* Quick feet - position changes
I have already taken profit on my long Usd/Try, Eur/Pln, Eur/Huf and Eur/Sek positions. Looking to reinstate the positions again on any end of month currency strength. I have added to my long Eur/Usd gamma, long Nzd puts/Usd calls as well as added to my long Eur/Chf gamma by buying more Eur Calls/Chf puts.
With month end in process and the calendar full of events, I will remain light on my feet in order to capitalise on quick changes. The markets are still thin and nervous - please mind the gap(s). Pardon the punt.
*Was covert Jpy "intervention" taking place overnight via institutional investors?
With the heavy Jpy selling by Japanese institutonal investors it would not seem an unlikely proposition. With the Japanese fiscal year ending today, a weak Jpy is necessary to avoid foreign currency asset writedowns. This seems now to have been achieved. As I have pointed out in earlier daily pieces, a weaker Jpy was more likely towards this fiscal year end rather than the usual seasonal Jpy strength.
The Jpy development in April should be very important for several reasons, will the fierce Jpy outflows continue or will the Japanese plans to attract capital for domestic investments work? Equity markets and others should pay attention as the outcome will likely affect the volatility level as well as direction of assetmarkets. On top of what was mentioned on yesterdays daily in terms of measures to bring Japanese capital back to Japan, Japanese authorities are now alledgedly considering a 12 Trn Jpy stimulus package. 131 in Eur/Jpy is an important level and potential carry traders should watch that level. Correlation break ups have also hit the Jpy and portfolio flows are now the most important variable for Jpy direction.
*SNB and quantitative easing going forward
SNB are battling the fundamentals in their quest for a quantitative easing policy.
If the SNB is serious about their commitment to quantitative easing, it will have to continue to involve weakening their currency, the CHF, due to the shortcomings of the Chf bondmarket, liquiditywise. With the Swiss rates already at rockbottom and the KOF still at record lows, additional stimulus measures are likely to be considered. As a not irrelevant spinoff, a weaker Chf will likely at least somewhat decrease loanlosses from the CEE countries. I am positioned for a weaker Chf.
*G20
There are hardly any positive expectations left for the G20 meeting by now. Any expectations that the G20 will be able to achieve anything at all are very low. On the positive side, any non negative surprises or outcomes might even be a positive to the market.
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.
31 March 2009
30 March 2009
Who wants to be the safe haven currency of the world? - Noone
* FX intervention risks are increasing for CHF and JPY this week.
The Japanese authorities are planning to establish an investmentfund designed to acquire properties held by real estate investment trusts, REIT;s. It will be financed by raising capital from the public and private sectors. If implemented, this will create an investment opportunity within Japan that could partially reverse the hefty outflows already seen including the accelerated ones expected past the fiscal year end.
Furtheron, the Japanese governments is also considering a tax incentive to bring back some of the 17 Trn Jpy overseas profits from Japanese companies.
This should all be short term Jpy supportive.
On the other hand, with the latest bout of Jpy strength into the Japanese fiscal year end, Japanese lifers and insurance companies should be suffering currencylosses. So much, infact, that the risk of Japanese intervention has risen quite substantially for the next 24 hours.
A set up for Jpy volatility in other words. I am long Eur/Jpy gamma.
The SNB has a somewhat different situation,but it will also lead to an increased FX intervention risk. With the Swiss bondmarkets not being deep enough for quantitative easing, the SNB will have to continue to use the FX market in order to maintain it. With the CHF strengthening on the back of increased riskaversion and a battle against fundamentals, the SNB will have to intervene before long. This, too, should create increased FX volatility near term. I am long Eur/Chf gamma.
*Bank of Norway following in the footsteps of the SNB?
Risk is increasing that the Bank of Norway will follow in the footpath of the SNB. Quantitative easing definitely seems to be on the Norwegian agenda and since the Norwegian bondmarket is too small to apply it, it will have to involve FX if quantitative easing is to be applied.
With the NOK increasingly being nominated the safe haven currency of choice for many Fx positions, it is increasingly becoming a burden. Thus, although the long Nok/Sek position squeeze is already in motion, one should not rule out Fx intervention to weaken the NOK. Although, I do believe that would be a mistake. In any case, I am winding down my remaining long Nok/Sek position and will monitor this one closely from here.
* Eur/Usd set to weaken further
The ECB meeting this Thursday may reveal an ECB considering quantitative easing in practise and not just in theory. The G 20 should not expect any massive fiscal stimulus measues from the Eurozone. The revelation of the 9 BN Eur bailout of the Spanish bank Caja Castilla La Mancha is yet another sign that the European banking crunch has just started. This was the first major Spanish bank rescue in 16 years.
Alledgedly, Caja Castilla represents only 1% of the Spanish financial system. However, if this 1% requires a 9Bn Euro bailout, I cant help but think how much will be needed in total before the Spanish bailoutstory has played out? Further, how much can the already hard pressured Spanish budget really afford? Or more correctly, how big will their deficit become? How much can Spain handle? How much can the Eurozone handle?
