Bank of America

I was scanning the daily blog "The Big Picture" which I think you all should subscribe too. came across this funny article.

www.ritholtz.com/blog/2009/01/drumbeat-for-ken-lewis-resignation-builds/

enjoy!

news 18/01/09

I have been reading Robert Peston's blog, a BBC's business editor, for a while. He has some good stuffs on explaining what's happening in the economy. Anyways, picking on the news I read yesterday, the Treasury and UK Financial Investments have been preparing an offer to convert £9bn of preference shares that they own in RBS and Lloyds/HBOS into ordinary shares. It's obviously to ease the 12% dividends on those preference shares, which amount to £600m and £480m for RBS and Lloyds respectively. This offer is another way to relieve the pain of the current tight credit condition. Theoritically, it's believed that every year about £27bn more should be lent if the total amount of £1080m is retained within the banks.
However, RBS whose 57.9% is currently owned by the public sector, would be more likely to accept the offer eventhough it means the state's holding will rise to 70%. We can see there is a trend for nationalisation including both fully and partially. Nationalisation is one of the common ways to rescue banks, supported by the case of Northern Rock last year and AIG more recently, but is it all good? From my point of view, it'd place a considerable burden on the Government's finance in terms of money spent to encourage lendings and what is left for the rest of the community. The economic difficulties have brought about a shrink in almost other sectors' activities. Not only have bankers lost their jobs but also teachers and employees from Mark&Spencer are facing the same problem. Would the Government be able to subsidise across industries if a major of their spendings is poured into the banking system? Moreover, the taxpayers are forced to put their money to partly protect banks against their high-risk loans (£37bn has already been injected into the banking system). If it does not show any positive sign in increasing lendings from banks in a very near future, how long would taxpayers be willing to do this?
It's interesting to see if Lloyds, who is of less interest, will agree upon the offer or not. After huge losses announced by City Group and others, will we have more and more fully-nationalised banks soon?

Update on Currency positions:

** skip to the summary if you don't care about the evidence/support

As the week is nearing, it is clearly apparent that I entered positions with bad timing. However, this can be quite desirable as I am trend trading and I now know the current trend (the week has shown it to be quite bearish for the EUR,GBP, CAD and AUD). Through out the week all pairs I am trading (EUR/USD, GBP/USD, USD/CAD, AUD/USD) all counter trended my positions (B, B, S, B respectively). As you can see, some would probably call me super crazy as fundamentals would never warrant such bullishness. It is at times like this where one walks the fine lines of "loving" his trade and facing more losses.

Quick Reassessment:

GBP/USD:

This week the GBP/USD is moving counter to my expected overall trend and position, (unfortunately, I only am holding a one normal 200:1 leveraged position so sizing down is not an option, and simulating a hedging strategy would require more time than I can afford), however, BB's are coming to a squeeze and past price movements of 1.46128 in early November 2008 show a piercing of the 2nd deviation lower BB warrant price movements to the upper bands. Confirmation comes from RSI bottoming and MACD cross over of longer average crossing under the shorter average forming better support.

Weakening this technical analysis is the SMA's, cross analysis of 7, 14, and 21 SMA show that there is heavy downward momentum with the 21 over the 14 and the 14 over the 7 SMA. Though probably more experimentation with SMA's is necessary to gauge weather or not these average parameters are an accurate measure for the GBP/USD.

*summary*
I will maintain my bullish stance as apart of developing discipline and from belief that the longer run (within 1-2 months time) will yield a higher pound. I would possibly see that the pound can reach into the 1.50 levels again. The support comes from my Bullish analysis above, though is still not as strong due to fundamentals and SMA analysis.

EUR/USD:

Of all the pairs being traded right now the EUR/USD is the most worrying in the shorter term as BB analysis shows a 3 week downtrend. Also BB's are coming to a squeeze along with possible reconvergence of the two averages on the MACD (as i forgot to define the parameters used for the MACD: 12, 26, 9 first two for the averages and the last for the histogram: in the future I will have to tweak the parameters to suit each pair). RSI also confirms possibly prices may have room to be further undersold. Also, the intial drop in volume from the beginning of the 3 week slide has peaked off in accordance with trend continuation.

Despite the bearish analysis above, more compelling to the bullish argument is the SMA analysis. Using the same parameters as before, the 7 SMA has crossed over the 14 SMA. This is a good starting point for trend development by means of support. Unfortunately price movements have not reacted in a bullish manner to this indicator, which may show some evidence disproving SMA anaylsis being relevant to this pair, though some back testing would be required to confirm this. More importantly would be a cross of the 7 SMA over the 21 SMA. There appears to be convergence of the 7 and 21 SMA moving towards each other but further downward moementum could prevent this.

*Quick back testing of SMA convergence divergence shows that at moments of convergences into bullish patterns EUR/USD can take up to more than 3 months of sideways trading before the bullish trend unfolds. When the patter unfolds the initial movements are strong and then leads to the 7 SMA touch the 21 SMA or briefing crossing under for a period of a month before continuing on uptrend. Of moments of crossing of the 7 SMA to the 21 SMA you will see it take a about one week for bullish moves to follow.

