Tag Archives: greece

Despite yesterday’s surge in investor confidence that provided Asian markets a boost, things appeared to have fallen a bit flat this morning. As reality set in that Spain’s bond yields have hit record-breaking highs and Greece’s electoral success might not be enough to negate prior monetary upset, investor’s optimism wasted no time in fizzling out.

Bloomberg reported early this morning a slip of 0.8 percent in Japan’s Nikkei 225 Stock Average, 0.1 in Hong Kong’s Hang Seng Index, and 0.7 in China’s Shanghai Composite Index. Tim Riordan of Australian hedge fund Parker Asset Management Ltd., elucidated how he sees European problems increasing, as opposed to reaching a resolution. With bond yields hitting 7.29 percent, Spain is becoming somewhat of the elephant in the room. Riordan states that this is could really be a red flag indicating a downward spiral should be reason for caution.

Borrowing costs of this caliber can be indicative of a country potentially in need of a bailout in the near future. Despite the notion of this possibility, European markets were able to rise Tuesday. Currently, the strongest fear amongst investors seems to be a contagion of Spain’s monetary battles over to Italy, who’s facing issues of its own.

A few weeks back I happened upon a very economically fitting Warren Buffett quote assuring American’s they needn’t fear a recession relapse lest things in Europe get out of control and leech into the US economy. If investors’ uneasiness over debt spilling across Europe is foreshadowing for imminent future fiscal events, will Buffett’s words prove true?

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

The events of this past weekend were pretty monumental for the world currency industry (and the world in general). Up until Greece’s Sunday elections, animosity regarding the stability of the euro in the event of a Greek exit had been running rampant amongst investors.

Now, with the results finally established, they were able to enjoy a brief moment of revelry in the electoral success of the pro-bailout New Democracy party.

An Article in The New York Times provides a good outline of what potentially could have happened to the euro had the leftist Syriza party won. Vowing to repudiate the country’s bailout agreement with the “troika” of the European Union, the European Central Bank, and the International Monetary Fund, this move would have siphoned financing of Greek banks. In turn, this would have rendered them unable to continue operating and eventually drop the euro and revert back to the drachma.

But alas, this was not the case, and so being within hours of the election, investors applauded the win by reorienting the falling euro in a much-needed upward direction. Unfortunately, the vivacity didn't carry into Monday market action. The euro fell flat once again as concerns regarding Spain’s astronomic bond yields crept back into investor’s psyches. With interest rates having breeched the 7 percent mark, these loans are being viewed as unsustainable.

But amongst the angst, some positivity prevails arriving in the form of Asian market success. Emerging Asian currencies gained as a result of investor’s newfound comfort in the pro-bailout results, enthusing them to add a few riskier assets. Overall, Asian markets experienced widespread lifts with the Japanese Nikkei index prevailing with a rise of almost 2 percent.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Today’s roster of top tier bulge banks holds some of the most colossal and well-known institutions in finance. JPMorgan Chase & Co., Deutsche Bank, Citigroup Inc., Morgan Stanley and Goldman Sachs; a few names that everyone’s heard, and almost everyone has an opinion about (usually in regards to their size). Of late, JPMorgan and Morgan Stanley have been receiving the majority of media flack with the whole $2B trade loss and Facebook equity underwriting investigation.

Though one bank has been doing a very good job at laying low for the past few months, and it wasn’t long ago that Goldman Sachs could hardly keep itself out of the news for more than five minutes. So one must wonder now, without the media blowing them up left and right, what has this large investment bank been up to?

A CNBC article answered this question by revealing that the bank has been doing a good job of being well, not so large. This fall, the firm is said to name less than 100 new partners; a group of higher ups at the firm that's shrinking steadily. After scrupulous vetting of these potential hires, the selected few are compensated handsomely (senior partner and CEO Blankfein pulled in an annual salary of $12 million in 2011) while gaining access to prestigious jobs at the firm. This alone would make one question why over the past year Goldman has seen a steady exodus of those employees fortunate enough to hold partner positions at the bank.

