* The IMF program has already deteriorated from strict support with firm strings attached, to anything goes - you´ll get your money anyway
One has to ask oneself; What is the IMF doing? Trying to fund fixed currency regimes? I thought the purpose was to stabilise countries and help them over a bumpy transitionperiod when under financial distress. Well, to get some kind of bang for the buck the IMF would be wise to start by demanding a floating currency. This fundamental piece has been ignored so far.
*Ukraine
Ukraine remains a case in point. The government signed strict terms in order to get their 16 Bn Usd IMF "loan". Once it was signed they did not cut spending as agreed, their banks were in worse shape than initially declared and the probability of the agreed fiscal program being launched was very low. So what does the IMF do? They just pay out the 16 Bn Usd anyway. Those 16 Bn Usd have now been used to bail out the 7 biggest local banks. Nothing left. More local banks in line and, of course, the country´s economy is still in shambles. Oh, Ukraine have not floated their currency either, which IMF recommended.
*Latvia sinking
Next case is Latvia and the rest of the Baltics. They are all sinking like stones in the Baltic sea and still havent reached bottom. The obvious and no brainer first step is to let go of their fixed currency regimes. However, local prestige mixed with a Swedish bank lobbied Swedish finance minister and government has blocked this first step so far. Instead IMF is burning global taxpayer cash to fund the fixed currency regimes. Swedish taxpayers are doing the same and they havent catched on as of yet.
* The IMF ATM machine
IMF negotiated an agreement with Latvia under which the Latvian government agreed to set a budget which limited the Latvian budget deficit to 5% of GDP. Once an attempt was made to get this through the local parliament, the Primeminister was relieved of his duties by the Latvian president due to protests from the population.
The new Government then promptly declared that they would not honour the agreement and that Latvia would be bankrupt by June without the June IMF payment.
It was added that the Latvian budget deficit would amount to 7.7% of the GDP.
So far this year , the Latvian government has spend twice as much as they should in order to meet the IMF criteria. They will now have to make budget cuts of up to 40 % in an environment of swiftly dwindling tax revenues as the private sector implodes.
What is the probability of that working in a kryptonite deflation environment which grows exponentially due to a fixed currency regime? Low, lower, zilch?
Latvia havent recieved the March 200 Mln Eur payment so far, but it now seems they will receive a 1.6 Bn Eur payment for June from the IMF, despite Latvia not fulfilling the most important IMF criteria of all. With Russia around the corner soon looking for IMF money it might be wise to slow down on the burnrate somewhat, or at least link the payouts with a float of their currencies. This bearmarket is by no means over and Europe and the CEE is next in turn to get hit hard.This time should be wisely spend to prepare and plan for what has a high risk of happening - not to mindlessly throw money around. Its time to limit the IMF ATM.
As usual, good luck
The tragic part of it is that the local populations of all these countries with fixed currency regimes will pay a very hefty price for politicians prestige and foreign banks unwillingness to take their losses. The fixed currency regimes will be let go - the question is how much the local populations will have to suffer before there is a float. Risks of social unrest have risen dramatically and will continue to do so over the next few months.
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.
27 April 2009
A test for marketsentiment
* A slew of negative news to test the current bullish market sentiment and bearmarket rally induced risk appetite.
So far the markets have dealt quite well with a batch of bad news;
- The new swineflue epidemic.
- The "leaked" "topsecret" report of the 1Trn Usd worth of toxic debt in Germanbanks.( should not come as too much of a surprise.) However, looking at the liquidity and relatively low riskpremium of the German debt market, it might just not be fully discounted.
*WHO upgraded the swineflu epidemic to 4 or 5 from 3.
In case you didnt know, 5 or 6 means pandemic, a "widespread human infection", which is the highest stage on the WHO alert scale.
According to previous calculations in October by the Worldbank, a flu pandemic is estimated cost 3 Trn Usd, take the lives of 70 Mln people and cut 5% off the global GDP. Not exactly what the doctor ordered. Pardon the punt. Expect increased focus and continued negative newsflow on the swineflu story near term. It should not help riskappetite. The recent very positivemarket sentiment will obviously be tested.
*The precarious situation of the European banking situation still outside the current market focus.
Going forward, there should also be increased focus/awareness on the European banking toxic debt situation as well as the European states capacity to handle it. Although the German GSI badbank plan might be a very effective way of sweeping everything under the rug and significantly improve shortterm risk appetite, there seems to be several obstacles in he way.
Over the next two weeks, more details will come out on any substantial obstacles to this plan.
The mere fact that the German landesbanken are regionalbanks backed up by their respective region could drag it out.
The Euroregion is under severe strain. So far the German Euro engine have fared relatively well, it had better stay that way,,,,
*Positionchanges
- Dipped my toes in long oil ETF;s,
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.
So far the markets have dealt quite well with a batch of bad news;
- The new swineflue epidemic.
- The "leaked" "topsecret" report of the 1Trn Usd worth of toxic debt in Germanbanks.( should not come as too much of a surprise.) However, looking at the liquidity and relatively low riskpremium of the German debt market, it might just not be fully discounted.
*WHO upgraded the swineflu epidemic to 4 or 5 from 3.
In case you didnt know, 5 or 6 means pandemic, a "widespread human infection", which is the highest stage on the WHO alert scale.
According to previous calculations in October by the Worldbank, a flu pandemic is estimated cost 3 Trn Usd, take the lives of 70 Mln people and cut 5% off the global GDP. Not exactly what the doctor ordered. Pardon the punt. Expect increased focus and continued negative newsflow on the swineflu story near term. It should not help riskappetite. The recent very positivemarket sentiment will obviously be tested.
*The precarious situation of the European banking situation still outside the current market focus.
Going forward, there should also be increased focus/awareness on the European banking toxic debt situation as well as the European states capacity to handle it. Although the German GSI badbank plan might be a very effective way of sweeping everything under the rug and significantly improve shortterm risk appetite, there seems to be several obstacles in he way.
Over the next two weeks, more details will come out on any substantial obstacles to this plan.
The mere fact that the German landesbanken are regionalbanks backed up by their respective region could drag it out.
The Euroregion is under severe strain. So far the German Euro engine have fared relatively well, it had better stay that way,,,,
*Positionchanges
- Dipped my toes in long oil ETF;s,
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.
23 April 2009
The German GSI bad bank plan - the new deal
* The German GSI bad bank plan is potentially a huge deal
After the first German bad bank plan collapsed once the authorities realised that any mark to market of German banks bad assets would make the vast majority insolvent, they have been swift to launch yet another suggestion. This one looks much better from a market risk appetite point of view.
The German bad bank plan - the GSI (Government sponsored institution), if approved, could be the missing piece to really get riskappetite going shortterm.
Basically, this is how it would work; German banks will transfer bad/Toxic assets to a German Government/taxpayer owned "Bad bank". These tranfers would be done at book value. Basically emptying the German banks of toxic assets without having to take any immediate losses.
