* Latvian prostitution prices fall by 67% in a year
According to a Bloomberg story, Latvian prostitution prices have fallen by 67% in the last year. http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_lynn&sid=aSRh7Cf2DTrU
Forget about house prices. The prostitution prices and infidelity websites on the internet are the leading indicators to go by according to Bloomberg. According to researchers the web traffic to infidelity websites increases during bull and bearmarket times and at market turning points. In November the traffic peaked as the assetmarkets took the biggest hit last year. No traffic increase since. In Latvia, prostitution prices are not showing any signs of turning up, according to the article.
Hence, the IMF should be on red alert together with most of Europes banking system.
* Indicator of Latvian extent of devaluation?
In order to restore competitiveness by deflation instead of an actual devaluation, achieving an equal result, the prostitution price indicator would seem to indicate that the devaluation will be more than 40%-50%. Rather 70%. Interesting if other indicators can be combined with this one in order to get a verification or not. Should have an impact when pricing LVL FX forwards if valid.
* New positions or positionchanges
No changes
As usual, good luck
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17 comments:
Macrotrader...I should inform you that my seasonal adjustment of prostitution prices is showing a bottoming process - the second derivative is indicating the turn... thus I believe your long EURLVL position is in trouble ;) have a good weekend!
Hi J72,
Pulling my leg,,, Thank you for the heads up, ha.
Dont think my long Eur/Lvl position is in trouble though,,
Found the extent of price fall was an interesting "market price indicator". Providing a hint of how serious the domestic price adjustments are, further underlining the unsustainability of the Latvian fixed currency regime.
The Latvian macrocase remains intact. With the current regime keeping the LVL within a very tight range, buying Eur/Lvl Fx forwards basically equals buying a synthetic Eur Call/Lvl put with a high probability of a 40%-70% gap risk before the end of this calendar year. An interesting proposition to me.
Right....btw What are the implied yields on LVL right now? Last I saw they were very low indeed (sub 10%)... if thats the case it does seem very strong risk reward, and they're not managing it as a pure currency board as perhaps they should be if they're determined to keep the peg intact....
Hi J72,
Latvian RIGIBOR yields are as follows, (2June);
O/N; 16.1%
T/N; 16.1%
Spot-1w; 16.8%
1m; 14.4%
3m; 15.22%
6m; 15.20%
1yr;15.26%
In other words, ERMII is fairly well discounted at the long end of the curve, a free float is not. At the shorter end of the curve there is not a lot discounted re ERMII.
Thank you for your comment.
Take care and good luck.
"In other words, ERMII is fairly well discounted at the long end of the curve, a free float is not. At the shorter end of the curve there is not a lot discounted re ERMII."
Macro trader (or anyone else) - can you explain what this means to someone who doesn't understand but would like to understand?
Specifically, what I don't understand is that the interest rate looks pretty similar from 1M up to 1Yr ... so why does that mean that more is discounted re ERM II at the short end than the long end? (When you talk about ERM II being discounted do you mean the risk of ERM II breaking down or something else?)
Anyway ... if you take the trouble to explain this to a schmuck like me, thanks in advance!
received a run today...making FX yields 45%/65% in the one month down to 27%/47% in the one year...not a no-brainer at those yields in the one year? Still, if you're in already, you are nicely in the money
Hi hoveite,
What I mean by;
"In other words, ERMII is fairly well discounted at the long end of the curve, a free float is not. At the shorter end of the curve there is not a lot discounted re ERMII."
ERM II ( a precursor stage to Euro entry where the currency is allowed to move +-15% vs the Euro) is what I belive is what the Latvian politicians will be gunning for in a desperate attempt to avoid a depeg from the Euro and a free float.
Looking at the RIGIBOR Lvl rates, knowing that the Eur deposit rates is 1.25% ish, it provides an indication as to how much higher the Fx forwards are trading vs Fx spot.
Latvian RIGIBOR yields are as follows, (2June);
O/N; 16.1%
T/N; 16.1%
Spot-1w; 16.8%
1m; 14.4%
3m; 15.22%
6m; 15.20%
1yr;15.26%
We then know that the 1 year Eur/Lvl Fx forward will be roughly 14%ish (15.26 -1.25ish) higher than the current spot. The 6mth 14%(15.2-1.25ish)14%/2= 7% higher. The 3mth (15.22 -1.25ish) 14%/4= 3.5% higher, the 1mth (14.4 - 1.25ish)13%/12mth=1.1% higher, etc (All rough indications of midrates. These are all just rough top of the head indications.
The actual pricing process is more precise using a correct calculation method. Prices are quite wide and skewed, so 1% premium might very well mean 1% - 3% premium over spot in price, etc.
Example;
Currently Eur/Lvl spot is at 0.7085/0.7105.
The 1mth Fx Forward is 0.7133/0.7183. The 3mth Fx Forward is 0.7235/0.7335.
We can now see that ERM II (+-15% move from current midrate, is fairly well priced into the 1yr Fsx Eur/Lvl forward (14% above spot), but not in the 1mth(1.4% above spot on the offer side).
Therefore, we can say the 1yr Fx forward has priced in a 14% weakening of the Lvl vs the Euro, which happens to be quite close to the ERMII limit. In the 1mth maturity, only 1.4% weakening of the Lvl vs the Euro is priced in.
Hence, the 1 mth has not priced in an ERMII weakening within 1mth.
Expressed differently, the 1month Fx forward has only priced in a 9.3% probability of Eur/Lvl moving 15% higher within 1 month.
I hope this clarifies things a bit for you. Otherwise, please revert.
Thank you for your question and best of luck.
Hi J72,
Dont know where you got your yields from, but the ones I got correlates well with the implied rates in the Fx forward prices I receive.
They are roughly in line with the mid RIGIBOR rates, although some prices are skewed of course.
I am curious. Thank you for your comment and best of luck
Hi there....i saw a run from one of the banks... dont see a run today but one from yday had the 12m at 38%...but 1m all way up at 130%...the bid offer is 30-40% wide around those though (9on the run at least). Cheers
Let me know where you can into the position at 15% though - clearly a great trade at those levels!
Hi J72,
Wow, Ill check it out today.
I got a tradable price 3 mth Eur/Lvl Fx Forward price on 3 June;
0.7235/0.7335.Spot was 0.7085 bid.
Also tradable price.
This seems to imply a 14% yield. And even if I use 0.7000 bid, I get an implied offer yield of 19.15%.
Ill check it out and revert.
Massive difference. This price traded though.
Speak in a bit.
J72,
Those are annualised, non compounded implied yields.
Seems my qoutes were straight from RIGIBOR,,,
hmmm....wierd that you could trade on that price.. im baffled! On bberg i see 3m implied yields of 80% on 3rd June. Can i ask who could you could trade with on that?
Hi J72,
Unfortunately I do not want to reveil that in this forum, sorry.
Thanks for taking the time to explain that so clearly to me Macro trader.
Hi hoveite,
Thankyou, you´re welcome.
Good luck
nice posting for this site...i liked it,added more information it will better...
Bathmate
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