*summary*
Within the next 2 months we will definitely see the squeeze in the BB and depending on the SMA orientation price movements can be determined. I would say in two months time pending on the squeeze of the BB if the 7 SMA crosses the 21 SMA the price movements will be indeed changed to uptrend. By the end of the first quarter we will see possible bullish trends into the second quarter 2009 for the EUR/USD.

Unfortunately I have run out of time to comment on my other positions as I must log in their P/L and get to class. I will comment on my other two open positions later.

Closing Notes:

Further analysis and back testing is required for the GBP/USD though I still maintain my bullish stance and I also maintain a bullish stance longer term for the EUR/USD. Though the current fundamentals worry me. I will have to discuss macroeconomic conditions of each of the regions I am trading pairs in later. If indeed my the bullish argument on the fundamentals can be convincing, my technical analysis would certainly complement this. In order for my technical analysis to be right, there would have be some underlying fundamental bullish signs to be happening. If a bullish movement does indeed occur within the next 3-4 months with continued poor fundamentals this may reflect a move of sentiment.

All in all, I am beginning to have great respect for those who can accurately trade long term charts since it requires lots of analysis, patience, and discipline and a strong stomach to counter trends as they can occur for months.

until then...

Pound

Quick follow up on pound:

It would seem that last week played out the scenario that the pound traded temporarily to the upside but returned to prices were it began from the beginning of the week. Overall, though I am sticking to my long position as the weekly charts are still showing long term bullish trend formation, same goes to my position on the loonie and AUS.

Entry for 1/12/09

Currencies:

Just a quick note on the EUR/USD:

On the 9th of January I closed out of a short at 1.36911, due to bullish trend formations. However, it would seem that this is one time Dow theory failed me, or to be more exact where applied the wrong analysis. It would seem my unfamiliarity of the economic region of Europe and the general characteristics of the EUR/USD is quite apparent. Despite my poor trading decision, it has provided a great learning opportunity. At the time I was only trading based of 60 minute and weekly charts, in general I hadn't 'bothered to follow up with the fundamentals as in depth as I would if I were solely focusing on the dollar. It would have seemed if I were more experienced or if I followed the region more carefully a little fundamental analysis could have prevented this wrong decision. It would seem that sentiment from the 9th till now started pricing in Trichets decision of interest rate cuts. Today I see bullish trend patterns forming, however, the big question is whether or not the markets have priced in the rate cut enough, or if later on rates will prove to drop the Eur/USD. Concerning fundamentals, I have heard arguments of a 1.20 Eur, I believe that to be quite possible, and it is something that would definitely improve the export situation for the Euro region.

Currently, though on the weekly charts there seems to be strong bullish trends forming still. It would seem last week, that my closing out of the EUR/USD position was premature, and that this week may show price moves moving to the upper 2nd deviation BB. There may be a temporary whipsaw to the upside as the the 7 simple MVA has already crossed the 14 simple MVA and is about to cross the 21 simple MVA. It is also showing that the BB are coming to a squeeze. Furthermore, there is short term support from January 6th to January 11, along with long term support from June 2007 to January 11, 2009.

Again the bullish argument seems very attractive for the next two weeks or so, but the fundamentals pose a huge risk again, as sentiment may have not been fully priced in. However, its best at these times to stick with a discipline and learn from it if it is a mistake. I see there room for a temporary change in trend for this week and into next week, I will re-enter into a buy position and adjust accordingly by the end of this week. However, I think past a few weeks fundamentals will still reign and further downward movements will have to be considered...

"Layman's Financial Crisis Glossary"

I recently subscribed to a blog "The Big Picture," which I recommend all of you to subscribe to. Anyway, one of their authors posted this article from the BBC:

http://news.bbc.co.uk/2/hi/uk_news/magazine/7642138.stm

which I found pretty hilariously... then I realized, it actually might be somewhat useful for those just getting started with current events and for those whose native language isn't English. Either way for laughs or learnings... enjoy!

FX rate in Vietnam

If you have been following the Vietnamese market recently, you will see that the State Bank has raised interbank USD/VND rate (official midpoint ) dramatically to 3% but still keep the band of 3%. Typically, banks and financial institutions operating in Vietnam have to follow state bank’s regulation on FX. Accordingly, they must transact FX deals within the variance band of interbank rate that SBC announces daily.

Earlier in November, there were a number of rumors on the issue that State Bank would lift USD/VND variance band to 5% from 3%, which is due to the heating foreign exchange free market. The USD/VND rate transacted in the black market was higher at 5% than the interbank rate. Rumors of such change in the foreign exchange band is driving the market.

Basically, a flexible foreign exchange rate is necessary for the economy amid recent economic turmoil. However, the change in this time becomes sensitive. Perhaps, the Vietnamese Dong devaluation is based on inherent attributes of the economy such as weaker export industry, or economic stimulation from huge money amounts injected into the economy. However, a key factor led to this situation is rumors and speculation.

The State bank's expectation of better liquidity foreign exchange rate could be not realized by the adjustment in the USD/VND interbank rate. But, speculators think that this action from State Bank shows a sign that Vietnam Dong could be continued to devalue in the short time. So, speculators don't want to sell USD out in the short term. Again, this leads to the shortage of USD in the market. In return, foreign exchange rate could be higher. Therefore, I raise a call that there would be another devaluation of Dong in the next time.

*edited by Alexander Lê