* Latvia 1Q GDP dropped 18% - get ready for further drops.
In the midst of the bearmarket rally it might be a sobering reminder that all might not be happy hunky dory days after all. With the Latvian GDP down 18% for the 1Q and harder times still ahead for this country, this number will most likely continue to be grinding, if not dropping, downwards.
What surprised me was that unemployment was still "only" at 11%. With the private sector heading for near extinction, I expect this number to skyrocket to above 20% within the next 6 months. (I guess the IMF money can create loads of public sector jobs for a while, but,,,) In any case, the Latvian authorities had better keep this number under control in order to avoid social upheaval. At 25%-30% unemployment rate, the foundations of Latvia as a democratically functioning country will likely be sliding.
The IMF has yet to make a decision on whether they will grant Latvia the next installment payment of 1.6 Bn Eur due in June. It supposedly hangs on whether Latvia can bring their budget deficit to 5% of GDP. The last estimate from the Latvian government themselves was -7.7%.
With GDP sinking like a stone I guess the risk is for the deficit in terms of share of the GDP to increase further. In other words, Latvia will not be able to fulfill the IMF criteria, not now and not later in the year. As Ive mentioned before, I dont think it will have a material impact on the IMF payment schedule anyway. Latvia will get their money, or else the country will swiftly become insolvent.
What I do wonder though, is if there will be strings attached. One would be to let go of their fixed currency regime. This would be, ehhmm, sensible, to say the least. For IMF to assist in upholding Latvias fixed currency regime despite the local economic realities and the surrounding economic environment can simply not be motivated on economically sane grounds.
The British writer Will Self launched the "Quantitative theory of insanity". According to this one there is a fixed portion of sanity in the world at any one time. As one group becomes more sane, another group becomes more insane. Well, it seems to me the people in charge of the Latvia fixed exchange rate policy surely has not become more sane. The question is; who has then?
Disclosure; I am long Eur/Lvl forwards.
*New positions and position changes
None
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.
08 May 2009
NFP day - asymmetric risks
* NFP again - probabilities still in favour of higher assetprices and increased riskappetite
Markets will initially react proportionally more positive to a somewhat "better number compared to a somewhat "worse" number. Institutional investors continue to force this market higher. iTraxx Europe and the iTraxx Crossover index are currently rallying too, pre the NFP, indicating market sentiment.
*Despite the bullish environment; Some bearish signs. Too early?
-The Nasdaq continues to lag the rest of the Equity market, just like it did in the fall of 2008. Its been going on for a week now. The SOX index have turned bearish. The SOX index was one of the first indicators that went bullish as the équity market turned upwards in March.
- The SKF ETF Ultrashort financials for US financial stocks seems to be bottoming out.
- The VIX index yesterday saw strong buying interest for MAY 40 Calls. Although quite short maturitywise, it was a while ago since there was good buying interest of VIX calls.
- ZAR, HUF, SEK looks to be topping out from their recent rallies, to turn weaker again. Normally followers of Equity markets.
-Gold looks to be bottoming out and have recently started to inch higher.
Although these signs might be premature, I will monitor them closely going forward.
*US Bank stresstests are over - as expected; no stress, apart from institutional investor buying panic. A continuation of the US financials rally?
According to GS, these stresstests were valid and prudent. While I do recognise the resources within the GS, I have to disagree. The US banks stresstests were not done properly, in my book.
They were way too soft and thus will likely not have that much value. The US government never really had any choice as to the outcome of these stresstests. Besides, they were leaked well in advance to "test the waters". Looking for market reaction. Since it seemed ok, no new measures were needed. Now, this could cause a further rally in US financials as the US markets open today. I will be watching the likes of Citigroup, Bank of America and Keycorp as they could be in for a continuation rally. Well see.
* I am Bearish the ZAR
One currency I am bearish on right here and now though, is the ZAR.
Apart from the Southafrican currency (ZAR) looking severely overbought and about to go weaker, there is also the issue of the SARB potentially increasing their FX reserves by buying USD in the Fx market. Usd/Zar has moved from 10.70 to 8.27 since March. During this drop, SARB;s currency reserves remains unchanged. It might be time to replenish these reserves for the SARB, while the market is not negative towards it.
(SARB is currently quite, 50% ish, underweight compared to their EM peers Mexico, Turkey and Brazil). There is also uncertainty as to whether the Finance minister Trevor Manuel will stay in place during the new Zuma administration. Speculations have suggested he will be appointed as head of a planning commission with at least equal, if not more, importance.
