Friday, December 19, 2008

Pay It Forward With Links

I don't know whether you have seen the movie 'Pay It Forward'. Basically it is a movie about a kid who gets given a school project to come up with an idea to change the world. He decides that three acts of kindness to strangers who are told to pay it forward will accelerate by the nature of compounding.

It is a sweet movie which has had some affects in real life, such as the 'Pay it forward foundation' that was set up by the author.

Recently Starbucks in the US had one guy pay for the coffee of the car behind and the car behind did the same, it happened all day long and began spreading across the US.

In the Christmas spirit I have selected some random blogs to link to in the hope that they too will pay it forward and link to others.. for no other reason that it is Christmas.

Merry Christmas

Thursday, December 18, 2008

Reasons To Be Bullish

As we approach the end of an annis horribolus for the markets with great big dollops of more to come we find some reason to be bullish for traders in the coming weeks, months and years.

1. Gold. OK so it hasn't exactly been on fire recently and it certainly hasn't performed as a safe haven as we'd all expect but is there some upside to come? Citibank seem to think so.

The bottom line, according to Citibank, is that the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist. “The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

Not exactly a nice story to begin with but gold could be a play for 2009.

2. Obama Mania

No doubt that Obama is the man of the moment and in 36 days he will be Presdent of the United States. He has a tougher job than he would have imagined when he started his campaign but as they say 'Commeth the hour, commeth the man'.

Obama is set to unveil dramtic spending in the US on infrastructure and on 'green' technologies. WE have no reason to believe that he will flim flam on this so anything in this sector will look to have a good 2009.

Short term traders will be fingers poised anytime he speak after his swearing in and we predict some wild moves in the markets.

3. Autos.

In the toilet, we know. However a bailout in some way, shape or form will be done. Can you imagine a scenario where Obama's first few weeks in the Presidency is spent explaining why 3mn people have a 'change they don't believe in' i.e becoming jobless.

4. Santa is coming to town

Despite a series of storms—peril in the auto industry, soaring unemployment, tight credit conditions—stocks have managed to hold their ground. That has fueled hopes that the traditional Santa Claus rally may still happen, helped by a plate of government-sponsored goodies.

"We're looking for a six-week rally," says Kathy Boyle, president of Chapin Hill Advisors in New York. "An Obama-Santa Claus rally."

Of course, market pros say the rally could have a fairly brief shelf life, with pessimism likely to return shortly after Obama takes office amid a flurry of dismal economic news. But in the meantime, the mood is fairly positive.

5. Market Bottom?

It may seem that this is an idiotic statement, and we must admit with all the economic news it even sounds silly to us, however markets typically bottom 6 - 12 months before the economy does, so if you believe that we ae done an dusted with the worst by the end of 2009 positioning yourself now may be an idea.

Bear in mind that all of the above are just opinions, the markets are very, very hostile and the reverse of the above could easily happen so be careful, keep tight stops and do lots of your own research.

Merry Chrsitmas.
Source - HF Market - Online Trading

Monday, December 15, 2008

Madoff Exposes More Regulatory Failings

The investigation into the alleged Madoff Ponzi scheme is revealing more well-known names have potential losses with the former NASDAQ chief’s company.

RBS, SocGen, a gaggle of Swiss banks and AXA are amongst those who have lost millions in client funds. You can be sure that these companies are hiring some flesh eating lawyers to extract whatever they can from counter parties and directly from the wreckage of the firm but one group who will not be paying the price is the regulators, as usual, they are immune.

The thing is, and yes, this is another regulator rant, what were they doing? Over the years I have come to believe that the regulatory system (and in the UK is where most of this experience comes from) is broken in a very, very bad way.

The regulatory exposure for small firms such as stockbrokers is crushing. Rules on how you market, who you market to and what you can and can't sell are an obsession with regulators. I believe that all of this 'over-regulation' has lead to much of the problems we are facing now. Sounds ridiculous? Let me explain.

Take hedge funds for example. The regulators decided that if you had a net worth of over $1mn you could invest in hedge funds as you are 'sophisticated' enough to know what you are doing, if you don't have a net worth of $1mn you are not able to be 'accredited'.

We wrote in this article back in August that this approach was just plain stupid. We said;

"When the hedge fund Armageddon comes (and we all know it will) there will be a law suit from Mr X in XVille USA who made millions from a trucking business and invested $5mn in the latest fund to explode. He will sue on the basis that, although he was wealthy, he was not sophisticated enough in financial markets to understand what he was investing in. He will name the SEC as co-conspirators in his downfall because they effectively 'certificated' him as sophisticated on the basis of his wealth."

This may not be the exact scenario we are dealing with in the case of Madoff but its close. In fact it’s even worse.

The SEC, in 2006 granted a license to Madoff as an investment advisor. When you submit your application to the FSA in the UK, for example, you have to complete a huge amount of forms, even for the most vanilla of businesses. You then sit with the regulators who question you on your investment strategies and your business and make a decision based on these interviews.

Now if you are selling shares to retail customers, for example, clearing through another regulated company and your 'know your client procedures' are OK you will pretty much get through, but after a thorough grilling.

Imagine, therefore, that you are Bernie Madoff trying to explain trading strategies around end of month expiry of options and other complex trading strategies. Long conversation right?

You would assume therefore that the regulators did their home work and, by approving the firm, approved its strategies and internal systems.

If I was an investor that had just lost his shirt investing with this guy I would be after the regulators big-time, because if they could not figure out what the score is, with all their access and power, how the hell would I be able to?

In my opinion, regulatory oversight needs to get away from who can market to whom, what clients can and can't invest in and concentrate on the procedural issues of where the money goes.

If you are a broker, you have to have a segregated account. Meaning that your money is separate to the company’s money, so that if they go bang, you don't lose you cash, not so with the banks. They have been gambling with your money and giving you a pittance of the upside while all the time charging you for the privilege of you getting your money.

A simplistic view of the banking system I know, but at its core that is what it is.

Of course, all this works if the regulatory system works, but it doesn't.

Before anyone starts going on about how great the regulatory system is I will tell you now that I don't buy the bull. It is too complicated, to unwieldy, too restrictive and not focused. The regulatory regime does not work where it is needed most, in the big fat institutions and if you disagree, take a look at Madoff, Northern Rock, UBS, Bear Stearns, Lehman Brothers... shall I go on?

There can only be two reasons for the regulatory failures and the latest Madoff situation, either the regulators didn't know or they didn't care... either is unacceptable

Deflation And The Ski-Gear Indicator

I like to look for alternative market indicators. Previously I have explained how the humble croissant saved the day on a research report I was doing on the Asian crisis and, more recently, how my French teacher gave me the inkling that the markets were going to implode.

Today, dear readers, I approach the deflation issue sure in the knowledge that I have uncovered another little gem.

Let me first preface this eureka moment with a little background. I live in Switzerland which, although in the brown stuff just like everyone else, will probably escape the very worst of the crisis. This is mainly due to the fact that the housing market bubble here is virtually none existent.

We have cursed the fact that house prices hardly ever move here when the rest of Europe has seen meteoric rises in property values, but now it is our savior. Relatively low unemployment is the norm and fiscal conservatism is the by-word. UBS aside, we have not seen a total meltdown of our banking system and pretty much everyone is confident that although we will see a recession, it won't be as bad as elsewhere.

However, and getting back to my new market indicator, I spotted a deflationary indicator if ever I saw one. At the weekend my wife and I took my son and a friend karting in Montreux. Unfortunately we arrived early and the track was not open. Needing some ski gear for the season we headed to the commercial area and stumbled across a Reebok store going out of business.

We managed to pick up about $600 worth of gear for about $200. We went around the other stores and fond that most were deeply discounting their products. Now, bearing in mind that we are at the start of the ski season, this seemed a little odd. Of course we phoned a couple of friends and told them of the bargains on offer, their response, however, gave me fodder for today's article.

"We have heard that a few are going out of business, I think we will wait for the New Year, there are bound to be cheaper deals then" they said.

Cheaper than 70% off the sticker price is what our friends (who are not short of a bob or two) are looking for. This is not just in the latest ski-wear but they are looking to the New Year for a new car ('prices too high now' they said).

