Do Investors Hold over the Weekend or do They Sell?

Do investors sell their stocks on weekends so as to avoid potentially nasty surprises?





I looked at the closing data for each weekday in 2008 for DIA, SPY, and FXP (as well as FXI, XLF and VIX). DIA and SPY represent two broad indxes, FXP and FXI and Chinese ultra ETFs (short and long respectively), and the VIX is the volatility index.

For calculations I used the adjusted day's close minus close of the previous trading day. The objective was to see if people held these over the weekend. These are the results, and also shown in the graph above:


DIA:

Fridays: 10 down days, 2 up days, average -0.81%
Mondays: 4 down days, 6 up days, +0.35%
Tuesdays: 6 down days, 6 up days, +0.23%
Wednesdays: 6 down days, 7 up days, +0.03%
Thursdays: 6 down days, 7 up days, -0.14%

SPY:

Fridays: 10 down days, 2 up days, average -0.75%
Mondays: 5 down days, 5 up days, +0.23%
Tuesdays: 5 down days, 7 up days, +0.20%
Wednesdays: 7 down days, 5 up days, -0.14%
Thursdays: 7 down days, 6 up days, -0.13%


FXP:

Fridays: 5 down days, 7 up days, average +0.16%
Mondays: 6 down days, 4 up days, -0.56%
Tuesdays: 6 down days, 6 up days, +0.38%
Wednesdays: 5 down days, 7 up days, +1.61%
Thursdays: 5 down days, 8 up days, +1.29%

FXI:

Fridays: 7 down days, 5 up days, average -0.08%
Mondays: 3 down days, 7 up days, +0.47%
Tuesdays: 6 down days, 6 up days, -0.44%
Wednesdays: 7 down days, 5 up days, -0.71%
Thursdays: 8 down days, 5 up days, -0.74%

XLF:

Fridays: 7 down days, 5 up days, average -0.69%
Mondays: 5 down days, 5 up days, -0.51%
Tuesdays: 6 down days, 6 up days, +0.79%
Wednesdays: 7 down days, 5 up days, -0.01%
Thursdays: 8 down days, 5 up days, -0.35%

VIX:

Fridays: 6 down days, 6 up days, average +1.75%
Mondays: 7 down days, 3 up days, +0.01%
Tuesdays: 7 down days, 5 up days, -0.88%
Wednesdays: 5 down days, 7 up days, +0.57%
Thursdays: 7 down days, 6 up days, -0.54%

SUMMARY:




Looks like the results for DIA and SPY are pretty conclusive for Fridays. It seems that few people want to hold these during weekends. This is also consistent with the VIX being up on Fridays, percentage wise.

Interestingly FXP seems to do very well (long) on Wednesdays and Thursdays.

The Counterparty to Leveraged or Inverse ETFs

If you think you can make money by investing in leveraged ETFs, please make sure you know who your ETF's counterparty is. For example, one such ETF is the ProShares SKF, which features a 2X inverse return on financials. Sounds like a great place to invest funds if you expect the mess in the US to continue. Well, nothing is free. All these funds have counterparties, and as you know these days these counterparties may go bankrupt at any time. In fact, last week had the Fed not intervened, a like very big counterparty was supposed to go bankrupt until it was bailed out by the Fed (using future American children's money).

I asked ProShares who the counterparty to SKF is. This is their response:


"Thank you for your email today regarding ProShares. At this time, ProShares LLC does not disclose the counterparty names for the derivative products within the portfolio. Please refer to the attached prospectus for further information on the UltraShort Financials fund.

Sincerely,

ProShares Shareholder Services"

Canadian ABCP Rescue Saga Continues

After missing several deadlines to complete the rescue plan, the agreement has failed yet again. So now the major players are seeking bankruptcy protection for the 20 trusts that issued the paper. This saga has been going on since last August.

The banks will file an application in Ontario Superior Court to put the 20 trusts under the protection of the Companies' Creditors Arrangement Act, a law normally used by companies that are trying to restructure under bankruptcy protection, thus preventing creditors from seizing assets and halts lawsuits against the company.

