Yen Is Weakning Against The US Dollar

Yen is trading at 117.20 against the US dollar after showing considerable strength in the month of August when subprime mortgage mess unfolded in the US and yen carry trade unwinding started. It seems at around 113 levels, lot of carry trade happened as japanese central bank doesn't increased it's benchmark interest rate and japanese as well as oversees investors/hedge funds/PE funds still wanting to have a pie of cheap funds available in yen currency, have them invested in riskier yet high yield assets of emerging economies lke India, China, HongKong, Taiwan, Russia. This is causing tremendous price rises in these assets and thus is a cause of concern in the short term.

Will He Or Won't He

I believe this time US federal reserve will not cut interest rates as turmoil in financial markets from US subprime mess has been contained well and all the stock markets are either re-claiming their old heighs or making new heighs. If he does cut the rates then it will pump more dollars into the riskier assets like stocks and commodities, with more weakness in dollar. This will further create inflation among already hyper inflated riskier assets and make them more vulnerable to sudden shocks resulting in huge instability in the credit and financial markets. Thus for the sake of overall health of financial markets, US fed must not cut rates this time around, we already have enough of cheap money roaming around.

Gold And Crude Oil

After subprime mortgage mess happened in the US, gold is seing consistent buying and is ruling around all time highs of U.S.$736.
Crude oil is also creating new records with trading above U.S.$80 per barrel for the past few trading sessions. Both these commodities are expected to do well in the medium term as in case of gold, investors are seeing it as alternative investment avenue along with riskier stocks, and for crude oil, depleting oil stocks and continous demand from a growing world GDP and with winter approaching in the northern hemi-sphere crude oil will remain warm.

Markets Cheer Rate Cut!

Stock markets are cheering 0.5% rate cut by US federal reserve but i believe Fed must have punished defaulters of subprime mortgage borrowers and lending institutions by raising interest rates rather than cutting them. Instead Fed has revisiting same starting point which started this whole cheap credit phenomenon across all asset classes. By printing more and more dollars, Fed is again pumping more cheap money into the financial system and re-assuring the market participants that in any adverse event like default mess the fed will bail them out by printing more money, thus inviting more defaulters to do default at will and get away! That's the way systemic problems linger on and system makers continue to drag them for their pity interests like to help very large lending and investment banking institutions.

Fed Rate Cut Or Not?

Will the US federal reserve cut the interest rate in his september 18 meeting, if yes then by how much, is the puzzle that stock markets are grappling with. Any cut above 25 basis points will indicate deep scars left by subprime mortgage mess and subsequent dampening effects on the economy and job losses and thus concern for stocks in the US and on nations which are export dependent on US. Japan is already facing stronger yen problem because of yen carry trade unwinding and its effect on its exports. Asian stocks have shown good resilience and will continue to outperform the US and Europen stocks as money in these developed countries will flow to growing economies(asian) in order to beat low returns available in their home markets.

Greed

Greed was the sole reason why subprime mortgage mess ocurred in the US. Big financial institutions, hedge funds, gave credit to people having low credit score in order to earn more returns and thus in the process inviting more risk to their credit exposure. This is precisely what happened and happened with vengence, hitting stocks especially financial stocks across the globe! Credit risk containment measurements needs an overhauling before anything happens again in the credit markets.

Crude Is Boiling

Crude oil prices have surpassed important technical level of U.S.$77.50 per barrel mark today and is a cause for concern as it will along with rising food prices can give further boost to inflation, which has become central point for many central bankers across the world. Growth has not been dominating central banks monetary policy of late as excess liquidity is amply supplying credit to fuel growth, but rather asset inflation, especially food and fuel prices are grabbing their monetary stance.
U.S. markets are feeling pain after subprime mortgage mess and continue to suffer investor apathy. Asian markets are showing great resilience and are very close to their all time heighs.

Asian Stocks Close To Their Old Highs

Asian stock markets are close to re-claiming their heighs they have made prior to stock meltdown due to subprime mortgage mess in the U.S. This shows their resilience towards global shocks because unlike previous shocks like in the late ninetees when Asian financial crisis hit them very hard, this time around they have plenty of foreign exchange reserves with solid backing of a growing economy.

U.S. markets too are stabilising with european markets too following the suit. As mentioned earlier in the blog during the crash that smart money was busy buying strongest businesses in panic moments, their strategy paid off very well this time too.

Chinese Stocks

Chinese stock market has weathered the storm created by U.S. sub-prime mess, all other markets have fallen sharply. Prime reason behind the outperformance of chinese stock markets is that it's domestic investor/trader participation is much more than dependance on foreign institutional money flows in their markets. All other emerging markets largely depend on foreign flows to drive their markets especially Indian and south korean markets where foreign flows are an important barometer for market direction. Also with chinese economy growing consistently 10% and above for more than past one decade is reflective of investor confidence in that market.
It will continue to outperform all other markets if it continues it's growth outperformance as compard to other economies.

News

These days market tend to react on every bit of news that comes in their way and they do that with great vigour, be it sub-prime mortgage mess in the U.S., Yen carry trade un-winding among larger financial institutions, rate cuts by U.S. Fed, Inflation etc.

Markets doesn't seem to be making up it's mind on future course as news flow is very fast and confusing, and markets hate uncertainity.

