Took a new position today, bought NZD/sold JPY at 79.50. Points are worth around 0.60 a month so we will see how it pans out.
NZD is rallying after recent selling. With $1 bil of new issuance in uridashi bonds today the NZD looks to have found a base.
I think the NZD/JPY will head back to over 90.00 at least so should be a good trade.
Time will tell!
Tuesday, 21 August 2007
Sunday, 19 August 2007
Circuit Breaker
The US Federal Reserve has provided just the circuit breaker that the markets needed.
By cutting the discount rate, not the Fed funds rate, and in between meetings as well, they have reminded the banking system that they are there when needed.
This will calm markets and the timing was excellent.
Traders will have the weekend to sober up, and sanity will be restored next week.
How does it make sense for BHP shares to fall 20%?
The ore they dig out of the ground is still there, they have fixed prices to sell it and with the AUD/USD so much lower, they will make more money.
Expect markets to stabilise this week, won't go up much, but will range trade.
By cutting the discount rate, not the Fed funds rate, and in between meetings as well, they have reminded the banking system that they are there when needed.
This will calm markets and the timing was excellent.
Traders will have the weekend to sober up, and sanity will be restored next week.
How does it make sense for BHP shares to fall 20%?
The ore they dig out of the ground is still there, they have fixed prices to sell it and with the AUD/USD so much lower, they will make more money.
Expect markets to stabilise this week, won't go up much, but will range trade.
US Federal Reserve Acts
To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility.
The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points.
The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower.
These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding.
The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained.
In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.
In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.
The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets. Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.
The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points.
The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower.
These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding.
The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained.
In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.
In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.
The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets. Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.
Saturday, 18 August 2007
NZD close to bottom, watch for the move back up again
I have been trading the NZD for over 30 years. I have never seen the NZD/USD move as far, as fast...ever!
Thank God it's Friday, but still getting offshore calls wondering when it is safe to buy again.
I posted here in July that I thought the NZD had topped out, and I repeat:
The NZ dollar has topped out at 0.8109, nearly 17% from the lows seen at 0.6715 in March 2007. Now looks to retrace and could pull back into the 0.7400 area before stabilising.
The reason?
Not our economy, Not the RBNZ actions, Not any Government moves.
Purely offshore pressures.
See story below: Volatility sweeps global markets.
That's the reason: the rise of global risk aversion; something the RBNZ has been praying would happen.Investors are pulling money home, worried about potential losses.
It could run some way yet, as the US property market disasters come home to roost.
That means, currencies that were weak, like the Yen and Swiss franc, will be stronger, as funds are repatriated.
Currencies that were strong, like the NZD, AUD and GBP, will be weaker, as funds are withdrawn.
That means the NZD will weaken.Might not go too far yet, but that is the trend, with the first target 0.7500.
What would stop this going too far are calm markets.8.25% return is hard to beat, and that means the NZD cannot stay down for long.
Equally the Japanese will not want a strong Yen, and may talk of intervention again.
But for now, and the next few weeks, the NZD is finally on the back foot.
Well it has certainly gone further than I thought it would.
But the short NZD position taken at 0.7950 will certainly pay a few bills, having just exited at 0.6750.
Best to stay out of the markets now, until things stabilise.
I think the NZD/USD is close to the base around 0.6600-0.6700 area.
The next trade will be buying NZD selling JPY, ie a carry trade (yes they still work really well!).
But looking for the entry point at present. With any luck the Bank of Japan will start to protest at the stronger Yen, and a base in the NZD/JPY will appear.
Thank God it's Friday, but still getting offshore calls wondering when it is safe to buy again.
I posted here in July that I thought the NZD had topped out, and I repeat:
The NZ dollar has topped out at 0.8109, nearly 17% from the lows seen at 0.6715 in March 2007. Now looks to retrace and could pull back into the 0.7400 area before stabilising.
The reason?
Not our economy, Not the RBNZ actions, Not any Government moves.
Purely offshore pressures.
See story below: Volatility sweeps global markets.
That's the reason: the rise of global risk aversion; something the RBNZ has been praying would happen.Investors are pulling money home, worried about potential losses.
It could run some way yet, as the US property market disasters come home to roost.
That means, currencies that were weak, like the Yen and Swiss franc, will be stronger, as funds are repatriated.
Currencies that were strong, like the NZD, AUD and GBP, will be weaker, as funds are withdrawn.
That means the NZD will weaken.Might not go too far yet, but that is the trend, with the first target 0.7500.
What would stop this going too far are calm markets.8.25% return is hard to beat, and that means the NZD cannot stay down for long.
Equally the Japanese will not want a strong Yen, and may talk of intervention again.
But for now, and the next few weeks, the NZD is finally on the back foot.
Well it has certainly gone further than I thought it would.
But the short NZD position taken at 0.7950 will certainly pay a few bills, having just exited at 0.6750.
Best to stay out of the markets now, until things stabilise.
I think the NZD/USD is close to the base around 0.6600-0.6700 area.
