CEE currencies, EUR/USD, SEK, JPY to continue lower from here - heres why

* The World Bank, the EBRD and the EIB riding to the rescue of the CEE by handing, sorry, lending 24.5 BN EUR - nice gesture but not enough.

It will become progressively harder getting additional funds, which is why Hungary´s Gyurcsany`s is proposing a 180 BN Eur support package to the CEE countries at this upcoming weekend´s EU summit. Good luck in getting agreement and approval on that one!

Unfortunately, the more dire the Euro and CEE crisis is becoming - the less substance there is from the EU leaders. They still dont grasp what has to be done- this does not bodewell going forward. All talk and no action.


*Stronger USD
With the US stress testing their banks, Obama pumping money mindlessly, (the Banks still wont lend, as long as they have bad assets with ridiculous mark to market levels on their balance sheets, and are "ordered" to lend domestically ahead of internationally at the same time as they are trying to schrink/deleverage their balancesheets and the same goes for the european ones, with the addition that they have almost twice as much deleveraging to do compared to their US counterparts), leading to repatriation of US assets. This will likely trigger another wave of repatriation driven Usd buying on top of the CEE and Euro area imploding. I am adding to my already short Eur/Usd position.



*The SEK - say no more
The SEK is continuing to head towards weaker times with the Baltic impending creditlosses soon to surface, especially, if as I expect, there is a deval in that region before long.
I am adding to my long Nok/Sek



*JPY weaker despite harsh global environment
Main theme for the JPY is the desperate need for Japanese authorities to weaken the JPY ahead of fiscal yearend at the end of March. I believe there will be official support to ease the valuations for Japanese corporates via the Jpy ahead of it. On top of it, recent flow indicators have shown large Jpy outflows at the same time as the speculative part of the market has become quite long JPY. I am long Usd/Jpy.

A heads up to be issued for Eur/Jpy though as last weeks survey of Japanese portfolio managers indicated rising counterparty risk in that they will reduce their weightings of Japanese and European bondexposure while maintaining their US ones. Combined with my expectations for a move lower in Eur/Usd, this does not bode well for Eur/Jpy.



As usual, good luck











The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Latvia cutting themselves off from future funding.

* New Latvian primeminister promises NOT to fulfill the IMF loan terms


The new Latvian primeminister have opened up by making sure Latvia is cutting itself off from future funding. Once the IMF money is thrown away to the ever widening current account deficit, there will be no other option than devaluation, since there will be no more foreign loans to be had.

Expect the Swedish banks to start tightening their balance sheets further, focusing on their domestic market. This will leave Latvia in a very dire situation indeed. The devaluation countdown has started. The sooner the Latvian politicians realise that they had better start saving the IMF money for the post deval chock, the better. No point in sacrificing it for a deadend strategy.



As usual, good luck





The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Markets awaiting the next measures - at least bring us coordination in an environment of division

*Governments behind the curve

Governments in general should spend some time and effort sharpening up on their macro advisory. It will be crucial in this environment. So far my impression politicians in general have very limited understanding of the global impact various decisions and policies have. Til then, there should be more efforts put into coordination of policies and measures taken. Easier said than done - I know.

However, at this stage, credible and coordinated policy responses with substance would be something the markets would listen to and gain trust and confidence in. At least temporarily. Without it, we could be continuing this downward spiral.

The handling of the Latvia situation is an illustration of this.
-Nationalistic pride driven by the Euro incentive.
-A Swedish government willing to spend taxpayer money for a shortterm postponement of the "inevitable" devaluation and massive Swedish Bank creditlosses.
-IMF accepting this despite the extensive experience they have from several similar cases over the last 20 years.
-The stoploss on the Baltics should be taken now in order to limit further suffering of the people there as well as minimizing the economic damage.




*SEK to weaken further

Although SEK has already weakened substantially it will likely have more to go. The market reaction on the Latvian downgrade to BB+ by S&P seems to indicate that the market was surprised by it. They shouldnt have been. Not with CDS spreads way above 900.

-Swedish banks will have to write down asset exposure before long, hitting capitalratios , forcing them to shrink balancesheets, reducing lending home and abroad.

-With Swedish banks making a substantial part of their revenue in the Baltics, this will not be the case going forward, further reducing the ability to lend.

-The exports to the Baltics have imploded and will not recover til they devalue.

Hence, I will be looking for a break of 9.00 in Usd/Sek, with the next target 9.50.
In Nok/Sek I will be looking for a break of 1.30 with the next target 1.40.


Note, this in the absense of any devaluation. A devaluation should initially push Sek even weaker as banks would have to write off very chunky creditlosses upfront. Most likely bigger that what analysts are currently expecting.



*LVL "optionality"
Long Eur/Lvl fwd is currently a non expensive way of getting optionality via the underlying. Pricing is non deterring. The Eur/Lvl 3mth Fwd - Swedbank correlation remains in play.


*Gold to weaken?
Looks like the massive speculative long positions in Gold are about to weaken. This could lead to a substantial flush out. I am short Gold.




As ususal, good luck



The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

All "calm" on the surface - Calm before the storm?

*Forget the "old" protectionism with tolls, etc -the financial protectionism/crowding out effect is much worse

The slow but steady process of banks using government capital to recapitalise with the aim to paying back as soon as possible (its not cheap) is continuing. Leading to no further lending whatsoever and breaking down the supposedly intermediary capital function banks are supposed to have in the process.

The massive misvaluations of balance sheets assets combined with a desperation to shrink ditto will guarantee banks continue to hoard capital in expectation of upcoming creditlosses. As the banks situation gets progressively worse in line with asset values deteriorating, the strategic focus will increasingly be on the domestic market. This process will take place with or without government intervention, although government intervention is becoming increasingly likely for a decent share of European banks.

