Trading Forex in Baskets to diversify trading risk for both, speculative trading or hedging Forex risk by Ron Schelling
Using Fibonacci ratios to manage your trades efficiently
by Sunil Mangwani
November 23, 10:00 GMT
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ETF Securities has launched the world’s largest and Europe’s first exchange-traded currency platform with trading expected to begin next week. The initial currency ETCs provide long or short passive exposure to G10 currencies versus the US Dollar and include AUD, CAD, CHF, EUR, GBP, JPY, NOK, NZK and SEK.
Very interesting article about Dollar volume in recent years with great charts by CrossCurrent website.
http://www.cross-currents.net/charts.htm
Breakout levels for week 47 which you can compare to last week breakouts.
For details see also: http://www.2hedge.com/mmevbo.html
“There’s no doubt in my mind that we’ll have a mania in gold. And because the gold and especially silver markets are so tiny, the rush into them will be like trying to push the contents of Hoover Dam through a garden hose”. Read this very interesting article:
http://www.marketoracle.co.uk/Article14976.html
The International Monetary Fund said traders are probably using the dollar to fund “carry trades” around the world and the currency may still be overvalued even after its slide this year.
Below the daily chart with weekly blocks and hedge percentage.
The full article by Bloomberg(c) on:
http://bloomberg.com/apps/news?pid=20601068&sid=agLkrj4ZwFTw
Breakout levels for week 46 which you can compare to last week breakouts.
For details see also: http://www.2hedge.com/mmevbo.html
No complicated charts or technical analyses this time but a very import article from the Financial Times.plus a video of Jim Rogers who remain so down on the Dollar:
Mother of all carry trades faces an inevitable bust
By Nouriel Roubini
Published: November 1 2009 18:44 | Last updated: November 1 2009 18:44
Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply, while government bond yields have gently increased but stayed low and stable.
This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs. Whether the recovery is V-shaped, as consensus believes, or U-shaped and anaemic as I have argued, asset prices should be moving gradually higher.
But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronised rally. While asset prices were falling sharply in 2008, when the dollar was rallying, they have recovered sharply since March while the dollar is tanking. Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.
So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.
Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.
People’s sense of the value at risk (VAR) of their aggregate portfolios ought, instead, to have been increasing due to a rising correlation of the risks between different asset classes, all of which are driven by this common monetary policy and the carry trade. In effect, it has become one big common trade – you short the dollar to buy any global risky assets.
Yet, at the same time, the perceived riskiness of individual asset classes is declining as volatility is diminished due to the Fed’s policy of buying everything in sight – witness its proposed $1,800bn (£1,000bn, €1,200bn) purchase of Treasuries, mortgage- backed securities (bonds guaranteed by a government-sponsored enterprise such as Fannie Mae) and agency debt. By effectively reducing the volatility of individual asset classes, making them behave the same way, there is now little diversification across markets – the VAR again looks low.
So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.
While this policy feeds the global asset bubble it is also feeding a new US asset bubble. Easy money, quantitative easing, credit easing and massive inflows of capital into the US via an accumulation of forex reserves by foreign central banks makes US fiscal deficits easier to fund and feeds the US equity and credit bubble. Finally, a weak dollar is good for US equities as it may lead to higher growth and makes the foreign currency profits of US corporations abroad greater in dollar terms.
The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy. Near-zero policy rates and quantitative easing were already in place in the UK, eurozone, Japan, Sweden and other advanced economies, but the dollar weakness is making this global monetary easing worse. Central banks in Asia and Latin America are worried about dollar weakness and are aggressively intervening to stop excessive currency appreciation. This is keeping short-term rates lower than is desirable. Central banks may also be forced to lower interest rates through domestic open market operations. Some central banks, concerned about the hot money driving up their currencies, as in Brazil, are imposing controls on capital inflows. Either way, the carry trade bubble will get worse: if there is no forex intervention and foreign currencies appreciate, the negative borrowing cost of the carry trade becomes more negative. If intervention or open market operations control currency appreciation, the ensuing domestic monetary easing feeds an asset bubble in these economies. So the perfectly correlated bubble across all global asset classes gets bigger by the day.
