Morning Notes: 14th March 2008

The US Markets finished the day strongly.

Incredible given the Asian Markets were hit by the Carlyle tornado and all the early market indications was another sell down was but inevitable.

Carlyle itself was nonsense.

• It then added the money raised in July 2007 to a private $590 million pool opened in 2006. For every dollar of equity, the pool borrowed $32. ( see yesterday blog posting here )

How was this insane leverage possible?

I seriously wish I could have the skills of persuading folks to lend me $32 for every dollar I have!

Then Treasury Secretary Henry Paulson spoke.

• Paulson said state and local regulators need to toughen oversight of all mortgage originators. Sloppy lending practices including loans made to homeowners with no requirement of proof of income, are widely blamed for a soaring tide of foreclosures, especially among subprime mortgages held by people with the shakiest personal credit.
  
  Paulson said credit rating agencies need to make sure that securitized credit issuers -- like those who issue mortgage-backed securities -- "perform robust due diligence of originators of assets that are securitized or used as collateral for structured credit products."
  
  Paulson said the working group was now ready to push for its recommendations to be put in place and vowed that it will "stay on top of this" while trying not to add to existing stress in markets. ( click here for full article )

And then S&P came in with a report on the subprime crisis. S&P Sees End to Subprime Mortgage Writedowns

• The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write-downs of subprime asset-backed securities," S&P credit analyst Scott Bugie said in a report.
  
  More write-downs could be in store outside the subprime sector, however, S&P cautioned.

And so the market rallied and finished the day strongly. Stocks Rise After S&P Report

CNBC has an article Market Acting Like a Bear, Even Though It's Not and on Financial Sense, market commentator, Gary Dorsch, talks about Global "Oil Shock" Rattles World Stock Markets. Gary's notes on Japan were most interesting.

• Traders are wondering whether Tokyo has adopted a new stance on the dollar/yen exchange rate, and is ready to live with a stronger yen to hold down the costs of imported food and oil. On Feb 22nd, BoJ chief a Toshihiko Fukui said he was paying close attention to how rising food and gasoline prices could affect personal consumption, which makes up roughly half of Japan’s economy. “A stronger yen will ease any negative effect from rising costs of crude oil and commodities,” he said.
  
  “The yen’s rise, a decline in the dollar, and rises in oil prices are beginning to have a negative effect on corporate profits,” warned Japanese Economics Minister Hiroko Ota on march 11th. The dollar slid as low as 99.77 yen, breaking below the 100 level for the first time since November 1995. Already this year the dollar has tumbled 10% against the yen, and is fast approaching the point at which many Japanese exporters say they won’t be profitable.
  
  The negative impact from a weaker dollar has already knocked the Nikkei-225 index 20% lower to a 2-year low. “The factors we must monitor with utmost caution in guiding monetary policy are stock and exchange rate movements,” said Bank of Japan member Atsushi Mizuno on Feb 28th. “If such high volatility continues, it could hurt the real economy through worsening corporate and consumer sentiment. Given that Japan’s recovery is an external-demand-led one backed by exports, downside risks are heightening on mounting risks to US growth,” he warned.

Back home, the early morning sexy story has got to be Bursa: Foreign buying of shares still strong

• FOREIGN investors are still strong buyers of Malaysian stocks, statistics from Bursa Malaysia show.
  
  In a statement, the local bourse said foreign investors' confidence and market integrity remains intact, and trading is recovering on a positive note following the circuit breaker which was activated on Monday.
  
  Upon resumption of trading after the circuit breaker, the market saw strong buys from foreign funds, accounting for some 51 per cent of total buys on the top 20 counters on KLCI during the final trading period.
  
  Total foreign buying for Monday was at 33 per cent, Bursa Malaysia said in a statement.
  
  Foreign buying improved for Tuesday and Wednesday, accounting for an average of 36 per cent and 53 per cent respectively of total buys on the top 20 KLCI counters.
  
  "Up to February of this year, foreign trading on all counters was at 43 per cent whilst last year, we recorded an average of 37 per cent in foreign trading.
  
  "This indicates that foreign investor activity has not only returned to normal, it is increasing as the market provides choice pickings on strong fundamental stocks," chief executive officer Datuk Yusli Mohamed Yusoff said.
  
  He said while global market situations will have an impact to our market, Malaysia's fundamentals are strong.
  
  "Clearly, foreign investors' confidence in the market remains intact," added Yusli.

And the morning clip comes from PeG