On the same day that third quarter Gross Domestic Product (GDP) was revised higher to 4.9%, its highest quarterly growth since 2003, Federal Reserve Board Chairman Ben Bernanke gave a speech that was interpreted by most news outlets as supportive of another rate cut at the Dec. 11 Federal Open markets Committee (FOMC) meeting. A growing belief that the Fed would cut rates again in December spurred a two-day 500 plus point rally in the Dow Jones Industrial Average this week and the Fed fund futures at the Chicago Board of Trade rallied (indicating a greater likelihood of a December rate cut) following Bernanke’s comments.
Archive for November, 2007
Getting strange out there
Friday, November 30th, 2007A Little Less Conversation, a Little More Action
Thursday, November 29th, 2007The Commodity Futures Trading Commission ’s (CFTC) new kid on the block, Commissioner Bart Chilton, wants the agency to “get down to brass tacks.” Chilton set some lofty goals (well, lofty for the slow-moving CFTC, anyway) this morning at the Futures Industry Association’s (FIA) annual expo. But other members of the panel want to see a lot less talk and a lot more action from the CFTC.
Commissioner Chilton, who was sworn in last August, took a firm stance on fixing the CFTC’s actions –or rather inactions – of late. “We have the responsibility to look at what we’re not doing right…they’re not huge issues. We just need to get down to brass tacks and finalize these things,” Chilton said.
Building a legacy?
Monday, November 26th, 2007The Clearing Corporation Charitable Foundation, a not-for-profit corporation and charitable arm of the Clearing Corporation (TCC), on Monday announced a $2,000,000 grant to the University of Illinois College of Agricultural, Consumer and Environmental Sciences (ACES) that will establish The Clearing Corporation Foundation Endowed Chair in Derivatives Trading.
“Given the importance of The Clearing Corporation to [the futures] industry, we are pleased to be able to recognize and honor it through the named chair,” said Dr. Robert J. Hauser, head of the Department, in a press release.
CCorp. foundation gives $2 million to the U of I school of economics
Monday, November 26th, 2007The Clearing Corporation Charitable Foundation has given a $2 million grant to the University of Illinois College of Agricultural, Consumer and Environmental Sciences to establish a Chair in derivatives trading in the school’s department of agricultural and consumer economics.
“The generosity of the Clearing Corporation Foundation helps us build on one of our traditional research and academic strengths, dating back over 40 years ago when Tom Hieronymus was establishing the University of Illinois as a premiere institution in the futures industry,” said Dr. Robert J. Hauser, head of the Department of Agricultural and Consumer Economics in a press statement. “Given the importance of The Clearing Corporation to that industry, we are pleased to be able to recognize and honor it through the named chair.”
According to the release, directors of the foundation chose the University of Illinois because of its dedication to education relating to the derivatives industry, and the foundation intends that the derivatives industry will benefit from the University’s continuing educational focus on issues and studies that affect the industry.
Dr. Philip Garcia, the T.A. Hieronymus Distinguished Chair in Futures Markets and director of the U of I Office for Futures and Options Research, said that developing a comprehensive understanding of futures and options markets and transmitting that knowledge to their users has been an important dimension of the department’s mission. “The addition of these new resources will ensure that we will be able to maintain and strengthen this tradition. We are thankful for the generosity of The Clearing Corporation Charitable Foundation and pleased with the challenges that we will be able to address effectively in the future.”
Turkey of a day
Wednesday, November 21st, 2007Tomorrow’s Turkey may taste a little drier for those with exposure to equity markets, particularly blue chips, as the Dow Jones Industrial Average on Wednesday could not maintain its midday rally, dropping 150 points in the last hour of trading.
The late sell-off pushed the Dow to its lowest close since April 17 as it closed below 12,800. The Dow started the day on a sour note as crude oil neared $100 in overnight trading and consumer sentiment dropped to a two-year low according to the Reuters /University of Michigan Survey of Consumers. The Index dropped to 76.1 in November, down from 80.9 in October, and well below the 92.1 recorded in November of 2006. “Rising prices for fuel and food had a devastating impact on household budgets, and falling home prices have diminished consumers’ sense of financial security,” said Richard Curtin, Director of the survey, in a release.
