Bernard Madoff
Poor Bernie Madoff, it is being reported that he is being forced to give up 171 billion dollars worth of his assets. Now clearly he doesn’t have that much (or does he?) but this is a way for the courts to take everything that he owns and make sure he never accumulates any assets again. He is also expected to be sentenced on monday (June 29) and prosecutors are asking for 150 years. Our good friend Bernie Madoff has asked the judge to not follow a “mob mentality” and requested 12 years. Citing his cooperation with the government and his age. If the judge gives him this sentence ( could he possible do that?!) it would be an outrage. This is a man who only cooperated because his time was up. He was attempting to raise cash up until the end and if he was successful would have continued his fraud.
CLICK HERE to read the full story on AOL.COM
Good Luck and Good Forex Trading
Argentina and an Election
Sunday June 28 is the day for the congressional elections in Argentina. The expectations are for the current government led by President Cristina Kirchner to be left with less power and as such set off a confrontations in the future. The current government has been losing support as the economy weakens and the continuing with farmers over taxes. In these elections Nestor Kirchner, the presidents husband and former President himself, is running in the Buenos Aires province in an effort to aid his wife’s agenda. Really whatever the outcome the direction Ms Kirchner takes is up in the air. Possible launching a campaign of populist measures with the objective of getting more support for her election in 2011. Possibly finally dealing with the problems which have plagued Argentina for decades. Rampant inflation, slow growth and excessive government subsides for public services. It is really a wait and see situation.
The markets have been playing it this way also. For the last six months the currency has been on a continuing path of devaluation. Slow and steady. The pace is just shy of the projected deval’s built in the NDF curve. Liquidity is thin and uncertainty high.
Good Luck and Good Forex Trading.
Desk Meeting
At our weekly meeting the guys basically sat around looking for direction. We have had a couple of good calls but have not really capitalized on them. As with everything timing is the key. At that we have definitely struggled. But I try not to look back except to understand my mistakes, so here are a few conclusions that we came to today.
We see risk continuing to be pulled off the table. We have seen interest rates moving sharply higher in Brazil since the unexpected cut of 100bp last week. This tells me that the market is looking further down the road, to increased GDP growth, to higher inflation and improved employment. Even if another 50bp is coming the bigger picture according to the market is higher rates in Brazil. This I think is premature and in the coming weeks as continued weak numbers come from this region I see this curve (out to two years) flattening back out. The rest of this region has clearly stated its intentions for lower rates and an extended period of low rates. Chile,Colombia and Mexico are no where close to raising rates and Brazil will not either. There has been a lot of unwinding of risk in this region. Chile/Brazil, Mexico/Brazil and Chile/Colombia trades have all been coming off in drastic fashion. All the while trader and sales people continue to ask “why is this happening?”. To me that says that a lot of people are still in those trades and will be squeezed out in the coming sessions. Today at the close of the Brazil market the BMF contract ran up two big figures as traders (in my opinion) felt that they did not want to go home short dollars in the currency pair. If risk is being taken off the table the main beneficiary of this should be the Dollar and Treasuries. Today a co-worker pointed out to me that the Fed’s balance sheet is at its smallest level in months. He thinks this could allow the Fed to come in to buy long dated Treasuries to flatten out the curve and allow people to refinance their mortgages. A lot of refinances were taken off the table when rates went up.
Overall I like U.S. rates to come lower and the “Big Dollar” to move higher. I am going to stay sidelined on Latam currencies for the short term.
Good Luck and Good Forex Trading.
Desk Meeting
We had a quick desk meeting today trying to come up with some direction for the week. There are a few Central Bank meetings and we are looking for interest rate cuts from everyone. Colombia 50bp, Chile 50bp and Mexico 50bp. These cuts are built in and we do not expect much of a market reaction after the announcements Last week the Brazilian CB cut rates a surprising 100bp but since then we have not seen rates come off as to levels that we saw a few weeks ago. This has us slightly concerned. For now we are staying with our receiver position but if we don’t see rates come off more quickly in the next few sessions we will exit the position.
For the Euro we expected a reversal of the recent Dollar strength. As the week progresses I expect to see a weaker dollar. I am currently short dollars against Brazil and fix short dollars in Chile tomorrow.
Good Luck and Good Forex trading.
What is the Fed to do?
Much to the dismay of the Fed, the bond market has been selling off. Earlier this year the Fed announced a $1.2 trillion plan to buy U.S. treasuries. This plan was specifically designed to drop mortgage rates to allow Americans to buy or refinance homes. This recent sell off is certainly putting this plan in doubt. The yield on a 10 year Treasury note jumped from 2.5% to 3.7% in the last few weeks. This as signs the the economy and financial markets are gaining stability. Why is this happening? I believe it is inflation. If inflation is running at high levels then the dollars being used to repay the bonds will be worth less. Therefore bond investors will demand a higher yield to offset this. It is a difficult situation for the Fed. The need to issue all this debt to stabilize and get the economy moving, but this same debt is what will drive rates higher and steepen out the yield curve. A steep yield curve equals high mortgage rates.
Fed Chairman Ben Bernanke is well aware of this problem and is trying to calm the markets,
“Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”
He knows that without market confidence in the Fed, the dollar will be in trouble (more then it already is) Treasuries will go into free fall and Gold, Crude, basically every commodity will explode as the months/years go on.
Even now this sell off of treasury’s will have a direct effect on the market. After the Fed announced that they were going to buy Treasury’s direct from the market, rates dropped to multi year lows. Many home buyers and those looking to refinance have not had a chance to lock-in their rate and as such many of these deals will now be dead.
This recent market rally has me a little concerned. Although I certainly hope that it is for real, I can’t help but think that in the months to come we will be looking at more bad economic numbers. Maybe (and I repeat MAYBE) companies have begun to let go of people at a slowing rate, but are they hiring? Are there any signs that they will be hiring in the months to come?
So what does this all mean for the markets SELL DOLLARS! In the bigger picture of things the dollar has to come lower. Specifically against commodity currency’s. Also I still like rates to move lower. Right now Latin American rates have creeped higher in sympathy with Dollar rates but I do not think it will last.
Good Luck and Good Forex Trading
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