Posts Tagged ‘Sterling’

Notes From Underground: A new foreign exchange: Axel Weber to U of C and Bernanke to Cologne

March 8, 2011

OK, some of it is reality. Axel Weber announced today that he will be teaching at the mecca of monetarism as he heads to the hallowed halls of the University of Chicago. If only Bernanke would head to the Bundesbank, the financial world would have a respite from the bubble blowers that have resided at the helm of the FED. The ECB‘s loss will be the U of C’s gain. As usual, Herr Weber is not going quietly as he was opining how the ECB would raise rates by 75 basis points before the year has ended. The French and Sarkozy are breathing easier as the hard-money German has been sent across the pond to resharpen his “TALONS.”

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Notes From Underground: A spectre is haunting the global markets; the spectre of deflation

July 1, 2010

When one looks at the global markets you have to belive that there is more than a whiff of deflation in the air. The pundits talk about the corporate profits looking rosy but when you are in a “balance sheet recession,” profits be damned. Deflation brings fear and as the storm clouds gather, the small boats are heading to the harbors of safety–where ever they may be.

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Notes From Underground: an update to Notes’s March 1 piece

May 28, 2010

In a developing story, it appears the U.K.’s PRUDENTIAL PLC is trying to renegotiate its previous deal for AIG’s Asian insurance unit,AIA. We originally thought that PRU was paying a rediculous amount for the AIA unit, especially since they were using an already badly depreciated currency: the POUND. We only point to the story as being an influence on the POUND. If the deal fails to consummate, previous short STERLING positions, which were put in place to fund the deal, will have to be unwound. This will have an impact on the U.K. currency, both outright and on several crosses. We just want our readers to be aware of the implications of this potentially ill fated deal. (more…)

Notes From Underground: Mothers’ day and the Fatherland disrupts the day for its female chancellor

May 9, 2010

The weekend news has been that the European Union has gone on war footing in its battle against the market forces. Remember, its these market forces that are wreaking havoc on the designs of the the arrogant Eurocrats and their ill-conceived deams of an imperial state. It seems that a €500 billion package has been constructed to underwrite the sovereign debt of the European debt-stressed states.

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Notes From Underground: ECB agrees to accept all dogs and junk

May 3, 2010

In an effort to ensure against a solvency crisis in the EU, the European Central Bank has agreed to accept all levels of Greek and other sovereign debt regardless of its investment rating. Greek debt that has been downgraded to junk status is being readily accepted at the ECB lending facility and no haircut on the value is being taken. The next step is for Trichet and company to actually start purchasing sovereign debt in what would be a move for quantitative easing. The ECB is not there yet but by accepting Greek debt as collateral, the ECB is one step away from total abdication of its role as the defender of the EURO.

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Notes From Underground: The Palindrome speaks out of both sides of his mouth-right to left and left to right

April 11, 2010

As  we cautioned on Thursday, we were bothered by the EURO’s failure to make a new low against the DOLLAR even as the yield on Greek debt rose to 12-year highs. Friday saw a strong rallly in the EURO currency against the DOLLAR and most cross rates. During the weekend we got confirmation that the Europeans had agreed to a “real” support package for the Greek government. The amount is €30 billion ($41 billion) in a 3-year fixed rate 5% loan, which is substantially below the rate that 2-year  Greek debt traded at last week. The 2-year note in Greece yielded up to 7.45%, so the bailout helps to curtail the effects of what we called the Negative Feedback Loop problem that we detailed in Thursday’s post and what we have written about ad nauseam.

The EURO has opened up very strong in Monday’s trading in Asia, which is largely due to the huge amount of short EURO positions. While the news may buy some time for Greece–plus, Monday’s IMF meeting might sweeten the package. Is this the end to the problems in Europe? We say emphatically NO as now the other PIIGS will expect the same treatment that the Greeks were given. The reprieve though will allow the global financial markets to begin thinking about other problems that exist in the global financial system. The markets will begin to question the DEBT problem building in the US that have, for the last few months, been pushed to the sidelines as the DOLLAR attracted inflows based on  the safe haven status of the US.

And, as the EURO was labeled toxic, GOLD was also crowned with safe haven status. If GOLD fails to correct substantially, we will get a strong signal that new problems are lurking beneath the surface. Check your charts to look for resistance levels on all the EURO crosses to signify just how credible the market deems the proposed Greek bailout.

There was a high-level policy conference in Cambridge, England during the weekend. Funded by George Soros, the meeting of high-level global economic thinkers covered ideas about how to prevent another crisis, like the one the credit markets are trying to resolve. Soros spoke about the possible breakup of the European Union if they failed as a group to reduce the interest rates that Greece would have to pay (this speech was prior to the “bailout”), for it would mean that they failed to act as a union. He pointed out that it was Germany that was the key to debt resolution in Europe and therefore up to the policy makers in Berlin to save the the existing politcal entity that is located in Brussels.

Soros fails to point out that it is not the German elite that holds the key, but rather the good burghers of Bavaria. However, we remind everyone that George is no fan of democracy and rather believes that a world government should make all decisions as long as it is led by a philosopher king that was born in Hungary and educated by Karl Popper.

Our favorite philosopher king also advises that the UK will need to devalue the STERLING further after the upcoming elections in order to generate the growth needed to soften the weight of its fiscal problems. What he fails to answer is that Britain holds a distinct advantage over the European PIIGS because it has already allowed the STERLING to depreciate more than 30% against the EURO, its largest trading partner. We caution to believe anything BOY GEORGE says. As of 3 months ago, he emphatically stated that GOLD was the world’s biggest bubble, only to find out a while later that his fund had accumulated its largest GOLD position during the period he was warning of its overbought situation.

