Thomson Reuters/Jefferies CRB Index

The CRB index tracks a basket of commodities.

Jefferies Website:

- Data
- Documentation

Canadian Inflation

http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=CAD

Mon 27 Dec 2010 - Chinese Equities Fall

SSE - The Shanghai Composite Index - closed 1.9% down on the day, in apparent response to the earlier-than-expected rate increase announced by the Chinese central bank on Christmas day.

The effect of the negative news is compounded by the reduction in equity market liquidity resulting from recent successive reserve-ratio increases.

China stocks fall after central bank's weekend rate hike, amid speculation more hikes to come

CHINA MARKETS-Chinese stocks fall as rate rise reality sets in

CHINA MARKETS-Chinese stocks fall as rate rise reality sets in
Stocks, U.S. Futures Fall on China Rate Concern; Treasuries Drop
China stocks close down – Dec 27

25 Dec 2010 - Chinese Central Bank Raises Prime Rate

China Raises Rates
Yahoo Finance news

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2010-01-07
http://www.reuters.com/article/idUSTRE7060SD20110107?loomia_ow=t0:s0:a49:g43:r4:c0.032727:b40798056:z0
China Money: Bank reserves turn top weapon in liquidity fight

SSE Composite Index

Wikipedia:
The SSE Composite Index (Chinese: 上海证券交易所综合股价指, 简称上证综指) is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

Price Graphs
Google Finance
Sina[Chinese]

The Evolution of the Current Crisis

2007

The Market for Commercial Paper Locks Up

Federal Reserve Bank of St. Louis Review, Nov/Dec 2009, 91(6), pp. 589-612:

"Since its inception in the early nineteenth century, the U.S. commercial paper market has grown to become a key source of short-term funding for major businesses, with issuance averaging over $100 billion per day. In the fall of 2008, the commercial paper market achieved national prominence when increasing market stress caused some to fear that, given its size and importance, the market’s failure would sharply worsen the recession. The Department of the Treasury and Federal Reserve enacted programs targeted at providing credit and liquidity to restore investor confidence."

Brian Bethune @ IHS Global Insight:

"The U.S. commercial paper (CP) market is a vital source of liquidity that supports a broad range of financial activity and transactions in the economy (see "Background on the Commercial Paper Market").

However, this key segment of the financial market encountered some major stresses in August and September; stresses that led to significant pressure on commercial paper borrowing spreads and a sharp decline in net issuance of an unprecedented velocity.

The ultimate source of the problem was in the U.S. housing market, where a protracted housing recession—the current housing recession is on track to be the worst since the early 1980s in terms of housing activity—combined with higher borrowing rates and downward pressure on housing prices precipitated significant upward pressure on mortgage delinquencies and foreclosures.

Associated downward pressure on mortgage backed securities' credit ratings and prices led to a significant flight to quality, and this contagion spread from mortgage-backed securities to engulf other major areas of the credit markets, including asset-backed commercial paper, jumbo mortgage loans, and less-than-AAA-rated corporate bonds...

A decline in commercial paper outstanding of this order of magnitude has not been seen since the Fed started publishing this data in early 2001. The shock to the markets from September 11, 2001 precipitated a drop of $61 billion in one week, but markets recovered thereafter. The crunch in CP credit markets in August and September was several times the order of magnitude of what we saw on September 11, 2001.

In order to put this decline in even better perspective, the peak- (May 9, 2001) to-trough (April 21, 2004) decline in combined CP and bank commercial and industrial credit during the last recession was $408 billion over close to three years. The decline in the same broad measure of total credit was $282 billion in August and September—clearly this decline is of recessionary proportions."

NYTimes 24 Aug 2007:

The size of the commercial paper market, a crucial source of short-term financing for businesses, decreased 4.2 percent last week, the biggest drop in at least seven years, as investors fled asset-backed debt and opted for the safety of Treasuries.

Short-term debt maturing in 270 days or less fell $90.2 billion to a seasonally adjusted $2.04 trillion in the week that ended yesterday, according to the Federal Reserve. Commercial paper outstanding has fallen by $181.3 billion, or more than 8 percent, in two weeks.

Rex Nutting @ MarketWatch Aug 30 2007 Commercial paper market still shrinking. Asset-backed securities fall 15.6% in past three weeks:

Outstanding commercial paper in the U.S. financial system dropped sharply for a third straight week, indicating that a severe credit crunch has not eased in the market that supplies most large companies with operating funds.

Outstanding paper fell by $62.8 billion, or 3.1%, in the week ending Wednesday to $1.98 trillion, bringing the total decline in the past three weeks to $244 billion, or 11%, the Federal Reserve reported Thursday.

The declines in outstanding paper have been felt strongest in the asset-backed portion of the market, which represents about half of all commercial paper. These securities are backed by assets such as credit-card receivables or mortgages. In the latest week, asset-backed paper fell by $59.4 billion, or 5.6%. In the past three weeks, this kind of paper has fallen by $184.9 billion, or 15.6%

CNN Money Sep 13 2007 - Why the credit crunch may deepen - With the $2 trillion commercial paper market locked up, it's harder for banks to lend money.

