Friday, 25 January 2008

Trader losses

Here's the article from the Wall Street Journal

Neither did Paris.......

Mr. Bouton said that Mr. Noyer, the Bank of France governor, and the French market regulator, AMF, were informed Sunday. "Everything happened this weekend; we had zero suspicions before Friday," Mr. Bouton said. He said four or five other staff will leave Société Générale, including Mr. Kerviel's immediate managers.

A senior government official said the office of President Nicolas Sarkozy was alerted about the debacle at Société Générale on Wednesday. "Suffice to say we would have appreciated an earlier warning," the official said.

The Fed did not know.......

From the Wall Street Journal:

Fed Still Comfortable With Rate Cut, Even if Rogue Trader Triggered Selloff
By Greg Ip

The Federal Reserve remains comfortable with its decision to cut interest rates Tuesday in spite of news today that the preceding stock selloff may have been related to a rogue trader, a Fed official said.

The official said the Fed didn't know of French bank Société Générale SA's unwinding of a rogue trader's positions when it cut rates. Nonetheless, the Fed remains as comfortable now with its decision ...

Is this the reason that European sharemarkets were trashed?

Was Societe Generale selling as they unwound huge fraudulent positions?

Rogue trader blamed for 5-billion-euro French bank fraud

10 hours ago
PARIS, Jan 24, 2008 (AFP) — French banking giant Societe Generale said Thursday a single trader who fooled his bosses carried out a massive 4.9 billion euro (7.15 billion dollar) fraud -- one of the biggest scams in financial history.

Bank sources identified the trader as 31-year-old Jerome Kerviel, who had worked at Societe Generale in Paris since 2000 and had been on the trading desk since 2005. His whereabouts were unknown.

Trading in the bank's shares was temporarily suspended at the bank's request and stock closed 4.14 percent lower on news of the fraud and a 2.05 billion euro loss in the US subprime mortgage market.

The bank said the losses cut its 2007 profit to 600-800 million euros from 5.2 billion euros in 2006 and that it needed a capital increase of 5.5 billion euros to restore its balance sheet.

The fraud is another blow to investor confidence in a global banking sector already suffering from multi-billion dollar writedowns at some of the biggest lenders in Britain and the United States.

The case dwarfs that of Nick Leeson, the original British "rogue trader" who lost 1.5 billion dollars at Barings, causing the failure of the venerable British bank in 1995.

Societe Generale chief executive and chairman Daniel Bouton said the rogue trader had used "extremely sophisticated and varied techniques" to carry out "fraud of a considerable scope" and that he "had the intelligence to escape all control procedures."

The bank, which insisted he acted alone, said he took out "massive fraudulent directional positions in 2007 and 2008 beyond his limited authority."

But experts called into question the bank's version, saying it seemed unlikely that a trader would have managed to successfully hide such colossal losses.

"It seems a bit much to believe that for an entire year this would have gone undetected," said Elie Cohen, a professor of economics at the Paris Institute of Political Studies.

"One person alone cannot trigger such a catastrophe," commented Arnaud Riverain from the private firm Arkeon Finance, who said the bank's trading desk must have suffered from some "dysfunction."

Kerviel, who earned less than 100,000 euros per year, allegedly built up the huge losses dealing in derivatives tradings.

"The transactions which involved the fraud were simple -- taking a position on shares rising -- but hidden using extremely sophisticated and varied techniques," said Bouton in a statement.

He said the trader had been suspended after confessing to the fraud and that legal action would be taken against him.

But asked about his whereabouts, Bouton responded: "I don't know where he is."

One of France's three biggest banks, Societe Generale filed a court complaint against the trader, accusing him of falsifying bank documents, use of falsified bank documents and unauthorized computer access.

The Paris prosecutor's office opened a preliminary investigation into the scandal while scores of shareholders lodged suit against the bank for fraud and misconduct.

Top executives were fired and Bouton, whose offer to resign was rejected, said both he and his deputy Philippe Citerne would forego their salaries for six months and bonuses for 2007.

