USD Outlook

Hi all,

Today's event would be focused on ECB (1345 GMT) and BOE (1300 GMT) respectively, where expectations are talking about a cut of 50 bps for ECB and a possible 100bps cut on BOE. I personally have a view that BOE may not go for this full point cut, probably 75bps may be more realistic. 

Look at the economic calendar above for further announcements today. My opinion on the market in the next few weeks, would be greatly influenced by the payroll figures in tomorrow's NFP. 

The photo above is another teaser on the new US President.  You think the USD will really be printed in this manner in the future? 

Enjoy.

Market Update

Here is a brief summary of what will and had happened during the period of my absence from the market:

1. A good move made by RBA today, where they cut interest rates by 75bps to 5.25% at 03:30 GMT. The 75bps came above expectations as speculators were anticipating a cut of 50bps instead. RBA has indeed shown their aggressiveness on their countercyclical monetary policy, and at the same time to exert some pressure on BOE and ECB for a significant ease this Thursday. 
2. Economic data everywhere seems horrifically weak globally, not sparing China as well, as China's manufacturing data shrunk by record. Interestingly, there was an article on LA Times, where it reported that some owners deserted their factories in China.  From the British Beer and Pubs Association in U.K, pubs are shutting down at a rate of 5 pubs a day, from Reuters, click here. 
3. Focus will be on US elections on Tuesday, where results will be in after the N.Y market closes. If McCain is to upset Obama, he may have to seal a win in Pennsylvania first. 
4. Watch out for the outcome of the House and Senate elections, as the Democrats seem to be in control of both bodies, question would be whether they get 60 seats in the Senate. So what will happen to the stock markets if it is a Republican or Democrat win? Click here
5. Asian markets closed with uncertainty trading throughout the day, due to weak economic data, strength and weakness in the USD, and good data that could motivate a move on equity prices. Nikkei 225 closed at 9114.60 +537.62, Shanghai closed at 1706.70 -13.07, Hang Seng closed at 14,384.34 +39.97, Straits Time Index closed at 1829.69 -54.06.  
6. Major currencies are relatively stronger to the USD for the asian session, but GBP and JPY are relatively mixed for the day.
7. US Treasury said it will seek to borrow a record 550 billion dollars in Oct to Dec.

That's all on the market brief.

Review: Challenges To Maintain Free Market Capitalism

Hi guys,

It has been awhile since I last wrote a review on the markets. 

As I am writing this now, here is a summary of the asia stock markets:

Shanghai Composite  35.94 (1.92%) 1,839.621

Hang Seng  1,142.11 (8.30%) 12,618.38

Nikkei 225  811.90 (9.60%) 7,649.08

Straits Time  145.39 (8.33%) 1,600.28

Kospi  110.96 (10.57%) 938.75

Taiwan Weighted  150.89 (3.19%) 4,579.62

FTSE 100  290.02 (7.09%) 3,797.81

DAX  367.65 (8.13%) 4,152.05

SMI  347.22 (5.89%) 5,546.51

Currently, DJIA, S&P 500 and Nasdaq futures are traded at limit down. There are also talks in the market of possible intervention from major central banks tonight, IMF seeking funding from China and Japan to aid emerging market economies, where they take into consideration of high default risk from these countries. 

What speaks for the strength of the USD despite liquidation from companies, hedge funds and the CDS, and for the weakness of other currencies over the past few weeks. Primarily, the  cause was by a surge in demand from parties who are not part of G7 or G10 who do not have large swap lines with the Fed, e.g Korea, where they are not part of G7, their system at this moment would experience additional pressure on the won, as they do not have swap lines with the Fed, therefore, in order to obtain Dollars, they have to post their national currency (Won) as a form of collateral in exchange for dollars. Similarly, the similar situation is happening to many emerging economies like Pakistan, Russia, Kazakh, Emirati and etc banks. 

With further job cut announcements, starting from a few institutions like Caterpillar, GM, Merril, Chrysler and Goldman, we may continue to see further evidence of a full blown recession, that the US dollar may have not factored in, in the next few weeks, after the liquidity squeeze gets resolved. 