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2008 - commodity prices peak in unison, plunging the dagger into the heart
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2008
US EQUITY MARKETS COLLAPSE

MoneyZine 2008: Only time will tell the full story of the stock market crash of 2008, but on Monday October 6, the stock market would start a weeklong decline in which the Dow Jones Industrial Average would fall 1,874 points or 18.1%.

CNN Money - Sep 2008:

EW YORK (CNNMoney.com) -- Stocks skidded Monday, with the Dow slumping nearly 778 points, in the biggest single-day point loss ever, after the House rejected the government's $700 billion bank bailout plan.

The day's loss knocked out approximately $1.2 trillion in market value, the first post-$1 trillion day ever, according to a drop in the Dow Jones Wilshire 5000, the broadest measure of the stock market.

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2009 - tax-payer governments agree to take over losses/debt of financial intermediaries
2009 - equity markets recover
2010 - ratings agencies start to down=grade European sovereign debt
bond market vultures circle over Europe
2010 - equity markets continue to shine, midyear wobbles withstanding
- Arnold Schwarzenegger - the Governator - Presides over LaLa Land
- China starts to show signs of stress


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Mono-Line Municipal Bond Insurer AMBAC to Declare Bankruptcy

Ambac Financial Group, a holding company for Ambac Assurance Co, itself an insurer of American municipal debt in the form of bonds, has petitioned for chapter 11 bankruptcy relief. This has occurred as a result of Ambac being unable to service its debt obligations, reported as $ 1.6 billion.

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NOV 8, 2010 6:37pm ET
Patrick McGee @ The Bond Buyer
Ambac Financial Group Files Chapter 11 Petition


Ambac Financial Group announced late Monday it filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

The company, which held $1.6 billion of debt as of June 30, said it will “continue to operate in the ordinary course of business as 'debtor-in-possession’ under the jurisdiction of the Bankruptcy Court.”

...

Shares of the insurance holding company sunk by more than one-third in after-hours trading to $0.34. In normal hours, the company’s stock rose 3.75% to $0.52. The company’s stock, which peaked at $96.08 on May 18, 2007, fell below $1 for the first time in February 2009.

Ambac announced on Nov. 1 that it would skip paying a $5.9 million interest payment owed on its debt that day. The company said it was unable to raise fresh capital and would be forced to file for bankruptcy under Chapter 11 unless an agreement could be reached with its creditors on a prepackaged bankruptcy.

Those talks failed, according to a press release Monday.

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November 1, 2010, 3:47 PM EST
Colin Barr @ fortune.com
Ambac sees bankruptcy ahead

 Bond insurer Ambac failed to make a scheduled $2.8 million interest payment on some debt and warned that it expects to be in bankruptcy by year-end, one way or another.

...

New York-based Ambac said it decided not to make a scheduled payment on $75 million of 7.5% debentures due 2023. If the firm doesn’t make the payment within 30 days, it could be in default on the notes and could face acceleration of that debt’s maturity.

Bankruptcy talk is nothing new for Ambac, which warned around this time last year that it could run out of funds in 2011. The firm’s fate was further solidified in August, when Ambac said for the first time it was working on a prepackaged bankruptcy with creditors.

Ambac has $1.6 billion in outstanding debt and has been trying to restructure those obligations to reduce the drain on its cash position. The firm made a mint writing insurance for Wall Street on bonds and related derivatives, such as collateralized debt obligations, during the past decade.

...

The company said one complicating factor is that while creditors will be expected to convert their debt claims to stock ownership in a reorganization, the timing of their debt purchases could knock the struts out from under the tax shelter the company has erected out of its massive postbubble losses.

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September 29, 2010 — 10:46 PM SAST
Karen Freifeld & David Mildenberg @ Bloomberg Business
Ambac Sues Bank of America Over Countrywide Bonds

Ambac Assurance Corp. sued Bank of America Corp. over $16.7 billion of mortgage-backed securities, saying the bank’s Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made loans.

Ambac found that 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.

The lawsuit follows negotiations between Bank of America, which acquired Countrywide in 2008, and Ambac over mounting losses caused by loans made during the early 2000s as U.S. housing prices soared. Ambac has paid $466 million in claims from more than 35,000 Countrywide home-equity loans that have defaulted or been charged off, according to the lawsuit.

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Nov. 10, 2009 10:24 PM ET
Edward Harrison @ http://seekingalpha.com/
Ambac: Now It Warns of Bankruptcy?

Bond insurer Ambac Financial (ABK) has warned bankruptcy is a distinct possibility, sending its shares plummeting more than 30% Tuesday.

What is intriguing about this pending bankruptcy is how this company escaped bankruptcy in 2008, was downgraded continually in 2009, yet just reported billions in profit 5 days ago. Now it warns of bankruptcy?

This story also is related to municipal bonds...

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Mon Nov 8, 2010 8:08pm EST
Tom Hals @ Reuters
UPDATE 5-Bond insurer Ambac files for bankruptcy

* Files for bankruptcy with $1.68 billion in liabilities

* Company had been in talks with bondholders

* Shares down 63 percent at 19.5 cents after hours (Adds bankruptcy details, background; updates share price)

BoC-HongKong Swap Makes Yuan Available for IPO's

The Bank of China has arranged currency swap facilities with the Hong Kong Monetary Authority, resulting in Yuan being available outside the PRC for the first time without the previously associated premium. The Yuan deposits have been made available in order to allow Yuan-denominated IPO's to take place, decreasing reliance on foreign money.