French Prime Minister Francois Fillon said the fraud was "a serious matter but at the same time, it has nothing to do with the current situation on the global financial markets."

Finance Minister Christine Lagarde said she had asked the country's banking regulator to bring in tougher controls in response to the scandal.

Societe Generale said in a statement that the rogue trader had been carrying out what it called "vanilla futures hedging" on European equity markets -- industry jargon for the most most basic kind of futures purchase.

It said he had an in-depth knowledge of the bank's control systems, and managed to cover his tracks "through a scheme of elaborate fictitious transactions."

These were discovered and investigated on January 19 and 20, it said.

A Societe Generale union source said it appeared that the trader had not acted for personal profit.

"The trader in question was experienced, knew how the bank worked. It seems he was playing the markets, but not for his own profit, and caused enormous losses," the source told AFP.

A human resources official described him as a "fragile" individual, "without particular genius" and facing family problems.

The rogue trader scandal is one of the biggest to hit the international finance industry.

Three years after Nick Leeson caused the meltdown of Britain's Barings bank, the Japanese Yasuo Hamanaka was jailed in 1998 for a decade of rogue trading which cost the Sumitomo Corporation of Japan 2.6 billion dollars.

And in 2002 John Rusnak, a trader employed by Allied Irish Bank, was jailed for seven-and-a-half-years by a US court for losing the company 750 million dollars through unauthorised currency trading.

Societe Generale's stock has lost 20 percent of its value since the start of the year and 50 percent since last May.

The Fitch credit ratings agency lowered its ranking for Societe Generale debt to AA- from AA and some analysts said the bank risked becoming a takeover target.

The Long Johns - The Last Laugh - George Parr - Subprime

Absolute Classic!!

Thursday, 24 January 2008

Thursday, 17 January 2008

More NZD Investment...NZD415m!!

TOKYO, Jan 17 (Reuters) - The Inter-American Development Bank [IADB.UL] will sell a $17 million uridashi bond, a A$215 million ($189.4 million) uridashi bond, and a NZ$415 million ($319.2 million) uridashi bond, market sources said on Thursday.

The bonds will be issued on Jan. 29.

The U.S. dollar uridashi bond will carry a 2.64 percent coupon, with a maturity date of Jan. 27, 2012.

The Aussie bond will carry a 6.39 percent coupon and mature on Jan. 27, 2011. The kiwi bond will have a 7.41 percent coupon and mature on Jan. 29, 2010. The sales period runs from Jan. 18 through 29.

The IADB is rated at Aaa by Moody's Investors Service and AAA by Standard & Poor's.

That's over 1 billion in 2 days!!

Sharemarket falls

The sharemarkets may have gone down.....

.....but none of the bloody shares I am trying to buy cheaper have gone down.

Toyota unit to sell NZ$685 mln uridashi bond

TOKYO, Jan 15 Toyota Motor Credit Corp, a unit of Toyota Motor Corp, will sell a NZ$685 million uridashi bond, documents filed with Japanese financial authorities showed on Tuesday.

The bonds, which will be issued on Jan. 29, will carry a 7.64% coupon.
The sales period runs Jan. 16-29, with a maturity date of Jan. 28, 2010.

Toyota Motor Credit is rated triple A by Moody's Investors Service and Standard & Poor's.

Uridashis are foreign bonds sold to Japanese retail investors.

See, they still love us !

Wednesday, 16 January 2008

NZD/JPY update

Average in NZD/JPY position: 83.75

And that's before the interest in the carry is added in.

But review levels were 84.00, and the NZD/JPY, at 81.20, is well below 84:00 review level.

This cross can only move dramatically lower if the USD/JPY falls or the NZD/USD falls. There was always a chance that the USD/JPY would move lower on a weaker USD. But to have the NZD/USD move down at the same time makes this cross drop real fast. Once again "carry trade unwinding" is blamed. My experience of most carry trades is that weakness is used to do more, and in a few weeks, the yield has pushed it back up again.

