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Archive for January, 2012

When Yentervention?

Wonder how many hits this post will get with a name like that. No new research, but a few links back to my old findings. We have broken the old 76.500/.600 line, so the outlook is once again bearish for the pair and opens up the rumor mill for the Ministry of Finance to step in and save the day.

Of course on the domestic front if you follow Japan, Noda’s not doing too good, which might open the door for a capitulation of JGBs. Not saying that’s a huge possibility, but here’s things to look out for as well.

When will the Okura-sho intervene directly in the currency markets? No one knows, but FinMin Jun Azumi did say he will intervene until he is sassified.

But for now, a few useful pointers and ways to trade other things. Watched pot never boils, but then again you do miss the occasional deer jumping across the field.

To the best of good buys.

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When does the MoF intervene? Usually around 0000GMT-0200GMT. Also the same for Aug 4, 2011 and October 31, 2011.

What happens when they intervene? The yen gets pummeled, but so do other currencies because the target currency is USD (MoF sells yen directly for dollars, creating a dollar vacuum). Dollar becomes strongest performer on the day.

Levels? They don’t say so, but just look at a chart. Either they have a target or short entries overwhelm the current supply at those round numbers (78, 80, 82, etc)

 

 

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To commemorate the start of series 18 of everyone’s favorite and everyone else’s most despised motoring magazine, I have once again planned to go out at least 300 miles of my way and buy a car. Why? For the a-do-ben-chu-aa

So what’s next? Other than the normal choice of a WRX hatch, there is this.

 

Complete with livery, badges and of course RHD. There’s a massive process and mountain of paperwork I’m not even prepared to google right now, so this project is something for the distant future.

But if I ever get time to do this, (starting this summer when I’ll be looking at the HK classifieds), I’ll certainly post it here.

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Simple S&P500 Technicals 1/30/2012

Yes! I’m still using the run-of-the mill sentiment indicator even though we’ve seen a quite substantial divergence between US and foreign (EU peripheral) markets. My philosophy is that for shorter term (3-7 days) traders like me, turns in the broadest index of the world’s largest market should still indicate relatively well sentiment.

However for those looking for another index, you can use copper futures as well (not my idea! This is my teacher at the office’s idea). They provide a bit more smoothed out, but still very useful gauge. But I still think the S&P500 index tends to give better signals when technically analyzed.

So, a late day recovery post-2014 FOMC euphoria looks like this:

and the overall candle graph looks like this:

We haven’t really managed yet to crack the top of the channel now established since the middle of October of last year, so it seems that increasing risk appetite doesn’t seem to have enough momentum right now. But because of that bullish hammer we just put in today, we need to wait for tomorrow’s close to see the true trend.

And if we get a major rally tomorrow, I shall find moderately bullish crosses (GBPAUD, GBPNZD, EURGBP, etc). If not, then AUD, NZD look ripe for selling against the buck, eh?

Also watching the ichimoku patterns carefully. Though it doesn’t seem we are having a pivot soon, the blue cloud is thinning out, at least for these next 10 or so trading days.

So, we’d really have to wait for tomorrow to see where the market goes. Either or, we can get a better entry point to long dollars again, or get confirmation and see a confluence back to safety.

To the best of good buys.

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Because markets are always forward looking, what is everyone look at next? Word is that it’s going to be Portugal, the second nation to receive bailouts. Its current sovereign debt market is well… larger than Greece’s and smaller than Italy’s.

No research, other than lenders will be looking at what happens with Greek PSIs before headhunting Portugal. And Germany/Greece have been so hard on the negotiations because they don’t want contagion of the penny-pinching banks.

Here’s a chart of major European countries’ CDSs – USD 5 year. My dollar longs after seeing so many pivots are finally working out!

To the best of good buys.

 

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GBP LIBORs…

Looking for a risk short? This looks fundamentally sound enough – given that King isn’t one for letting go of the presses. We see almost the same thing on the GBP 3m LIBOR chart as we did for USD. If Central Banks all think alike (surely the Fed and BoE have something in common), there might be a new announcement on the Feb 9th meeting.

Would like to short this against the yen, but then GS’s Stolper said something…

Have an entry short at 1.58000, with other primed seeing how quickly it gets there. As of right now, still being careful long dollar just to see the 2014 effects. Upside stepped at around 1.58400? Downside at a probable triple bottom near 1.5300/1.52500.

The EURUSD/EUR-USD LIBOR looks ever weirder… Even though libor spreads in those two are still declining, there was that week’s worth of recovery. Still, what’s wrong with shorting the pound? That’ll go once Greece defaults as well…

Seeing how much time I spend on the problem sets this week, I should finally get that SGD basket figured out…

To the best of good buys.

 

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I asked Professor David Romer this question this past Thursday: Does the FOMC have a (secret third mandate) of watching financial rates? By this, on a simple viewpoint, means does global liquidity rates affect both FOMC rate decisions and plans?

Sure it seems it would, with the bank (all banks) standing ready to provide liquidity at any sign of trouble. We have Helicopter Ben leading our front in the currency devaluation war, they have Super Mario, and other banks with Governors whose nicknames haven’t been endowed onto them yet because they haven’t hit the print button that quickly yet.