2010-12-23
Yuan Offshore Premium Drops as HKMA Starts 20 Billion Yuan Fund

US FED Dollar-Swap Facilities

What is a Currency Swap ?

Wikipedia:

These swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.

When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank's account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.

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2008 Establishment of US Dollar Swap Facilities
- http://wallstreetpit.com/658-fed-to-provide-unlimited-dollar-funding-under-swap-facilities

Official FED Announcement on MAY 2010 Facilities

Release Date: May 9, 2010
For release at 9:15 p.m. EDT

In response to the reemergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the reestablishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

Federal Reserve Actions
The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.

These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.

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Dec 2010

Fed Extends Swap Lines With ECB, Other Central Banks:

"The Federal Reserve authorized the extension through Aug. 1 of its temporary dollar liquidity swap arrangements with the European Central Bank and the central banks of Japan, Canada, Switzerland and the United Kingdom.

The arrangements had been authorized through January, the Fed said today in a statement. Fed officials voted in May to restart the emergency currency-swap tool to keep Europe’s sovereign-debt crisis from spreading to U.S. markets."

- federal-reserve-re-establishes-dollar-liquidity-swap-facilities
- boe-to-extend-dollar-swap-line-with-fed-until-aug-1-2011
- here
- fed-oks-dollar-swap-facility-with-bank-of-japan

Wall Street Journal:
"Under swap lines, the Fed makes loans to foreign central banks, which in turn use the funds to make U.S. dollar loans to financial institutions in their home markets"

Algorithmic Trading

InvestoPedia:
A trading system that utilizes very advanced mathematical models for making transaction decisions in the financial markets. The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks of shares are usually purchased by dividing the large share block into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased.

WikiPedia

GRAHAM BOWLEY January 1, 2011 - NY Times
Electronic Trading Creates a New Financial Landscape

PodCasts
algotradingpodcast.com

Litany Against Fear

I must not fear.
Fear is the mind-killer.
Fear is the little-death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.
And when it has gone past I will turn the inner eye to see its path.
Where the fear has gone there will be nothing.
Only I will remain.

- order of the Bene Gesserit - from Frank Herbert's Dune novel

StuxNet

StuxNet is a soft(ware) weapon

Reports indicate that StuxNet was used to saboutage the Iranian nuclear programme.

- StuxNet as a game-changer on the order of the F15 jet fighter
- stuxnet-is-game-changing-weaponized
- the-big-picture
- stuxnet-the-first-weaponized-computer-virus
- on the F15 comparison
- bits-before-bombs-how-stuxnet-crippled-irans-nuclear-dreams
- anandtech forum thread
- evolving-understanding-of-stuxnet
- strategypage

Nuclear scientist killed in Tehran was Iran's top Stuxnet expert

Reddit Articles

Wired.com articles:

Blockbuster Worm Aimed for Infrastructure, But No Proof Iran Nukes Were Target
All posts tagged ‘Stuxnet’

New Clues Point to Israel as Author of Blockbuster Worm, Or Not

The Investment Answer

The (Investment) Answer is an asset-management guide written by Gordon Murray and Dan Goldie.

Murray is in the final stages of terminal brain cancer, and feeling in the mood to contribute positively to humanity in his last hours. He previously worked for a variety of big Wall Street institutions, where active management is favoured, but came to the realization that passive management is a more profitable strategy over the long run, after coming into contact with Dan Goldie. Goldie, an advocate of passive management, was working for Dimensional Fund Advisors at the time, and acted as investment advisor to Murray.

A recent NY Times article outlines their core recommendations, which are summarised below:

1. Chose between managing your own money, and paying an investment advisor.

Hire an adviser who earns fees only from you and not from mutual funds or insurance companies. That way your 'advisor' is rationally incentivised to make YOU money, and not the predatory financial hulks which KICK him BACK a percentage of whichever of THEIR products he sells to you. This way he's your partner, as opposed to a parasite.

2. Divide your portfolio into a couple of mini funds. Your primary division is between stocks and bonds. Then, within your equity category, subdivide further into large and small caps, and between value and growth.

""A less volatile portfolio may earn more over time than one with higher volatility and identical average returns. “If you don’t have big drops, the portfolio can compound at a greater rate,” Mr. Goldie said.""

3. Further subdivide between foreign and domestic holdings

Buying only domestic bonds and equities is also a bet on your local territory's fortunes, if you have the opportunity, consider diversifying to include foreign securities.

4. Decide if you want to manage your holdings actively or passively.

Remember that emotions are tricky to control, and often one's worst enemy. Very few active fund manager's succeed in beating (or even matching) the passive benchmarks over the long term. [If you are going to manage more actively, then formulate and stick to a written strategy, algorithm or rule set.]

5. Rebalance - pare-back the winners and feed the losers

Buy low and sell high.