Watching the Banking Committee yesterday, where the Congress tried to grill Greenspan, Snow and Cox, was indeed an emotional moment for me. The ex-Fed Chairman was given utmost disrespect, as his speech was cut short, and he gets very rudely interrupted during his Q&A, I thought he deserved his stand to explain, as someone who had dedicated to serve as the Fed Chairman for more than 40 years. If you were his age, and given this time where you could be flying elsewhere for your retirement holidays, would you waste your time in front of a group of people whom you know that will grill you, and admit that your ideology of a free market system was flawed? In my opinion, I respect this chap for his honesty, and to be very honest, in my opinion, there are no flawless system in governing in the financial markets? Even nature does not give you a perfect forecast of any nature product's life cycle. 

Continuing from the above emotional message, I personally feel that we will continue to face challenges in the financial markets, where the DJIA we may see a bottom at around 7,200. In view of Euro/Usd, the USD will likely begin to weaken on the mid term from 1.22ish. These views are just my personal views on the market, and they are not meant for professional financial advise, therefore I hope you could just view this with a small amount of belief. 

Hope you guys have a great weekend. Good trades to all. 

Analysis: Global Recession Due

Hi all,

It has been another interesting week that will make history in the global financial markets where the US markets lost a total of $1 Trillion on the market bourse, as Dow was down 777 points closing 10,365.45, Nasdaq down 199 points closing the day at 1983.73, S&P 500 down by 106 points closing the day at 1106.39, in the US market trading.

Asian bourses was pretty weak gaining what was lost from the opening at mid-day with STI closing down 2.43 points at 2358.91, Nikkei 225 closed down 483.75 points at 11259.86, Hang Seng closed up 135.53 at 18016.21 (where tomorrow will be a public holiday), and Chinese stock exchanges closing for the week for National Day.

The selling in the earlier session was sparked by a rejection of the bailout plan that was proposed by Henry Paulson, and his Fed aides, as many market participants held high hopes of the implementation of the proposed rescue package. In my opinion, a veto on the proposed bailout plan may not exactly be a wrong move for the US economy on the long term. I may not be a US taxpayer, but to be transferred an obligation, and to 'foot the bill' for mistakes made by others, would make me feel upset about it as well. 

These troubled institutions have, for the past decade adopted a loose system in assessing the credit-worthiness of their borrowers, and thus, lent out billions of dollars to NINJAs (No Income No Job or Assets Individuals). As a result, causing a vacuum in the credit system. With fear of further failure with banks, the Federal Reserve has, since March, spent on these items:

1. JP Morgan's takeover of Bear Stearns, brokered by the government ($29B)
2. Liquidity Injections such as Term Lending Facility and Term Auction Facility ($200B)
3. Economic Stimulus Package ($168B)
4. Refinancing of failing mortgages into new and reduced principal loans with a guarantee ($300B)
5. AIG's bailout ($85B), can be up to $400B due to AIG's CDS on CDOs, CMOs, MBS, and etc...
6. Fannie Mae and Freddie Mac $200B, can be up to $800B
7. Money market insurance (likely another $50B)
8. MBS purchases ($10B), up to $800B.
9. Global credit market injection $300B just last Friday.
   
10. Repayment to JP Morgan for providing liquidity to Lehman's bankruptcy ($300B)
11. What if the 2nd attempt of the bailout proposal succeeds this Thursday? ($700B)
12. Taken from an article in Reuters, US banks and money managers had to borrow $188B a day to keep afloat.
    

Do you think the Fed has been successful with such spending and injections? What is it about another $700B of injection, will the system stabilise because of these injections? 

