Thinking the unthinkable - a euro zone breakup

By Noah Barkin 26 Nov 10

BERLIN (Reuters) - Contagion spreads from Ireland to Portugal and then to Spain, forcing European leaders to exhaust the $1 trillion bailout fund they set up only half a year ago to defend their ambitious single currency project. Sniping within the 16-nation euro zone mounts and popular support for the euro erodes as German taxpayers rebel against a series of costly rescues and austerity fatigue in the bloc's periphery reaches breaking point.

Eventually one or more countries decide enough is enough and break away or are forced out, reintroducing the national currencies they used before tying their fate to Europe's audacious economic and monetary union. Unthinkable only a few weeks ago, a small but growing number of experts now believe some version of this nightmare scenario could become a reality for the euro zone if policymakers fail to unite behind a more forceful strategy for saving the euro and address investor concerns about fiscal and economic imbalances.

Until now, doomsday predictions of a euro zone breakup have come mainly from Anglo-Saxon sceptics, some of whom saw the single currency bloc and its one-size-fits-all monetary policy as fatally flawed from the very start. Over the summer, British economist Christopher Smallwood of consultants Capital Economics produced a 20-page paper entitled "Why the euro-one needs to break up" and U.S. economist Nouriel Roubini, alias Dr. Doom, predicted euro members would be forced to abandon the single currency.

But as the second wave of Europe's debt crisis gathers pace, engulfing Ireland and heaping pressure on Portugal and Spain, a new group of doubters is emerging. They believe it may be difficult for the euro zone to hold in its current form, even if many think that remains the most likely scenario. Some, like Financial Times commentator Gideon Rachman, say Germany could bolt if public frustration with bailouts mounts or if Berlin is unable to convince its euro partners to back its controversial plan for a new permanent rescue mechanism.

Dissident academics have challenged the legality of German participation in the Greek rescue in the Federal Constitutional Court. If they won, the impact on the euro could be devastating. Others see a risk that economic divergence between Europe's stable core and debt-saddled periphery could end up splintering the bloc into a two-tier "Euro-North" and "Euro-South".

Still others believe Germany could engineer the expulsion of euro weaklings like Greece that it feels should never have been allowed in. "I don't think we'll see a breakup of the euro and Germany returning to the deutschemark, but what we could see is a more homogeneous euro area purged of its low performers," said Domenico Lombardi, a former executive board member at the IMF who is president of the Oxford Institute for Economic Policy.

HUGE POLITICAL WILL
These voices still represent a small minority and few of the sceptics are convinced the euro zone will fracture anytime soon. Close observers of Europe, and the policymakers charged with defending the euro, dismiss the possibility of a breakup out of hand. They cite the huge emotional as well as economic investment in the project, the political will behind it, and the pain, complexity and humiliation an exit would bring. They point to the resilience of the euro itself, which has lost some 6 percent of its value against the U.S. dollar in the past three weeks but remains a strong, stable currency by historical standards.

German Bundesbank president Axel Weber said on Wednesday there was "no way back" from the euro, reassuring his French audience that politicians would simply come up with more money if their $1 trillion safety net proved insufficient. "My guess is that for quite a few years yet policymakers will do whatever they can to save this thing," said Katinka Barysch, deputy director of the Centre for European Reform. "If you sit in London, it's doomed. They don't understand the political investment. They look at the bond spreads and think it's doomed."

Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics in Washington, said a breakup remained "unthinkable" and pointed to the bloc's response to the Greek meltdown, in which, after repeated delays, it tore up the rulebook and took decisive action to stop the rot. "If the euro were seriously at risk one could expect a much more forceful response," he said. "You would see the ECB printing 500 euro notes and dropping them from helicopters before Spain was forced to default or could endanger the euro."

FISCAL UNION A NON-STARTER
Still, if the recent turbulence has proven anything, it's that "shock and awe" measures are unlikely to appease investors for long, nor change their view that the bloc is fundamentally flawed because of a steep competitiveness gap that only a closer fiscal union may be able to solve. Going down this path is a non-starter for Germany, which has insisted instead that peripheral euro countries push through deflationary wage cuts and painful structural reforms to boost productivity, in line with its own successful economic model.

The Greeks, Irish and Portuguese are going along with these policies for now, but sceptics worry that in the years to come this strategy will be exposed as deeply flawed and that destabilising imbalances within the bloc will re-emerge. The OECD predicted last week that Germany's current account surplus would rise back to peaks of around 7 percent of GDP by 2012. It forecast 2012 deficits for Greece and Portugal of 5.9 percent and 8.0 percent respectively, well down from their pre-crisis double-digit highs but still substantial. The realisation that markets may not allow the euro zone to muddle along making only minor tweaks to its fiscal rules, as it did in its first decade, appears to be sinking in among European policymakers.

On Wednesday, the finance minister of euro newcomer Slovakia described the risk of a euro zone breakup as "very real", a day after German Chancellor Angela Merkel told parliament the euro was in an "exceptionally serious" situation. "This is a systemic crisis which requires a systemic response but we haven't seen that so far," said Lombardi. "This is being dealt with on a country by country basis, first Greece, now Ireland, and you can be sure they won't be the last country."

G20 stalemate points up disruptive power shift

By Alan Wheatley, Global Economics Correspondent

BEIJING, Nov 14 (Reuters)

Economic power is leeching from the old world to emerging markets. The politics of globalisation are not keeping pace with this shift. And that makes it hard to agree joint action to tackle urgent issues such as how to reduce China's external surplus.

The Group of 20 summit in Seoul amply corroborated each of these truisms. The risk now is that, in the absence of policy coordination, a purely market-driven adjustment of global economic imbalances will be messier than it need be.

And where market forces are not allowed to prevail, as is the case with China's exchange rate, the temptation for politicians in the United States and Europe to try to force the adjustment through tariffs and import barriers can only grow.

"There is a pervasive sense that the G20 has reached the limit of cooperative efforts towards rebalancing of the world economy," said Eswar Prasad, a Cornell University professor and a senior fellow at the Washington-based Brookings Institution.

With advanced economies barely plodding along while emerging markets are enjoying red-hot growth, reconciling the different types of policies required has become difficult, Prasad said. "In an increasingly integrated world economy with emerging markets playing a prominent role, cross-border spillovers of domestic policies then set up a situation ripe for conflict," he added.

