What are they waiting for? Markets for the week ending 26-Sep

Market Commentary

- With the market anxiously anticipating when and how the Paulson bailout plan will be decided, news of Wamu's sale to JPMC was almost overshadowed.

- Short term funding is still an issue with 3month $Libor at its highest since 1999.

- w-o-w, SX5E and UKX is 3% and 4.2% lower

- Oil is marginally higher

Economic Indicators

-Latest Data Shows U.S. Housing Sector is Still Far From Bottoming Out

Stabilization in the U.S. housing sector is not yet in sight: Inventories and vacancies are still at a record high and continue to put downward pressure on home prices, which continue to fall translating into trillions of real wealth losses for the engine of the economy: the U.S. consumer -

- New Home Sales (Aug 2008): at 469K, 17-year low and down -67% from the peak of July 2005 (1.389 mn). This is 11.5% below the revised July rate of 520k and is 34.5% below the Aug 2007 estimate of 702K

- US economy grew less than forecasted last quarter

- Personal consumption lower than estimated

How the market is getting around the Financials short sell ban:

A) Naked Shorting Continues in CDS Market: Even as naked short sales are banned around the world, hedge funds can still bet against a company in the unregulated over the counter CDS market without the need to own the underlying bonds in order to place a bet

B) Spread Betting: Fixed-odds betting on financial markets has surged in recent days as traders find ways to get around the ban on short-selling financial stocks.

C) Proxy bets: Shorting real estate, property companies and builders (most asset managers have been added to the list in the second round of banned names)

D) and if you're a large investment bank running an index arbitrage (-futures vs. +cash) desk, you have the capacity to short banks/financials up to the long cash positions

Next week should get more interesting...and in the meantime, let's turn our focus to the Singapore F1!

Eric Tan, London