9/5T7:55 News & Notes

Main bank of China is in need of capital - NY Times
NY Times reports China's central bank is in a bind. It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac. Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank's tiny capital base. The bank's capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund. Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People's Bank of China has begun discussions with the finance ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China. The central bank's predicament has several repercussions. For one, it makes it less likely that China will allow the yuan to continue rising against the dollar, say central banking experts. This could heighten trade tensions with the United States. The Bush administration and many Democrats in Congress have sought a stronger yuan to reduce the competitiveness of Chinese exports and trim the American trade deficit.

MER Merrill Lynch: Details on 6:35 Goldman Sachs downgrade of MER (26.21 ) -Update-
As mentioned at 6:35, Merrill Lynch was downgraded by Goldman Sachs to Sell. The analyst thinks that the co will likely incur fresh write-downs, in addition to those assumed after its recent sale of repackaged debt to Lone Star Funds. Analyst William Tanona also widened his third-quarter loss forecast for the world's largest brokerage, while adding the stock to his Americas conviction sell list. Tanona said Merrill's stock currently trades at the highest price to book multiple in his large-cap brokerage universe, despite having some of the most significant exposures to troubled assets like collateralized debt obligations, mortgages and leveraged loans. "We expect Merrill's multiple to compress over the coming weeks and months, as third-quarter earnings will mark the fifth consecutive quarterly loss for the company, and its prospects for fourth quarter of 2008 are not promising enough to warrant this level of a premium to book value," he wrote in a note dated September 4 to clients. Tanona widened his third-quarter loss forecast for Merrill to $5.75 a share from $4.75, citing expectations of higher gross write-downs, and higher compensation expense. He also widened his 2008 loss estimate to $11.55 a share from $10.25. The analyst cut his six-month price target on the stock to $22 from $28.50.

Atticus denies rumors it is liquidating - WSJ
The Wall Street Journal reports speculation sweeping the mkt that large hedge fund Atticus Capital is liquidating its positions and closing down is not accurate, according to execs of the firm. "We've heard these rumors as well and they're not true," says Tim Barakett, founder of Atticus, which has about $14 bln under mgmt. "We're certainly not liquidating. In fact we have a large net cash position and are looking for opportunities to invest capital." Part of the reason stocks tumbled Thursday was selling by hedge funds who are trying to get out of positions they fear fellow hedge funds, such as Atticus, will sell if they are under pressure to close shop or trim losses. Some are trying to make money shorting stocks held by struggling hedge funds, traders say. Some stocks that Atticus has held in recent months were hit Thursday, including Burlington Northern Santa Fe (BNI), down 3.7%, Union Pacific (UNP), down 6%, and MasterCard (MA), down 5.9%. "Hedge funds that picked on Lehman Brothers and Bear Stearns now are picking on each other," said the head of prime brokerage at a major investment bank. Atticus, however, says its investors are largely sticking with it, despite losses of between 25% and 32% in its two main hedge fund this year, through Aug, according to investors. Losses this month have not been dramatic, these investors say. "As a firm we have had less than 10% of our capital put in for redemptions for September 30," says Mr. Barakett. "There are no funds that we are even considering closing down. Our flagship fund, Atticus Global, has had redemptions of about 3% of capital."

Great Commentary on the Housing Market and Foreclosures: (See link)
>>>"Most alarming is the fact that, in spite of all these programs that are trying to save or stop the process, more and more people are not paying," said Su. "The question is, are these programs encouraging people to not pay?"...typical of gov interference in a mkt..unintended consequences of human behavior(encouraging people to default in order to seek loan modification) just makes the problem much worse..the gov programs appear to be accelerrating foreclosures...the banking system is heading for a complete collapse..

http://www.nctimes.com/articles/2008/08/30/business/zad421415c27f7dbb882574b3007c50a5.txt