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STI to break 3000 depressed by panic selling
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stevento
Senior |
18-Aug-2007 08:32
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What is the carry trade? The end of of the yen carry trade could be devastating for capital markets throughout the world. Experts estimate that there are several hundred billion dollars of positions in the carry trade to be unwound. David Bloom, currency analyst at HSBC, says that it has pervaded ?every single instrument imaginable?, so that when it comes to an end later this year it?s going to be ?ugly?. Many people will now be nodding their heads sagely, perhaps as they did when they were told that it was responsible for driving financial markets higher. It will be the reason to drive the financial markets lower this time round. But what is the yen carry trade? Put simply, it is borrowing at low interest rates in yen and using the loan to buy higher yielding assets elsewhere. During the past decade, the trade has become a ?staple? for many investors, says William Pesek Jr on Bloomberg. Perhaps the most popular form of the strategy exploits the gap between US and Japanese yields. Anyone borrowing for next to nothing in yen and putting the money into US Treasuries (US government bonds) has received a double pay-off: from an interest rate difference of more than three percentage points and from the dollar?s rise against the yen. Investors make their profit when they reverse the trade and pay back the yen loan. However, monetary authorities throughout the world are now midway through a process of normalising interest rates, which had been slashed to support growth after the dotcom bubble burst in 2000, says the Financial Times. Britain is furthest down this track, with interest rates steady at 4.5% and inflation at 2%. The US is not far behind, with nominal rates already matching the UK and set to go higher. The tightening cycle in the eurozone may be put on hold, but not for long. Japan is a laggard ? it is just approaching the ?starting line?, with the country only just returning to steady growth, which might (or might not) lead to a halt to monetary easing in April and an end to zero interest rates by the end of this year. An end to Japan?s zero interest rate policy might lead to yen appreciation (low interest rates usually mean a weak currency), and so an end to those benign, ?no brainer? conditions that have justified the ?carry trade? and been so supportive of other asset classes. Borrowing would become more expensive and foreign exchange risk would be higher. And it?s not just Japan. The eurozone, Sweden and Switzerland have already turned off the tap of ultra-cheap credit, says Ambrose Evans-Pritchard in The Daily Telegraph. But Japan is by far and away the most important. Already, signs of panic are appearing in markets: last week, the Icelandic króna ?crashed? 8% in two days, after rating agency Fitch downgraded Iceland?s sovereign debt. The high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil followed, as nervous investors removed their cash. |
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stevento
Senior |
18-Aug-2007 08:27
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What is next after FED reduce the rate? This is just a stop gap solution for the moment. The full impact of Sub Prime Mortgage is not fully felt yet when more hedge funds or banks with exposure to the Sub prime reports their exposure. Well, with more liquidity, Bernanke is probably going to worry more about inflation. Nothing is changed for the time being, market will take 1 or 2 more months to be clearer about the sub prime issue. Clearly, this is an opportunity to sell into a rally. Not to be overly exposed to stocks. Classic example of herd's instincts. Everyone is rushing to get in or get out at the same time. Time to sit back to watch the real show unveil in the next couple of weeks. There's more to come and the upheaval has not stopped yet. Why? YEN Denominated loans, carry trade. "The end of the yen carry trade could be devastating for markets throughout the world. But what is this trade and why could its unravelling have such serious ..." Emerging markets like South America has big exposure to this. Just look at the currency market. It is coming sooner than later. Principles of trading- Fundamentals of the company. Contrarian Theory. Go against the flow. Believe it is value for money then accumulate. Holding power. Like Warren Buffet who targets and buy shares with good valuation and hold it for eternity. Just be patient- look at the big picture, the world economy as a whole. Sub Prime leading to bad loans-credit crunch....Not only in US. Now UK is facing the same problems.-- greater credit crunch. Yen Carry Trade- redemption of loans from emerging markets- $700 billions - ???? impact- Currency around the world Global Warming- Erratic patterns- demands for resources like oil.-Impact???? All these leads to the financial market. |
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TonyOng76
Member |
18-Aug-2007 05:01
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And so ... the great game goes on! This never changing series of highs and lows of the financial markets intertwined with greed and fear. Until our thirst for financial independence is quenched at least. But is it so easy to say stop? What next after your first million? We can't change the fact, or should I say, the curse of the capital markets that with each boom comes a bust. Still it hardly ever comes as a surprise to hear moans, groans, and see blood on the streets each time this happens. Thus, we may as well be better prepared for it. |
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ruanlai
Master |
17-Aug-2007 20:27
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Markets crash or not is all depends on the FM. Sub-prime is only an excuse for them to exit the market and re-enter when the price is low. The cycle repeat again. For traders, they will dare to buy when the price shoot up, hoping for higher price to sell. This is a big mistakes for trading..... Look at the big timer. expert, FM, they only buy in a lot a lot when price are low like market today......when the peak they sell like when STI index reach 3600. We should learn from them. What is Market crash, buy them up, is worth to keep for end of year bonus...... |
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Pension
Elite |
17-Aug-2007 20:14
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Do you still trust those company in usa that manage billions after the sub prime loan case???? Those company who managed billion dollars of fund should have expertise and system to tackle and resolve a simple problem such as sub prime loan. Such sub prime loan problem should not exist at all. |
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cheongwee
Elite |
17-Aug-2007 20:04
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I have reason to believe this subprime will be over when fed reduce rate...but what follow after end 2008 will be more serious.. The Dollar Crises...!!! This fed will never allow recession to occur in an electuion year..this dollar crash will set the world back by some 10 to 15 years!!! |
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White_Tiger
Senior |
17-Aug-2007 19:43
Yells: "Think before you talk!" |
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The most honest piece of advice. Thanks. With respect WT |
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newmoon
Veteran |
17-Aug-2007 19:32
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We have been fooled by an economic expansion based on debt for too long.Every school boy knows that this is not possible( except nobel laureates in economics and predatory bankers} The high is getting lower and so are the lows. The tide has turned very quickly-600 points compressed into 3 weeks which is possible because of the internet. Politicians, bankers, broking houses paint a pretty picture even when the chips are down . When the masses wake up from the hypnotic spell they will head for the exit. Remember bear markets start when things look rosy . History may not repeat itself but it often rhymes-substitute housing bubble for tech bubble, asian tiger bubble, japanese bubble, 1929 bubble, southsea bubble, tulip bubble etc...... Isaac Newton was caught in the south sea bubble, and Winston Churchill in the 1929 bubble.We are all fallible human beings carried away by greed and folly. If you cannot think of a viable solution to this bubble than you should sell. |
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TonyOng76
Member |
17-Aug-2007 17:19
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Newmoon The goldden goose still breaths! It wasn't quite so bad was it? The STI closed up above the 3100 point support level held today. Don't think this is the end though and i suspect that the 3000 point support level will be tested again in time to come. Only time will tell if the stock market correction will spill over into the real economy. But look on the bright side ... we now get to buy blue chips at good prices. |
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newmoon
Veteran |
17-Aug-2007 15:22
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This is a new heading for the forum, Next support 2800. Prepare for a recession next year.The golden goose has been strangled. |
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