However, with the new president elect Zuma announcing his new cabinet this weekend. The Finance Minister post uncertainty remains. This will keep the ZAR Fxmarket on its toes as the current/former Finance Minister Trevor Manuel has been perceived by the market as a guarantor of financial stability, order and prudence. I am long Usd/Zar.
* What else?
Got a number of optionalities lined up. In the process of timing them. Will revert.
*Position changes and new positions
- Long Usd/Zar
- Long Eur/Sek
- Long Eur/Huf
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
Markets will initially react proportionally more positive to a somewhat "better number compared to a somewhat "worse" number. Institutional investors continue to force this market higher. iTraxx Europe and the iTraxx Crossover index are currently rallying too, pre the NFP, indicating market sentiment.
*Despite the bullish environment; Some bearish signs. Too early?
-The Nasdaq continues to lag the rest of the Equity market, just like it did in the fall of 2008. Its been going on for a week now. The SOX index have turned bearish. The SOX index was one of the first indicators that went bullish as the équity market turned upwards in March.
- The SKF ETF Ultrashort financials for US financial stocks seems to be bottoming out.
- The VIX index yesterday saw strong buying interest for MAY 40 Calls. Although quite short maturitywise, it was a while ago since there was good buying interest of VIX calls.
- ZAR, HUF, SEK looks to be topping out from their recent rallies, to turn weaker again. Normally followers of Equity markets.
-Gold looks to be bottoming out and have recently started to inch higher.
Although these signs might be premature, I will monitor them closely going forward.
*US Bank stresstests are over - as expected; no stress, apart from institutional investor buying panic. A continuation of the US financials rally?
According to GS, these stresstests were valid and prudent. While I do recognise the resources within the GS, I have to disagree. The US banks stresstests were not done properly, in my book.
They were way too soft and thus will likely not have that much value. The US government never really had any choice as to the outcome of these stresstests. Besides, they were leaked well in advance to "test the waters". Looking for market reaction. Since it seemed ok, no new measures were needed. Now, this could cause a further rally in US financials as the US markets open today. I will be watching the likes of Citigroup, Bank of America and Keycorp as they could be in for a continuation rally. Well see.
* I am Bearish the ZAR
One currency I am bearish on right here and now though, is the ZAR.
Apart from the Southafrican currency (ZAR) looking severely overbought and about to go weaker, there is also the issue of the SARB potentially increasing their FX reserves by buying USD in the Fx market. Usd/Zar has moved from 10.70 to 8.27 since March. During this drop, SARB;s currency reserves remains unchanged. It might be time to replenish these reserves for the SARB, while the market is not negative towards it.
(SARB is currently quite, 50% ish, underweight compared to their EM peers Mexico, Turkey and Brazil). There is also uncertainty as to whether the Finance minister Trevor Manuel will stay in place during the new Zuma administration. Speculations have suggested he will be appointed as head of a planning commission with at least equal, if not more, importance.
However, with the new president elect Zuma announcing his new cabinet this weekend. The Finance Minister post uncertainty remains. This will keep the ZAR Fxmarket on its toes as the current/former Finance Minister Trevor Manuel has been perceived by the market as a guarantor of financial stability, order and prudence. I am long Usd/Zar.
* What else?
Got a number of optionalities lined up. In the process of timing them. Will revert.
*Position changes and new positions
- Long Usd/Zar
- Long Eur/Sek
- Long Eur/Huf
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.
07 May 2009
Garbage rules - forget about the (non) stress tests
* The (non) stress test; No stress - no sweat, apart for institutional investors. Buying panic.
With most of the so called stress test well known in advance this too should pass without any sweat. Besides, the market does not seem to have been positioned for a moderate outcome.
This combined with a continuation of better than expected macro numbers and institutional investors lagging retail when it comes to asset buying, it would seem we are set for further asset buying short term. Especially as further asset moves higher combined with a further fall in volatilities and narrowing corporate bond spreads seems to be the biggest pain trade for benchmarking institutional investors.
* Increasing riskappetite remains for now - weaker Usd
China has started to reduce its demand for Usd denominated assets and suggested a change in its currency reserve policy stance. Official Chinese GDP rates are currently at 8%. Combined it would seem China is in the process of further promoting its domestic demand. This should help any countries with specifically strong trade relationships with China, such as Australia and the Aud. The Usd will suffer, especially against Latam and Asia as US corporates "exports" Usd. Europe should not be the main beneficiary since the Eurozone economy is still very much debt burdened.
* IMF revised their CEE debt numbers - providing further boost to risk appetite
With the IMF revising debt numbers from previously released CEE debt reports downwards, this region have received a further boost. How long will it last for? In this environment it could continue from here as further institutional equity and bond investments are encouraged by the news. However, in the near term it seems HUF might be close to a temporary base vs the Euro in the low 270;s.