*No mark to market
This solution means there would be no mark to market of the German bank´s toxic assets whatsoever during the remaining lifetime of these assets, apart from the book value they were transferred at.
Once the toxic assets matured, the German banks would have to pay/(receive) the difference between the booked and the realised value to the German government. During the remaining lifetime of the toxic assets, the German banks would be required to put aside further capital along the way for their toxic assets.
However in this scenario they would be able to match the cost of capital put aside vs their positive net cash flow, resulting in a netting effect over time. Steep yield curves, wider spreads and highermargins have set the stage for it. Just like the governments and the banks wants it. Unless the Government required capital set aside by the banks would be "too high", this should immediately remove the credit plug and credit multiplier plug from the system, creating a swift upswing in economic activity.
*Financing
To finance it, the German treasury would issue government backed bonds on the "bad bank" toxic assets á la Brady bond style. History shows this has a high success probability.
CDS spreads would widen both for Germany and for the Euro area, which could pose a shortterm and longterm problem. The removal of credit and multiplier plugs from the credit system would however increase the probability of generating much longed for growth, although a steroid generated such, with potentially horrible sideeffects. However, I doubt many politicians would care for those sideeffects today.
The impact on shortterm market sentiment could be hugely positive, if approved.
*Drawbacks;
-No active riskmanagement whatsoever
-Increased risk for taxpayers due to no riskmanagement.
-German bank shareholders do not get hit.
-High risk of further misallocations, increasing the overall risks
-Increased risks of misallocated investments leading to yet another "bubble" growth
-Increased risks of high inflation
- Increased risks of yet another , much bigger economic disaster
* I like the idea of getting the credit and multiplier plugs out of the way -but handle with care, this sweep under the rug is not what the doctor ordered
As readers already know, I am in favour of dealing with the underlying problem. Although I recognise the shortterm positive effects, the problems are not really dealt with, just swept under the rug, financed by yet more financial institutions hunting down "high" government backed yields.
Question is if anyone will properly be able to value these toxic assets for what they really are, garbage. The yields will most likely be way lower than they should to compensate for any real risks. However, the perception of a government guarantee will probably keep them relatively low.
It begs the question; Would the German Government be even close to cover all this government guaranteed debt, should it mature worthless? I have to guess most of it would be categorised as having junk bonds / subprime status?
*Changing the market rules
This procedure is changing the market rules with risk and reward becoming out of whack.
Taxpayers, (as usual) will be bearing the brunt of the risks (the Brady bond set up better work). At the same time this "Brady bond" set up will suck in a lot of riskcapital available, hampering other businesses in much need in the process.
However, with the liquidity and multiplier plugs removed, they might very well be able to get new capital from - the banks. Full circle.
* Synthethically "clean" banks to be bought
If this plan goes through, I guess I would have to buy these "clean" banks. Basically everything I would be looking to sell now. Why not? If shareholders have gotten their risk extremely subsidised by taxpayers in an "under the rug" scheme. Shareholders stand to benefit - big time. I will definitely monitor any further development closely.
*Position changes
- No changes
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.
After the first German bad bank plan collapsed once the authorities realised that any mark to market of German banks bad assets would make the vast majority insolvent, they have been swift to launch yet another suggestion. This one looks much better from a market risk appetite point of view.
The German bad bank plan - the GSI (Government sponsored institution), if approved, could be the missing piece to really get riskappetite going shortterm.
Basically, this is how it would work; German banks will transfer bad/Toxic assets to a German Government/taxpayer owned "Bad bank". These tranfers would be done at book value. Basically emptying the German banks of toxic assets without having to take any immediate losses.
*No mark to market
This solution means there would be no mark to market of the German bank´s toxic assets whatsoever during the remaining lifetime of these assets, apart from the book value they were transferred at.
Once the toxic assets matured, the German banks would have to pay/(receive) the difference between the booked and the realised value to the German government. During the remaining lifetime of the toxic assets, the German banks would be required to put aside further capital along the way for their toxic assets.
However in this scenario they would be able to match the cost of capital put aside vs their positive net cash flow, resulting in a netting effect over time. Steep yield curves, wider spreads and highermargins have set the stage for it. Just like the governments and the banks wants it. Unless the Government required capital set aside by the banks would be "too high", this should immediately remove the credit plug and credit multiplier plug from the system, creating a swift upswing in economic activity.
*Financing
To finance it, the German treasury would issue government backed bonds on the "bad bank" toxic assets á la Brady bond style. History shows this has a high success probability.
CDS spreads would widen both for Germany and for the Euro area, which could pose a shortterm and longterm problem. The removal of credit and multiplier plugs from the credit system would however increase the probability of generating much longed for growth, although a steroid generated such, with potentially horrible sideeffects. However, I doubt many politicians would care for those sideeffects today.
The impact on shortterm market sentiment could be hugely positive, if approved.
*Drawbacks;
-No active riskmanagement whatsoever
-Increased risk for taxpayers due to no riskmanagement.
-German bank shareholders do not get hit.
-High risk of further misallocations, increasing the overall risks
-Increased risks of misallocated investments leading to yet another "bubble" growth
-Increased risks of high inflation
- Increased risks of yet another , much bigger economic disaster
* I like the idea of getting the credit and multiplier plugs out of the way -but handle with care, this sweep under the rug is not what the doctor ordered
As readers already know, I am in favour of dealing with the underlying problem. Although I recognise the shortterm positive effects, the problems are not really dealt with, just swept under the rug, financed by yet more financial institutions hunting down "high" government backed yields.
Question is if anyone will properly be able to value these toxic assets for what they really are, garbage. The yields will most likely be way lower than they should to compensate for any real risks. However, the perception of a government guarantee will probably keep them relatively low.
It begs the question; Would the German Government be even close to cover all this government guaranteed debt, should it mature worthless? I have to guess most of it would be categorised as having junk bonds / subprime status?
*Changing the market rules
This procedure is changing the market rules with risk and reward becoming out of whack.
Taxpayers, (as usual) will be bearing the brunt of the risks (the Brady bond set up better work). At the same time this "Brady bond" set up will suck in a lot of riskcapital available, hampering other businesses in much need in the process.
However, with the liquidity and multiplier plugs removed, they might very well be able to get new capital from - the banks. Full circle.
* Synthethically "clean" banks to be bought
If this plan goes through, I guess I would have to buy these "clean" banks. Basically everything I would be looking to sell now. Why not? If shareholders have gotten their risk extremely subsidised by taxpayers in an "under the rug" scheme. Shareholders stand to benefit - big time. I will definitely monitor any further development closely.
*Position changes
- No changes
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.
22 April 2009
IMF sends a message to the ECB - quantitative easing
*IMF sends a message
IMF has released their report on potential future asset writedowns by financial institutions.
The global total expected is 4.1 Trn Usd, with US financial institutions to write down 2.7 Trn Usd (up from 2.2 Trn Usd) and 1.2 Trn Usd for European banks.