These conflicts were on show in Seoul. Emerging economy members of the G20 flailed the easy-money policies of the Federal Reserve, the U.S. central bank; President Barack Obama, beset at home by high unemployment and low growth, urged Chinese President Hu Jintao to ease the pressure on American manufacturers by letting the yuan rise faster.

But the writ of the United States in the global economic system no longer runs unchallenged.
Gone are the days when a U.S. Treasury secretary could gather four counterparts around a table and set in motion sweeping changes to exchange rates and trade positions.

In the eyes of policymakers in many developing countries, U.S. primacy and credibility have been eroded by the global financial crisis, which had its origins in the U.S. subprime mortgage meltdown.

The ultra-loose monetary and fiscal policies that the United States has adopted in response is testing faith in the dollar to destruction -- and not just among the likes of China and Russia. No less a figure than World Bank President Robert Zoellick, himself a former U.S. Treasury official, said last week it was time to start thinking about building a new monetary system.

So it is little wonder that Washington has repeatedly failed to get Beijing to do its bidding on the yuan. In Seoul, a different tactic fizzled: the G20 refused to back a U.S. plan for numerical targets for current account surpluses and deficits -- a roundabout way of applying peer pressure on China.

Instead, Hu stuck to Beijing's well-rehearsed stance that the yuan's rate of climb would remain gradual and calibrated to China's national interest. In case someone had not heard the first time, Hu repeated his position at an Asia-Pacific leaders' meeting on Sunday in the Japanese port city of Yokohama.

Stewart Patrick with the Council on Foreign Relations in New York said the Fed's recent decision to embark on a $600 billion bond-buying programme had undercut Obama at the summit. Moreover, his party's trouncing in mid-term Congressional elections had made his G20 counterparts sceptical of the president's ability to deliver on global commitments "Confidence in U.S. global economic leadership continues to wane," Patrick said.

"VICTORY FOR EMERGING MARKETS"
Illustrating how the sands are shifting, the G20 gave its blessing to developing countries such as Brazil that opt for capital controls to prevent incoming walls of cash from pushing up already overvalued exchange rates.

Not long ago, such curbs were anathema to the United States and the IMF. In another nod to the growing clout of developing countries, the Seoul summit formally endorsed a deal that gives them more power in the running of the IMF, largely at Europe's expense. "On balance, this G20 meeting was a victory for emerging markets," commented Lena Komileva, head of G7 market economics at Tullett Prebon.

The G20 is not doomed to deadlock as emerging giants try to wrestle power from advanced economies. As well as settling on a redistribution of chairs and shares at the IMF, the group agreed new rules designed to avert future bank collapses.

But the Seoul stalemate over imbalances points up the group's limitations when it is not confronted by an immediate crisis, as it was at the first G20 summit two years ago. Then, the freezing up of global credit markets and the onset of recession concentrated minds and generated a coordinated stimulus in response.

Today, divergent trade and inflation trends are leading to tension rather than policy coordination, according to economists at J.P. Morgan. "Ironically, this tension is likely to produce a desired aggregate outcome -- an easier global monetary policy setting that increases the likelihood of a strong global growth outcome next year.

"However, widening imbalances alongside inappropriately synchronised policy stances raise concern that the eventual global policy normalisation will prove far more disruptive than necessary," they wrote in the bank's weekly Global Data Watch.

In my view, this all points to a continual decline in the USD. Whatever trade you have on, do not have any part that is long USD's - KT

Position update

Policy change.
I deal with my bank and use forward exchange contracts, typically rolled out at inception for 1 year. That means I don’t really worry about day-to-day changes unless the trend itself is in danger. In the past I have shown the spot rate that I have entered deals and ignored the forward points, whether they have been a benefit or cost.

But some of these carry trades have been in place a long time, and the points are getting extremely valuable. So from now on I will show the deal at the forward rate and strip out the unearned forward points for valuation.

Here are the trades I am active in:

AUD/JPY

Long AUD 3,735,990.04 short JPY at 76.69 average.

This was originally made up of two trades:
An original deal of long USD3m short JPY @103.10 (unfrozen on 5 June 2009) and a short USD3m long AUD @ 0.8030 (yes, crossing it up with the AUD has saved me!) done on 5 June 2009, creating a cross of 82.79 average.

I have not bothered with the points on the USD/JPY leg as the interest differential was so small.

The AUD/JPY deal was rolled to 7 June 2010 at a 230 point benefit and has since been rolled again at the bank to 7 June 2011 at a 380 point benefit (as AUD interest rates have climbed over the rollovers).

So the new rate due 7 June 2011 is 76.69, but only on 7 June 2011. The unearned forward points as at today are 238 points cost, so an effective spot rate for valuation purposes of 79.07. (Are ya confused yet!)

Current spot rate: 81.35

Current: Gain 228 points

Comment:

See AUD/USD comments below.

USD/JPY:
The state of Japanese government finances remains extreme. The new government will eventually break the self-imposed debt ceiling and prompt a credit downgrade by the ratings agencies. But the weakness of the USD remains paramount at this stage, especially with QE the dominant force at the Fed. The USD/JPY will eventually test the 80.00 area, and we will see the Japanese intervene below there. I am not hopeful that they will achieve anything by intervening, but the AUD upmove itself should compensate for USD weakness.

I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.

NZD/JPY

Long NZD 3m short JPY at average of 53.33.

The NZD/JPY deal was rolled from the last trade of 1m (making 3m in total at an average of 57.23) on 28 May 2009 to 28 May 2010 at a 160 point benefit and has since been rolled again at the bank to 27 May 2011 at a 230 point benefit (as NZD interest rates have climbed over the rollovers).

So the new rate due 27 May 2011 is 53.33, but only on 27 May 2011.
The unearned forward points as at today are 121 points cost, so an effective spot rate for valuation purposes of 54.54.

Current rate: 63.80

Current: Gain 926 points.

Comment:

See Yen comments in AUD/JPY above. See NZD/USD comments below.

I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.

EUR/USD

Square

Current rate: 1.3690

Comment:

The ongoing concerns in Europe over debt are not going away. But I believe that it is not the problem it was back in May. The ECB can buy bonds, but at present there is a bit of brinkmanship going on. They want to teach the politicians that they have to sort out fiscal policy. Eventually the ECB will again step in so I don’t see EUR weakness as long lasting.