This seems to be a trend, discussing a similar situation with a friend in the UK, he said 'if you have cash on your hip right now, you're laughing'

Well, maybe for the moment. Deflation is the worse scenario we could be facing. Many say it is off the table as fiscal measures to boost the economy will cut off deflation in its tracks. I happen to disagree. When my French teacher cancelled her holidays and battened down the hatches we said we were in for a rough time and recession was looming, this was when market commentators were giving only a 50% of recession, now we know we were already in it.

The fear factor is rife with the public and this means that stores will have to discount, this will fuel deflationary affects, I am pretty sure of that, at least for the short term. Whether this cycle is going to last is less certain as money is being pumped into the system at a huge rate.

I do believe that I have a solution to all this though and it is my old nemesis, the press. We wrote an article a while ago about 'talking ourselves into recession'. The press, of course, sensationalise everything, that is their 'job'. But they have jumped on every bit of bad news and twisted it in the same way that they pumped up stocks at the highs of the markets.

I am not suggesting that they turn around and say everything is now OK go out and spend, spend, spend, but imagine if everyone did. Banks would lend more (responsibly we hope) business would generate more money and things would start to improve quicker and maybe conversations at dinner parties would not be so gloomy these days.

These dinner party topics have been a source of alternative indicators for articles I have written for many years. When non-financial friends were engrossed over canapés in the latest Internet stock and recommending that I buy, I knew the game was over. When the topic of conversation turned to how many buy-to-let houses an engineer friend had bought, it was time to sell out of the UK. When enquiries from sober dinner party goers came onto the subject of how they could get into hedge funds and private equity funds, and those funds were listing, we said a top was near and now a humble outlet mall in the middle of nowhere gives up a market indictor on a micro scale that cannot be brushed aside.

No, my friends, I may have picked up a fabulous bargain (being a Yorkshireman, this is in my DNA) and will look marvelous on the slopes this year, but when previously price-unconscious friends decide that 70% discounts are not enough it is time to start considering the 'D' word.

Friday, December 12, 2008

Former NASDAQ Chief Arrested

"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark"

That text from Bernard Madoff's web site looks now to be just another statement that will go down in history as another load of bull.

The former chairman of the US Nasdaq was arrested for fraud, after allegedly admitting to running a $US50 billion pyramid scheme.

Bernard L Madoff, founder of Bernard L Madoff Investment Securities, was released on a $US10 million personal recognisance bond last night in the US, after having made an initial court appearance on charges that he had participated in a “giant” $US50 billion pyramid, or ponzi, scheme.

Mr Madoff, who was charged under a criminal complaint, didn't enter a plea at the hearing. The bond will be secured by his apartment in Manhattan.

In a ponzi scheme, new investor funds are typically used to pay distributions and redemptions to existing investors.

Mr Madoff, 70, was arrested by the FBI early yesterday in the US and charged with a single count of securities fraud. He faces up to 20 years in prison and a maximum fine of $US5 million on the charge.

Prosecutors and the FBI have alleged that Mr Madoff told senior employees at a meeting at his apartment the night before his arrest that his investment advisory business was "basically, a giant ponzi scheme", according to court documents. He told them the business was insolvent, and had been for years.

The investment advisory business is separate from the firm's market-making and proprietary trading operations. In a January filing with the US Securities & Exchange Commission, Mr Madoff reported that the investment advisory business served between 11 and 25 clients and had about $US17.1 billion in assets under management.

Mr Madoff also allegedly said that the losses from the fraud were at least $US50 billion, according to the criminal complaint. He told the employees he was "finished", and that he had "absolutely nothing" and "it's all just one big lie".

He told the senior employees that he planned to surrender to authorities in about one week, but wanted to use the $US200-300 million he had left in his possession to make payments to certain selected employees, family and friends, according to court documents.

The meeting at his apartment occurred after Madoff, who appeared to be under great stress in recent weeks, told senior employees earlier this week that he had recently made profits through business operations and that now was a good time to distribute it, which was earlier than employee bonuses are traditionally paid, according to the criminal complaint.

Mr Madoff had told employees the week before that there had been requests for clients to redeem about $US7 billion and that he was struggling to obtain the liquidity necessary to meet those obligations, but thought he would be able to do so, according to court documents.

In a meeting with a FBI agent on Thursday, the agent asked Madoff if there was an "innocent explanation" for what happened.

Mr Madoff reportedly said: "There is no innocent explanation." He also said he had personally traded and lost money for institutional clients and that it was all his fault, according to the complaint. He further stated that he "paid investors with money that wasn't there", according to the charging document.

Mr Madoff’s lawyer, Dan Horowitz, said: "Bernard Madoff is a long standing leader in the financial services industry with an unblemished record.

"He is a person of integrity. He intends to fight to get through this unfortunate event."

Neither Mr Madoff nor his lawyer would comment after the hearing.

A preliminary hearing is set for January 12, 2009.

Time For Us To Bail Out Our Governments?

Gordon Brown made an hilarious gaff in the House of Commons, starting a sentence "Not only did we save the world.." Freud would have a field-day with this apparent slip of the tongue, but it just shows the shift of egos.

Not so long ago hedge fund managers and bankers were described as 'Masters of the Universe' and 'rock stars'. Loved and hated in the press in equal measure, they did not care for criticism because their power came from the money they had generated for themselves, their employers and their clients. Politicians were a niggling nuisance easily fobbed off with a few campaign contributions.

The worm, however, has turned and Brown's gaff shows, in a Freudian way, that the politicians know it.

I wish I could say that our politicians have hitched up their sleeves, taken control of the situation and, like a father scolding a wayward son, slapped the bankers behind the ears and taken care of the mess they have made, all the while comporting themselves with dignity... unfortunately, I can't say that.

What we are witnessing now is more like a playground push and pull, industry and banking has been the popular group, the football team and the cheerleading squad. Politicians have been the 'geeks', jealous of the popularity of their mortal enemies just waiting for an opportunity to strike.

And so we have the politicians summoning bankers, federal chairman, auto-maker CEO's and hedge fund managers to the Hill to roundly beat them up in public.

I would have no problem with this process if it served any purpose and I would have no problem with this if it was being done to get genuine information.

But, like the Macarthiest witch hunts it is just a political show. Senators being rude to the 'evil rich' to show their constituents that they can be hard on those that have ruined it for us 'ordinary' people.

What tosh.

How long ago was it that these parasites would have been fawning all over the hedge fund managers, the auto CEO's and bankers to 'contribute' to their political effort in order to pay for their campaign to cling onto power for another four years.

Harsh, possibly. Just as I was thinking that I maybe being a bit too cynical up pops Rod Blagojevich, the Governor of Illinois. We all know the story, the none-to-bright Blagojevich, decides to talk over the phone about profiting from the selection of Barack Obama's replacement as senator.

You may say that a one off dodgy politician does not a bad government make. I agree, however, when you realise that if our friend Rod goes to jail, he will be the fourth governor out of the last eight in Illinois, to get banged up.

OK, there was a huge screw up by greedy people, bankers, house buyers, private equity and everyone else basically, but to see politicians taking center stage portraying themselves as some kind of 'heroes of the people' is, frankly, sickening.

The vote last night in the senate not to bail out the auto-makers in the US and the potential that these 'public servants' are going to go on holiday, to celebrate Christmas and not vote until the New Year is diabolical.

How will the auto-workers at Ford, Chrysler and GM feel at Christmas? What about the parts suppliers, the sales men and women at the dealerships, the cafe across the street from the factories and the towns that rely totally on the work generated by these firms, how will their Christmas be?

I have made no secret of the fact that in the main, I detest politicians. I have met a few and none of them were impressive, most were more interested in money and power than any altruistic service of the people and this latest scandal both in Illinois and the auto-makers farce has done nothing to sway my belief that most are crooked on some level, and that is depressing.

Obama has a big task ahead of him, and I believe he could be different, but I am none too hopeful these days. Bankers screwed up, got caught up in the greed of it all but never forget that these same politicians who are now lampooning various people stood by and did nothing to stop it.

It is no good saying they didn't understand, ignorance is no defense, these people should have known, should have done something and they didn't.

Much is written about how Wall Street and The City will never be the same again, that is probably for the best, but one thing that will not change, unless we demand it, and that is the 'systemic risk' that politicians pose to us all with their greed for power, money and fame, leading us into war and turning a blind eye to corruption and greed as long as they stay in power.