In addition, the IMF suggests European banks equity requirements will generate capital needs to raise 600 Bln Usd in capital while the US banks will need to raise a further 275Bln Usd. So far US banks have written down 1.3 trn Usd while European banks have taken 906 Bn Usd of losses.
Since the outbreak of the crisis in Q4 2007, US based banks have raised their capitalbase by 650 Bn Usd (Excluding TARP and other government sponsored programmes) while the European ones have raised 385 BN Usd.
Given the much larger projected asset writedowns for US banks (2.7 Trn Usd) vs European banks (1.2Trn Usd), the much higher remaining need for capital raising for European Banks (600 Bn Usd) vs US banks (275 Bn Usd) might sound surprising.
Well, when the crisis hit, European banks employed a higher leverage than US banks, 50% higher.
*IMF capital ratio assumptions tilted towards the soft side, balancesheets will have to shrink
IMF seems quite soft in their assumptions, possibly not to scare the living daylights out of the investors.
The capital injection neeeds are based on the Tangible Common Asset (TCE) to Tangible Equity (TE) ratio being 4%, which is moderate and the level prevailing before the crisis. IMF mentions that if a more decent 6% capital ratio would be applied, capital requirements would be higher, although IMF refrained from presenting those numbers. This is most likely not unintentional,,,,,
The IMF capital need projections were made under the assumption that the balance sheet size of the banks will remain the same. In practise, balancesheets will have to shrink. This threatens to be a severe test to the European banking system.
* European credit multiplier to be lower than the US one - quantitative easing next for the ECB
With European banks having higher leverage than their US counterparts, the Europen credit multiplier will be much lower than the US one.
This will have a major impact on monetary and fiscal policysettings. If the ECB havent got it by this stage, they soon will. The stage is set for the ECB to apply quantitative easing, pronto.
This should weigh on the CEE and Euro currencies.
*Some debt info outside the IMF report to consider in the process of shrinking balancesheets
While US banks holds assets corresponding to 85% of the US GDP, European banks hold assets that corresponds to 330% of the Eurozones GDP. As we know by now, some individual countries in the Eurozone are way higher on an individual basis, where Ireland has racked up debt corresponding to 11 times their GDP.
Further on, when it comes to bad debt, the US subprime debt under the worst case scenario will correspond to 8% of the US GDP, while potentially troubled loans from Eastern Europe and Asia held by European banks corresponds to 33% of the Eurozones GDP.
As long as the expected US recovery takes place in the 2H of this year and the China engine dont falter, this might not become a massive problem. But if either one should go wrong, what we have seen so far will in retrospect most likely look like a walk in the park.
*Position changes
- Added further to my long VIX calls
- Bought a leveraged bear ETF on US financial stocks
- Bought puts on Gold
- Bought more calls on IVN
- Took profit on half my short PLN, SEK and ZAR positions
- Took profit and closed my short TRY and HUF position
Trading environment remains choppy and will most likely remain so til trends reassert themselves. At the moment the increased riskappetite seems quitestrong. It remains to be seen whether it is a topping out phase we are currently witnessing.
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.
IMF has released their report on potential future asset writedowns by financial institutions.
The global total expected is 4.1 Trn Usd, with US financial institutions to write down 2.7 Trn Usd (up from 2.2 Trn Usd) and 1.2 Trn Usd for European banks.
In addition, the IMF suggests European banks equity requirements will generate capital needs to raise 600 Bln Usd in capital while the US banks will need to raise a further 275Bln Usd. So far US banks have written down 1.3 trn Usd while European banks have taken 906 Bn Usd of losses.
Since the outbreak of the crisis in Q4 2007, US based banks have raised their capitalbase by 650 Bn Usd (Excluding TARP and other government sponsored programmes) while the European ones have raised 385 BN Usd.
Given the much larger projected asset writedowns for US banks (2.7 Trn Usd) vs European banks (1.2Trn Usd), the much higher remaining need for capital raising for European Banks (600 Bn Usd) vs US banks (275 Bn Usd) might sound surprising.
Well, when the crisis hit, European banks employed a higher leverage than US banks, 50% higher.
*IMF capital ratio assumptions tilted towards the soft side, balancesheets will have to shrink
IMF seems quite soft in their assumptions, possibly not to scare the living daylights out of the investors.
The capital injection neeeds are based on the Tangible Common Asset (TCE) to Tangible Equity (TE) ratio being 4%, which is moderate and the level prevailing before the crisis. IMF mentions that if a more decent 6% capital ratio would be applied, capital requirements would be higher, although IMF refrained from presenting those numbers. This is most likely not unintentional,,,,,
The IMF capital need projections were made under the assumption that the balance sheet size of the banks will remain the same. In practise, balancesheets will have to shrink. This threatens to be a severe test to the European banking system.
* European credit multiplier to be lower than the US one - quantitative easing next for the ECB
With European banks having higher leverage than their US counterparts, the Europen credit multiplier will be much lower than the US one.
This will have a major impact on monetary and fiscal policysettings. If the ECB havent got it by this stage, they soon will. The stage is set for the ECB to apply quantitative easing, pronto.
This should weigh on the CEE and Euro currencies.
*Some debt info outside the IMF report to consider in the process of shrinking balancesheets
While US banks holds assets corresponding to 85% of the US GDP, European banks hold assets that corresponds to 330% of the Eurozones GDP. As we know by now, some individual countries in the Eurozone are way higher on an individual basis, where Ireland has racked up debt corresponding to 11 times their GDP.
Further on, when it comes to bad debt, the US subprime debt under the worst case scenario will correspond to 8% of the US GDP, while potentially troubled loans from Eastern Europe and Asia held by European banks corresponds to 33% of the Eurozones GDP.
As long as the expected US recovery takes place in the 2H of this year and the China engine dont falter, this might not become a massive problem. But if either one should go wrong, what we have seen so far will in retrospect most likely look like a walk in the park.
*Position changes
- Added further to my long VIX calls
- Bought a leveraged bear ETF on US financial stocks
- Bought puts on Gold
- Bought more calls on IVN
- Took profit on half my short PLN, SEK and ZAR positions
- Took profit and closed my short TRY and HUF position
Trading environment remains choppy and will most likely remain so til trends reassert themselves. At the moment the increased riskappetite seems quitestrong. It remains to be seen whether it is a topping out phase we are currently witnessing.
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.
20 April 2009
Market talk; Leaked SEC "stress test report" behind todays bearish sentiment
* Sentiment change?
As usual, this market talk provides more info about market positioning than anything else.
Finally, it seems " we are all long equities " - again. Risks are increasing that the market will turn bearish before long. We will soon find out. Read the article behind the fuzz here; http://turnerradionetwork.blogspot.com/
I do not have any clue as to the reliability of this info. However, if it is correct, the US banking system is in dire straits indeed. So what else is new? Readers will be well aware of my view of the US scamster plan. It might provide a respite, but that is most likely all it will. One should expect the European banking system to be in an even worse spot.
I guess the high implied vols on European bank´s puts are about to go even higher
*Position changes
I have added to my long VIX calls.