In the long run, all other things being equal, the Euro Zone debt position is far better than the US. If the US does not move to reduce the budget deficit over time, then the USD will become the next Greece.

I still believe that Europe will raise interest rates before the US does. Watch the inflation readings. With Gold, oil and food all hugely higher, inflation is on its way. Have look at

Standard and Poors

then expand the agriculture icon!!!!

Agriculture is up 25%, with cotton up 90%!

GBP/USD
Square
Current rate: 1.6114

Comment:
Took a loss on my short GBP1m position at 1.5278 (short from 1.4990) of USD 28,800. Took a gain (back on 11 August) on my long GBP1m position at 1.5820 (long from 1.5278) of USD 54,200. Net gain USD25,400 (NZD35,376 @0.7180).

AUD/USD

Long AUD 2m short USD at 0.7907.
Current rate: 0.9861

Current: Gain 1954 points.

The AUD/USD deal was at spot of 0.8670 on 28 September 2009. Was rolled to 28 September 2010 at a 320 point benefit and has since been rolled again at the bank to 28 September 2011 at a 443 point benefit (as AUD interest rates have climbed over the rollovers).

So the new rate due 28 September 2011 is 0.7907, but only on 28 September 2011. The unearned forward points as at today are 393 points cost, so an effective spot rate for valuation purposes of 0.8300.

Comment:

Unchanged really. I believe the Australian economy remains extremely well placed to benefit from ongoing commodity demand, especially with China still growing strongly. I expect ongoing interest rate increases from Australia. I still believe that the AUD/USD has a long way higher to go yet. My new target is now 1.0500.

Happy with the current exposure.

NZD/USD

Long NZD 2m short USD at .6745.

Current rate: 0.7730
Current : Gain 985 points.

Comment:

The NZD/USD deal was at spot of 0.7160 on 28 September 2009. Was rolled to 28 September 2010 at a 190 point benefit and has since been rolled again at the bank to 28 September 2011 at a 225 point benefit (as NZD interest rates have climbed over the rollovers).

So the new rate due 28 September 2011 is 0.6745, but only on 28 September 2011. The unearned forward points are 207 points cost, so an effective spot rate for valuation purposes of 0.6952.

The NZD/USD is still looking very positive, with commodity prices still driving the NZD higher. There is also some pressure from the Canterbury earthquake offshore flows. As the re-insurers offshore pay out on the claims they have to buy NZD’s. The sums involved are large and that is driving the NZD/EUR and NZD/GBP higher, as the re-insurers are in the UK and Europe.

The NZD/USD is still following the AUD/USD, which is driven by Asian developments. The NZD/USD has not really had the benefit of rising interest rates, but this cannot be too far away now. Inflation pressures are strong in China and Asia and we need the higher NZD to insulate us from imported inflation. When the RBNZ begins to raise interest rates in March 2011, the NZD/USD will begin to test the post float highs around 0.8250. Target remains the highs of 0.8250, but we may see the 0.9000’s before this trend finally tires.

Happy with the current exposure.

Unrealised gains NZD1,174k (AUD/JPY +134, NZD/JPY +435k, AUD/USD +404k, NZD/USD +201k).
Previous realised balance: NZD2,344,360.38

Plus GBP/USD realised gains of NZD35,376

Total gains banked since August 2007:

NZD2,379,736

So if I cashed up the whole lot right now I would have made over NZD3.5m since August 2007 or slightly over 3 years.
If you don’t believe me, scroll back through all my posts to see how I did it!!

My trading style, a repeat!

http://kiwitrader.blogspot.com/2009/06/my-trading-style-repeat.html

Ireland sneezes but little sign of globalised cold

10 Nov 2010 Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - About six months ago, the euro zone debt crisis was hot enough to trigger headlines like "Wall Street falls on worries about Greece". It was all about contagion, fears that default in economic minnow Greece could spread not just to Portugal and Spain but beyond, crushing the euro zone in its wake. Tensions are increasing again about debt in the euro zone periphery - particularly Ireland - with some yield spreads and debt-insurance costs at record levels.

But to date there has been little sign of global contagion, primarily because investors have been looking elsewhere - mainly the Federal Reserve - and because of crisis management programmes that can now be employed by policymakers. The spread between Irish 10-year bonds and German Bunds hit a record 571 basis points on Tuesday, up from around 300 at the height of the crisis and a good 200 above where it was in mid-October.

Greece, too, is back up to uncomfortable levels, if not as wide as at the height of the crisis, and Portugal's spread has widened to a record as well. The impact further afield, however, has only been felt mildly so far, mainly on the euro, and even then only in the past day or so at a time when the dollar has been rising broadly anyway. "Markets fear of contagion has fallen," said Klaus Wiener, head of research at Generali Investments in Cologne. "In May, the escalation of the debt crisis in Greece threatened to end in a systemic crisis. This fear is not as pronounced any longer." The 30-day correlation between the movement in peripheral bond spreads and the euro was around -0.6 in May, meaning that widening in spreads was usually matched by euro weakness.

That correlation is now close to zero for Ireland and only slightly negative for Greece, suggesting that at least over the past month the debt problems have been isolated, having little if any impact on the currency. It is more or less the same story with stocks. In the past three weeks as the Irish spread has widened 200 basis points, the pan-European FTSEurofirst 300 stock index has gained more than three percent. It was up three-quarters of a percent on Tuesday as the spreads widened to another record.

Globally, stocks have paid even less attention, with MSCI's all-country world index rising around 4 percent over the period. Data from iTraxx, meanwhile, shows that investors are pricing in the chances of default in European companies as less than that for Western European sovereigns -- not good news for sovereigns but hardly a thumbs down for corporates, which suggests fear does not stretch to a systemic crisis which would surely engulf companies as well.

DIFFERENT CONDITIONS
There are two main reasons why the market impact from the renewed debt worries has been muted so far. One is simply that investors have had their minds on other things, notably the $600 billion quantitative easing programme launched by the Fed last week to stimulate the U.S. economy. The global economic picture has also improved, with even lagging U.S. jobs creation ticking up. "The big theme was quantitative easing, the economic cycle. It is undeniable that the data has been positive, almost globally," said Joost Van Leenders, investment specialist at BNP Paribas Investment Partners in Amsterdam.

