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 please note that the figures are outdated, not taking any considerations on the latest costs incurred by the governments recently to overcome the financial crisis: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)

fx trading ideas

LONG AUDUSD

current price : 0.7040
target price : 0.7140

rba cut rate to 6% surprising the market by more than 50 basis points. however, think aud was oversold yesterday.

stop loss orders

DO YOU OR DO YOU NOT

i have received a few emails from readers asking me to show my stop loss levels on my fx trading ideas. the truth is i do not have any. i personally do not believe in stop loss especially at this period when volatility is erratic, you will be stop out most of the time even though you are correct on where the market is going. so i usually control my risk by taking a smaller position and if i am wrong, i let the market takes it course and only cut the position when the market rebound and when my chart tells me so.

please note that everyone has a different style of investing and if you are comfortable with stop loss orders, please continue to do so. as for me, i will continue to trade without a stop loss and most importantly, YOU MUST BE MAKING MONEY FROM YOUR STYLE OF INVESTING!!!

trading ideas result - 30 sep 2008

FX TRADING CALL ON SHORT USDJPY DATED 30 SEP 2008

in view of the volatility, i am covering my usdjpy short at current level 104.30 instead of my 103.80 giving me a profit of 50 pips.

however, i will continue to hold my long dow future despite the sell off on friday after the bail out package was put into law. i think the crisis is finding its way to europe now and the global market might continue to stay weak for a while. we should see a similar bail out plan coming out of europe soon.

singapore lost a good man today

JB JEYARETNAM

some people do amazing things
and benefit himself from it
some people do great things
and detriment himself from it
this man had done wonderful things for singapore
and bankrupt himself because of it
the ultimate act of love and devotion for his country

my greatest tribute to this selfless man

fx trading ideas

SHORT USDJPY

current price : 104.80
target price : 103.80

trading ideas result - sep 2008

12 sep 2008
buy gbpjpy @ 188.38 sell @ 193.00 (profit 462 pips)

15 sep 2008
buy gbpchf @ 2.0040 sell @ 2.0200 (profit 160 pips)

22 sep 2008

buy usdjpy @ 106.30 sell @ 106.90 (profit 60 pips)

dumb & dumber

NO BANK = NO ECONOMY = NO FOOD ON THE TABLE!!! DUMB ASSES

rejecting the bailout plan, what is wrong with you? these politicians in capitol hill do not even know the most basic about economic. all businesses need some forms of credit and the banks provide them. banks are the pulses of any economy. if you do not save your banks, there will be no economy, and there will be no businesses, and there will be no jobs, and there will be no food.

i think the americans should note who are the politicians voting against the plan. if they cannot understand the simple equation above, i doubt they can do much for you as politicians. time to send them packing in the next election!!!!

as mentioned in my earlier blogs, i do not think this bailout plan will end the whole crisis but it is a necessary step towards recovery. the republicans need to use their brains sometimes and i think this is political suicide for the coming election.

citi and fargo to buy wachovia

PROTECTIONISM IN FULL GEAR

there is rumour that citibank and wells fargo are in a bidding war for wachovia. what i find interesting is that just last week wachovia was in talk to buy over morgan stanley and now a few days later, wachovia itself is going to be bought over. as for citibank, what financial position are they in to buy another bank when they are struggling themselves to stay a float.

in my opinion, this exercise is meant for the following:

1. the us government forcing the american banks to merge to prevent more american banks from been sold to foreigners

2. i think one of the two banks mentioned will buy over wachovia. there will be share swap because neither of the two banks will have enough cash to pay for the deal

3. once the bail out plan is approved, the government will buy over the rubbish loans from the purchasing bank and help it recapitalize itself, leaving the bank with a healthier balance sheet

finally, i think the us government is doing all its best to stabilize the financial market and there will be a joint effort by most central banks to do the same. we are too global to see any major economy especially the us from free falling. so stay long on equities and indices and we should see some usd strength for the time being.

buffett is king

NOW THIS IS A GOOD DEAL

the legendary man has done it again. he has just bought US$5b of goldman preferred shares which pay 10% annual dividend, and come with warrants allowing him to buy another US$5b of goldman common stocks at anytime for a five year period at a strike price of US$115 per share. on top of that, as a preferred stock holder, he gets a piece of goldman way ahead of the common shareholders if anything happens to the firm.

just 3 points to ponder:

1. why is goldman, the most arrogant bank on wall street, selling themselves so cheaply

2. the americans should invite buffett to be in the bailout team, he sure knows how to buy companies looking at his past records

3. when buying distressed assets, buffett has demonstrated that you should always use "fire sale" price and not "market" price as indicated by some. regardless bailout or no bailout, purchase prices should be look upon purely on a commercial basis. there is no other way to it.

deal or no deal???