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.
As usual, this market talk provides more info about market positioning than anything else.
Finally, it seems " we are all long equities " - again. Risks are increasing that the market will turn bearish before long. We will soon find out. Read the article behind the fuzz here; http://turnerradionetwork.blogspot.com/
I do not have any clue as to the reliability of this info. However, if it is correct, the US banking system is in dire straits indeed. So what else is new? Readers will be well aware of my view of the US scamster plan. It might provide a respite, but that is most likely all it will. One should expect the European banking system to be in an even worse spot.
I guess the high implied vols on European bank´s puts are about to go even higher
*Position changes
I have added to my long VIX calls.
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.
CEE leading equities lower
Busy week last week. Prioritised other activities over updating the blog. Unfortunately have a feeling it will happen again. At least til the building project is all done and dusted. Pardon the punt. On Thursday evening my oldest managed to injure his arm while jumping trampolines. Result; Fracture. Spend all of Friday in hospital. In the end, everything went well and arm will be as good as new after 3weeks of fixation. Thanks for asking.
* Switching places
Over the last week or so, the CEE currencies have gone weaker while the equity markets have continued higher. Towards the end of last week, other currencies joined in. FX leading equities. "Normally" it is the other way around. Quants are having a difficult time. According to Barclays, only one out of eighty quant market neutral funds have made money since 9 March. Most likely not the first - or last time the quant models will be ending up in trouble. There should have been plenty of practise from the last two years. More practise opportunities to come.
*Change of quant environment
Basically, the explosive growth of quantmodels came during a period of exceptionally low volatility. Cross assetmarket volatility was then the lowest for 20 years, probably much more. No wonder correlations stabilised as leverage increased and implied vols fell to extreme lows. Quant based trading models were all the rage and became quite hyped.
Well, perhaps since this is no longer the case to the same extent, there might be a more balanced approach to it from here. Quant models are here to stay, but the instruction manual should be read first. In it it should clearly state in which environments they are to be used, since "all weather" models do not (?) exist. The vast majority of quant models are made for low volatility environments. There will now be a swift production of high volatility environment ones. Just keep them in their right environment and dont go fundamentalist on any of them.
* Awaiting further developments
Dipped my toes in buying bank puts. However, was looking to buy more but was turned off by the massive implied volatility levels. Seems a few large institutions have realised they can hedge their longs by buying puts. In any case, the implieds are very high and I guess there will be a few longs out there that will not hedge themselves via puts due to this fact. Should increase momentum on the downside when we head that way again.
* The German bank plan - a non starter
The German "toxic asset" banking plan seems to be falling apart due to the realisation that offloading "toxic assets" from the German banks into specially designed"bad assets" banks will make the German banks insolvent in the process.
As the German government is doing its utmost to protect the taxpayers (or at least that was the initial intention), they have realised it will not work. I guess eventually they will have to follow the US concept and make the monstrous wealth transfer from taxpayers to German banks and bad debt buyers. I hope not. If any government money gets involved, boards should be switched. The banks stockholders and bondholders should pay. Keep the bad assets in the original banks, start anew with the good assets. Credit will flow, private capitalisation will be 100%. Unfortunately it is more likely the fudging and investor and taxpayer scam will be the concept here as well.
* Position changes
-Long MS Call expired OTM.
- Remaining Gold puts expired OTM.
-Short PLN, HUF, TRY, ZAR, SEK.
-Increased my long Eur/Lvl fwd .
-Dipped my toes in buying bank puts with exposure to the CEE, Baltics.
- Bought Gbp puts/ Usd Calls.
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.
* Switching places
Over the last week or so, the CEE currencies have gone weaker while the equity markets have continued higher. Towards the end of last week, other currencies joined in. FX leading equities. "Normally" it is the other way around. Quants are having a difficult time. According to Barclays, only one out of eighty quant market neutral funds have made money since 9 March. Most likely not the first - or last time the quant models will be ending up in trouble. There should have been plenty of practise from the last two years. More practise opportunities to come.
*Change of quant environment
Basically, the explosive growth of quantmodels came during a period of exceptionally low volatility. Cross assetmarket volatility was then the lowest for 20 years, probably much more. No wonder correlations stabilised as leverage increased and implied vols fell to extreme lows. Quant based trading models were all the rage and became quite hyped.
Well, perhaps since this is no longer the case to the same extent, there might be a more balanced approach to it from here. Quant models are here to stay, but the instruction manual should be read first. In it it should clearly state in which environments they are to be used, since "all weather" models do not (?) exist. The vast majority of quant models are made for low volatility environments. There will now be a swift production of high volatility environment ones. Just keep them in their right environment and dont go fundamentalist on any of them.
* Awaiting further developments
Dipped my toes in buying bank puts. However, was looking to buy more but was turned off by the massive implied volatility levels. Seems a few large institutions have realised they can hedge their longs by buying puts. In any case, the implieds are very high and I guess there will be a few longs out there that will not hedge themselves via puts due to this fact. Should increase momentum on the downside when we head that way again.
* The German bank plan - a non starter
The German "toxic asset" banking plan seems to be falling apart due to the realisation that offloading "toxic assets" from the German banks into specially designed"bad assets" banks will make the German banks insolvent in the process.
As the German government is doing its utmost to protect the taxpayers (or at least that was the initial intention), they have realised it will not work. I guess eventually they will have to follow the US concept and make the monstrous wealth transfer from taxpayers to German banks and bad debt buyers. I hope not. If any government money gets involved, boards should be switched. The banks stockholders and bondholders should pay. Keep the bad assets in the original banks, start anew with the good assets. Credit will flow, private capitalisation will be 100%. Unfortunately it is more likely the fudging and investor and taxpayer scam will be the concept here as well.
* Position changes
-Long MS Call expired OTM.
- Remaining Gold puts expired OTM.
-Short PLN, HUF, TRY, ZAR, SEK.
-Increased my long Eur/Lvl fwd .
-Dipped my toes in buying bank puts with exposure to the CEE, Baltics.
- Bought Gbp puts/ Usd Calls.
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.
14 April 2009
Equities; are we all long yet? - How much longer will the bearmarket rally last?
Hope all of you had a great Easter. Back from Easter skiing. Cant complain about the weather, sunny and 12C in the shadow and loads of snow. Nice, very nice.
* Asset bulls rule - for how much longer?
So, apart from seeing a few sharp stop moves around this Easter weekend, it seems the market sentiment has continued to focus on the bullish asset theme. How much longer will it last for?
Well, the US bankreports should continue to do well since the US authorities seems to have asked the bankers themselves what rules they want. As I mentioned last week, the upcoming better than expected bank results are very much a fudge product. Investors beware. However, market positioning and thus sentiment has fit very well into this. Resulting in short term gain for long term pain. One does not have to believe the story to capitalise from it. Or, actually, one should not believe the story if one is to capitalise from it. Take that profit, son.
