GalaTime

Bloomberg: Libor Surges Most on Record After U.S. Congress Rejects Bailout

The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers’ Association said. The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record.

Funding constraints are being exacerbated as companies try to settle trades and buttress balance sheets over the quarter- end, balking at lending for more than a day.

No one is lending to anyone anymore. Except Central Banks. Fun times!

Despite the 8%+ drop in US equity indices yesterday, the Indian market defied all odds and had an intraday upmove of almost 5% today:

While I would like to believe that this is due to a fundamental improvement in growth / EPS prospects for Indian companies, the skeptic in me attributes today’s magical turnaround to a healthy mix of short-covering by traders and month-end / quarter-end window dressing by Dalal Street’s finest (aka mutual fund managers).

To all steel producer CEOs who believe(d) in secular bull markets for steel due to BRICs / emerging markets / Middle East, please note:

Forbes: Steel shares down on ‘buyers’ strike’

Shares of steel producers fell hard Monday after buyers virtually suspended purchases in the expectation that the cost of steel product will fall.

AK Steel shares fell $5.01, or 17.7 percent, to $23.36; United States Steel dropped $14.67, or 16.8 percent, to $72.43; and ArcelorMittal, the world’s largest steel maker, fell $10.18, or 17.9 percent, to $46.69.

This time is not different. China won’t save your a$$.

And yes, Indian steel stocks are taking it on the chin as well - SAIL, Tata Steel, Jindal Steel, JSW Steel are all trading at 52-week lows.

Leading indicators of global economic growth?

• Fear gauge (CBOE VIX) spiked to almost 50
• S&P, Dow, Nasdaq had some of the worst % drops on record
• Gold jumped 3.5% (but not 11% as it did on Sept 17)
• TED Spread above 3
• 3-month T-bill yields at 0.14% (people are lending to the US government at practically 0% interest rate)
• LIBOR spikes, Euribor at all-time high
• Roubini gets more pessimistic, if that’s possible

• Bloomberg: Indian Rupee’s `Unprecedented’ Decline Not Over, Treasurers Say

India’s rupee may extend yesterday’s drop to a five-year low as the trade deficit swells and overseas investors dump local shares.

The rupee has dropped 16 percent this year, heading for its worst annual performance since 1991, when India devalued the currency as a balance-of-payments crisis forced it to pawn gold from its reserves.

The Reserve Bank of India will stem rupee losses and may halt the currency’s slide at about 47 per dollar, according to Larsen’s Deosthalee and Essar’s Paramasivam. A steeper drop would draw speculators, possibly causing the rupee to spiral down into a “bottomless pit,”

• Business Standard: 1,000 stocks hit 52-week lows

Over 1,000 actively-traded stocks hit their 52-week lows during intra-day trades on Monday.. . . as many as nine Sensex components — ICICI Bank, TCS, Tata Steel, DLF, Reliance Communications, Satyam Computer Services, Ranbaxy Laboratories, Jaiprakash Associates and Hindalco — closed the day at their 52-week lows.

Real-estate and infrastructure stocks such as HDIL, Parsvnath Developers, Gammon India, Unitech, Indiabulls Real Estate and Jaiprakash Associates have not only closed at 52-week lows, but have also declined by over 80 per cent from their respective 52-week highs.

I guess this will continue today with most Asian markets down ~ 4%.

• Bespoke: Corporate Bonds Worse Than Equities

Hard to imagine something worse than the 8 -9% drop in major US indices!

• Morgan Stanley: Capital Flows and the BRIC Currencies

On trade, India stands out as the only country in this group with persistent and growing trade deficits.  Recently, India’s monthly trade deficit just set an all-time record as it exceeded 10% of GDP on an annualised basis.

On FDI flows, again India stands out as the country that has received the lowest amount of net FDI inflows, in proportion to the annual accumulation of official reserves and in absolute terms.

. . . looking at the BoP positions of the BRIC economies, a prospective decline in capital flows into EM might be most damaging for the INR, and least so for the CNY.  RUB looks somewhat better positioned than BRL.  Thus, CNY > RUB > BRL > INR.

In addition to robust economic fundamentals, investors should also be aware that India does not have a problem with external debt.  Total external debt, as a percentage of exports, has declined from around 150% in 2002 to 96% now.  The interest payment on external debt is around 3.5% of exports.

• Business Week: Look Out for Bloody Tuesday

Bloody Tuesday, which is the deadline for hedge fund investors to put in requests to get their money back by year’s end.

. . . it’s not uncommon for investors to wait until the last moment to submit a redemption demand. Sources say at some funds investors are seeking to recoup about 10% of their money, which is relatively high.

The trouble is that most managers don’t keep too much cash on hand. To comply with their investors wishes, hedge fund managers may have to start selling lots of stocks—a move that could push equity prices even lower in the coming months.

Note the steady intraday down-trend in Indian stocks & the steady pressure on the rupee (held at 47 by RBI). I guess those are foot-prints of hedge fund / FII sales to meet redemptions.

• DNA: Overbuilding promises a kick in the gut for realtors

. . . the number of information technology parks and special economic zones in the 21-km Old Mahabalipuram Road — popularly known as OMR — in Chennai surpasses demand in the entire IT industry in India.

Lower Parel has a ready office space of 4.5 million sq ft and will add a minimum 5 million sq ft by 2009, taking the total commercial space to 9.5 million sq ft.

Developers have built projects in Delhi that exceed Rs 75 lakh per unit but the demand is in the Rs 25-55 lakh segment.

And of course, the BSE Realty Index hit yet another all-time low today at 3202. That’s a whopping 77% down from the January peak of 13848!