We should use this time, not only to clean up the banking industry, but to reform politics. Ban making money from memoirs, speaking engagements, jobs in banks and trips on oligarch’s yachts. Mandatory jail time for indiscretions like Spitzer and Blagojevich have been accused of and total transparency in all areas of a politician’s life.

These would be my conditions for bailing out the largest failing business of all.. government.

Friday, December 05, 2008

Credit Crunch Affecting E-commerce? No, Just Pay With Cash...

The credit crunch is certainly biting and consumer credit will soon be feeling the pinch even more. Egg, the credit card supplier, withdrew cards from 161,000 customers recently and it has been reported in the press that over one trillion dollars worth of credit will be withdrawn from card holders through various banks soon.

What will this do for the online e-commerce sites? To pay with Paypal you have to have a bank account and, generally, a credit card as I understand it so could we see online sales dipping for the first time since we all went online?

The reality is that the gloabl slowdown is bound to affect sales, but an interesting concept has been developed over the pond that could aid online shops in their efforts to allow access for customers; paying online with cash..

No, we won't suddenly be having a coin-slot on our laptops but an enterprising company has created a payment system that allows users to get a virtual credit card for use on the web.

Yep, a virtual credit card. has developed a system that allows you to pay cash into a Western Union to a specific number which then generates a code, go back to the site and you are delievered your virtual credit card replete with number, svc code, expiry date and name.

We have seen the rise of the pre-paid debit card and now, I am sure, we will be seeing the rise of the online virtual card.

The leap from offline to online cards is a natural progression and it may be a signal that 'virtual' payment methods are on the rise, the technology for which has been talked about for many years, such as mobile phone payments etc.

Of course, this particular business has started during the 'perfect storm' for such methods. Bad economic conditions, lack of credit and massive discounts in online stores.

It remains to be seen how succesful the business is and, currently, it is only available in the US, but as ideas go it is very well timed and, judging by feedback I have had from people who have used the system, it is very well executed.

This may be just one of those ideas that was in the right place at the right time.

Just remember, you heard it here first.

Wednesday, December 03, 2008

Dollar and Pound at Parity With UK Zero Interest Rate

What a difference a year makes. A year ago we were happily skipping over to the US, buying up whatever we could to take advantage of a 2:1 exchange rate on the dollar. Then.. Armaggedon..

The pound has slumped to (as of writing) 1.47 Pounds to the Dollar and by all accounts it is not going to get better any time soon with the possibility of zero interest rates in the UK.

Former UK policy maker Willem Buiter said that the only thing stopping the Bank of England from cutting interest rates to zero on Thursday is a fear that it will turn sterling's recent weakness into a "rout".

Professor Buiter, a founding member of the Bank's Monetary Policy Committee, told the Daily Telegraph: "I expect rates to be cut to zero before long, the reason why this will not be done in one go but in two to three is because they'll be worried about what it would do to the pound."

Last month he called on the MPC's to slash interest rates by 1.5 percentage points to 3pc, a day before it made the shock decision to do so.

He is predicting another 1.5 point cut on Thursday to 1.5pc, arguing that the pound's current level against the dollar would not yet be considered a sterling crisis.

"When you get to $1.30, you are no longer talking about a welcome adjustment and competitive advantage, it's a rout," he said after giving a speech at the Council of Mortgage Lenders annual conference in London earlier in the day.

He expects further interest rate cut will bring the bank rate down to zero - a first for the UK - in January or February.

The pound has fallen by 25pc against the dollar this year, and continued its decline today. Yesterday the pound dropped by the most in one day since Black Wednesday, when measured against a basket of major currencies.

Charles Bean, the Bank's Deputy Governor for Monetary Policy, has stated previously that the depreciation of the pound should provide a welcome boost to exports, giving the UK a competitive advantage.

My father is visting with us at the moment. He used to work in the oil sector and was paid in Dollars. He remembers a time when the pound was close to parity and was very happy about it, problem was the UK was racked with massive unemployment... Doesn't bode well..

Trading the currencies is a franetic pursuit these days but there must have been a lot of money made over the last year with the wild swings we have seen. The prospect of zero interest rates will be a relief for homeowners, but will these rates get passed on... unlikley.

Also, low interest rates are what got us into this mess in the first place, low cost of leverage fueled the boom and is now being looked at as a solution to the problem. The problem that is being forseen, however, is an economic downturn of Japanese proportions. After their crisis, low interest rates and loose fiscal policy caused what has become known as 'the lost decade' in Japan, where fiscal policy caused a decade long downturn for the country. Lets hope the slide of the Pound re-ignites exports and does some good, rather than plunging us into the abyss.

Source: HF Markets - Online Trading

Thursday, November 27, 2008

Is now the time for Gold...again?

As the world unravels is gold looking more attractive than ever? According to Citigroup it is.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank's chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

"Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don't think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes," he said.

"This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised."

"What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We're already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore," he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. "If true, this is a very material change," he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. "People have started to question the value of government debt," he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

But how can you own gold in the most effective way?

1. Gold Bars
Bars come in metric sizes, and are based directly on that day's gold price, plus a premium for manufacture and marketing. The smaller the bar, the bigger the premium. According to ATS, a one-gram bar would cost £24 but has an immediate underlying resale value of only £16.20, giving a markup of 48pc to the retailer.

Not smart, in our opinion.

2. Sovereigns
One popular way to own gold is by buying gold coins, with 22-carat gold sovereigns the favourite with British investors. Sovereigns dating from about 1887 and up to 1982 are currently the best bet. Although their face value is only £1, they cost £136 to buy but have an immediate resale value of £118.

By contrast, modern coins dating from 2000 cost more, at around £160, yet their intrinsic value as an investment is the same £118. Coins from before the late Victorian period are even more desirable, but they have much greater rarity value and are therefore more expensive.

3. Krugerrands
Another popular option is to buy South African Krugerrands. The smallest is a 0.1oz coin, which might cost £70 and have a resale value of £50. A 1oz coin costs £567 at the time of writing and has a resale value of £512.

4. Exchange-traded funds
Gold ETFs are not technically funds because they follow a single security. ETF gold securities are traded on the London Stock Exchange. They essentially track the gold price and can be traded daily – all you pay is the dealing charge of around 0.4pc. They are also regulated financial products. Visit for more information.

Gold ETFs enjoyed a record quarterly inflow of 150 tonnes between July and September. The peak in inflows occurred in late September, triggered by the collapse of Lehman Brothers and a fear of further failures in the banking sector. Net inflows surged by an unprecedented 111 tonnes, equivalent to $7bn, during five consecutive trading days.

5. Unit trusts and investment trusts
These are few and far between, the most popular being BlackRock Merrill Lynch Gold & General, which invests in the shares of gold mining companies as well as other commodity businesses. Advisers reckon general commodity funds could also do the job for private investors as they dabble in gold-related stocks – JPM Natural Resources and ACDS Australia Natural Resources remain popular. Gold mining equities tend to be more volatile than the gold price.

6. Gold accounts
Gold bullion banks offer two types of gold account – allocated and unallocated. An allocated account is effectively like keeping gold in a safety deposit box and is the most secure form of investment in physical gold. The gold is stored in a vault owned and managed by a recognised bullion dealer or depository.

With an unallocated account, on the other hand, investors do not have specific bars allotted to them. Traditionally, one advantage of unallocated accounts has been the absence of storage or insurance charges, because the bank reserves the right to lease the gold out.

Check out HF Markets for more information

7. Gold shares
You can of course buy individual shares of companies that either trade or mine gold. Evy Hambro, who co-runs the BlackRock Gold & General fund, recently said the discount between the price of gold and that of gold shares was the greatest he had known. Meanwhile, Mark Harris of New Star said gold shares continued to look cheap and remained a decent portfolio diversifier.

London-listed shares include Highland Gold, the London-listed miner partly owned by the Russian billionaire Roman Abramovich, and Peter Hambro Mining, whose share price recently halved.

8. Jewellery
While thousands of items of gold jewellery will change hands this Christmas, they are not considered serious investments. Jewellery accounts for more than 60pc of total demand for gold, which was estimated at around 3,547 tonnes in 2007.