The second big reason is that investors believe lessons were learnt in the earlier Greek crisis and policymakers stand ready to stop disorderly default contagion. Since June, a European stabilisation mechanism has been in place, funded by the European Union and International Monetary Fund, to provide as much as 750 billion euros at relatively low interest rates to euro zone countries needing them. No money has been taken, but it is seen by many as a safety net. There are also plans afoot to create a permanent mechanism. Although political differences will make agreement hard, the mere fact that it is under discussion underlines the willingness of authorities to act. None of this is to say that the current stresses in Ireland and elsewhere are negligible. It is inconceivable, for example, that a default or restructuring in Greece or Ireland would not have wider impact.

But the lack of sharp reaction outside the countries concerned so far does suggest investors are not expecting a blow up across markets similar to the one earlier this year.

Normal transmission has been resumed

Sorry, been away doing other stuff. Back online now!

GBP position update

Took profits on my GBP 1m long postion. This was enterered at 1.5278 and took the gain at 1.5820. So 5 pence gain, not too shabby.

Other positions unchanged, will do a position update later in the week.

Whatever happened to the euro zone crisis?

Paul Taylor, PARIS (Reuters)

What a difference a few weeks make. In early June, doomsayers were predicting the demise of the euro after a 110 billion euro ($145.2 billion) bailout for Greece and a $1 trillion financial safety net for the rest of the 16-nation single currency area failed to calm market panic.

European banks were hardly lending to each other, the euro had hit a four-year low against the dollar, and there was widespread talk that Greece would have to default on its debt. "We are assigning a higher and higher probability to a break-up of the euro zone," Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics told a Reuters Summit on June 8. "I don't want to overstate that. It's not our base case, which is they muddle through," she said. Among the grounds she cited for a possible collapse were a lack of political will to cut budget deficits and Germany's reluctance to foot the bill for rescue packages.

Just two months later, the euro zone's crisis has eased and there are signs of a return of investor confidence. The euro has gained 10 percent against the dollar, economic recovery in the euro area is more robust than forecast although uneven, European stocks outperformed the S&P500 index of leading U.S. shares in July, and interbank lending has thawed following the publication of stress test results on European banks. A healthy crop of first half corporate earnings, including at major euro zone banks, and a positive report card on Greece from the International Monetary Fund and the European Commission have fuelled a more optimistic mood.

The risk premium investors charge to hold the debt of peripheral euro zone states such as Spain, Portugal, Italy and Ireland has shrunk to the lowest levels since April. Spain's borrowing costs tumbled in a 3-year bond auction last week and the cost of insuring Spanish and Portuguese debt against default has also tumbled on the Credit Default Swaps market. Stress tests on European banks, scorned by many analysts as too soft when only 7 banks out of 91 failed, largely did the trick by providing detailed data to show most were in reasonable health and could withstand the main sovereign risks. The European Central Bank has almost stopped purchasing euro zone weaklings' government bonds, an emergency measure initiated to stabilise the bond market at the peak of the crisis in May.

RISKS EXAGGERATED?
The speed of the reversal in sentiment raises the question of whether risks of a euro zone break-up and a rolling government debt crisis were exaggerated from the start. Undoubtedly, the euro jitters were amplified by enduring hostility to the single currency project in London -- Europe's biggest financial centre -- and scepticism in the United States. Unnerved by the European Union's fractious and convoluted policy process and by domestic resistance in Germany, markets underestimated the political will of core governments to do whatever it took to stabilise the euro area.

They also seemed to grossly overdo the financial and political fragility of Spain, which was briefly seen as the next Greece and the straw that could break the euro zone's back. So has the crisis gone away or is it just taking a summer siesta? ECB President Jean-Claude Trichet was rightly cautious when he said last week: "I do not declare victory." Money markets are improving but have not yet returned to normal, he noted. Smaller banks, notably in southern Europe, are still shut out of interbank lending as counterparties doubt their solvency.

Many other risks remain, including the possibility that as market pressure eases, governments may step back from painful but necessary bank restructuring, budget cuts and long-term economic reforms due to political and social opposition. It will take years of unpopular cost-cutting reforms of pensions, labour markets, welfare benefits and the public sector to reduce bloated budget deficits and national debt piles.

Despite its impressive progress report, Greece may yet have to restructure its massive debt, forcing bond holders to take a "haircut", many analysts believe, although this process could be postponed for 3 to 5 years due to the EU/IMF bailout. The euro zone economic recovery is likely to slow as austerity measures curb public and private demand, making it harder to reduce unemployment. Money market rates may spike as the ECB withdraws more of the ample liquidity it has pumped into the banking system.

Above all, the economic imbalances and sharp differences in competitiveness between northern European states led by Germany and Mediterranean euro zone countries remain unresolved. The export-driven German economy is powering ahead while Greece languishes in an austerity-induced recession and Spain and Portugal struggle with anaemic growth while trying to curb their budget deficits. Markets may no longer see an existential threat to the euro zone, but they see lingering problems which will make investors more wary and selective than in the currency's first decade.

Position Update

Have not changed any of my positions.

So still long NZD/USD, AUD/USD, NZD/JPY, AUD/JPY and GBP/USD.

Have some more grey hairs over all the positions, but am hanging in there at this stage.

I like the AUD and the NZD, I think they still have legs to recover back to 0.9000 and 0.7500 respectively.

I like the carry trades. But have been beaten up hard in May. The trick with carry trades is to hold on to them. They return between 4 -5 % pa. The rate has to fall that much every year to lose out. That has never happened. Some years down, some years up, but never down every year. So as long as you can afford to wait, you cannot lose. If you can wait 10 years, the rate has to fall 50% for you to be behind. So the secret is to hold them until the rate recovers again. It has worked for me many times.

I'm not so in love with being long GBP. But I think the budget will lift the GBP. So I will wait a while yet.

I also like the euro. The worst of the sovereign fears are now priced in. The fall post creation of the euro was close to 35 cents. The fall post GFC was close to 35 cents. This move started down from 1.5000, so I figure between 1.2000 and 1.1500 there will be a base found. That may have already happened.

France and Germany will make serious money over the summer months with the euro at these levels. France especially, as they are agricultural exporters and their exporter season starts now. I expect the data from these two countries to improve dramatically over the next 3-4 months.

So I like the euro, and I see it back towards the 1.4000 area by Christmas.

What else...

I don't like the USD. I don't like their debt load. I don't like the way Obama is demonising BP.
I think US politics is going to be paralysed post mid terms. So doing an austerity package a la Europe will be difficult, if not impossible.

