Madoff and the Markets

Emerging Markets started out the year on a very positive note. The Bovespa was up 3.17% (now 10.57% for the year) while the currency rallied from 2.3500 to a close of 2.2425 (BMF). The Mexican Peso had a very similar move starting the day at 13.7100 and trading down to a close of 13.4750. Now the question is why? Is this a “head fake” or the beginning of a real move. For now I will not get to carried away and will see how the week plays out. We have the Employment number on Friday and I see no way that number looks good. Then again the entire market could be feeling the same way and that could negate the negative effect. Any Thoughts?

Reading a fee reports this morning highlights how decidedly bearish the overall market is. Most analysts’ think we are still in the beginning stages of this slowdown and expect further deterioration in the months to come. I think this is probably correct and as such think strongly that Interest Rates in the Latin American region are headed lower. Chile has a rate announcement later this week and I am looking for a 50bp cut. Look for Colombia to follow closely behind. Lower rates in the region, slower growth and continued risk aversion lead me to think that the currencies could be under significant pressure.

I am starting to look at a basket trade. Long Argentina, Chile and Colombia against short Mexico and Brazil. I am not going to put it on yet but will watch over the next few weeks to see how thing develop.

On to one of my recent most interesting stories Bernard Madoff. Amazingly regulators looked into Madoff’s operations at least 8 times over the last 16 years and no thing turned up to cause concern. He seems to have been able to convince regulators that he was not running an investment advisory business. He claimed that he received a commission rather then a percentage of the profits like typical Hedge Funds do. Still it is amazing that he was investigated so many times and no thing came out of it. Someone was not doing their job.

Good Luck and Good Currency Trading.