19 Dec 2008 - Market Comment

Comment:
1) As a Swiss/Danish person it seems to me that there has never been a cheaper time to go for a xmas-shopping trip to London or to New York: Flight fares are cheap given the steep fall in kerosene prices, deflation is hitting the big apple with discounts up to 50% at 5th avenue and Times Square and the usdchf rate trading close to all-time lows. The same is true for London. Pound Sterling / Swiss Franc trading at 1.62 makes me think to buy one of the English football teams; from what I hear they are looking for new investors given the Russian Oligarchs and the Iceland tycoons are struggling...
2) I am aware that using purchasing power parity as a guideline to trying to figure out where FX rates are heading has its flaws. But I still don't neglect them. Whilst I see the dollar as really 'cheap' I view the pound sterling as 'getting closer to normal' and hence don't think that we have seen the end of the slide as of yet.
3) The ECB lowered deposit rates by 100 bp yesterday in a move that could be described as ''technical''. Mr. Trichet also mentioned FX. He did not use the strongest words but clearly the rapid move is of concern.
4) In an interview, Mr. Stark, the chief economist of the ECB, is worried about the fact that EU member countries do not stick to the stability pact any more and that the ECB can't really tackle fiscal expansion with monetary weapons. He also noted the widening of credit spreads amongst the members. To me a real test for the euro project as a whole. Once the market starts focusing on that issue we shall see eurusd trading a lot lower.

USD ?

I get asked from a lot of people if one should buy dollars. My answer is a clear yes. I have been expecting a correction of the dollar upmove and it has been delivered. To some degree it was not that difficult to call it as it was just a very extreme move in a very short period of time (that is the eurusd move from 1.6040 to 1.2330 in just three months) and a correction was due. For the same reasons I view the current move as 'extreme' and due for a correction. The Fed has just continued what they have been doing since a while. They analysed the situation and moved forward with bold measures such as cutting rates to zero and pledging to buy unlimited quantities of securities. They did not hesitate to go into uncharted territory. At the same time president elect Obama is planning a massive infrastructure program to revive the US economy. This is very similar to what Ronald Reagan did back in the 80ies. The dollar in my humble view will do the same like under Reagan. Driven by foreign investments to pay Obama's plan the dollar will rally. I am using these dips to reinstate my core long dollar position in a time when the market does exactly the opposite.

8 Dec - Market Comment

O-phoria is back in the markets. President elect Obama's plans 'to provide a blood infusion' into the US economy that would result into the biggest infrastructure injection since the 1950s has turbo-charged markets. The Euro Stoxx 50 rallied almost 9% and the Dow Jones managed to move above the 9000 level temporarily. This bullish mood contrasts heavily with other current news of further job cuts and forecast cuts by a wide range of companies. We are obviously trading the future expectations and not the current situation. In such an environment carry trades did well and we had a 'wag the dog'-day where carry trades moved the majors, most notably eurusd that rallied close to 1.30. I keep viewing this as bear market rallies as we have seen this many times this year. Unfortunately there will be more bad news down the road. Many market participants however believe that the worst is already priced in and the only way is up from here. A lot of them are the same people who tried to convince earlier this year that we live in a 'decoupling' world, stating that a US slowdown is absorbed by emerging countries. We all know how that worked. Conclusion: Nothing really changed. We still don't know when we will see the light at the end of the tunnel. Markets are far from normal. In FX-land that means: keep buying dollars on dips.

The finance world one year on.....

Just over a year ago Royal Bank of Scotland (RBS) paid $100bn for ABN Amro (80% cash).

For this amount, RBS could today buy:

Citibank $22.5bn,
Morgan Stanley $10.5bn,
Goldman Sachs $21.0bn,
Merrill Lynch $12.3bn,
Deutsche Bank $13.0bn and
Barclays $12.7bn,

And still have $8bn change....