India devours 800 tonnes of bullion, more than 30pc of annual global gold mine production, mostly as jewellery. But although over the long term these jewels should hold their value and rise in line with inflation, manufacturing costs and the jewellers' markup mean they would sell for a fraction of the purchase price for the first few years of ownership.

9. Gold certificates
Historically, gold certificates were issued by the US Treasury from the Civil War until 1933. Denominated in dollars, the certificates were used as part of the gold standard and could be exchanged for an equal value of gold.

Nowadays, gold certificates offer investors a method of holding gold without taking physical delivery. Issued by individual banks, particularly in countries such as Germany and Switzerland, they confirm an individual's ownership while the bank holds the metal on the client's behalf.

10. Structured products
A number of structured products linked to commodities have been launched. They are either baskets of commodities or individual commodities such as sugar, oil, platinum or gold.

Structured products are typically five-year plans that aim to pay you a set return and limit your downside risk. For example, Quantum Asset Management's Protected Gold Portfolio offers a minimum capital return of 100pc at maturity plus 100pc participation in the rise of the underlying assets over the investment period, subject to an overall maximum capital return of 165pc.

Friday, November 07, 2008

Can Obama Re-Ignite Our Love Of All Things US?

Barack Obama being elected President was a defining moment in history. I have always had a love-hate relationship with politics and this has been mostly hate in the US simply because, in my lifetime, most of the Presidents have been largely uninspiring and, in some cases, down right useless.

My politics are naturally conservative, being a child of Thatcher, so I should not have any positive feelings for Obama being President. However, it seems to me that this man is something different, not a left winger with an agenda like Blair and Brown in the UK, but a reformer, someone who can make positive changes and I am not the only one.

The images of people having election parties around the world, Kenyans partying through the streets waving US flags and German's commenting that they 'want to love America again', is just astonishing.

The fact that he happens to be black is just a side issue. Yes it's marvellous that a black guy can get elected in the US and yes it marks a huge step forward for all races in America, and that can only be a good thing, but that is not the story.

The story is the man himself and that is what people are reacting to, it is also a story of people starved of leadership looking for someone to take control.

I am sure most people in the world have become weary with George Bush. In our leaders we aspire to have an educated, strong, reliable and honest person running the show. This gives us reassurance that we are being looked after by someone we can trust.

Bush was non of these and few people believe anything he said.

It is odd that some American friends have said that in many ways Americans around the world are judged by what their President is like, and over the last few years that has not been a nice thing. I read in The Daily Mail yesterday that this was echoed by a chap called Chris Johnson in Chicago.

"Now I can travel overseas again and people won't look at me all funny when I tell them which country I come from, you don't know how much that means".

Many important people have made comments on the Obama effect but the above statement, for me, sums up what it is all about. Barrack Obama is seen as a man who can 'fix' America and make Americans proud.

Fundemantally we all love our American cousins, we love the movies, the TV shows and even their over the top waiter service. We find them at times brash, over-cofident, selfish even, but we love them non-the-less.

As Brits we have covetted our 'special relationship' with the US but in recent years with Bush at the helm and a succession of idiots in charge of the UK we have become disillusioned, bitter even, about our out-of-touch politicians, we crave a leader who will make a difference.

He may not be ours and his politics maybe not be my cup of tea, but I for one am glad that he won.

Churchill once said, a little tongue in cheek, "You can always count on Americans to do the right thing - after they've tried everything else.”

Obama may turn out to be a great President, he may turn out to be all noise and speeches, but America stood up on November 5th and made the right choice.

November 5th in the UK is 'Bonfire Night', we let off fireworks, build huge fires and burn effigies of a man named Guy Fawkes who, 403 years ago, tried to blow up the Houses of Parliament.

While we were burning the memories of traitor who was trying to wreck our political system, America was choosing a hero who is looking to fix theirs, I hope he lives up to his promises for his sake, for our sake, but most of all for our US cousins who have a taken a flyer but, in my opinion, reached into their hearts and made the right decision.

God Bless America.

Wednesday, October 29, 2008

Tough Tax Talk As The Swiss Play It Cool

I have to admit to.. and I will use a German word here.. Schadenfraude.

The German finance minister, Peer Steinbrück, said Tuesday that Switzerland should be placed on an international list of tax havens, this without even laughing, as his country moves from one cock-up to another.

Speaking to reporters in Paris after a conference on measures to combat tax avoidance, Steinbrück said Switzerland deserved to be on the list being drawn up by the Organization for Economic Cooperation and Development because Swiss investment conditions encouraged some German taxpayers to commit fraud.

Delphine Jaccard, a spokeswoman for the Swiss Finance Ministry, said in a statement, "Switzerland has taken account of the results of the conference and presently sees no reason to react." Switzerland, she said, "has already made agreements with several states, including Germany" relating to "the exchange of information for the implementation of domestic law of contractual states in cases of tax fraud."

"Switzerland is only prepared to cooperate with us if there is tax evasion," Steinbrück added. "But to prove this tax evasion we need the exact information that Switzerland has, but it will not deliver it. That is the problem."

Now I don't mean to go on a rant...but I will.

The Germans, once again, are vomiting forward the opinions on Switzerland’s whole financial system not just its taxation procedures. The whole idea that Switzerland should be forced into Europe by marginalising it is a typical bully boy tactic of a crumbling alliance.

I would have thought that the Germans should take a look at their own system first and show the rest of us their shining example in fiscal management.

For example Herr Steinbruck, take a look at the fine way your regulatory and market organisations have managed the VW/Porsche farce.

Porsche said on Monday that it had 43pc of VW's shares, and options relating to a further 32pc. That sowed panic among hedge funds who had sold the stock short. As they desperately tried to buy shares to cover their positions, the price shot up as high as 1000 Euros or 20 times the target of most analysts.

The squeeze leaves many with red faces. Start with the short sellers. They may have reckoned Porsche would pause on its buying campaign once it hit 51pc, leaving the shares to deflate for a while. But VW’s limited free float made that a risky bet – akin to picking up pennies in front of a steamroller.

German market overseers also look inept. Porsche doesn’t have to disclose its activities in the options market, even if those options would in practice enable it to lay its hands on the underlying shares. That leaves other investors largely in the dark.
The words 'piss', 'up' and 'brewery' come to mind.

German Index tracking funds were forced to buy VW shares to keep in line with the index weighting in what amounts to guaranteed losses for million of Germans. During all this time the market regulators sat on the fence and did nothing. No suspending of trading, no limits, nothing. Finally the Dax announced that all would end on Monday. I guess this waiting game is so the Herr Steinbruck can find a way of blaming their totally inept handling of the affair on someone else, the evil Swiss perhaps.

I am reminded of the chant when England beat Germany at football 5-1. "Let's all laugh at Germany."

Of course the Swiss banks, mainly UBS have smarted from losses and bad moves, but we have kept the bail outs in-house. If Europe is such a great idea then I would have expected to have Hungary (an EU member state) bailed out by its European 'partners' not so, the IMF did that.

By the way Herr Steinbruck, my house prices has not gone down 30%, and there are no foreclosure signs in my village.

I would suggest that before the European community starts being tough guys with Switzerland they get themselves into a position where corruption is routed out of the EU Commission, that the EU actually creates a regulatory system that works rather than just fleecing its members, that politicians stop taking money from the banks they are supposed to oversee and that governments create a workable tax system that doesn't tax the life out of its citizens, perhaps then they will not seek out 'tax havens'.

The whole EU community should take a long hard look at the way Switzerland runs its affairs. We have true democracy here with referendum on pretty much everything, we have a firm but fair regulatory system that protects against systemic risk.

The EU may also want to consider the rule here that if a lender is found to have not done sufficient investigation into the ability of the borrower to repay the loan, then the lender becomes liable.

This simple ruling adopted by the loud mouthed politicians in the EU scrambling to blame everyone else, would have killed this current crisis before it even started.

When Houdini was performing his tricks he said the essence of magic was misdirection, get your 'mark' to concentrate on something else while you performed your 'magic'. This is a classic case of misdirection. Blame the tax havens for your problems so they won't notice you trying to shovel away the excrement you have left on your own doorstep.

Thanks Herr Steinbruck, for your opinions, but next time we want them we will ask... just don't hold your breath.

