Carrying on Trade Matters

Once more unto the breach!  Our mentor  has to attend to a sad loss  in the family in  Hong Kong, which may  take his time for a few days. I have offered to step in  to blog  for him.

If you will go to:

 http://anatrader07.wordpress.com/2011/01/

you will read a few blogs pertaining to global outlook for 2011 by a couple of banks.

Last night I attended another dinner talk by RBS Coutts at the Mandarin Oriental and the common denominator is there for the global outlook in 2011.

However,  the speakers have put  emphasis on Forex and Commodities which I would like to relate hereunder.

Forex

In their view,  there will be rebalancing focus on re-alignment of relative currency values.   They expect the strengthening trend  of Asian currencies  relative to those of developed market currencies, such as, USD and EUR. This is expected to continue and probably accelerate in 2011.

This global rebalancing will be in fits and starts and at times at high levels of volatility.

Commodity currencies should continue to perform well. Canada’s  economic links to the US might see its underperformance versus the Australian dollar.

They expect strength in Asian currencies  to be led by the Chinese Yuan, with 5-7% appreciation against the USD. The Korean Won should also appreciate meaningfully in 2011.

On Singapore’s open economy geared to global growth and  its use of the SGD as an explicit tool to manage domestic inflation, The Sing Dollar  is poised to perform well again in 2011 as its inflation has reached its cyclical peak in late 2010.

 Commodities

Gold still stands to win in their opinion. There is jewelry demand in emerging economies of India, China and  the Middle East.  The targeted price could reach USD1600 per troy ounce.

Copper also fares well providing a pro-cyclical exposure than the risk aversion exposure of Gold. Demand for copper  is directly linked to prosperity, with spot price  rising 150% over the last 6 years. They expect copper price to rise higher in 2011.

They are less keen on oil. The short term upside is limited due to the futures market.

Conclusion

The QE2 in the US combined with the fiscal stimulus might mitigate the imminent risk of a relapse in US economy. Europe faces political as well as economic challenges.

China has failed to designate a new vice-chairman of the Central Military Commission in 2009, which typically should be appointed 3 years prior to the leadership transition.Policy discord running up to the 2012 transition may raise policy  error in China.

The ASEAN elections such as in Thailand, Malaysia and Singapore are expected in 2011.

Singapore does not pose any problem but the post-election may see aggressive policies to contain growing asset prices.

IDKIT aka Ana

Ag Moderator

The Living Years
http://www.youtube.com/watch?v=gUdiQWxps5E

Divergence in a Fractured Globe

Cross ref:

http://anatrader07.wordpress.com/2011/01/11/divergence-in-view-of-a-fractured-world/

Divergence between Weak & Strong

In yesterday’s blog, I mentioned a fractured world or globe.  What does it all mean?  It means we have to tread carefully this year.

According to Dr Andreas Hofert, Global Head of Wealth Management Research, UBS, in his talk last night at the Ritz-Carlton, he summed up that no investment should be considered ‘safe’ as inflation and currency weakness for indebted nations loom.

Investors have to reorient  their perception of  ‘safe’ fixed income investments.  When the facts change, investment strategies should also change.  As traders, this is what we believe and do too: when the market changes direction, we need to reorient our strategies.  We must use intuition not ‘into wishing‘ , as most novice traders tend to do.

What else should we do? This is the question posed.

2010 was a year of reasonable returns for most investors but the investment environment in 2011  will be shaped by difficult political choices, a choice of three options or ‘trilemmas’ where only two can have favourable outcomes at the same time and where one will have to give.

If political uncertainties exist, some economic certainties remain, as the gap between weaker and stronger economies and their divergent growth paths becomes more evident in 2011.

The US, long the engine of world economic growth, is in the camp of the weak economies, while China and its South-east Asian neighbours are in the camp of  the strong economies, including commodity exporters, Canada, Australia and Brazil.  UK, France and the Mediterranean countries are struggling while Germany, Switzerland, the Benelux countries and Scandinavia are pulling ahead.

Following from this, we see the selection of fixed income and currency investments preferred in stronger economies whereas equity exposure continues to be directed to the world’s stronger growth regions.

Investments into so-called assets like equities, commodities and real estate  could be looked into.  The European debt crises is not over yet and financial markets are dividing debt in the region into safe and unsafe. European peripherals like  Portugal and Greece have small economies and therefore have limited  impact on  the global economy. But the big economies like the US, France, Japan and the UK are worrying. At the other end of the scale, Switzerland, Sweden, Germany and several emerging economies look well prepared for the challenge ahead for 2011.

Stay tuned for more soon.

IDKIT aka Ana

Hedge Funds as Alternative

ft-on-hedge-funds.jpg

 Double click to zoom in  on text:

With institutional hedge funds, there are layers of fees to pay irrespective of performance.