Meanwhile, investors in the supposedly safe funds are out of luck. None of this is unexpected but with the deteroriation of the banks situtation in the US, any hope that whoever put money into these funds will be able to recover it at full value and soon is just misguided.

Noront and Fancamp Update, Just be Patient

As reported in February. Robert McEwen and others bought into a private offering of Noront. The purchase price was $4, with additional warrants at $5, exercisable for 2 years. Noront currently trades around $7, just a few weeks after this announcement. These investors have made, at least on paper, many millions of dollars of profit.

Fancamp reached today a new 52-week high, currently trading around $3. This stock was trading at $1.30 in January, and around $0.17 1 year ago.

These stocks will likely have major pullbacks, offering new entry opportunities. As the markets experience severe down swings, expect these stocks to be hit hard as investors take profits and get rid of speculative positions. All you need is patience to get a better entry point.

NOT has the best drill results (so far), FNC the best property.

Canadian ABCP Rescue Plan in Even More Disarray

The group that's trying to restructure the $33-billion in frozen asset-backed commercial paper confirmed that the plan will be delayed until the end of April, "as details of the plan, such as participation by Canadian banks, have yet to be nailed down amid crumbling credit markets.". BMO has reported that is it pulling out. CIBC keeps reporting bigger losses.

Nobody here is surprised. The deal is suffering the same fate as its even more troubled American counterpart Super Fund announced last year and never heard of again. The American plan also had comitted funds from the largest US banks, which we know, have no funds.

Noront, Deal of a Lifetime

Noront spiked today, yet again.

McFauld's Lake, McNugget, it's all McEwen. Robert McEwen is is scooping up in shares and warrants in both Noront (NOT.v) and McDonalds (BMK.v). In the case of NOT, he gets shares at $4, plus warrants at $5.


After the BMK announcement was made last October, the shares jumped to over $1, to then drop to the current $0.60. Perhaps the same will happen with NOT, which spiked up today and made many here happy.

My approach with these is to keep a small core position and keep trading in and out to reduce the ACB. So far, so good, I have likely reduce ACB by about 50%. The stocks are highly speculative and you get many chances to get in and out. Other holdings in the area: FWR.V and FNC.V


NOT:


Each unit was priced at $4.00 and consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of Noront at an exercise price of $5.00 for a period of two years from the date of issue.

Bought by Rosseau Asset Management; Pinetree Capital Ltd.; Robert McEwen, President, Evanachan Limited; Pierre Lassonde, Chairman, Franco-Nevada Corporation; Sprott Asset Management; and Northfield Capital Corporation


BMK:


Gross proceeds of $10,000,000, through the sale of 25,000,000 units of the Company. A total of 15,625,000 units of the Company will be sold on a "hard dollar" basis (the "Hard Units") at a price of $0.40 per Hard Unit for gross proceeds of $6,250,000. A further 9,375,000 units of the Company will be sold on a flow-through basis (the "FT Units") at price of $0.40 per FT Unit for gross proceeds of $3,750,000. Each Hard Unit will consist of one common share and one common share purchase warrant (the "Hard Warrants"). Each FT Unit will consist of one flow-through common share and one-half of one non flow-through common share purchase warrant (each whole warrant an "FT Warrant" and collectively, with the Hard Warrants, the "Warrants"). Each Warrant will entitle the holder thereof to acquire one common share at a price of $0.50 for a period of 24 months from the date of issuance.

Bought by Sheldon Inwentash - Chairman & CEO, Pinetree Capital Ltd., Robert McEwen - Chairman & CEO, US Gold Corporation, Pierre Lassonde - Chairman, Franco-Nevada Corporation, and Randall Oliphant - Chairman, Western Gold Fields Inc.

Food Inflation, More Packaging, Less Product: An Opportunity

When was the last time you bought ice-cream at a supermarket? The vast majority of ice-cream vendors have reduced their size from 2L to 1.65L, but have blatantly kept the same price. This is not just Nestle, it has happened with most brands. Most likely this is to cope with the rising cost of milk and inflation, which we have discussed here so many times.

