Saturday, January 26, 2008

What a week....

Sitting at my desk yesterday morning I felt totally drained. The week had been a series of up's and Downs and alot of uncertainty. The big news of the week was the tremendous fraud at Soceite Generale, the large French bank. My thoughts here are how can one person lose that amount of money in such a short period of time. After reading a few of the articles it seems to me that the lose was much smaller (1.7 billion usd according to some accounts) and that the remainder was incurred while trying to exit the position during the down trend on Monday,Tuesday,Wednesday.

In the aftermath it caused a lot of discussion in the markets. Did the Fed cut because they new about the large loss (interesting that the U.S. Fed would be cutting rates due to a European Bank Problem)? Did the Americans cut rates because stocks were falling, while the "only" reason they were falling was because of Soc Gen's liquidation.

I think this view is quite naive. The U.S. economy is slowing. It was slowing before the Soc Gen incident and it is slowing after the Soc Gen incident. The price action yesterday tells you (in my opinion) that stocks are heading lower, U.S. rates are heading lower (I am still looking for another 50bp this week from the Fed) EM markets (currencies and stocks) are set to weaken and the dollar (against major currencies) will do better. Also I think this puts added pressure on the ECB to lower rates. I know of alot of traders in the market getting long Euribor futures. It makes sense to me European rates will need to come lower. U.K. also.

So the trades I have on for now.

Long Usd/Ars
Long Usd/Brl
Short Usd/Clp (I am looking to cover this on Monday)
Long Usd/Krw

I covered back alot of my narrowing differential plays in Mexico,Brazil and Chile. I still think rates in these countries come lower (Mexican rates came off hard this week), I just think that the U.S. will out pace them for now. Also there are better ways to play this (Brazilian DI's, Mexican TIIE's) and I will be placing bets there next week.

Wow, I am glad it is Saturday.

This "Fake" e-mail explaining what happened at Societe Generale has been circulating around the market. I thought it was funny.
Kerviel hid his November losses in a batch of wonderfully fresh croissant

FRIENDS of rogue trader Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

One colleague said: "He was, how you say, une workaholique. I have a family and a mistress so I would leave the office at around 2pm at the latest, if I wasn't on strike.

"But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat, and there he was, fast asleep on the photocopier.

"At first I assumed he had been having sex with it, but then I remembered he'd been working for almost six hours."

As the losses mounted, Kerviel tried to conceal his bad trades by covering them with an intense red wine sauce, later switching to delicate pastry horns.

At one point he managed to dispose of dozens of transactions by hiding them inside vol-au-vent cases and staging a fake reception.

Last night a spokesman for Sócíété Générálé denied that Kerviel was overworked, insisting he lost the money after betting that the French were about to stop being rude, lazy, arrogant bastards.


Good luck and Good Forex Trading.

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