Bears Sent Running In Markets Rally

Was yesterday the bear killer day? It certainly looked like that in the last hours trading of the Dow and the FTSE held its own too.

The Dow rose 880 points and the FTSE was up 200 points. On the face of it looked like a huge rally even as consumer confidence figures sagged in the US. The story coming from traders, however, was that the rally was caused by a lack of sellers than a surge in buyers so it would be premature to say that this is the end of the fall in prices.

David Buik of BGC Partners described the movement in the markets as “madness”.

“What happened yesterday, in my opinion, is that we had no redemptions, no hedge fund selling in New York, and there was also talk of interest rates cuts in Japan. It was a hysterical rally based on nothing

“I would be immensely cynical about this. We are going to see very volatile times. We have to remember that the only asset that is liquid at the moment is equities. If you can't sell your property, borrow money or sell commercial paper, what can you do –- you can just sell equities. That’s why we’ve seen these equities crash below sensible levels of valuation. It will take time to iron out."

The US Fed today is expected to cut rates and many are saying that yesterday's rally was pricing in this cut.

The Euro bourses were skewed by the German Dax's embarrassingly bad handling of the Volkswagen affair. The situation was caused by huge shorting of VW which was seen as being overvalued because of Porsche buying stocks at bargain levels. When the market realised that there was not much float of shares for shorters to cover a scramble for shares sent VW shares to ridiculously high levels.

To give you an idea VW was valued at $102bn at one stage. To justify these numbers they would have to sell 64 million cars per year. Considering that sales of cars in the world are just north of 40mn you can see how silly the valuation became.

The Dax has received huge criticism around the world and the whole debacle could cost German investors billions, it s also expected to bring down a number of hedge funds who will have sustained huge losses.

Unconfirmed rumours in the US that Goldman Sachs had exposure to the farce caused the shares of Goldman to dip significantly although much of these losses were retraced in yesterdays rally.

As for today's trading all eyes are on the Fed announcement at 18.15 GMT but anything other than a complete surprise of a higher rate cut or no rate cut is unlikely to massively affect the market.

The thing to watch for those trading the indices is how this rally holds up. If this was just a bear rally it could fizzle out fairly quickly, if we see more strength today then we could be seeing a bottom forming.

Volatility is a risky business, of course, so be careful. 5 CFD contracts on the Dow at its lows yesterday would have yielded about £20,000, tasty profits but if you had been the wrong way you would have a lot of explaining to do to your bank manager.

Our mantra at the moment is 'Stops and Limits'. By all means take a dip in the market but make sure you are protected on the downside as if you get this market wrong it will bite your arm off.

Wednesday, October 22, 2008

Mortgage Brokers Ball.. 80's Deja Vu?

Possibly the most despised financiers in America, the nation's mortgage bankers, widely blamed for playing a central role in the global financial meltdown were whooping it up this week at a glittering annual convention

"We're all still here and we're still standing," declared Kieran Quinn, outgoing chairman of the association, who took the floor to a pounding chorus of Coldplay's Viva La Vida. He arrived shortly after a colour guard in full military regalia hoisted a US flag while an opera singer belted out The Star-Spangled Banner.

It reminds me of the coverage of the 'The Predator's Ball' the nickname for the annual conference thrown by Michael Milken for the private equity head honcho's of their day.

The last such event was much the same as the latest Mortgage Brokers Ball (doesn't have the same ring does it). In an environment where Drexel (Milken's firm) was under investigation and the public and politicians were rounding against him and his clients, bold statements were made.

Just like the Mortgage Brokers Ball Milken and others relayed the sentiments that 'we are still here' and it's 'business as usual'. That was the last such Ball as Drexel was, effectively, closed down by the government and Milken went to jail. Insider traders like Boesky and Levine joined him for a stretch and everyone got a little depressed that the gravy train had stopped.

The media rounded on Milken, Michael Thomas of the New York Observer. He had, variously, called Milken 'scum' a 'pig' and, oddly, 'beetle'. Commenting on Milken's impending sentencing he wrote "Whatever Judge Wood gives Mr. Milken won't be enough" and he hoped that life inside - and an introduction to buggery - would help him remember all the other crimes he had committed. 'The prospect of having one's sphincter enlarged to the circumference of the Holland Tunnel by the rigors of the prison social calendar often works wonders when it comes to refreshing memories'. Asked why he hated Milken so much he said "He looks like someone you would like to hate" adding” You don't have to know what a junk bond is to become infuriated by one".

The mortgage boys would do well to look back at this period of history and take some lessons in how things could turn out for them soon.

In a normal year, nobody would take much notice of a gathering of home loan originators. But a noisy group of protestors were on hand to remind the mortgage bankers of their unpopularity. Campaigners outside the conference centre wielded placards reading "grand theft bailout" and "jail greedy bankers - let them rot".

Bill Hackwell of Answer, a protest coalition involved in the demonstration, said: "We wanted to make sure they didn't think it was going to be business as usual as they meet to work out how to cover themselves."

It is clear to all now that unscrupulous lenders gave inappropriate mortgages on customers who could never afford to repay them. The MBA's own figures show that 9.1% of mortgages on US family homes are in arrears - the highest figure since records started 39 years ago.

Although it looked like business as usual at the conference with some admitting errors were made, some in the industry were not prepared shoulder all of the blame.

"There's certainly no lack of blame to be shared around the entire global economy," one said. "To say one industry is responsible for all this is a little simplistic."

His view was echoed by Ted Eric May, managing partner of law firm Sheldon May which specialises in servicing the mortgage industry: "Politicians and the general public are looking for easy people to blame. All of us are to blame. Our society has gone from living within our means to borrowing without restraint."

Inside the conference's exhibition hall stories of reckless lending were discussed. Phillip McCall, a mortgage fraud investigator, cited a case of a warehouse worker who applied for a mortgage, claiming an income of $7,500 per month: "Basic common sense is going to tell you someone in a warehouse is not going to be earnings $90,000."

This kind of application was left unchecked by mortgage lenders, but there is a point for apportionment of blame here. The warehouse worker, by falsely claiming his income was this high, committed fraud. This story is by no means a solitary case, one wonders if those who took out such fraudulent mortgages will be prosecuted.. I very much doubt it.

The last High Yield Bond Conference (the official name for the Predator's Ball) had a record attendance of 3,000 issuers and investors and the mood was optimistic. Milken had said previously that he was 'proud' to be in the High Yield Bond business and talked about raising '$6 out of every $10' to build homes for Americans to achieve their home-ownership dreams.

Sipping a drink as a guitarist played gentle melodies in the conference's foyer, Cary Burch, the chief executive of mortgage software provider LSSI, said mortgage lending was a force for good: "I'm proud to be part of this industry. It's been great to help people achieve their home-ownership dreams."

At least it was only a financial crisis that has come to haunt us from the 80's and not florescent socks and shoulder pads...

Source HF Markets - Online Trading

Monday, October 20, 2008

Hedge Fund Manager Cashes In His Chips

I think there are many traders out there who are trading on the basis that one day they can hang up their connection, put away the charts, clean out the account and set off for the sun. One hedge fund trader is doing just that and he has a few things to say before he goes.

Andrew Lahde, founder of California’s Lahde Capital, used his farewell letter to investors to round on the US “aristocracy” able to pay for their children to gain a top-class education. Mr Lahde, who has made tens of millions of dollars from his highly successful bets against the financial and property sectors during the past two years, also called for the legalisation of cannabis and said he was now dropping out to spend time with his money.

Saying he was “in this game for the money”, Mr Lahde went on to mock those who traded with him.

“The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking.”

“These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

“All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

Basically he is saying that all of the finacial woes are a result of a class system designed to make the US 'aristocrocy' richer and the average guy poorer.

I must admit, it is a tempting prospect to agree with. I wonder how many of the regulatiry, wall street and government elite were sons or daughters of rich parents and alumni of the 'top' schools.

On government he says:

"On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions.

These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.

Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken."

After this Mr Lahde goes on to back hemp and points out that this is not marijuana....

After reading this the words 'Burn' and 'Out' came to mind.

Tuesday, October 14, 2008

Devil Bankers.. Are We Really That Bad?