Lets keep our fingers crossed the Latin American economies keep on doing relatively well,,,,, One should of course remember that Spain is only one of a large number of countries in the Eurozone and within the EU that is in serious financial trouble. Yet, the ECB is pretending it is not happening. Additionally, the European commission is up for reelection as is the European parliament. The risk for yet another European action paralysis is evident. Facing the current challenge it is illtimed, to say the least. The risk that the European banking crisis will supersede the American one is increasing.
I am long Eur/Usd puts, gamma.
* I have bought bank puts on European banks with Baltic and CEE exposure again
I expect the bankpressure to increase as I expect another refocus to take place on the European front. The impression I am getting is that the banks stuck in countries with fixed exchange rate systems do not realise how serious the situation will actually become for them. Instead my impression is many bank CEO;s are behaving like Ostriches, keeping their fingers crossed everything will sort itself out. Well, it will not.
The phrase "we remain committed to these markets for the long term" and "these are our homemarkets" seems to be the mantras. I cant really blame them though. With no riskmanagement due to the gross mismatch between balancesheet and market values the only choice is to declare insolvency or deliver platitudes as per above.
I read an interview with one of them over the weekend. Unfortunately he made it abundantly clear he had absolutely no clue what he was talking about. A lot of what came out was hastily compiled platitudes from other bankstaff which he had been forced fed. It does not bode well for what is to come. I am long bank puts with exposure to the Baltics and CEE countries.
*New positions apart from the above
- Long strangles on the VIX
- Long Eur/Huf, Eur/Pln, Usd/Try, Usd/Rub, Eur/Sek (Already taken partial profits on these but still long)
As always, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
The Japanese authorities are planning to establish an investmentfund designed to acquire properties held by real estate investment trusts, REIT;s. It will be financed by raising capital from the public and private sectors. If implemented, this will create an investment opportunity within Japan that could partially reverse the hefty outflows already seen including the accelerated ones expected past the fiscal year end.
Furtheron, the Japanese governments is also considering a tax incentive to bring back some of the 17 Trn Jpy overseas profits from Japanese companies.
This should all be short term Jpy supportive.
On the other hand, with the latest bout of Jpy strength into the Japanese fiscal year end, Japanese lifers and insurance companies should be suffering currencylosses. So much, infact, that the risk of Japanese intervention has risen quite substantially for the next 24 hours.
A set up for Jpy volatility in other words. I am long Eur/Jpy gamma.
The SNB has a somewhat different situation,but it will also lead to an increased FX intervention risk. With the Swiss bondmarkets not being deep enough for quantitative easing, the SNB will have to continue to use the FX market in order to maintain it. With the CHF strengthening on the back of increased riskaversion and a battle against fundamentals, the SNB will have to intervene before long. This, too, should create increased FX volatility near term. I am long Eur/Chf gamma.
*Bank of Norway following in the footsteps of the SNB?
Risk is increasing that the Bank of Norway will follow in the footpath of the SNB. Quantitative easing definitely seems to be on the Norwegian agenda and since the Norwegian bondmarket is too small to apply it, it will have to involve FX if quantitative easing is to be applied.
With the NOK increasingly being nominated the safe haven currency of choice for many Fx positions, it is increasingly becoming a burden. Thus, although the long Nok/Sek position squeeze is already in motion, one should not rule out Fx intervention to weaken the NOK. Although, I do believe that would be a mistake. In any case, I am winding down my remaining long Nok/Sek position and will monitor this one closely from here.
* Eur/Usd set to weaken further
The ECB meeting this Thursday may reveal an ECB considering quantitative easing in practise and not just in theory. The G 20 should not expect any massive fiscal stimulus measues from the Eurozone. The revelation of the 9 BN Eur bailout of the Spanish bank Caja Castilla La Mancha is yet another sign that the European banking crunch has just started. This was the first major Spanish bank rescue in 16 years.
Alledgedly, Caja Castilla represents only 1% of the Spanish financial system. However, if this 1% requires a 9Bn Euro bailout, I cant help but think how much will be needed in total before the Spanish bailoutstory has played out? Further, how much can the already hard pressured Spanish budget really afford? Or more correctly, how big will their deficit become? How much can Spain handle? How much can the Eurozone handle?
Lets keep our fingers crossed the Latin American economies keep on doing relatively well,,,,, One should of course remember that Spain is only one of a large number of countries in the Eurozone and within the EU that is in serious financial trouble. Yet, the ECB is pretending it is not happening. Additionally, the European commission is up for reelection as is the European parliament. The risk for yet another European action paralysis is evident. Facing the current challenge it is illtimed, to say the least. The risk that the European banking crisis will supersede the American one is increasing.
I am long Eur/Usd puts, gamma.
* I have bought bank puts on European banks with Baltic and CEE exposure again
I expect the bankpressure to increase as I expect another refocus to take place on the European front. The impression I am getting is that the banks stuck in countries with fixed exchange rate systems do not realise how serious the situation will actually become for them. Instead my impression is many bank CEO;s are behaving like Ostriches, keeping their fingers crossed everything will sort itself out. Well, it will not.
The phrase "we remain committed to these markets for the long term" and "these are our homemarkets" seems to be the mantras. I cant really blame them though. With no riskmanagement due to the gross mismatch between balancesheet and market values the only choice is to declare insolvency or deliver platitudes as per above.