As of 30Sep2008 Libor Fixing

         Tgt   O/N    1mo    2mo  3mo  3m chg
US   2.00%  6.875  3.926  3.966  4.053   17.0
UK   5.00%  6.781  6.075  6.156  6.300   3.9
EUR  4.00%  4.449  5.050  5.130  5.277   4.0
JPY  0.50%  1.031  0.926  0.950  1.015   5.4
CHF  2.75%  3.333  2.800  2.860  2.955   2.5
CAD  3.00%  4.500  3.997  4.100  4.208   0.8
AUD  7.25%  6.938  7.775  7.725  7.800   3.7

Taking a look at LIBOR (London Interbank Rate) which is a rate for interbank lending, is at a nervous state, as banks begin to lose confidence with one another, loans offered by banks to retail customers are also shorter, and do you think bulk cargoes that are shipped long distance by ship easily get their financing as well?  

Next, let's take a look at European banks, are they any better off than us? Here are some numbers:

• More than $300B of credit insurance were written by AIG to the European banks.
• Deutsche Bank leverage ratio is 50x, 80% of Germany's GDP.
• Barclay's leverage ratio is 60x,  100% of UK GDP
  
• Fortis's leverage ratio is 30x, 300% of Begium's GDP.

Scorecard: Avg Leverage Ratio (US Banks) 20x Vs Avg Leverage Ratio (EU Banks) 35x

The numbers speaks for itself. If you have read the contents that was written above, you would derive that we are currently in the phase of a global slowdown, also called a recession. Let's not deny that. 

So where do we invest our money in? Writing Blogs? Not a bad idea in fact, well I happen to come across a website (http://www.postiecon.com) lately, and they seem to be providing some very interesting ideas as to how successful blogs can be created. Look into them if you are keen.

As for my personal opinion as to where funds could be invested, for the moment, even though stock valuations are already at one of its lowest levels, I still believe cash is king, for those who are not involved in the forex markets. But if you are into trading forex, crude oil and gold for the week, I would suggest everyone to only try holding on to short term positions, as news of intervention and further injections from central banks may come anytime, causing the markets to be a little volatile at times. 

Analysis: Volatility Increased As Market Waits

As the trading day ends for the week in a few hours, the world anticipates for news on Paulson and the members of the Treasury to disclose details on the bailout plan. The current market's  sentiment, judging from how equity indices are performing (volatile), indicate that market participants are running dry on patience, as they begin to doubt whether anything would be passed to restore liquidity in the markets, and save the sinking boat. 

In my opinion, restoring liquidity may not save all the firms from failing, but it is likely to calm the markets as well as those OTC derivatives creators who are still writing credit default derivatives.

Monday's market open would likely be another interesting one, as the markets will likely begin to discount the outcome, as it may no longer matter if the Bill is passed or not. Here is a short article of an enthusiastic party to this bailout plan:

UK banks hold 95 bln pounds of sour assets that could qualify for US bailout plan - Times of London

Times of London reports Britain's five leading high street banks have as much as 95.3 bln pounds ($175 bln) of distressed assets on their books that may qualify for the American bailout scheme. If the British banks tap the rescue fund being set up by the US Treasury and the Federal Reserve to the maximum, they could secure one quarter of the $700 billion being made available. Under the terms of an outline agreement that appeared to have been reached by US policymakers last night, Britain's lenders will be able to use the facility... According to analysts' estimates, and the banks' own recent filings, HSBC (HBC) has as much as 45 bln pounds in structured mortgage debt and other soured assets sitting on its balance sheet that it might look to exchange with the Fed under the plan. Next are Barclays (BCS), with 17.4 bln pounds; Royal Bank of Scotland (RBS), with 16.2 bln pounds; and HBOS, the UK's largest mortgage bank, with 13.3 bln pounds, analysts said yesterday. Lloyds TSB (LYG) follows some way behind in its exposure to the troubled mortgage securities, with assets of about 3.4 bln pounds.

Let's look forward to next week, where the Chinese exchanges will get an entire week's holiday for their national day. And I will be looking forward to this weekend's F1 in Singapore. Have a Great Weekend! 

Analysis: Market Outlook

The world markets today will remain focused on further developments on the U.S. financial bailout program, that has just about worked its way through Congress. It now appears to be a done deal. The strongest reaction has been in equty markets, which have improved. The USD really does not know what to do with it, but its tone improved as the day wore on. It may indeed be a dramatic

The major question now is whether interbank liquidity will start to improve once the bill officially has been passed as the interbank lending had dried up pretty drastically. As simply, banks who have cash do not want to let it go for credit/liquidity reasons.

