Current Futures: Dow +78.00, S&P +9.00, NASDAQ +10.75
European Trade: European markets are heading lower again, even though the S&P futures are pointing to a positive start on Wall Street this morning. Asian markets closed lower, with the Nikkei touching the lowest value since 1982. The main reason behind the negative markets overnight was that financial markets cannot work properly without government intervention, and things do not change very quickly.
The insurance giant AIG, now owned by the U.S. government, is again in big trouble. It is expected that the company will post a record $60 billion in losses, the largest loss in U.S. corporate history. Consequently, sources have said the company might be looking for additional funding from the government, after $150 billion was already injected in the past year. Some suggest that, such a large loss would push the insurer very close to bankruptcy, even with the government intervening. From the beginning of 2008, the company has lost 99% of its value.
In England, the U.K. government is thinking of converting the preferred shares held in Lloyds and RBS to common shares, to help the banks avoid paying huge interest rates for the funds received in the bailout program. Instead, those funds would be used by the two banks to issue new loans to consumers and the corporate sector. It is rumored that, Lloyds would have to pay $700 million annually to the U.K. Treasury in interest rates alone.
It is expected that the government is to convert its Lloyds preferred shares into a non-voting equity stake to avoid nationalization, after last month the government took over 70% of RBS by converting the preferred shares into common stock.
In addition, the U.K. government will offer an insurance scheme, in which the local banks are expected to dump their toxic assets. There are no official estimates about the net worth of the toxic assets held by the U.K. banks, but some news agencies have said that RBS and Lloyds are planning to unload about 250 billion pounds each. In comparison, this is about ¼ of the U.K.’s GDP.
The Nikkei fell 107.60 points (1.46%) to 7,268.56. The Australian S&P slid 19.60 points (0.58%) to 3,331.60. The U.K. Ftse fell 44.23 points (1.15%) to 3,806.50, while the German Dax lost 101.45 points (2.58%) to 3,835.00
Crude oil dropped tonight as the economy is set to slow even more. Crude oil for March delivery fell $0.35 to $38.15
Gold continues to trade below the $1000 level. Bullion for immediate delivery fell $4.50 to $990.50.