The beat goes on
Wednesday, November 21st, 2007Freddie Mac is a unique entity, operating as a for-profit company but one that was created by Congress to serve specific housing policy objectives. At its heart, though, Freddie Mac is a mortgage investor and times are not good for mortgage investors as Freddie Mac’s third quarter results show.
Freddie Mac announced a third quarter loss of $2 billion, which caused a drop in its stock (FRE) of more than 30%. It also reported a decrease in fair value of net assets of $8.1 billion. That is not a typo. The results—given what has gone on in credit markets—is not a surprise, though the magnitude of losses may be. In fact what is most surprising, given numerous financial cable news outlets and our 24-hour news cycle is like the numerous large investment banks, it has take so long for the market to react to Freddie Mac’s exposure to the subprime crisis.
There's an Iraqi bond market?
Friday, November 16th, 2007Attempts to measure the United States’ success in Iraq, and specifically the success of the troop surge that began this past summer, have been compromised either by a lack of data or a lack of objectivity, says MIT economist Michael Greenstone. He adds that measures such as the number of soldiers and civilians killed indicate that the security situation is getting better, but that oil production is still down.
“All these measures are helpful,” he says, “But the reason we did the surge is to produce a stable Iraq,” and that he had not seen anything approaching systematic information on how the surge in Iraq was proceeding, or to measure whether Iraq was stabilizing politically or economically.
While Greenstone is not a trader, he picked up on the idea that bonds and credit default swaps would be a good way to quantify the likelyhood of a stable and prosperous Iraq.
“The idea was really simple. After the surge, what happened to bond prices? And what happened to credit default swaps on those bonds?” he says.
His findings are striking.
“From the moment the surge began until sometime in the summer, the price of those bonds never increased and slightly decreased. And then in the summer, prices started to decline,” he says, adding that he did his best to separate the affects of the subprime lending crisis from the independent impact of the surge, and that even so, those markets are pricing in a 40% chance of default.
As I write this, our MBA president has yet to return calls requesting comment.
Click here to review and download the study:
C Corp still a player
Tuesday, November 13th, 2007For those of you wondering whatever happened to the old Board of Trade Clearing Company (BOTCC), it is alive and well—though perhaps a shell of its former self—and looking to play a bigger role in the expected move towards cleared over-the-counter products.
The Clearing Corporation (TCC) as it is now known has had several initiatives since the Chicago Board of Trade moved its clearing to the Chicago Mercantile Exchange clearinghouse but none of them has brought the clearinghouse back to its former glory.
Today the TCC announced that they have entered into an agreement to provide clearing and settlement services for derivatives products traded on the new Financial and Energy Exchange (FEX) for Asian based derivatives products. FEX is based in Sydney Australia and from what we can tell from a quick Internet search, focuses on environmental markets. FEX is scheduled to launch its derivativers market in 2008.
Washington’s new greenhouse
Tuesday, November 6th, 2007So often politicians pay lip service to issues, particularly environmental issues, that is rare to witness actual action but we were able to see a glimpse of action on Monday as the results of a reverse auction of Carbon Financial Instrument contracts on the Chicago Climate Exchange (CCX) was announced. The purchaser of 30,000 metric tons of Carbon credits was you. The auction was conducted on behalf of the United States House of Representatives in order to meet its goal of becoming completely carbon neutral by September 2008. The auction gets the House about a third of the way there and House members Rahm Emanuel (D-Ill.), Dan Lipinski (D-Ill.) and Mark Kirk (R-Ill.), who were on hand for the announcement, explained how the House plans to get the rest of the way.
The event was held in Chicago at the CCX offices with CCX Chairman and CEO Richard Sandor hosting. Sandor called the auction, where CCX member bid their carbon offsets earned in various greenhouse gas mitigation projects, a historic event.
In addition to Sandor and the Congressman, Dan Beard, U.S. House chief administrative officer, who oversaw the project, was on hand. Beard said Speaker of the House Nanacy Pelosi (D-Cal.)had made global warming a priority. “Global warming is not going to wait and neither are we,” Beard said.
