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Good Luck and Good Currency Trading

Employment Numbers as expected....POOR

The Employment report for December was poor once again. According to the Labor Department 524,000 people lost their jobs last month. That brings the total number of jobs lost in 2008 to 2,589,000. WOW. I consider myself among the lucky ones who still has a seat to go to on a daily basis.

“The labor market has deteriorated sharply, and it’s telling us the economy is exceptionally weak right now,’ said Jim O’Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. “The first quarter will be pretty rough again, with big declines in payrolls and higher unemployment.”

Job losses were also widespread, manufacturing, service sector, builders, retailers etc etc all reported job losses.

President-Elect Obama has a number of inititives in the works that I sure hope get this economy moving. Time will tell.

Market Reaction

The Dollar strengthened arcoss the board led by the Euro which traded down to 1.3480(ish). In Latin America the dollar trader stronger most of the day against Mexico and Brazil but on the close reversed course and ended up at its weakest level of the day. I think this has more to do with Latin America then the Dollar. Latin America is setting up for a big lower interest rate move. Chile cut 100bp on Thursday and signaled they had more to come. Mexican Finance Minister said that they were "Very worried about growth". The market took this as a sign of interest rate cuts at the January 16 meeting. Brazilian rates also were off about 20bp as expectations for 75-100bp cut in rates at their Jan 20 meeting are now fully priced in.

I think that Latin American rates might be slightly over done at these levels but will certainly be lower in 3-6 months.

Good Luck and Good Currency Trading.

ADP Employment Index Collapses

The ADP Employment number came out this morning and was much worse then expected. -693k after an expected -495k. The revision from last month was -476k after an initial report of -250k. This has led to an worse number expected when U.S. Non Farm Payrolls are reported on Friday. The previous estimate was for -500k but now I am hearing expectations of between 750-1000k. I think that horrible numbers will be built in and a rally may ensue after the reported number.


Good Luck and Good Currency Trading

Chilean Stimulus Package

Emerging Markets currencies and rates continued to rally today as risk seems to be back in vogue. Chile is the latest country to announce a substantial stimulus package. The plan is to sell bonds and tap savings in an effort to spur a slowing economy. The currency rallied all day closing at 624 and blue chip stocks rallied 2.52% in response to the move.

“They built up their war chest and now they’re using it,” Joydeep Mukherji, Standard & Poor’s sovereign risk analyst for Chile, said by telephone from New York today. Chile has “the highest credit rating in Latin American precisely because of these kinds of policies.”
The Finance ministry believes this move will enable the country to create 100,000 new jobs and allow the economy to grow by 2-3 percent. With the size of this package the Chilean government is certainly not fooling around. It looks as if the good feeling is spilling over to other Latin American economies as Brazil, Mexico and Colombia have all responded positively as well.

Currently Latin American yield curves are all inverted as the market continues to look for rate cuts sooner then later. Chile has a rate announcement later this week and the market is now looking for 75-100bp up from 50bp earlier. I think lower rates in this region with a steepening curve in the States will force interest rate differentials to converge. Not that the Fed will raise rates but as people get fed up with earning 0% with Treasury Bills I can see them looking for alternative investments.

The Euro which opened considerable lower, reversed course and is closing at the highs of the day. I am looking for this currency to make a move higher.


Good Luck and Good Currency Trading

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.

Predictions for 2009

As a trader it has always annoyed me when reading an analyst declare "I told you so" when hitting an objective on a trade. It is only a real objective if the analyst employs real risk management in applying the trade. What I mean is this, I say the Euro will go to 2.00 against the dollar by Dec 2009. It first trades down to parity, trades at this level for 11 months then spikes on Dec 20 up to 2.00 and the analyst says "BINGO". Any trader would probably have been stopped out OR cut the position due to lack of movement (11 months trading at parity) and never held the position for the 11 ensuing months. Remember Traders are paid to make money and watching a losing trade do no thing for 11 months would make for a quick exit from most trading desks. With this being said I will make a few predictions for the coming year. They mean very little and I will probably have few of these trades on as I trade much shorter term and alot (I repeat ALOT) should happen between now and Dec 2009.

The Dollar.

The current environment is one, which, most countries will attempt to devalue their currencies. A weaker currency will help with trade and help companies who have income generated from off shore entities. The U.S. should be no different. The question is who will be able to devalue in a quicker more efficient manor. I think the Bush administration has pursued a policy of a weak dollar (although they say the want a strong dollar) for years now and I believe that President Obama will be the same. That being said I also feel that the U.S. will come out of this global recession quicker then anyone else, followed by recoveries worldwide. Therefore I see a stronger dollar near term (1-3 months) as the turmoil continues followed by a period of dollar weakness 3-9 months. I see this playing out against the other major economies, Europe the UK and Swiss. I do not see the Dollar making new lows but we should finish 2009 weaker then we started.

Against Emerging Market currencies I see a similar situation playing out. The Dollar trading stronger near term as market participants continue to exit risky currency plays and looking for a safe haven for their money with global turmoil (Israeli/Hamas) but reversing in the 3-9 month area as traders look to yield to make money. Remember U.S. rates are very low (.25%) and the Fed has said that they will keep them their for the foreseeable future. If markets go quiet like I think they will traders will run for yield as a way of producing profits.