So, who makes ice-cream packaging? There is someone who might be doing well in the future.

ABCP Woes: Coventree Shutting Down

With regards to the troubled $33B in frozen Canadian ABCP, Coventree lost a competition to administer the restructured non-bank asset backed commercial paper in Canada, and will likely have to wind up its operations as a result.

Coventree says its revenues are no longer expected to cover expenses, and its administration business is no longer viable: "the range of options that remain under consideration are limited and will likely involve, among other things, the orderly windup of the company's operations pending implementation of the restructuring plan".

Coventree (COF.to) was trading at $0.86 Friday.

The Myth of Fed Injections

Every week many people post about large Fed injections and their effect on the stock market. This activity is particularly strong on Thursdays when most TOMOs are due. Big media outlets and lots of bloggers will claim that the Fed has injected or withdrawn billions of dollars and that this will somehow have an effect on the stock market.

This Google spreadsheet computed all fed injections since Jan 2006, and computed its correlation to the DJIA and SP500 indexes (through DIA and SPY), using nearly 600 data points. The complete spreadsheet is here.

A correlation analysis was done on this "injections" and the stock market movements for each quarter since Q1 2006. Results:

- The correlation between Fed injections and DIA is -0.06.
- The correlation between Fed injections and SPY is -0.17.

The correlation between the SPY and the DIA is 0.95. A number close to zero means there is no correlation, a number close to 1 indicates a high correlation.

Performance Performance Fed "Injections" (in $B) DIA SPY Q1 06 -20 2.75% 2.47% Q2 06 4.5 0.43% -1.89% Q3 06 -9.75 4.05% 4.52% Q4 06 19.25 6.68% 6.42% Q1 07 -7.5 5.51% 6.48% Q2 07 -8 8.53% 5.82% Q3 07 19.5 2.85% 0.52% Q4 07 1.75 -3.96% -5.24% Correlation -0.0625 -0.17 SPY vs DIA 0.95

Next time you hear or read about the Fed injections and the market, perhaps it's best to ignore!

Results of Investing in Straddles in January

The following is a list of straddle results performed on several ETFs on January 4 2008. This table shows the results if you had bought both calls and puts on that day. Strangles/straddles are great if you are not sure of market direction. If the market does move either way you win.

To performer was the DIA 130-126 position. DIA at the time was trading at 128.17. Yesterday's close was 121.77.

Overall, investors on DIA, SPY, and even IWM would have done very well. The only losing positions were XLF and an extreme IWM straddle.

You can view the complete list, and in much better formatting, at: http://nexalogic.com/strangles.html

