Finally, A Real Sense Of Urgency

􀁺 Latest on the Financial Crisis :
- The US Senate has passed the US$700 bln bill, which will move back to the House of
Representatives, for a second vote after the rejection on Monday. Looks as if as it has finally dawned on the average American that the US$1 trillion loss in the US stock market is being lost by everyone, not just the rich and fat cats on Wall Street.

- The bill passed by the Senate includes the increase in federal insurance for deposits to US$250,000 from the current $100K.

- A bi-partisan committee has urged the Securities & Exchange Commission to suspend the mark-to-market (ie fair value) accounting rule to be substituted by “true value” accounting.

- The Irish parliament has approved the government standing behind all deposits and loans in Ireland.

- The governments of Germany, France, UK and Italy (European members of G7 ) have
agreed to hold a special meeting this Saturday to discuss the financial crisis.

- Warren Buffet injected capital (US$3 bln) into General Electric on the same terms as with Goldman Sachs - he bought preferred shares at 10% dividend, with free warrants exercisable at a price that is lower than the closing price, ie an immediate paper gain of US$303.4 mln. In the case of Goldman, the strike price of US$115 was 8% lower than Goldman’s closing price on Sept 23rd of US$125.05, ie an immediate paper gain of US$434.7 mln. (Note that before the Buffet deal, the credit default swap on GE had surged to a record 780 basis points (ie it costs US$780,000 to insure against default on a US$10 mln GE debt, implying a below investment grade
rating for GE!)

􀁺 The US market weakened slightly yesterday with Dow down 20 points after the 485-point rebound on Tuesday, which followed Monday’s 778-point plunge.

COMMENTS
1. There is no certainty the House will not reject the Bill again as they did on Monday.

2. Even if they did, one cannot rule out doubts and skepticisms that will be raised later, eg, on True Value accounting instead of Fair Value.

3. As for governments of European countries meeting on Saturday, there is no certainty there will be a consensus on how to deal with the Crisis, with the Germans still unhappy that their proposals for more regulations were turned down by the Americans last year.

4. While Buffet’s investments are confidence-boosting, note his deals are priviledged ones not open to the average investors.

5. Meanwhile in the real economy, things are looking dismal:
- Car sales fell 26% in the latest month in the US, led by Nissan’s / Ford’s 37% / 34% plunge. The industry is the largest employers in the US, other than the government.

- The IATA reported that worldwide air travel rose 1.3% in August (vs 1.7% in July), the same pace as in Sept 2003, the worst month in that year when SARS hit. Note
however that the weakness in Asia then was more than offset by the buoyant US, Europe and rest of the world; question therefore is, will Asia offset the weakness in the west today?

- Notice how crowded our sea, off Tg Pagar / west coast, is with container ships, signaling a distinct slowdown in the shipping sector. Notice also the continued slide in the Baltic Dry Index, a barometer of the China economy, the largest consumer / importer of key commodities like iron ore, copper, aluminium and grains.

6. While a strong relief rally cannot be ruled out, caution should continue to be the by-word.