Category Archives: Market Price Movements

Banking sector collapse?

It’s almost impossible to ignore the recent spate of banking “issues”, from Northern Rock and the US Subprime, to the Lehmans Chapter 11, and HBOS/Lloyds Merger – 2008 has been a volatile year for the markets and for banking.

What does it mean?

Well that is the million dollar question.. and what will happen remains uncertain. What can be seen is that past models and assumptions were not correct or had “blind spots”. We’re big fans of the Black Swan phenomenon.. on that one.

So for now.. what should you do?

Well only you can answer that..  but for traders volatility can be a good thing.. if you know your market fundamentals

“Groundhog Day” in the Financial Markets

I don’t know about
you, but I feel like I’m trapped in a real life version of the movie
I “Groundhog Day.” That’s the hilarious early-1990s comedy where Bill
Murray’s character travels to Punxsutawney, Pennsylvania to cover the
February holiday. Unfortunately, he gets stuck there, and has to
re-live that day — over and over again.

Just look at what
happened this week: There was yet another move from the Federal Reserve
to save the markets — this time in the form of a 75-basis point cut in
interest rates. That sparked more bottom-calling from many of the
talking heads on TV. And it fueled another 400+ point rally in the Dow.

I don’t mean to sound cavalier, but has anything really changed? Isn’t this the same movie we’ve seen four or five times since last summer?

First, the credit markets seize up in some way, shape, or form.

Second, stocks start falling.

Third,
the Fed, the Treasury Department, or Congress steps in and announces
another plan to fix the housing and mortgage crisis, or to loosen up
the credit markets.

Those interventions keep preventing the stock market from experiencing a big “flush” — a truly nasty decline that cleans out all the sellers and potentially sets us up for a larger, more lasting rally.

Instead, each new
plan helps spur some buying. We spend a few days or weeks working off
“oversold” market conditions. Then we go right back to square one
again.

This
one-step-forward and two-steps-back momentum looks exactly like what we
saw during the 2000-2002 bear market. And so far, there doesn’t seem to
be much lasting evidence of a reversal.

The Latest on Residential and
Commercial Real Estate

Wall Street’s
largest banks weren’t the only ones treated to a gift this week. The
regulatory body that oversees Fannie Mae and Freddie Mac also loosened
capital requirements for the two firms.

The Office of
Federal Housing Enterprise Oversight will now require they hold surplus
capital of just 20%, down from 30%. It also suggested that threshold
will fall with time.

The goal is to free
up money that Fannie and Freddie can use to buy or guarantee billions
more dollars worth of home mortgages. That, in turn, is designed to
lower the spread between rates on mortgage-backed bonds and U.S.
Treasuries — something that would lower the rates borrowers pay on home
loans.

It’s not such a bad
idea for the mortgage market, as ideas go. But home prices continue to
fall, and housing inventories remain extremely high.

Is there any evidence of a turn yet? Not as far as I can see. Just consider …

  • The
    National Association of Home Builders, which tracks how builders
    perceive sales activity and buyer traffic, said its benchmark index
    remains mired in the muck. The index held at 20 in March, just off its
    record low of 18 in December and far below the year-ago level of 36. 
  • Meanwhile, single-family home starts dropped another 6.7% in February to 707,000 units at an annualized rate. That’s the lowest since January 1991.
  • Building
    permit issuance for both single-family and multi-family property
    dropped to the lowest since 1991. That indicates future construction
    activity will be even weaker.

And what about commercial real estate? There is troubling news trickling out of thatside of the market as well.

Author: Mike –  Money and Markets

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US Dollar falls to record low

The US Dollar fell to record lows yesterday (13/3/2008), gold touched $1000.

What’s driving the move?

The global markets are volatile, and the gloom of recession is building. US sales figures confirmed that recession is happening there already, which coupled with the US housing / credit crisis makes the economic situation for the US look very weak to many people.

Key Level notes:

  • the USD tumbled against the Yen through Y100 (1st time since 1995)
  • Euro moved to a record high of $1.56

What next?

There are rescue plans being discussed in congress to put forward $300bn loans to help the mortgage crisis, as well as calls for reduced dividends from banks…

But where will the market go… who knows.. clearly people are worried by the volatility, but in those situations there are profits to be made for good traders.

2008 – Recession, Bounce Back or something else…

As we enter the end of Q1 2008, the rumours of a coming recession are heating up, the Big Squeeze / Credit Crunch.. what will be next

So with all the bad news providing an element of fear amongst the general public, and “unexpected” losses appearing out of the blue.

So what will it be like trading in this environment?

Well no one knows for certain, and that leads to a general view that things will be more volatile, many people will be thinking defensively, but that also leads to others trying to take contrarian views to get larger gains.

Cost of Funding / Leverage?

In volatile markets, the need for greater resources to handle short term movements, margin calls, and cash needs is even greater. Couple this with good risk management and clear strategies.

If you want real world examples where this broke down look at Northern Rock (their funding model failed, and then all their leverage fell through), and SocGen’s “rogue trader”.. is really an example of risk controls failing at a catastrophic level.

Short Term / Long Term?

If you are a short term trader.. then you stay watching the news, markets and short term indicators, if you’re in it on fundamentals for the long term, then now is a good time to really think about what you know and what you know you don’t know.

Logic / Not Emotion..

And as one head of trading said the other week – “I want you all to be a bit more Vulcan.. that’s right.. I want a 100 Mr Spocks” – in short now is the time to be really on the ball, and then you can do well, but you have to be using your head. Many will be losing their shirts and as our favourite mentor says.. “Are you the rabbit?”