I read an interview with one of them over the weekend. Unfortunately he made it abundantly clear he had absolutely no clue what he was talking about. A lot of what came out was hastily compiled platitudes from other bankstaff which he had been forced fed. It does not bode well for what is to come. I am long bank puts with exposure to the Baltics and CEE countries.
*New positions apart from the above
- Long strangles on the VIX
- Long Eur/Huf, Eur/Pln, Usd/Try, Usd/Rub, Eur/Sek (Already taken partial profits on these but still long)
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.
27 March 2009
US Corporate debt not joining the equity rally - be aware
* US senior bank debt at its widest since the Lehman collapse
Looking at the underlying assets the US banks hold, I note the following;
- Corporate defaults are surging; The S&P by March 20th had recorded 47 defaults globally, which is three times the default level for the same time period in 2008.
- Leveraged loans as measured by the LCDX index remains close to it all time lows at 74% of nominal.
- Commercial mortgagebacked securities has rallied sharply over the last week which of course is positive.
According to a Deutsche Bank calculation, the USD investment grade corporate bonds were pricing in a five -year default rate with a 40% probability assuming average recovery rates. As a reference; the worst five - year investment grade default rate since 1970 is 2.4%, with the average at 0.9%,,
*"Dirt cheap" corporate debt - money is being pumped in, but no rally - not good
With investmentgrade debt absurdely cheap and investors pumping money in - where is the rally? Stock market bulls should sit up and pay attention - this is not a good sign. Main reason this bond rally is not taking off is the lack of demand for financial debt.
Demand is mainly for nonfinancial debt where buyers are met with a wall of supply. Borrowers are bypassing the banking system which in turn prevents the spreads from tightening. Financial debt guaranteed by governments are still finding buyers, but it is hardly a vote of confidence.
Assetbacked securities and leveraged loans still remain unloved. Without a sustained improvement in credit markets the risks to the current bearmarket rally will increase.
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.
Looking at the underlying assets the US banks hold, I note the following;
- Corporate defaults are surging; The S&P by March 20th had recorded 47 defaults globally, which is three times the default level for the same time period in 2008.
- Leveraged loans as measured by the LCDX index remains close to it all time lows at 74% of nominal.
- Commercial mortgagebacked securities has rallied sharply over the last week which of course is positive.
According to a Deutsche Bank calculation, the USD investment grade corporate bonds were pricing in a five -year default rate with a 40% probability assuming average recovery rates. As a reference; the worst five - year investment grade default rate since 1970 is 2.4%, with the average at 0.9%,,
*"Dirt cheap" corporate debt - money is being pumped in, but no rally - not good
With investmentgrade debt absurdely cheap and investors pumping money in - where is the rally? Stock market bulls should sit up and pay attention - this is not a good sign. Main reason this bond rally is not taking off is the lack of demand for financial debt.
Demand is mainly for nonfinancial debt where buyers are met with a wall of supply. Borrowers are bypassing the banking system which in turn prevents the spreads from tightening. Financial debt guaranteed by governments are still finding buyers, but it is hardly a vote of confidence.
Assetbacked securities and leveraged loans still remain unloved. Without a sustained improvement in credit markets the risks to the current bearmarket rally will increase.
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.
26 March 2009
Riskaversion continues lower - opportunity or trendchange?
*Overview
What has happened over the last few weeks?
Massive US stimulus launches and G20 like meetings has generated hope for a change and solution to improvements in housing, growth, toxic assets and the liquidity plug.
Markets have had very bearish expectations both on economic numbers and corporate news. Any number or news in line with already bearish expectations has been a positive, any positive number or news has been megabullish. The China growth story has been brushed off and relaunched further enhancing the positive market sentiment. In short; the market consensus has been negative. It was time for a position squeeze and a bearmarketrally, which is what we have seen. The market still seem quite hesitant to this latest bullrally which could indicate it still has legs.
In addition, there has been quite alot of liquidity related depression of assets, which are now bouncing. Equity valuations are up on the radarscreen again.
Even carry aspects are coming alive with yielders gaining together with commodity and riskaversion hit currencies. CEE currencies has after an initial rally been consolidating for the last week.
*Where from here?
With higher stocks and lower implied volatilites comes carry plays and increased asset correlations. This creates opportunities for bullish asset plays. Commodities could very well continue higher from here.
I am still quite wary of the Baltics and the impact it will have on the rest of the CEE countries, the Scandinavian and western European banks. In a pressconference today the Latvian PM made clear that the IMF supports a devaluation while the Latvian government, Centralbank and the European Commission does not. The pressconference was given in conjunction with the Latvian - IMF renegotiation of the budget deficit in relationship to the GDP. Latvia wants to change the agreed maximum from 5%, to a 7% budget deficit of GDP. It will probably be quite difficult to get the IMF to agree to those new terms.
I believe the IMF would rather, as mentioned above, see a float if there are to be any concessions. Question is; Will the the EU step in to add the necessary cash to Latvia if the IMF refuses? Anyway, the Swedish, Norwegian and Danish governments/taxpayers should make sure they dont waste any more cash than they have already done. It is simply not worth it.
