March 8, 2010, 4:00 pm EST — Closing Thoughts … The Standard & Poor’s 500 index closed down 0.20 to 1138.50, while no economic reports and very low volume created nothing to write about, except the one year anniversary that the market jumped 69.96 percent from its 12-year closing low on March 9, 2009. Gains in U.S. stocks should slow because equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007. Cash dropped to 3.6 percent of assets from 5.7 percent in January 2009, leaving managers with $172 billion in the quickest decrease since 1991, Dartline data indicates. However, near zero interest rate guaranteed more smoke and mirror, as the carry trade remains the only game in town, and creating near 75 percent oft he volume. … The Chicago Board Options Exchange Volatility Index, or VIX, rose for the first time in nine days with a 1.7 percent climb to 17.72, still below its average of 20.30 from its two-decade history. …
Underreported: The International Monetary Fund will support a separate bail-out fund for European countries, depending on the nature of the agreement that is struck in Brussels. The IMF would not comment on Monday on the possible creation of a European Monetary Fund on the grounds that no specific proposal had yet been presented by the European Commission and member states. But IMF officials said that an EMF with powers to rescue bankrupt eurozone governments would not necessarily compete with the Washington-based global body and that there were situations in which the IMF might back the formation of such a regional arrangement. In particular, they pointed to the IMF’s support for the Chiang Mai initiative, a currency swap arrangement conceived in the wake of the Asian financial crisis that in effect serves as a potential bail-out fund for 10 members of the Association of Southeast Asian Nations (Asean). “I don’t think the purpose of the EMF is to compete with the IMF,” said Carlo Bastasin, a visiting fellow at the Peterson Institute for International Economics in Washington. “It reflects the necessity to find a mechanism that can deal with problems on a European level and not in terms of global governance,” he said. The IMF has been absent from the frontlines of the debate surrounding Greece’s debt crisis, with European governments taking the lead in the response. However, Greece has made it clear that it could always turn to the IMF as a last resort if it could not strike a satisfactory deal with other European countries. As reported by Dartline last week, the IMF said Greece’s plan to rebalance its public finance amounted to a “very strong fiscal package” and it stood ready to provide any technical assistance needed for its implementation. George Papaconstantinou, Greek finance minister, was yesterday scheduled to hold informal meetings with IMF officials in Washington, but the IMF said his visit was merely a “courtesy call”. George Papandreou, Greek prime minister, is in the US and was expected to meet a range of senior US officials, including Barack Obama, president, but not the IMF. Referring to a possible EMF, Mr Papandreou said: “What we are talking about now is creating an ad hoc instrument which will help the Greek economy if in need and we want to borrow.” Dominique Strauss-Kahn, IMF managing director, said in November last year that regional reserve pools could play an important role in the strengthening global financial insurance measures, adding that “the Chiang Mai initiative provides an important complement to IMF financing”.