IT IS A SURE THING!!!

despite all the arguments and displeasure expressed by the senators last night on the bail out plan, i think the us congress will approve the plan eventually. there is a necessity for the authority to stop this hemorrhaging in the us financial system immediately and personally i think setting up of the bailout fund is the only option available. however, i hope they will address some of the issues i have highlighted on my earlier post dated 22 Sep 2008 before signing the blank cheque:

1. buy into the financial companies and not their toxic assets

2. sit on their boards to prevent the management fools from robbing the taxpayers further

3. set up a committee to determine what assets to buy and their valuations

4. publicly update the us taxpayers on the types and prices of asset bought by the fund

5. make sure whoever that are involved in the buying decision are liable to prevent abuse

6. make sure all those responsible for the mess are make accountable

so for those who have bought shares, index futures or call options last thursday, hold on, the deal will go through and the market will rebound for a while.

trading ideas

LONG USDJPY!!!
current price : 106.30
target price : 106.90

what is wrong with the fed

THE BANKING TIME BOMB!!!

just when you think the fed is finally doing something right with the introduction of a recue fund, they shoot themselves by approving goldman sachs and morgan stanley to become retail banks. i think it is a bad bad idea to merge these two types of business together.

a retail bank caters to the general public, a bank where average joes like myself deposit our paychecks, keep our savings for rainy days and have a checking account to pay for our expenses. a place where we go for small loans to pay for our homes, credit cards spending and short term personal usage. investment banks on the other hand are meant for customers with excess funds to invest, money they can afford to lose without having to jeopardize their daily living. if you put the two together, it will be difficult for the customers to differentiate between saving and investing. this will lead to their financial health been highly correlated to the market, a no no situation to be in. in my opinion, investment banks and retail banks should always be separated so that no bank is deemed too big to fail and the investment banks which are more risky in nature can be better regulated.

so it is a bad idea for bank of america to buy over merrill lynch and a bad idea for goldman sachs and morgan stanley to collect deposits from the general public. although this might help in the short term with the liduidity crunch but in the long term we will all pay if we fail to segregate them clearly.

party time???

TOO EARLY TO CELEBRATE!!!

over the weekend, i received a few enquiries on my opinion over the latest development on wall street. personally, i think it is the only course of action now available to the treasury department and federal reserve to calm the market. the rescue plan is not anything innovative as hong kong and malaysia had set up similar funds to shore up their financial sectors during the asian crisis. in the hindsight, the hong kong government has actually profited substantially from the setting up of the fund. however there is a slight variation between the hong kong fund and what paulson is recommending. the hong kong model bought into the distressed companies while the americans will only be buying the distressed assets from such companies. why would you want to buy only the toxic stuffs and leave the good assets for the companies? secondly, who will determine the buying of the distressed assets and the valuations on them? these are important questions that the americans need to address before the commencement of the rescue plan. i do not think that it will be a good idea to leave the responsibility solely to paulson. after all this will be his last term for the current treasury secretary!

to prevent further decline on their stock prices, the sec is banning short-selling on about 800 financial companies. a very bad idea i think because short sellers provide liquidity to the market. by stopping them is not going to prevent these distressed banks from failing but rather delay the price equilibrium on the values of these companies. for every seller, there is a buyer!

lastly, how are the americans going to finance this rescue plan which is planning to buy more than US$800b of toxic assets from the financial companies? during the crisis, at least the hong kong government had money from their foreign reserve to fund their purchases but the us ................

in short, i think usd is going to be weak, the yields on treasury papers have to go up, stocks might continue to slide further and we will be looking forward to a new american president at the end of the year!!!

trading ideas

FEAR IS YOUR FRIEND!!!

people are panicking and markets are going crazy. this normally shows a bottom or near bottom for stocks. although i do not think it is time to buy and hold shares but this is an opportnity to trade for a decent rebound.

bought some shares in asia in the afternoon and looking to long dow future later.

witch hunting you game???