It will become difficult to solve the US banksituation with the Geithner plan. Partly due to flaws in the plan itself (see earlier posts), but also because of the increasing risk that the US Congress will not be forthcoming. Latest suggestion in the US congress is that any company buying 1BN Usd or more worth of "toxic assets" will automatically be subject to US state bonus regulations.
Besides, the Baltics and the CEE and western European banking insolvency issues have yet to play out in Europe.
When it comes to China, I would be very careful in reading too much into it. True, there are massive infrastucture projects being launched in China which I am all for and think is great. That is definitely a positive. However, I dont think we have seen even a fraction of Chinas misallocation and banking problems come to the surface yet. The key for China will be whether the surplus will be able to finance the coming credit losses and domestic spending without selling assets abroad; read the US).
*The inflation scare
I do agree there is a high risk of inflation becoming a massive issue at some point in time - but not now. One thing at a time. To me it seems way premature to play the inflation theme at this point in time. The timing is simply off. Admittedly, I have been long oil myself, but NOT due to any inflation scare. The main issue is still deflation, despite the recent US and European numbers. Over the last few weeks there has been plenty of position squaring and triggering of stops. I believe this too, could continue until trends are resumed again. I will stay nimble til then.
*Positioning
-I was caught long puts on European banks with exposure vs the Baltics and the CEE as the market went sharply higher. Luckily I went long a basket of US bank stocks against it, since I wanted to keep the digital exposure while benefitting from the US bank plan.
-I am still long the puts but have closed my long basket of US bank stocks.
-I closed my short positions on the CEE currencies and am closely monitoring them from here, looking for a reentry. I am still long Eur/Lvl.
-I am still short Gold via options and am currently reevaluating the position as momentum is waning. I still believe the market consensus is way too bullish and with 43% of long Gold positions stemming from the GLD ETF contract, it seems like it would be ripe for a clearout.
-I am still long the IVN Goldminer stock. The stock has moved favourably since my position inception but I am in it for way more than that. The mining approval they are awaiting from the Mongolian parliament would, if approved, clear the way for the worlds biggest Gold and Coppermine field. The parliament is set to reconvene on this issue in early April. With the Mongolian government currently strapped for cash relying on the IMF for funding, the IMF has alledgedly advised them to sort out the mining approval. Further on, Rio Tinto bought a stake in IVN last fall and if the there is a mining approval, there will most likely be speculation on whether Rio Tinto will make a bid for the whole company.
-I took profit on half of my long position in Nok/Sek in the high 1.27;s. Post the Nok rate announcement there has been quite a squeeze in Nok/Sek and I am monitoring the remaining position closely.
-I have taken profit on my long Oil position.
- I am short US long bonds via options
Volatility has calmed down substantially and many assets are currently ranging or correcting. I will await further opportunities from here. One thing is for sure - there will be more of them. In all kinds of shape and forms.
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.
What has happened over the last few weeks?
Massive US stimulus launches and G20 like meetings has generated hope for a change and solution to improvements in housing, growth, toxic assets and the liquidity plug.
Markets have had very bearish expectations both on economic numbers and corporate news. Any number or news in line with already bearish expectations has been a positive, any positive number or news has been megabullish. The China growth story has been brushed off and relaunched further enhancing the positive market sentiment. In short; the market consensus has been negative. It was time for a position squeeze and a bearmarketrally, which is what we have seen. The market still seem quite hesitant to this latest bullrally which could indicate it still has legs.
In addition, there has been quite alot of liquidity related depression of assets, which are now bouncing. Equity valuations are up on the radarscreen again.
Even carry aspects are coming alive with yielders gaining together with commodity and riskaversion hit currencies. CEE currencies has after an initial rally been consolidating for the last week.
*Where from here?
With higher stocks and lower implied volatilites comes carry plays and increased asset correlations. This creates opportunities for bullish asset plays. Commodities could very well continue higher from here.
I am still quite wary of the Baltics and the impact it will have on the rest of the CEE countries, the Scandinavian and western European banks. In a pressconference today the Latvian PM made clear that the IMF supports a devaluation while the Latvian government, Centralbank and the European Commission does not. The pressconference was given in conjunction with the Latvian - IMF renegotiation of the budget deficit in relationship to the GDP. Latvia wants to change the agreed maximum from 5%, to a 7% budget deficit of GDP. It will probably be quite difficult to get the IMF to agree to those new terms.
I believe the IMF would rather, as mentioned above, see a float if there are to be any concessions. Question is; Will the the EU step in to add the necessary cash to Latvia if the IMF refuses? Anyway, the Swedish, Norwegian and Danish governments/taxpayers should make sure they dont waste any more cash than they have already done. It is simply not worth it.
It will become difficult to solve the US banksituation with the Geithner plan. Partly due to flaws in the plan itself (see earlier posts), but also because of the increasing risk that the US Congress will not be forthcoming. Latest suggestion in the US congress is that any company buying 1BN Usd or more worth of "toxic assets" will automatically be subject to US state bonus regulations.
Besides, the Baltics and the CEE and western European banking insolvency issues have yet to play out in Europe.
