Tag Archives: investment

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The name of the game is Risk Aversion on Currencies !

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Categories: Forex Capital Today, News Flash - Market today, Tags: , , , , , , ,

Earlier today, the Euro hit its weakest level since July 2010 to the Dollar. This followed a clash between European leaders over joint bond sales at a summit.

The Euro also declined for a third day against the Yen. This as a Euro area report is due, that economists predict will show that services and manufacturing industries have shrunk for a fourth month.

The Dollar and Yen have both climbed as against most of their major counterparts. Speculation still persists that Europe’s debt crisis is deepening and this has boosted demand from investors for safer assets.

The Euro stood at $1.2580 earlier from $1.2582 yesterday, when it touched its lowest level since the 13th of July 2010 at $1.2545. It dropped 0.3% to 99.71 Yen, while the Dollar stood at 79.48 Yen.

Bank of Japan (BOJ) Governor, Masaaki Shirakawa, today stressed the central bank’s resolve to maintain its ultra-loose monetary policy. He ruled out though, any easing solely for the purpose of weakening the Yen.

He went on to say that there was no clear historical evidence, that an expansion in Japan’s monetary base does lead to a weaker Yen. This countered views that the central bank can directly push down the Yen by injecting more money into the economy.

He considered, that the biggest factor affecting currency moves at the moment, is investors’ risk aversion and went on to stress, that monetary policy alone cannot influence Yen moves.

In February, the BOJ had eased monetary policy and set an 1% inflation target. It did so in order to show its determination to beat the deflation that has plagued Japan for over a decade.

The BOJ had followed up with even more monetary easing during April. Since then, it has remained under political pressure for further action to support the economy and counter the hardship resulting from a stubbornly strong Yen.

The BOJ has pledged to pursue powerful monetary easing until such time that an 1% inflation figure is in sight, and will likely continue with its efforts to beat deflation with its key monetary easing tool; its asset-buying program.

On the longer term time line surely the euro will have some export easing benefit from the Euro drop, even so as it continues fall down hill.

On shorter term we still have this contagious crisis…keeps popping out as popcorn on a micro..

I can promise one thing, it is going to be a very HOT summer, did you remember last years summer ?

Yes, same thing just bigger….

All the best!

Erik

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Europe’s crisis has deepened dramatically for the last several days !

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Categories: News Flash - Market today, Tags: , , , , , ,

Over the last several days, Europe’s crisis has deepened dramatically. The euro currency union has been coming apart at the seams … and the region’s banks are teetering on the verge of complete collapse!

Just take a look:

In Greece, the latest parliamentary elections ushered in a wave of anti-austerity candidates. They’re threatening to tear up agreements with richer euro-zone members that took several months to negotiate, and that formed the basis of the country’s $307 billion bailout.

German officials are strongly hinting that this could be the straw that breaks the camel’s back — meaning Greece could become the first country to be officially booted out of the euro!

Already, the country’s citizens have been stampeding to their local banks to pull out deposits as fast as possible — nearly 6.4 BILLION dollars in the past several days alone — with snaking lines at ATMs from Athens to Thessaloniki!

And that’s likely just the beginning … because I’ve seen estimates that peg the cost of an all-out Greek exit from the euro at hundreds of billions of dollars — spread throughout the European financial system!

Meanwhile, Greece Is Just the Epicenter of
This Impending Crash in European Banks …

In Spain, the government was just forced to commit ANOTHER $6 billion in bailout money to save one of its major banks from collapse.

There’s just one problem: Spain ITSELF doesn’t have the money to fund these bailouts!

Investors know this, and that’s why they’re dumping Spanish bonds like mad. The cost of financing the government for the next 10 years just surged above 6.3%, rapidly approaching the panic highs set in the fall of 2011. And the cost of Spanish default insurance also just hit an all-time record!

Translation: Even without the ripples from Greece, Spanish banks will probably drop like rocks!

Then there’s Italy, where Moody’s Investors Service just took the axe to its ratings on 26 major banks.

The cuts ranged from one notch to four notches, and in a classic case of understatement, the firm’s outlook on those banks remained “negative.”