Private hedge fund managers  like the legendary Ed Seykota only gets paid with performance of say about 30% on profits when the fund is closed usually 3 -5 years, unless  a certain percentage of capital is lost eg 30%, then the fund will be closed prematurely.  If they do not perform, they do not get paid at all.

I wish to add in passing that my mentor Ray Barros who has been very successful in his  private hedge funds, also follows the footstep of Ed Seykota in rewarding himself only if he performs well.

His Barros Swing methodology enabled him to produce a Value Added Measurement Index (VAMI) from A$1000 in 1990 to over A$500,000 in September 2010.Track records can be read at:

http://tradingsuccess.com/blog/about-ray-barros

Idkit aka Ana

Ag Moderator

3 Factors of Success3-factors-success.jpg

Thanksgiving on CNBC

 Cross ref:

http://anatrader07.wordpress.com/2010/11/25/cash-flow-on-thanksgiving-in-singapore/

Sharing these videos of Ray  & Olivier today:

Charting Sensex and Genting

Airtime: Thurs. Nov. 25 2010 | 11:50 AM ET

Ray Barros, CEO of Ray Barros Trading Group, charts the Sensex and Genting Singapore, and says spot palladium has room to climb higher. He answers view emails with CNBC’s Oriel Morrison.

http://www.cnbc.com/id/15840232?video=1663591117&play=1

Airtime: Thurs. Nov. 25 2010 | 11:20 AM ET

Ray Barros, CEO of Ray Barros Trading Group, charts gold and sees the precious metal heading back up to new highs. He also looks at the euro, with CNBC’s Oriel Morrison

http://www.cnbc.com/id/15840232?video=1663543860&play=1

Ray Barros, CEO of Ray Barros Trading Group, says South Korea’s Kospi index will test the lower boundary for now, due to tensions with North Korea. He also charts the won currency, with CNBC’s Oriel Morrison.

http://www.cnbc.com/id/15840232?video=1663430662&play=1

The sell-off in the Korean won provides opportunities for traders to enter into long-term won positions, says Olivier Desbarres, director of FX strategy at Credit Suisse. He makes his case for the won, with CNBC’s Oriel Morrison. Just before Ray…Olivier Desbarres:

http://www.cnbc.com/id/15840232?video=1662750283&play=1

Idkit aka Ana

Ag Moderator

 

The Moral of the Movie!

 Currencies clash in new age of beggar-my-neighbour – screamed the headlines.

Which reminds me of the Wall Street ll movie:

Cross ref

http://anatrader07.wordpress.com/2010/09/29/a-moral-fable/

Money Never Sleeps

Greed is good, now greed seems  legal, so said Gordon Gekko in the movie : Wall Street 2- Money Never Sleeps.

Gordon Gekko was jailed for insider trading , for destroying companies and  people, in the first movie : Wall Street, an Oliver Stone movie.

In the sequel to the first movie, Gordon Gekko  was released from prision.

To Jake: It is about doing the right thing.

To Gordon:  it is the game.  It is easy to get in, hard to get out.

In the original, financial markets were portrayed with a certain duality. There were characters and scenes worth admiring, but there were also numerous vilifications of the business world, making it a legend among financial students.

Wall Street 2: Money Never Sleeps attempts to emulate the same duality, but  it fails. The lead character, Jake Moore, works for a major investment bank about to collapse, a Lehman Brothers analogy. He secretly falls under the influence of his girlfriend’s estranged father, Gordon Gekko, who has reinvented himself as a financial author. Gekko predicts the imminent market crash and blames complex derivatives with too much leverage. Guess what he’s investing in – gold and silver. All these happening in the present global markets!

The movie grasps at free-market ideas, but it still gravitates toward the comfortable and usual propaganda.

To Jake: if there is no risk taking, where will the world be?

In the original Wall Street, Oliver Stone managed to meld conflicting ideas about the market. But in the sequel, the ideological view is a garbled mix of ideas.

The movie has plenty of toxic parts, presenting  the financial world as a non-productive sector of the economy. Capital markets allocate resources necessary to fund innovative projects that change the economy. Yet the movie is  constantly  demonizing capital markets and praising Jake’s dream, a  show of contradictions.

Some pro-business scenes are worth discussing. First, Gordon Gekko delivers a new version of his “Greed is good” speech. But this time, he elaborates on greed. The bartender who owns three homes represents greed. The leveraged second vacation home and the mall shopping spree are greed..

But hear this: The Federal Reserve’s 1% interest rates are greed.

The second notable scene takes place in a room full of bank CEOs planning the government bailout:  “We’re talking nationalization here. That’s socialism!  It’s what I’ve been fighting against my entire life!” Oliver Stone  chose the word “socialism” to describe the bailouts; socialism is the accurate definition of the bailouts – not capitalism.

