- Crescenzi: What to Look for in Fed Balance Sheet
- Busch: Mumbai Crisis Adds To Negativity For Stock Markets
- Crescenzi: Fed Action Sends Mortgage Rates Plunging
- Busch: Danger Of Short Term Solutions Becoming Long Term
- Chandler: Fed Facilities Cut Dollar Recovery Short
- Citigroup: Lessons from the Crypt
- Busch: Nice Job Team Obama
- Busch: Things Will Get Better (It Can't Get Much Worse)
- China, Not So Risky After All?
- Busch: With Faith Lacking, Fear Remains The Religion
- Cramer's Outrage: Paulson & Bernanke
- Lightning Round: Genzyme, Goldman Sachs, U.S. Steel and More
- Lightning Round OT: Verizon, Kroger, Novartis and More
- Executive Decision: Foster Wheeler CEO Ray Milchovich
- Cavs Owner Doesn't Mind Buzz Over James
- Trading Obama's Stimulus Plan
- What Bailouts?
- Your First Move For Tuesday December 2nd
- Web Extra: Fast & Furious Trades For Tuesday
- Toyota to Cut Bonuses Amid Reports of Output Cuts
- China Eyes Consumer Boost, May Aim 8% 2009 Growth
- Australia Retail Sales Rise No Bar to Sharp Rate Cut
- Asian Stocks Tumble on Economic Woes
- Beyond Rate Cuts: Other Fed Tools Against Downturn
- Paulson's Speech on the Economy and Financial System
- Paulson: US Weighs Other Uses for the Bailout Fund
- House Democrats May Seek $500 Billion Stimulus
- Bernanke's Speech to the Austin Chamber of Commerce
Text Size 
Little advertised and poorly understood was the Fed's decision yesterday to provide unlimited dollar funding to the world's financial system through dollar swap lines established with three European banks.
There was a limit on the number of dollars that could be accessed before this. To illustrate how tight that market had become the last $20 billion auction for dollars drew $80 billion in bids. The dollar is still the worlds reserve currency and many European banks had fueled their growth with dollars. Forget the mechanics, but without this move by the Fed a country could guarantee only its own bank loans. With unlimited swaps into dollars whatever debts you choose to guarantee can be so done.
The "cram down" nature of the Treasury's decision to invest $125 billion into the largest nine banks removes the potential for any stigma attached to applying for the investment. Hundreds, if not thousands, of other banks can apply to be part of the program and will not taint themselves by doing so. If JPM [JPM
Loading...
()
]and the other big guys are in the club then it's a club I want to join. The 5% dividend going to 9% provides an incentive for the banks to buy themselves out when they can.
There have been real signs of capitulation the last few weeks. We knew there was large scale redemption of mutual funds underway. That is normal behavior during stressful market times. What we didn't know was the extent to which hedge funds were bailing out of the market. The papers today carry stories of many hedge funds that just got out of the kitchen and went to cash.
Also, the margin calls major industrial figures got is highly unusual. Viacom[VIA
Loading...
()
], Chesapeake Energy [CHK
Loading...
()
], Tesoro[TSO
Loading...
()
], Boston Scientific [BSX
Loading...
()
] and XTO Energy [XTO
Loading...
()
]all saw their execs hit with forced sales to pay off debts.
While it would be nice to think that the recent moves mark a bottom in the market, I think caution is called for. Major reversals like we saw yesterday, and indeed starting with Friday's recovery part way through the day, usually run out of steam and a test of the recent lows is likely. Expect the euphoria to continue for a while, but rebalancing portfolios during up markets is a good idea.
_______________________________________
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC. 
Del.icio.us
Digg It
Data is a real-time snapshot *Data is delayed at least 15 minutes