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Juan Toro

Tomorrow the Fed will make a decision about moving rates. Markets have fully priced a 25 basis cut and are giving little room to the Fed to alter the general consensus. Contradicting markets and leaving rates unchanged is a possibility but one that the Fed might not follow in these volatile markets. There are three possible scenarios for the Fed: a cut of 50 basis points, a reduction of 25 basis points or leaving the key rate unchanged. Markets reckon that the only possible scenario is the 25 basis points reduction and this has been priced by the markets. This view is supported by a softening of the labor market, shaky foundations of the mortgage market and a declining housing market (that might affect consumption soon). The 50 basis cut might be supported by news unknown to the general public on credit conditions, but carries the peril of a collapse of the dollars (with corresponding inflationary pressures). The no reduction option could have seemed the more logical and would buy time for the Fed to analyze and asses incoming data. However this is an option, that given market expectation, might not be feasible. The Fed has not been able to communicate the needed uncertainty to transmit markets some odd of a no cut movement. The Fed has let markets price a 25 basis point change and has not been able to transmit any other option. Given market expectations the Fed decision process seems irrelevant. The Fed will not leave rates unchanged unless they are ready to face wild markets. A better communication process might have left the Fed with wider options.

Juan Toro

Early this month Citigroup , Bank of America, JPMorgan, Chase and several other financial institutions reached an agreement to create a superfund to sort out the mess that exists in the SIVs (Structured Investment Vehicles) market. This superfund, that should just be temporary, would buy qualifying highly-rated assets from certain existing SIVs that choose, at their own judgement, to take advantage of this new source of
liquidity. This ad hoc liquidity (provided by the fund sponsors) intended to allow sellers to meet pending redemptions and ease asset-backed commercial paper rollovers. The creation of this $100 billion fund has been brokered by the Treasury Department with the idea of avoiding fire sales of assets held by SIVs which would depress even more this market and damage the balance sheet of some banks.

Continue reading 'The bail-out fund:'

Juan Toro

The sub prime crisis in the US is going to offer lessons on how to deal with a rotten mortgage market. US mortgage might be different than many western mortgage markets but have common spaces and lessons can be learnt on the management of a stressed market such as the US sub prime markets. The mortgage market has worried US policymakers on two grounds: the effect that a deeper effect of the crisis could have on consumption and the effect of foreclosures on the bank’s balance sheets. On the former issue, according to Federal Reserve Bank of Boston President Eric Rosengren: “The effect of the problems in housing on consumption has been muted to date”. The effect of the housing markets on the credit has not been cleared and though the credit comes back slowly onto the main markets, there are not yet signs of a full recovery. Rosengren believes that the housing turmoil has had no effect in the credit markets given the performance of emerging markets (both stocks and debt markets). Rosegren views are surely overoptimistic as the LIBOR market does not still functions correctly with still high premium in the three months segment. Moreover, though private equity deals are back on the table and financing is been provided to deals that remained in stand by during the credit turmoil, the terms of these deals have changed with more precautionary covenants.

Continue reading 'Sub prime is still sub prime'

Juan Toro

This story from the NY Post is a very funny tale on how wierd things can go.
It just tells the story of a head of trading that suggested a junior trader to take womens hormone pills to be less agressive in his style. Then it all got a bit more complicated. Here it goes the article.

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MRomera

Las estrategias posibles son diversas, algunas de ellas son:
1. Generar una rentabilidad mayor que la obtenida al invertir en el subyacente directamente: Por el comentado efecto apalancamiento, la capacidad de ganancia es mucho mayor con la misma inversión.
2. Conseguir liquidez, vendiendo la cartera de valores que se posea, invirtiendo una parte de esa liquidez en call warrants sobre esos valores para seguir manteniendo la misma exposición que anteriormente a la venta, aprovechándonos de las subidas igual que pasaba cuando teníamos la cartera de valores.
3. Conseguir una buena cobertura de tu cartera. Con los put warrants puedes protegerte de la bajada de la cotización de los valores de tu cartera cuando la misma rebase el precio de equilibrio.
4. Combinar inversiones poco arriesgadas con inversiones muy arriesgadas: Los denominados “fondos garantizados de bolsa” o las “emisiones de renta fija con warrants asociados a la emisión” tienen sus estrategias de inversión en este sentido. Lo que se hace es invertir un porcentaje alto del total invertido (entre el 80% y el 90%) en renta fija que tiene un riesgo casi nulo, por tanto al vencimiento tendremos ese capital invertido más los intereses (entre el 84% y el 98% del capital invertido),

Continue reading 'ESTRATEGIAS CON WARRANTS (II)'