Sunday, September 14, 2008
Ike passes: Oil falls below $100, but there is still a storm coming
In today's special trading to accomodate the market's reaction to Hurricane Ike's landfall over the weekend, NYMEX crude fell to $99.53. The Iranians attribute this to a stronger dollar, and they are surely right up to a point.
Iran's oil minister said on Sunday the stronger dollar was behind falling oil prices, and said the market was still oversupplied with oil as OPEC's decision to cut output had not been fully implemented.
Either that, or the dollar is strengthening because oil prices are falling. It is not exactly a virtuous cycle, in that both may be a function of the broader suckages in the global economy, but it is much better than the reverse. Of course, a lot will turn on how this bit goes:
The American financial system was shaken to its core on Sunday. Lehman Brothers Holdings Inc. faced the prospect of liquidation and Merrill Lynch & Co. was close to a deal to sell itself to Bank of America Corp.
The U.S. government, which bailed out Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns Cos. to J.P. Morgan & Co. earlier this year, drew a line in the sand with Lehman. It refused to provide a financial backstop to potential buyers.
Without such support, Barclays PLC and Bank of America, the two most interested buyers, walked away. On Sunday night, Bank of America was close to striking a deal to buy Merrill Lynch for about $44 billion, or $29 a share. Lehman was working on a possible bankruptcy filing.
As worries spread across Wall Street that Lehman wouldn't survive, brokerage firms, hedge funds and other traders moved to disentangle themselves from trades with Lehman. When hopes of a potential sale dimmed, a quiet Sunday on Wall Street turned into a mad rush. Executives and traders hurried to their offices or worked their phones to unwind outstanding contracts with Lehman and to gauge their overall exposure.
A sense of foreboding gripped the Street as top executives feared collateral damage from a Lehman liquidation.
Tomorrow is going to be harsh.
3 Comments:
By 
, at
Sun Sep 14, 09:15:00 PM:
Fox is reporting the BofA deal for Merrill at 29/share is done, and I'm reading a message board saying AIG is calling for help from the feds.
It's going to be a crazy day in financials ... not sure if I should be bummed I'm not in SKF or happy that I'm out.
Interesting times, indeed.
By 
Escort81, at
Sun Sep 14, 09:50:00 PM:
WaMu may be looking for balance sheet help as well tomorrow, I hear.
I think a cathartic market event may be good in the long run, but quite painful in the short run. The sooner it happens, the sooner some sanity and equilibrium can be restored, and uncertainty and volatility somewhat reduced .
Financial institutions holding questionable paper eventually have to mark that stuff to market. Hoping and praying for a quicker rebound in the housing market so that the paper might not end up being so deeply underwater isn't a great business strategy.
Now is not a bad time to be holding somewhat higher levels of cash as an individual investor; there will be some good deals out there between now and year end.
Condolences to those in the financial sector who may be out of a job. There will be other interesting work for you to do. Hang in there.
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Sun Sep 14, 11:18:00 PM:
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