U.S. Rates

As the Fed has said, rates will stay low probably throughout at least the first three quarters of 2009. I do however see the yield curve steepening out as markets quiet down and the world begins to have more confidence in the global banking system. I think alot of the reason 3mth treasury bills are near 0% is the fear of losing principle. Right now you can earn 3% in an HSBC Direct account which is guaranteed by the government (up to $250,000) so eventually people will begin to shift into a better yielding alternative.

Global Rates

Interest Rates globally have to come down and in a big way. It seems to me that everyone is moving to slow currently and this will catch up to them. How far everyone moves I am not sure but the general direction is certainly lower.

Stocks

U.S. stocks should end the year higher then they began. I am looking for a level of 11,500 by year end. Why, well it is basically a guess but I think that stocks should go bid before the rest of the economy shows signs of rebounding. The U.S. consumer is a funny bunch, they forget very easily. Once the turn is in they will invest, maybe not to the extent of previous years but they will certainly invest. I do however think we move lower first and I am also looking for a very up and down first 1-4 months.

Random Stuff

Baseball Attendance

I think that Baseball attendance will be poor this year. Huge salaries being paid to athletes while a large portion of America is unemployed and having a big problem paying their bills. I am certainly not against a player getting paid all he can, but I think personal finances will have Americans watching more games from home this year.

Bernard Madoff

I really don't care what happens to this guy as long as he is locked up. He destroyed many people and numerous charities. I have read all the stuff about greed (on the side of the investor) being the cause of this and I don't fully buy it. He lied about his fund (could he have done this alone!?) and took money up to the end. I am sure most of the victims of this fraud were unaware that they were in a Madoff fund. Blame the right people here, not the one looking for an honest return but the guy stealing their money.

Sarah Palin

I think she will fade away and rarely be heard from again (Sorry Tina Fey).

Remember these predictions mean little to anyone including me.


Good Luck and Good currecny Trading.

Real Estate and IndyMac

There were a few good articles in yesterday's WSJ, none described why we are in this Credit Crisis more then Would you pay $103,000 for this Arizona Fixer-Upper? (this is the actual house)The answer in case you were wondering is a definite no!

The story of this Foreclosure is that of Ms Marvene Halterman. This is a good woman from all indications who was given poor advise which led to a major problem. Ms Halterman has not worked in years and received income from the government in the form a disability pay, welfare and other forms of Government assistance. In 2006 a telemarketer called (Integrity)and the cash strapped women was provided with a credit line from another lender. This in addition to the $36,000 that was already owed on a home equity loan. Ms Halterman says she used the money to pay off her pickup, in addition to other things, but within months she was again in financial trouble. She went back to integrity and this time was provided with a 30 year adjustable rate mortgage for $105,000. The rates 9.25% for the first year with a lifetime cap of 15.25%. Of course this is not just a once off occurrence but rather something which occurred everyday across this country. In Avondale, where Ms Halterman lived from 2000-2005 the number of residence doubled in size to 70,000. Today one in nine Avondale homes are in foreclosure.

Now I do not know Ms Halterman, but I think that lending anyone size able money twice (on the same piece of property)within a year is crazy. Place on top of that the fact that Ms Halterman was on public assistance and it throws the entire equation out of balance.

Does Ms Halterman have some responsibility, of course, but a great responsibility has to rest with the appraiser and lender. A lender has the responsibility to determine the "willingness and ability to pay". People may have the "willingness" but not the ability due to the inability to manage their money effectively. Is this, or should I say was this taken into account, I do not think so. But moving forward I certainly hope it is. I guess this is a little like closing the barn door after the horse has left but there is little else that can be done.

Is the bottom near?

It seems a group of investors led by George Soros, John Paulson, Christopher Flowers and Micheal Dell have gotten together and purchased IndyMac bank (of course with Government assistance). Could this be a sign that the bottom is near? My 101 year old Grandmother has been advising me to "Buy Real Estate". She remembers many people who did just that during the Depression and again after World War 2 who became quite rich doing just that. I guess time will tell this time around, but right now I am not exactly flush with cash......maybe Intergity Mortgage will lend me some cash so I can invest?

Check back tomorrow for my 2009 Predictions.

Good Luck and Good Currency Trading.

GMAC and Chrysler

GMAC will be delivering 5 million preferred shares to the government in return for the $5 billion capital injection that they received. GMAC, the financial arm of the automaker also disclosed that the government exercised a warrant to purchase 250,000 additional preferred shares. GMAC also said that if the Treasury doesn’t receive interest on its shares for six straight quarters or more then six nonconsecutive quarters, it will receive two seats on an expanded management board. These board members would only serve until all interest has been paid in full.

Chrysler on the other hand continues to wait for a rescue loan. It is still unclear as to why GM has received their money while Chrysler has not but the Treasury has said that they are “working expeditiously with Chrysler to finalize the transaction. We remain committed to closing it on a timeline that will meet near term funding needs”.

Well lets hope so.


Good Luck and Good Currency Trading.

Happy New Year

Good Luck and Good Currency Trading