I don't like US bonds as a result.

Thats about it. Sorry for the lack of posting, but haven't been really inspired.
Anyone missing the blonde of the month yet?

Big investors resist major stock sell off

By Jeremy Gaunt, Reuters European Investment Correspondent

LONDON (Reuters) - Institutional investors hung on to their equities exposure more than might have been thought in May, given extreme volatility on financial markets, but also put more money in safe-haven cash, Reuters polls showed on Thursday.

Demand for alternatives, which include gold, rose. But perhaps surprisingly in the face of regional crisis, investors increased exposure to euro zone equities. Surveys of 47 leading investment houses in the United States, Japan, Britain and continental Europe showed an average mixed portfolio holding 52.3 percent of its holdings in equities. This compares with 52.8 percent in April, but is a relatively small decline given that MSCI's all-country world stock index has fallen close to 12 percent in the period between polls.

At the same time, they cut back slightly more on bonds -- to 34.9 percent of a portfolio compared with April's 35.5 percent and put money into cash. Cash holdings rose to 5.1 percent from 4.7 percent. With the month dominated by the crisis in euro zone debt, managers in the polls, longer-term investors were not universally glum. "We expect the global economy to gradually move to a sustainable recovery path on improvements in employment and capital spending, centring on the United States. The world's share markets will likely return to an uptrend," said Kenichi Kubo, senior fund manager at Tokio Marine Asset Management.

The polls even showed relative faith in Europe, the centre of the current crisis. Allocations within equities to the euro zone rose to 23.2 percent from 22.2 percent a month earlier. Despite this, concern remained that the euro zone crisis and the government cost-cutting needed to solve it could harm future economic growth. "I do think what's happening will result in slower growth in Europe," said Steven Bleiberg, head of global asset allocation at Legg Mason Inc.

Regionally, U.S. fund managers held on to their high exposure to equities. Based on 11 U.S.-based management firms surveyed between May 18 and 26, the poll found an average of 65.2 percent of assets in equities, unchanged from April. Managers also cut bond holdings to an average of 28.8 percent in May, from 29.5 percent in April, while raising cash exposure to 2 percent, from 1.7 percent. Continental European investors lifted their cash holdings to its highest in at least a year in May and cut back on bonds.

The poll of 13 Europe-based asset management companies showed a typical mixed portfolio holding 47.9 percent of its assets in equities this month, up from 47.5 percent in April. The allocation to bonds -- which includes government bonds and corporate debt -- fell to 38.1 percent from 39.7 percent. Cash rose to 8.0 percent from 6.9 percent. Japanese fund managers slightly raised their weighting for stocks in May from the previous month's seven-year low. The average share weighting among 11 institutions edged up to 45.0 percent from 44.8 percent in April.

The average bond weighting dropped to 48.4 percent from a 10-month high of 49.1 percent in April. The weighting for cash rose slightly to 3.3 percent from 3.1 percent. British fund managers continued to reduce exposure to equities in favour of bonds. The survey of 12 fund managers showed allocations to equities dropped for the third month running, falling to 50.9 percent in the average global balanced portfolio in May, from 53.5 the previous month.

GBP position update

Took a loss on my short GBP1m position at 1.5278 (short from 1.4990) of USD 28,800.

But went long GBP1m also at 1.5278.

I figure that enough bad news is already priced in. We'll see.......

Three signs of a coming equity market correction

LONDON (Reuters) - Jeremy Gaunt, European Investment Correspondent 16 April 2010.

Signs are appearing, at least to those who like to study financial market runes, that equities could be in for a short-term fall.

Nothing is certain, of course, what with past performance being no guarantee of future returns as the standard disclaimer reads, but three different historical trends are suggesting equities could soon turn. It all has to do with eight days in March, an aversion to cash and, contradictorily, falling equity market volatility.

First, the eight days. Morgan Stanley's European equity strategy team has taken note of the fact that this is the number of times last month that MSCI's main Europe index found itself up at least 50 percent year-on-year. "This is a rare event," it said in a note. "(It) has happened on only 80 individual days since 1919." Crunching numbers, the Morgan Stanley team found that while such occurrences are a long-term bullish signal, they are bad news over the short haul. Some 77 percent of the time, equity markets have fallen 4 percent over the next six months. "The trigger for a correction is clear," strategist Teun Draaisma said. "I expect a continuation of good economic news to turn into bad market news. The gist is that continued growth prompts central banks into a policy reaction or sends bond yields and inflation expectations up.

CASHING IN
The second signal comes from Bank of America Merrill Lynch via the roughly 200 fund managers the bank polls every month to get ideas about asset allocation and market moves. April's survey, released this week, found that cash holdings had dropped to 3.5 percent of assets among the group. Looking back, the bank said that on four out of the past five occasions that cash holdings have fallen that low, equities have declined by 7 percent over the following 4-5 weeks.

"We have an amber warning light flashing," Patrik Schoewitz, BofA Merrill's European equity strategist, said of the finding. Investors' low-yielding cash reserves, which were built up to huge levels at the height of the financial crisis, have been draining away for well over a year, mainly to the benefit of riskier assets such as equities. At some point -- perhaps now, if BofA Merrill is right -- cash levels will normalise, cutting off riskier assets from some of their fuel.

The third sign of a correction is less numeric and more psychological. State Street Global Advisors, an investor with $1.9 trillion in assets under management, says it is seeing growing interest from institutional investor clients in low-volatility equity strategies, essentially protection against stock market falls.

The best time to enter such strategies, State Street says, is when volatility has bottomed out and equities themselves have risen sharply from a low, as now. The CBI Volatility Index is below last year's low and 71 percent below last year's high. The MSCI all-country world stock index, meanwhile, has risen some 83 percent from what many believe was its cycle low a little over a year ago.

CYCLICAL BULL
None of this is to say that such a correction will spread into the longer term. BofA Merrill's Schoewitz said its study of corrections following cash reserves hitting 3.5 percent "is a very short-term signal". Furthermore, Morgan Stanley notes that while days of hitting 50 percent-plus gains has led to a correction in the short term, on 96 percent of occasions it has been followed by 10 percent rise in equities over a 12-month period. The firm believes that equity markets are currently in a cyclical bull market that should continue into next year.

But for the short term, signs are there.

