US Bond Market is FAILING. BADLY. $2 trillion fails to deliver???

Excerpts from:
http://www.euromoney.com/Article/2054070/The-US-treasury-market-reaches-breaking-point.html?LS=EMS224393


"There is an even more pressing concern for many participants in this increasingly swollen market: the settlement system has broken down. Following the collapse of Lehman Brothers in September, fails to deliver among the 17 primary dealers in the US treasury market have rocketed to more than $2 trillion over a period of weeks and still lie above $1.3 trillion. Broker/dealers have stopped delivering bonds. Holders of US treasuries are now scared to lend into the repo market in case their bonds are not returned, and potential buyers sit on the sidelines fearful of handing over their money to a counterparty that at best might not deliver a bond on time, and at worst might go under. "

"Fails to deliver in the treasury markets are not a new phenomenon. There is data for fails for treasuries, agencies and mortgage-backed securities as far back as 1990, says Susanne Trimbath, an economist, and former employee of the Depository Trust Co, a subsidiary of Depository Trust and Clearing Corp. "

"Back then, though, there would be $50 billion of fails in a whole year, she says. That figure has grown enormously. Failures in US treasuries were 8.6% of all treasuries outstanding in the first five months of this year, compared with 1.2% in the first five months of 2007. That has ballooned further over the past three months, hitting more than $2 trillion for almost the entire month of October – more than 20% of the daily treasuries trading volume"


...

Failure of the Bonds market?

I know that most Malaysian have never touched a bond in their life. So let me just sum it up: The bond market is more integral to the world financial system than the stock market. It ranks right up there with the much talked about credit market. (not surprising since they basically deal with the same thing: financing debt. And they are both rather ridiculously huge)

Fails among 17 primary dealers in US treasury market shot to 2 trillion... That brings up a very important question: how about the OTHER dealers? How many failures among the smaller dealers? ... possibly higher? I mean, considering that these 17 primary dealers are the big guys, the ones who presumably would be in better shape than the little guys... what sort of fails to deliver are occuring amongst the smaller dealers?

What sort of fails are occuring in the non-US Treasury bonds?

The worst case scenario here is that the entire bond market seizes up. No rollovers??? Heaven forbid! ... seriously, I cannot even imagine what damage would be caused by this sort of chaos.

Why do some people think that there is any possibility that the crisis has been solved?

Credit market is still not working properly whatsoever... interbank credit might be looser, but it's still even TIGHTER at the consumer level!

Bond market is at it's worst level ever, as seen above.

Global Trade is frozen. Look at the BDI, or visit the docks one day. Goods are not moving. Part of this is due to tight credit. Part of this is due to lower demand for goods.
Those Pirates are not helping either. Who wants to ship stuff if there's a higher chance that you'll make huge losses from paying ransoms?

Property is dropping. In fact it is only beginning to drop in the less developed nations, who think they might be spared... understand guys. Events unfold slower for underdeveloped nations, but they eventually do hit you too. I'm looking at you Malaysia!

Employment and consumer spending are going into a vicious circle spiralling downwards. For Malaysia, our local consumption is nowhere near enough to sustain our production, so our factories are going to get killed by UK and US unemployment figures.

To make matters worse, terrorists have proven themselves to be smart and are acting at the worst(for us) /best(for them) possible moment. I am unsure what their real objectives are, but what they have managed to accomplish is they've caused political tension between a number of nations.

The only good news? Well, fuel prices are dropping. Housing prices are falling too. That means: this is a good time to look at relocating. Tired of your current neighbourhood? This might not be a bad time for a total change in lifestyle.

IOI Corp’s RM73m deposit for Menara Citibank forfeited

http://biz.thestar.com.my/news/story.asp?file=/2008/11/27/business/20081127190735&sec=business

"KUALA LUMPUR: IOI Corp Bhd’s RM73.36mil paid to the vendors of Menara Citibank was forfeited after the plantation heavyweight aborted its proposed acquisition of Menara Citibank for RM586.73mil.
IOI Corp told Bursa Malaysia on Thursday that the share sale and purchase agreement dated Aug 29 for the proposed acquisition became unconditional on Oct 31.
The due date for payment of the balance purchase price was on Nov 11.
However, due to the recent sudden adverse developments in the global economic environment which have spread to this region and impacted negatively on business sentiments, IOI Corp decided not to proceed with the proposed acquisition.
IOI Corp it had received a letter from the vendors’ solicitors dated Nov 26 that they were terminating the agreement and had forfeited RM73.36mil paid earlier by IOI Corp.
The plantation company said it was seeking legal advice on the quantum of the forfeiture."