Before Move After Current price Month C/P Stk Value # Req Value PROFIT ROI IWM Jan C 74 $0.87 12 5.56% $0.00 -$10.00 $324.00 15.61% Jan-04 71.8 P 70 $0.92 11 -5.00% $2.20 $2,410.00 Jan-18 67.88 C 75 $0.57 18 6.14% $0.00 -$10.00 $182.00 8.79% P 69 $0.64 16 -5.58% $1.42 $2,262.00 IWM Jan C 73 $1.24 8 4.96% $0.00 -$10.00 $464.00 22.79% Jan-04 71.95 P 71 $1.28 8 -4.82% $3.15 $2,510.00 Jan-18 67.88 C 72 $1.75 6 4.86% $0.00 -$10.00 $320.00 15.31% P 72 $1.70 6 -4.73% $4.05 $2,420.00 IWM Jan C 76 $0.37 27 6.58% $0.00 -$10.00 -$379.00 -18.66% Jan-04 72.09 P 68 $0.46 22 -6.82% $0.76 $1,662.00 Jan-18 76.88 SPY Jan C 141 $2.99 4 3.60% $7.95 $3,170.00 $779.00 32.18% Jan-04 141.31 P 141 $2.41 5 -4.04% $0.08 $30.00 Jan-18 133.43 C 142 $2.44 4 3.92% $0.00 -$10.00 $1,200.00 61.22% P 141 $2.41 4 -3.65% $7.95 $3,170.00 SPY Jan C 143 $1.95 5 3.96% $0.00 -$10.00 $1,290.00 65.48% Jan-04 141.31 P 140 $1.95 5 -3.69% $6.56 $3,270.00 Jan-18 133.43 C 144 $1.52 9 4.14% $0.00 -$10.00 $1,848.00 68.44% P 139 $1.64 8 -3.87% $5.71 $4,558.00 XLF Jan C 27 $1.17 8 5.38% $0.00 -$10.00 -$121.00 -6.42% Jan-04 27.32 P 27 $0.62 15 -7.72% $1.19 $1,775.00 Jan-18 25.8 C 28 $0.63 16 7.06% $0.00 -$10.00 -$136.00 -6.73% P 27 $0.62 16 -5.75% $1.19 $1,894.00 XLF Jan C 29 $0.31 32 8.46% $0.00 -$10.00 -$846.00 -42.22% Jan-04 27.32 P 26 $0.32 31 -7.14% $0.38 $1,168.00 Jan-18 25.8 C 30 $0.12 83 10.80% $0.00 -$10.00 -$2,026.00 -101.00% P 25 $0.15 66 -9.48% $0.00 -$10.00 DIA Jan C 128 $2.47 6 3.39% $0.00 -$10.00 $1,558.00 53.05% Jan-04 128.17 P 128 $2.05 7 -3.66% $6.45 $4,505.00 Jan-18 121.77 C 129 $1.92 7 3.46% $0.00 -$10.00 $1,624.00 59.79% P 127 $1.69 8 -3.73% $5.45 $4,350.00 DIA Jan C 130 $1.49 7 3.64% $0.00 -$10.00 $1,437.00 67.06% Jan-04 128.17 P 126 $1.35 8 -3.91% $4.50 $3,590.00 C 131 $1.08 10 3.88% $0.00 -$10.00 $1,380.00 63.89% P 125 $1.06 10 -4.14% $3.56 $3,550.00

New Potash Company IPOs in Canada

Following on the theme of global food inflation, whose demand is mostly triggered by increased global income (population eating better), Athabasca Potash started trading under symbol API on the Toronto exchange.

Potash has no commercial substitute its application increases yield & plant health.

The company is exploring its Burr Project and recently completed a 2D seismic survey of the project as well as five new exploration drill wells. After the IPO the Company will proceed with further exploration, a scoping study, and a preliminary feasibility study to assess the viability of underground potash mining. Athabasca also plans to conduct exploration programs over the other ten exploration permits it holds in addition to the Burr Project.

API started trading on December 13. The IPO had an offering of 10,140,000 common shares at a price of CDN$4.25 per share, for gross proceeds of CDN$43 million. The stock reached a high of $10.47 and is currently trading at over $10. There are just over 34M shares outstanding. Assays are expected in Q1 2008, new resource estimate in Q2 2008. Production is several years into the future (7-10 years).

The Burr project is located in Saskatchewan, the prime location of reserves of Potash Inc. Saskatchewan holds over 50% of the world’s potash reserves.

Click here for Athabasca Corporate Presentation. I have no position in this company, I am just keeping an eye on it.

CPI Year Over Year Data for Raw Foods

This is the November CPI percentage increase year over year. Curiously, milk data is not available.

+
			Since Nov 2006
	Eggs Grade A		37.52
	Orange juice		18.56
	Lettuce		16.24
	Coffee		14.22
	Chicken whole		10.68
	Bread		8.05
	Ground Beef		6.79
	Tomatoes		3.76
	Bananas		3.41
	Apples Red Delicious			1.29
	Oranges Navel		-10.08
	Milk		Not available

The November PPI in Year Over Year Percentage Increases

The November PPI was published yesterday. Below you will find the same list compiled with year over year percentage increases. Note farm products up 21%.

