Sat 12 Jul 2008
IndyMac - Bank Failure Atlanta
Posted by ray under Market Commentaries
I don’t normally post on weekends. But in this case the news warrants it.
At 6:00 PM Friday, the FDIC announced the closing of the US major bank, IndyMac and the transfer of its assets to a new bank. No one will lose money but the closure may affect two other lending institutions in Atlanta.
The news should impact Gold, the US$ and the Stock Market.
US STOCK MARKET
I expect the news to have an impact on the trading in pre-US session on Monday. According to charts sent to me by Sentiment Trader (SI), previous bank failures marked the start of a rally. In some case we first had a large day down that was followed by a bear market rally (or the bank failure marked the end of correction and the resumption of the uptrend); on other occasions, we had key reversal days.
Given the abovementioned SI report, selling at the open of the US session may not be the wisest thing to do. It will be Tuesday that will be important. In every case, we had a rally after the news day. So if we don’t get the rally on Tuesday, we’ll know something is different this time.
US DOLLAR
The news should send the dollar south.
I am interested to see if the EURUSD will result in a strong breakout. At the last attempt, the breakout above 160 was anemic and the US$ rallied. Let’s see if we have a confirmed breakout this time.
The other currency I like is the AUDUSD. The AUDUSD broke up on Friday July 11. I expect to see a continuation on Monday. A close below .9600 will negate a bullish scenario.
GOLD
For reasons stated in the blog to come on Monday, I am of two minds about the current Gold rally. In any event, for Monday at least, we should see Gold up, at least in the early part of US trading.
I am attaching two reports of the failure. One is the statement by FDIC; the other is a news report commenting on the closure’s effects.
feds-shuts-down-indymac-bank-two-atl-centers-impacted-atla.pdf
ots-closes-indymac-bank-and-transfers-operations-to-fdic.pdf
More information can be found at Ana Wang’s site: http://awanginvest.com/?p=555
July 13th, 2008 at 1:47 am
Ray
Old corporate failures come to mind when AAA ratings were acting as shields to decline.
In November 2001, the world’s largest marketer of natural gas and electricity had gone from cash cow to dry bone. Its share price plummeted 99% ($90 peak to under $1), with an estimated $68 billion loss.
From being one of “America’s Most Innovative Company,” it became America’s most insolvent one. YET — the company continued to enjoy an “INVESTMENT GRADE” rating.
THIS company was ENRON. Four days later it filed for bankruptcy. It was staying on the ship as in the Titanic steaming into a giant iceberg.
July 13th, 2008 at 1:53 am
PS
Quote from news:
The FDIC will pay uninsured depositors an advance dividend equal to 50 percent of the uninsured amount. Based on preliminary analysis, the estimated cost of the resolution to the Deposit Insurance Fund is between $4 billion and $8 billion.
In a statement, American Bankers Association president Edward Yingling called it “a sad day for IndyMac” but said insured depositors “should know that their money is safe. The FDIC insurance fund is huge, with more than $52 billion in assets to protect bank depositors. In this year alone, the fund will add an additional $5 billion from assessments on banks and interest earnings.”