Archivo de la Categoría ‘Financial Markets’

25
Ene

A week of panic

Escrito el 25 enero 2008 por Juan Toro en Financial Markets

I believe you all have seen what has been going on in the markets and everyone is pretty puzzled about the swings. Last week ended with the fiscal proposal by Bush to stimulate the economy (investment deductions and rebates) in an attempt to boost the economy and avoid a recession. This seemed good news for the market. But just before the Friday closing of markets in the US , news appeared claiming that rating assessment on monoline firms (such as AMBAC and MBIA) could be downgraded. This monoline firms are bond insurers. The book value of the bond portfolio of many banks depend heavily on the financial muscle of these companies. So revisions on the credit quality of monoline companies would imply further write downs by banks and more financial distress.

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24
Ene

The rogue trader that fooled his boss

Escrito el 24 enero 2008 por Juan Toro en Financial Markets

Soc Gen reported today a 7 billion dollars write-down because of a rogue trader. Someone within the prop trading group of the bank disguised a trade that is going to cost the bank half its capitalization. This is a big number. A loss bigger than those accounted by LTCM and Amaranth when they got into troubled. We will soon know more details about the affair but generally the explanation of risk mismanagement is straightforward. Someone (this someone is later called a rogue trader) holds a trade with a risk profile that is unknown to the risk manager either because the latter does not follow the positions of his group correctly or because he does follow them closely, but does not understand their implications. This latter reason is explained in terms of sophisticated derivative positions. The final conclusion is that: the trader fooled the manager. This probably happens more often that reported, though it is only reported to the press when it ends up in huge losses.
Who else did the rogue trader fooled? It seems it fooled the Fed. Or so the street is saying and the market is confirming with a steep rise in the stock market. The story is that the Soc Gen debacle forced the Fed into an emergency move by making officials think it was a situation of a market crash. Officials at Soc Gen said that the firm

16
Ene

Investing in stormy times

Escrito el 16 enero 2008 por Juan Toro en Financial Markets

The fears of recession in the US have been announced from a few fronts. Those fears have not attained Europe, with the exception of the UK, that shows the same softness in its economy as the US. However history tell us that there is some sinchroinicity in business cycles in the US and Europe, with the US preceding European economies in the downturn and in the booms. Recent report released by Merrill and Goldman pinpoint weakness in the US economy predicting recessionary movements within 2008. Data is still non conclusive and future economic data will tell were the main economies are heading.

In this environment it seems that investment opportunities dry out and asset allocation becomes harder. Analysts offer some receipes for this stormy times. These would be:
a) Buy utilities (defensive sector) and sell financial (most fragile sector in this time).
b) Believe in the decoupling story of emerging economies and bet on these markets. The decoupling story maintain that emerging economies have initiated a new economic era where they can live with downturns in the main economies (US, EU,

9
Ene

Recession? A simplistic view

Escrito el 9 enero 2008 por Juan Toro en Financial Markets

For the doomsters, there is always a picture. Here goes one from Merrill on the relationship between recession and unemployment growth. Though I agree on the gloomy picture for the US economy given credit conditions and potential effect on consumption and investment, I would not make the inference Merrill tries with the below picture. Employment data has always been tricky and volatile. I would be more comfortable with level comparisons (unemployment level/employment level) rather than a possible outlier on unemployment growth.

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8
Ene

Diversity for the next year

Escrito el 8 enero 2008 por Juan Toro en Financial Markets

The FT recently surveyed a bunch of economists to know their position on a few crucial questions (housing, public finances, the evolution of the economy,

28
Dic

Subastas de liquidez

Escrito el 28 diciembre 2007 por Juan Toro en Financial Markets

Coincidiendo con el final de a

24
Dic

Liquidity auctions: What did we learn?

Escrito el 24 diciembre 2007 por Juan Toro en Financial Markets

Last week Central Banks were pretty active on providing the
needed liquidity to avoid any cash stress as we got into the New Year. Initially everything seemed as the implementation of the agreements on liquidity provision reached by the main Central Banks on the 12th of December. However things have evolved differently. The size of the auction in Europe was much higher than expected. Probably many US/UK banks were among the main bidders for this funding, even if there were special dollar funding auctions programmed by the ECB. Not withstanding, the end result has been achieved: to soften tension in the money markets as we got into the New Year. Looking at the auctions delivered by the three main Central banks (European Central Bank-ECB-, Bank of England

18
Dic

This is the question Central Banks ask themselves. They first asked themselves individually and later on (last Wednesday) they though they might get together to make this reflection together. We might be able to get some conclusions on this question if we follow the most recent events and market data.

We have received little news from the most innovative tool that has recently been released y the Fed to provide liquidity, the TAF (Term Auction Facility). This latter tool is a hybrid between traditional open market operations (limited to a small club, main dealers) and the discount window (open to any depositary institution but at a penalty rate). The first TAF was implemented yesterday but we know little about the results. I searched in the NY Fed webpage and found no information. However, we might get some indirect information from today

12
Dic

CRISIS FINANCIERA Y CRISIS REAL

Escrito el 12 diciembre 2007 por Francisco López Lubián en Analisis Financiero, Financial Markets, General

La crisis financiera destapada en el pasado verano fue anunciada y resumida con anterioridad por informes de organismos internacionales, como el FMI o el BIS. En esencia, y como se se

11
Dic

Phrases for after a FOMC decision

Escrito el 11 diciembre 2007 por Juan Toro en Financial Markets

I got an email after the FOMC meeting decision with phrases expressing the reaction after todays decision of the Fed. People wanted a much more decisive move in the discount window. They did not get it. Here they go.

1) I will now get the 2007 Carlos Rossi instead of Petrus for the holidays.
2)He will go down as the worse Fed governor ever
3) Beyond me
4)The mkt wanted heroin and got methadone
5)this is really a dream right? did I sell a point ago?
6)Cancel your yr end vacation..Everyone will need treauries into the turn
7)Stocks! make them pay!
8) Ben Bernanke is the Eli Manning of Fed chairmen

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