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Posted by on Aug 18, 2011 in Markets, TG Roundup, USA, Worldwide

Update (Aug 18, 2011): Panic Hits World Financial Markets. Again.

5:00 PM Update:

“Must read” articles on Fed getting Concerned about European bank liquidity problems.

WSJ: Fed eyes European banks

FT Alphaville: Should the New York Fed be worried about European banks?

For us, though, the most interesting part of the WSJ article is its end, which includes some raw data on European banks’ US assets (H/T Joseph Cotterill):

On June 30, 2010, for example, Société Générale had $55 million in cash reserves in its main New York branch. A year later, that amount had soared to $24.6 billion. At Deutsche Bank, cash reserves at its U.S. arm rose to $66.8 billion from $178 million.

In recent weeks, though, the cash piles at foreign banks’ U.S. arms have diminished. While individual banks haven’t reported data after June 30, foreign banks’ overall U.S. cash reserves fell to $758 billion as of Aug. 3, the latest data available. That is down 16% from three weeks earlier, though it’s still up sharply from the beginning of the year.

There are two stories here, one real (the massive increase in cash assets from 2010 to 2011), one possible (whether regulators are right to be worried about declining dollar cash piles on foreign bank balance sheets). Both are based on Fed H8 data, which show the assets and liabilities of US-based banks.


4:30 (US Markets Closed) Update:

Another big down day. I am almost glued to FT and ZH sites to find out what is happening. [CNBS is waste of time]. Zero Hedge deciphers some data and predicts what COULD happen tomorrow, Aug 19th (ES limit down at tomorrow’s open):

If yesterday’s news broken by ZH that one bank was in dire need of US dollars and ended up borrowing $500 million from the ECB was enough to send the market down almost 5% today, then the follow up news that the FRBNY just reactivated FX swap lines with Europe will likely send ES limit down at tomorrow’s open. The FRBNY has just announced that in the week ended August 17, it lent out $200 million to not the ECB, not the BOE, but the “most stable” of all banks: the SNB. This is the first use of the Fed’s Swap Lines since March, and the most transacted under this “last ditch global bailout swap line”

If you don’t understand what it really means, watch this video:

[Here is my best guess in plain English. In the most recent case, in its frantic attempts to lower the demand for Swiss Francs, SNB sold dollars and got into trouble. The Fed came to the rescue of SNB – a bank that is considered the most stable in the world.  Now, imagine this: If the Fed has to bail out the MOST STABLE bank in the world, at a time most major European banks are teetering on the edge, imagine the scale of the problem!]

You might ask, $200 million doesn’t sound like much. Why bother even mentioning it. Here is Tyler’s explanation of the problem.

Because unlike in 2008, when the ECB was completely unprepared to deal with any of this, now the ECB is supposed to be handle such liquidity issues on its own. It doesn’t matter if $1 was transacted or $1 quadrillion: its mere usage means there is something very much broken in European liquidity conduits.


Dow 10,990.58 -419.63 3.68%
Chart for Dow
Nasdaq 2,380.43 -131.05 5.22%
Chart for Nasdaq
S&P 500 1,140.65 -53.24 4.46%
Chart for S&P 500
10 Yr Bond(%) 2.0830% -0.0820
Chart for 10 Yr Bond(%)
Oil 81.77 -5.80 -6.62%
Chart for Oil
Gold 1,823.20 +32.00 +1.79%

12:00 Noon Update: European Close


FTSE Eurofirst 300 -10.99 / -1.18%
Index Last
FTSE Eurofirst 300
923.85 -48.02 -4.94% 334.55m
FTSE 100
5,092 239.37 -4.49% 1.17bn
CAC 40
3,076 178.30 -5.48% 225.12m
Xetra DAX
5,603 -346.14 -5.82% 325.97m

10:00 AM A quick update on news and why it is happening.

