Sunday, 28 September 2008

Yen deal

Couldn't wait!

Added a long USD1m short Yen trade at 105.66 on Friday
Still have an order to do another 1 m at 104.00 but I doubt we will see it.

Tuesday, 23 September 2008

Position Update

Orders filed at 1.4350 and 1.4400 for EUR 1m apiece.

So now short Euro 4m long USD at average of 1.4283 and at the current rate of 1.4640 not looking too good. Will re assess if 1.5000 is broken conclusively.

But certainly volatile times, with the USD correcting from recent gains as a result.

May sell NZD against the USD tomorrow if above 0.6900 in the morning.

AUD is a sell against the USD on approaches to 0.8600.

Have left an order to buy 1m USD sell Yen at 104.00, just fishing really for a good level.

We'll see how my wallet has coped by week's end!

Saturday, 20 September 2008

Beware of falling BRICs

Economist, 18th September 2008.

Emerging countries are not the havens some people thought.

So much for decoupling. In the wake of Lehman Brothers’ failure, emerging markets have suffered one of their biggest sell-offs in years. On September 18th Russia’s main bourses suspended trading in shares and bonds for a third day in a row after the largest one-day stockmarket fall for a decade; the central bank poured billions into big banks and the money market in a forlorn bid to calm fears.
JPMorgan’s emerging-markets bond index fell by more than 5% in the week to September 16th, giving up in a few days all the gains it had made this year. Prices of Argentina’s credit-default swaps, a gauge of credit risk, rose to their highest-ever level. Unexpectedly, the People’s Bank of China cut its benchmark lending rate by 27 basis points on September 15th, to 7.2%, the first cut for six years.

These actions reflected a variety of concerns, such as a darkening economic mood in China and political worries in Russia. But they all have something in common: investors may be changing their minds about emerging markets.

For the past few years, China, Brazil and others, with their high growth rates and large current-account surpluses, began to seem like desirable alternatives to developed markets. For part of last year, the MSCI emerging-markets index was even trading at a higher multiple of earnings than the index of rich-world shares.

That is changing as investors lose their appetite for risk. Merrill Lynch’s most recent survey of fund managers found that they are now holding more bonds than normal for the first time in a decade (indicating a flight to safety). They also have smaller positions in emerging-market equities than at any time since 2001. In the past three months, says Michael Hartnett of Merrill Lynch, emerging-market funds have seen an outflow of $26 billion, compared with an inflow of $100 billion in the previous five years.

Falling oil and commodity prices are partly to blame. When these were rising, money poured into Brazil and Russia, which became targets of the “carry trade” (investors borrow in low-yielding currencies and buy high-yielding ones). Now oil prices are falling (dipping almost to $90 a barrel this week), they are undermining the carry trade and forcing Russia to prop up the rouble. Indebted investors are also being forced by their banks to sell as falling prices reduce the value of their collateral.

Lower oil and commodity prices ought to benefit China and India, by lowering import bills and assuaging worries about inflation. Yet India’s foreign-exchange reserves fell by $6.5 billion in the first week of September as the central bank sold dollars to slow the fall of the rupee. In China, worries are growing about weakening export demand (growth in export volumes has fallen by almost half over the past year to 11%) and falling property prices, which seem to play a role similar to equity prices elsewhere. In the past three months, property sales in big cities were 40-50% lower than a year ago, according to figures tracked by Paul Cavey of Macquarie Securities. An agent for one of Hong Kong’s largest property companies says “confidence ended this week with the fall of Lehman.”

All these countries have the comfort of huge foreign-exchange reserves. On September 16th the new governor of India’s central bank said he would continue to cushion the rupee’s fall; he also raised the interest rate Indian expatriates can earn on deposits at home and let banks borrow a bit more from the central bank. China’s interest-rate cut shows that its government, too, has room for manoeuvre. But the cut will have little direct impact on the economy because lending is limited by quotas.

It was intended to boost confidence at a time of falling share and house prices. Too bad that among emerging-market investors, confidence is in short supply.

Global meltdown continues

This article, that I blogged on last year, in August, was so right.

We are still going through the unwinding of leveraged positions, and suspicion is everywhere.

Global growth will continue to stall, as capital dries up.

Stay in the trenches, and keep your heads down!

Once the US calms, Europe as always, is next to reveal disasters.

Sell the Euro!

Tuesday, 16 September 2008

Position update

Re entered short Euro long USD positions at 1.4145 and 1.4238, with further orders to sell Euros at 1.4350 and 1.4400.

So current position 2m Euros sold bought USD at average of 1.4192.

Investors will be buying USDs to shore up losses in US markets, and carry trades are being unravelled.

I don't like the Russian expansion going on. Georgia is the obvious but Ukraine and Poland are very worried. Russia sending military planes to Argentina and reports of "fly bys" in the Atlantic and near Alaska with British and US planes prove that Russia is once again testing the waters.

Putin wants to return Russia to former glories, and will be pushing the envelope more in the months ahead. He has the money to do it, with oil and gas revenues flowing back to Russia.

The European Union and Nato is a plate of jelly, as depicted in last weeks Economist.

Euro investors are naturally worried. If you need proof, take a look at a Euro/USD chart. It dropped sharply on 7/8 August, just as the Olympics started.

But they were also the days when Russia retaliated in Georgia and the tanks went in.

Sell Euros!

Monday, 15 September 2008

The difference between US and European monetary policy

Europe Shuns U.S.-Style `Active Role' on Economy, Bank Bailouts
By Simon Kennedy and John Rega

Sept. 15 (Bloomberg) -- European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.