After reducing its total employee count by about 8 percent in the last year, as well as laying off about 50 last week, it’s clear that something is amiss with the firms growth pattern. As Goldman deflates as a whole in size, the heft of its partnership base usually lessens in congruence.

So where is this drastic size reduction coming from? Greece.

A few weeks ago, I wrote a post about how a potential Greek euro exit would likely affect the US. One of the main concerns was that it could set in motion a widespread panic amongst investors, who would then impulsively retract their allocated capital. Today, a Bloomberg article showed evidence of this theory starting to make its presence known.

The piece provided insight about how European turmoil is directly correlated to success amongst the investment banking industry. More specifically, the article looks at Greece and their potential abandonment of the euro for a return back to the drachma.

A Goldman analyst showed last week that for a third year straight, revenue from investment banking and trading is in danger of dropping at least 30 percent from the first quarter. The deadly combination of deal volume slowing, wider credit spreads, heightened volatility, and equity and credit markets falling, can all be traced back to fears of a Greek euro exit, followed by the spread of the European sovereign-debt crisis. These ingredients are the direct result of investors putting themselves into a defensive monetary state over the aforementioned euro woes.

This tension is taking its toll on the paychecks of investment bank employees, as 11 analysts reduced earnings estimates for the New York based Goldman Sachs in the past four weeks. The question now is whether these declines are cyclical, or indicative of a general phasing out of the investment banking industry. Boston Consulting Group, Inc. stated in late April that banks of this kind will see very little revenue growth during the next few years and will be forced to cut up to 30 percent of their managers.

Jamie Dimon and Lloyed C. Blankfein, CEOs of JPMorgan and Goldman Sachs respectively, are in adamant agreeance that this is, of course, is nothing more than a phase and the industry will undoubtedly bounce back. David Konrad, an analyst at KBW Inc. in New York, gives a bit of hope to the fighting back of these banks by pointing out that due to their large amounts of capital and strong liquidity, any program coming out of Europe that the market responds positively to will inevitably have a bold impact on valuations. He recalls how stocks have been known to jump up to 30 percent on just a bit of breathing room.

So could all of this drastic shrinking represent the end of the age where grand investment banks rule the financial industry?  Or is it in fact no more than a shock absorption effect occurring as they bend to accommodate European turmoil? As we all know, yes, they are big. But are they really too big to fail?

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 5/29/12

Summer has arrived. After last weekend’s gorgeous weather in Boston as we honored Memorial Day, we erased our cravings for hamburgers and hot dogs and replaced them with hunger for some knowledge of the currency markets.

In the U.S., economic optimism continued. The May Thomson Reuters/University of Michigan’s index on consumer sentiment rose to its highest level in four years. According to the survey, consumer sentiment increased to 79.3 from 76.4 in April. The highest jump since October 2007, the survey also showed half of all consumers felt the economy has improved during the last year. Jobless claims, which remained at 370,000, also illustrated economic stability.

While conditions in America painted an optimistic picture, images abroad weren’t cast in the same stroke. Greece remained much of the focal point as the country devised plans for a parallel currency to the euro, should it withdraw from the region. Sergey Shvestov, vice president of Russia’s Central Bank, said Greece’s departure from the eurozone was necessary, and it would be a “good example” for other countries. Facing discussions about debt issuances, German Chancellor Angela Merkel defended her opposition about why bonds won’t solve the eurozone’s problems, saying such tools wouldn’t get to the root of the problem. Ultimately, the Organization for Economic Cooperation and Development warned the 17-member region that a severe recession looms if its governments and central banks don’t act quickly to improve economic conditions.

For hedge funds, an overwhelmingly majority of them added compliance staff since 2008, according to a new survey. Hedge fund redemptions for May 2012 upped 3.31 percent, according to the GlobeOp Forward Redemption Indicator.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

An article on CNNMoney about Greece’s pending decision on exiting the euro (or the “Grexit," as it is called) brought up a very good question: why isn’t more attention being paid to what the country’s choice will mean for the US? The clock certainly has not stopped ticking and the election that will likely make or break the country’s euro membership is set to take place next month.