In the last weeks a new game is being played from Monaco to Minnesota, it is called 'bash-the-banker' The press have been full of it (literally), letting everyone in the profession know that we are soulless scum who have brought on the end-of-days.

My personal experience was speaking with an actor at a wedding of a school friend who blamed me for all the ills in the world. A few gin and tonics had passed my lips so he got some back, but saying that 'a few hundred years ago you would be sitting at the end of my bed in a three pointed hat and pointy shoes amusing me' may have being going a bit too far.

I can see his point, however, our profession has not covered itself in glory but I do take exception to us all being lumped in together. I have neither invested in nor created a CDO and I put down 20% for my mortgage...

Thanks to a friend, who has always had a leaning towards taking the mickey out of what I do for a living, I am now the proud owner of a t-shirt that proclaims that I am a 'Merchant Banker'. For those of you reading this from the US or, in fact, anywhere outside London you may not get the joke. 'Merchant Banker' is cockney rhyming slang for a word that sounds like 'banker' but is a little further down the picking order, alphabetically, and suggests I am not a nice person. I shall wear it with pride.

I guess that people are just very angry and looking for someone to blame and we as industry practioners are in the firing line. Here are some choice musings from upset people:

Irish Green Party backbencher Paul Gogarty described bankers as "scum" as he told the House he was only supporting the (Irish rescue deal) legislation through 'gritted teeth'. Thanks Paul, we spend enough time dissing politicians so right back at ya..

In the marvelously entitled 'Banks Are Scum' blog the author says:

"You cannot print money and throw it at the scum filth on Wall Street. The fact is this is not a capitalistic based economy. The rule is simple, you f*** up, you fix up. I despise, HATE for want of a better word, the people in government and criminal bankers who have led all astray over the last 300 years. The scum must swing by the neck till the last bit of life has been extricated from their demon bodies."

Gulp... 'swing by the neck until you be dead'... A bit harsh..

The Hollow Mantras of Vision blog says:


Their capitals not mine, and I am to a woman.. does that let me off?

I could go on but I think the above gives you a good picture of how we are seen in this current environment.

How the mighty have fallen. The highest searched article on this site has, for some time, been 'How to Become a Hedge fund Manager' in recent weeks this has dropped off the radar and, if the Internet rhetoric is to be believed, it will now be searched about as many times as 'how to perform a frontal lobotomy on myself'.

I actually think a lot of this nonsense is a bit of schadenfreude from those with a socialist leaning having their fifteen minutes of fame. Listening to many predictions in the deepest darkest recesses of the net where radicals of every belief lurk, bankers have 'brought on the end of times', are 'causing world poverty' and are 'the hidden malice out to control the world for their own evil ends'.

David Icke even thinks we are all lizard tongued parts of a secret world order.

Oh well, we can't be popular all the time. Bankers are just average Joes at heart people...don't hate the player, hate the game.

I am just off to eat a mouse, beat up an old lady and insert microchips into the local yokels while shorting a bank stock until it's bankrupt. I may also meet up with my other banking buddies and sacrifice a lamb.

I will see you all later at our next secret annual summit where we can discuss the next hideously clever plan to rule the world.

"Jeeves, fire up the limo and get the pilot to make ready the jet... it is time to spend a few months on the yatch"

Monday, October 13, 2008

The Beginning of the end?

The games begin for another week,we have much news to digest and its only noon.

First off the Uk has bail out 3 major banks to the tune of £37bn as, Europe-wide, governemnts use taxpayers money to boost confidence in the markets and take control of the banking sector.

In return for the British government's cash, which could make it the main shareholder in at least two of the banks, they will be forced to curtail the bonuses that many believe encouraged a risk-taking culture that precipitated the global financial crisis. They will also scrap dividends.

Finance Minister Alistair Darling said extreme times called for extreme measures and that he was prepared to make even more money available if necessary.

"It's necessary because we are going through quite extraordinary circumstances the world over, and I'm determined to do everything we can to stabilise our banking system and make it stronger," he said.

"And in return for it, of course, there will be restrictions on what happens in boardroom pay, and we're also getting guarantees in relation to increased lending to businesses, as well as to mortgages, too." The measures are being echoed across Europe.

Under the UK plan, Royal Bank of Scotland will boost its capital by 20 billion pounds, with the government taking 5 billion pounds in preference shares and a share issue of 15 billion pounds underwritten by the government.

HBOS and Lloyds TSB will also participate in the government scheme "upon successful merger," the Treasury said.

The UK Treasury laid out a series of conditions attached to the bailout, including a commitment by the banks to lend to homeowners and small businesses at 2007 levels, limits on executive pay, and government input on new board appointments.

Forcing the banks to lend may seem a nightmare waiting to happen, but if normal (as in pre-liar loan mortgages) credit screening is done correctly then there shouldn't be an issue. The problem I can foresee is that 'normal' credit screening for small business in an environment where times are very tough may make it difficult for the banks to comply.

Also, it must be a very interesting time in the banking sector right now, as an employee. Perhaps those who are mid level will be thankful that they are not going the way of Lehman employees but top level traders must be reveiwing their options.

If I were trading at a bank that had been beiled out right now, I would be very concerned about my package. Can you imagine a scenario where The Sun newspaper gets a hold of a story on Tim Trader making £1mn a year with a nice picture of him driing his Ferrari to work? You wouldn't have to look to far to find someone like that.

The banks in the middle of these bail outs consequently have a problem with staff retention. The reason that traders get paid so much is similar to the football world. If one club is prepared to pay a player more - off he pops, breaking his contract.

Top traders are not known for their loyalties and will be seeking to work for companies where their bonuses are not capped. Could be a good thing, as maybe some of these big banks will get back to being banks.

In other news that created the great headline 'Major Central Banks Offer Unlimited Dollars', central banks on Monday pledged to pour 'unlimited' amounts of dollars into the system to un-freeze credit markets.

"The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment," the Federal Reserve said in a statement.

"Funds will be provided at a fixed interest rate, set in advance of each operation," it added.

The sizes of the reciprocal currency arrangements (swap lines) between the Fed and the Bank of England, the European Central Bank and the Swiss National Bank will be increased to accommodate whatever quantity of U.S. dollar funding is demanded, the statement also said.

FTSE is up, Dow futures are up...happy days..

Source: HF Markets - Online Trading

Wednesday, October 08, 2008

Asian Markets Crumble.. Panic Selling?

Big news out of Asian this morning with markets falling by massive levels as credit fears intensified, selling snowballed and authorities around the world scrambled to find ways to contain the crisis.

The UK government announced a liquidity scheme for banks under which at least 200 billion pounds ($350 billion) will be made available to financial institutions, plagued by bad debts and a crisis of confidence.

We hate to mention the word 'capitulation' for the third day in a row but the raft of announcements and bail outs are doing little to soothe investors. Sellers drove the Nikkei down 9.4 percent, its biggest one-day percentage fall since the crash of October 1987.

Markets in Tokyo and Hong Kong plummeted 5 percent to 7 percent, and Jakarta tumbled 9 percent, after another dismal session on Wall Street that saw the Dow Jones industrial average notch its biggest five-day points fall ever.

European markets were sharply lower on the open, the FTSE down 100 points, the DAX down 168 points and the other Euro bourse are following suit.

The FTSEurofirst 300 index of top European shares has already lost 7.9 percent this week, on track to record its worst weekly performance since mid-2002. The index is down 33 percent year-to-date.

"I think for a few more days we are in a Mark Twain situation where we are more worried about the return of our money than the return on our money," Guy Monson, Managing Partner & CIO at Sarasin & Partners, told "Squawk Box Europe."

About the UK government's plan, "what we're really looking at is a giant backstop to the entire banking system," Monson said, adding that now "we have a banking system which is run directly by state guarantee".

Banks continued to get hammered, but news from other sectors of the economy was no better, with aluminum producer Alcoa reporting a lower-than-expected quarterly profit on softening demand on Tuesday after the bell, and saying it was halting major capital projects in the face of uncertain markets.

And Toyota Motor will likely post a 40 percent slide in annual profit, missing its profit estimates on weak sales in North America and slower growth in China, the Nikkei business daily reported.