The US bankreports still seems like a bull factor. At least during and immediately post the US banking reports. The GS results that were announced post US equity markets close yesterday were way better than expected. I expect more "better than expected" announcements.
*Clouds on the horizon - are they heading our way?
However, I can spot a few clouds on the horizon from here. If they head our way, the day at the beach could quickly turn into a rather unpleasant hurricane.
I am starting to check where the exits are. I want to make sure I leave the party in time.
What clouds am I talking about then? Well, apologies for being a party pooper but the macro situation is still quite dire - globally. No fudging of asset values in the world is going to change that fact. The US government can help banks pretend the market wants to pay loads for their assets, but if nobody wants or can afford to buy it from here and onwards the writedowns will have to come. Especially as defaults kick in.
There will be severe unpleasantness further down the road. Even if the toxic asset market do recover it is most likely due to yet increased leveraging. We all know how that will end. Taxpayers (at least the US ones - for now) will then also be even more debt ridden. Conclusion; Stop this. Mark to market. No fudging.
*The Baltics and the CEE
The Baltics and the CEE situation has yet to play out. Unfortunately, I dont expect it to be pretty. Latvia released March´s unemployment rate today; 10.7%. The highest in 11 years. No surprise there. Apart from it being so - low.
Unfortunately I expect the Latvian unemployment rate to grow exponentially worse from here. The private sector shutdown gathers momentum. The devaluation timing on this one is purely political. Therefore I choose the unemployment rate as the main domestic economic indicator for political pressure build up.At between 20%-30% unemployment rate I expect the fixed exchange rate lid to blow. When will this be the case? 3Q?
Current budget negotiations in order to make the self imposed cost cuts do not seem to go that well. I put a question mark over whether they will succeed. These were the terms agreed with the IMF. It is not out of the question that IMF steps up the pressure and demands a devaluation in exchange for further IMF funds, should Latvia not meet the agreed budget cost cuts in order to achieve the stipulated 5% of GDP budget deficit. With the kryptonite like deflation in Latvia, the current economic situation is simply unsustainable. As long as the LVL is not allowed to float the downwardspiral will just continue. What we dont want is for Latvia and the rest of the Baltics to turn socially unstable. The risks are increasing as the stakes are raised in this -" I -dont - want- to -take- my- stop" foolish game the Latvian government is now playing (along with many other governments around the world). I am still long Eur/Lvl via outright.
*Position changes
Still monitoring Oil closely.
-My Eur/Usd, Gbp/Usd, Gbp/Chf and Eur/Chf long gamma positions have all expired. Net, net not much result on those.
- Long Call on Morgan Stanley for their report tommorrow.
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 bulls rule - for how much longer?
So, apart from seeing a few sharp stop moves around this Easter weekend, it seems the market sentiment has continued to focus on the bullish asset theme. How much longer will it last for?
Well, the US bankreports should continue to do well since the US authorities seems to have asked the bankers themselves what rules they want. As I mentioned last week, the upcoming better than expected bank results are very much a fudge product. Investors beware. However, market positioning and thus sentiment has fit very well into this. Resulting in short term gain for long term pain. One does not have to believe the story to capitalise from it. Or, actually, one should not believe the story if one is to capitalise from it. Take that profit, son.
The US bankreports still seems like a bull factor. At least during and immediately post the US banking reports. The GS results that were announced post US equity markets close yesterday were way better than expected. I expect more "better than expected" announcements.
*Clouds on the horizon - are they heading our way?
However, I can spot a few clouds on the horizon from here. If they head our way, the day at the beach could quickly turn into a rather unpleasant hurricane.
I am starting to check where the exits are. I want to make sure I leave the party in time.
What clouds am I talking about then? Well, apologies for being a party pooper but the macro situation is still quite dire - globally. No fudging of asset values in the world is going to change that fact. The US government can help banks pretend the market wants to pay loads for their assets, but if nobody wants or can afford to buy it from here and onwards the writedowns will have to come. Especially as defaults kick in.
There will be severe unpleasantness further down the road. Even if the toxic asset market do recover it is most likely due to yet increased leveraging. We all know how that will end. Taxpayers (at least the US ones - for now) will then also be even more debt ridden. Conclusion; Stop this. Mark to market. No fudging.
*The Baltics and the CEE
The Baltics and the CEE situation has yet to play out. Unfortunately, I dont expect it to be pretty. Latvia released March´s unemployment rate today; 10.7%. The highest in 11 years. No surprise there. Apart from it being so - low.
Unfortunately I expect the Latvian unemployment rate to grow exponentially worse from here. The private sector shutdown gathers momentum. The devaluation timing on this one is purely political. Therefore I choose the unemployment rate as the main domestic economic indicator for political pressure build up.At between 20%-30% unemployment rate I expect the fixed exchange rate lid to blow. When will this be the case? 3Q?
Current budget negotiations in order to make the self imposed cost cuts do not seem to go that well. I put a question mark over whether they will succeed. These were the terms agreed with the IMF. It is not out of the question that IMF steps up the pressure and demands a devaluation in exchange for further IMF funds, should Latvia not meet the agreed budget cost cuts in order to achieve the stipulated 5% of GDP budget deficit. With the kryptonite like deflation in Latvia, the current economic situation is simply unsustainable. As long as the LVL is not allowed to float the downwardspiral will just continue. What we dont want is for Latvia and the rest of the Baltics to turn socially unstable. The risks are increasing as the stakes are raised in this -" I -dont - want- to -take- my- stop" foolish game the Latvian government is now playing (along with many other governments around the world). I am still long Eur/Lvl via outright.
*Position changes
Still monitoring Oil closely.
-My Eur/Usd, Gbp/Usd, Gbp/Chf and Eur/Chf long gamma positions have all expired. Net, net not much result on those.
- Long Call on Morgan Stanley for their report tommorrow.
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.
07 April 2009
Rallying for all the wrong reasons - beware of Easter profittaking
The Easter break is here with all kids home from school. Spend yesterday with my kids as well as trying to sort out house builder issues. Will go Easter skiing tommorrow. The blogupdates will then resume on the 14th of April.
* The already "old" IMF suggestion of Euroisation of the CEE area
The IMF report calling for the Euroisation of the CEE countries was written a month ago. It is very interesting in that it provides some insight as to how desperate the IMF must have been at that point in time. It seems they were very much so. Introducing the Euro to hardcurrency debt, weak economic infrastructure countries, some of which currently apply fixed exchange rate regimes, will not be a solution.
- Most local currencies would have to devalue pre entry to the Euro anyway - then what? Locked into yet another fixed currency exchange rate regime. Admittedly with a floating currency, but not adaptable to any specific countrys fundamentals. The economic infrastructure issues and high leverage debt would not go away post an Euro entry.
-It would most likely seal the fate of the Euro as the eurozone is halfsinking as it is, already full with overleveraged, and massive amounts of toxic assets. Bringing on whole countries ready to sink will not help keeping the Euro ship afloat,,,,
- Admittedly, many of the CEE toxic loans will hit western european banks anyway since they have provided the credit. However, including the CEE into the Eurozone would just make things even worse.