When it comes to China, I would be very careful in reading too much into it. True, there are massive infrastucture projects being launched in China which I am all for and think is great. That is definitely a positive. However, I dont think we have seen even a fraction of Chinas misallocation and banking problems come to the surface yet. The key for China will be whether the surplus will be able to finance the coming credit losses and domestic spending without selling assets abroad; read the US).
*The inflation scare
I do agree there is a high risk of inflation becoming a massive issue at some point in time - but not now. One thing at a time. To me it seems way premature to play the inflation theme at this point in time. The timing is simply off. Admittedly, I have been long oil myself, but NOT due to any inflation scare. The main issue is still deflation, despite the recent US and European numbers. Over the last few weeks there has been plenty of position squaring and triggering of stops. I believe this too, could continue until trends are resumed again. I will stay nimble til then.
*Positioning
-I was caught long puts on European banks with exposure vs the Baltics and the CEE as the market went sharply higher. Luckily I went long a basket of US bank stocks against it, since I wanted to keep the digital exposure while benefitting from the US bank plan.
-I am still long the puts but have closed my long basket of US bank stocks.
-I closed my short positions on the CEE currencies and am closely monitoring them from here, looking for a reentry. I am still long Eur/Lvl.
-I am still short Gold via options and am currently reevaluating the position as momentum is waning. I still believe the market consensus is way too bullish and with 43% of long Gold positions stemming from the GLD ETF contract, it seems like it would be ripe for a clearout.
-I am still long the IVN Goldminer stock. The stock has moved favourably since my position inception but I am in it for way more than that. The mining approval they are awaiting from the Mongolian parliament would, if approved, clear the way for the worlds biggest Gold and Coppermine field. The parliament is set to reconvene on this issue in early April. With the Mongolian government currently strapped for cash relying on the IMF for funding, the IMF has alledgedly advised them to sort out the mining approval. Further on, Rio Tinto bought a stake in IVN last fall and if the there is a mining approval, there will most likely be speculation on whether Rio Tinto will make a bid for the whole company.
-I took profit on half of my long position in Nok/Sek in the high 1.27;s. Post the Nok rate announcement there has been quite a squeeze in Nok/Sek and I am monitoring the remaining position closely.
-I have taken profit on my long Oil position.
- I am short US long bonds via options
Volatility has calmed down substantially and many assets are currently ranging or correcting. I will await further opportunities from here. One thing is for sure - there will be more of them. In all kinds of shape and forms.
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.
24 March 2009
US taxpayers, the Geithner plan and quantitative easing vs banks lack of mark to market of balance sheet assets
* First off
Lets make this clear; The market is always right and markets are inefficient. The only thing that matter in the marketplace is what the market does. Timing is everything. Sounds contradictory?Bottom line; respect the price action, it will always provide information in itself. However, the key is identifying that information and interpreting it. For instance, is the market rallying because the Mr Geithners plan is a good plan or is there something else driving it?
For the time being, I believe the market is rallying for other reasons. I will not spend time elaborating why, apart from the mechanics of a bear market rally. Now, with this made crystal clear, back to the fundamental dilemma that the Geithner plan is trying to sort out.
*What would be the quickest and easiest way to get lending for banks with "toxic assets" going again?
Answer; Get rid of the "toxic" assets. If not possible, mark them to market.
Its as simple as that. However, there are some, eehhumm, drawback(s); Many banks with these "toxic" assets have big discrepancies between balance sheet and market values. This will make banks become insolvent in the mark to market process. Dissolving themselves while creating the solution so to speak.
This goes for the vast majority of banks globally which are burdened by "toxic" or bad assets. According to Credit Suisse, only 15% of US banks have their assets marked to market.
*Minimizing the taxpayer injury
The question then becomes how to make taxpayers taking as small a hit as possible.
This involves lettings shareholders loose the value of their capital invested, it would further involve bondholders of banks doing the same. Depositors and contracts made with other banks, corporates and other financial instituions would have to be honoured though, not create havoc.
This way, at least some money would be saved for taxpayers. Post this I would propose the "new bank" model, (I have mentioned this one in earlier pieces), where good assets would be lifted out from the "old" bank into a "new" one. The remaining debts and "toxic assets" would be left in the "old" one. Taxpayers would then hold it til it would be possible to offload any or all of it to the market at a point in the future deemed "appropriate". Meanwhile, the "new" bank would be completely refinanced by private capital/investors. This would most likely be no problem. I would certainly want to be a shareholder in a bank with no bad loans or assets. It is per definition a moneymaker.
*The Geithner plan means a higher risk for increased costs without solving the underlying problem
In my view, the Geithner plan is a much costlier version for the taxpayers. It is cost inefficient and it burdens the taxpayer too much vs the banks. Most important of all;
1) It still does not come to grips with the underlying issue; the overvaluation of US banks balancesheet assets. As long as they remain overvalued, lending will NOT start again.
2) Banks management will still be in control of the (non riskmanagement) of their balance sheet. They will be driven by other incentives than the state when it comes to "come clean", thus postponing lending and a revival for the economy.