If this sad, sorry process looks eerily similar to you, it should …

This is precisely the kind of “snowball rolling downhill” financial crisis we saw in the U.S. during the housing and mortgage crisis of 2007-2009!

That banking and financial crisis ultimately crushed global stock markets, and led to the failure or bailout of banks and brokers around the world.

Many investors lost fortunes.

And make no mistake — I think the same thing is going to happen this time around. In fact, I believe spillover from the European crisis will quickly come rolling back onto our shores, too.

Trade safe until then

Erik

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Stocks are tumbling around the world !!!!

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Categories: News Flash World Economy, Tags: , , ,

U.S. stocks are now getting hammered. Commodities are imploding. Bank stocks are falling worldwide, and some markets in Europe are at multi-year … and even MULTI -DECADE lows!

What’s most surprising about the breakdown of Europe is not how swiftly it’s happening, but how complacently US investors and others are responding …

This is what happens when you only
paper over a problem, rather than cure it!

How can this be happening? Didn’t central bankers print trillions of yen, euros, pounds, and dollars in the past couple of years to prevent and “cure” these problems? Weren’t we told repeatedly by both European and U.S. policymakers that the problems in the debt markets were contained?

Yeah, we were.

But hopefully, you’ve learned your lesson from the U.S. mortgage debacle. Some policymakers will outright lie to keep you from selling stocks, bonds, or otherwise taking steps to protect yourself from the fallout of a serious debt crisis. Others are just woefully ignorant of the severity of the underlying problems.

Think I’m off base?

Then look at what former U.S. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke did during the subprime meltdown! They gave speech after speech saying the problem was “contained” and that it wouldn’t have a major impact on the U.S. economy. But you don’t need me to tell you those predictions weren’t just off by a small degree.

They were 100% dead wrong!!

Now we’re getting the same song and dance from Europe. The ESM. EFSF. LTRO. We’ve been told that all of these whiz-bang money printing and bailout programs would prevent a crisis, and that the crisis itself really isn’t that bad.

But try telling that to a Greek investor, who has now lost every single penny of gains he racked up in the last TWENTY YEARS! Here’s the chart of the Athens Stock Exchange General Index. You can see it’s trading around 610, a level last seen in November 1992.

It’s not just the Greek exchange getting hammered though. Spain’s main index is now at its lowest level since March 2009, while markets across Europe are slumping fast.

This just goes to show that when you paper over a crisis, rather than try to solve it directly, you might be able to gain a week, a month, or even a quarter or two of calm. But ultimately, your efforts will prove futile if you don’t get rid of the underlying problems!

 

Until next time, good trading

Erik

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Frontier Currencies Irresistible as Naira Yields More

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Categories: Forex Capital Today, News Flash - Market Movements, Tags: , , ,

Hello Investors,readers,

Interesting article I read the other day about interest rates and how the money flows towards alternative markets to achieve higher yield on the investment capital.

Foreign-exchange traders, faced with lower volatility and record-low interest rates in the U.S., Europe, the U.K. and Japan, are searching for returns as far afield as Kazakhstan and Nigeria.

Investec Asset Management Ltd., which trades currencies of nations from Colombia to Uganda, said demand for assets in so- called frontier markets increased in the past six months. The Cambridge Strategy (Asset Management) Ltd. invested in the Nigerian naira from December to February. Money manager Adrian Lee & Partners will add positions in six currencies, including Kazakhstan’s tenge and the Kenyan shilling by the end of the second quarter.

Investors are pouring cash into countries rich in commodities or with high growth rates after Europe’s debt crisis prompted them to seek the safety of the dollar and the yen in 2011. Kenya’s shilling is up 29 percent since October from a record low and Chile’s peso has advanced 6.2 percent against the dollar this year. Now, traders risk central-bank action to counter currency appreciation as nations become overwhelmed by a market that dwarfs their economies.