Next Monday will be an interesting day because on that date, markets will start trading the three month maturity over the turn of the year. Equity markets and the bond vigilantes will have the final word on the bailout program and have already rallied in anticipation of its passage.

The USD is trading steady to lower against EUR, CHF, JPY and GBP. Crude Oil starts lower at 106ish away from yesterday's high at $108 per barrel. Gold is also lower

Asian bourses traded lower with HSI 18771.02 -163.41, Nikkei 225 closed at 11893.16 -113.37, STI currently trading at 2409.90 -34.26, and Shanghai 2293.784 -3.717. 10-yr JGBs were a touch weaker. European bourses rallied. E-Z bond prices have gained.

U.S. equity markets closed up stronger yesterday. Likely to follow with a weaker opening in the US markets today. Bond prices are also weaker.

Analysis: Correlation Charts

Thank you for your kind support and encouragement. I am glad my info has been useful to some. 

Just last week, a reader asked, if there were any currencies that showed a correlation with specific commodities, so in order to answer this query, the above image may speak for itself. 

Analysis: Managing An Economy

Back in the 80s, when the US government had to deal with a crisis where the Resolution Trust Corporation, which is a holding company formed and housed within the Treasury, to deal with distressed real estate that was funded by loans and savings, the strategy was deemed a sucess where it was later reused by the HK and Indonesian government during the asian financial crisis. This indeed managed to give immediate liquidity and confidence to the markets during such turbulent times. In addition, this came as a win-win situation for the governments, because as these distressed assets were bought in a 'fire-sale' price, which was significantly cheaper than its face value, the governments made profits from such transactions, where in today's case, the similar situation applies.

The target of this plan for the purpose of restoring order in the banking system, so banks will remain confident to lend, as well as to free up funds for further lending and use when the economy grows. 

After reading the above information on the bailout plan, I question if laissez faire can really be made real in capitalism, but as history repeats itself over and over again, I am convinced that by adopting a neo-keynesian approach to the management of monetary systems may seem like a better approach.  

Analysis: Market Outlook

The markets are still waiting for details on the US financial markets bailout program, as later today 13:30 GMT, Paulson, Bernanke and and Cox will address in a testimony on this issue, which the highlight may pose to be an event risk for the evening. By observation on the FX markets, the market seems to be anticipating a bearish trend underlying for the US Dollar, due to the loosening of monetary and fiscal policies of the US, which is usually seen as a problem for a currency. Currently, the USD is trading weaker against the majors.

Be reminded that central banks have injected massive amounts of money over the weeks, if the bailout scheme does not turn out to be as welcoming as expected, then we may have to keep a close watch on the USD and US equities markets for a roller coaster ride. The hope is that this bailout program could work to improve liquidity and provide banks the opportunity to liquify their balance sheets, but hope may not always come true.

On the maturing Oct crude oil contract, we witnessed a short squeeze on the maturing contract as prices spiked higher for some unusual reasons, as by logic, traders tend not want to get caught on the final day of trade for a commodity.

Nikkei is closed for holiday. Shanghai and Shenzhen managed to revive earlier losses, but it still closed negative. The death of toll of young children has increased, for the melamine mixture in one of China's dairy products producer, remain to creep in the news on most asian newswires.

Straits Times Index remained lower as investors remain careful to the Paulson, Bernanke and Cox's testimony.  

US equity markets will be opened mixed later. Bonds prices are also higher.

Analysis: Market Outlook

Markets await details on the Fed's proposed bailout program, as the significance of this event is likely to pose bearish sentiments on the US dollar, as a combination of a loose monetary and fiscal policy, is usually seen as a problem for a country's domestic currency, similary over time, this countercyclical moves may be presumed to improve liquidity in the economic pipeline, and to provide firms the opportunity to realign their balance sheets. The bond markets may very well have to witness an increase in the outstanding U.S. government debt.

Currently, US Dollar trades weaker against the EUR, CHF, JPY and GBP.