3) The risk with Mr Geithners plan is that banks will simply not sell the most "toxic" assets on their balance sheet if bids are "too low". (Meaning the discrepancy between their balance sheet and the market price offered would incure "too big" losses.) Hence, the most "toxic" assets will remain on their balance sheets, effectively clogging up new lending.
One way would be for the US treasury to force banks marking their assets to market values achieved via the auctions. I very much doubt this will happen since then the US treasury and Mr Geithner would have presented a completely different plan in the first place. Mr Geithner and the US treasury must be very aware that banks are insolvent if their balancesheets assets are marked to market.
4) The Geithner plan wants private investors buy "toxic" assets, with the US taxpayers sorting out the private investors financing. (Up to six times when it comes to "legacy loans"(!), "legacy securities" is only financed 1;1 by the US taxpayers). Taxpayer leveraging finance in a deleveraging world. It does not make sense to me.
*High risk solution creates high risks for the US - and the world
Quantitative easing is another inefficient way of trying to get to grips with this problem instead of attacking the root of it.
It follows the same pattern as the Geithner plan. Increase leverage further in order to roll losses forward and smoothen it out over time. Not good and I dont like it. Quantitative easing has never worked from a historical perspective and is not likely to work well now either, especially since we know exactly where the problem lies.
*Deleveraging in an orderly fashion is the key -because deleveraging should and must take place
One risk from here is that the US exports an easing of monetary conditions, creating further misallocations of capital, not completing the necessary deleveraging process set in motion.
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.
Lets make this clear; The market is always right and markets are inefficient. The only thing that matter in the marketplace is what the market does. Timing is everything. Sounds contradictory?Bottom line; respect the price action, it will always provide information in itself. However, the key is identifying that information and interpreting it. For instance, is the market rallying because the Mr Geithners plan is a good plan or is there something else driving it?
For the time being, I believe the market is rallying for other reasons. I will not spend time elaborating why, apart from the mechanics of a bear market rally. Now, with this made crystal clear, back to the fundamental dilemma that the Geithner plan is trying to sort out.
*What would be the quickest and easiest way to get lending for banks with "toxic assets" going again?
Answer; Get rid of the "toxic" assets. If not possible, mark them to market.
Its as simple as that. However, there are some, eehhumm, drawback(s); Many banks with these "toxic" assets have big discrepancies between balance sheet and market values. This will make banks become insolvent in the mark to market process. Dissolving themselves while creating the solution so to speak.
This goes for the vast majority of banks globally which are burdened by "toxic" or bad assets. According to Credit Suisse, only 15% of US banks have their assets marked to market.
*Minimizing the taxpayer injury
The question then becomes how to make taxpayers taking as small a hit as possible.
This involves lettings shareholders loose the value of their capital invested, it would further involve bondholders of banks doing the same. Depositors and contracts made with other banks, corporates and other financial instituions would have to be honoured though, not create havoc.
This way, at least some money would be saved for taxpayers. Post this I would propose the "new bank" model, (I have mentioned this one in earlier pieces), where good assets would be lifted out from the "old" bank into a "new" one. The remaining debts and "toxic assets" would be left in the "old" one. Taxpayers would then hold it til it would be possible to offload any or all of it to the market at a point in the future deemed "appropriate". Meanwhile, the "new" bank would be completely refinanced by private capital/investors. This would most likely be no problem. I would certainly want to be a shareholder in a bank with no bad loans or assets. It is per definition a moneymaker.
*The Geithner plan means a higher risk for increased costs without solving the underlying problem
In my view, the Geithner plan is a much costlier version for the taxpayers. It is cost inefficient and it burdens the taxpayer too much vs the banks. Most important of all;
1) It still does not come to grips with the underlying issue; the overvaluation of US banks balancesheet assets. As long as they remain overvalued, lending will NOT start again.
2) Banks management will still be in control of the (non riskmanagement) of their balance sheet. They will be driven by other incentives than the state when it comes to "come clean", thus postponing lending and a revival for the economy.
3) The risk with Mr Geithners plan is that banks will simply not sell the most "toxic" assets on their balance sheet if bids are "too low". (Meaning the discrepancy between their balance sheet and the market price offered would incure "too big" losses.) Hence, the most "toxic" assets will remain on their balance sheets, effectively clogging up new lending.
One way would be for the US treasury to force banks marking their assets to market values achieved via the auctions. I very much doubt this will happen since then the US treasury and Mr Geithner would have presented a completely different plan in the first place. Mr Geithner and the US treasury must be very aware that banks are insolvent if their balancesheets assets are marked to market.
4) The Geithner plan wants private investors buy "toxic" assets, with the US taxpayers sorting out the private investors financing. (Up to six times when it comes to "legacy loans"(!), "legacy securities" is only financed 1;1 by the US taxpayers). Taxpayer leveraging finance in a deleveraging world. It does not make sense to me.
*High risk solution creates high risks for the US - and the world
Quantitative easing is another inefficient way of trying to get to grips with this problem instead of attacking the root of it.
It follows the same pattern as the Geithner plan. Increase leverage further in order to roll losses forward and smoothen it out over time. Not good and I dont like it. Quantitative easing has never worked from a historical perspective and is not likely to work well now either, especially since we know exactly where the problem lies.