Many have called the situation in Asia a 'panic' and some commentators in Europe are suggesting that panic selling is now in place in the Euro bourses. This then is the point at where a bottom may form, however we said some time ago that the charts were telling us a bottom would be around 4000, however, even we scoffed at our own prediction.

Still we can take solace in the fact that some people made really, really bad calls. Here are some from July 08:

Binky Chadha, Deutsche Bank’s New York-based chief strategist says "the S&P 500 will end the year at 1,650, up 29 percent from June 30".

Ian Scott, Lehman’s (err hmm) global strategist, is predicting "an advance of 27 percent to 1,630".

David Bianco at UBS said the index will increase at least 25 percent.

At the time Peter Sorrentino's a Cincinnati-based senior money manager at Huntington Asset Advisors, which oversees $16.7 billion, said “A monkey with an abacus is probably better at the end of the day,”. Nice one Pete..

In the search for a bottom many commentators are now giving us their opinions and Marc Faber, the so-called Dr. Doom, has joined the search party. "The market has become extremely oversold," said the author of the Gloom Boom & Doom Report. "I think we're at one of the most oversold conditions ever, maybe not quite as oversold" as during the Black Monday period of Oct. 19, 1987.

Faber sees a rebound beginning in early 2009, and advised investors to look to emerging markets stocks as the catalyst.

"If you're playing for a recovery in the global economy whenever that comes, I think you will have to position yourself in emerging economies' stock markets," he said.

He also favors investing in gold on the belief that global central banks will loosen monetary policy and drive down the value of their currencies.

Traders looking for plays in this market could do worse than look at the credit markets rather focusing on the indices for a guideline as to where we are.

"While everyone was focused on a major equity decline it was the best improvement in credit quality that we've seen in eight weeks across the board," said Kevin Ferry on Tuesday, of Cronus Futures Management. "All measures of both liquidity and systemic risk improved yesterday."

From our point of view we see the time is right to have your trading fingers at the ready, nobody can predict when it’s going to happen but at some point very soon this market is going to bottom out. The volatility that we will see will continue but higher highs and higher lows are on the horizon.

When the points are counted in 12 to 18 months time we will have seen the opportunities from here as the trading period of a lifetime and there will be some traders who will have made a fortune.

Download the system, fund the account and wait for the starter’s gun.

Take heed, however, this market is all over the place and risk is rife so please remember, it's 'Ready, Aim, Fire!" not "Fire, Ready, Aim!”

Source: HF Markets Online Trading

Tuesday, October 07, 2008

Countries In Trouble.. Capitualtion Surely?

Yesterday was just one of those days. An 800 point intraday fall on the Dow with a 300 point recovery in the afternoon session is the type of market that traders dream of, stockbrokers lose hair over and governments hate.

With a couple of trading days like we have had the market and investors are beginning to wonder whether we have reached the point of capitulation, basically the point where people say 'to hell with it' and dump everything. Scarily it doesn't look that way.

Having spoken with a number of friends who are traders and brokers very few are reporting that clients are calling up to dump stock. One stockbroker said "It's bizarre really, even though the market has plummeted we have been getting more calls from clients who want to average down than we have from clients wanting to dump."

This lack of total capitulation is being attributed in some respects to the Internet and financial TV shows. One broker said "I was around in 87 and the scariest thing was that we just did not know what was going on. In today's market, clients are watching the same information as we are and because of this they are less likely to panic".

A broker at a small company specialist said "The media have caused some of my clients to lose lots of cash. The tabloid press should be ashamed. I suppose we should be used to them sensationalising everything but they have to take some responsibility for retail clients getting shafted. Some companies with sound balance sheets a great product and little exposure on a macro scale are being killed when there is no need for it, when the dust settles the regulators should look at these so-called experts and bring them to book."

This particular broker saves his most venomous comments for the financial bulletin boards, "You have people on these bulletin boards spouting absolute lies, plain cold lies. How can a broker be fined or have his livelihood taken away if he misleads a client but an anonymous numpty on an Internet site can say whatever he wants, market manipulation in affect, and nothing happens, double standards in the name of free speech. It makes me sick"

It seems that much of the criticism of the media, regulators and government from those inside the industry, stems from the belief that a clear concise plan is not in place. This may be on the way in the UK at least after the Chancellor met with senior officials from the UK's top banks.

The chief executives of Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS last night met the chancellor, Alistair Darling, and other senior members of the Tripartite Authorities.

The banks are understood to have told Mr Darling that they broadly back a plan for the Government to take equity stakes in return for capital injections.

Analysts yesterday predicted the Government might need to pump between £30bn and £50bn into the banks.

Sources said last night they expect a plan of action to be hammered out over the next couple of days. The cash injection would be in the form of preference shares, and it is possible the Government would hand over some cash now while also saying there would be a pot of cash available if banks need money several months down the line.

“There is a realisation that some of the more radical options have to be put on the table,” a senior banking source said.

While unenthusiastic about part nationalisation, the banks hope that if the Government helps to bolster their capital it might provide a much-needed boost of confidence to investors.

The worry for the industry and now, believe it or not, actual nation states, is that the governmental money coming into the banks will be followed by massive regulatory changes.

Iceland agreed yesterday to guarantee it banks in a similar move to Ireland, part of the reason for this is that if the Icelandic banks are to benefit from selling toxic assets under the US bail-out plan they had to make this move and they fear that US oversight may be the consequence.

There was even talk of Iceland becoming bankrupt. The trigger for the panic over Iceland's solvency came Monday, when the government pumped €600 million ($827 million) into Glitnir Bank hf, the country's third-biggest bank by market capitalization, taking a 75% stake.

Meant to reassure financial markets, the bailout instead heightened concerns that Iceland might have to prop up its other banks too, but that it lacks the resources to do so.

Iceland has a population of just 300,000 and a gross domestic product in 2007 of around $20 billion -- less now that the currency has fallen so sharply. Its major banks have foreign-currency liabilities totaling $120 billion.

"If the Icelandic government is forced to bail out those banks, its debt could go up to astronomical levels as a share of GDP," says Ben May, an economist at London consultancy Capital Economics.

That concern has pushed up the cost of buying insurance on debt issued by Iceland's government to a level that normally indicates a borrower is in severe distress. On Friday, traders said it cost $1.5 million up front plus $500,000 a year to insure $10 million of Icelandic debt against default. That is up from $271,000 a year with no up-front fee a month ago, according to Markit Group, a credit-information firm.

"There is skepticism that Iceland's finances could cope with a systemic banking failure," said Gavan Nolan, a credit analyst at Markit.

When there is potential for a country to go bust, you have to admit, capitulation cannot be far off, if it has not already reached that point this week.

Source: Online Trading - HF Markets

Monday, October 06, 2008

More Bail-Outs In scramble To Save The System

The 'bail-out' package was approved, brought into law and the Dow futures have promptly fallen 200 points leaving the Dow a smidgen off going under 10,000 points. If the main index goes below this figure it will be the first time since October 2004.

European bourses are not fairing any better as the EU governments show their usual leadership qualities by stuttering and stumbling from one cock-up to another. The Germans and French ruled out an EU-wide rescue package similar to the US last week and will look to veto any such package saying there would be no 'blank cheque' and then the Germans promptly bailed out Hypo Real Estate to the tune of 30 billion Euros.

The government and the Bundesbank came up with that old chestnut that Germany's second-biggest property lender, "is too big to fail". They met with banks and insurers in Berlin all day yesterday to discuss a revamped rescue package after private banks on Saturday withdrew their support for a 35 billion-euro rescue package brokered a week ago.

The most interesting lesson being learned from all this, to the delight of Euro-Skeptics is that when times are good the EU promotes closer economic ties, peace love and harmony but when the EU is really needed each country has employed the EFH Directive 2008.

European leaders meeting in Paris this weekend pledged to bail out their own nations' banks, while stopping short of a regional rescue effort in a classic interpretation of the 'Everyman For Himself' Directive.

This has been manifested in the most recent round of takeovers and mergers.BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium after a government rescue of the Brussels and Amsterdam-based company failed.

Belgium and France on Sept. 30 threw Dexia SA, the world's largest lender to local governments, a 6.4 billion-euro lifeline. UniCredit SpA, Italy's biggest bank, plans to boost its capital by as much as 6.6 billion euros and the Icelandic government is reportedly trying to arrange a 10 billion-euro injection into its banking system.