PPI Year over year for every month As of Nov 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Crude petroleum (domestic production) -14.7 -1.7 -6.6 -10.3 -11.5 -5.2 -0.8 -0.3 23.2 41.1 64.6 Gasoline -9.7 4.9 6.0 5.1 11.4 3.8 7.0 -5.7 21.5 32.4 51.1 #2 diesel fuel -8.2 -1.4 6.6 3.3 -5.5 -7.8 2.5 -5.9 22.3 26.4 50.5 Finished energy goods -6.3 0.5 3.0 3.7 6.1 4.7 6.6 -0.3 10.2 16.1 25.7 Fuels and related products and power -13.2 -2.0 2.5 2.5 4.9 6.4 7.7 0.1 9.3 21.5 25.3 Crude materials -9.5 7.8 13.3 11.7 11.2 15.5 13.0 7.0 11.4 25.6 22.2 Farm products 8.3 22.9 26.7 27.0 30.0 24.6 24.2 18.1 21.7 20.0 21.0 Chemicals and allied products 2.6 2.9 4.5 4.7 5.8 3.9 5.4 0.2 5.2 7.6 18.0 Industrial electric power 2.9 4.2 2.8 2.1 4.9 3.0 2.8 4.1 4.1 6.3 9.0 All commodities -0.2 3.1 4.4 4.3 4.5 4.6 5.0 2.7 4.9 7.5 9.0 Intermediate materials,supplies and components 1.3 2.4 3.3 3.6 3.6 3.4 4.0 2.2 4.0 5.4 8.6 Industrial Commodities -0.9 2.1 3.2 3.0 3.2 3.4 3.9 1.5 3.8 6.8 8.5 Finished goods 0.2 2.5 3.1 3.2 3.7 3.3 4.1 2.1 4.4 6.0 7.7 Finished consumer foods 2.5 6.6 7.7 7.8 8.2 6.5 6.4 4.7 5.7 7.1 7.3 Iron and steel 8.8 10.6 15.4 15.8 12.0 8.6 5.4 3.3 1.7 1.0 5.0 Metals and metal products 10.1 9.5 11.1 10.5 6.6 5.9 4.9 4.3 3.3 3.8 4.9 General purpose machinery and equipment 4.9 5.2 5.2 5.4 5.2 4.7 4.4 4.7 4.5 4.1 3.9 Pulp, paper, and allied products 3.9 3.5 3.7 3.5 3.2 2.9 3.0 2.5 2.7 3.3 3.9

Aircraft engines and engine parts 3.9 4.5 3.9 3.2 3.4 3.6 3.7 3.2 3.5 4.2 3.4 Intermediate materials less food and energy 3.6 3.3 3.3 3.5 3.0 2.6 2.5 1.6 1.7 1.9 3.3 Industrial Commodities less fuels 3.5 3.3 3.4 3.3 2.6 2.5 2.6 2.1 2.1 2.6 3.2 Aircraft and aircraft equipment 3.8 3.6 3.0 2.4 2.4 2.7 2.7 2.9 3.0 3.0 2.7 Vitamins, nutrients & hematinic preps. 0.3 1.0 0.5 0.6 0.9 0.8 0.9 1.1 1.2 1.5 2.4 Construction machinery and equipment 3.1 2.5 2.1 2.2 2.2 2.2 2.5 2.6 2.1 2.4 2.3 Finished goods less food and energy 1.7 1.8 1.6 1.6 1.6 1.7 2.5 2.2 2.0 2.5 2.0 Materials and components for construction 3.3 3.0 3.1 2.9 2.4 2.1 1.7 1.5 1.2 1.5 1.7 Capital equipment 2.1 2.1 1.8 1.7 1.6 1.6 2.3 1.9 1.6 2.0 1.3 Transportation equipment 1.9 1.7 1.2 1.0 0.9 1.2 3.0 2.3 1.7 2.4 1.0 Paper 4.0 3.1 2.1 1.6 0.5 0.1 0.0 0.1 -0.6 -0.6 0.9 Aircraft parts and auxiliary equipment, nec 0.1 0.2 1.0 0.9 1.0 1.1 1.1 1.3 0.6 0.4 0.9 Motor vehicle parts 2.8 2.3 1.7 1.4 1.6 1.5 1.0 0.9 0.9 1.0 0.9 Natural gas -40.1 -7.0 5.1 4.0 9.5 26.5 13.4 -13.0 -16.6 36.6 0.2 Machinery and equipment 3.1 2.5 1.5 1.4 1.1 0.9 0.5 0.2 -0.1 -0.1 -0.2 Steel mill products 7.5 8.9 10.9 14.0 13.6 10.0 5.3 -0.6 -3.7 -6.5 -0.4 Lumber and wood products -11.3 -12.0 -11.3 -11.0 -12.5 -7.9 -4.3 -2.9 -3.6 -2.0 -2.5 Electrical machinery and equipment 3.4 2.0 0.0 -0.5 -1.0 -0.9 -1.6 -2.2 -2.7 -2.4 -2.8 Electronic components and accessories 4.8 0.5 -4.3 -5.4 -6.8 -6.3 -8.2 -9.5 -10.5 -10.1 -11.7