*Deleveraging in an orderly fashion is the key -because deleveraging should and must take place
One risk from here is that the US exports an easing of monetary conditions, creating further misallocations of capital, not completing the necessary deleveraging process set in motion.
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.
23 March 2009
Mr Geithner presenting the details - and the markets like it. I am not sure I do.
*The new plan to bring relief to "toxic assets" - will it work?
It depends on the purpose.
-If the purpose is to get "toxic assets" off the US banks balance sheets, it seems it could run into difficulties as only the banks truly "desperate" for capital might come forward. The bidding process for the private sector seems to be structured in such a way that the private investor will pay for a little bit over 7% of the initial investment no matter what they bid. With yield levels already very low, this would be an additional reason for private investors to be cautious in bidding for assets on offer. I doubt whether this will then help US banks to get recapitalised. However, it will establish a market price level. I would guess this would be the primary purpose.
-If the purpose is to force US banks to mark to market their balance sheet assets, it might be quite efficient as market prices will get established. However, the risk is high that this will trigger further¨recapitalisation needs, adding further supply to the market. With many influencal heavyweights in favour of no mark to market whatsoever, I would guess this is just a spinoff, although this would be a real way of getting to grips with the banks problems.
There is also the question of how these assets will be valued once they have been bought. So far I havent seen any detail on this. It is quite important and a question that need to be answered. Will be interesting to see whether this is also in place or not.
So far the stock markets have rallied and riskaversion continues to fall. This might very well continue. However I am wary of setbacks to this plan. Mr Geithner is hanging by a loose thread and if this latest plan would somehow not be deemed sufficient in detail or workability.,he is likely to have to go, creating turbulence and uncertainty in the process.
Positions;
I have closed my short Sek vs Eur, short Try, Pln and Huf.
Long basket of US banks stocks.
Long gamma in Eur/Usd, Eur/Jpy.
Long Nok/Sek.
Long Gbp/Usd, Gbp/Chf.
Long Oil, Short Gold.
Long Gold miner stock IVN.
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.
It depends on the purpose.
-If the purpose is to get "toxic assets" off the US banks balance sheets, it seems it could run into difficulties as only the banks truly "desperate" for capital might come forward. The bidding process for the private sector seems to be structured in such a way that the private investor will pay for a little bit over 7% of the initial investment no matter what they bid. With yield levels already very low, this would be an additional reason for private investors to be cautious in bidding for assets on offer. I doubt whether this will then help US banks to get recapitalised. However, it will establish a market price level. I would guess this would be the primary purpose.
-If the purpose is to force US banks to mark to market their balance sheet assets, it might be quite efficient as market prices will get established. However, the risk is high that this will trigger further¨recapitalisation needs, adding further supply to the market. With many influencal heavyweights in favour of no mark to market whatsoever, I would guess this is just a spinoff, although this would be a real way of getting to grips with the banks problems.
There is also the question of how these assets will be valued once they have been bought. So far I havent seen any detail on this. It is quite important and a question that need to be answered. Will be interesting to see whether this is also in place or not.
So far the stock markets have rallied and riskaversion continues to fall. This might very well continue. However I am wary of setbacks to this plan. Mr Geithner is hanging by a loose thread and if this latest plan would somehow not be deemed sufficient in detail or workability.,he is likely to have to go, creating turbulence and uncertainty in the process.
Positions;
I have closed my short Sek vs Eur, short Try, Pln and Huf.
Long basket of US banks stocks.
Long gamma in Eur/Usd, Eur/Jpy.
Long Nok/Sek.
Long Gbp/Usd, Gbp/Chf.
Long Oil, Short Gold.
Long Gold miner stock IVN.
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.
19 March 2009
The FED steroid injection - raising the stakes
*The FED going for quantitative easing, a sign of commitment or desperation?
I guess there are several takes on it. The positive one is that the FED gets ahead of the curve. The negative one is the state of the US banking system is in a far worse state than what the market is aware of. The bottom line is that the FED is raising the stakes and increasing the risks, given the heavy dependency on foreign financing due to their mountain of debt.
As of March 11th, the FED;s balancesheet was about 2Trn Usd. With the new measures announced, the FED;s balancesheet is set to expand to more than 4 Trn Usd.
*What are the consequences?
Short term, most likely this will mean an undermining of the USD, so weaker Usd, exporting an easing of monetary conditions abroad in the process. Implied volatility and riskaversion should come lower from this, benefitting riskier assets and narrowing spreads. Commodities should benefit as well, especially energyrelated ones.
Gold shot up yesterday, alledgedly on inflation related concerns. Gold seemed quite isolated in that context, especially with long end yields and riskaversion falling. While Gold could continue to have swift 50-100 Usd moves from here either way in the shortterm, the price action would seem to be reminiscent of a topping out process. Either way, I will make sure to be in on it since it generates serious money.
The Eur/Jpy bullish case should be in fullforce still while the Usd/Jpy one has weaken somewhat due to relative weakened policy credibility, growth on the US front plus vastly changed long yield differentials in favour of the Jpy.