Markets Fall Again

Markets have now again started showing signs of weakness with Dow Jones falling 280 points in yesterdays trading session with renewed fears of sub-prime mortgage defaults and bankruptcy among large hedge funds and financial institutions, also aiding the fall is low consumer confidence among U.S.consumers.
Asian stocks are also trading lower on the back of weak signals from U.S. markets. U.S.Fed now has to take several rate cuts this year so as to restore market and consumer confidence.
It seems worst hasn't come out from U.S.sub-prime mortage mess. And till then stocks will be hugely volatile. This credit crack can have potentially a drag on world economic growth which so far has been very good.
Uncertainty will prevail till then in the financial markets.
Buying in sharp falls in sectors and stocks with the strongest of business fundamentals will pay eventually. Yen is gaining strength against the dollar and is trading at 114 against it, it seems the yen carry trade un-winding is still underway and thus causing volatility in the financial system.

Consolidation

Equity markets across the world are consolidating gains they have made in the past few trading sessions with european,U.S.,asian markets displaying subdued trading sessions.
Market players will also be keenly waiting for U.S.Fed decision on rate cuts this september. Any rate cut will give further boost to emerging markets. Dollar has been under pressure against the yen and euro for the past few days with market players now wanting to buy riskier assets like stocks and dump dollar. Noise levels from U.S. sub-prime mortgage markets has been waining and is a welcome sign.

Investor Confidence Is Shaken

By looking at stock market behaviour for the past 3 days gives indication that investors/traders confidence has been shaken and they are using any rally in the markets to lighten their stock commitments. Cracks in the credit markets and subsequent pouring of around U.S.$550 Billion in the financial system by various central banks only indicates the intensity of underlying unresolved problem.
This is causing huge nervousness among investor/trader class who may not want to enter the markets unless and untill some assurance that problems with subprime mess has been contained.
This world runs on credit, so if that gets affected badly then we have a serious problem in our hands and smart market players knows this. Good luck with our investments.

Much Needed Bounce Back In Markets

Today stock markets bounced back after several days of sharp falls and closed pretty smartly anywhere between 3 to 5% up. Yen also is trading close to 115 levels against the U.S.Dollar. It's very difficult to ascertain the exact extent to which credit markets have been affected due to sub-prime mortgage mess and subsuquent defaults and several funds going burst due to this, one thing is sure that risk appetite of investors/traders has taken a severe beating and it will take a while before they can regain their confidence. It will be worthwhile to watch how markets do for the next few days before making a big financial commitment in the markets.

Yen Carry Trade Unwinding

For two days running, stocks across the world are bearing the brunt of a credit crack that first started in U.S. sub-prime market and now has spread to other credit instruments. This collateral damage has prompted hedge funds, PE funds, large financial institutions to pay back the capital that they have borrowed from Japan very cheaply. With the losses mounting on their mortgage books, they will now have to withdraw from risky assets like stocks and return the borrowed money and this is causing Yen to strenghten against the Dollar, now trading at 114.32 after touching a high of 113.55 against the Dollar. Serious downward stock price adjustments had happened in the last few days, dow jones has re-traced all the gains it had made during this fiscal year and all other emerging markets are also follwoing the suit. For the first time in the last four years, serious credit squeeze is happening and this is not good for assets like stocks. Only selective buying can be made in stocks which are having the strongest of fundamentals and business momentum. Commodities are also correcting and this is good news for commodity user industry and hence to some extent for Inflation.

Will The U.S. Fed Cut The Rates?

Market players are placing huge bets on a possible Interest Rate cut by U.S.Fed in it's next speech in September following the liquidity crunch in the financial system due to huge losses suffered by large players in the U.S. sub-prime mortgage paper. They also believe that to give a push to U.S. economy and to stabalise slump in the U.S. housing market, Fed will cut the rates.
However their bets can go wrong due to many reasons, one of them is since Inflation in the U.S. is still a cause of concern as Fed himself pointed out in his many speeches, also due to recent pumping of dollars in the system Inflation has the chances of getting a head up. Crude Oil is still above U.S.$70.
So markets will be watching Fed speech very eagerly and any dissapointment on rate cut can induce volatility and more nervousness among investor/trader fraternity.

Volatility Is Reducing In The Markets

For the past two days volatility is subsiding in the stock markets and this is a positive news as markets gets adusted to recent shocks they have got from U.S. sub-prime mortgage mess.
However more days of consolidation are needed to confirm the absorption of all the bad news by the markets.
Let's keep our fingers crossed.

Keep A close Watch On News Flow

As the title of this thread indicates, keep a close watch on the level of noise originating from U.S. on sub-prime mortgage crisis.
As various central banks of developed economies keep pouring money in the financial system to meet the liquidity demand and maintain the financial markets in good health, it's not far that financial markets again re-gain their strength. Patience will be the key.

Central Banks Pour The Money

Seeing liquidity crunch because of sub-prime mess in the U.S., central banks of major economies are pouring huge money in the financial system.
Several leading funds of major investment banks and institutions have been closed due to losses that they have incured in sub-prime investments in the U.S.
Yen has been strengthning for the past few days and this is also a cause of concern, critical level to watch out for yen against dollar is 115. This is very important from the yen carry trade point of view as it has in the past and in present providing huge liquidity to the financial markets.
It will also be very interesting to see if Japanese central bank raises the interest rates this time or not, again very important for yen carry trade to keep going.

Smart Strategy In Rising markets-Part 2

In times of extreme turbulance, hightened volatility, nervousness, tremendous uncertainity over extent of crisis that have caused panic selling in markets like we have at present due to mess in U.S. subprime mortgage market where investors don't know the extent to which this crisis is affecting the overal health of financial system, it's very prudent to be in cash since events like these can provide excellent long term buying oppurtunities once the dust settles down and markets have discounted totally all the bad news.