I do not see weakness in the NZD/USD as sustainable.

Therefore, have further added to the position at 81.20, pulling the average down to 82.90.

Fortune favours the brave!!

Tuesday, 15 January 2008


Went to the Melbourne casino tonight. Wandered all around it. As usual, I left the casino with the same amount of money that I walked in with.

I find it really hard to throw away money in the casinos, because I just struggle to see the odds as worth the effort....and I've looked at it all.

But so many people looking for a quick buck. The poker tables were packed. At least poker gives you a chance, but so much effort for what?

The roulette tables were packed... might as well throw money away.

It again gave me a sense of perspective. I am lucky to understand how to trade markets.
The casinos play with tens, hundreds, thousands, even. But in the markets I trade with millions.
I don't always win, but I win more than I lose...and the odds are so much better than a casino.

Sunday, 13 January 2008

Water - the really really important resource

This is a brilliant article, and in case the link is lost, here's a copy:

Why this rainy country should bother about water

Colin James's NZ Herald column for 8 January 2008

This month's scare is oil, a resource. The long-range scare is climate change, an environmental issue. But bigger than oil and more proximate than climate change is water.

Water is a resource issue and an environmental issue -- and potentially a cause of conflict.

In our pluvial country water is not top-of-mind. There are occasional droughts and less water is expected in the east this century. Some catchments are overallocated or badly managed. But, with political will (so far lacking), we can easily manage.

Water is top-of-mind in Australia, which appears to be turning drier and can grow less wheat, fewer animals and fewer grapes and will have to get drinking water from the sea. But that is manageable and might even deliver exportable technologies, management techniques and skills.
Water is becoming scarce in some Rockies regions in the United States. But that can be fixed by people moving state.

In east and south Asia water is not easily fixed and it's getting serious. Well over 2 billion people live there. If water goes wrong there, it could be rough for all of us.

India's rapid recent population growth owes much to the "green revolution" -- new strains of rice and other crops -- which has in part depended on liberal use of water.

Much of that water -- one estimate is two-thirds -- comes from underground. The International Water Management Institute estimates that two-fifths more water is extracted each year than is replenished by rainfall.

So bores are going deeper -- up to 40 times deeper. At some point they will run dry. In some states the area of irrigated land is already contracting.

There are mitigating options: harvesting monsoon rain and storing it in ponds so water seeps back into underground aquifers instead of running out to sea; diverting rivers. But pond storage has limits (and the monsoons are less predictable) and diverting rivers denies water to downstream users, notably in Bangladesh, which is not good for peaceful neighbourly relations.

Other south Asian and south-east Asian countries have also begun to over-use underground water.

So has China, most spectacularly in the north.

China's breakneck industrialisation is legendary, as is now its pollution, affecting Japan, western United States and even on occasion Europe.

China's industry gobbles coal, oil and raw materials -- and water. The cotton in a single t-shirt takes 25 bathtubs of water, according to the New Scientist. And industry pours polluted water back into the waterways.

One result of overuse and pollution is toxic fish exports, now causing China problems with importing countries. Another is that streams and even rivers run dry. A third is that farmers, manufacturers and cities have been extracting underground water far faster than it is replenished.

Edicts from Beijing to limit the numbers of bores and the amount extracted are routinely ignored, not only by the users but also by provincial and city authorities. So are pollution controls.

The potential end-result is, as in India, insufficient food. Already in parts of China's north fewer crops are grown because water is lacking.

Couple that with greater affluence as Asia's middle classes expand and you get higher food prices, notably of grains. You can feel that in the price of bread: wheat prices have zoomed.

You can afford that extra. But in a poor-country household grain, particularly rice, is a large part of the budget. And the world price of rice has doubled in the past two years.

The implications are obvious. Moreover, the world population is projected to grow from the present 6 billion-plus to a peak of 9 billion. What will they eat? Will large numbers starve? And if they starve will they starve peacefully or turn to violence? And, if violence, will our rainy, food-rich country be totally unaffected?