Besides, I strongly doubt the ECB will change their mind and allow it. Post G20, the initial feelgood factor is strong enough to make this a non issue - for now. Have a feeling it will resurface before long though, as the European crisis has just begun. It will take a massive manipulation, fudging and fraud to postpone that development.
* As I mentioned on 3 April, I am joining the bullish herd - for the wrong reasons
Risks are building up with governments now increasingly applying the Martingale system. Drastically increasing the systematic risks, betting the economic turn will soon take place. It must, or else,,, For now, the market likes it - a lot. A classic, sharp, bearmarket rally.
Short term gain - long term pain.
*What is the US Treasury doing? Increasing the risks.
Lets look back. What has been the consensus on what created this mess in the first place? Too much leverage, repackaging "toxic" assets and selling them off to third parties, with the taxpayers taking the final risk.
So, any new measures from the governments surely must include some deleveraging, mark to market and accounting stringency directives? Ehhh, no. Instead, the US government has instead made sure the upcoming auctions of "toxic" assets will be leveraged directly by the taxpayers in order for the prices bid at the auction getting closer to the fudged, out of bounds asset valuations on the US banks balancesheets.
Investors not being approved for US taxpayerfinancing at the upcoming Geithner auctions have made clear they will not participate since they will not be able to get taxpayerfinanced leverage. The approved bidders have made clear that with the six times leverage from taxpayers, they will be able to bid three times higher than they otherwise would have. With the adjusted US FASB rules, the US banks will be able to adjust the 1Q results accordingly. Expect very good 1Q results from the US banks, especially on the writedownside. Its all government approved accounting "fraud" though. Hopefully investors will not be fooled.
The big risk is that Europe will follow and do something similar.
It is all one big gamble on the economies turning up. Then the fudging could continue, hampering growth in the process. If it doesnt, sooner or later losses will have to be realised. Problem is, by then, they would have grown into monstrous proportions. Especially if one looks at the difference between accounted and real value, ie book value vs market value.
Which brings me back to why the financial institutions problems got so much worse in the first place; lack of mark to market procedures; lack of riskmanagement procedures. Without mark to market procedures, it becomes quite difficult to generate the most efficient riskmanagement structure.
Admittedly, this was all approved by controlling authorities. this, however, it is not really an excuse for the financial institutions. Look at GS, they imposed the mark to market approach themselves, and they have by far had the most efficient riskmanagement of their toxic assets. They simply got rid of them as they started souring. Why didnt other institutions do the same thing then?
Well, some were probably unaware of what was taking place, as it did not show up in their results. Others identified it, but were prohibited by their management to sell as the discrepancy between booked value and market price would have caused severe losses. By definition, the riskmanagement strategy post it would have been a "fingers crossed" strategy.
The logic conclusion is that most of the current boards of financial institutions with great loss incurring assets on their books should go. As long as they stay put, it will be quite hard to get an efficient solution to the current "toxic" and bad asset dilemma. This is applicable globally.
*Beware of pre Easter profittaking
With the fierce bull run up to Easter, I expect some pre Easter profittaking to take place.
I have tried to find something more to buy, but have decided to stay on the sidelines, since I doubt this is the time and the place. Besides, 1Q results are coming up, and it will be interesting to see how they fall out, and, especially, how the market reacts to these results. Re US banks, I expect very good results. Especially with the FASB fudging now solidly in place and applicable to 1Q results. I am keeping a close eye on Brent Oil and a basket of US banks.
*Gold below important support levels
My Gold bear case seems to be about to take place with the Gold price moving below important support levels. Next stop should be in the 840/860 area, looking for the 810 level within the next week and a half. I expect choppy price action with rally attempts along the way.
*Position changes
-I have taken profit on my remaining part of Ivanhoe Goldmines, IVN. The whole position is now replaced with Call options, protecting profits.
-I am still long gamma in my other positions, looking for some sharp stop loss movements pre Easter.
- I have taken profit on one third of my short Gold options position, locking in profit.
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.
* The already "old" IMF suggestion of Euroisation of the CEE area
The IMF report calling for the Euroisation of the CEE countries was written a month ago. It is very interesting in that it provides some insight as to how desperate the IMF must have been at that point in time. It seems they were very much so. Introducing the Euro to hardcurrency debt, weak economic infrastructure countries, some of which currently apply fixed exchange rate regimes, will not be a solution.
- Most local currencies would have to devalue pre entry to the Euro anyway - then what? Locked into yet another fixed currency exchange rate regime. Admittedly with a floating currency, but not adaptable to any specific countrys fundamentals. The economic infrastructure issues and high leverage debt would not go away post an Euro entry.
-It would most likely seal the fate of the Euro as the eurozone is halfsinking as it is, already full with overleveraged, and massive amounts of toxic assets. Bringing on whole countries ready to sink will not help keeping the Euro ship afloat,,,,
- Admittedly, many of the CEE toxic loans will hit western european banks anyway since they have provided the credit. However, including the CEE into the Eurozone would just make things even worse.
Besides, I strongly doubt the ECB will change their mind and allow it. Post G20, the initial feelgood factor is strong enough to make this a non issue - for now. Have a feeling it will resurface before long though, as the European crisis has just begun. It will take a massive manipulation, fudging and fraud to postpone that development.
* As I mentioned on 3 April, I am joining the bullish herd - for the wrong reasons
Risks are building up with governments now increasingly applying the Martingale system. Drastically increasing the systematic risks, betting the economic turn will soon take place. It must, or else,,, For now, the market likes it - a lot. A classic, sharp, bearmarket rally.
Short term gain - long term pain.
*What is the US Treasury doing? Increasing the risks.
Lets look back. What has been the consensus on what created this mess in the first place? Too much leverage, repackaging "toxic" assets and selling them off to third parties, with the taxpayers taking the final risk.
So, any new measures from the governments surely must include some deleveraging, mark to market and accounting stringency directives? Ehhh, no. Instead, the US government has instead made sure the upcoming auctions of "toxic" assets will be leveraged directly by the taxpayers in order for the prices bid at the auction getting closer to the fudged, out of bounds asset valuations on the US banks balancesheets.
Investors not being approved for US taxpayerfinancing at the upcoming Geithner auctions have made clear they will not participate since they will not be able to get taxpayerfinanced leverage. The approved bidders have made clear that with the six times leverage from taxpayers, they will be able to bid three times higher than they otherwise would have. With the adjusted US FASB rules, the US banks will be able to adjust the 1Q results accordingly. Expect very good 1Q results from the US banks, especially on the writedownside. Its all government approved accounting "fraud" though. Hopefully investors will not be fooled.
The big risk is that Europe will follow and do something similar.
It is all one big gamble on the economies turning up. Then the fudging could continue, hampering growth in the process. If it doesnt, sooner or later losses will have to be realised. Problem is, by then, they would have grown into monstrous proportions. Especially if one looks at the difference between accounted and real value, ie book value vs market value.
