By Eric Martin
Aug. 20 (Bloomberg) -- U.S. stocks fell on concern that last week's cut in the Federal Reserve's discount rate isn't enough to stem losses in credit markets.
Thornburg Mortgage Inc., the lender forced to stop taking home-loan applications earlier this month, retreated after saying it sold $20.5 billion of mortgage-backed securities at a loss. Financial shares posted the steepest decline in the Standard & Poor's 500 Index, led by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. Exxon Mobil Corp. and Chevron Corp. dropped after the price of oil fell.
The S&P 500 slipped 11.34, or 0.8 percent, to 1,434.60 at 12:16 p.m. in New York. The Dow Jones Industrial Average lost 64.95, or 0.5 percent, to 13,014.13. The Nasdaq Composite Index decreased 12.85, or 0.5 percent, to 2,492.18.
``A number of risks still remain, including troublesome credit markets,'' said Michael Malone, trading analyst at Cowen & Co. in New York. ``There's still a fair amount of leverage throughout the global financial system. We're not out of the woods yet.''
Today's drop follows the S&P 500's biggest rally in four years after the Fed lowered its discount lending rate on Aug. 17 and said it will ``act as needed'' to keep credit market losses from spreading. Today, European stocks climbed and Asian markets, open for the first time since the Fed's move, rose the most in three years.
Tips: Last Friday provide a very good bargian hunting for quality counters like Resort,Genting,PBB,OSK,Sapcrest,UEMWRLD and Ranhill. And the uptrend continue today. However, the credit risk for sub-prime is still not over yet and the yen carry trade may continue to unwind their positions. What we can do is to pick quality companies on average basis to accumulate whenever the market is dropping. But, remember to buy at slow pave. Seek advise from your advisor. Those already entered on last Friday remember to cash out.
Tuesday, August 21, 2007
Sunday, August 19, 2007
Yen Carry Trade..Over Already?
Campbell, John Henry Get Losses as Subprime Devours Carry Trade
By Liz Capo McCormick
Aug. 20 (Bloomberg) -- A doubling in currency volatility since June has knocked the ``carry trade'' off its perch as the most profitable strategy in foreign exchange, hurting investors from John W. Henry & Co. to Campbell & Co.
In one of the more popular carry trades, a U.S. investor who borrowed in yen to buy high-yielding Australian dollars enjoyed a return of 11 percent this year through June 5, data compiled by Bloomberg show. The gains have since been wiped out.
Chalk up another victim to the spreading U.S. subprime mortgage contagion. The fallout from losses on loans made to people with poor credit is spreading so fast that investors are selling any asset smacking of high risk around the globe, causing wide swings in exchange rates that weren't anticipated. New York-based JPMorgan Chase & Co.'s index of volatility on options for the most-traded currencies reached 13.4 percent last week, the highest since 1999.
``We were caught off guard,'' said Terri Becks, president and chief operating officer of Towson, Maryland-based Campbell. ``When these anomalies in the market happen, in this case how highly correlated moves in many markets were, you are either on the right side or the wrong side. This time we were definitely on the wrong side'' in currencies, interest rates and equities.
Campbell's biggest fund, with $9 billion in assets, lost 10.8 percent in July, the most since 1990. John W. Henry's $122 million Financial and Metals Portfolio fell 11.7 percent in July, its worst month since March.
Rising currency volatility is bad for investors in the carry trade because it increases the risk that gains from interest-rate differentials will be erased by foreign-exchange losses. The JPMorgan volatility index fell the past two years, reaching a record low of 5.76 percent on June 8.
Henry's Loss
In currencies, Boca Raton, Florida-based Henry's largest loss in July was in the yen, Kenneth Webster, president and chief operating officer, said in a statement on its Web site. Assets at the firm, which is owned by John W. Henry, who also controls the Boston Red Sox baseball team, have plummeted by 75 percent since November to $479 million.
``The turmoil in the credit markets had a collateral effect on the currency markets as investors bought back short positions in low-yielding currencies,'' Webster wrote. He declined to comment beyond the statement on the Web site. A short position is where an investor has trades set up that would profit from a decline in the value of a currency.
