10/8T12:43 News & Notes

Joint statement by Central Banks on rate cut
Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets. Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability. Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions... The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures. Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

Britain announces bank bailout worth hundreds of billions - NY Times The NY Times reports Britain announced a three-part multi-billion dollar bailout for its beleaguered banks, and Spain moved to mount a separate rescue of its own banking sector. At a news conference, Prime Minister Gordon Brown insisted that the crisis had begun in the U.S. As a result of the crisis, he said, "the global financial market has ceased to function." He depicted the British measures as far more radical than had been forecast and farther reaching than America's $700 bln bailout. "We have led the world today with a proposal to restructure our banking system," Mr. Brown said. "We are taking the steps that I believe other countries will take in the future." A statement from the British Treasury said at least $350 bln "will be made available to banks under the special liquidity scheme," doubling the size of a credit line from the Bank of England established as the financial crisis began and designed to unlock frozen lending between banks. Additionally, the British government pledged $87 bln in direct support for eight major banks. The move amounted to a partial nationalization of some of those institutions. Minutes after the announcement, the British stock market fell by almost 5%. Mr. Brown said there would be "strings attached and conditions to be met" by the banks. "We expect to be rewarded for the support we provide." "Our stability and restructuring program is comprehensive, specific and breaks new ground," Mr. Brown said. "This is not the American plan. Our plan is to buy shares in the banks themselves and therefore we will have a stake in the banks." "We are not simply giving money," he said. Alastair Darling, the chancellor of the Exchequer said the government would continue to do "whatever is necessary" to combat the financial crisis. "The reason we are doing this now is because it is necessary to stabilize the banking system." The Treasury announcement promised support for the banks in two overall tranches of $43.5 bln to be drawn as preference share capital. The banks were named as Abbey, Barclays (BCS), HBOS, HSBC (HBC), Lloyds TSB (LYG), Nationwide Building Society, Royal Bank of Scotland (RBS) and Standard Chartered. It said the amount to be issued to each of the eight banks remained to be finalized but would take into account issues such as the executive compensation packages offered by British banks and would require "a full commitment to support lending to small businesses and home buyers." The statement also promised a " government guarantee of new short- and medium-term debt issuance to assist in refinancing maturing, wholesale funding obligations as they fall due."
RCM Comment: The two stories above prove the central banks both here and around the world have dropped the proverbial gloves and are fighting the credit crisis with all they've got. They have taken their collective eyes off of commodity prices and are content to debase currencies. Watch closely, this should lead to a rise in the value of Gold against all currencies.

Russia, Indonesia suspend trading in emerging market stock rout - Bloomberg.com
Bloomberg.com reports Russia suspended trading on its Micex Stock Exchange for two days and Indonesia halted trading indefinitely as stocks plummeted in the worst emerging-market rout in two decades. Russia's Micex Index dropped 14.4% before the suspension as President Dmitry Medvedev's package of $186 bln in support for banks and companies failed to lift investor confidence that the government can arrest its worst financial crisis since the 1998 default. The Jakarta Composite index fell 21% in its biggest weekly slump in at least 25 years. Investors are fleeing on concern the worsening global credit crisis will cause more banks to collapse and push the global economy into recession, lowering the price of the commodities that drive developing nation economies. The benchmark MSCI Emerging Markets index is headed for its worst weekly decline since it was established in 1987 after falling 21.4%.
RCM Comment: Billions of hedge fund dollars have been directed to emerging markets over the last few years. In fact, up until recently emerging markets were the only bright spot on the investing landscape. Now redemption and repatriation are the orders of the day, but remember, most hedge funds have lock up agreements with clients. It is no coincidence that the emerging markets have swooned in the 1st week of October because in most cases requests for redemption occur one day a year and that day is September 30th.

Iceland's krona quoted 95% below peg; regulator steps in - Bloomberg.com
Bloomberg.com reports Iceland's krona was priced at 94 percent below the peg against the euro set by the central bank yesterday to stabilize the currency as regulators said they took control of Glitnir Bank hf, the country's No. 3 lender. Nordea Bank AB, the biggest Scandinavian lender, said the price suggested by bid/ask spreads in pre-market trading was 255 per euro, compared with the 131 per euro level established by the central bank yesterday. There had been no buying of the krona to support the peg by the central bank, Nordea said... Sweden's central bank said it will loan as much as 5 bln kronor ($700 mln) to the Swedish unit of Iceland's Kaupthing Bank hf after it was unable to meet payment obligations and was put up for sale.