This background explains why there will be a crowding out effect for the CEE and Baltic countries in that there is simply less capital available and a larger share of the capital available is put to use on the domestic front. CEE and the Baltics bank systems are in the process of getting "crowded out" - financial protectionism in that with only a limited support from their bankowners, the cost of capital for refinancing increases drastically.



* "Coordinated" verbal intervention from Hungary and Poland yesterday - nice try
Officials from the central banks of Hungary, Romania and Poland yesterday made an attempt to scare off speculators by warning of potential intervention to defend their respective currencies.
analysts have concluded that this might actually help calming the markets down. I beg to differ. I seriously doubt that the ECB will have anything to do with this so I expect them to be on their own.

"They" are caught between a rock and a hard place;
Fundamentals are working against them, carry investors have been carried out. they are left with hard currency debt and ever widening current account deficits. Whatever FX reserves they have they will need going forward for fiscal stimulus financing.
If they want to burn it on giving it to speculators, fine, but eventually they will (hopefully) get the drift and bite the bullet. Unfortunately politicians tend to want to stay in power, even if it means burning down the house.

Chase made an estimate of how much western European banks stand to loose in the CEE and Baltics area; 65 BN Eur. 25 Bn Eur on conversion losses and 40 Bn Eur on pure creditlosses. Mind you, this might be on the low side as well.




*Whats the fuzzabout?
So far this week cant say theres been much in the way of chaos, quite the opposite; rather calm and orderly markets actually. Wonder how long it will last for. At least the CDS market seems quite wild still with CDS spreads for CEE and western sovereigns reaching record levels.

At least the Jpy and Chf are weakish and are set to contunue to near term. This is actually something that could become a positive force in all the negative as it would offload pressure on the pace of deleveraging.
Unfortunately I think the CEE, Euroarea and Baltic issues might dominate near term.


* Russia debt negotiations have started
This is leaving hopes for a substantial write off of the 500 BN Usd hard currency exposures Russian corporates have vs western counterparts. Doubt they will reach a solution at this stage but meanwhile Ive closed my RUB exposure not to get caught. Once these negotiations are over I have a feeling it might be time to get in on that trade again.


* Mutual funds
Interesting to note that mutual funds have not dumped shares in 2009, on the contrary, they have actually been reducing their selling. Equity outflows so far this year is running 40% below last years pace. If a bottom would be in sight for equities, one might expect these funds to be dumping everything. Not even close, thus.



* South Korean Exports - a global GDP indicator
This upcoming Monday South Korean exports are out, since they basically cover the globe with their exports, it should provide a quite good indication of what is to come near term. Something to pay attention to.


* Taiwans 2009 GDP getting revised down.
Last week Taiwans 2009 GDP was consensus at -2%. Following last weeks Q4 GDP of -8.4%, GS is now revising it down to -6.5%,,, huuuh




As always, good luck







The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Hey, the meltdown is in your backyard! European equity markets looking the other way, towards the US for guidance, now, thats confusion.

What a difference a week makes!

Apart from great weather and skiing conditions, relaxation and outdoors activities, there seems to have been some interesting market activities taking place during the last week. Anyway, lovely environment and would have preferred to stay there for a few weeks more, for sure. Well, schools calling, as well as all the other choires that go with it.


*The heat is on
Especially in the CEE area. It would seem the market sentiment has finally switched towards the CEE - Western European banking dilemma touted several times on this blog over the last few weeks. A lot has been written about it over the past week, upsetting the market in the process. It should be.

Devaluations, bank - sovereign defaults and social unrest looks set to unfold before long in the CEE and Baltic area. The Euro area and their banks, intertwined with the CEE as it is, is looking increasingly vulnerable to get hit by more than currency weakness.
Same goes for Sweden.
Helmets on, time to dig in.



*CEE and the Baltics local banking systems, foreign bank owners and their shrinking of balance sheets - liquidity is about to be reduced or cut off

Weve been on this subject before, for sure, but I suspect this topic will hold the key to further developments in Europe over the next few months.
The CEE and the Baltic situation is becoming more critical as the 400 Bn Usd of CEE hard currency loans to be rolled over this year along with growing current account deficits and liquidity and assetmarket constraints are increasingly weighing these economies down.

They all need massive hard currency injections - now! Who will provide it to them? Currently the Western European banks are basically the only source. However, unless governments intervene this pipeline will get cut off. Perhaps the IMF will be able to provide funds for a while still, but even if they get the extra funds amounting to a total of 500 BN Usd to be flushed out, it is still a game of liar´s poker, a pyramid scheme, a ponzi scheme in that it is all about make believe to try and gain the markets trust, calming it down in the process.

In the end, it will all be done on a come first - serve first basis. If youre late in the door, there wont be anything left. Unfortunately, I suspect the main financier of the IMF and the World Bank - the US- is not so keen on pumping out more funds. Neither are the much hoped for "white knights" Asia and the middle east. Time for the EU to prove its worth on a big scale.
Are they up for it? Are they ready for it? Is the ECB willing and ready for it?
Unfortunately the impression I am getting is no on all of the above.

However, once politicians realise what is about to happen, I believe they will come running with some sort of bailoutpackage. Looking at how the cooperation and the consensus results have worked so far, unfortunately there is an overwhelming risk of "too little, too late"
With the ECB so far blocking the most efficient rescueplans, we should all hope they stop looking in the rearview mirror so much and take in the view from the windshield instead.



*ECB holds the key - in the end they will have to unblock and go along with the politicians

What could be done to thwart the downward CEE/Baltic - Western bank spiral then?

-Allow the potential CEE and Baltic Euromembers in now - let them adopt the Euro without going through the ERMII routine. (The Maastrich criteria would also have to be fudged substantially - but then again, it already is and noone adheres to it anyway (apart from Finland). In fact - following the Maastricht criteria and the fact that most of Europe is facing deflation, it could actually have the perverse effect of forcing potential Euromembers into a state of deflation - just to adhere to the Maastrich criteria - just drop it!)
This would be an emergency measure and by far not anything that would solve the Euro and the Euro area dilemma, but at least provide the European financial system with some breathing space. This is after all an emergency situation!