And now we have the Goldman Sachs fraud case depressing markets...looks like an interesting April!! - KT

Long-term investors unfazed by close-run UK election

07 Apr 10 08:30:41

By Jeremy Gaunt LONDON (Reuters)

Long-term investors do not appear overly concerned about Britain's election delivering an inconclusive result despite market wobbles about a "hung parliament". Analysts who track institutional investor flows report strong inflows into UK equities, steady demand for British government bonds and caution, rather than flight, when it comes to sterling. Fund managers, meanwhile, say investors are taking decisions on a broad range of issues, not just on the immediate potential for political uncertainty.

In short, what has been a fixation in UK media and political circles -- the rare prospect of a hung parliament in which no party has an overall majority or a strong mandate for painful measures to cut Britain's bloated debt -- is not resonating loudly with longer-term investors. "The elections are just a small part of how investors look at the UK," said Emiel van den Heligenberg, head of tactical allocation at BNP Paribas Investment Partners. "You could argue that a hung parliament is difficult ... but it should only be one of many factors. I don't see people strategically moving away from the UK."

That is not to say there will not be short-term market wobbles were a hung parliament to result from the May 6 poll. But institutional decisions -- by contrast with short-term trading -- are being driven more by issues such as euro zone weakness, the quality of UK stocks and the rise of the dollar as the U.S. economy rebounds. There is also a strong view that Britain is better placed to work itself out of economic trouble than, say Greece or Portugal, no matter what colour of government is formed.

"The UK is one of the few countries where you can expect something (in the way of austerity)," said Kommer van Trigt, bond fund manager with Robeco Group. In Reuters' late March asset allocation polls, U.S. and Japanese institutional investors actually increased their exposure to UK stocks and bonds, while continental Europeans slightly trimmed their exposure. British investors, perhaps more tuned in to domestic events, stepped back more firmly from UK assets in March. In a Reuters poll last week economists saw a median 55 percent chance of a hung parliament.

GLOBAL REACH
On the whole, investors do not appear as concerned about the election creating political stalemate as might be expected. Nowhere is this more evident than on the British stock market. The FTSE 100 is up 6.75 percent this year, outperforming most U.S. and European bourses and hitting a fresh 21-month high as Brown was preparing to call the election. A lot of this has to do with the non-UK sensitive nature of the index, which incorporates many of the world's largest and most dynamic multinationals, those most likely to benefit from a global economic recovery.

But further down the scale there have also been impressive gains that belie suggestions of concern about political uncertainty. The FTSE mid-cap index is up nearly 12 percent for the year, one of the world's best performers. The small-cap index has gained 4.6 percent. The main reason is that large investors are focusing on what they see as good value in UK stocks, not on short-term worries about politics. "We think that UK equities are very appealing," said Franz Wenzel, senior strategist at AXA Investment Managers. "Their earnings multiple is extremely low, in particular compared with the earnings growth forecasts for the next couple of years."

SHORT VS LONG
Other UK assets are not quite so immune from election jitters but still do not appear to be overcome by fears that a weak government would be unable to tackle Britain's huge debt. The 10-year UK government bond yield is higher than it was during the height of the credit crisis, but it is still relatively low given concern about a burgeoning government debt and increased supply. Simon Derrick, chief currency strategist at Bank of New York Mellon, said that flow data within the $22 trillion his bank holds as custodian or administrator, showed that far from deserting UK fixed income, investors were warming to it. "Net holdings are moving back to levels they were at in 2007," he said. "The fixed income story is pretty positive." Part of the reason, he said, was that for many investors British bonds looked a better bet than U.S. or euro zone debt.

Even when it comes to sterling -- which has been volatile as talk of a hung parliament has grown, falling 1 percent against the dollar on Tuesday -- there is more evidence that it is short-term investors at work than longer-term ones. While trading data shows many hedge funds are short sterling, fund flow analysts say the currency is holding up. "There is a recognition that sterling remains competitively priced," Derrick said. "Sterling clearly looks like a long-term relatively good buy."

Unfortunately I am starting to agree. Um......shame I am short pounds lower down. I think I will look for a dip to get them back in and actually go long, as I agree with the thrust of this story. - KT

Updated positions

Here are the trades I am active in:

AUD/JPY
Long AUD 3,735,990.04 short JPY at 82.79 average.

Current rate: 86.80
Current: Gain 401 points

Comment:

See AUD/USD comments below.

USD/JPY: The state of Japanese government finances is extreme. The new government will eventually break the self-imposed debt ceiling and prompt a credit downgrade by the ratings agencies. The recent strength in the USD will continue, pushing the USD/JPY back up towards the 100.00 area in the months ahead.

Still have a longer-term target in the AUD/JPY cross of 105.00. I am happy with the current exposure.

NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 65.70
Current: Gain 847 points.

Comment:
See Yen comments in AUD/JPY above. See NZD/USD comments below.
I am happy with the current exposure.

EUR/USD
Square

Current rate: 1.3402

Comment:
The ongoing concerns in Europe over debt will not go away. Their basic problem is that they have no central authority that funds the Euro Zone. Each government has its own finance department. Result: chaos when debt becomes unmanageable. Until sovereign debt concerns abate, the euro will remain on the back foot against the USD.

But in the long run, all other things being equal, the Euro Zone debt position is far better than the US. If the US does not move to reduce the budget deficit over time, then the USD will become the next Greece eventually (after the UK!).

I still believe that Europe will raise interest rates before the US does. Watch the inflation readings, Europe is already seeing some inflationary pressures in some German states.

GBP/USD
Short GBP1m long USD at 1.4990

Current rate: 1.5150

Current: Loss 160 points.

Comment:
The UK election has been announced. This will be a volatile time for the GBP/USD. The UK debt load is staggering, with a credit downgrade only a matter of time. Whoever wins the election it will be a poisoned chalice. It may be that the IMF is eventually called in as well. Either way the pound is under steady selling pressure, with my longer term target 1.3000.

Will review on a break above the 1.5500 level.

AUD/USD
Long AUD 2m short USD at 0.8670.

Current rate: 0.9250
Current: Gain 580 points.

Comment:
I believe the Australian economy remains extremely well placed to benefit from ongoing commodity demand, especially with China still growing strongly. I expect ongoing interest rate increases from Australia. I still believe that the AUD/USD has a long way higher to go yet.

My target remains1.0000.

Happy with the current exposure.

NZD/USD
Long NZD 2m short USD at .7160.