As U.S. officials in Washington monitored the slide of Lehman Brothers Holdings Inc., European policy makers concluded talks in Nice, France, without breaking new ground on how to share the bailout cost if a bank collapse threatened to spread across the region. They also signaled restraining inflation and budget deficits was a better strategy to revive economic growth than lowering taxes and interest rates.

``U.S. policy makers have generally taken a more active role in supporting the economy and stabilizing financial markets, while the euro zone has opted for a less-interventionist stance,'' said Natacha Valla, a former economist at the European Central Bank and now at Goldman Sachs Group Inc. in Paris.

The transatlantic divide in monetary and fiscal policies may mean the economy of the 15-nation euro region takes longer to rebound after contracting 0.2 percent in the second quarter. The European Commission projects the weakest growth since 2003 this year as Germany and Spain slip into a recession and Italy and France stagnate.

``Europe faces a long-lasting slowdown and only gradual recovery,'' said Dario Perkins, an economist at ABN Amro Holding NV in London.

Cost-Sharing Plan
The lack of a cost-sharing plan means the pain would be even greater should a pan-European financial institution run into troubles similar to those that battered Bear Stearns Cos., Fannie Mae and Freddie Mac in the U.S., said Nicolas Veron, an economist at Bruegel, a Brussels-based research organization.

Ministers have so far agreed only to knit bank supervisors closer together and pledged to cooperate in managing any crisis. Unwilling to commit taxpayer money up front, they resisted calls to devise a plan for splitting the bill should a bailout become necessary to prevent a collapse of the financial system.

``The policy response would be slower and less efficient given the lack of a framework and that would pose a significant cost to the economy if something happened,'' said Veron.

By contrast, the U.S. has been able to step in swiftly to help ailing institutions. The government this month assumed control of Fannie Mae and Freddie Mac, while in March the Federal Reserve helped finance JPMorgan Chase & Co.'s purchase of Bear Stearns.

Biggest Banks
The U.S. has the advantage that the institutions it monitors are largely contained within its borders. Europe's biggest banks held an average of 24 percent of their assets in European countries other than their own in 2006, double the amount of 1997, according to Bruegel.

European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product.

Neither restraint exists in the U.S., allowing the Fed to cut its benchmark rate to 2 percent and President George W. Bush to enact $168 billion of stimulus. Europe's strategy amounts to a bet that expansion can be better revived by controlling inflation and budgets than by pump-priming growth with short-term stimulus that generates higher prices and bigger deficits.

Spending taxpayers' funds on fiscal programs to spark growth would be ``like burning money,'' German Finance Minister Peer Steinbrueck said. Luxembourg Finance Minister Jean-Claude Juncker questioned the success of the U.S. approach, and said declines in the euro and oil price would help Europe.

Fiscal Easing
``This should calm the ECB a bit as it increasingly fears that fiscal easing would oppose the central bank's efforts to bring down inflation over time,'' said Juergen Michels, an economist at Citigroup Inc. in London.

ECB President Jean-Claude Trichet, who has demanded governments control their budgets, said the test would be ``implementation in practice.'' Price stability remains the bank's ``fundamental concern,'' he said.

Rather than driving up deficits, the European officials said they plan to cushion their economy by allowing automatic stabilizers such as higher welfare payments to kick in. They also pledged to make their economies more flexible, increase financial- market transparency and lend more money to small- and medium-sized industries.

``We're not going to sit on our hands,'' French Finance Minister Christine Lagarde said. Still, slowing growth alone will be enough to end four years of fiscal consolidation with JPMorgan predicting a budget deficit of 2 percent of GDP in the euro area next year, up from 0.6 percent last year.

Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc., predicts an extended period of weak growth may prompt countries such as France and Italy to ``exploit'' a revised rule that allows a temporary breach of the limit in times of weak expansion. Italy, France, Ireland, Portugal and Greece are at risk of breaching the deficit ceiling next year, according to Commerzbank AG.

Sunday, 14 September 2008

No currency positions at present

Have no exposures to the market right now.

Madman Alan Bollard stunned with the 0.50% interest rate cut, so closed out the long NZD short AUD position at 0.8173, for a gain of NZD36,351. (original position entered at 0.7937)

The rally in the Euro on Friday night was too steep for my liking, and was stopped out at 1.4230, which was close to the high (rats!) over the weekend. This realised a gain of USD162,900. (Entry average was 1.4773). @0.6600 NZD246,818.

Total banked gains to date this year are NZD810,523.00

Will look to go short Euro again this week, beginning on rallies into 1.4400, sooner if a deal is struck for Lehman Bros on Asia opening tomorrow.

May sell some NZDs as well if it moves over 0.6700 tomorrow.

Sunday, 7 September 2008

Updated positions

Been a wild week, with big currency moves, and have been travelling, so haven't had time for updates.

Added to short Euro position again at 1.4660 and 1.4500, so now short 3m Euros at average of 1.4773 and well in the money, with spot sub 1.4300.

Still holding long NZD short AUD1m position, still looking for this cross to head to 0.8500.

Toying with buying NZD, selling USD after recent heavy falls, as it is looking more likely that Bollard cannot cut due to the recent falls in the TWI. But he is as mad as a hatter, so still may cut anyway to appease Cullen.

I will wait till the Monetary Policy Statement before doing anything.

Alos considering buying USD's against the Yen, and running a carry trade. Need to see some stability in USD/JPY first, we'll see.