needs it. It faces worsening pollution and widespread risks of social instability.

So welcome to the brave new world of global finance, one in which hiccups in Shanghai will increasingly shake up markets across the globe and raise prickly questions about how stable the No. 4 economy really is. China's stock market is no longer a side show, but a main event.

My suggestion is that you research before you invest.

One Day after Greenspan said Possible Recession!

Greespan spooked the Chinese market and it affected ours! He said there would be a possibility of a recession later in this year. Here's the closing figures for our Stock Market for today:

Dow 12216.24 -416.02 (-3.29%)
Nasdaq 2407.87 -96.65 (-3.86%)
S&P 500 1399.05 -50.32 (-3.47%)
10-Yr Bond 0.451% -0.12

That's quite a scare! 416 points in one day.

Here's more form the AP:

World markets fall after plunge in China
Chinese stocks plunged nearly 9 percent Tuesday, their biggest drop in a decade, rattling markets from Hong Kong to Singapore and as far away as New York amid fears of a slowdown in China's economy.

Investors were also spooked by comments Monday from former Federal Reserve Chairman Alan Greenspan, who said a recession in the U.S. was "possible" later this year.

One day after sending Shanghai's benchmark index to a record, investors dumped stocks to lock in profits amid speculation about a fresh round of austerity measures from Beijing to slow the nation's sizzling economy. The Shanghai Composite Index tumbled 8.8 percent to close at 2.771.79, its largest decline since it fell 8.9 percent on Feb. 18, 1997, at the time of the death of Communist Party elder Deng Xiaoping.

Meanwhile, the price of oil fell on speculation that a slowing Chinese economy would slice into demand for fuel. A barrel of light, sweet crude was down 56 cents $60.83 in premarket trading on the New York Mercantile Exchange.

"The (rumors) that China is going to impose a capital gains tax resulted in regional markets falling," said S. Sharath, an analyst with MIDF-Amanah Investment Bank in Kuala Lumpur, Malaysia, where the benchmark index tumbled 2.8 percent.

But Greenspan's comments also took a heavy toll on Asian markets.

"Our economy is also dependent on the U.S. economy, if there is adverse news, exports from our country is going to drop," Sharath said.

In Hong Kong, the benchmark Hang Seng Index tumbled 1.8 percent, while Singapore's Straits Times index sank 2.3 percent. Markets in Japan and Taiwan, however, registered only modest declines.

The plunge spilled over to New York, where the Dow Jones industrials were down 210 points, or 1.66 percent. In London, the FTSE-100 dropped 2.31 percent, France's CAC 40 dropped 3.02 percent and Germany's DAX lost 2.96 percent.

Major Latin American markets were sharply lower around midday. In Brazil, Sao Paulo's Bovespa index was off 4.1 percent, Mexico City's IPC index shed 3.4 percent, the IPSA index in Santiago, Chile was down 3.8 percent, while in Buenos Aires, Argentina, the Merval dropped 5 percent.

Funny that Bernanke is in charge now but Greenspan seems to be the last word