Current rate: 0.7000
Current : Loss 160 points.

Comment:
The NZD/USD has lost its way somewhat, with the RBNZ tardy in raising interest rates. They will eventually regret this.

The NZD/USD is still following the AUD/USD, which is now driven by Asian developments. The NZD/USD has not had the benefit of rising interest rates, but this cannot be too far away now. When the RBNZ begins to raise interest rates in June, the NZD/USD will begin to see higher levels again. The NZD/USD still has a long way higher to go yet. Target remains the highs of 0.8216.

Unrealised gains NZD710k (AUD/JPY +227, NZD/JPY +387k, GBP/USD -23k, AUD/USD +165k, NZD/USD –46k).

Total gains banked since August 2007:
NZD2,344,360.38

The proposed EU Greek bail-out cannot simply bypass German law

This is an excellent article and lays out very well why Germany will not act in favour of Greece or anyone else!


The proposed EU Greek bail-out cannot simply bypass German law

Position changes

Got cold feet on my long EUR short USD trade and closed it out today at 1.3590 for a small gain.
But decided I hate the pound, and so sold GBP1m and bought USD at 1.4990.

Will update more tomorrow.

EUR/USD new deal

Bought EUR1,000,000 sold USD at 1.3570 on Friday morning.

Tough decision, given that so many are convinced that the Euro is toast. But I think that the fall from 1.5100 to 1.3445 levels is probably enough. Everyone is short the Euro, with the result that there are no more serious sellers left.

I have also heard rumours that Chinese and Russian central banks are buyers of Euro in the 1.3400-1.3500 area.

Anyway, we will see what happens over the next few weeks.

Anyone agree with me? Or are you all convinced that I have finally lost it?

Euro zone bond frenzy echoes past battles

PARIS Reuters Paul Taylor

The feeding frenzy in bond markets over highly-indebted southern euro zone states recalls the runs on European currencies in the 1990s before the euro was created.

European governments eventually saw off that challenge with a sustained display of political determination backed by central bank intervention to defend the European Monetary System.

Whether they can overcome the current panic about sovereign default risks in the single currency area by showing political resolve without mutual financial assistance remains to be seen.

Then as now, traders made money by probing perceived weak links in the EU, forcing the Italian lira and the British pound out of the Exchange Rate Mechanism in 1992 and repeatedly attacking the French franc.

Then as now, there were accusations that the attacks were driven by "Anglo-Saxon" speculators hostile to European monetary union. Markets went wild on Friday afternoon rumours of secret weekend meetings of European finance officials. After a four-year battle that began in 1992 when Denmark rejected the Maastricht treaty in a referendum, political will eventually prevailed over market forces.

The last great challenge to the franc-deutschemark exchange rate at the heart of the ERM was repelled in 1995 once new French President Jacques Chirac had made clear his determination to pursue orthodox fiscal policies. Today's debt crisis is both similar and very different. The mounting market frenzy feels eerily familiar.

It began with pressure on Greece, the country with the biggest public finance problems in the 16-nation euro area, but spread last week to Portugal and, to a lesser extent, Spain. The premium that investors demand to hold Greek bonds rather than benchmark German Bunds narrowed on media reports or rumours of an imminent European bail-out, or of Chinese interest in Greek debt, only to widen further on official denials.

Each strike call, parliamentary setback or glitch in routine debt management triggered a new sell-off or an increase in the price of insuring sovereign debt against default on the highly speculative credit default swaps (CDS) market.

Seasoned market watchers say the gyrations are mainly the work of short-term speculators and do not reflect a fundamental rethink about euro-denominated assets. "We don't see any fundamental moves at all. It's purely speculative," said Patrick Smith, senior investment manager at Santander Asset Management. That speculation is easier because markets are still awash with cheap liquidity injected by the European Central Bank to avert a credit crunch during the financial crisis.

Borrowing money from the central bank at 1 percent and lending it to Greece at nearly 7 percent on sovereign bonds in solid euros ought to be a hugely attractive investment. Yet big institutional investors are holding off, partly due to market volatility, but also because they want to see the Socialist government implement tougher public spending cuts. "Greece in the long term is probably a good play but we have to wait for the government to see more signs on the expenditure side," said Jorgen Christian Hansen of Danish pension fund Unipension. "The reason Greece is getting so much attention is that it is the first real test of the Euro-system in handling countries with excessive debt and too lax fiscal policies," he said.

EU governments will try to ride out the crisis without having to bail out Greece, or Portugal or Spain, by pressuring those countries to make draconian fiscal adjustments while declaring political support for them. A single comment from Germany's finance minister a year ago that the euro zone would have to help if a member got into a serious situation was enough to calm market fever over Ireland. The question is whether the EU can enforce budget discipline rules on peripheral euro zone states which its core members mostly failed to respect over the last decade. Compounding the problem, those countries have lost economic competitiveness, and austerity will further slow their recovery from recession. Euro zone countries cannot devalue their way out of trouble.

The alternatives for Greece are to make painful and politically risky cuts in public spending, to seek abail-out or to default. Athens has to refinance 54 billion euros in public debt this year, 20 billion of it in the second quarter. It faces a crunch at the end of the year if Moody's joins two other credit ratings agencies in downgrading Greek debt below A grade.

Unless the ECB changes its mind, that would cut Greek banks off from central bank refinancing operations by disqualifying their government bonds as collateral. Analysts say that would trigger a chain reaction of bank defaults.

Outgoing EU Monetary Affairs Commissioner Joaquin Almunia shrugged off such disaster scenarios in a Jan. 29 Reuters interview, underlining to the fickleness of financial markets.

You know the markets," he said. "On other occasions, they became nervous one day and receded a week afterwards. I'm sure they'll find something bigger to worry about soon."

Asia fiddles as inflation fears resurface

2 Feb 10 07:51:58, Alan Wheatley, China Economics Editor BEIJING (Reuters)

Last year was tough for Asia's economy but easy for its central bankers. All they had to do was flood their banking systems with lots of cheap cash and sit tight. But in 2010 they are going to have to earn their money.Worries about growth have quickly given way to concerns about inflation, and investors seem split down the middle about the capacity of central banks to rise to the challenge.

As global jitters over China's initial tightening of monetary policy demonstrate, some fear the response will be too harsh. Others, though, fret that some central banks, for instance in India and South Korea, are already falling behind the policy curve and will upset financial markets when they are finally forced to squeeze inflation out of the system.