- "Everybody" issues Eurobonds
Let the present and potential Euromembers raise funds via Eurobonds. This would too only be a temporary solution designed to provide breathing space but not solve any real issues. However, the alternative is certainly worse and would mean instant clear and present danger.




*Net,net, although today is a "soft" day so far, the environment is all but. I do expect an EU "rescue/bailout package" before long. Unfortunately, it might just be one in a row of buy the rumour - sell the fact events that we have seen so many of over the last 6 months.
With the Latvian government resigning last Friday, Ukraine on the verge of defaulting on their sovereign debt and Polish deputy Finance Minister Kotecki out on the wires stating Poland wants to join the ERMII in late May - early June, it seems the environment is heating up.
Fasten your seatbelts for a bumpy ride ahead.



*My position outlook;

-PLN basically fell out of bed last week and it might not be over yet.
I squared and am now looking to sell this currency again, wary of any initial market reactions to "EU bailout packages". Buy the rumour - sell the fact seems to still be the ruling market "bailout package" response.

-HUF, ditto there.

-RUB, still short. Dont expect any "packages" on that front near term. Rather a continued slide downwards.

-TRY, still short. Had a decent move lower last week up to 1.71 ish. Expect some consolidation from here but to continue before long. 1.78/1.80 in Usd/Try is my next target.

- NOK/SEK, broke higher towards my 1.30 target last week. Still long but have taken some profit in the 1.27/1.28 area. Will look to go longer on dips. Swedish Q4 GDP numbers on Friday. NOK must be one of the few "hard" currencies around.

- JPY, still short. Will monitor price action at 95.50 in Usd/Jpy.

-ZAR, Reached high 10.20;s in Usd/Zar last week. Back to 10.00 ish now. I was short ZAR but cut it and am square now. Will get back in on the next Usd/Zar rally. Q4 GDP numbers this week should be grim reading but a lot priced in. To be monitored.

- As the Baltic situation is heating up; short LVL on a forward basis.

- Short Eur/Usd still, Euroarea dilemma, the CEE and the western european banks and all that,,, you know the story.

-Short European banks with exposure towards the Baltics and the CEE area. Very difficult times ahead for the shareholders - "EU bailout or not".

- Dipping my toes in short Gold purely on an overstretched positioning basis





As always - good luck




The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Ski time

Time for some skiing with family and friends.
Updates will resume on the 23 Feb.
Plenty of market activity to look forward to in between.

As usual, good luck




The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Near term and the G7/G20 meeting

Japan releasing Q4 GDP data, could be gruesome with a -12% GDP expected y/y.
Im expecting Japan to go for quantitative easing on the back of it.
QE from here will most likely include weakening ones own currency whenever possible since competitive devaluations is now in play globally.

Hence, I expect for Japanese authorities to start making some noice on the currency front. If turned into action, the Eur might strengthen on the back of it as Japanese lifers have the majority of their assets in that currency and they need relief in the run up to fiscal year end.


*Quantitative easing and competitive devaluations - European CB;s first out

Gbp/Usd
With Governor King admitting to the UK economy being in a deep recession, the quantitative easing policy is likely to include a weaker Gbp as well.

Sek
With the surprise Riksbank cut yesterday from 2% to 1% , not excluding 0%, it seems the Riksbank is joining the QE club, with a weaker currency included. Im looking for a weaker Sek. Especially vs Nok.


*Market loosing patience with the Turkey - IMF negotiations
Try
Market patience is waning with the IMF deal scenario and unless G7/G20 comes up with some goods this weekend and/or IMF negotiations develop further near term, I expect the TRY to weaken quite a bit, catching up with the weakening of the other Emerging currencies so far this year.



As usual, good luck





The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Bailing out Banks - biggest Ponzi scheme of them all?

*The banking bailout dilemma continues, equity markets ignoring it - for now

According to The Daily Telegraph, an alledgedly "confidential" document from the European Commission in Brussels states the European banks may need a 18.6 Trn Euro bailout.
Further on, the EC estimates "impaired assets" to amount up to 44% of EU banks balancesheets.


*Further valuation fudging expected to be sanctioned vs straight mark to market approach
With EU officials later this month devising ways to evaluate "toxic assets" and new initiatives to bail out banks to be taken at an EU emergency meeting at the end of February, I am not expecting any conclusions even close to my G7/G20 "wish list " from yesterday, see http://todaysmacrotrading.blogspot.com/2009/02/subsidiesprotectionismcompetitive.html

This is really bad news. Without sorting out the "Bad/Toxic assets" once and for all, this recession will increasingly run the risk of developing into a depression.
As banks continue to slice their creditlosses, it will take a very long while, if ever, until all credit and other losses are taken. Most likely, governments will instead opt for continued fudging, extending the recession, putting a lid on the economy as losses are sliced out, "Japanese style" and in the end leaving taxpayers footing a much bigger bill than necessary. This will instead lead to further widening of CDS and sovereign bond spreads, devaluing the national credit guarantees in the process and increasing the risk for sovereign defaults.


The Euro area and the PIIGS countries further complicates the issue since they will hardly have any fiscal resources to succeed with any such bank bailout programme without risking sovereign default. So, who will finance all of it in the end? The IMF? Who will fund the IMF going forward? Cant help but getting a feeling that it will all be about applying for help first, since there will be substantial issues and shortages in raising this amount of capital for all banks and countries involved. Remember, this is "only" the EU area.