So with this intuitive thought, what would be considered the “danger zone” for liquidity and a signal for the Federal Reserve to step in? Here are some of my findings, 我慢使ってお願いします。LIBORS2

Also note there are no currency charts on this one… forgot to download them and somehow the Bloomy is down.

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Here’s the relatively simple USD 3m LIBOR since earlier this year, showing intrabank lending rates, combining both risk and dollar demand factors. FRA-OIS is a raw measure of liquidity demand.

Both seem pretty normal save for the Winter spikes caused by Greece and Italy fears, LTRO, slowdown of ECB purchases and a whole lot of other smoldering things from Europe.

But doesn’t that LIBOR chart seem somewhat odd? All during that time the Fed kept the window at 0.00%-0.25%, introducing novel and twisty programs and other types of liquidity. There hasn’t been a large derivation of the LIBOR (market decided rate) and the target rate (Fed decided rate) since the Lehman collapse.

Yes, you can argue that Operation Twist was targeting longer term yields, but it still represents some sort of easing. Plus, it’s the only big program in that quarter.

And here’s the similar graph, showing spread and the FOMC rate. Note healthy spreads save for Lehman and crisis. The zig lines from 2004 to 2006 is because my data is bad (they should also be smooth, with a spread of no larger than around 50 bps).

But do notice that after the crisis, the board has been watching the LIBOR rates as well, perhaps trying to keep it from going above 50bps (or a quantitative amount much like the SNB – so it’s not doing something new). LIBOR has been pressured flat due to QE and other short term liquidity operations. However, there are two significant blips during July of 2010 and one recently at the end of 2011.

Yes, both have their causes stemming from Europe. The summer of 2010 was the start of the Greek, Portuguese, Irish + contagion and rapid rate cuts. The most recent one was started with the US’s rating cut (makes sense on the yields front) and garnished with even more burning feta.

For old time’s sake, here’s the main graph since the start of the great recession. At the highest point, LIBORs were 167.125bps above the FOMC rate, representing a gap of over 500%!

Surely enough the fed won’t let that kind of gap happen again. That, I can say with some certainty, is the fed’s second worst nightmare, apart from the dollars flowing home from the rest of the world.

So what is the current safe level? Although data is thin, we do have 2 derivations from the normal flatline – not enough to confirm but enough for guidance.

I’ve taken the liberty of zeroing out some of the “normal” derivations, so this chart only shows spreads that go above 10% the baseline FOMC, so basically every spike in LIBORs. Also, the left and right axis have the same scale, thus the matching of tops.

I have SD calculations in the excel file. It seems that whenever the spread reaches above 25 bps, the Fed starts to monitor the markets. Within the period of a month, the decoupling reaches a peak, and then starts to fall afterwards and around the same rate.

Perhaps the Federal Reserve and other banks may be coordinating plans of actions starting at the month peak without directly telling the public, but it’s always after the peak that they come out with some kind of reform. The July 2010 peak was capped by short term swaps from the ECB, BoE, SNB, BoJ, BoC. This current run was capped by additional adherence to ZIRP and the 2014 promise, which more or less nailed it down. Whatever the case is, the Fed seems to be monitoring market lending rates. And surely we can profit from it.

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So how to trade it?

Didn’t download any corresponding FX data to go with it and the bloomy’s down as well. I’d still sell EURUSD and AUDUSD any day, but currently holding back to see how (and how long it takes) the markets digest the rest of the 2014 promise. By promising the low rates, and with IMF heed, the world economy is still slowing down.

These kinds of export economies, especially Australia, New Zealand and Canada will try to keep devaluing against the dollar (and the pegged CNY for AU, NZ). Even though the exchange rate right now is largely driven by continued rate expectations, overall sentiment should take over soon and give good short points against the commodity currencies.

As for the Euro, I wouldn’t touch it. I’d want to trade the Nordics more than that party that has gone on too long. Maybe the Germans will finally achieve dominance over Europe, and we’ll have Operation Barbarossa again over delicious oil and power.

A digression, my apologies – but I’d have no problems selling USDJPY or XXXJPY (NZDJPY currently, but also monitoring AUDJPY). Countless traders have been burnt trying to all a bottom on that pair, and we know the risks are 1. intervention and 2. default. Let’s see what the government/MoF actually does after the rhetoric. USE STOPS IF YOU ARE TRADING YEN. HOPEFULLY SLIPPAGE WONT BE EXTREME IF THEY DO INTERVENE.

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So, wrapping up an interesting finding that the Fed may after all be watching LIBORs and trying to target it to 0.00% like the SNB. Better yet, they are active acting on it with an almost-set interval. I love it when things follow a schedule.

Now back to watching multi-track drifting trains.

To the best of good buys.

 

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The story here. Nothing much else to say, really, other than the Chinese scripophily market is really lagging the growth of the numismatic.

By the way, just looked at the back and saw the bond had a maturity term of 45 years – to 1943, coupon payments of 2 per year. haha that means by the fall of Imperial China (1911) the foreigners bondholders only got around 9 million pounds!

But the coupons 1-68 have been torn off… that means at the end China paid a nominal value of 24.5 million pounds? Is that because these were undersigned by the HSBC and Deutsch Asiatic Bank and somehow somehow somehow still honored the coupons even though the lender didn’t exist anymore?

Wonder if there were CDS facilities back then…

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