Well, the good news is that in terms of trade, the US economy will hardly feel the tremors produced by the potential Grexit threat, should it materialize. Only a meager 0.1% of American exports go to Greece, with 14% going to the euro zone in general. If Europe is shaken by their decision, US trade should come out relatively unscathed.

The place of worry with this situation is actually a bit more speculative. Economists fear that should a Grexit occur, it could trigger big time panic amongst investors, who will then make mad dash bank runs, which in turn will further disrupt the Euro that includes bigger debt-laden countries. How’s that for looming dark cloud syndrome?

With over 20% of all loans that happen in the US coming from European banks, a debt selloff could potentially hinder their willingness to lend. Though US banks have been actively reducing their exposure to peripheral euro zone countries, a great deal more exposure to the wider euro zone in general still remains.

Does this mean the US should really start focusing on a contingency plan should Greece decide to return to the drachma?

 

View the full article here.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

I bet right about now Jamie Dimon at JP Morgan is quite pleased to have the Facebook fiasco all over the news to take some of the spotlight off his little derivatives problem. As I write this (Tuesday morning), JPM is up 5% and FB is down nearly the same amount on the day. Personally, I think there’s way too much being made of the whole Facebook IPO story - though I do think the NASDAQ system problems is an interesting story, especially after the BATS failed IPO a little while back - but admittedly the rest of the news has gotten rather stagnant. I actually begged CNBC via Twitter on Friday to talk about something, anything, but Facebook, but struggled to come up with a good alternate subject.

Naturally, there’s a blame game going on as to whose fault it is the stock has taken a dive. We can never really know how things would have turned out if the NASDAQ system had functioned properly, but that won’t prevent folks from trying to do so. Finding someone to blame, of course, is a favorite pastime these days. Traders certainly do it when they take losses. After all, it can’t be my fault I lost money on my position. It must be those evil banks, unethical brokers, or speculators gone wild (unless, of course, they are moving prices the direction I want).  Yes, I am a speculator. Obviously, I’m talking about the other speculators, though – especially the ones with computers faster than mine. Yeah, the high frequency guys. It’s all their fault! They’re preventing me from moving out of the 99% and in to the 1%. Something really needs to be done about them.

Thankfully, today we’ve returned to the on-going back and forth between European central bankers and political leaders over what to do about the mess. It’s kind of refreshing after the all-Facebook-all-the-time chatter. Everybody seems to want Greece to stay in the euro, but it looks like we won’t find out until the middle of June as to whether the Greek people share that view. You’ll notice the German rhetoric on the subject of austerity and whatnot has cooled considerably. Could that be because suddenly they aren’t doing all that great either and the weak euro that’s coming out of all this actually tends to help Germany more than most on the export side of things?

Then there’s the on-going question of whether the US can remain out of the fray and avoid too much in the way of economic damage from all the European issues. I’m moving to England in the fall to start work on a PhD, so you know I’m looking for the dollar to go on a fantastic run higher to make my greenbacks go farther. Unfortunately, the UK retained the pound rather than join the euro. The photo going around of David Cameron with arms raised celebrating Chelsea’s performance against Bayern Munich in the Champions League final on Saturday (at last an English team beat a German one in penalties!)  alongside a much less enthused Angela Merkel could just as easily represent the British feeling about having their own currency through all the mess.  I’m hoping the Bank of England decides to do more QE. That ought to sink the pound.

In the meantime, back to my charts.

Oh look! There’s a cup-and-handle setting up on the weekly USD Index chart. Maybe the markets will help me get cheaper pounds without the QE.

cup and handle USD chart

 

Our Two Cents – Week of 5/21/12

Even though the unofficial start of summer kicks off this Memorial Day weekend in Boston, flip flops and sunscreen were out in full force last weekend. What was the temperature of financial markets from the past week? Read on to find out.