But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.
Why will these carry trades unravel? First, the dollar cannot fall to zero and at some point it will stabilise; when that happens the cost of borrowing in dollars will suddenly become zero, rather than highly negative, and the riskiness of a reversal of dollar movements would induce many to cover their shorts. Second, the Fed cannot suppress volatility forever – its $1,800bn purchase plan will be over by next spring. Third, if US growth surprises on the upside in the third and fourth quarters, markets may start to expect a Fed tightening to come sooner, not later. Fourth, there could be a flight from risk prompted by fear of a double dip recession or geopolitical risks, such as a military confrontation between the US/Israel and Iran. As in 2008, when such a rise in risk aversion was associated with a sharp appreciation of the dollar, as investors sought the safety of US Treasuries, this renewed risk aversion would trigger a dollar rally at a time when huge short dollar positions will have to be closed.
This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.
The writer is a professor at New York University’s Stern School of Business and chairman of Roubini Global Economics
Copyright The Financial Times Limited 2009.
More US bank failures going on and now a total of 115.
It’s the most failures since 1992 when 181 banks collapsed during the saving-and-loan crisis.
Read the full article here:
http://online.wsj.com/article/SB125695616220920387.html?mod=WSJ_hps_LEFTWhatsNews
The Federal Deposit Insurance Corp. said that FBOP, the holding company, wasn’t closed as a result of Friday’s actions. The nine banks, however, essentially represented all of FBOP’s assets, which would potentially leave it without any other operations.
U.S. Bancorp, the large Minneapolis-based regional bank, agreed to assume essentially all of the nine banks’ combined assets of $19.4 billion and deposits of $15.4 billion. It is the latest in a flurry of failed-bank acquisitions for U.S. Bancorp, which avoided much of the banking industry’s pain due to its conservative strategy.
“This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions,” said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp.
The latest seizures raise the total number of failed banks this year to 115. It is the most failures since 1992, when 181 banks collapsed during the savings-and-loan crisis.
Bank executives and other industry members expect the pace of failures to accelerate through next year as more community banks topple under the weight of bad real estate loans.
The FDIC said the failure is expected to cost the agency’s deposit-insurance fund $2.5 billion.
The FBOP banks include Bank USA in Phoenix, Ariz., California National Bank of Los Angeles, San Diego National Bank, Pacific National Bank in San Francisco, Park National Bank in Chicago, Community Bank of Lemont of Lemont, Ill., North Houston Bank of Houston, Texas; Madisonville State Bank in Madisonville, Texas; and Citizens National Bank of Teague, Texas.
The banks, which have a total 153 offices, vary in size. The largest is California National, which had 68 branches and $6.5 billion in assets as of June 30. The smallest is Citizens, a one-branch bank with $102 million in assets that is located about 100 miles south of Dallas.
The FDIC and U.S. Bancorp entered into a loss-share transaction on approximately $14.4 billion of the combined purchased assets of $18.2 billion.
FBOP is owned by banker Michael Kelly, who also serves as its chairman and chief executive. The company bought 28 banks between 1990 and 2007, according to its Web site, expanding from its single bank in Oak Park, Ill., into California, Arizona and Texas.
Along the way, the banks barreled into real estate and FBOP grew into a mid-sized regional entity.
FBOP has been struggling for months, decimated by bad loans and a securities portfolio that took a big hit from investments in preferred stock of government-owned mortgage lenders Fannie Mae and Freddie Mac.
Still, Mr. Kelly was trying to hang on. The company unsuccessfully applied for government funds through the Troubled Asset Relief Program. As recently as a few months ago, he approached potential investors about buying other distressed banks, according to a person familiar with the situation.
Federal regulators clamped down on FBOP in August, ordering the company to raise capital, reduce its real-estate exposure and overhaul its risk-management practices.
Breakout levels for week 45 which you can compare to last week breakouts.
For details see also: http://www.2hedge.com/mmevbo.html
