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things every retail investor/trader should know
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baseerahmed
Master |
24-Oct-2008 16:30
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yes it did ... actually i was logged in for UJ demo-trade for 4 x 20 pips .... but now got rewarded 411 pips .....( i think this don't count as my effort was not there ... ah well .. good to have though .... hahaha ! ) this episode begs this questions : (1) how often does this happen (2) how to anticipate/what are the symptoms when this carry trade happens ? ( hope not prying in too much ... hahaha ! ) |
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baseerahmed
Master |
24-Oct-2008 16:23
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Elfinchilde : Thank you ! Thank you ! Thank you !  |
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elfinchilde
Elite |
24-Oct-2008 16:17
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yen just broke again. fyi only | ||
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elfinchilde
Elite |
24-Oct-2008 15:37
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hullo baseer, good reading and hunt for knowledge. :) the carry trade is a small part of what i teach my students. may as well put it out here for all. free small lesson. hehe. Carries are important to pay attention to, because when the carry unwinds, it leads to a fall in global equities and commodities. so watching the pairs give you a headstart ahead of everyone else, especially when critical supports are broken. You'll notice that at the time of my post, 1137 am, the STI was down, yes. But the real fall only took place in the afternoon. ie, between 1137am to 1230 pm, you could have cut loss on your counters (STI 1671-1653, cf to now, ~1608). Perhaps a simpler way of explaining the carry trade is as such: 1) The yen has the lowest interest rate amongst all the currencies. Only a flat 0.5% interest charge. 2) Hence, what big traders do--your investment banks and hedge funds--is to borrow massive amounts of money in the yen. The idea is to use that money to make profits elsewhere, since theoretically, you only need to make more than 0.5%, and you'll profit the rest. It's a form of massive leveraging, because they are playing with money they do not actually have. Which is why the gains are spectacular, and the falls even more so. 3) So that's the ideal. Now the currency that is borrowed is usually the USD. ie, the pair to watch is the UJ pair. A carry trade is essentially taking a long on the UJ. 4) What happens is reality. The yen strengthens suddenly (ie, USD dips). Because of traders playing, or weakness on the US side, whatever. What happens then? The interest rate is no longer 0.5%, because you also need to factor in the strengthening yen. 5) Think of it as a floating interest rate. To draw an analogy: Assume you borrowed 500k to buy a house. The bank tells you it's 5% interest. You can just about afford it, so you take the loan. Suddenly overnight, the bank tells you it's 8% interest, payable immediately. You can't afford it any more. What will you do then? Sell your house to pay back the loan. 6) And that, essentially, is what happens when the carry unwinds. Traders can no longer afford the loan, so they sell off what they had bought, in order to pay back the yen loan. The strengthening of the yen leads to other traders having to cover back their yen loans, which is what exacerbates selling on equities, commods, and every other class of investment/trading. This strengthening can happen very fast. eg, 5 hrs ago, the UJ was trading at abt 9619, now it's abt 9519. ie, a difference of 100 pips in just 5 hrs: ~1% difference in your borrowing rate in less than half a day. Sounds small, until you count that your loan is in millions. ----------------------- side note: Note that commods have been unwound globally since Lehman collapsed (kept posting abt it in sept, can't remember when exactly--that Lehman has massive long commods position, so since chapter 11, they have to be unwound); so ignore any analysts' buy calls on commods. They are likely the houses releasing their remainder commods globally onto ppl foolish enough to buy. Oil's spectacular collapse isn't by accident. Follow the walk, not the talk. |
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baseerahmed
Master |
24-Oct-2008 11:12
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Elfinchilde : after reading your post of carry trade in this thread ...tried to understand what carry trade is ... but blur .. found this in http://en.wikipedia.org/wiki/Carry_trade#Currency ""According to Gary Dorsch of Global Money Trends, the yen carry is a "weapon of mass destruction" of $5.9 trillion, with yen loans another 1.2 trillion dollars on top of it, making Arabian oil wealth or Chinese reserves look small at $1.5 trillion and $1.9 trillion respectively."" what does this mean in simple english ... ? http://goldnews.bullionvault.com/yen_carry_trade_101620084 |
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zillion
Member |
24-Oct-2008 11:12
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elf, great articles you wrote....how many years/days/months does one need to be as pro as you? | ||
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elfinchilde
Elite |
24-Oct-2008 10:51
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paying nothing is better than losing something. haha. they're all moving to treasuries lah. accepting even miniscule returns. in this kind of climate where everyone is raising cash, even good assets will be sold down. that's just the nature of irrationality. and gold bugs should take note: instead of just ape-ing whatever "experts" are saying about longterm value: the last run for gold was that steep $77 jump in one day. After that, it was down all the way. even now. same thing holds as i've been saying for the past mth or so: the USD has to strengthen. Hence, gold's only way is down. Ideally of course, markets bad => currencies weak => gold up. But REALISTICALLY, no one can afford the USD to drop. Not exporter countries who hold reserves in USD, not the US itself. A crippling of the USD would lead to a far weaker economy than the one in the works now. which is why every concerted attempt will be made to shore up the USD> That is why everything will go down except the USD and the yen, which is the opposite partner of the carry trades. follow the money flow, the real action, not whatever the analysts say. A lot of them are not thinking either; they're simply regurgitating the things they learnt in school. Theory and practice are very different. If oil breaks below 63 and gold below 650, the run for commods is over. |
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kanglc
Member |
24-Oct-2008 10:19
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US investors redemption and hold cash, but how long can they hold cash, which pays nothing? 