Who are at the most risk then?
Well apart from the PIIGS countries, there is of course also the CEE, Russia, the Baltics, Ukraine, Turkey, etc



*Foreign bank claims into the CEE, Baltics, substantial

In many of these countries and regions, foreign banks vastly dominates the banking system and thus owns the credit risks as well. This will most likely have severe repercussions into the "homecountries" of these banks. According to BIS, the claims by Austrian owned banks are equivalent to 20% of annual GDP in the Czech Republic, Hungary and Slovakia. Claims of Swedish owned banks on the Baltic states are equivalent to 90% of their combined GDP.

Obviously these foreign banks are severely exposed towards these areas and very much dependent on their developments. On the other hand, these areas are severely dependent on financing from these foreign banks. Any external shocks to these foreign banks leading to a withdrawal of funding threatens the whole financial system in the CEE and Baltic countries, and thus, is a decisive factor from a sovereign default perspective.

Logic dictates that whether shutting off credit to the country in question in order to consolidate a banks finances at "home" or suffering heavy creditlosses in any of the CEE or Baltic countries, will in the end become a burden to the homecountry and taxpayers of the claiming banks. (The CEE and Baltics will fare much worse). In this example, Austria and Sweden.

The size of foreign banking claims into the CEE reached 1.3 Trn Euro with ditto claims into Hungary reaching 66% of their GDP. Over the last few years, the capital flow into especially the CEE and the Baltics have shifted with bond investments dominating over equity and FDI investments.

This makes the situation even more sensitive as bondflows are vastly less stable and fickle than the latter. European banks would have to continue to invest into these areas in order to support these countries. Last fall there was some talk that this would be the case. I very much doubt this is the case now.

The probability has rather increased for banks to withdraw capital leading to a severe creditcrunch, combined with getting hit by severe creditlosses in a deteriorating environment. This will differ from country to country, however, the outlook is decisively gloomy.

Going forward, there will be increased calls for nonprotectionism amongst leading international politicians. I expect there to be a strong consensus for nonprotectionism, but very little substance and even less action. At the end of the day, as pressure increases, many will look to get a comparative advantage. Back to square one as things go downhill.

It would seem it might be time to dip ones toe into bearish bank and currency plays.


As always, good luck




The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Subsidies=Protectionism=Competitive devaluations=Tradefriction=Tradewars= G7/20 had better coordinate and come up with a powerful solution - pronto!

*Out of synch with equities

When it comes to equities, I definitely feel out of synch as the position squeezing has resulted in a more lax approach to risk. Yes, Baltic dry is up, yes, creditspreads are tightening, yes, long bond yields are higher. However, this is not demand driven but rather supply driven, which makes a world of difference , to me anyway.

The Baltic dry index being up is rather a sign that creditspreads are narrowing than actual freight demand increasing. Anyway, the equity market has a positive sentiment attached to it right now and that is what matters. I will not stand in the way of that sentiment, quite the contrary. Although I dont necessarily have to believe in the story.



*G7/G20 meeting
Now, we have a G7/G20 meeting ahead of us and it is only natural with market expectations of some good, coordinated news coming out of it. I hope so too. What would I like to see come out that would make me shortterm bullish?

- A coordinated plan to prevent national subsidies and tariffs in order to prevent competitive devaluations and tradewars.
- A coordinated plan as how to deal with bad assets in banks to avoid sovereign defaults.
- A coordinated plan as how to fund the IMF going forward.
- A coordinated plan as how to deal with the CEE, Russia and the Baltics
- A stop to blindly spewing out liquidity, left right and centre, focusing on massive targeted liquidity injections instead, achieving a higher working effect
- Supporting fixed exchange rate regimes in floating their currencies
- Getting the Japanese and the Swiss authorities to weaken ther currencies to bring shortterm relief to deleveraging pressures globally, benefitting all assetclasses short term and providing breathing space. Both Japan and Switzerland have natural incentives for doing so anyway.

The risk to the G7/G20 meeting is that nothing of substance comes out of it, with vague, sweeping statements the only result as opposed to very specific, forceful and coordinated ones.


There are a lot of negative events lurking around the corner, each one with substantial negative effects to the financial markets and the world economy. However, with the equity market so "bullish"/(underpricing risk according to me), I will remain cautious as I probably have missed out on something. Keep an eye out for CEE developments as well as they should affect European financials and other equities going forward.

However, I havent missed out on Nok/Sek as it has steamrolled to 1.2450 so far.
It might very well consolidate here now, but post it Ill be looking for new all time highs with 1.30 the first target.



As always, good luck.








The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

The G7/20 meeting and the key issue (to me anyway) - banks lack of intermediation of capital

*Lets face it - the majority of the bigger European banks are insolvent.


Why is that? Simple - the assets on their balancesheets are not marked -to - market. In fact, those very assets are marked at fantasy valuations. Some may object that it is simply not possible to mark these assets to value. That is not true. There are market valuations to be had for basically all of those assets. Problem is that banks will not accept these valuations as it would make them insolvent.

The one exception is; Goldman Sachs. GS has marked their assets to market and have not had any issues with bad assets on their balancesheet as they have sold off these bad ones along the way, behaving proactively.

One would think that this would be a noncontroversial issue, but it is not. There is a lot of ignorance out there, as illustrated by the former FDIC chairman Bill Isaac who believes " we should get rid of mark to market accounting once and for all" as "this is what got us into this mess in the first place". Scary.

The lack of mark to market practise has in essence prevented other banks from acting, yes, you´ve got it - proactively. Now they are stuck with a toxic soup they dont know what to do with. Unfortunately there has not been any riskmanagement plan for it from the beginning -per definition. (Since it was never marked - to market).

It is important to note the authorities have deemed the non mark - to market procedure as appropriate and has not had any problems in accepting it. Now we see the consequences of that sloppy approach.
In any case, Mr Lloyd Blankfein - the CEO of GS, was out last week calling for banks to mark their assets to market. I fully agree.