In the U.S., the economy was picking up after an early spring slump. Data showed growth in the April-June quarter is off to a good start, thanks to falling gas prices and solid hiring gains. Manufacturing and housing continued to show signs of economic expansion as factory bookings for long-lasting goods rose 0.3 percent last month, according to a May 24 Commerce Department report. Other numbers showed purchases of existing and new houses also increased. In the business sector, about 72 percent of startup CEOs reported thoughts of economic optimism this year in a study conducted by Silicon Valley Bank.

For the eurozone, unfortunately, there haven’t been too many signs of economic confidence after fiscal turmoil continues in Greece. The country is facing a possible exit from the eurozone that could cost the region hundreds of billions of euros. Greece’s financial minister said he expects the financial disorder to last about 12-24 months, allowing time for Greece to decide if it wants to stay in the single eurozone currency. As Greece struggles with itself, European leaders have prepared crisis-fighting plans for discussion at an informal EU Summit this week. According to the European Central Bank, officials said the eurozone needs growth and austerity.

In April, hedge funds upped 0.12 percent, according to the HFRX Global Hedge Fund Index, which puts their year-to-date gain at 3.27 percent.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 5/14/12

Rain, rain, go away. While Boston has been under rain showers for the past week, and recovering from the Celtics loss May 14, we drizzled some of the top headlines from the financial markets into this week’s roundup.

In the U.S. the economy continues to show signs of improvement. Jobless claims now stand at 367,000—1,000 less than last week, and job openings in March are the highest in almost four years, as employers advertised 3.74 million job openings. Additionally, economic confidence remains steady at -18, up slightly from the previous week and slightly better than the -20 average for the month of April.

In the eurozone, the German economy grew by 0.5 percent in Q1 2012 after it contracted 0.2 percent in Q4 2011. Economists predicted a growth rate of 0.1 percent, and some experts speculated Germany—the economic backbone of Europe—could help save the eurozone from recession. Macroscopically for the eurozone, economists predicted an economic growth of 1 percent for 2013, with the European Commissioner for Economic and Monetary Affairs Olli Rehn saying “a recovery is in sight” for the area. After Greece entered its second week without a government, the European Commission hoped the country would remain part of the eurozone, not withdrawing from the region and returning to its drachma form of currency.

For hedge funds, they saw an inflows increase of 1.24 percent so far in May, according to the GlobeOp Capital Movement Index.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 5/7/12

After watching I’ll Have Another race for the crown in the 138th Kentucky Derby last weekend, we’ll have another pass at our biggest headlines in the financial markets.

In the U.S., the economy added 115,000 jobs in April as the unemployment rate dropped to 8.1 percent from 8.2 percent. While the April figures registered less than initially forecast, economists said there wasn’t a reason to panic yet because the warmer winter months could have encouraged employers to start their spring hiring early. The private sector posted a gain of 119,000 jobs, according to ADP.

In the eurozone, France and Greece held their elections. French voters elected Francois Hollande, who is a champion of government stimulus programs, after he campaigned on the need for more growth-generating economic policies and less dependence on austerity. Greece’s election caused more uncertainty in the eurozone as voters leaned toward extremist parties, making it difficult to form another government that would support the country’s rescue package. As a result, the nation may hold another election in the next couple of months. Additionally, Spain announced its decision to help its banks by presenting measures to the banking industry. Officials said they would not rule out lending or introduce public money into the banking sector if necessary. For the eurozone’s jobs, high unemployment continued to rock nations as the 17 euro-using countries faced an unemployment rate of 10.9 percent.

For alternatives investments, hedge funds increased slightly in April, with the HFRX Global Hedge Fund Index reporting a 0.12-percent gain. The UCITS hedge fund assets under management increased in Q1 from 113 million euros to 120 million euros, a jump of 6.2 percent.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Lawrence Peter ‘Yogi’ Berra, a man who earned the respect of American baseball fans first as player and then as manager, declared in the early 1960s that, “This is like déjà vu all over again” as two of his players – Mickey Mantle and Roger Maris – made a habit of hitting home runs game after game.  Berra’s words would appear to be an apt description of renewed stress in the euro-zone.