Which brings me back to why the financial institutions problems got so much worse in the first place; lack of mark to market procedures; lack of riskmanagement procedures. Without mark to market procedures, it becomes quite difficult to generate the most efficient riskmanagement structure.
Admittedly, this was all approved by controlling authorities. this, however, it is not really an excuse for the financial institutions. Look at GS, they imposed the mark to market approach themselves, and they have by far had the most efficient riskmanagement of their toxic assets. They simply got rid of them as they started souring. Why didnt other institutions do the same thing then?
Well, some were probably unaware of what was taking place, as it did not show up in their results. Others identified it, but were prohibited by their management to sell as the discrepancy between booked value and market price would have caused severe losses. By definition, the riskmanagement strategy post it would have been a "fingers crossed" strategy.
The logic conclusion is that most of the current boards of financial institutions with great loss incurring assets on their books should go. As long as they stay put, it will be quite hard to get an efficient solution to the current "toxic" and bad asset dilemma. This is applicable globally.
*Beware of pre Easter profittaking
With the fierce bull run up to Easter, I expect some pre Easter profittaking to take place.
I have tried to find something more to buy, but have decided to stay on the sidelines, since I doubt this is the time and the place. Besides, 1Q results are coming up, and it will be interesting to see how they fall out, and, especially, how the market reacts to these results. Re US banks, I expect very good results. Especially with the FASB fudging now solidly in place and applicable to 1Q results. I am keeping a close eye on Brent Oil and a basket of US banks.
*Gold below important support levels
My Gold bear case seems to be about to take place with the Gold price moving below important support levels. Next stop should be in the 840/860 area, looking for the 810 level within the next week and a half. I expect choppy price action with rally attempts along the way.
*Position changes
-I have taken profit on my remaining part of Ivanhoe Goldmines, IVN. The whole position is now replaced with Call options, protecting profits.
-I am still long gamma in my other positions, looking for some sharp stop loss movements pre Easter.
- I have taken profit on one third of my short Gold options position, locking in profit.
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.
03 April 2009
Latvia - oneway ticket down. When will the Ostriches smell the coffee?
*Latvian Industrial manufacturing down 24.2% YOY for Feb
This is just going one way - down. Have a look yourselves; http://www.baltic-course.com/eng/analytics/?doc=12160
IMF has also decided to freeze any further loan payments for Latvia. (The next one is due in June). At least til the Latvian government has made further budgetcuts via new amendments in order to keep the budgetdeficit below 5% of the GDP. The Latvian government expects these amendments to go through the Latvian parliament in April.
The Latvian government themselves expect the the deficit to be 12% of GDP for 2009, compared with 5% stipulated in the IMF agreement. Well, if IMF is not going to fudge this one (seems the to be all the rage these days) Latvia will have to do the corresponding cuts in expenditures. This means budget cuts of 20,30,40,50% sounds viable? Not to me anyway.
I guess the Swedish banks and the Swedish government will follow the fudging and manipulation trend currently in place and pretend the Baltic and Ukrainian assets are actually worth anything close to where they are marked on the respective banks balancesheets.
Well, if the industrial production is down 24.2% YOY how many job layoffs might that generate? How many NPL;s? This will just go on and on as long as long as the LVL remains fixed. A few Swedish banks are sitting on undetonated nukes. One day they will detonate though,,,,
As I mentioned in my earlier piece today, I am bullish assets at the moment, but I will remain long this digital risk and if anything buy equities without this nuke built in. Alternatively just go long gamma on them as they will most likely gyrate wildly going forward.
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.
This is just going one way - down. Have a look yourselves; http://www.baltic-course.com/eng/analytics/?doc=12160
IMF has also decided to freeze any further loan payments for Latvia. (The next one is due in June). At least til the Latvian government has made further budgetcuts via new amendments in order to keep the budgetdeficit below 5% of the GDP. The Latvian government expects these amendments to go through the Latvian parliament in April.
The Latvian government themselves expect the the deficit to be 12% of GDP for 2009, compared with 5% stipulated in the IMF agreement. Well, if IMF is not going to fudge this one (seems the to be all the rage these days) Latvia will have to do the corresponding cuts in expenditures. This means budget cuts of 20,30,40,50% sounds viable? Not to me anyway.
I guess the Swedish banks and the Swedish government will follow the fudging and manipulation trend currently in place and pretend the Baltic and Ukrainian assets are actually worth anything close to where they are marked on the respective banks balancesheets.
Well, if the industrial production is down 24.2% YOY how many job layoffs might that generate? How many NPL;s? This will just go on and on as long as long as the LVL remains fixed. A few Swedish banks are sitting on undetonated nukes. One day they will detonate though,,,,
As I mentioned in my earlier piece today, I am bullish assets at the moment, but I will remain long this digital risk and if anything buy equities without this nuke built in. Alternatively just go long gamma on them as they will most likely gyrate wildly going forward.
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.
G20; What to make of it.
Apologies for not writing anything for the first two days of April.
My youngest has been home sick so I decided to devote my time to her instead.
Now, since she is all good now and there has been quite some developments since last time, heres todays piece.
*First off; The G20 actually accomplished something, which is a huge positive.
With no real expectations of any real G20 accomplishments, this is a great boost to market sentiment. The important Jpy is weaker. At 134 ish for Eur/Jpy, above the important 131 level. The Chf and Usd are also weaker.
This all matters since these are the worlds foremost funding currencies.
Implied volatilities are generally lower. The Creditderivatives market has improved slightly with the itraxx europe index and the itraxx crossover index narrowing slightly. Thus, equitymarkets have rallied over the last two days. This should pull liquid accounts into assets, bringing carry traders with them.
*US fudging their bank accountancy rules
US fudging their bank accountancy rules further - to secure the "success" of the Geithner plan? Well, if fudging and fraud equalled success, I guess it would count as such. In my book it is outrageous. Nonetheless, it may lead to an avoidance of short term unpleasantness. I just dont know which normal financial rules and consequences will apply in this environment going forward. With the US FASB (Financial Accounting Standards Board) voting to relax accounting standards, they are actively deciding to move into very murky waters. In essence, making sure investors get less information, creating more uncertainty in the process. Making sure US banks will run the risk of raising too little capital instead of the opposite - the unsafe choice.
*Is this just a complement to the Geithner plan?
Is this latest FASB decision a pure lobby result by the US banks? One has to wonder.
Lets relate it to the upcoming PPIP auctions. If a US bank X puts a perticular asset up for sale under the PPIP auction, it will not have to accept the bid or mark the asset to the price or "midmarket" if it claims the price impairment is "temporary". Further on, If another Us bank Y sells the same asset under the PPIP auction but US bank X does not want to mark their own same asset at that price, US bank X will be able to avoid this by claiming US bank Y sale was a "distressed sale". Thus, in both cases avoiding an income statement hit. See change to fair value accounting (Rule 157), and change to other-than-temporary impairment.
*G20 and the 1.1 Trn Usd to the IMF and the world bank -is it really enough?