*Getting the banks working again as intermediaries of capital instead of hoarding it to cover for upcoming creditlosses.

One way to get this working again seems to be to let the old ones go bankrupt.
Ie, no state support at all. Demand that the banks mark their assets to market.

Let the banks issue new shares til the share price is zero. Then let them default on their bonds, etc,etc. Meanwhile, make sure there are state guarantees for the depositors of these banks up to a certain, standardised amount.
Then, lift out the "good assets" at market value and leave whatever remains of the bad ones in the "old" bank, for the taxpayers to take care of. Manage the now government owned "bad assets".

Start up a new bank, based around the "good assets", recapitalised by private capital. Once the bad assets are gone, investors will want to invest. The "new" bank will also want to promote new business since it will make money from it.
(Obviously run on business and "sound" risk terms.)

This "new" bank will hence want to work as an intermediary of capital.
This way, there will be a chance of getting the capitalflow going again. Without it there is a clear and present danger money is being pumped into the abyss without any visible results.

#What about state guarantees one might ask?
#What about the "bad bank" solution?
-State guarantees risk pumping money in mindlessly without any real control of where it will go. It will drain state finances, undermine the value of any guarantees and shift the risk towards sovereign defaults instead.
-The "bad bank" solution creates an ethical dilemma in that it will most likely mean taxpayers will have to buy overpriced "bad assets", to the benefit of the current shareholders. If banks are insolvent, they should be allowed to go bust, with the depositors getting protected by the government in the process.

Europe have most likely some very tough times ahead. Much tougher than what the market is currently pricing in. Therefore, governments need to be proactive with some daring alternatives. To only be reactive without coordinating is not an option. Banks! Mark to market assets - now. The outcome of the current crisis may partly depend on it.




As always, good luck







The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Asset squeeze continues - time to stop out the Jpy longs?

Position squaring and squeezing ahead of the US fiscal stimulus plan still in process.

Japanese industrial production came in at - 9.6% month on month in December, exceeding the market consensus at -8.9%. Since market developments has not improved since, the latest market estimates are now for Japanese industrial production to drop by 20% q/q Q1 2009!
This should reduce the Japanese GDP by 4% q/q, 16% y/y.

As mentioned earlier on the 27th of Jan,(http://todaysmacrotrading.blogspot.com/2009/01/china-is-it-derailing-will-it-devalue.html), Japanese exports collapsed in December and will inevitably drag the Japanese GDP lower.

Japanese industrial production came in at -9.6% M/M in December, exceeding the market consensus at -8.9%. since market developments has not improved since, the latest market estimates are now for Japanese industrial production to drop by 20% q/q Q1 2009!
This should reduce the Japanese GDP by 4% q/q, 16% y/y.


Quantitative easing next for Japanese authorities
Given the Japanese state of the economy and with interestrates already down at 0.1%, Quantitative easing an new innovative versions of it will be the way forward. This will probably include system stabilisation measures.

With financial protectionism (see http://todaysmacrotrading.blogspot.com/2009/01/bailouts-and-tradewars-closer-than-you.html), clearly on the rise and more to follow on the back of it, the stakes are rising. It is likely that Japanese authorities during current circumstances is beginning to feel more and more uncomfortable belonging to the very exclusive but not very helpful "strong currency club".

With the Japanese fiscal year bringing an avalanche of repatriation flows on the back of mainly Euroarea related currency hedge flows,(seehttp://todaysmacrotrading.blogspot.com/2009/01/i-am-short-eurjpy-eurusd-here-is-why.html as well as http://todaysmacrotrading.blogspot.com/2009/01/eurozone-and-cee-dilemma-implications.html), and the market positioned for it, there should be a quite high probability that Japanese authorities wants to adress this dilemma. This could mean intervening in the currency markets.

Although I doubt they will succeed, it would fit very well into the squeeze theme, as the initial reaction would probably be quite large. I have positioned myself for a short term "Jpy squeeze", mainly in Usd/Jpy.




As always, good luck








Meanwhile, bearish macrodevelopments continue unabated. However, the squaring and squeezing will have to run its course before it is time to get bearish again. I would not expect to have to wait that long though.





The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

High expectations on next weeks US stimulus package - riskaversion declining - massive asset squeeze - trade that (long) gamma!

Happy Friday and welcome to Nonfarm payroll day!

*Riskaversion in decline as positions are getting squeezed

Market sentiment is currently upbeat/ in squeezemode and looking forward to next weeks US fiscal stimulus package. Expectations are high that it will finally "sort everything out". This has squeezed risk aversiontrades hard.

In FX, it is mainly the Emerging market currencies in the CEE area that has had the most violent swings as illustrated by Eur/Pln which has moved from a 4.4570 low on Tuesday to a 4.7060 high on Wednesday only to fall down to a low of 4.5230 so far today!

Not bad in a FX context.
With the 1w implied vols at 28%, this implies a standard deviation of 8 figures per trading day, including the W/E timedecay,,,,,

Thus, a very rewarding proposition for long gamma plays so far. Although riskaversion is currently declining next week could induce quick shifts as the much expected US fiscal package is launched. Trade that gamma!




*Equities; Financials taking the lead - squeezing out shortpositions
In the equitymarkets, we are seeing similar signs of lower riskaversion as the financials have led the equity markets move higher so far. Today is quite an important day from a technical equity perspective; providing information as to whether this correction will have further to go or not.

Basically; marketpositions are getting squeezed and will have to run its course before its time to apply major macro and technical trends again. So far, buy the rumour - sell the fact, has been the rule of thumb. Will be interesting to see whether it is still applicable on next weeks events.

Regarding todays NFP, I would expect the positive equity market sentiment to rule even if it is a bad number. It seems there are still positions to be squeezed.

In FX, I have already sold CEE currencies on the big correction this morning.



Have a nice w/e,
As always - good luck







The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

ECB day - rearviewmirror vs windshield

*Happy ECB day to everybody!