That's how bad the recession is getting. IOI would rather forfeit RM73 million than to pay up the remaining 513 million.
That's a 12.5% deposit. Forfeited.

In other words, IOI expects that it would take a BIGGER than 12.5% loss if it had continued the deal!

There you go.

Basically this (probably) means that IOI expects property prices... or at least the property price for Menara Citibank... to be drop by over 12.5%

Probably over 20%, actually, considering that doing this thing generates a lot of bad publicity for them, and damages their business relationships.


It might mean something else... but whatever the case is, this is definitely bad news. The exact form of this bad news is still unfolding though.

HUGE Fire Sweeps South California

http://www.thestreet.com/story/10448211/1/wildfires-imperil-southern-california.html

This has a lot of implications. Firstly, for people's lives and livelihoods. (fatalities appear to have been kept to a minimum, as the fire didn't spread sslowly but steadily and strongly, giving people time to evacuate) This is really really terrible for them...

Especially if their insurer was AIG.

Oh, they probably will all get their payouts. But I am sure that they are very very worried about the possibility that they might NOT receive their compensation. There is still a small possibility that they won't though. After all, nowadays even bank deposits have some small risk of default. (during the recent bank foreclosures, several dozen billion were paid out, but several hundred million was lost by depositers... a good average, but utterly devastating to those minority who lost several hundred million)

... how about those who didn't have insurance... or have not been keeping up with payments?

As for property prices... how will this affect property prices in South California? Perhaps this might help property prices recover, as those people will eventually need new homes... and some of them are wealthy people, who used to live in mansions.

What does it do to toxic mortages? What are the implications when a bank is contemplating forclosing a policy... and the house burns down?

...

In this environment, is it possible that some people with loose morals, large mortages, and low incomes, will be merrily pouring petrol (which is half the price it used to be!) around their homes? (after removing anything of worth from the premises)

Well... I hope that the US government will accept a helping hand to these victims. After all, this is something that they are supposed to protect their citizens from. They pay tax every year to support the Fire Department, don't they? So, it's only right that the US government compensates those who lost everything. Well, maybe not 100% compensation, but, don't leave them with nothing... right?

This is really Murphy's Law hitting hard. Each hit to the economy and world SEPARATELY would have been a disaster of large proportions on it's own. GM going down would have caused a share market crash even in a strong global economy. Oil Prices at this level would have caused a recession in Malaysia, even without factoring in a drop in global consumer spending. Which is worse, mass unemployment and economic woes, or this credit squeeze and the financial woes? (well the last selection is actually feeding upon each other in a vicious interconnected cycle to some extent) In the end, I think if a few more disasters hit, the whole world is go from deep deep trouble to International Emergency.

Malaysia Bloeh???

(this is from Nov 12 2008, when KLCI was stubbornly green ignoring the entire rest of the world)


This is hilarious. Dow is -176. Crude Oil is falling. CPO will fall. Regionals all down.
KLCI is GREEN.
Why? … I suspect that KLCI is taking heart from Singapore being green. The thing is… Singapore, they just had good news that Las Vegas Sands casino project is still going through.
Btw, this means that Genting shares are looking worse and worse.
Waiting for many people to get badly burnt by their overoptimism. As Dali pointed out, world property prices are crashing, but only Malaysian sellers are (foolishly) refusing to sell unless they get better price offers. In fact, this has really put a freeze/gap on our secondary property market. Malaysian property BUYERS however are being much more cautious… this situation will go on until the sellers get into serious financial difficulties. Which won’t be long more, I suppose. I advise everyone who is considering selling their excess/investment properties to just take sellers price. Better a 10% loss than a 30% loss. The finance charges on that apartment get sold along with the property, you know?
Malaysia boleh???