Asian bourses closed higher with the Nikkei gaining. Shanghai and Shenzhen gained modestly making an approximate 20% over 2 days, following steps taken by the China government to boost stock prices. The U.S. equity markets will be opening lower later.

10-yr JGBs were also weaker. Commodity currencies are broadly mixed. Gold advanced only modestly. Oil is firm as it looks now like it wants to hold above the $100 line.

Stay tuned for my next post as I will describe further on the mechanics and rules of my trading system.

Cheers.

Note: Weekend Changes

Hi all,

Hope you guys have enjoyed the 2 videos.

Dropping by for some update and information on the markets. Below is a link to where you can find a list of US financial companies whose shares that cannot be shorted as imposed by the SEC on Friday. Find it here: No Shorting

Another small bank, Ameribank, just joined the bank closure list, I wonder if the list will continue to get longer, click here to access for details:  Failed Banks

UK PM Gordon hinted that the FSA will be given more power if needed to regulate the financial system, and the UK is prepared to borrow more and use public expenditure.

Paulson said foreign banks will be able to unload bad financial assets under a $700B proposal to restore order. Details are still being negotiated.

So let's look forward to tomorrow.

Video and Analysis: Hitler and His Margin Call

Here is a short USD trading outlook and a short entertaining video for your enjoyment towards the close on Friday trading. Looking forward to see you guys here again this next Monday. Have a great weekend ahead!

The financial markets have a lot to digest today as they attempt to assess the implications of the USD 500B bailout plan for the US financial system, where the assumption is that, this program could greatly improve liquidity and allow affected firms to salvage their problematic assets, and put an end to scares/panics made by the market on these big firms. Therefore, because of this, the U.S Treasury markets gain another USD500B of new debt. As I understand that many investors now may feel that the current strain is far from over, I still urge everyone to observe equities closely, if you remember yesterday closely, you would understand that the net change of the indices at the end of the day is more important than its change before the open.

I would believe that the markets may very soon focus its attention as to how the US Treasury could sustain its 'liabilities' which it has attained from the private sector over this 2-month period.

In summary of today's events in Asia markets, Shanghai and Shenzhen stock exchange closed sharply higher, trading within a very thin range on intraday trade, as the Chinese government took steps to bolster stock market prices. STI, Hang Seng, Nikkei and most other asian exchanges followed suit as sentiments of 'the panic may be over' mood sets in.

Libor and JGBs yields were traded less erratically as compared to how it was quoted over the past 3 days. Treasury Bond prices are also weaker as the market goes into 'the panic may be over' mood.

Commodity currencies like CAD, AUD and NZD were mixed. EUR, CHF, JPY and GBP traded lower against the USD.

Gold eased modestly as well, as investors target for higher returns from other instruments, other than the refuge instrument. Oil remains firm, but look out for the $100 line, as it may seem like a pivotal price for the instrument.

Lastly, should time allow, take a close look at Eur/Usd and Oil. Does it say anything to you?

Now, let's enjoy this short clip from hitler, and enjoy a great weekend ahead.

Cheers ;)

Analysis: Effects Of Banning Short Selling

If the SEC temporarily bans short selling, it will actually INCREASE the cost to banks of raising new capital, and the market's floor might be removed.

- "The Securities and Exchange Commission took its most aggressive assault against bearish stock bets by stating its intention to issue a temporary ban on short-selling," writes the WSJ. "SEC Chairman Christopher Cox briefed Congress late Thursday of the agency's intention to take the extraordinary step of interfering with the market's regular functioning."

- This move will affect hedge funds that use short positions to hedge investment risk during a rights issue or placing. If they're not able to provide liquidity during a rights issue, the costs to banks of raising new capital will increase. 

- Shorts provide a floor, buying (i.e. covering shorts) when there is no one left to buy. If you can't short, the only way to reduce your risk is to sell, which may exaggerate downside pressure in the event of a market sell-off. A simple illustration: Look at China's stock market, where no short selling is allowed. The Shanghai composite went from 6100+ to 1800 in the space of a few months...