Hence, we take what he says on the open stage with a POUND of salt. Besides, if he is so worried about the future of Europe, don’t those nations residing outside the EURO currency stand to outperform during the immediate time period? Hmmm…

Notes From Underground: Are British Assets Cheap? Kraft Pursues Cadbury with Sweeter Deal

January 18, 2010

The news was rather light today as the U.S. markets were closed, but electronic platforms were open part of the day, which gave us some sense of where markets will open tomorrow. Global equity markets were higher, as there were no negative events during the weekend to dispel the role of cheap money that continues to support the stock traders.

Political news was rather light as the elections in the Ukraine went as expected and there will be a runoff between the two leading vote-getters: Viktor Yanukovich and Yulia Tymoshenko. If was a beauty contest, the winner would have already been determined as Tymoshenko makes Sarah Palin look like Janet Reno! Both candidates have leaned toward repairing the rifts with Moscow and the Russians have kept a low profile after the initial flareup over payments for gas supplies that IMF aid brought to an end. In a tribute to democracy, the incumbent,Victor Yushchenko, received only 5% of the vote as was widely expected. (Being domained in Chicago where dead people receive more than 5% of the vote, we have new found respect for the people of Ukraine and their political will.) We also applaud Mr. Yushchenko for allowing a fair and open election–that is good news for the benefits of the “Orange” revolution.

Greece has been in the news all weekend for their egregious failure to come close to adhering to the precepts of the Maastricht Accord. It is now all in the open how badly the Greeks cheated and lied to falsify their budgetary numbers. But in their defense, they were not the sole European nation playing such games. That is water under the bridge, as now we need to look forward and see what the European response is going to be. The big question facing all the players in this drama is whether or not the good Burghers of Bavaria are going to foot the bill for bailing out Greece and potentially other PIIGS. If the answer is “nein,” we will look for this to occur: The hardline budgeteers of Europe will push for Greece to be fined under the dictates of Maastricht, which of course would be the opposite of a bailout, as well as a disaster for Greece and other stressed economies. If this were to happen, the EURO would sell off against the world and we would look for equities to be sold worldwide as confusion and chaos would reign. We don’t think this action will be foisted on Greece, but we want to be alert nonetheless. We believe that Europe will try to buy time and muddle through, but with so many policy makers voicing an opinion, you never know when the wrong policy will be put forward. This is a very unsettling time in Europe and the financial markets need to stay alert. The markets are presently far too fragile to absorb a Greek default.

Tonight, we learned that the Cadbury board has agreed to accept a £12 billion offer from Kraft. As we are not involved in either stock, we don’t give a damn about the minutiae of the negotiations. What we care about is the increased bid for STERLING, as Kraft increased the cash part of the offer, and what it will mean for British assets in the bigger picture. Is this a statement that with the POUNDS depreciation from the $2.11 highs made in November 2007,  that British assets are cheap? The Brits have gained a competitive advantage in Europe during this time of global recession by experiencing a 20% depreciation against their largest trading partners in Europe. Remember that although Sterling is not part of the EURO,the U.K. is part of the EU–the best of both worlds. More importantly,will this same thinking come to the aid of U.S. assets in the same way the DOLLAR is deemed cheap on a relative basis? Presently, the emerging markets are thought to offer better values based on future growth prospects, but when will the depreciated developed markets provide the siren song for global capital? This is the sea change we will be watching for but with the ill thought-out economic policies emanating from the developed world, there will be rough seas as far as we can see the horizon.

On an unrelated note, for those who missed Saturday’s radio spot, listen here:

http://www.madhedgefundtrader.com/Hedge_Fund_Radio.html

Notes From Underground: Outlook Around the World

December 7, 2009

Very little news and action after the wild ride on Friday’s unemployment.

The DOLLAR stayed relatively strong after its significant rally on Friday. The YEN regained some ground on all the crosses as we have word of a stimulus package out of Japan. The DPJ finally approved a 80.6 billion dollar stimulus plan and this gave some immediate support to the YEN, but we don’t expect this to last as the Japanese are nervous about a strong currency while deflation is renewing its vigor. Now that a stimulus program has been approved we need to be watchful of some type of intervention to stem the recent YEN strength.

Tomorrow morning we will hear from the Bank of Canada. We expect no change in their current interest rate as the CANADIAN DOLLAR remains relatively firm and this has been a concern of the Bank. If the currency weakens after the no change we would look for the LOONIE to regain its strength as its fundamentals remain the most attractive. Wednesday will bring the PBR from Britain. Chancellor Darling will deliver his outlook for the British economy and we are waiting to see if the budget will reign in the massive amount of stimulus that has run the current deficit to more than 12% of GDP.The question is curtail spending or raise taxes.

If the budgetary stance is for cuts in spending we don’t anticipate much movement in the STERLING but we believe that higher taxes would have a negative effect. Britain has to be careful to not tax the financial jobs out of LONDON as some hedge funds and private equity groups have already announced their intentions to move to more favorable business environs. This coupled with the anti anglo-american sentiment emanating from Brussels, the British need to keep their financial markets globally competitive or risk losing the golden goose. The euro/sterling cross will be very directional for this sentiment–as always check the technicals to ascertain the real story. If Euro/sterling holds support, we will see continued weakness in the british currency.