McBad leaves the building
Aug. 19th, 2009 12:59 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksI was running like Mr McBad of Badsville, with a five or six buy-in downturn, my long position on wheat looking like shit, and an attempt to short the market again being spectacularly ill-timed. To top it all, my bosses suddenly decided that, not only could I not access IGIndex, but I couldn't access www.iii.co.uk either. "Online Brokerage and trading" the forbidment page solemnly intoned. Oh heavens, God forbid that I might actually want to buy a stock during work hours.
The debate is ongoing on this matter.
But I finally got a bit back last night (well, $450 of it, to be precise, making me the grand total of six bucks up on the day, but still $400 down in table play for the week). I'll post last night's hands of interest when I get home this evening.
Yesterday's currency movements today caused one of the weirdest headlines that I've seen in the FT for a while. "Sterling jumps as inflation persists".
If anything were needed to convince you that currency traders were obstrepurous bastards with a zero grip on reality, that headline should be it. Presumably the Zimbabwe currency should be soaring in value, given the persistency of inflation there?
But, as we know, it doesn't work like that. When the government announced that QE would be expanded, Sterling fell, not because it meant that inflation would rise, but because it meant that interest rates would remain low for the near future. The strength of sterling is in effect tied to the 18-month future on interest rates. Higher inflation made it likely that interest rates would be raised sooner than previously anticipated, Hence, sterling rises.
It's no use shouting at currency markets "you are all wrong except me!". You have to accept that that is how the currency markets are thinking at the moment. Higher interest rates make for a stronger currency because the carry trade is back in fashion. Never mind that you are parking your money with a currency that is losing value faster than anywhere else. Provided it's earning interest, and provided that more carry-traders come along at the end of your contract, you will make a profit.
You may well have spotted the flaw in this logic. Like any pyramid scheme, the "buy currencies with high interest rates" depends on a bigger fool coming along at the end of the day to take the currency off your hands. Eventually you run out of bigger fools, and the currency collapses back to its purchasing power parity level. The last guy with the carry trade when the music stops is the big loser, while lots of other guys who got in and got out on the way up are the small winners.
If we are really looking at carry-trade attraction, Australia, New Zealand and Canada should re-emerge as the favourites that they were during the commodity boom years. Or possibly the various kroner countries in Northern Europe, many of which have long offered seriously attractive interest rates.
Then again, there's always the Zimbabwe dollar. Hell, inflation is stratospheric there. It must be a good bet.
++++++++++++++
The debate is ongoing on this matter.
But I finally got a bit back last night (well, $450 of it, to be precise, making me the grand total of six bucks up on the day, but still $400 down in table play for the week). I'll post last night's hands of interest when I get home this evening.
Yesterday's currency movements today caused one of the weirdest headlines that I've seen in the FT for a while. "Sterling jumps as inflation persists".
If anything were needed to convince you that currency traders were obstrepurous bastards with a zero grip on reality, that headline should be it. Presumably the Zimbabwe currency should be soaring in value, given the persistency of inflation there?
But, as we know, it doesn't work like that. When the government announced that QE would be expanded, Sterling fell, not because it meant that inflation would rise, but because it meant that interest rates would remain low for the near future. The strength of sterling is in effect tied to the 18-month future on interest rates. Higher inflation made it likely that interest rates would be raised sooner than previously anticipated, Hence, sterling rises.
It's no use shouting at currency markets "you are all wrong except me!". You have to accept that that is how the currency markets are thinking at the moment. Higher interest rates make for a stronger currency because the carry trade is back in fashion. Never mind that you are parking your money with a currency that is losing value faster than anywhere else. Provided it's earning interest, and provided that more carry-traders come along at the end of your contract, you will make a profit.
You may well have spotted the flaw in this logic. Like any pyramid scheme, the "buy currencies with high interest rates" depends on a bigger fool coming along at the end of the day to take the currency off your hands. Eventually you run out of bigger fools, and the currency collapses back to its purchasing power parity level. The last guy with the carry trade when the music stops is the big loser, while lots of other guys who got in and got out on the way up are the small winners.
If we are really looking at carry-trade attraction, Australia, New Zealand and Canada should re-emerge as the favourites that they were during the commodity boom years. Or possibly the various kroner countries in Northern Europe, many of which have long offered seriously attractive interest rates.