For when it comes to monetary policy, a stitch in time often really does save nine. Rob Subbaraman, chief Asia economist at Nomura in Hong Kong, said the biggest risk facing Asia was that of an unexpected surge in commodity prices driving up inflation. Part of the problem is that policymakers, still fearful of an economic double-dip in the West, are wary of withdrawing fiscal stimulus and do not want their currencies to rise too fast.

And because the Federal Reserve is unlikely to raise U.S. interest rates until the second half of this year, Asian central banks will probably keep their own rates too low for too long for fear of attracting speculative money. As a result, Nomura expects inflation-adjusted borrowing costs in eight of the 12 countries it tracks to be negative by June -- a recipe for bubbly domestic demand and asset prices."When we look at the region now collectively, monetary and fiscal policies have never been so loose," Subbaraman said.

SLOWLY DOES IT
J.P. Morgan expects interest rates to be rising in some countries by early spring, but at a tepid pace relative to Asia's economic backdrop. The bank's economists reckon the average interest rate in emerging Asia will remain three percentage points below the level implied by a widely followed rule of thumb devised by the U.S. economist, John Taylor.

Central banks, a number of them under political pressure to keep borrowing costs low, instead have contented themselves so far with measures to mop up some of the surplus cash they injected into their economies. "Normalisation" of super-loose policy, not tightening, is the ugly buzzword. For instance, India and China last month increased the proportion of deposits that banks must keep with the central bank, instead of lending them out, while the Philippines raised a rate on a short-term lending facility. None of them increased their benchmark interest rates.

Given that the Reserve Bank of India on Friday issued a sharp warning over inflation at the same time as it tightened required reserves, a half point increase in interest rates is likely to follow next month, Prakriti Sofat and Rahul Bajoria of Barclays Capital said."However, based on our meetings with a number of Asian central banks, the clear theme is that policymakers remain cautious, and the risks are that rate hikes may be delayed," they wrote in a report.

NEW FOOD SPIKE?
The case for pre-emptive action is based not only on Asia's rapid economic recovery, which is absorbing the spare capacity and excess labour needed to keep a lid on prices. It is also justified, some economists believe, because a repeat of the 2007/2008 spike in global food prices is taking shape.

Western central banks play down passing increases in the cost of food because it typically accounts for just 10-15 percent of the consumer price index. In Asia ex-Japan, though, food makes up 30-35 percent of the CPI, so a jump can quickly boost overall inflation and harden expectations of a price spiral.

Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong, is among the worriers. He says the upswing in food commodity prices since 2004 has been rivalled only twice in the last century -- in the 1930s during the recovery from the Great Depression and during the commodity boom of the 1970s.

He postulates that China could be having a profound impact on food inflation as strong income growth, rapid urbanisation and westernisation of the local diet boost demand."The speed at which inflation is turning in Asia argues for a much more prudent stance on policy, and there are few Asian economies that should be exempt from tightening over the course of 2010," Maguire said.

DON'T PANIC, YET
A more optimistic view comes from economists Silvia Liu and T.J. Bond at Bank of America Merrill Lynch in Hong Kong. Leaving aside China and India, the only two countries with billion-plus populations, the economists said year-on-year food inflation had moderated in Asia to 1.3 percent in the fourth quarter of 2009 from 4.8 percent in the second quarter. The memory of 2008, when inflation peaked in mid-year at 8.5 percent, up 5.6 percentage points from the year before, remains vivid, Liu and Bond wrote in a weekly report.

But they think a better comparison is with 2004, when inflation crested at 4.2 percent, up 2.6 points from the year before.They expect Asian inflation to accelerate to 3.5 percent in 2010 from 0.7 percent in 2009.But they acknowledged that conditions could change. "In particular, if China maintains a rigid FX regime, the entire region may find it difficult to tighten monetary policy, given the low levels of U.S. rates. As a result, asset prices, money, and credit growth could all rise, raising inflation risks in 2011. This is the key risk we will monitor over the course of the year," they wrote.

Position Update

Have been away on leave in Australia, and have been very slack about updating...apologies!!

Here are the trades I am active in:

AUD/JPY
Long AUD 3,735,990.04 short JPY at 82.79 average.

Current rate: 79.64
Current: Loss 315 points

Comment:
See AUD/USD comments below.
USD/JPY: Japan is set to again increase quantitative easing, especially with the Yen strength in recent weeks. Given the overall USD weakness, the Yen will settle in the 95-100 area, with the Euro itself making all the longer term gains against the USD.

Still have a longer-term target in the AUD/JPY cross of 105.00. I am happy with the current exposure.


NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 63.28
Current: Gain 605 points.

Comment:
See Yen comments in AUD/JPY above. See NZD/USD comments below.
I am happy with the current exposure.


EUR/USD
Square

Current rate: 1.3880
Comment:
I must admit I have been surprised by the USD strength in recent weeks. Euro money supply is shrinking. US money supply is expanding. The USD must weaken against the Euro in the long run as a result. Overall I see the USD weakening considerably due to ongoing quantitative easing pressures. Remember Europe is not in a QE stance. Europe will raise interest rates before the US does.

I will add a new position EUR1m long if we see sub 1.3600.

AUD/USD
Long AUD 2m short USD at 0.8670.

Current rate: 0.8820
Current: Gain 150 points.

Comment:

I believe the Australian economy remains extremely well placed to benefit from the commodity demand, especially with China still growing strongly. I expect an interest rate increase from Australia, either tomorrow or in March. I still believe that the AUD/USD has a long way higher to go yet. Target remains 1.0000.

I will add to positions if AUD/USD 0.8600 is seen.

NZD/USD
Long NZD 2m short USD at .7160.

Current rate: 0.7010
Current : Loss 150 points.

Comment:
The NZD/USD is following the AUD/USD, and to some extent the EUR/USD moves. As we are now in the export season for New Zealand, upward pressure will intensify. This will compound when the RBNZ raises interest rates in April this year. The NZD/USD still has a long way higher to go yet. Target remains the highs of 0.8216.

I will add to positions if NZD/USD 0.6800 is seen.

Unrealised gains NZD130k (AUD/JPY -148, NZD/JPY +287k, AUD/USD +34k, NZD/USD -43K).

Total gains banked since August 2007:
NZD2,344,360.38