The next trade will be buying NZD selling JPY, ie a carry trade (yes they still work really well!).
But looking for the entry point at present. With any luck the Bank of Japan will start to protest at the stronger Yen, and a base in the NZD/JPY will appear.
Sunday, 12 August 2007
New NZD Kauri Bond issue
Who says offshore investment is drying up?
WASHINGTON, Aug 10 (Reuters) - IFC, the private-sector arm of the World Bank, said on Friday it had launched its first-ever New Zealand dollar Kauri bond, issuing a five-year NZ$300 million note to raise funds to support poverty reduction work.
The notes mature on Aug 23, 2012 and carry a coupon of 7.75 percent, paid semi-annually, and were priced to yield 82 basis points over the benchmark New Zealand government bond, IFC said in a statement. A Kauri bond is a New Zealand dollar-denominated bond issued by a foreign issuer. It can be sold to both domestic and international investors.
The issue was joint lead-managed by ANZ Institutional and Bank of New Zealand, and the notes were placed with both local and international banks and find managers, IFC said. The proceeds of the issue were swapped into floating rate dollars and will be used to finance IFC's operations to support and encourage private enterprise in developing countries.
WASHINGTON, Aug 10 (Reuters) - IFC, the private-sector arm of the World Bank, said on Friday it had launched its first-ever New Zealand dollar Kauri bond, issuing a five-year NZ$300 million note to raise funds to support poverty reduction work.
The notes mature on Aug 23, 2012 and carry a coupon of 7.75 percent, paid semi-annually, and were priced to yield 82 basis points over the benchmark New Zealand government bond, IFC said in a statement. A Kauri bond is a New Zealand dollar-denominated bond issued by a foreign issuer. It can be sold to both domestic and international investors.
The issue was joint lead-managed by ANZ Institutional and Bank of New Zealand, and the notes were placed with both local and international banks and find managers, IFC said. The proceeds of the issue were swapped into floating rate dollars and will be used to finance IFC's operations to support and encourage private enterprise in developing countries.
Thursday, 9 August 2007
US housing crisis deepens further
American Home Mortgage has filed for bankruptcy in the latest sign the US housing crisis is spreading from sub-prime mortgages to the higher grades of credit risk.
The collapse of America's 10th biggest home lender came amid fresh gyrations on global bond and stock markets yesterday, and growing questions over the exposure of European banks and insurers to the US property slump. Credit Suisse warned that 1.5m people were likely to default on home loans worth up to $220bn (£108bn) as a huge tranche of mortgages are adjusted upwards over the next 18 months. AHM, which issued $60bn of loans last year, asked for Chapter 11 protection from creditors and began laying off almost all of its 7,400 employees after banks abruptly cut off access to credit.
It cited a "sudden adverse impact on liquidity from the extraordinary disruptions now occurring in the secondary mortgage and real estate markets". Unlike the other 50-odd sub-prime lenders that have gone bankrupt or closed since late 2006, AHM specialised in "Alt-A" loans for mid-tier borrowers thought to be a good credit risk. The company said yesterday that the market for Alt-A debt packaged as collateralised debt obligations (CDOs) had completely dried up, making it impossible to continue normal business.
While outstanding level sub-prime debt in the market is roughly $800bn, the Alt-A segment is a close second at $700bn, mostly issued in 2005 and 2006. The rating agency Moody's said Alt-A loans are in reality little better than sub-prime debt, which already faces a default rate of 12.4pc.
Merrill Lynch said the property slump was now so serious the Federal Reserve would have to start cutting interest rates as soon as October, predicting a fall from 5.25pc to 3.75pc by the middle of next year. The steady drip-drip of bad news from the US continued to irk Europe's bond markets yesterday. The iTraxx Crossover index measuring spreads on low-grade corporate bonds surged from 400 to 430, before falling back as Wall Street rebounded from last week's violent sell-off.
Suki Mann, a credit analyst at Societe Generale, said virtually all refinancings and leveraged buyouts had been frozen as investors stood on the sidelines. "Everything is on hold. We're not going to see any deals done until there is some clarity." The Dow Jones rose 73 points to 13,225 in early trading as markets began to settle after the resignation of Bear Stearns co-president Warren Spector, who stepped down on Sunday after the collapse of two in-house hedge funds that set off the global bond bust two months ago.
The group's chief financial officer, Sam Molinari, alarmed Wall Street late on Friday by comparing the credit debacle to the dotcom denouement in 2001 and even the 1987 crash. "I have been a mortgage banker for 20 years and have never seen such a severe reaction to credit risks in the marketplace, and things may even get worse before they get better," he said.
Similar fears have begun to emerge in Germany where Jochen Sanio, head of the financial watchdog Bafin, said the credit squeeze threatened Europe with the most serious banking crisis since 1931.
