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Old 13.08.2007, 09:36
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Who is winning as stock markets fall?

After the 'Black Wednesday' in the UK and the fortunes made by the likes of Soros, I can't help thinking that the fortunes being pumped into the system by the national banks e.g. (one trillion yen by Japan) is benefitting some quite a bit.

Could any one explain-in simple terms-a couple of points.

1. Just how does a bank 'pump' all this money into the 'system'?
2.Who is likely to be making their fortunes from this?

Thank you
Chester
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Old 13.08.2007, 10:06
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Re: Who is winning as stock markets fall?

My understanding is as follows...

1) The money is "pumped into the system" by offering the larger banks loans. The banks can then use the cash to cover themselves such that they can stop selling everything to cover their losses. If the banks stop selling everything then the stock markets stop falling.

2) The banks benefit. To me, it's quite unfair that so many countries are prepared to use tax-payers money to bail out the banks when things get rough.

Hopefully a few people will post responses on this subject as I'm keen to get a better understanding myself.
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Old 13.08.2007, 10:14
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Re: Who is winning as stock markets fall?

1. Just how does a bank 'pump' all this money into the 'system'?


Normally through Repo Transactions in the case of the SNB
http://www.snb.ch/en/iabout/monpol/id/monpol_instr

Banks are desperate for liqudity and this raises rates.
Central Banks come in and offer cash to the market in an attempt to lower rates.

Today the SNB offered 1 week repo at 2.43%

Last edited by panamahat; 13.08.2007 at 10:18. Reason: added repo info
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Old 13.08.2007, 23:42
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Re: Who is winning as stock markets fall?

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After the 'Black Wednesday' in the UK and the fortunes made by the likes of Soros, I can't help thinking that the fortunes being pumped into the system by the national banks e.g. (one trillion yen by Japan) is benefitting some quite a bit.

Could any one explain-in simple terms-a couple of points.

1. Just how does a bank 'pump' all this money into the 'system'?
2.Who is likely to be making their fortunes from this?

Thank you
Chester
AFAIK they 'print' it electronically by issuing short term loans. The money is issued then repaid days later and 'destroyed'. Not too sure what happens if the bank who takes the loan goes bust in the interventing time period though.....

I'm not sure who would be making from this, but given that the central banks are issuing the loans because LIBOR (the interbank lending rate) is way above official interest rate level, I'd imagine you could use the 'cheap' loan from the central bank to lend to someone else at a higher interest rate, then pocket the difference.
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Old 13.08.2007, 23:55
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Re: Who is winning as stock markets fall?

the answer is simple:
they print it (central banks) and then hand it over to banks as a 'loan'.
Its no problem to the central banks, in recent times all they have been doing is printing money and thats why we have these problems.
Price inflation is the symptom of monetary inflation (central banks printing money).

Ever wondered where the Federal reserve (US) gets there 2-3% inflation figures from? Dont know what others think but i would love to know the items that 'supposedly' have gone up by only 2-3%!!

Inflation is here to stay.
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Old 14.08.2007, 00:09
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Re: Who is winning as stock markets fall?

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the answer is simple:
they print it (central banks) and then hand it over to banks as a 'loan'.
Its no problem to the central banks, in recent times all they have been doing is printing money and thats why we have these problems.
Price inflation is the symptom of monetary inflation (central banks printing money).

Ever wondered where the Federal reserve (US) gets there 2-3% inflation figures from? Dont know what others think but i would love to know the items that 'supposedly' have gone up by only 2-3%!!

Inflation is here to stay.
Yeah - seems to me that most countries fiddle their inflation statistics bigtime. After all, many have 'inflation rate' yearly rises to pay public workers for staters....

In the UK, the official 'target' inflation rate is 2.0% CPI (Consumer Price Index)- the bank of England is supposedly setting interest rates to meet that target. However, many point out that the CPI excludes many of the basic costs of life and seems rather biased towards the sort of consumer goods that China tends to churn out ever cheaper... hence leading to somewhat unrepresentatively low figures. It's called the 'Chinese Price Index' by some.

If you ever wondered why balance of trade and China's record on civil liberties have ceased to be issues any more, look no further than the massive effect imports from China have had on the official inflation figures. China has effectively been exporting deflation to the west for the last decade and that overrides all other concerns for the US and UK governments it would seem.

