As Scooby Doo would say, Rut Roh! AP S&P Lowers Outlooks on Goldman, Lehman Friday March 21, 4:00 pm ET Standard & Poor's Adopts Negative Outlook on Goldman and Lehman NEW YORK (AP) -- Standard & Poor's Ratings Services said Friday it has struck a more cautious stance on brokers and may downgrade Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. because of the prospect of volatile markets hurting profit more than expected. ADVERTISEMENT S&P said its current rating on the brokers assumes revenues will decline 20 percent to 30 percent. It is possible, though, that given how unpredictable markets have been, revenue could decline more, S&P said. S&P adopted a "negative" outlook -- meaning it could slash ratings within the next two years -- on the brokers to account for the potential for a more precipitous decline in profitability from the capital markets. The fate that befell Bear Stearns Cos. highlights the extent to which firms are exposed to negative sentiment in the capital markets, S&P said. This week, the liquidity-starved company, whose stock topped $155 last year, sold itself to JPMorgan Chase & Co. for $2 a share. While Lehman Brothers has a stable structure for raising cash and bank's earnings have held up well, S&P said it cannot ignore the possibility of an "adverse change in perceptions," even if that change is misguided. Goldman Sachs has proved itself particularly adroit during this credit crisis, but S&P said its aggressive willingness to assume risk leaves the bank vulnerable. S&P began considering a downgrade of Morgan Stanley after the bank reported $9.4 billion in losses on its portfolio at the end of the fiscal fourth quarter. While the fiscal first quarter was more benign, S&P said it has doubts about whether that performance is sustainable. S&P said it will determine whether to downgrade Morgan Stanley in the next month. The ratings agency downgraded Merrill Lynch & Co. to "A+" in October and said the rating remains unchanged.
Very true it might take 5 years to get your money back on an exchange traded product. As for OTC contracts.......................... I see this as a once in a decade chance to win (or lose) big but NO leverage - long options or cash equities. What I have in options is pure risk capital and I am keeping a reserve of 3 years living costs in cash spread across countries.There is probably going to be a 2-3 year of meat grinder markets and the job market aint eaxactly going to be bouyant for anybody other than bankruptcy laywers and restructuring artists.
The discount window is 2.5% now. I can (in my personal account mind you) generate ~ 2.9% risk free, on assets that "mature" in around a month (so same duration as treasury bills). Only risk is counterparty risk, which you're going to be taking no matter what investment you take. Now, if you're a bank, and you need some cash, would you rather borrow @ 2.5% through the discount window, or say, 2.7% from another bank? Oh, and before anyone tries to call bullshit on being able to get 2.9% risk free, it's easy. Do a conversion for options expiring in april on any highly traded, low volatility, non-dividend (or at least no dividend between now and expiration day in april) stock. The only risks are pin risk (which isn't that big of an issue, you do multiple stocks at multiple strikes, and if worse comes to worse, you unwind the position on expiration day and pay the 1.9 cent / share commission again), your broker going under, or the occ going under. If the occ goes under, I'd be willing to bet anything there will be a bailout to ensure their obligations are met.
Yeah, except you're getting some return, unlike the .1% annualized you'll get off 4 week t-bills. Next thing you know they're going to start trading for over 100.
demoship ... You joke about bills potentially trading at par but I actually remember when the Swiss Franc was "too strong" in the 70's and demand deposits inside Switzerland carried a -2% rate. When our bank in Zurich explained we'd actually have to pay the negative two points annualized I actually thought they were joking. Then I realized that it's an oxymoroon to think of a Swiss banker joking. We kept our balances quite low -- just enough to meet short term operating expenses -- but did pay the juice. I also remember when Turkey went to 1,200% on overnight money a few years back to squeeze the shorts. The extremes do happen.
Sp were robbing peter to pay paul, and then just for shits and giggles paul robs peter AGAIN, sans the courtesy reach around. You have to love the way we do business here. yikes.