“We have seen an increase in demand and interest in frontier currencies and emerging market currencies versus the majors,” Thanos Papasavvas, head of currency management in London at Investec, which oversees about $88 billion, said in a March 21 phone interview. “It’s not just a search for yield that has led to the increase in demand for these currencies, it’s also about stronger and improving fundamentals and better valuations.”
Colombian Rally

Investec trades the currencies of Chile, Colombia, Kazakhstan, Kenya, Nigeria, Pakistan, Sri Lanka, Uganda, Ukraine, Vietnam and Zambia, Papasavvas said.

Colombia, where mining helped the economy expand 5.9 percent last year and the benchmark interest rate is 5.25 percent, saw its peso strengthen more than 10 percent this year, tied with Poland’s zloty for the most among more than 170 currencies tracked by Bloomberg.

Its government said last month it will keep at least $1 billion of dividends from state-run oil producer Ecopetrol SA abroad to avoid adding to gains in the peso. It doesn’t rule out further steps to curb currency strength, Finance Minister Juan Carlos Echeverry told reporters in Bogota March 20.
‘Destabilizing’ Flows

Countries from Brazil to Switzerland have already taken steps to weaken exchange rates to protect exports and domestic industry. Brazil, Latin America’s largest economy, has sold dollars and broadened taxes on foreign loans and bonds issued outside the nation as part of measures to shield the real from foreign inflows. The Swiss National Bank introduced a cap of 1.20 francs per euro in September to limit its strength.

“Short-term capital flows can be destabilizing and I wouldn’t be surprised to see more countries fight that,” Dale Thomas, head of currency management in London at Insight Investment Management Ltd., which oversees about $267 billion in assets, said in a telephone interview on March 19. “You can get an asset bubble when money flows in and when money flows out it collapses.”

Investment is being channeled into alternative markets as profits from the largest currencies prove harder to come by. Deutsche Bank AG’s gauge of foreign-exchange returns, which includes the most-actively traded currencies, slipped 0.3 percent this year after a 3.8 percent drop in 2011, the worst performance in two decades. The currency-returns index had climbed 47 percent over seven years ended Dec. 30, 2005.
Falling Volatility

The JPMorgan G7 Volatility Index (JPMVXYG7) has tumbled to 10.14 percent from 15.46 percent in September, reducing money managers’ ability to exploit price moves. The 3.5-cent difference between the euro’s high this month of $1.3357 and its low at $1.3004 is the narrowest trading band since July 2007. The shared currency traded at $1.3228 at 11:59 a.m. in New York today.

Optimism that Europe’s debt crisis is stabilizing after the European Central Bank boosted bank liquidity with about 1 trillion euros ($1.3 trillion) of three-year loans and private investors forgave more than 100 billion euros of Greek debt has boosted demand for higher-yielding assets such as stocks. The Stoxx Europe 600 Index (SXXP) has climbed 8.6 percent this year.

Low rates, austerity and stimulus measures in the U.S., the U.K., Europe and Japan — known as the G-4 — have strategists forecasting little change.

The euro will fall to $1.30 by year-end, the median estimate of more than 50 strategists surveyed by Bloomberg shows. The yen will trade at 83 per dollar by year-end from 82.65 today and Britain’s pound will be at $1.57, from $1.5869, separate surveys show.
Emerging-Market Volumes

Futures-trading data from CME Group Inc., the world’s largest futures exchange, shows that volumes in emerging-market currencies jumped 42 percent in 2011 from the prior year, while those in the yen, euro and Swiss franc stagnated.

“There clearly has been more activity in the emerging markets — there are greater opportunities for investors,” said Ed Baker, executive chairman of London-based The Cambridge Strategy, which specializes in emerging-market currencies and equities and has $850 million under management. “No doubt it has been harder with the G-4 to make money,” he said in a March 20 telephone interview.

Baker said his company has profited in Nigeria’s naira and the United Arab Emirates dirham, while Serbia’s dinar was the best-performing currency in 2011 in its $65 million Apollo strategy fund, which had gross returns of 15.9 percent on an annualized basis since it was set up in May 2009.

Trade safe

Erik

Source: Bloomberg – Emma Charlton and Paul Dobson on March 26, 2012