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

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


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

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

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

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

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



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

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

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

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

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

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

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




As always, good luck







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

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

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

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

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

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

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

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


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

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

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

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




As always, good luck








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





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

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

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

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

Happy Friday and welcome to Nonfarm payroll day!

*Riskaversion in decline as positions are getting squeezed

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

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

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

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




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

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

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

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



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







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

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

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

ECB day - rearviewmirror vs windshield

*Happy ECB day to everybody!

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

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



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

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

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




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

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

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

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



*Dejavu of the 1997-1998 Asian currency crisis?

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

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



*Protectionism on the rise

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

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

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

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





*Scandinavian banks will get hit hard

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

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

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

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

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





As always, good luck









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

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

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

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

Diluting shareholders is positive for the SEB stock - apparently


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

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

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

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

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





*PLN collapsing

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

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





*Why the positive equity mode?

Admittedly, there a few positive signs overnight;

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

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






* Equity markets underestimating global stress and risks building


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

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

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

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

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

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

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







Arrivederci, and,
As always - good luck










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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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




As always, good luck








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

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

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

Recapitalisation of Banks

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



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

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

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

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

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

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

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

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

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

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



Competition for global savings has started?

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





As always, good luck











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




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