Investors who hoped for a rebound in the carry trade this month are likely disappointed. The Australia dollar has lost 15 percent since it reached 107.74 yen on July 20, the highest since 1991, as investors sold the currency and bought back yen. That helped push Japan's currency to a 14-month high of 111.61 per U.S. dollar on Aug. 17.
Not Over
``I don't think that the unwind of the carry trade is over by a long shot,'' said Naomi Fink, senior currency strategist at BNP Paribas SA in New York. ``The subprime issues remain.''
Rising delinquencies on subprime mortgages forced two hedge funds managed by New York-based Bear Stearns Cos. to file for bankruptcy last month, while BNP Paribas SA in France halted withdrawals from three funds because it couldn't ``fairly'' value their holdings. The Federal Reserve last week cut the rate it charges banks by half a percentage point to 5.75 percent in an attempt to avert a credit crunch and restore investor confidence.
``The herd is stampeding, and somewhere it will stop,'' said Harry Markowitz, winner of the Nobel Prize in economics in 1990 and now a finance professor at the Rady School of Management at the University of California, San Diego. ``The news will pass and things will start to settle down again.''
Carry Trade Dissected
In the carry trade, investors borrow in countries with low interest rates, like Japan, and invest the proceeds in the currencies of countries such as Australia, New Zealand and South Africa with high rates. They profit on the difference. Overnight lending rates in Japan average 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.
The carry trade outpaced three other currency strategies through June, returning 2.6 percent for 2007, data from ABN Amro Holdings NV, the biggest Dutch lender, show.
A 2.4 percent drop in July erased most of the 2007 gain and put it behind a 2 percent profit for traders focusing on swings in volatility, according to ABN. The two other styles, valuation and trend, have both lost money this year.
``The best of times for the carry trade is in the past,'' said Paul Lambert, who manages the Polar Capital Discovery Absolute Return Fund for London-based Polar Capital Holdings Plc, with $3.8 billion in assets. Lambert's fund gained 1.3 percent in July, he said.
Computer Models
Becks cited July 26 as the day that pushed the firm to adjust its computer-model-driven strategy, and reduce leverage by 50 percent. As global stocks fell that day, the yen closed stronger than 120 per dollar for the first time since May.
Campbell's Financial, Metal & Energy Large Portfolio has lost 6.02 percent this year, for a 13.8 percent annual return since its 1983 debut. John W. Henry's Financial and Metals Portfolio is down 11.18 percent this year, bringing its annual return to 22.6 percent since it was started in 1984.
``The cost of carry is volatility,'' said Peter Jacobson, managing director at London-based Rhicon Currency Management Ltd., which oversees $300 million. ``If the spot currency markets move a lot it's more difficult to hold on to long carry.''
To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net Last Updated: August 19, 2007 11:09 EDT
By Liz Capo McCormick
Aug. 20 (Bloomberg) -- A doubling in currency volatility since June has knocked the ``carry trade'' off its perch as the most profitable strategy in foreign exchange, hurting investors from John W. Henry & Co. to Campbell & Co.
In one of the more popular carry trades, a U.S. investor who borrowed in yen to buy high-yielding Australian dollars enjoyed a return of 11 percent this year through June 5, data compiled by Bloomberg show. The gains have since been wiped out.
Chalk up another victim to the spreading U.S. subprime mortgage contagion. The fallout from losses on loans made to people with poor credit is spreading so fast that investors are selling any asset smacking of high risk around the globe, causing wide swings in exchange rates that weren't anticipated. New York-based JPMorgan Chase & Co.'s index of volatility on options for the most-traded currencies reached 13.4 percent last week, the highest since 1999.
``We were caught off guard,'' said Terri Becks, president and chief operating officer of Towson, Maryland-based Campbell. ``When these anomalies in the market happen, in this case how highly correlated moves in many markets were, you are either on the right side or the wrong side. This time we were definitely on the wrong side'' in currencies, interest rates and equities.
Campbell's biggest fund, with $9 billion in assets, lost 10.8 percent in July, the most since 1990. John W. Henry's $122 million Financial and Metals Portfolio fell 11.7 percent in July, its worst month since March.