Go back to China. To alleviate the water shortage in the north, where 60 per cent of the supply comes from diminishing underground aquifers, China is building three huge diversion channels to siphon around 50 trillion litres a year from the Yangtze basin.

Elsewhere China aims to maximise the use of its rivers within its borders. That will in many cases reduce flows to other countries, in an arc from India through south-east Asia to Russia. The Mekong, for example, is a lifeblood, not just as water but in fish protein, to the populations in several south-east Asian countries.

China uses "soft power" (diplomacy, aid, investment, trade) with great skill to placate south-east Asians.

But will soft power always suffice? China is fast developing its military capability and has a long imperial history. When pessimists talk of resource wars, water is potentially a bigger bother than fossil fuels and metals. Water is life. There is no substitute.

So when it rains, count your blessings and pray for brilliant technical and political initiatives in countries where mighty thirsts are draining reserves.
And ask if you really need that next 25-bathtub t-shirt.

Saturday, 12 January 2008

Commodities surge higher

Gold has lifted to test $880.20 a troy ounce in US trading, helped by new investor inflows at the start of the year, rising oil prices and concerns over the outlook for the dollar. Gold has also found support from the increase in geopolitical tensions after US naval ships in the Strait of Hormuz came close to firing on five Iranian boats, which reportedly threatened them at the weekend.

In China, trading in gold futures is due to begin on the Shanghai Futures Exchange on Wednesday. “This is the biggest event in the market since the launch of the gold exchange traded funds as a [Shanghai] gold future will allow leveraged investment from Chinese investors and speculators,” said John Reade of UBS. “We could see a few million ounces of gold bought via futures over the course of the next few months, but it is entirely possible that interest will exceed this.”

Investment demand for gold has been rising steadily with holdings in streetTRACKS, the largest gold exchange traded fund, increasing to a record high of 639.35 tonnes on Monday.But analysts remain concerned that price volatility will have a negative effect on jewellery demand.

“There is a growing dichotomy in the gold market between investment demand, which is robust, and consumer demand for gold, which is contracting in most regions,” said James Steel, precious metals analyst at HSBC.

Crude oil prices rose on talk of an attack on oil facilities, which are being threatened by militants in Nigeria, the world’s eighth largest crude exporter. After dropping by $2.82 in the previous session, Nymex February West Texas Intermediate rebounded $1.24 to $96.33 a barrel. ICE February Brent added $1.15 at $95.54 a barrel.

Copper jumped 5.8 per cent to $7,310 a tonne, helped by falling inventories in China, which is leading to supply concerns and market speculation that imports will have to increase to meet strong domestic demand. Other base metals followed copper higher. Zinc gained 3.6 per cent to $2,580 a tonne on talk that China’s zinc production declined in the second half of 2007. Nickel rose 2.6 per cent to $28,950 a tonne while lead added 3.1 per cent at $2,670 a tonne. Dealers said some players had bought in anticipation of prices rallying as a result of the commodity index re-weightings that take place this week. Dealers said that in the absence of a clearer improvement in fundamentals, base metals could run into profit taking once reweighting of the indexes is complete.

Food Groups
Coffee prices were little moved by forecasts for a sharp increase in the Brazilian coffee harvest in 2008-09. Conab, the Brazilian government agency, is forecasting a crop of 41.3m-44.2m 60kg bags, up from a harvest of 33.74m bags in 2007-08. Conab’s forecasts are more conservative than market estimates, which range from 44m to 50m bags. Liffe March robusta coffee rose $15 to $1,966 a tonne.

Huge growth in investor interest in commodities was underlined by a record breaking performance for trading volumes in robusta coffee, cocoa, sugar, feed wheat, milling wheat and rapeseed on Liffe last year. Liffe said that the volume of all commodity products (futures and options) rose 30 per cent to a record 12.78m in 2007.

The Financial Times

With all this demand going on, hard to see commodity currencies like the NZD and the AUD taking a look lower for very long, if at all. -KT