Certainly, there's no way that people's personal inflation levels have been runing at 2-3% in the UK in recent years. Switzerland however seems to be rather better. In nearly 8 years of living there, I can't say that I noticed prices increasing all that much. I believe the Swiss have a tight policy of controlling prices in the hope that european prices 'catch up' eventually, thus eliminating the 'high price economy' problems.
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Old 14.08.2007, 09:11
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Re: Who is winning as stock markets fall?

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AFAIK they 'print' it electronically by issuing short term loans. The money is issued then repaid days later and 'destroyed'. Not too sure what happens if the bank who takes the loan goes bust in the interventing time period though.....




The loan is in fact a Repo Transaction / Collateralised Loan
The bank borrowing cash gives the SNB ( Swiss National Bank ) collateral ( securities ) and the SNB provides the cash. . .
Length of transactions normally range from Overnight to 1 Month.

From memory, it's very rare for banks to default on a Repo.

Repos: Baskets
In a repo transaction (repurchase agreement) the cash taker sells securities to the cash provider while at the same time agreeing to repurchase securities of the same type and quantity at a later date. The Swiss National Bank (SNB) employs this instrument to steer liquidity. As a rule, the SNB uses the SNB GC Basket for repo auctions and for intraday tenders. Only securities listed in one of the three baskets indicated below are eligible for SNB repos. The exact criteria for eligibility are set out in the SNB's instruction sheet on collateral eligible for SNB repos. -> http://www.snb.ch/en/ifor/finmkt/ope..._repos_baskets
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Old 14.08.2007, 10:48
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Re: Who is winning as stock markets fall?

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After the 'Black Wednesday' in the UK and the fortunes made by the likes of Soros, I can't help thinking that the fortunes being pumped into the system by the national banks e.g. (one trillion yen by Japan) is benefitting some quite a bit.

Could any one explain-in simple terms-a couple of points.

1. Just how does a bank 'pump' all this money into the 'system'?
2.Who is likely to be making their fortunes from this?

Thank you
Chester

Keep in mind that the "pumping" goes on all the time. August 2nd the Fed pumped 17 billion into the market and everyone yawned with excitement.
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Old 14.08.2007, 13:43
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Re: Who is winning as stock markets fall?

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The loan is in fact a Repo Transaction / Collateralised Loan
The bank borrowing cash gives the SNB ( Swiss National Bank ) collateral ( securities ) and the SNB provides the cash. . .
Length of transactions normally range from Overnight to 1 Month.
We used to look after them, at a certain three-letter Swiss bank. Repos are truly terrifying beasts. Each individual transaction is minimum about USD $500 million, and there's two auctions per day. You ain't seen stress until you've tried doing tech support for those ...
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Old 15.08.2007, 17:28
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Re: Who is winning as stock markets fall?

Thank you everyone for your posts. I'm a little more enlightened.

So, we have a well defined process for pumping money into the system which goes on all the time and no individual fortunes being made directly from this as the banks are the beneficiaries.


Thank you again

Chester
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Old 15.08.2007, 18:20
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Re: Who is winning as stock markets fall?

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Thank you everyone for your posts. I'm a little more enlightened.

So, we have a well defined process for pumping money into the system which goes on all the time and no individual fortunes being made directly from this as the banks are the beneficiaries.


Thank you again

Chester

Actually, the irresponsible hedge funds and other greedy investment institutions are being let 'off the hook' (for now) despite having made some incredibly irresponsible and risky trades which have come back to bite them in the ass.

It remains to be seen if they have learned their lesson or will continue to take stupid risks in the knowledge that the central banks will bail them out to avoid potential systemic collapse of the banking/finance sector. My guess is the latter. After all they've got bonuses to earn and you don't make megabucks in the investment business by safe, responsible trading.

It's the old adage - owe a bank 1000 quid and you've got a problem. Owe them a million and they've got a problem. Owe them a billion and the national economy has a problem.....
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Old 15.08.2007, 21:50
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Re: Who is winning as stock markets fall?

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Today the SNB offered 1 week repo at 2.43%
Is that per year?
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Old 16.08.2007, 02:59
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Re: Who is winning as stock markets fall?

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Is that per year?
It's a one week repo
or have i misunderstood your question
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Old 16.08.2007, 09:39
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Re: Who is winning as stock markets fall?

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It's a one week repo
or have i misunderstood your question
Sort of. The term is one week, the interest rate is one year equivalent.
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Old 16.08.2007, 12:50
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Re: Who is winning as stock markets fall?

More turmoil today - big falls in the US just before closing and the FTSE below 6000 at opening. Not so long ago they were talking about breaking 7000......

