$ StockWatch $ Happy Quiet Friday

This last week had been a volatile ride yet an opportunity for shorts as well as buying. The currency and stock swings gave those who had taken profits or stayed sidelined recently when the debacle of subprime broke out to take the opportunity to bargain hunt. Mr Warren Buffet did so via Bank of America, buying up Countrywide Financial.

Buffett who runs Berkshire Hathaway Inc., clearly prefers financial companies which account for some 40 percent of the value of Berkshire's stock holdings

So far, stocks have made some recovery after the slide, The liqudity is coming back to the system as central banks pumping $ there and prices of stks have made some recovery while the Yen which was strong last week weakened. Fed and the rest of central banks certainly have helped the financial system bear out this subprime issue and preventing a financial disaster although we can expect the effects to be felt on the US economy. While market rallied these last couple of days on hopes of Fed cut, expect profit taking from day traders, uncertainty on next bad news but it seems market may just have enough fats from the good years to weather this rough patch.

Next week would continue to see rebalancing trades and futures expiry which would add to volatility of the indices and blue chips.

Current news as follow

1. French banking giant BNP Paribas said on Thursday it plans to unblock three of its investment funds, whose suspension earlier in the month sparked turmoil on global stock


2. Goldman Sachs Group Inc.'s Global Equity Opportunities hedge fund rose 12 percent last week after the securities firm shored up the money-losing pool with $3 billion of cash, investors said.


3. Singapore's DBS Group confirms today that it has more direct exposure to CDOs than previously declared. This came after broker CLSA said in a report that DBS may have S$2.4 billion ($1.6billion) worth of CDO holdings -- nearly double the S$1.3 billion directexposure it initially declared via a special purpose vehicle that had commercial paper backed by S$1.1 billion worthof CDOs. (that is what you get when you use keep them off the balance sheet, its hard to keep tabs)


4. News flagging the banks affirming exposure to the subprime today, Bank of China price came off on back of its disclosure on its exposures.

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Money Talks - or is it no money talks today

Anyway, to add on to this little blog page on the money talks...basis capital came out yesterday afternoon to say that they have lost 80% of their value check out the link on bloomberg

There is also big unwinding going on with forced selling on the equities. The yen has advanced
..against all 16 most-active currencies this week -> last look again today 116.50 to the USD, as traders exited so-called carry trades. A$ and NZ$ taking a big hit.

Money Talks - summary of subprime contagion

This year is the year of big changes in finance all around from tight markets, liquidity and staff musical chairs and shortage. Its been 2 good years of corn so far and there is a lot of fats built up that had helped fuelled the markets until the subprime concerns stopped the stock market moves.

What is happening now is -> the retail man in the street is losing money as subprime 'meltdown' continue to build up. Liquidity will continue to tighten although the question continues to remain on how much more to go... The meltdown so far is not as 'severe' given the market uptick in the last 2 years and investors still have some 'fat' from there.

Given market uncertainty, one would stand clear for now and just unwind fat positions and switch around stocks which is going on.
Funds managers must be looking through their portfolios on which stocks to clear and hold as fund redemptions will continue given that those with subprime 'failures' are unable to take out their investments given the losses.

On the currency front, the increased risk aversion among global investors as well as capital recall means investors are winding down "carry trades," a reason why Yen had not been doing well until recently. Interestingly NZ$, a favorite of the carry trade as its interest rate is 7.75% higher than Japan's, has slid the most among the 16 major currencies in the past week, falling 3.5% against the yen while the A$ has dropped 2.1%. The Yen is standing at 117.39 to the USD.


A summary of liquidity pumped in by central banks so far has shown that it has hit all markets and not just US.

US:

Bear Sterns (US$1.3bn losses estimated) - Triggered the decline in June after two of its hedge funds faltered as subprime loans default rates. The company pledged US$1.3bn to help stem losses in the funds. They filed for bankruptcy protection on July 31. Investors were blocked from pulling money from a third fund as losses in the credit markets expanded

American Home Mortgage Investment -Margin calls forced the mortgage lender into bankruptcy protection on Aug. 6

Australia:

Basis Capital :have seen its Basis Yield Fund lose half its value. .

Absolute Capital Group Ltd: Suspended withdrawals and froze its Yield Strategies Fund and Yield Strategies Fund NZD, which together have about A$200m (US$177m) under management.

Macquarie Fortress Investments Ltd- The 3rd fund manager in Australia because of loans made against the funds, which have about US$1.3bn invested, they could lose a quarter of their value (or US$300m)

Taiwan Life Insurance Co.- would book a loss of TWD428m (US$13m) for the first half 2007

France-BNP Paribas Asset-management arm freezes three of its asset-backed security funds amid a lack of liquidity with some US$2.2bn losses estimated

Germany -IKB Deutsche Industriebank AG German bank has "felt the impact" of the subprime fallout and now on the receiving end of a bailout that consists of about €3.5bn, or US$4.789bn, to cover possible losses, plus a further financial backstop of €14.6bn to keep afloat IKB and the affiliate that invested in fixed-income securities. An estimated US$5bn losses.

China's 6-listed banks may lose an estimated 4.9bn yuan (US$646m) from their investment in subprime loans

1) Bank of China US$507.8m 2) China Construction Bank US$76m 3)Industrial & Commercial Bank of China US$15.8m 4) Bank of Communications US$33.2m 5) China Merchants Bank Co US$13.6m 6)China Citic Bank US$2.5m

Funds injected by central banks last week

US Federal Reserve Central -> has injected approx US$62m (Thursday: US$24bn / Friday: US$38bn )

European Central Bank -> Funds injected US$279bn (Thursday: US$130bn /Friday: US$84bn /Monday: US$65bn )

Bank of Canada injected on Friday: US$1.6bn

Bank of Japan -> injected US$13.5bn Funds (Friday: US$8.4bn /Monday: US$5.1bn )

Swiss National Bank injected on Friday: Est. US$1.7-2.5bn

Reserve Bank of Australia injected on Friday: US$4.2bn

Monetary Authority of Singapore believed to have injected on Friday: US$1bn