Rising currency volatility is bad for investors in the carry trade because it increases the risk that gains from interest-rate differentials will be erased by foreign-exchange losses. The JPMorgan volatility index fell the past two years, reaching a record low of 5.76 percent on June 8.
Henry's Loss
In currencies, Boca Raton, Florida-based Henry's largest loss in July was in the yen, Kenneth Webster, president and chief operating officer, said in a statement on its Web site. Assets at the firm, which is owned by John W. Henry, who also controls the Boston Red Sox baseball team, have plummeted by 75 percent since November to $479 million.
``The turmoil in the credit markets had a collateral effect on the currency markets as investors bought back short positions in low-yielding currencies,'' Webster wrote. He declined to comment beyond the statement on the Web site. A short position is where an investor has trades set up that would profit from a decline in the value of a currency.
Investors who hoped for a rebound in the carry trade this month are likely disappointed. The Australia dollar has lost 15 percent since it reached 107.74 yen on July 20, the highest since 1991, as investors sold the currency and bought back yen. That helped push Japan's currency to a 14-month high of 111.61 per U.S. dollar on Aug. 17.
Not Over
``I don't think that the unwind of the carry trade is over by a long shot,'' said Naomi Fink, senior currency strategist at BNP Paribas SA in New York. ``The subprime issues remain.''
Rising delinquencies on subprime mortgages forced two hedge funds managed by New York-based Bear Stearns Cos. to file for bankruptcy last month, while BNP Paribas SA in France halted withdrawals from three funds because it couldn't ``fairly'' value their holdings. The Federal Reserve last week cut the rate it charges banks by half a percentage point to 5.75 percent in an attempt to avert a credit crunch and restore investor confidence.
``The herd is stampeding, and somewhere it will stop,'' said Harry Markowitz, winner of the Nobel Prize in economics in 1990 and now a finance professor at the Rady School of Management at the University of California, San Diego. ``The news will pass and things will start to settle down again.''
Carry Trade Dissected
In the carry trade, investors borrow in countries with low interest rates, like Japan, and invest the proceeds in the currencies of countries such as Australia, New Zealand and South Africa with high rates. They profit on the difference. Overnight lending rates in Japan average 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.
The carry trade outpaced three other currency strategies through June, returning 2.6 percent for 2007, data from ABN Amro Holdings NV, the biggest Dutch lender, show.
A 2.4 percent drop in July erased most of the 2007 gain and put it behind a 2 percent profit for traders focusing on swings in volatility, according to ABN. The two other styles, valuation and trend, have both lost money this year.
``The best of times for the carry trade is in the past,'' said Paul Lambert, who manages the Polar Capital Discovery Absolute Return Fund for London-based Polar Capital Holdings Plc, with $3.8 billion in assets. Lambert's fund gained 1.3 percent in July, he said.
Computer Models
Becks cited July 26 as the day that pushed the firm to adjust its computer-model-driven strategy, and reduce leverage by 50 percent. As global stocks fell that day, the yen closed stronger than 120 per dollar for the first time since May.
Campbell's Financial, Metal & Energy Large Portfolio has lost 6.02 percent this year, for a 13.8 percent annual return since its 1983 debut. John W. Henry's Financial and Metals Portfolio is down 11.18 percent this year, bringing its annual return to 22.6 percent since it was started in 1984.
``The cost of carry is volatility,'' said Peter Jacobson, managing director at London-based Rhicon Currency Management Ltd., which oversees $300 million. ``If the spot currency markets move a lot it's more difficult to hold on to long carry.''
To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net Last Updated: August 19, 2007 11:09 EDT
Global Markets Rally After Fed Acts to Contain Credit Turmoil
By Lynn Thomasson and Shannon D. Harrington
Aug. 18 (Bloomberg) -- In the world's financial markets, the subprime mortgage collapse may finally be contained.
Stocks in the U.S. and Europe rallied yesterday after the Federal Reserve unexpectedly cut the discount rate to ease a credit crunch. Crude oil, copper and gold advanced on reduced concern that the U.S. economy, the world's largest, would slow. Three-month U.S. Treasury bill yields rose because the need for government debt as a safe haven diminished, and the dollar fell against the euro for the first time in a week.