Analysis: Market Outlook

*DJ Philadelphia Fed Sep Business Index 3.8 Vs Aug -12.7 
*DJ Philadelphia Fed Sep Price Paid 31.5 Vs Aug 57.5 
*DJ US Conference Board: Aug Leading Index -0.5%

*DJ US Jobless Claims +10K To 455K In Sep 13 Wk; Survey -10K 
*DJ US Sep 6 Week Continuing Claims -55K to 3,478,000 

MS and Wachovia about to start serious and advanced merger talks - CNBC

European power and gas traders have lost confidence in US investment bank Morgan Stanley and are shying away from engaging in deals with the Wall Street major, market sources told Platts on Thursday. Morgan Stanley is the one of two remaining independent Wall Street investment banks, next to Goldman Sachs, after the fire-sales of banks Bear Stearns and Merrill Lynch and the collapse of Lehman Brothers. 

Swiss National Bank leaves target range for the three-month Libor unchanged at 2.25–3.25%

Next time someone asks "what good a would a Fed rate cut do?" the right answer is "what harm would it do if they do not?" and pull out yesterdays headlines, price action and negative yields. As usual, the global central banks are a day late and $247 billion dollars short in addressing the issue. Having said that SP is +16 as of this writing. Cycle guys get all lathered up this time of year as the autumnal equinox (9/22) has marked some major turning points in financial markets. One can only hope. Amazingly, the bullish divergence is still in play as yesterdays deeper new low was still not confirmed by 9day RSI (chart). Another potenial divergence is the AAII Bull/Bear index. It has made higher lows with each subsequent lower low in price. I'm not willing to hang my hat on that either one but it is interesting. Crude and nat gas have quietly rallied significantly over the past two sessions. 

The change of tide in Asia trading was indeed very astonishing, as the STI, Hang Seng and Shanghai markets were very bearish, till the combined central bank effort to revive the market's liquidity towards the final 3 hours of market trading. 

BOJ also interestingly for the first time in history became a lender. For details on the lending, go to: http://www.boj.or.jp/en/type/release/adhoc/un0809a.pdf 

In addition, my trading calls as mentioned on my previous post will commence from next Monday, as there are some permissions and arrangements that has to be done with my sponsor. So do stay around next Monday.

Analysis: Downfall of an Investment Bank

Here are some details of the severe repercussions should AIG fall, take this to reference on the impact of the LEH collapse:

Sept 17 (Reuters) - (The following statement was released by the ratings agency)
Sept 17 - Moody's Investors Service announced today that is has placed its ratings of certain credit derivative transactions listed below (the "Transactions") that have exposure to Lehman Brothers Holdings Inc. ("LBHI") and certain UK Lehman companies, including Lehman Brothers International (Europe) ("LB-UK" and collectively with LBHI, the "LBHI Entities"), on watch for possible downgrade. Additionally, certain other Transactions were downgraded and left under review for further possible downgrade. Moody's explained that its rating action is based upon LBHI seeking protection under Chapter 11 of the U.S. Bankruptcy Code and LB-UK being placed into administration, a procedure governed by the Insolvency Act of 1986, on September 15, 2008.
The exposure of the Transactions to LBHI Entities arises from various roles performed by them in the Transactions, including (without limitation):
-counterparty under interest rate and currency swaps
-counterparty under credit default swaps
-guarantor
-liquidity provider
-repo counterparty
-remarketing agent
-depositor
-collateral manager
-servicer
-sponsor
-cash manager
-calculation agent
-paying agent
-collateral provider
-issuer
The Moody's ratings of the following Transactions have been placed on review for possible downgrade:

Arosa Funding Limited:
(1) 3 Tranches of Series 2006-2 Dynaso 2006-1 Notes
Current Rating: Baa3, on review for downgrade
Prior Rating: Baa3
Elva Funding Plc:

(1) Series 2006-6 through Series 2006-47 Credit Linked Notes
Current Rating: All on review for downgrade
Prior Rating: Various
Onyx Funding Limited:

(1) Series 2004-1 Class A Credit Linked Synthetic Portfolio Notes
Current Rating: Aa2, on review for downgrade
Prior Rating: Aa2

(2) Series 2004-1 Class B Credit Linked Synthetic Portfolio Notes
Current Rating: A3, on review for downgrade
Prior Rating: A3

Lastly, from tomorrow onwards, I will be changing the method of writing my blog, as I will begin to make posts on my market positions and price of execution, further commentaries will be made on http://systematic-trading.blogspot.com where a brief write up on the trade and fundamental arguments will be published. 

