watch out for 21 oct 2008

FOR EVERY LOSER, THERE IS A WINNER

tomorrow oct 21 is a very special day to take note of. tomorrow will be the payday for those that have bought insurance from aig against lehman's bonds. although lehman had sold only $158b worth of bonds, but there is more than $300b insurance amount on it.

a few pointers to ponder:

1. why is there more than double the "insurance" bought than the actual worth of the lehman's bonds?

2. who are the big winners tomorrow from this payout?

3. are these winners really insuring their exposure from holding lehman's bonds or are they short-selling lehman bank?

tomorrow when the identity of the winners are out, we will probably know more about why lehman was left to die, unlike its luckier peers that were rescued by the feds and paulson.

trading ideas result - 15 oct 2008

SHORT GBPCHF

short gbpchf @ 1.9875 buy back @ 1.9650 (profit 225 pips)

fx trading ideas

short gbpchf @ 1.9875
target price 1.9650

who has the dough???

THE MONEY IS IN THE EAST
getting quite a few enquiries from friends on the fundamental of some currencies. please see the table below to make your own judgement. please note that the figures are outdated, not taking any considerations on the latest costs incurred by the governments recently to overcome the financial crisis:

	Foreign Reserve (in US$ billion)	Est as of	External Debt (in US$ billion)	Est as of	% of Ext Debt to Reserve
UK	57.30	Dec-07	10,450	Jun-07	18237%
US	70.57	Dec-08	12,250	Jun-07	17359%
France	115.70	2006	4,396	Jun-07	3799%
Germany	136.20	Dec-07	4,489	Jun-07	3296%
Australia	26.91	Dec-07	826.40	Dec-07	3071%
Canada	41.08	2007	758.60	Jun-07	1847%
Switzerland	75.37	2006	1,340	Jun-07	1778%
Italy	94.33	Dec-07	996.3	Dec-07	1056%
New Zealand	17.25	Dec-07	51.44	Dec-07	298%
Japan	954.10	2006	1,492	Jun-07	156%
China	1,534	Dec-07	363.00	Dec-07	24%
Singapore	163.00	Dec-07	25.59	Dec-07	16%

Source : Central Intelligence Agency

the ransom is paid

THE SAFE RETURN OF LIQUIDITY!!!
the bush administration will invest us$125b in nine of the largest us banks. the plan is to buy into the banks' preferred shares with warrants as sweeteners. none of the banks was given a choice on the amount and subjected to compensation restrictions as mandated by the us congress. another $125b will be used to recapitalize other financial institutions. in addition, the us government will guarantee all newly issued senior unsecured debt by banks for the next three years.

see below the fund allocation of the 9 banks:
25b - citibank
25b - jp morgan
25b - bank of america and merrill
20b - wells fargo
10b - morgan stanley
10b - goldman sachs
3b - state street
3b - bank of new york


so the good news is the 3 month dollar LIBOR is down 7 bps to 4.75%. now i am starting to wonder if the us banks have taken the whole america and the world ransom by hoarding liquidity and forcing the taxpayers to bail them out.

negative growth + inflation

A NEW WORLD ARISING

it has been an exciting two weeks for investors. bravo to the central bankers and finance ministers for the hard work and tough decisions taken to calm and stabilize the markets.

however:

1. how are these countries paying for all the financial pledges and guarantees
2. i believe many countries will have to tap into their reserves if they have any, or start printing more money to meet their obligations therefore depreciating their currencies
3. although there will be a slow down in china and india, these two nations with a combine population of 2.5 billion people, are not going to stop growing
4. going forward, commodity prices should hold firm or start trending upwards again from growing demand from china and india
with a combination of abundant liquidity, strong demand in commodities, a huge pool of jobless bankers and a poor global economic outlook, we might be experiencing a new era of slumpflation soon.

can the eur survive

EUR LOSING ITS SHINE???

there is no escape from this financial crisis. now, even the european banks that are known to be prudent bankers are in trouble. over the last few days, we have witnessed several european countries going solo to save their banks instead of a united effort to approach the increasing danger of a melt down in their banking system. this inability to come together shows some fundamental flaws that i long believe on the european union. to put it simply:

1. the europeans, with a long long history, are too nationalistic with different cultures, languages and perceptions to come together as an entity to work for a common goal

2. the individual country's economy are too different to share a common economic policy and goal

3. how can the administrators work together when their national interests are so diverse

so while the union has worked well over the past years when the global economy and especially the european ones were growing strongly, going forward the challenges of such a union will increase enormously when economic growth is heading southwards. so monitor closely how the various european central bankers work together because it will indicate if the european union can actually work.

so personally in the mid term, eur is sure to lose some of its shine!

trading ideas result - 7 oct 2008

LONG AUDUSD

buy audusd @ 0.7040 sell @ 0.7140 (profit 100 pips)