ABCP: Perimeter Financial Spats With Montreal Accord Banks

Last week Perimeter Financial announced plans to allow investors to start trading the $35B frown ABCP papers in Canada. Yesterday, its CEO lashed out at the banks that instituted a trading moratorium, calling them "self-serving and paternalistic." He says the Pan-Canadian Committee is looking after their own interests and ignoring everyone else (is he surprised?).

A day earlier, committee chair Purdy Crawford criticized Perimeter's bid to kick start the trading, calling it an attempt to exploit desperate, cash-strapped investors, he suggested their motivation was to "induce panic in the market in order to acquire ABCP at distressed prices."

The Montreal Accord approach has sparked controversy among small investors who bought the paper as a short-term investment and can't afford to keep it on their books. The Montreal Accord banks want to switch this paper into longer term notes. This was clearly never the intent of the investors.

Interestingly, Perimeter's major shareholders include National Bank Financial and pension giant Caisse de dépôt et placement du Québec, both key backers of the Montreal proposal. Perimeter's CEO says Perimeter's owners supports its bid to bring liquidity back to the ABCP market.

There does not seem to be any angels in this company. Shark-infested waters indeed.

Source FP.

Detailed Fed Funds Injections Since 2006

Much is being said these days on financial entertainment TV and publications about the huge Fed injections. In particular, every Thursday we hear about some huge numbers that is now a new record. These "injections" are in the form of TOMOs and POMOs (temporary and permanent open market operations). Reality is that these numbers are nothing out of the ordinary - so far. The table below shows the total amount of funds actually added since 2006.

The table shows the amounts added for each month of 2007, the total for 2006, the total for 2007, the totals since Jan 2006, and since May 2007.

The total amount "injected" since Jan 2006 until today is $1B.
The total amount "injected" since 2007 until today is $7B.

Up to Nov 19 2007 In $B USD Date Total Total Total Net Add Submitted Accepted Maturing Jan 07 only 1277.83 176.00 184.75 -8.75 Feb 07 only 1184.42 193.75 180.50 13.25 Mar 07 only 1282.64 228.25 240.25 -12.00 Apr 07 only 1066.00 167.75 149.50 18.25 May 07 only 1140.55 167.00 182.75 -15.75 Jun 07 only 1161.70 177.75 188.25 -10.50 Jul 07 only 1238.35 185.00 180.00 5.00 Aug 07 only 1598.49 209.00 200.75 8.25 Sep 07 only 1220.82 236.50 230.25 6.25 Oct 07 only 1905.18 268.75 265.00 3.75 Nov 07 only 1035.90 190.00 190.75 -0.75 2006 only 13239.47 2125.50 2131.50 -6.00 Since Jan 2006 27351.36 4325.25 4324.25 1.00 Since Jan 2007 14111.89 2199.75 2192.75 7.00

Data is obtained from the Federal Reserve web site as well as from the "Slosh" report.