Be sure to lend me your views and support, as I hope to make this as interesting as possible, and please forgive me if i do not place my calls as promptly as I do need to place my own trades in the market first. A trade summary will be posted on http://systematic-trading.blogspot.com weekly and monthly to keep track of performance, where I will post all such details on my Forexyard demo account.

So see ya soon.

Note: Posts are also published here!

Hi all,

I publish some of my posts at Articles Base as well, so if you are keen to view them in another environment, feel free to view the links below:

Trading Approach:  http://www.articlesbase.com/day-trading-articles/a-trading-approach-563941.html

Volatility in the Credit Market: http://www.articlesbase.com/investing-articles/volatility-in-the-credit-market-can-we-still-trust-banks-562950.html

Cheers

Analysis: Federal Reserves and AIG

Seems like we can avoid another scene like that in AIA Singapore again. 

No rate cut was made. The Federal Reserve is readying a loan of $85B to AIG, in exchange for an 80% stake in the insurer. Barclays is buying some of Lehman's assets, where the US bankruptcy judge approves "automatic stay" status for JP Morgan to continue providing trade-clearing advances to Lehman's broker-dealer unit. WAMU is also up 16% due to talks of fresh interest from a large institution. 

Thus, has all these events salvaged the turbulence in Asia, and create a positive spur of sentiment for the international markets? Let's take a quick snapshot in early Asia and US closing markets in the morning.

All Ordinaries  Australia 4,843.4 8:28AM SGT 43.600 (0.91%)

Nikkei 225 Japan 11,830.34 8:28AM SGT   220.62 (1.90%)

KOSPI  Korea 1,425.59 8:48 AM SGT   37.84 (2.73%)

S&P 500 US 1,213.59 20.89 (1.75%)

DJIA 11,059.02 141.51 (1.30%)

Nasdaq 100 1,724.08  18.62 (1.09%)

As mentioned on my earlier posts, the move of nationalising more private sectors into public sectors may mean that the longer term growth outlook for the US may be dampened for the longer term. In my opinion, this nationalization of AIG may be for good as it is natural that money making institutions will be not be sold, where only companies that are in losses will be sold in the name of privatisation. With AIG having a globally omnipresent diverse structure with a trilion dollars worth in assets, it could be one lucrative asset for the government to generate revenues. 

Lastly, I wonder if they may continue to sponsor Manchester United in 2009 again. ;) 

Analysis: Sectors Worth Consideration

Today has also been one very interesting day for the financial markets. 

With time running out for AIG's vault, it seems like all eyes are looking at the Fed to provide a bridging loan to lend the company a helping hand. Additionally, if rumours are right, WAMU may soon get off the radar screen if JPM has interest in them.

Looking at the market on the macro level, we have witnessed the more than $600B in share value that got worthless or disappeared in the financial and banking sector, and historically, equity markets on average drops 26% during a recession, where now S&P 500 has already reached 23%. In addition, current dividend yield of some stocks have begun to surpass yields from Treasury Bills products. One more evidence is taken from Thomas J. Lee, JPM Chief US Equity Strategist in New York, net cash balances in margin accounts at NYSE member firms are highest in at least 50 years, citing $932B has poured into money fund since Aug 2007.

So do you think this could be a possible turn?

For my personal preference, I will be keeping a good eye on medical, pharmaceutical and related industries to start with. For some reason, the value of such stocks tend to get undervalued after financial stocks get a big hitting, as the value of such stocks do get affected by the changes of sentiment of the stock market in general. 