*New positions and position changes
- Sold my SAS Airline stock after 20% profit in two days. Looking to reenter on dips below 4.00, alt chase it on a break of 5.00.
- Long Eur/Usd and Gbp/Usd via options
- Sold LOIL, the leveraged Crude oil ETF, after 25% profit in a week. Looking to reenter on dips sub 4.00 alt chase on a break above 4.60.
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.
With most of the so called stress test well known in advance this too should pass without any sweat. Besides, the market does not seem to have been positioned for a moderate outcome.
This combined with a continuation of better than expected macro numbers and institutional investors lagging retail when it comes to asset buying, it would seem we are set for further asset buying short term. Especially as further asset moves higher combined with a further fall in volatilities and narrowing corporate bond spreads seems to be the biggest pain trade for benchmarking institutional investors.
* Increasing riskappetite remains for now - weaker Usd
China has started to reduce its demand for Usd denominated assets and suggested a change in its currency reserve policy stance. Official Chinese GDP rates are currently at 8%. Combined it would seem China is in the process of further promoting its domestic demand. This should help any countries with specifically strong trade relationships with China, such as Australia and the Aud. The Usd will suffer, especially against Latam and Asia as US corporates "exports" Usd. Europe should not be the main beneficiary since the Eurozone economy is still very much debt burdened.
* IMF revised their CEE debt numbers - providing further boost to risk appetite
With the IMF revising debt numbers from previously released CEE debt reports downwards, this region have received a further boost. How long will it last for? In this environment it could continue from here as further institutional equity and bond investments are encouraged by the news. However, in the near term it seems HUF might be close to a temporary base vs the Euro in the low 270;s.
*New positions and position changes
- Sold my SAS Airline stock after 20% profit in two days. Looking to reenter on dips below 4.00, alt chase it on a break of 5.00.
- Long Eur/Usd and Gbp/Usd via options
- Sold LOIL, the leveraged Crude oil ETF, after 25% profit in a week. Looking to reenter on dips sub 4.00 alt chase on a break above 4.60.
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.
06 May 2009
The riskappetite continues to increase - inventory build up and exportfinance driven export demand the main drivers
Ive had to prioritise house building and a few other agendas recently which resulted in no update yesterday. Hopefully youve managed to survive anyhow.
* Markets are increasingly declaring this downturn over
I beg to differ. This downturn is by no means over. It has been injected with the equivalent of financial steroids, (ie, yet more debt) in order to keep it going for a limited amount of time. Unfortunately, this steroids supply will run out (unless governments, treasuries and centralbanks decide they will monetize their debt by printing money to buy it themselves).
Having said that, this is not the time to go against this market, at least not in the underlying. Options is a different issue, depending on how they are utilised.
*How to trade the market from here then?
Well, with an increasingly liquidity driven market, also crap rises with the tide. It must have escaped noone that the biggest junk assets that fulfilled any or all of the following criteria;heavily leveraged, heavily indebted, negative or weak cashflow, underlying market heading straight into the ground, have been the ones that by far have risen the most over the past month or so.
Long garbage has worked very well lately. It could very well continue to work nearterm.
Main drivers of this recent rally has mainly been shortsqueezing combined with underinvested institutional investors scrambling to get equities on board.
With global inventories at their lowest level since 1974, inventory build ups and export finance led exports are further driving underlying business improvements.
The climbing of this "wall of worry" seems to continue and short risky assets will likely still be the biggest pain trade - mainly due to the institutional investors. I am myself long garbage in the form of SAS, the Scandinavian Airline stock. So far, so good,,, Perhaps I should mention going for junk is by no means my main objective. Market price timing and optionality are the real variables. Although while earlier I might have shied away from outright garbage, currently I am not. Playing the momentum and market sentiment - not the story.
* Looking for optionalities
From a trading perspective it is interesting to note the "optionalities" present in the marketplace.
What do I mean by that then?
Assets or indexes with an extremely low probability of going to zero. Example; The ETF LOIL (ETFS Leveraged Crude Oil - Beta two). Underlying price is option premiumlike with a huge upside potential. Maturity; Unlimited. Probability of underlying going to zero; very unlikely.
I am long LOIL.
There are others on the radar that I am monitoring. Stay posted.
*How long will this bearmarketrally last for? (Yes - I still call it bearmarket rally)
I could see it running for one to two months more perhaps, but not longer than that.