As preannounced by the ECB, we should expect a "no change" to interestrates today. Focus will be on what Jean Claude Trichet will have to say post the rate announcement.

My guess is that he will still be chasing the inflation ghost. Yes, we will have super inflation in a few years and probably stagflation before that, but only the economies that have survived til then will be able to experience it.
Being behind the curve long enough with an outlook to eventually be ahead of it by doing "nothing" from here will not work. Especially if the rearviewmirror is the preferred tool.



*Jean, please cut the rates - look out the windshield

Being on the Euro subject, it might be worth reminding that he has all the reasons in the world to cut interestrates down to zeroish. Ill mention a big one, its the CEE area.

First of all, the banks in the CEE area are mostly foreign owned.
A vast majority of the owners are banks from the Euro area.
These banks are increasingly facing threats of government stakes and nationalisation as their creditlosses mounts.
Government ownership implies a bias towards domestic lending leading to a significant reduction of funds to subsidiary banks and branches in the CEE area.




*The CEE area is extremely sensitive to reduction or withdrawal of private capital inflow
The CEE area is the most vulnerable Emerging market area globally when it comes to dependence on foreign private capital. According to BIS, net capital inflows 2007 was about zero% of GDP for Asian and Latam Emerging markets, while it was 14% of GDP for the CEE area.

Cross border claims for BIS reporting banks on the global Emerging market area was roughly 2.5 Trn Usd in 2007, which marks an increase by roughly 1.5 Trn Usd over the past 4-5 years. Destination for this capital was Emerging Asia and the CEE area mainly. While the capital impact as a share of %GDP was 2% in Emerging Asia, it amounted to 32% of GDP in the CEE area.

The extent of this private capital inflow has explained why the CEE region as a whole have been able to run such extensive current account deficits since the inflows exceeded the deficits , leaving the CEE area to build up their currency reserves. Now, as foreign banks reduce their presence and funds are likely withdrawn or reduced, this will leave the CEE area with a substantial funding gap.

We are already seeing the signs of hard currency shortages and this will likely increase going forward, with rating agencies downgrading CEE countries further as deficits swell and creditlosses mount, unemployment etc increase. As these outflows from the CEE area intensifies we might even see CEE centralbanks having to sell part of their FX reserves in order to cover the shortages. Since they are denominated in Euro, that means selling of Euros in the market.



*Dejavu of the 1997-1998 Asian currency crisis?

As mentioned yesterday, this reminds to a large extent of the situation during the Asian crisis (apart from most of those currencies being pegged or semipegged), as private capital inflows vastly overwhelmed ditto outflows pre crisis. This created big imbalances in the process which were duly reversed during the 1997/1998 Asian crisis. The CEE area is now at risk of experiencing a similar outflow with ensuing currency weakness.

Obviously, these creditlosses will hit "western european banks" and taxpayers in these countries. This will hurt the Euro further. Fingers crossed that Jean Claude Trichet has a look through the windshield soon.



*Protectionism on the rise

Looking at the other side of the Atlantic I am concerned by the statements of the new US Secretary of the Treasury, Timothy F. Geithner.

Partly for his talk about "currency manipulation" directed at China, partly for the Democratic winds of protectionism, where "Buy American Steel" in conjunction with the TARP money has been heard.

Mr Geithner brings me a dejavu of the Clinton administration in the early nineties when trade barriers and "currency manipulation" was high on the agenda. I am concerned Mr Geithner could bring about further financial protectionism, which would only escalate it further. Re China; Dont open Pandoras box Mr Geithner. Be grateful if "they" dont devalue.

In Europe we might soon see financial protectionism even within the Eurozone as the sovereign spreads splits the Eurozone are into North vs South and makes open markets unworkable under current terms.





*Scandinavian banks will get hit hard

In the Baltics, the Scandinavian banks are sitting on all the risk themselves. They are the Baltic banking system. These countries have currency boards - in a deflationary environment.

-Now, do you, dear reader, believe the Baltics have received private capitalinflows equal to or bigger than the CEE area when measured as % of GDP ?
-Further on, would you believe the Baltic assets are under more or less pressure than the CEE ones, given that they have floating currencies?
-Do you believe the Baltics will incure bigger or smaller creditlosses, as a % of GDP, than the CEE countries?
-Last question, would you believe that the banks responsible for the Baltic banking system will make it through this without government support?

Ill leave it to you to figure out the answers.
By all means, enjoy the shortsqueezerally in certain Nordic banks stocks. Just dont believe the bull(!) story.

SEB out with their report today. It was great. Hadnt expected anything else either.
But income is not where the focus should be at this juncture. The threats come from other areas, like creditlosses. SEB had reserved 898 MLN Sek for Baltic credit losses. I would guess 9 BN Sek would be more appropriate, but it still wouldnt be enough. But with 9 BN the result wouldnt look that good, would it? The huge discrepancies between balance sheet and market valuations is an ongoing theme that will create massive holes which will become very difficult to fill in.

Finally, SEB CEO Annika Falkengren is out saying that SEB have bought a "homeinsurance" by doing the IPO, zero dividend and creditloss reservations. No Annika, you havent. A homeinsurance is a Put and although you would need one, that is not what this is. You have sold a Call on the SEB, increased the premium for current Call owners and made a tiny value increase towards mark to market valuation of your creditportfolio. Hopefully Mrs Falkengren gets better advice going forward and learns the basic products her bank is selling.





As always, good luck









The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

PLN collapsing - Latvian agricultural minister resigns, confidence vote for the Latvian government today - but Swedish bank stocks are up!

Diluting shareholders is positive for the SEB stock - apparently


Wow, another day, another lesson learned. Who would have thought that SEB seeking new capital in the current environment and diluting present shareholders in the process would be positive for the stock?
Not me anyway.
One has to expect the IPO buyer´s discount from yesterdays share price to be at least 10-20% as a guess, no?