Next, I will be back on the saddle to continue market momentum trading, as irrational moves in the market could have been greatly reduced, and therefore making it easier for momentum trades to be made on the FX (specifically GBPJPY/ EURJPY in Asia, and EurUsd/GbpUsd in Europe) and futures markets.

Tell me your views.

Analysis: Paradigm Shift In the US Banking Sector

Today's events have indeed been a thrilling experience experience for the international markets. As I am writing this, the China Central Banks has just cut its key interest rate again by 27 basis points to spur growth, Lehman (est. 1844) has filed for Chapter 11 (Bankruptcy) , there are rounds of ECB having an emergency rate cut, UBS sneaking in to declare another $5B of writedowns, AIG seeking help from the Fed with a request of a $40B bridge loan after rejecting an offer by Flower to prevent themselves from joining the slaughterhouse where their CDs are currently gapping outwards, and it seems that the only few pieces of good news are probably that Merril had a merger with BOA, as well as a consortium of global banks have put together a $70B fund to facilitate liduidity and an orderly resolution between Lehman and their counterparties. ECB also joined in with $30B to curb liquidity woes as well. 

In my opinion, it seems like an obvious trend that all Fed Governors are challenged by the markets whenever the Chairman gets hot on the seat, where the Federal Reserve at this time in history chose to avoid providing support to Lehman as it could gravely cost the federal government to be in a financial position, after nationalising Freddie Mac and Fannie Mae. If the Federal Reserve is to continue taking on more liabilities from the private sector and turning them into a public sector, it may be worth want to rethink about the credit rating of the US Treasuries, as many investors may consider the risk of default. With reference to the article written by Morgan Stanley, where they quoted from Japan and Germany back in the 90s, that the explosion of both governments' debt was followed by a peak out and then a decline of private housedholds' indebtedness, and with the expansion of the public sector's balance sheet was mirrored by a contraction in the private sector balance sheet (always relative to GDP).

The consortium of events have really challenged the belief of many affluent investors and central banks today as to rethink about the safety of their funds with their investment banks (where Lehman is larger than Bear Stearns), and the use of leverage for their creative business models. These institutions tend to face more vulnerabilities as they depend heavily on short and medium term money market instruments to maintain operations, as compared to commercial banks such as JPM and BOA, where they are more dependent on deposits made by their customers to operate. In my opinion, if the economy is to reinvent the banking system, it may also also seem that huge bonuses awarded to CEOs of investment banks may be forgotten for a little while, till people can forget about what happened in 2008.

In my opinion, the effect of liquidation of these troubled institutions may also slowly creep into the US consumers, businesses and net exporters to the US in the coming months, where it may continue to hurt smaller institutions, home owners, other governments, pension/ welfare/ education funds, and corporations who have collaborated in business with these companies. 

So in-lieu with the current jittery sentiment, where consumption and the labour market takes a hit in the slowdown, the availability of credit remaining low,  Europe and Japan in a recession, and the emerging markets having difficulties coping with inflated prices of goods over the past few months, where are the opportunities at?

Considering the events and gloom of the current market condition, we are inevitably experiencing one of the most interesting challenges of human history, that is an asset bubble that rippled into a credit crisis that will remain to challenge the monetary 'pipeline' for awhile. 

First, as a personal preference, I will be staying away from stocks in general, even though Asia may seem like a safer haven for equities investing, but no matter how, so long as there is uncertainty, these instruments should be left alone. Second, keep a close watch on central banks and currencies in both UK and the European region, where logic says we should be hearing some countercyclical monetary policies (rate cut) from them soon. Lastly, we may also begin to see lower prices in general commodities as the world's largest consumer may have to take a cut back on their general expenditure on goods and services, as well as their gross net worth. 

In my next post, I will be looking at which specific markets I would be trading on, and where would be my preferred entry levels.

Please understand that these are only my personal views, and is not intended for the purpose of providing financial advise. If you find the article interesting and would hope to dicuss further on your views on trading and investing, come join me at http://momentum-trading.blogspot.com (Momentum Trading) and http://systematic-trading.blogpot.com (Systematic Approach Trading).

See you soon!