  • A Wall Street Journal piece explains today’s carnage. Fed Eyes European Banks.
  • There is something onerous about Merkel and Sarkozy meeting yesterday. There is SPECULATION that Germany and France will not carry the baggage from Europe;s weaker economies any lonoger
  • Yesterday one of (US) Fed governors, DIck Fisher issued a statement. “The Fed Should Not Protect US Stock Traders From Loss.” I don’t know about you, but I see this as a tacit admission that so far the Fed has been in the business of protecting US stock traders from loss. And that there are not going to do this any more.
  • This morning: All trading on Russian stock exchange suspended.
  • (check this post for more updates during the day)

Snapshot at 10:17 AM, Aug 18 – 2011

Dow 10,932.84 -477.37 -4.18%
Chart for Dow
Nasdaq 2,388.81 -122.67 -4.88%
Chart for Nasdaq
S&P 500 1,141.08 -52.81 -4.42%
Chart for S&P 500
10 Yr Bond(%) 2.0210% -0.1440
Chart for 10 Yr Bond(%)
Oil 83.28 -4.30 -4.91%
Chart for Oil
Gold 1,824.40 +33.20 +1.85%


FTSE 100 5,079.85 251.75 -4.72%
Chart for FTSE 100
DAX 5,603.63 -345.31 -5.80%
Chart for DAX
CAC 40 3,078.96 -175.38 -5.39%


  1. The Q&A clip that you attached in this post between Alan Grayson and Bernanke is interesting.

    First, let me tell that I am big fan of Alan Grayson. I liked number of good speeches on the floor. He seems to represent a common man but unfortunately lost his recent election.

    But, if you watch this video couple times with open mind, you will observe that he (Alan) seems to have come on top but actually did not.

    Yes, Bernanke is clearly pissed of. Alan looks cool and acts like an interogator investigating a crime scene, while Bernanke, like a falsely accused victim, is little angry, confused and testy.

    While Ben is trying to explain that they give dollars to a one central bank which in turn distributes to smaller entities, Alan confused Ben by asking which smaller entities got the money – I am not sure what he is trying to get at.
    Ofcourse, Ben was little frustrated and seemed careless when he said, ‘don’t know’. He answered like someone who won’t be anyway selected to a job interview.

    Then Alan used his usual style of giving an example of swaps to some NewZealand bank and suddenly bringing up the point of Americans not getting enough loans. Another unfair technique to link instituional loans and personal loans and confuse him.

    And then he asks “do you think it is consitent with spirit of provision in consitution to lend to foreigners…without any action by Congress ?”
    That is Congress’s problem. What can Ben do about that ?
    What Bernanke is doing is not illegal. There is precedence for it. If it is illegal, Mr. Grayson’s congress has every right to correct it.
    Ofcourse, Ben again screwed up with a rude answers.

    When you argue with a smart politician, it is like wrestling with a pig…after sometime you realize that pig actually is enjoying while you get dirty !

    • I agree with you on Grayson. He went too negative on his opponent. In one ad he quoted the opponent blatantly out of context, which turned moderates off. That said, the only two congressmen in the 111th congress who understood the real intricacies of US economy are Alan Grayson (D) and Ron Paul (R). Both are my favorites. I hope Alan Grason gets reelected next time (I read somewhere – he is considering running again.)

  2. As long as the governments don’t show a way how they are going to reduce the massive deficits and reduce unemployment, markets will keep getting spooked this way. And that is not going to happen that easily in this country (USA) that easily in this political atmosphere with the elections pending. No one is going to take or willing to take the tough decisions.

  3. Man, looks like you pray and wait for stocks to tumble to prove your theories ! In this troubled times, anyone who forecasts downward trend will be right most of the time. You live long enough and you can see it come back again. Its all part of the game.

    Btw.. Classes start in 10 days. Then, I won’t have any time to post those updates.

    • I pray for the return of sanity… And outright abolition of the Federal reserve and central planning.

      I have always admitted that I am like a broken clock. No special points for you for finding out the obvious! 🙂

      In ten days, classes will start and I will slow down on my scaring the public project. 🙂

    • YS,

      In all seriousness. Please do challenge me on my observations. That is the only way I can stop and think to myself, if I am getting carried away.

      I just stopped and did exactly that. I stand by my convictions about the market. What you said is valid in cyclical bear markets. I strongly believe that what we are witnessing is no cyclical correction/bear. This will end badly. Very badly!

      Sure I have been wrong several times before. But I on fundamental direction, I am proven to be more right than wrong. With due modesty I will say this: don’t dismiss my posts as chicken little ramblings.

      “Man, looks like you pray and wait for stocks to tumble to prove your theories !”
      Not true. Stocks will fall because the establishment theories are false and actions are wrong.