Fine, the Swedish government making 50 Bn Sek readily available for Swedish banks could be viewed in a positive way. With the consensus of analysts claiming this will be enough to secure the Swedish banks no matter what, I can see where they are coming from. However, I beg to differ.

Since yesterday, the Latvian Agricultural minister has resigned due to massive farmer protests, driving their tractors all the way to the parliament to make their case. Today we have a noconfidence vote for the Government in the Latvian parliament. Would have thought that this might not necessarily be a positive if the Government was ousted. Especially as a new one might just let the currency regime go. But, what do I know?

Kazakhstan devalued their currency, KZT, by 18% since yesterday. The KZT will now be allowed to fluctuate by +-3% around the level, (Usd/Kzt = 150). Doing it without wasting much FX reserves and they have a massive government support program in place for their banks.

They might not let the currency float, but, they have at least gone with the program and devalued their currency as the RUB has weakened. The market also expected this.
Now, Khazakstan might not have much trade with the CEE directly but they do with Russia, so,,, Anyway, another nail in the coffin for the followers of "the fixed currency regime - in a deflationary environment" theory.





*PLN collapsing

PLN collapsed and moved from a low of 4.4565 yesterday to a high of 4.7060 so far today.
A timely call on this one as the break of 4.50 was highlighted in yesterdays daily. http://todaysmacrotrading.blogspot.com/2009/02/still-cold-outside-but-markets-are.html

This should also weigh heavily on the Baltics and the Swedish Banks, at least in my book. The CEE tensions remain. Hard currency shortages and credit/liquidity issues in general and in the case of Poland, this comes on top of the very problematic corporate hedging situation where the FX Options "hedges" have gone horribly wrong.





*Why the positive equity mode?

Admittedly, there a few positive signs overnight;

- The Chinese PMI released overnight indicating manufacturing might no longer be in free fall.
-The Baltic Freight Index has worked higher after falling 99% from high to low. Some of last year´s decline was due to funding shortages, hence, the rebound can also be viewed in the context of improved funding conditions. Supporting the most recent lending survey from the US.
- Global corporate debt issuance recovered in January, reaching almost "leverage world" levels, with about 245Bn Usd of corporate bonds issued. (Amongst the three highest levels for the last 18 months).
- Yesterdays US housing market data was better than expected.
-Todays release of a 3.8% rise in Australian retail sales was also a positive surprise
- Chinese Governor Zhou Xiaochuan said the CNY was currently at a balanced level vs the USD. at 6.85. Relieving the market of any immediate CNY devaluation fears.

Still, to me, this should all be subordinated to the negative events striking the CEE, Russian and Baltic area and thus, the Swedish Banks. Especially now that it is clear they will need more capital. the question is only -how much? As a role of thumb - it will be more than what they have asked for so far.






* Equity markets underestimating global stress and risks building


It seems the equity market is understating the risks involved, especially when it comes to " western European banks" exposure to the CEE.
According to BIS, the total bank credit from "western European banks" to the CEE area is 37%.

That is the highest number in the world when it comes to crossborder lending between "foreign investors" and emerging markets, making CEE the most vulnerable to any credit cut offs.

It becomes evident when one looks at the BIS data, showing how foreign investors set high targets for return on equity in the CEE countries, either overestimating the risk adjusted ROE or underestimating the credit risk. The CEE countries are already starved of foreign funds and are in desperate need of hard currency.

As time goes by, balance sheet issues will refrain "European banks" from increase investments into these countries, even as the underestimation of credit risk is recognised. This will leave the CEE countries "strapped for cash", hurting growth and asset prices further in this geographical area. (I dont have to mention the Baltics, do I?)

The impact will obviously be further downhill slides for the CEE countries generating further creditlosses, cutting off further credits, etc etc in a downward spiral.
This is basically what forced the Japanese banks out of Asia during the 1997 - 1998 crises

The Eurozone is running the risk of getting hit hard by it. This on top of current issues, already struggling with their Eurozone North - South polarization of competitiveness and current account balances, leading to massive sovereign spreads differentials. These tensions will not go away - on the contrary, they will increase going forward.

The equity market is currently ignoring the build up of financial risks in the CEE, Baltic and Eurozone area. As usual, it is all about timing and currently I am obviously out of synch with the equity market. I will bide my time and pull in my bearish equity horns til the right time comes. Hopefully I will not have to wait too long. At least I seem to be in phase with the FX market.







Arrivederci, and,
As always - good luck










The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Still cold outside - but markets are heating up for Banks and CEE countries

* Bank recapitalisation -PRIVATE capital to the (temporary) rescue - at least for one bank

Well, since yesterdays piece here on bankrecapitalisation, there has been some activity.
See piece from 2 Feb http://todaysmacrotrading.blogspot.com/2009/02/new-month-will-it-be-hot.html
Swedish Bank SEB was forced to announce they will be raising 15-20 Bn Sek in capital, with the (also) Wallenberg owned Investor guaranteeing 30% of it. Goldman Sachs and Morgan Stanley are also involved.

I am impressed they managed to raise private capital (excluding the "inhouse" capital from Investor) at this late stage in the process. (I have to think they will succeed).
On the other hand it seems too little too late.
Coincidentally, the Swedish Government today also announced a supportpackage for Swedish banks on 50 Bn Sek.

Strings attached, although not that fierce if you ask me;
-Stop for board bonuses, salary and compensation increases for 2 years for any bank participating in the Government program.
- The government are willing to participate in IPO;s if the private investors takes a minimum of 30%. Then the government participates on the same terms as everyone else.
The government will take no further initiatives themselves on this issue, Finance minister Anders Borg said. Yeah, right.

With a Baltic, Ukraine, PE, shipping industry, you name it, collapse around the corner, I have a hunch the government will soon be up to their eyeballs in this.