The quick answer is no, not if one believes the cost for bailing out "only" the European banks according to the European Commission; 16.3 Trn Euro,,,, However with some additional accounting fudging á la the US and some gigantic government funded "loans" to banks, it might go a long way, but only for so long. (The EU would have to change their current rules for government support of banks in order to get these loans being in accordance with EU law).
*G20 and the "non protectionism agreement" - I believe it when I see it
Admittedly, there was some progress on the coordination front during this G20 meeting but it was clear that Merkel and Sarkozy were not the happiest of campers. One is where all countries actually have a great incentive for global coordination; taxes. Both in closing down existing "tax havens" as well as raising their own ones. Especially for the deficit countries with their frivoulus spending. Both the current and the expected deficitcountries ahead.
*250 BN Usd in SDR;s to the IMF - diversification?
Nope, not really. Besides, this is an accounting product, not trading or tradable anywhere. It will be some time til this materialises, if ever. The USD makes up 44% of the SDR, with the Eur 34%, the JPY 11% and the GBP 11%. If anything it should weaken the Usd somewhat, but I dont want to read too much into it at this stage, since there are currently other factors acting as more important market drivers.
*NFP outcome - bound to be bullish for the markets?
Even if it is a very lousy number, once the dust has settled, it seems the assetmarkets will go bullish nonetheless. The sentiment just seems that strong at the moment. Well see.
*I am joining the bull herd
Despite my skeptical comments above, from a trading point of view, I have to join the bull herd.
Most assets look constructive from here. I am really only long my Goldminer IVN at the moment, (+ 43%), have taken profit on half of it and replaced with options instead. Considering doing the same with the remaining half. Want to keep the digital exposure with the (hopefully) positive decision from the Mongolian Parliament coming before long while protecting profits.
I will revert once I have added on any more long equity exposure.
*Gold bear case gathering strength
I am still short gold via options and with the huge speculative portion of long positions in GLD and the lower riskaversion, improved equity outlook, I expect this non yielding, non dividend asset to currently be under review from speculative accounts. I expect a swift 50-100 Usd move lower before long. (Next 1-2 weeks).
*FX position changes
-Gbp is in vogue, I am long Gbp/Usd, Gbp/Chf via options.
-I have added to my long Eur/Chf and Eur/Usd and Nzd/Usd gamma.
-I have taken profit on my long Eur/Jpy gamma.
With my view of expecting Gold to fall, I am long Usd/Zar.
As usual, good luck, have a great weekend
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.
My youngest has been home sick so I decided to devote my time to her instead.
Now, since she is all good now and there has been quite some developments since last time, heres todays piece.
*First off; The G20 actually accomplished something, which is a huge positive.
With no real expectations of any real G20 accomplishments, this is a great boost to market sentiment. The important Jpy is weaker. At 134 ish for Eur/Jpy, above the important 131 level. The Chf and Usd are also weaker.
This all matters since these are the worlds foremost funding currencies.
Implied volatilities are generally lower. The Creditderivatives market has improved slightly with the itraxx europe index and the itraxx crossover index narrowing slightly. Thus, equitymarkets have rallied over the last two days. This should pull liquid accounts into assets, bringing carry traders with them.
*US fudging their bank accountancy rules
US fudging their bank accountancy rules further - to secure the "success" of the Geithner plan? Well, if fudging and fraud equalled success, I guess it would count as such. In my book it is outrageous. Nonetheless, it may lead to an avoidance of short term unpleasantness. I just dont know which normal financial rules and consequences will apply in this environment going forward. With the US FASB (Financial Accounting Standards Board) voting to relax accounting standards, they are actively deciding to move into very murky waters. In essence, making sure investors get less information, creating more uncertainty in the process. Making sure US banks will run the risk of raising too little capital instead of the opposite - the unsafe choice.
*Is this just a complement to the Geithner plan?
Is this latest FASB decision a pure lobby result by the US banks? One has to wonder.
Lets relate it to the upcoming PPIP auctions. If a US bank X puts a perticular asset up for sale under the PPIP auction, it will not have to accept the bid or mark the asset to the price or "midmarket" if it claims the price impairment is "temporary". Further on, If another Us bank Y sells the same asset under the PPIP auction but US bank X does not want to mark their own same asset at that price, US bank X will be able to avoid this by claiming US bank Y sale was a "distressed sale". Thus, in both cases avoiding an income statement hit. See change to fair value accounting (Rule 157), and change to other-than-temporary impairment.
*G20 and the 1.1 Trn Usd to the IMF and the world bank -is it really enough?
The quick answer is no, not if one believes the cost for bailing out "only" the European banks according to the European Commission; 16.3 Trn Euro,,,, However with some additional accounting fudging á la the US and some gigantic government funded "loans" to banks, it might go a long way, but only for so long. (The EU would have to change their current rules for government support of banks in order to get these loans being in accordance with EU law).
*G20 and the "non protectionism agreement" - I believe it when I see it
Admittedly, there was some progress on the coordination front during this G20 meeting but it was clear that Merkel and Sarkozy were not the happiest of campers. One is where all countries actually have a great incentive for global coordination; taxes. Both in closing down existing "tax havens" as well as raising their own ones. Especially for the deficit countries with their frivoulus spending. Both the current and the expected deficitcountries ahead.
*250 BN Usd in SDR;s to the IMF - diversification?
Nope, not really. Besides, this is an accounting product, not trading or tradable anywhere. It will be some time til this materialises, if ever. The USD makes up 44% of the SDR, with the Eur 34%, the JPY 11% and the GBP 11%. If anything it should weaken the Usd somewhat, but I dont want to read too much into it at this stage, since there are currently other factors acting as more important market drivers.
*NFP outcome - bound to be bullish for the markets?
Even if it is a very lousy number, once the dust has settled, it seems the assetmarkets will go bullish nonetheless. The sentiment just seems that strong at the moment. Well see.
*I am joining the bull herd
Despite my skeptical comments above, from a trading point of view, I have to join the bull herd.
Most assets look constructive from here. I am really only long my Goldminer IVN at the moment, (+ 43%), have taken profit on half of it and replaced with options instead. Considering doing the same with the remaining half. Want to keep the digital exposure with the (hopefully) positive decision from the Mongolian Parliament coming before long while protecting profits.
I will revert once I have added on any more long equity exposure.
*Gold bear case gathering strength
I am still short gold via options and with the huge speculative portion of long positions in GLD and the lower riskaversion, improved equity outlook, I expect this non yielding, non dividend asset to currently be under review from speculative accounts. I expect a swift 50-100 Usd move lower before long. (Next 1-2 weeks).
*FX position changes
-Gbp is in vogue, I am long Gbp/Usd, Gbp/Chf via options.
-I have added to my long Eur/Chf and Eur/Usd and Nzd/Usd gamma.
-I have taken profit on my long Eur/Jpy gamma.
With my view of expecting Gold to fall, I am long Usd/Zar.
As usual, good luck, have a great weekend
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.
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