Instead of having a coordinated effort to settle savers worries countries are scrambling to give confidence. Ireland guaranteed 100% of depositors fund last weeks, this despite estimates that if the system failed the 400bn Euros required to pay depositors would by twice the GDP of the country. Talk about leverage risk!

Germany followed suit and said it would fully guarantee personal savings in a bid to ease concerns about stability.

Gordon Brown showed astonishing naivety by increasing the UK guarantee to just £50,000 from £30,000. What message does that send out?

It basically says that the extra £15,000 is all the risk the UK government is wiling to take. It points at a weakness in the UK banking system that the UK government is not prepared to underwrite. Many see this as another sign that Brown is not the man to steer us through this crisis.

Fully guaranteeing savers would have sent a message to the public and to the rest of Europe for that matter, that the UK stands behind its financial system with confidence. An increase of £15,000 has completely the opposite effect. Anybody holding money above this figure in a UK bank account must be considering a move to Ireland or Germany.

Points to watch for Dow traders this week are:

In the coming week, there are a few key economic reports, including the Fed's minutes from its last meeting released Tuesday. Consumer credit is also reported Tuesday. Pending home sales are released at 10 a.m. Wednesday, and weekly jobless claims and wholesale trade are reported Thursday. On Friday, international trade and import prices data are released.

Traders are also watching the U.S. banking sector where Wells Fargo , one of the healthiest U.S. banks, swept in with a merger offer Thursday night to beat out Citigroup's bid for Wachovia. Citigroup is protesting Wachovia's new merger deal. Its own plans to merge with Wachovia, attractive to Citi for its wealth of deposits, was brokered by the FDIC.

Bernanke speaks at the National Association of Business Economists meeting in Washington Tuesday, and Lehman Brothers CEO Richard Fuld will be on Capitol Hill answering questions on his firm's demise before the House Oversight Committee. On Tuesday, former AIG officials come before that committee.

Politician watch is the name of the game this week. Many are suggesting that the US bail-out package has come too late to stop some major problems in the market manifesting themselves in more bank failures. We will see how the politicians in Europe respond now but expect lots of back-peddling and more bold statements.

This week will be yet another roller coaster.

Good luck!

Thursday, September 25, 2008

The Banks KIlled The Golden Goose... What Next?

The crisis in the financial system reached epic proportions over the last few weeks. The collapse of Lehman, Bear Stearns going, AIG bail-out, Goldman and Morgan changing status and the "RTCII" bail-out being discussed at the moment has changed the landscape for the industry, but how will it look after this?

Whether you agree with the recent government moves on short sellers or not, we have to get used to the fact that this is the tip of the iceberg for knee-jerk regulatory moves, or should we say 'political moves'.

The situation is not just US based, it world-wide. German Finance Minister Peer Steinbrueck told parliament the turmoil would leave "deep marks" on both sides of the Atlantic, but called it primarily an American problem.

"The world will never be as it was before the crisis," Steinbrueck, a deputy leader of the centre-left Social Democrats (SPD), told the Bundestag lower house.

"The United States will lose its superpower status in the world financial system. The world financial system will become more multi-polar," he said.

Chancellor Angela Merkel, says "the days of laissez-faire capitalism are over".

French President Nicolas Sarkozy, whose country holds the rotating EU presidency, has called for a global summit to overhaul a "crazy" financial system.

So what have the politicians got on their minds? Steinbrueck proposed eight steps to prevent a recurrence of the turmoil, including an international ban on "purely speculative" short-selling, new rules to hold individuals accountable for financial missteps and an increase in capital requirements for banks in order to offset credit risks.

Higher capital adequacy I can live with and is a good idea, but the other stuff just shows the mentality of politicians who don't really understand the financial world.

How would you identify 'purely speculative short selling' and how would that 'fix' the financial system?

Just a few pointers to Herr Steinbrueck:

When is short selling not speculative? Would this be when a company is, in the eyes of some faceless bureaucrat, actually over-valued?

Would there then be a 'list' or a warning system saying it’s now OK to short this company? Wouldn't you like to be the first to get that list!!!!

Perhaps it’s not speculative if it’s a 'hedge'. But then you are allowing some speculators to short but not others. How would that work and who would you decide this? Would you have to submit your trades to a regulator before you placed the trade?

Let’s face it, it is a silly, naive suggestion, but remember, this is coming from a politician who actually has the powers to do this, at least in Germany.

How scary is that?

Also, shorting, far from being a 'financial weapon of mass destruction' is a way to limit risk. Lest say I am trading in the banking sector. One bank looks good to trade, the other looks a little over valued. So you 'pair-trade' them. You go short on one and long on another. If the sector as a whole takes a dive while your trade is on you win on your short and lose on your long, this risk based trading stops people losing more money than they normally would.

The problem is that short selling is an easy thing to point at for a politician. Something that is easily digestible for the average non-financial guy. The simple message is 'short sellers profit from your pension fund going down'. Easy sell n'est pas?

But if you believe in banning short sellers who profit from driving prices down, then you must ban buyers when shares are driven to unrealistic prices.

The issue that is being missed on the short selling rules is this. If a company has been driven down to a point where its shares price is way below its asset value then the market will correct it. If I saw a stock trading at a discount to its assets then, all things being equal, I would be buying like crazy. The shorts would have to cover and 'hey-presto' we have priced the stock.

The ban on short selling does not address the wider market and fundamentally avoids the real issue because saying it would be the death knell to a politician. That is that credit was too easy, people borrowed too much and now they are feeling the pain... It is not a popular story but it is at the crux of this mess.

If you want to stop this happening again, restrict credit to people who can actually pay it back, make mortgages a mandatory 20% deposit and no more than 3 times single or joint earnings.

Problem is this would hit the housing market, hit first time buyers and make property less lucrative. Is that a bad thing?

What politicians also fail to grasp is that creating or changing rules that open the doors to the creation of huge banking and trading institutions is, frankly DUMB!!

How many times have you heard this phrase in the past 6 months; 'Too big to fail'. Hello, McFly is there anybody there?

The latest round of consolidations is needed but not desirable. The easiest way to regulate this situation is not to change the law and investigate every merger/acquisition. All the regulators need to do is increase capital adequacy. Basically if you want to go ahead and merge yourself into a giant firm then the risk you pose to the market should be minimised.

Have the banks in a situation where they can only leverage once over their asset base.

Whoah! Have you any idea how much liquidity that would take out of the market? I hear you say.

The answer is yes I do. But the one thing we know about the financial system is that where there is a gap another firm will move into that space. What is wrong with spreading the liquidity/risk across 1000 firms instead of one giant one? It would be easier to manage and it would be less of a risk to the system.

But the firms wouldn't make as much money.. I hear you, but they were the ones who killed the Golden Goose, why should they be allowed to dominate the market once again?

What about hedge funds, will we see and end to them? I don't see how. Maybe they will be called something else but the genie is out of the bottle now. How will you stop them?

OK, tomorrow they ban 'hedge funds'. How do you define that? A hedge fund is simply a company that issue shares and then invests its capital. Are you going to ban investment companies?

Increasing capital adequacy for banks and traders would limited hedge fund borrowing, limit bank trading, and, ultimately make the system less volatile. Limiting credit to the credit worthy would end the ponzi scheme of the housing markets and credit cards, this is where the focus needs to be.

Think about it. How can a 20 year old straight out of university get 50k in credit from the card companies? How was that going to end well?

It is not a popular thing to say. We have all got used to the fact that we can have a slice of the dream of wealth and it was housing that drove this. The game should be over, but it is such a political hot potato. Who will be strong enough to tackle it? If Obama gets the US Presidency and the Tories win in the UK and make the painful moves necessary to restrict credit, then there will be a back lash from the public, why? Because standards of living will go down.

More expensive credit and less of it, for traders, banks and the public alike, is the key to solving this problem, anything else will be a political band-aid aimed at pulling the wool over the public’s eyes and the game will just start over again.

If we really want to change the financial system it does not mean bankers and traders will be thrown to the dogs and told they have salary caps. It will be everyone buying a cheaper house, a cheaper car, saving more, buying less and returning to a society where credit is something you earn, not simply something that is given to keep the merry-go-round going.