The euro-zone crisis seemed to ease following the large liquidity injection provided by the European Central Bank in two large three-year long-term refinancing operations, which led some commentators to conclude that the turmoil had come to an end.  Indeed, the yield on Spain’s ten-year sovereign debt dropped from a peak of almost seven per cent at the end of November to below five per cent in early March, while the rate available on equivalent Italian debt securities declined by more than 250 basis points over the same period.

The notion that the crisis was over was to prove decidedly premature, as the siesta was brought to an abrupt end by mounting stress in the Kingdom of Spain, an economy that is twice the size of the combined national outputs of Greece, Ireland and Portugal.  A deepening recession combined with fiscal slippage at the regional level pushed Spain back onto investors’ radar screens, and the resulting jump in ten-year yields close to the psychologically important six per cent level, has prompted onlookers to revisit the possibility that the Mediteranean country might eventually require a bail-out.

In order to appreciate the extent of Spain’s economic malaise, it is important to investigate the large macroeconomic imbalances that accumulated during the country’s long boom that lasted from the mid-1990s until crisis struck in 2007.

Spain benefited considerably from EMU membership and economic growth outpaced the OECD average in nine of the ten years pre-crisis, with the yearly increase in GDP exceeding the euro-zone as a whole by one to one-and-a-half percentage points over the period.  However, the long boom was built on shaky foundations that would be badly exposed once economic turbulence struck.

The stellar economic performance was driven primarily by a classic housing bubble alongside an ill-advised construction boom, which was stimulated by the reduction in interest rates that accompanied greater European integration.  The reference rate on home loans dropped from almost ten per cent in 1997 to just 3.3 per cent by 2007, and the resulting increase in housing demand led to a 115 per cent increase in house prices in real terms over the period.  The true extent of the overshoot in the housing market is demonstrated by the fact that price increases outpaced rental growth by roughly seven percentage points a year from the mid-90s until the bubble burst in 2007.

Strong housing demand enabled the construction market to flourish, and the resulting demand for unskilled labour contributed to a massive influx of immigrants in need of shelter, which perpetuated the cycle.  Indeed, the sustained demand for unskilled labour saw the population expand from 40 to 45 million, as the share of foreigners in the overall population jumped from just one-in-fifty in the mid-90s to almost one-in-eight at the boom’s apex.

The construction boom was fuelled not only by Spanish demand for second homes and immigrants in need of shelter, but further impetus was provided through increased home purchases by other EU citizens.  Indeed, net foreign investment in housing ranged from 0.5 and one per cent of Spanish GDP each year from 1999 to 2007.

The supply-side response to strong housing demand was nothing short of phenomenal.  The housing stock increased from 20.8 million in 2001 to 25.1 million, and the annual new supply regularly exceeded the new construction of France, Germany, Italy and the UK combined.  In fact, Spain added a new dwelling for each addition to the population over this period, such that the number of people to fill each home fell to 1.7 – the lowest in the developed world.

The bubble years were accompanied by a credit boom that saw households and non-financial businesses leverage their balance sheets to dangerous levels.  Indeed, household debt as a percentage of disposable income jumped from just 53 per cent earlier in 1997 to a peak of 132 per cent, while non-financial corporate sector debt jumped from less than 50 per cent of GDP to more than 130 per cent over the same period.  Importantly, a disturbingly large current account deficit meant that the debt-fuelled boom became increasingly dependent upon external financing, which rendered the economy vulnerable to a ‘sudden stop’ that duly arrived in 2007.

Investors’ concerns today are focussed on fiscal slippage and question marks over the true level of government debt, which many believe to be more than twenty percentage points higher than the official public debt-to-GDP ratio of 68 per cent.  However, investors should be equally troubled, if not more so, by the large private sector imbalances that have shown only marginal improvement since the crisis began.

Private sector debt remains unsustainably high, while house prices and the excesses in the construction sector will take several years to absorb.  Investors will be aware that troubled private sector debt has a habit of becoming public debt via an ailing banking system.  It’s déjà vu all over again in Spain.

Previously posted on www.charliefell.com

 

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.