Gekko later makes another strong indictment of the bailouts. He points out that his insider trading crimes were small time compared to this.

The last spectacular scene involved Jake Moore’s mother, a former nurse turned real estate investor. As the housing market turns sour, she begs Jake for $200,000 to keep her overleveraged investments in play. He gives her the money, but on a second request, he told her: “You can’t expect people to keep bailing you out. Go back to your old job.” And sure enough his mother went back to be   a nurse again.

The moral of the story:

Labor  with capital has been misallocated during the boom. We cannot keep bailing people out so that they can keep their real estate careers or jobs. When the  going gets tough, the tough gets going!

Every body is breathing the same cool air.

The anti-business lines are washed-up clichés, but the three scenes are  unique for Hollywood, making the movie worth watching, not to mention Michael Douglas the star.

Here is the trailer:

http://www.youtube.com/watch?v=rS0PJSKJoxw

This movie reminds me of a Singapore production: Money no Enough, released in cinemas on 7 May 1998 in the wake of the Asian financial crisis.

Idkit aka Ana

Ag Moderator

 

Wager on Cowboy Practices!

With short-term interest rates around the world held at extremely low levels, many have turned to FX.  It used to be that FX was relatively stable and volatility took place in interest rates.  Now with quantitative easing, rates are basically zero and without volatility, FX is the place to go to. In spite of borderless trading, London still dominates the FX market.

FX is now about e-distribution, e-risk and managing the flows.

The retail  forex exchange market in the US has suffered a reputation as a place where unseemly operators took advantage of naïve investors or traders.

Hence we saw a regulator proposing  rules to protect small FX traders in particular.  We saw a torrent of criticisms in response.  Egged on by forex dealers, most of the letters received by the CFTC focused on one aspect of the proposal: Leverage.

Borrowing money  to trade is the bread and butter of day-to-day FX trading.  To them, ‘putting a cap on leverage is interference with the free-market system and capitalism’.

One commentator shared this sentiment: ‘You are telling the investor how to invest their money.  The first steps to communism.’

The initial proposal of the commission was to cap leverage at 10:1.  However, the final ruling which is to take effect on October 18, 2010, now caps leverage as follows:

1.Traders will be able to borrow up to 50 times collateral for the main currency pairs eg USDYEN, EURUSD

2.For other currencies, they can borrow up to 20 times collateral

More at:

http://anatrader07.wordpress.com/2010/09/23/new-lower-leverage-as-set-by-cftc/

The CFTC was aware of the prevalence of retail forex cheats as far back as the 1990s but while the commission had been able to go after fraud artists in FX derivaties, it had no jurisdiction in spot retail FX.  The US Congress closed the loophole in 2008 and reaffirmed the commission’s  authority with the passage of the Dodd-Frank financial reforms in July.

The resulting rules will do more than reduce leverage, they will require retail FX dealers to register with authorities and hold liquid assets covering their obligations to customers in bank or brokerage accounts and  to meet the new leverage limits.  They also require registrants to maintain records of customer complaints and disclose the percentage of non-discretionary retail accounts that turn a profit.

After fighting lower leverage, FX dealers are now resigned to the new regulations.  One said: ’With the creation of a regulatory framework, the idea is  to help the business enter the mainstream.’

Some smaller operators have been forced out of business after the National Futures Assn in 2009 issued its own rules raising FX dealers’  minimum capital from $5M to $20M.

Small FX traders can now trade ‘micro’  FX futures as launched by CMC Group in March 2009 that are one-tenth the size of  its benchmark FX futures contracts, making them accessible to individuals. They can also trade on currency moves with exchange traded funds (ETF) that invest in currency futures on their behalf.

Wall Street banks offer forex trading platforms and Finra, the regulator for broker-dealers has proposed limiting leverage to 4:1, saying: ‘That level of leverage is for more consistent with the overall services and products provided by broker dealers.

The Securities and Exchange Commission has a mandate under the Dodd-Frank act to implement separate FX rules.

BEADY EYE: Regulators have to target bad practice but not scare off investors (traders especially).

Idkit aka Ana

Ag Moderator

Traders Round Table soft opening tonite

 Cross ref

http://anatrader07.wordpress.com/2010/09/10/soft-opening-of-trt-school-amp-seminar-tonite/

After free presentation by Ray Barros at Traders Round Table school tonight, (Sep 9 2010)questions were invited from attendees.

Q&A No 1

http://www.youtube.com/watch?v=cbYHDOn5aug

Q&A No 2

http://www.youtube.com/watch?v=IyI48tpM0v8

Q&A No 3

http://www.youtube.com/watch?v=pcQol2TmpwQ

Idkit

Ag Moderator