'Liquidity Puts' Allowed Banks To Remove CDO Debt From Their Balance Sheets

A NYTimes article explains how big banks were selling "liquidity puts" in order to be able to sell their CDOs and take the debt out of their balance sheets.

In essence they were selling the loans and presumably the risk associated with them (passing the buck). However, they were also selling the puts, or the right to the buyer to sell them back to the big banks. The problem is, big banks took the debt out of their balance sheets and thus claimed huge profits. Doesn't this sound like an Enron-like scheme? Problem is... these things are now worthless.

If you never heard of "liquidity puts" you are in good (or bad?) company. Robert E. Rubin, chairman of Citigroup, had never heard of them until this summer.

NYTimes link: http://tinyurl.com/ytnuzw

$75B SIV Backup Plan Will Not Distinguish Between Assets

The agreement reached last week makes several changes that simplify earlier proposals. SIVs will no longer have to get the approval of at least 75 percent of their investors if they want to participate in the fund. In addition, the backup fund will not distinguish between assets it buys from each SIV, it will assign the same risk level to all their troubled securities.

In other words, the assets dumped there are all high risk and worthless, why would anyone bother putting anything of value in there? This allows the big banks to keep worthless investments off the balance sheets and still satisfy FASB 157.

The $75B SIV rescue plan. http://www.gata.org/node/5715

U.S. $75B Bailout Plan to Go Ahead, a Machiavellian Scheme?

Bank of America, Citigroup Inc. and JPMorgan Chase & Co. reached an agreement Friday to go ahead with their $75B bailout/backup plan to allow illiquid ABCP-related investments to trade. Unlike the Canadian plan, which seemed designed to make the participating banks a good profit, the U.S. plan is suspected to have been designed to give some value to currently "unvaluable" investments. You see, FASB 157 comes into effect this November 15th, unless some powerful lobbyists succeed in delaying its implementation. FASB 157 forces financial institutions to value these level 3 investments.

Level 3 investments are typically worthless derivatives, CDOs, SIVs, etc, leveraged out of sub-prime mortgages. They are worth nil, or close to, but cannot be truly valued because nobody wants to buy them. By creating this $75B backup plan, the banks can trade these worthless instruments between them, but assigning them any value they want, so they don't have to report huge losses. So simple... and Machiavellian at the same time.

ABCP to Start Trading Wednesday - Watch Out Below

Perimeter Financial will defy the terms of the Montreal Accord and start trading $35-billion of frozen debt. As soon as trading starts new prices will be set and owners of the paper will likely be forced to write down the value of their papers at a discounted price. Small resource companies and wealthy individuals that have made these terrible investments by holding ABCP never signed on to the Montreal Accord. Perimeter is giving these parties an exit. Some of these investors will dump their ABCP and then sue the banks that sold it to them.

The Caisse would be forced to take a $1.8-billion writedown if trading is at say 85c on the dollar (quite a a high figure actually).

The trusts eligible for trading next Wednesday are the ones mentioned here in past months: Apollo Trust, Aurora Trust, Comet Trust, Gemini Trust, Planet Trust, Rocket Trust, Slate Trust, Ironstone Trust, MMAI Trust, Silverstone Trust, Structured Asset Trust, Structured Investment Trust III, Skeena Capital Trust, Aria Trust, Encore Trust, Newshore Canadian Trust, Opus Trust, Symphony Trust, Apsley Trust, Devonshire Trust, White Hall Trust and Selkirk Funding Trust.

The Value of Merril's, Citi's, and UBS' Written-Off debt

What is the value on the dollar of the current CDOs that are being written off by some major banks such as Merril, Citi and UBS?

Merrill Lynch analysts calculate that mid-quality debt is now trading at 40 cents in the dollar. But Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar, while UBS is still assuming this debt is worth 90 cents.

"Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct," Merrill says." Source: FT

40c/63c/90c on the dollar? That still seems too high, who would buy that stuff? And how much are the other banks holding or hiding?

It should not take too long to find out.