Wednesday, November 14, 2007

Tomorrow's rumours today

The market took a tumble after GE's "enhanced" cash fund, offered to pay all non-GE subscribers 96 cents on the dollar. "Enhanced" in financial parlance means it has the attributes of a money market, but with a higher yield, while preserving your dollar NAV.

It didn't happen.

The fund is $5 billion and 96 cents on the dollar is a 4% haircut and 4% of $5 billion is $200 million. Why didn't GE just pony up $200 million and be done with it? Bank of America injected $600 million in their money markets, so why didn't GE? The market assumed that the problem was bigger, because 1/2 of the funds assets are invested in home equity and residential mortgage securities. In this tape, you have to know what they are going to throw at you. When Citibank rumored E*Trade into bankruptcy Monday, the stock got crushed, and some E*Trade account holders puked up their holdings. Those that bought ETFC at 3 1/2 Monday, had a 6 dollar number today, while those that bought the stocks they puked up caught the bottom for Tuesday's gigantic ramp. In this "shoot first ask questions later" market you need to be prepared. So here's the other money market story on Fidelity.

Fidelity has over $300 billion in money market assets, and as of September 30, $7 billion was invested in the following eight SIV's: Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance.

On November 8, Moody's placed the following SIV's on review for possible downgrades. Orion Finance Corp., Carrera Capital Finance Ltd., Beta Finance Corp., Centauri Corp., Dorada Corp., Tango Finance Ltd., Asscher Finance Ltd., Cullinan Finance Ltd., White Pine Corp., Hudson-Thames Capital Ltd., Nightingale Finance Ltd., Links Finance Corp. and Premier Asset Collateralized Entity Ltd.

So 7 out of 8 of Fidelity's SIV's that they owned in their money market were put under review by Moody's for possible downgrades. That's the other story, and the shorts will run with it in various versions tomorrow.

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