The share price for this coming IPO is yet unknown, but I would at least expect 10-20% discount compared to yesterdays closing price for SEB (which was surprisingly strong yesterday btw, hmmm). However, today the SEB stock was down 6 % ish at the most and currently is down "only" 4%. Swedbank is up 1.5% ish. Go figure.
Ive obviously missed out on something here, or?

All in all though, the situation is heating up for the European banks exposed to the CEE and the Baltics. So far basically all banks with exposure to these areas have been out stating their "willingness" to receive public sector or any other capital. I can see why. The Swedish Banks will be no exception, rather the opposite.


* PLN ready for ANOTHER fall, could be a very large and swift one as well.

Eur/Pln has broken through the 4.50 level (highest since 2004) and swiftly moved to 4.55/4.56. From here it looks like next stop will be 4.65 and 4.7450 on its way towards 4.85.
Last July Eur/Pln was down at 3.20,,,,
The difficult state of the Polish corporates mentioned in the piece from the 15 Dec, http://todaysmacrotrading.blogspot.com/2008/12/fxpln-corporate-hedging-gone-horribly.html is still valid.

This issue has even affected Polands GDP and is still likely to.
Several corporates have already gone bust because of their FX Options positions and the latest victim came yesterday, as Polands biggest glassmaker and founding member of the Warzaw stock exchange, Krosno, sought protection from creditors due to FX options losses.

Unfortunately, it seems many Polish treasurers have applied the Martingale theory to their riskmanagement, further adding to the severity of the problem. Alledgedly, there are further Option barriers higher up to be had from here and unless the Centralbank uses their 70 Bn Eur FX reserves, there is a high probability the market will be gunning for them shortly.

This is adding to the already dire situation with household and corporate hard currency loans. These issues are already pressing the PLN.
In Hungary the situation is similar on the hardcurrency front. As PLN is weakening, the 300 level in Eur/Huf should be severely tested.

There is also an ongoing deterioration in the availability of Eur in the CEE countries indicated by the cross currency basis widening, and in many markets currently trading at its widest. Unless further steps are taken (as earlier when the ECB temporarily relieved pressure on the on the PLN and the HUF by extending swaplines) to relieve pressure due to these hard currency bottlenecks, the currencymarket will have to do it instead by further weakening the local currencies. See piece from the 9 Nov http://todaysmacrotrading.blogspot.com/2008/11/cee-to-continue-under-pressure-despite.html




As always, good luck








The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Recapitalisation of Banks

January was a stellar month and a great start to the new year. Lets stay humble and see whether February can work in the same direction.



Its cold outside, but will it be a "hot" February?

It seems the US bank bailout plan might now be the best version launched so far. The UK launched its own version a couple of weeks back but has since partly been redone and now shows US similarities. Remains to be seen whether the US version will be copy pasted by other countries or whether they launch various versions of it.

To me, the "Toxic asset"/"bad bank vehicle" is to be preferred ahead of state money buying Bank shares anyway. Finally it seems the Germans have come around to launch a "bad bank" version. This is definitely a step forward from the firm "no" attitude just a few weeks ago. However, they seem more inclined to ringfence the toxicassets wherever needed and then passively hope for the assets to go up again. Dont like the passive and "fingers crossed" variables there.

With the RUB under pressure, CEE countries sliding and most neighbouring fixed exchange rate regimes under high risk of being let go, creditlosses are bound to badly hurt the banks involved in those areas.

Bank asset valuations should become an increasingly important theme before long as more and more countries are hit by bank recapitalisation issues. This should make them rise to the forefront of more government agendas.

As banks toxic assets are lifted out of banks into specific "toxic vehicles", owned by the state and taxpayers, bank asset writedowns, balancesheet valuations, ensuing holes and recapitalisation needs should be in the headlight.

We do know that there will be big gaps in balance sheet valuations as few "bad loan"assets are "marked to market".
The price at which these "toxic assets" are lifted out will obviously be key since it will define the size of the upcoming Bank recapitalisation needs as well as splitting the cost between the taxpayers and the Banks. In these recapitalisation cases the shareholders should be left with nothing. Question will of course be how big the recapitalisation needs will be on the back of it and how they will be funded. So far it is "only" the US and the UK that has really recapitalised on any grand scale. The rest of the world hasnt reached that point as of yet, but it might be sooner than most think.

Hence, it seems there is a risk for a massive recapitalisation need building up before long - and this is "just" the banks. Corporates will most likely increasingly be left to fend for themselves and that could become gruesome, creating other and more complicated problems.

Not all countries will be able to fund this themselves. It is likely they will then turn to the IMF.

At a speech in Davos, Mr John Lipsky, First Deputy Managing director of the IMF, claimed IMF would need another 500 BN USD in funding in order to meet expected needs from various nations. I doubt it is enough, but Ill keep my fingers crossed. Question is how long the IMF can receive additional funding without running into funding difficulties? Hopefully for a few TRN Usd out anyway.



Competition for global savings has started?

In Davos, both Russia and China warned that excessive budget deficits in the developed world,(mainly US and UK thus far), risked "crowding out" Emerging markets.
Both Russia and China have substantial assets so perhaps this is not mainly in reference to themselves (but assetprices deteriorate in a deflationary environment), however any countries with huge twindeficits are definitely in the riskzone.
CEE and South Africa stands out, as well as all the neighbouring fixed currency regimes.
In the developed world Australia and New Zealand comes to mind.
Seems like a receipe for further volatility - now theres a challenge for the G7.
Time for some outdoor activities.





As always, good luck











Unfortunately it seems they will be adapting a setup whereby they will ring fence toxic assets but not actively managing them. Fundamental approach being that the assets will rebound over time.
I would prefer an approach whereby the assets would actively be managed and sold over time as buyers were found.




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