I doubt any carry revival is on the cards near term though. Although financials have run up already, they could have further to go. As Ive pointed out earlier, I prefer US banks stocks to European ones. Mainly due to the cycle of which the US ones are in and the digital risk of the Baltics plus the Eastern europe dilemma which has yet to play out.
I would like to emphasise that these effects are mainly short term as riskaversion could shift drastically should the effect of the recent FED moves dissappoint. Unfortunately, the risks taken by the FED could make things potentially worse beyond the short term.
*Credibility of Mr Bernanke
Only a few days ago Mr Bernanke declared that the US economy would recover in 2010. With this plan enacted it would seem the transparency of the FED is heavily reduced or no longer in place. Both swap spreads and TIPS widened sharply post the announcement yesterday and might be something to keep in the back of ones mind in the midst of all bull talk.
*Positions changes
I have taken profit on my long Eur/Usd options and am awaiting better timing to get back in. Looking for Eur/Usd to reach 1.40 before long.
I have closed out my long Gbp/Jpy,
Gold rallied strongly overnight and while I am still positioned bearish Gold I am opening up for pure gamma plays here as well.
*FED and riskmanagement
The FED is getting plenty of applause for their latest measures and while I have to concede that the FED seem willing to try "anything and everything", they are also increasing risks and raising the stakes via measures that does not really solve the underlying issues. There is a risk that crunchtime is just rolled forward, snowballing it in the process. The Martingale method is not one to apply to riskmanagement but it is the one that the FED currently applies. This is very concerning to me.
The old saying; "When in trouble - double" is not what riskmanagers should apply, neither is it what the FED should. Lets hope it works out. Fingers crossed. (Seems to be the dominant corporate and government riskmanagement strategy out there at the moment, unfortunately).
*Finally how much is a Trillion USD?
With the FED throwing TRN Usd numbers left right and centre, it might be a good idea to get such a number in perspective.
Here are a few illustrations to achieve this; http://www.mint.com/blog/finance-core/visualizing-one-trillion-dollars/
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.
I guess there are several takes on it. The positive one is that the FED gets ahead of the curve. The negative one is the state of the US banking system is in a far worse state than what the market is aware of. The bottom line is that the FED is raising the stakes and increasing the risks, given the heavy dependency on foreign financing due to their mountain of debt.
As of March 11th, the FED;s balancesheet was about 2Trn Usd. With the new measures announced, the FED;s balancesheet is set to expand to more than 4 Trn Usd.
*What are the consequences?
Short term, most likely this will mean an undermining of the USD, so weaker Usd, exporting an easing of monetary conditions abroad in the process. Implied volatility and riskaversion should come lower from this, benefitting riskier assets and narrowing spreads. Commodities should benefit as well, especially energyrelated ones.
Gold shot up yesterday, alledgedly on inflation related concerns. Gold seemed quite isolated in that context, especially with long end yields and riskaversion falling. While Gold could continue to have swift 50-100 Usd moves from here either way in the shortterm, the price action would seem to be reminiscent of a topping out process. Either way, I will make sure to be in on it since it generates serious money.
The Eur/Jpy bullish case should be in fullforce still while the Usd/Jpy one has weaken somewhat due to relative weakened policy credibility, growth on the US front plus vastly changed long yield differentials in favour of the Jpy.
I doubt any carry revival is on the cards near term though. Although financials have run up already, they could have further to go. As Ive pointed out earlier, I prefer US banks stocks to European ones. Mainly due to the cycle of which the US ones are in and the digital risk of the Baltics plus the Eastern europe dilemma which has yet to play out.
I would like to emphasise that these effects are mainly short term as riskaversion could shift drastically should the effect of the recent FED moves dissappoint. Unfortunately, the risks taken by the FED could make things potentially worse beyond the short term.
*Credibility of Mr Bernanke
Only a few days ago Mr Bernanke declared that the US economy would recover in 2010. With this plan enacted it would seem the transparency of the FED is heavily reduced or no longer in place. Both swap spreads and TIPS widened sharply post the announcement yesterday and might be something to keep in the back of ones mind in the midst of all bull talk.
*Positions changes
I have taken profit on my long Eur/Usd options and am awaiting better timing to get back in. Looking for Eur/Usd to reach 1.40 before long.
I have closed out my long Gbp/Jpy,
Gold rallied strongly overnight and while I am still positioned bearish Gold I am opening up for pure gamma plays here as well.
*FED and riskmanagement
The FED is getting plenty of applause for their latest measures and while I have to concede that the FED seem willing to try "anything and everything", they are also increasing risks and raising the stakes via measures that does not really solve the underlying issues. There is a risk that crunchtime is just rolled forward, snowballing it in the process. The Martingale method is not one to apply to riskmanagement but it is the one that the FED currently applies. This is very concerning to me.
The old saying; "When in trouble - double" is not what riskmanagers should apply, neither is it what the FED should. Lets hope it works out. Fingers crossed. (Seems to be the dominant corporate and government riskmanagement strategy out there at the moment, unfortunately).
*Finally how much is a Trillion USD?
With the FED throwing TRN Usd numbers left right and centre, it might be a good idea to get such a number in perspective.
Here are a few illustrations to achieve this; http://www.mint.com/blog/finance-core/visualizing-one-trillion-dollars/
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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