By then garbage assets should be well overpriced, institutional investors have gotten their longs in and be fully invested. Inventories will be full again and export led finance will have filled international demand. Thus, market data will likely weaken again.
*The bad debt issue will return
Add to this the coming market realisation and focus on the fact that European banks are due to raise 600 BN Usd this year compared with 275 BN Usd for US banks. All according to the IMF and all til 2010. There is another vast difference between the US and European banks funding situation, namely the fact that the US banks are able to convert preferred stock to common stock and thereby improving their capitalratios(and becoming government owned in the process). European banks do not have this possibility which may increase their capital need beyond the 600 BN USD announced by the IMF.
As have already been announced by BAFIN, the German bank regulator, estimates that the current Toxic assets present on German banks balance sheets amounts to over 1 TRN Usd.
*Risk loving markets near term; Shaky USD?
This near term bullish and risk loving environment should not be beneficial for the USD. 6.7 TRN Usd is aimed for investments outside of the US. Hence, a push for higher yields abroad will benefit local currencies, leaving the USD softish. However, this should reverse in the 2H of this year in line with the reasons presented above.
*New positions
- Long SAS, the Scandinavian Airline
- Long LOIL the leveraged crude Oil ETF
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
* Markets are increasingly declaring this downturn over
I beg to differ. This downturn is by no means over. It has been injected with the equivalent of financial steroids, (ie, yet more debt) in order to keep it going for a limited amount of time. Unfortunately, this steroids supply will run out (unless governments, treasuries and centralbanks decide they will monetize their debt by printing money to buy it themselves).
Having said that, this is not the time to go against this market, at least not in the underlying. Options is a different issue, depending on how they are utilised.
*How to trade the market from here then?
Well, with an increasingly liquidity driven market, also crap rises with the tide. It must have escaped noone that the biggest junk assets that fulfilled any or all of the following criteria;heavily leveraged, heavily indebted, negative or weak cashflow, underlying market heading straight into the ground, have been the ones that by far have risen the most over the past month or so.
Long garbage has worked very well lately. It could very well continue to work nearterm.
Main drivers of this recent rally has mainly been shortsqueezing combined with underinvested institutional investors scrambling to get equities on board.
With global inventories at their lowest level since 1974, inventory build ups and export finance led exports are further driving underlying business improvements.
The climbing of this "wall of worry" seems to continue and short risky assets will likely still be the biggest pain trade - mainly due to the institutional investors. I am myself long garbage in the form of SAS, the Scandinavian Airline stock. So far, so good,,, Perhaps I should mention going for junk is by no means my main objective. Market price timing and optionality are the real variables. Although while earlier I might have shied away from outright garbage, currently I am not. Playing the momentum and market sentiment - not the story.
* Looking for optionalities
From a trading perspective it is interesting to note the "optionalities" present in the marketplace.
What do I mean by that then?
Assets or indexes with an extremely low probability of going to zero. Example; The ETF LOIL (ETFS Leveraged Crude Oil - Beta two). Underlying price is option premiumlike with a huge upside potential. Maturity; Unlimited. Probability of underlying going to zero; very unlikely.
I am long LOIL.
There are others on the radar that I am monitoring. Stay posted.
*How long will this bearmarketrally last for? (Yes - I still call it bearmarket rally)
I could see it running for one to two months more perhaps, but not longer than that.
By then garbage assets should be well overpriced, institutional investors have gotten their longs in and be fully invested. Inventories will be full again and export led finance will have filled international demand. Thus, market data will likely weaken again.
*The bad debt issue will return
Add to this the coming market realisation and focus on the fact that European banks are due to raise 600 BN Usd this year compared with 275 BN Usd for US banks. All according to the IMF and all til 2010. There is another vast difference between the US and European banks funding situation, namely the fact that the US banks are able to convert preferred stock to common stock and thereby improving their capitalratios(and becoming government owned in the process). European banks do not have this possibility which may increase their capital need beyond the 600 BN USD announced by the IMF.
As have already been announced by BAFIN, the German bank regulator, estimates that the current Toxic assets present on German banks balance sheets amounts to over 1 TRN Usd.
*Risk loving markets near term; Shaky USD?
This near term bullish and risk loving environment should not be beneficial for the USD. 6.7 TRN Usd is aimed for investments outside of the US. Hence, a push for higher yields abroad will benefit local currencies, leaving the USD softish. However, this should reverse in the 2H of this year in line with the reasons presented above.
*New positions
- Long SAS, the Scandinavian Airline
- Long LOIL the leveraged crude Oil ETF
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.
28 April 2009
IMF buying marketshare, should be careful about frivioulus spending
* 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.
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.
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