The Fed cuts the target rate ... again

As expected, the Fed cut the target federal funds rate again, this time to 3%: http://online http://online.wsj.com/article/SB120171951590129343.html?mod=hps_us_whats_news You will notice that the market did not respond favorably to this news, likely because this was anticipated.

Another market merger

This is another example of the mergers that are taking place in markets: http://online.wsj.com/article/SB120153031313122039.html?mod=hps_us_whats_news The markets continue to reshape, mergering within countries and merger across borders.

Market drop Tuesday, January 22nd?

Check out what is happening around the globe before the U.S. markets open s on Tuesday, January 22nd: http://online.wsj.com/article/SB120090324523304271.html?mod=hps_us_whats_news In most cases, such a drop typically leads to a similar drop in the U.S. markets.

Though we are seeing a drop in the U.S. markets recently, as indicated by the level of the S&P 500 in the graph below, the levels of the markets are not close to the levels that succeeded the burst of the Internet bubble & post-9/11 period. The market would have to lose close to 31% of its value for it to reach the lows in 2003.

To put this in perspective, in the market crash of 1987 the market was off around 37% from its market high, and in the market crash of 1929, the market was off close to 40% from its high.

Source of data: Yahoo! Finance

Want to know how SIVs work?

Check out the Wall Street Journal's interactive on structured investment vehicles to see how the subprime mortgages were converted in to securities: http://online.wsj.com/public/resources/documents/info-normaSubprime0712.html

The changing market of markets

I had mentioned during the lecture on markets that there have been dramatic changes in markets in recent years (e.g., mergers of markets, NYSE going public, Nasdaq becoming an exchange) and that it is likely that we would see changes during the semester. A significant change was announced today: NYSE Euronext (the parent of NYSE) is acquiring the American Stock Exchange: http://online.wsj.com/article/SB120060675290298637.html

Question today about Eurodollar deposits

A question was asked during today's lecture regarding the relative yields of Eurodollar deposits. There is a great article by the Richmond Fed that covers this topic: http://www.richmondfed.org/publications/economic_research/instruments_of_the_money_market/ch05.cfm

Keep in mind that Eurodollar deposits -- deposits in banks outside of one's own domestic borders -- can take many forms with many features. In general, the yield on these deposits may differ from similarly featured deposits in one's own country because of the added risks. As the article points out, the added risks include: risks related to repatriating (bring home) funds, risk associated with the soundness of the financial institution (U.S. has FDIC insured deposits, to a point -- but other countries may or may not have similar insurance), and jurisdiction disputes.

Subprime pain

Both Citigroup and Merrill Lynch have gotten a cash infusion, but the news of the large write-offs for Citigroup was enough to roil the markets for yet another day: http://online.wsj.com/article/SB120038296316390867.html?mod=hpp_us_whats_news . For the day, Citigroup (C) was down over 7%: http://online.wsj.com/quotes/main.html?symbol=c&type=usstock%20usfund.

As companies reveal just how much the write-downs will be, the markets will react. Right now, the prices of the involved firms reflect the market's best guess of what the write-downs will be. When the revelations of the actual losses come out, the market will react if expectations are not in line with the actual losses.

Welcome

Welcome to the Money & Capital Markets blog for FIN360. The purpose of this blog is to communicate information about current events that relate to our discussions in class.