I notice that LIBOR is around 6.5% now on all terms

http://www.swap-rates.com/UKLibor_extended.html

Given that banks are loaning at 6.5% to each other, what does the official 5.75% Bank of England base rate mean? I read that the BoE didn't intervene last week because it offered a facility for any bank to borrow from it short-term, so does that mean banks can go to the BoE and get a base rate loan or what? Doesn't seem to make sense if LIBOR is 0.75% higher as the BoE would just be giving money away.
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Old 16.08.2007, 15:07
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Re: Who is winning as stock markets fall?

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More turmoil today - big falls in the US just before closing and the FTSE below 6000 at opening. Not so long ago they were talking about breaking 7000......

I notice that LIBOR is around 6.5% now on all terms

http://www.swap-rates.com/UKLibor_extended.html

Given that banks are loaning at 6.5% to each other, what does the official 5.75% Bank of England base rate mean? I read that the BoE didn't intervene last week because it offered a facility for any bank to borrow from it short-term, so does that mean banks can go to the BoE and get a base rate loan or what? Doesn't seem to make sense if LIBOR is 0.75% higher as the BoE would just be giving money away.


Not everyone can access funding from The Old Lady.
Banks at present are very wary about who they lend money to if they have any to lend and a lot are holding onto what they have -> higher Libor ( Offered Rate )
I'm told there is a current strategy being played in the market - taking in gbp and swapping ( FX Swap ) it into another currency -> higher Libor
Finally September GBP futures indicate a .25 rise in base rates. . .

British Bankers Association release from Monday 13th
This morning, UK markets led a recovery after suffering heavy losses last week.
However, BBA LIBOR rates are at historically high levels, after spiking sharply on Thursday and Friday. BBA LIBOR is a measure of the rate at which large banks will lend to each other in the London market. It is set daily, and shows the level of risk that financiers perceive.
Usually, Overnight BBA Sterling LIBOR rates will set just above the base rate - as decided each month by the Bank of England's Monetary Policy Committee (currently 5.75 per cent). However, over the last few days it has risen to 0.75 per cent above the base rate (i.e. 6.50 per cent). The rates have not been as volatile, or as far above the base rate, since the Enron scandal in December 2001.
Overnight BBA LIBOR rates act as a barometer of risk in the financial markets. If the rates are significantly above the interest rates as set by the central bank, or government, it indicates that lenders are more worried about defaults on loans. Right now, rates are high due to the knock-on effects of US sub-prime mortgage worries.
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Old 16.08.2007, 19:16
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Re: Who is winning as stock markets fall?

Looks like the carry trade is finally unwinding, irrespective of interest rate differentials between currencies:

http://www.ft.com/cms/s/d7dc639e-4bd...0779fd2ac.html

The article references the Yen but the Swiss Franc is often thought of as the 'European Yen' when it comes to carry trades.

Hopefully, good news for those of us with savings denomenated in Swiss Francs.
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Old 16.08.2007, 23:47
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Re: Who is winning as stock markets fall?

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Hopefully, good news for those of us with savings denomenated in Swiss Francs.
hmm, they do mention the franc!

Quote:
The low-yielding Swiss franc, carry traders’ second favourite funding currency, showed little reaction to the yen’s move, rising just 0.1 per cent to SFr1.2180 against the dollar and 0.3 per cent to SFr1.6325 aginst the euro.
So the Swiss Franc is not rising very fast. However, it is winning more quickly against some other currencies, look at this meteoric rise against the Australian dollar:


Anyway, I hope the rise against the Euro continues. I will be using the opportunity to transfer CHF to Euro soon from and to Postfinance accounts. Has anyone tried Wechselstube (www.wechselstube.ch) by any chance? They seem to offer real time rates but I am not 100% sure if that is really how it works with them.

By the way, do markets typically recover before the weekend?
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Old 17.08.2007, 11:11
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Re: Who is winning as stock markets fall?

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By the way, do markets typically recover before the weekend?
seems that Asia is getting a beating but the FTSE is on the rebound
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Old 17.08.2007, 12:47
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Re: Who is winning as stock markets fall?

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By the way, do markets typically recover before the weekend?
Often its due to profit taking. If you have been short the FTSE all week buy it back on the Friday and count your profits.

Also another answer to who benefits if stock markets fall. You if you want to! Log on to your friendly local spreadbetting site, sell the ftse/nasdaq/dollar and (hopefully) profit. Admittedly you have lots of scope for losing cash as well but you can profit as well.

www.igindex.co.uk
www.cantorindex.co.uk
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