The Standard & Poor's 500 Index rose 34.67, or 2.5 percent, to close at 1,445.94, while the Dow Jones Industrial Average increased 233.3, or 1.8 percent, to 13,079.08. The Nasdaq Composite Index gained 53.96, or 2.2 percent, to 2,505.03.
When the Fed announced the rate reduction at 8:15 a.m. New York time, S&P 500 futures soared 3.6 percent in 46 seconds. Within 15 minutes, Europe's Dow Jones Stoxx 600 Index was up 2.4 percent. Credit-default swaps on the CDX North America Investment-Grade Index dropped 6 basis points to 72 basis points as the perception of U.S. corporate-bond risk declined.
Tips: FED expected to reduce interest rate further to ease the credit crunch. Another possible factor to help to improve US economy as a whole is to force China government to allow Chinese RMB to appreciate. If this will be the next move, I think market will rally to new high after this sub-prime issue.But, according some source, the yen carry trade is NOT OVER YET
Aug. 18 (Bloomberg) -- In the world's financial markets, the subprime mortgage collapse may finally be contained.
Stocks in the U.S. and Europe rallied yesterday after the Federal Reserve unexpectedly cut the discount rate to ease a credit crunch. Crude oil, copper and gold advanced on reduced concern that the U.S. economy, the world's largest, would slow. Three-month U.S. Treasury bill yields rose because the need for government debt as a safe haven diminished, and the dollar fell against the euro for the first time in a week.
The Standard & Poor's 500 Index rose 34.67, or 2.5 percent, to close at 1,445.94, while the Dow Jones Industrial Average increased 233.3, or 1.8 percent, to 13,079.08. The Nasdaq Composite Index gained 53.96, or 2.2 percent, to 2,505.03.
When the Fed announced the rate reduction at 8:15 a.m. New York time, S&P 500 futures soared 3.6 percent in 46 seconds. Within 15 minutes, Europe's Dow Jones Stoxx 600 Index was up 2.4 percent. Credit-default swaps on the CDX North America Investment-Grade Index dropped 6 basis points to 72 basis points as the perception of U.S. corporate-bond risk declined.
Tips: FED expected to reduce interest rate further to ease the credit crunch. Another possible factor to help to improve US economy as a whole is to force China government to allow Chinese RMB to appreciate. If this will be the next move, I think market will rally to new high after this sub-prime issue.But, according some source, the yen carry trade is NOT OVER YET
Wednesday, August 15, 2007
Recovery in Sub-prime market?
U.S. Stocks Advance; Bank of America, Citigroup, JPMorgan Rise
By Lynn Thomasson
Aug. 15 (Bloomberg) -- U.S. stocks gained on speculation financial companies can recover from a credit crunch as buyers emerged for bonds backed by mortgages.
Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. led a gauge of banks and brokerages higher for the first time in five days after Canadian financial services firm Coventree Inc. found buyers for asset-backed debt. Genworth Financial Inc., the insurer divested by General Electric Co. in 2006, climbed after saying the mortgage-backed bond market would cost the company no more than $195 million over five years.
``This market to us looks very oversold and I think it's beginning to create some values in stocks,'' said Craig Hester, who oversees $1.5 billion as president of Hester Capital Management in Austin, Texas.
The Standard & Poor's 500 Index rose 4.71, or 0.3 percent, to 1,431.25 as of 11:36 a.m. in New York. The Dow Jones Industrial Average slipped 6.18, or 0.1 percent, to 13,022.74. The Nasdaq Composite Index increased 8.99, or 0.4 percent, to 2,508.11.
Coventree, Canada's biggest non-bank issuer of asset-backed commercial paper, had sought emergency funding because it was unable to refinance debt that matured this week. Today it said found buyers for C$600 million ($557 million) of debt.
Tips: If really a very " Gang Ho " investor to buy this ABS with opinion the market is "oversold", out there still got how many "gang ho" buyer to buy this Sub-Prime product?..So, wait and see...Anyway, advisee is - stand-by your bullet and wait for the right time to re-enter the market. Counters to watch-out: OSK,GENTING,RESORT,HLBANK,HLFG, MAYBE CONSIDER UEMWORLD,FABER,
By Lynn Thomasson
Aug. 15 (Bloomberg) -- U.S. stocks gained on speculation financial companies can recover from a credit crunch as buyers emerged for bonds backed by mortgages.
Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. led a gauge of banks and brokerages higher for the first time in five days after Canadian financial services firm Coventree Inc. found buyers for asset-backed debt. Genworth Financial Inc., the insurer divested by General Electric Co. in 2006, climbed after saying the mortgage-backed bond market would cost the company no more than $195 million over five years.
``This market to us looks very oversold and I think it's beginning to create some values in stocks,'' said Craig Hester, who oversees $1.5 billion as president of Hester Capital Management in Austin, Texas.
The Standard & Poor's 500 Index rose 4.71, or 0.3 percent, to 1,431.25 as of 11:36 a.m. in New York. The Dow Jones Industrial Average slipped 6.18, or 0.1 percent, to 13,022.74. The Nasdaq Composite Index increased 8.99, or 0.4 percent, to 2,508.11.
Coventree, Canada's biggest non-bank issuer of asset-backed commercial paper, had sought emergency funding because it was unable to refinance debt that matured this week. Today it said found buyers for C$600 million ($557 million) of debt.
Tips: If really a very " Gang Ho " investor to buy this ABS with opinion the market is "oversold", out there still got how many "gang ho" buyer to buy this Sub-Prime product?..So, wait and see...Anyway, advisee is - stand-by your bullet and wait for the right time to re-enter the market. Counters to watch-out: OSK,GENTING,RESORT,HLBANK,HLFG, MAYBE CONSIDER UEMWORLD,FABER,
Yen Carry Trades
What's happening now?
While some hedge funds have put their "no redemptions" clause into action, most are deleveraging, hence the volatility due to the unwinding process. Many hedge funds may be down 10%-30% ytd but the fear in redemptions will cause them to deleverage from say 2x-4x back to 1x just to cash up for future redemptions. The other type of unwinding will be the yen carry trade, hence the intermittent selling in Asia's most popular markets have been more severe than most: e.g. Singapore, Malaysia and Hong Kong; needless to say the less popular markets to foreign funds have seen lesser volatility, such as Japan and Thailand. To stress the point further, why has Shanghai been able to brush aside the subprime worries - a) little or no yen carry trade invested in China stock hence no unwinding; b) little access for foreign hedge funds or even mutual funds to direct Chinese shares (with a few exceptions).
TIPS: SELL AT LEAST 50% OF YOUR PORTFOLIO AND HOLD CASH OR TEMPORARY SWITH TO MONEY MARKET TO EARN SOME LITTLE INTEREST.
While some hedge funds have put their "no redemptions" clause into action, most are deleveraging, hence the volatility due to the unwinding process. Many hedge funds may be down 10%-30% ytd but the fear in redemptions will cause them to deleverage from say 2x-4x back to 1x just to cash up for future redemptions. The other type of unwinding will be the yen carry trade, hence the intermittent selling in Asia's most popular markets have been more severe than most: e.g. Singapore, Malaysia and Hong Kong; needless to say the less popular markets to foreign funds have seen lesser volatility, such as Japan and Thailand. To stress the point further, why has Shanghai been able to brush aside the subprime worries - a) little or no yen carry trade invested in China stock hence no unwinding; b) little access for foreign hedge funds or even mutual funds to direct Chinese shares (with a few exceptions).
TIPS: SELL AT LEAST 50% OF YOUR PORTFOLIO AND HOLD CASH OR TEMPORARY SWITH TO MONEY MARKET TO EARN SOME LITTLE INTEREST.
Wednesday, August 8, 2007
Panic..!! What to do?
US market will be volatile because of the sub-prime issue. The strategies for coming 2 months will be:
1. If still got profit--- take profit
2. If loss ( quality company )--- accumulate but with slow pave and more aggresive toward the end of September/October.
3. If loss ( low quality company or counter ) ---- cut and run.
4. Stand-by bullet and Fight again, don't give up...this is not the financial crisis like 1998..
Dear investors, don't.... panic..And again.. watch out for these 3 indicators:
1. US market
2. Yen vs US currency ( Japan government's interest policy)
3. Oil price
Good Luck...God bless you.
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