Greetings Jim,

Today’s news about MS is a real eye-opener!

The comments made by Matthew McCormick in the video accompanying this article regarding their staggering derivative exposure sound hauntingly familiar.

Could this be the beginning of “THIS IS IT, PART 2”?

Morgan Seen as Risky as Italian Banks
By Christine Harper and Shannon D. Harrington – Sep 30, 2011 2:58 PM MT

Morgan Stanley (MS), which owns the world’s largest retail brokerage, is being priced in the credit- default swaps market as less creditworthy than most U.S., U.K. and French banks and as risky as Italy’s biggest lenders.

The cost of buying the swaps, or CDS, which offer protection against a default of New York-based Morgan Stanley’s debt for five years, surged to 488 basis points as of 4:20 p.m. in New York, or $488,000, for every $10 million of debt insured, from 305 basis points on Sept. 15, according to prices provided by London-based CMA. Italy’s Intesa Sanpaolo SpA (ISP) had CDS trading at 422 basis points, and UniCredit SpA (UCG) at 426, the data show. A basis point is one-hundredth of a percent.

“The CDS spreads are making investors and creditors nervous” about Morgan Stanley, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates the company’s stock “outperform,” in an e-mail.

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Le Spleen de Morgan Stanley
Posted by Lisa Pollack on Sep 30 09:36.

All is not well in the kingdom of Stanley. The CDS spreads have blown out and the market is concerned. Very, very concerned. Moody’s Analytics is here to tell us all about why that is.

The first [concern] is the exposure of MS to European institutions and the second is the level of trading revenues in the third quarter. MS reported in its second quarter earnings call that net exposure to the GIIPS countries was $5 billion on a gross and $2 billion on a net basis. However, some sources have recently focused on their FFIEC1 reported gross exposures of $39 billion to French banks, which we believe overstates their actual risks significantly.

Anyway, they have a footnote about that $39bn pointing out that it’s gross exposure and so doesn’t account for offsets or other mitigation.

Given that, what does Moody’s Analytics conclude?

…the recent weakness in their market pricing indicates the degree of sensitivity to any adverse news in the current difficult period. While the headline exposures have spooked the market, we would view this as a short term phenomenon. We expect a correction of this overreaction is very likely. We have viewed MS as a work in progress as they integrate their new retail joint venture (Morgan Stanley Smith Barney) and have recommended them as most appropriate for investors with a longer horizon.

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CIGA Black Swan

Bullard: Fed will act if economy weakens further
CIGA Eric

^[3]
QE to ∞ (infinity) = QE(1)+QE(2)+QE(3)…QE(n) as the economy weakness and social unrest organizes across the globe.

Headline: Bullard: Fed will act if economy weakens further

(Reuters) – The Federal Reserve will act if the economy weakens further and has the tools to do so, a top Fed official said on Friday.

St. Louis Fed President James Bullard said he expects the economy to grow modestly over the next year — though the sluggish pace leaves it vulnerable to shocks.

“Should economic performance deteriorate, monetary policy will respond,” Bullard said, according to slides of a presentation he was scheduled to make . “The Fed is not now, or ever, ‘out of ammunition’.”

With interest rates near zero, Bullard said, the Fed can support the economy through inflation and inflation expectations and asset purchases are a “potent tool”.

Source: finance.yahoo.com ^[4]

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