Thursday, September 18, 2008

The Fed, ECB, Swiss, Japan and Canada add liquidity

Here's the press release from the Fed:

The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks.

The FOMC has authorized increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion.

In addition, new swap facilities have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada.

With the new short selling rules in place, this should alleviate some of the selling pressure. Yesterday, their was conference calls around the street discussing money markets. Here was the bearish "story" on Fidelity's $128 billion money market:

Conservative investments have a place in every diversified portfolio. But that doesn't mean you have to settle for less.

The yields on Fidelity money market funds have historically been higher than many CDs and savings accounts, as illustrated below. Plus, they're more liquid than bank CDs. Get your money working harder in a Fidelity money market fund today by opening an account.

What is their strategy in this $128 billion account?

Investing in U.S. dollar-denominated money market securities of domestic and foreign issuers and repurchase agreements. Investing more than 25% of total assets in the financial services industries. Potentially entering into reverse repurchase agreements.

Why would this spook anyone? Because last November, Fidelity was stuffed with SIV's in their money markets.

Fidelity has over $300 billion in money market assets, and as of September 30, $7 billion was invested in the following eight SIV's: Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance.

On November 8, Moody's placed the following SIV's on review for possible downgrades. Orion Finance Corp., Carrera Capital Finance Ltd., Beta Finance Corp., Centauri Corp., Dorada Corp., Tango Finance Ltd., Asscher Finance Ltd., Cullinan Finance Ltd., White Pine Corp., Hudson-Thames Capital Ltd., Nightingale Finance Ltd., Links Finance Corp. and Premier Asset Collateralized Entity Ltd.

Same story, different version. But Fidelity learned their lesson. Now they just have exposure to banks. That's why it has a higher yield.

But if their stock was public, could they have started a run on it?

In any event, the shorts take a break today, and the longs can breathe.

Before more rules take place!


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