IKB Deutsche Industriebank stunned the markets last week with an admission that it had taken a massive $24bn bet on the US property market without fully informing the board, and suddenly faced imminent collapse. Just 10 days earlier it had claimed to be in rude good health.IKB is being rescued by a consortium of banks offering a \u20AC3.5bn (£2.4bn) credit line, while the state-owned KfW bank has provided an \u20AC8bn guarantee for bad debts. The bail-out, orchestrated by the German government, is facing a Brussels probe for alleged violation of EU state aid rules.
Dresdner Bank yesterday admitted to $1.4bn in US sub-prime exposure, but said it was well cushioned by business at home. Germany's Union Investment has had to freeze redemptions from an $1.1bn fund invested in sub-prime loans, and even the Pharmacist and Doctors' Bank admitted $115bn in exposure.In France, Oddo & Cie is to close three funds making huge losses in sub-prime CDOs, saying it had been "caught out by the sub-prime dilemma". Insurance group AXA has closed two funds hit by the credit turmoil after a rash of redemptions in July.
In the USA - from bad to worse
The sub prime lending fiasco is a slow burning fuse. How long it is and how far it will reach, no one can be sure. Here's the latest casualty:
In a move that sent shockwaves through the financial markets and left investors millions of dollars poorer, Melville-based American Home Mortgage Investment Corp. announced yesterday that it lacked the money to pay its lenders or the credit lines to pay its borrowers. It was the largest mortgage bank to face bankruptcy in a year of bad news for the mortgage industry.
The effects of American Home's insolvency are far-reaching. The company's 7,627 employees -- including about 1,460 in Melville -- face an uncertain future. Its borrowers will lose access to $800 million in approved loans. That number is mounting by hundreds of millions of dollars each day. Major investors have announced millions in losses on the company. Banks that lent the company billions of dollars could see their stakes dissolve.
And Michael Strauss, the hard-driving entrepreneur who built American Home from a home-office operation into a top-10 mortgage bank, remaining its principal stakeholder throughout, lost $42.8 million in 20 minutes when the stock was marked sharply lower. The announcement contained shreds of the specific information that anxious investors and analysts had been clamouring for since the company kicked off a spate of ominous announcements on 6 April with a downward adjustment of first-quarter profit projections and dividend policy.
The company's executive vice president and chief investment officer Thomas McDonagh, who was paid more than $1.8 million in total compensation in 2006, had resigned only one day earlier. The company has acknowledged what many had feared: It had lost access to its credit facilities, lenders had been demanding repayment of some of American Home's debts for three weeks, and there were "substantial" additional calls for repayment outstanding.
The company said it had retained outside consultants -- companies that have assisted bankrupt mortgage firms in the past -- to help it resolve the situation in the manner "least disruptive to its business and to the many thousands of home buyers to whom it has committed mortgages." One option, the company said, was "the orderly liquidation of its assets."
Philadelphia-based RAIT Financial Trust, a publicly-traded investment pool, issued a release acknowledging that a 2005 financing line to AHM exposed its shareholders to $95 million in losses.
BY DANIEL WAGNER mailto:daniel.wagner@newsday.com?subject=Newsday.com%20Article
8:00 PM EDT, July 31, 2007
In a move that sent shockwaves through the financial markets and left investors millions of dollars poorer, Melville-based American Home Mortgage Investment Corp. announced yesterday that it lacked the money to pay its lenders or the credit lines to pay its borrowers. It was the largest mortgage bank to face bankruptcy in a year of bad news for the mortgage industry.
The effects of American Home's insolvency are far-reaching. The company's 7,627 employees -- including about 1,460 in Melville -- face an uncertain future. Its borrowers will lose access to $800 million in approved loans. That number is mounting by hundreds of millions of dollars each day. Major investors have announced millions in losses on the company. Banks that lent the company billions of dollars could see their stakes dissolve.
And Michael Strauss, the hard-driving entrepreneur who built American Home from a home-office operation into a top-10 mortgage bank, remaining its principal stakeholder throughout, lost $42.8 million in 20 minutes when the stock was marked sharply lower. The announcement contained shreds of the specific information that anxious investors and analysts had been clamouring for since the company kicked off a spate of ominous announcements on 6 April with a downward adjustment of first-quarter profit projections and dividend policy.
The company's executive vice president and chief investment officer Thomas McDonagh, who was paid more than $1.8 million in total compensation in 2006, had resigned only one day earlier. The company has acknowledged what many had feared: It had lost access to its credit facilities, lenders had been demanding repayment of some of American Home's debts for three weeks, and there were "substantial" additional calls for repayment outstanding.
The company said it had retained outside consultants -- companies that have assisted bankrupt mortgage firms in the past -- to help it resolve the situation in the manner "least disruptive to its business and to the many thousands of home buyers to whom it has committed mortgages." One option, the company said, was "the orderly liquidation of its assets."
Philadelphia-based RAIT Financial Trust, a publicly-traded investment pool, issued a release acknowledging that a 2005 financing line to AHM exposed its shareholders to $95 million in losses.
BY DANIEL WAGNER mailto:daniel.wagner@newsday.com?subject=Newsday.com%20Article
8:00 PM EDT, July 31, 2007
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