Then again, there's always the Zimbabwe dollar. Hell, inflation is stratospheric there. It must be a good bet.
++++++++++++++
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Zopa
Date: 2009-08-19 12:47 pm (UTC)There is an article in the Guardian today suggesting that "Zopa" and it's ilk could spell serious problems for major banks over time - as with music downloads etc. I just wondered what your take on it was?
Cheers
Brian
Re: Zopa
Date: 2009-08-19 01:11 pm (UTC)In practice, of course, it ain't that simple. There's a lot more to lending money than finding someone who wants to borrow it. The banks might be utterly shite at risk assessment, but the individual is likely to be far far worse.
What's worrying is that Zopa's "safety net" is almost precisely the same as that of the famous collateralized mortgage obligation.
"Matching is done on a many-to-one basis, so that each Lender's loan is spread across many Borrowers, thus reducing the effect of any defaults."
Well, it ain't necessarily so. If there's a high correlation between defaults, spreading your loan across many borrowers just makes the lender feel better. It doesn't make the lender that much safer.
I doubt that the banks are quaking in their boots.
PJ
Kronerrands
Date: 2009-08-19 03:38 pm (UTC)Norway looks a pretty good bet to me, as does (to a slightly lesser extent) Denmark. Unfortunately, they're both fairly small markets, with all the volatility that might imply.
I'd steer well clear of the Swedish kroner, much though I love the country. Nine months of working for the stock exchange there, walking through the door, and seeing yet another highly dubious punt on a minor Baltic being celebrated on the mega-screens, has left me very dubious about Swedish leveraging.
It's true, most of the big Swedish companies are quite profitable compared to their Euro counterparts. Knowing the Swedes, company finances are probably a hell of a lot more transparent than elsewhere. However, the Euro/SEK exchange looks like a horror story waiting to happen.
I suppose DKK could be considered as a proxy for pig sales, and NOK as a proxy for oil. Either of those might be a reason to take a position. The SEK looks like a proxy for ... well, the Swedish economy being much, much, bigger than the Baltic states', which is true. But then again, I doubt that's the way that currency traders would look at it.
Re: Kronerrands
Date: 2009-08-20 11:40 am (UTC)That said, the NKK as proxy for oil isn't far from the truth, simply on the grounds that yer average trader in London and New York knows as much about Norway as he knows about Scotland --- to his eyes, small not very important places far away of which he knows little and cares less.
Indeed, if Scotland plumped for independence (if only! if only!) and had the guts not to do an Ireland but instead created its own currency, it would probably perform remarkably well in the short-to-mid-term (see oil, high interest rates). Eventually the fundamentals would kick in, and times might be a bit tougher, but it would be a fun few years.
PJ
Re: Kronerrands
Date: 2009-08-20 05:38 pm (UTC)I've spent most of my life trying to fight off crypto-nazis amongst friends, relatives, and acquaintances who insist that I'm half-left.
Taking the Keynesian beauty contest/third derivative argument to its extreme, the answer to your first paragraph is Iceland. Iceland. Iceland. Which is, and was, absurd. I was born in Coventry, a town often substituted for Iceland. "Let's plunge on Coventry ..." Clearly insane. Even if you've never been there. Basing your financial future on collective insanity, assuming that it will be rescued by a Really Seriously Huge Fool, is not the way to go. I'm just saying. If the markets are really leaning that way, then you're better off with the second favourite in the 2:30 at Doncaster.
Apparently the world needs bubbles. Dot-Com? Super; at least it hid Enron and Worldcom for a while. Plus which, nobody noticed when telecoms companies tanked by a factor of ten times worse. Silly mortgage scam? Good for the US bubble before that, and the Anglo-Saxon bubble after that.
Pigs? I think pigs are the new bubble. Pigs is big in China. If the BJP gets into serious power in India, it will be your Hindi patriotic duty to eat nothing but pigs, and bugger the lentils. (Obviously, Moslem Indians can do it the other way round.)
Pigs, yes. Norway will run out of oil and gas eventually, but Denmark will never run out of pigs. They're a member of the EEC. They can always import them from Brussels, Strasbourg, and Luxembourg.
Num, num.