THE HUNT IS ON!!!

i follow with sadness the recent health of our global financial situation. in a short span of months, we have witnessed century-old companies going under, banks that were deemed too big to fail desperately seeking capital to survive and blue-chip companies losing more than half their values due to the recent credit mess.

it is disheartening to know that those responsible for all these messes are probably enjoying their past years bonuses watching the sunset sipping their pina coladas in some exotic location while average folks are struggling to keep their homes and life savings. thanks to some one's greed and recklessness, hardworking folks are losing their jobs and maybe even their insurance coverages.

according to an article from bloomberg, thain and montag from merrill may reap payout totaling more than US$47m if they leave or are given lesser roles after the buyout. no wonder we are all in big shit ..........

why is there no accountability? why are we not starting a war to pursue those responsible? are the damages not just as devastating?

it ain't over yet

MONEY FAVOURS THE BRAVE HEARTED!!!

the overnight libor has spiked up to 6.44% vs 3.11% yesterday. however, looking at the volatility, a technical rebound should be round the corner.

fx trading ideas

LONG GBPCHF!!!

current price : 2.0040
target price : 2.0200

i think it is a good chance to long the above thanks to the pullback.

fx trading ideas

LONG GBPJPY!!!

i am looking to long gbpjpy.

current price : 188.38
target price : 193.00

this currency pair seems to have stabilize from the selling, think a technical rebound is in good order.

mccain is my man

WE NEED A HERO!!!

54 more days to the us presidential election and i have already put my money on mccain to be the next president of the united states. let me tell you why:

1. after 8 long years of poor governing by the bush's administration, america is in need of some serious changes in the way its government operates. i do not think capability is the most important attribute of a good president but character. this man is a war hero, did his duties for his country by serving in the vietnam war, he was a prisoner of war which resisted an early release, and most of all he is a maverick and is not afraid to take risk which is obvious in his choice of sarah palin. yes he is old but he is mature. yes he is not a good orator but he is a man of action. yes he might not be the most competent man but at least he knows that and will rely on more knowledgeable advisers. and yes america needs a hero and yes america needs mccain!

2. although it is not politically correct to say this and the americans are probably too shy to point it out, i personally do not think america is ready for a black man to be the president yet. the americans might not be prejudiced against a black man but to have one as the president might not sit well with many. so we will probably witness a white female woman vice president first before a black president.

3. there are many who think palin, an unknown nobody, is too young and inexperienced with global affairs. (look what bush has achieved despite his priviledged upbringing and exposure to foreign affairs). i think she is perfect; she is a plain jane, mother of five, hockey mommy, working middle-class like so many other women in the us. she has proven to be a tough politician who knows her math and can balance a budget, a quality much needed by the us government. she will be a good complement to mccain. and most importantly, the other half of the democrats that voted for hillary has another option open to them now. a good calculated and risky move by mccain which has served him well based on the latest poll.

by now, i think most of the americans have decided which candidate to vote for. the rest of the campaigns are not important because we all know that politicians usually do not keep to their campaign promises after they are elected and they will not tell you enough about their policies to be useful in your evaluation of their effectiveness. so just based on the 3 points mentioned, i think the choice is clear.

time to buy lehman?

CHEAP CHEAP CHEAPER!!!

last night lehman shares dropped $6.36 per share to $7.79 on closing. if you are thinking of picking up some shares because it is cheap, think again.

lehman bros, the fourth largest investment bank in the us, is desperately seeking fresh capital injection to help cover further mortgage-related writedowns. according to the market capitalization of $11.2b before yesterday price collapse, the only valuable gem that the market accounted for in lehman is its fund management division say to be worth $8b. doing the sum correctly, you will know that wall street currently values very little of lehman's other businesses quite in line with valuations given to other us securities firms. so if they do manage to sell the fund management business away, you will be left with not much as a shareholder. not forgetting there will be more writedowns and ................

therefore, no financial for me just yet but do look out for those that are buying assets from these badly burnt banks such as money-making divisions or even credit related products. they will be the sole winners from this mess someday!

bailing out fannie and freddie

SELL ON RALLY!!!

the us government announced its decision this weekend to take over the two troubled mortgage-finance companies fannie mae and freddie mac. the news was well received by the equity markets judging from the rally on monday.

however, i bet to differ. although this bail out might help to stabilize the credit market temporarily, it also reveals the severity of this credit mess that is endangering both the us and the global economy.

Just a few points to ponder about:

1. the us government is bailing out investors owning more than US$5trillion of corporate debts and mortgage-backed securities while common and preferred shareholders of the two companies lost more than 80% of their share value over the weekend from last friday

2. this exercise would cost the us approximately us$300b which they cannot afford to begin with

3. an increase of us unemployment rate to 6.1%, the highest in five years according to a report on friday

so why should the markets take this positively and justify the rally. i think it is a bear rally and investor should sell into strength.