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elfinchilde
Elite |
24-Oct-2008 09:30
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no need to watch today's market. cfm down. same pattern of holding some counters constant while diving others. foreigners washing counters throughout board. some local BBs may be buying. (-_-")....never go countertrend for longterm. divergence between STI and dow to be noted. STI has formed a lower low, lower high ever since the 1878 pinged to 1905 and failed to breach the previous 2218 mark. DJIA on the other hand has managed to ping off the 8000 mark and thus far held its bottom. ie, downtrend on renewed momentum for the STI. note that longterm uptrend support from 1997 (asian financial crisis) has been broken with the fall from this week. Your next support is pegged at around 1,550. Macros-wise, sentiment is so bad, at every resistance along the way, you'll meet stale bulls trying to get out. Not to mention global flow of money: not just to meet redemption calls back home, but that the money, by my estimate, is likely to go to the US. So for those who have been asking "is it time to buy", the answer is right in front of you. And one question: what's your hurry. The price-volume action is telling you everything you need to know already. |
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elfinchilde
Elite |
23-Oct-2008 17:15
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edit: have gotten some queries. just to clarify what my blog posts today meant: (you can see from the timing and the later action that it was live calls the entire trading day): normally movement is fast so i don't waste time doing long posts: -the first post on false rebound and no buying today: this was meant for longer term folks. http://elfinchilde.blogspot.com/2008/10/false-rebound.html -second post on update http://elfinchilde.blogspot.com/2008/10/update.html : was a tech note for intraday rapids: logic being as said in the post: that when a counter goes down too much, a tech rebound is in the works. -third post on intervention http://elfinchilde.blogspot.com/2008/10/intervention.html : as per the reading of macros in the previous post 1 hr before the event occurred: that there was intervention in the money markets. so overall, what this meant for rapids was: px already at a low, money markets intervention just before lunch: hence, likely a very rapid short bounce intraday, at most overnight. As said in 'update'--that the expectation was for the rebound to peter out by the end of day, at most tmrw. px-vol action showed the petering out for counters like kepcorp and st engg was today. final bell sell down for most of them. hence, as per the first post (even before the day's events occurred, pls rem): that the afternoon's event was a false rebound. longterm players shd stay out; traders, meanwhile, had option whether or not to take the rebound. don't mix up the two. cheers! |
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elfinchilde
Elite |
23-Oct-2008 16:21
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http://www.elfinchilde.blogspot.com/ --nopes rusty, check updates. cos of intervention in money markets at abt 145 pm. for rapids, have to keep on toes. it's a live game. kepcorp and st engg took nice rebounds today. hehe. btw, folks, pls differentiate btwn rapids and longterm. don't get mixed up by my postings. sometimes i'm posting for longterm, o/r times, it's for rapids: may be intraday even. make sure you know what's what. and of course, caveat applies. wilmar is interesting. citi is one of the names selling. |
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Rustyhaster
Member |
23-Oct-2008 14:50
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the selling starting rite nw?? :)
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cathylmg
Elite |
23-Oct-2008 14:23
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Thank you. Will keep a look out for more plunges. Waiting....
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elfinchilde
Elite |
23-Oct-2008 12:59
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cathy, WT: currently resting on its Dec 03 support lower end. supports below: 55-59, 45-50, 41-43. major supports are today's px then the 43s range. no hurry to buy, really. no signal at all. |
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cathylmg
Elite |
23-Oct-2008 12:04
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Thank you for your comment. Was thinking of picking up some Wing Tai for long. But holding back now. See how first. | ||
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elfinchilde
Elite |
23-Oct-2008 11:57
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reposting here fr my blog:
false rebound in the market now. false supports and buying to induce lambs into market for the slaughter. foreigners selling across board. quietly now; the real diving will start in the afternoon.
NO buying today. Momentum is for renewed downtrend. Still peg 1,650 as an intraday low possibility for the coming days. Index touched 1,735 low this morning, close to the low i called a week ago. --------------
zillion, you come for lessons then you'll know. haha. damn it, i missed my tv show cos watching market. (-_-")....
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zillion
Member |
22-Oct-2008 21:48
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Lucky Charm Elf, how does one 'see' the controlled distribution...can give some hints/directions.
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elfinchilde
Elite |
22-Oct-2008 18:57
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http://elfinchilde.blogspot.com/2008/10/alert.html zillion, i did warn folks on my blog last friday already that data was odd, and that they were quietly distributing already, while holding the STI constant....along with a direct warning to close all trades last fri. so personally, not surprised nor shocked to see the tanking these few days. CFD/SBL: i take it you mean shorting. gotta realise if you short now, you're shorting at a low. so the qn is how much further do you have to go. i play warrants, so i have no need for shorting personally. btw,the carry trades unwound this afternoon, so likely to have spillover effect. cheers! |
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AK_Francis
Supreme |
22-Oct-2008 10:39
Yells: "Happy go lucky, cheers." |
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If not mistaken, MAS wanted to tag SGD to 1.5 USD, to make Spore products marketable in global markets. ha ha , as far as SGD : RM = >2:1, walk ax the casueway for meals and food stuff to save $ loh.
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zillion
Member |
22-Oct-2008 10:19
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Elf, looks like it is no touch market....what do you think of engaging SBL/CFD method to dig some money out of the mkt. |
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