Stock Options Journal

[Ejonigboro]

Happy New All!!!

@Fulani - sorry about my belated response, my internet access has been very limited, but here it is

There is nothing specific about my Bullishness on Africa. But I’ll attempt to summarise my hunch for being Bullish in following paragraphs.

1. Excess Liquidity in World Markets – The world markets right now are centred around the theme of cheap credit. This has led to investment in many countries previously considered too risky. In all this the amount invested in Africa is minimal. I am anticipating that once credit becomes more expensive and risk/reward comes back to reasonable level best exemplified by a Falling USD, Africa would become centre of attention, as the Invesment Community seeks Risk Premia. I know Hedge Funds have been doing this, as their mandates allows more investment scope than Mutuals, who would no doubt join soon. Mutual Funds such as Silverwoman Fachs Sub Saharan Africa Growth Fund (exc. South Africa) and IQ Mirgun West African Opportunities Fund would be common in the near future. So thats the Demand Side.

2. On the Supply side – African govt. are more serious than they were before. Developing their capital markets, attempting to uphold the rule of law... Yes a lot of window dressing but substance would follow in good time. If reforms continue, it only makes Africa more attractive in terms of reducing Political and Operational Risk.

3. A more specific Bullishness is that Africa has a lot of raw materials and these are currently experiencing supply side pressures. As long as the bull market in raw materials last thats as long as my bullishness in Africa would last. But I’ll analyse on country to country basis and conclude that countries were govts. are keeping up reforms should remain in portfolio.

If my hunches were highly likely how can one benefit from it?

The Easy and Passive way would be to invest in local Mutual Funds and Govt. Securities (yields could be very handsome) of selected countries e.g. those ones you can monitor your investments quite easily.

The Active Investor might consider Economic Indicators i.e. GDP, Trade Balance, Current Account, Inflation, Interest Rates, FX Rates to assess health of economy and risk of being a lender to the Govt.. The Good Economy being the one with comparatively high GDP, Positive Trade Balance would be good identifying a net exporter, Positive Current Account signifying net saver economy, etc....

The Active investor might also analyse GDP growth to further understand whats fuelling it and attempt to gain exposure to those sectors of higher growth.

For those Economies underperforming, all is not lost, the active investor could still drill down on GDP and separate the chaff from churn (or is it the other way round) and gain exposure to performing side of that economy.

[Ejonigboro]

Happy New All!!!

@Fulani - sorry about my belated response, my internet access has been very limited, but here it is

There is nothing specific about my Bullishness on Africa. But I’ll attempt to summarise my hunch for being Bullish in following paragraphs.

1. Excess Liquidity in World Markets – The world markets right now are centred around the theme of cheap credit. This has led to investment in many countries previously considered too risky. In all this the amount invested in Africa is minimal. I am anticipating that once credit becomes more expensive and risk/reward comes back to reasonable level best exemplified by a Falling USD, Africa would become centre of attention, as the Invesment Community seeks Risk Premia. I know Hedge Funds have been doing this, as their mandates allows more investment scope than Mutuals, who would no doubt join soon. Mutual Funds such as Silverwoman Fachs Sub Saharan Africa Growth Fund (exc. South Africa) and IQ Mirgun West African Opportunities Fund would be common in the near future. So thats the Demand Side.

2. On the Supply side – African govt. are more serious than they were before. Developing their capital markets, attempting to uphold the rule of law... Yes a lot of window dressing but substance would follow in good time. If reforms continue, it only makes Africa more attractive in terms of reducing Political and Operational Risk.

3. A more specific Bullishness is that Africa has a lot of raw materials and these are currently experiencing supply side pressures. As long as the bull market in raw materials last thats as long as my bullishness in Africa would last. But I’ll analyse on country to country basis and conclude that countries were govts. are keeping up reforms should remain in portfolio.

If my hunches were highly likely how can one benefit from it?

The Easy and Passive way would be to invest in local Mutual Funds and Govt. Securities (yields could be very handsome) of selected countries e.g. those ones you can monitor your investments quite easily.

The Active Investor might consider Economic Indicators i.e. GDP, Trade Balance, Current Account, Inflation, Interest Rates, FX Rates to assess health of economy and risk of being a lender to the Govt.. The Good Economy being the one with comparatively high GDP, Positive Trade Balance would be good identifying a net exporter, Positive Current Account signifying net saver economy, etc....

The Active investor might also analyse GDP growth to further understand whats fuelling it and attempt to gain exposure to those sectors of higher growth.

For those Economies underperforming, all is not lost, the active investor could still drill down on GDP and separate the chaff from churn (or is it the other way round) and gain exposure to performing side of that economy.

[Ejonigboro]

Happy New All!!!

@Fulani - sorry about my belated response, my internet access has been very limited, but here it is

There is nothing specific about my Bullishness on Africa. But I’ll attempt to summarise my hunch for being Bullish in following paragraphs.

1. Excess Liquidity in World Markets – The world markets right now are centred around the theme of cheap credit. This has led to investment in many countries previously considered too risky. In all this the amount invested in Africa is minimal. I am anticipating that once credit becomes more expensive and risk/reward comes back to reasonable level best exemplified by a Falling USD, Africa would become centre of attention, as the Invesment Community seeks Risk Premia. I know Hedge Funds have been doing this, as their mandates allows more investment scope than Mutuals, who would no doubt join soon. Mutual Funds such as Silverwoman Fachs Sub Saharan Africa Growth Fund (exc. South Africa) and IQ Mirgun West African Opportunities Fund would be common in the near future. So thats the Demand Side.

2. On the Supply side – African govt. are more serious than they were before. Developing their capital markets, attempting to uphold the rule of law... Yes a lot of window dressing but substance would follow in good time. If reforms continue, it only makes Africa more attractive in terms of reducing Political and Operational Risk.

3. A more specific Bullishness is that Africa has a lot of raw materials and these are currently experiencing supply side pressures. As long as the bull market in raw materials last thats as long as my bullishness in Africa would last. But I’ll analyse on country to country basis and conclude that countries were govts. are keeping up reforms should remain in portfolio.

If my hunches were highly likely how can one benefit from it?

The Easy and Passive way would be to invest in local Mutual Funds and Govt. Securities (yields could be very handsome) of selected countries e.g. those ones you can monitor your investments quite easily.

The Active Investor might consider Economic Indicators i.e. GDP, Trade Balance, Current Account, Inflation, Interest Rates, FX Rates to assess health of economy and risk of being a lender to the Govt.. The Good Economy being the one with comparatively high GDP, Positive Trade Balance would be good identifying a net exporter, Positive Current Account signifying net saver economy, etc....

The Active investor might also analyse GDP growth to further understand whats fuelling it and attempt to gain exposure to those sectors of higher growth.

For those Economies underperforming, all is not lost, the active investor could still drill down on GDP and separate the chaff from churn (or is it the other way round) and gain exposure to performing side of that economy.

[Ejonigboro]

Happy New All!!!

@Fulani - sorry about my belated response, my internet access has been very limited, but here it is

There is nothing specific about my Bullishness on Africa. But I’ll attempt to summarise my hunch for being Bullish in following paragraphs.

1. Excess Liquidity in World Markets – The world markets right now are centred around the theme of cheap credit. This has led to investment in many countries previously considered too risky. In all this the amount invested in Africa is minimal. I am anticipating that once credit becomes more expensive and risk/reward comes back to reasonable level best exemplified by a Falling USD, Africa would become centre of attention, as the Invesment Community seeks Risk Premia. I know Hedge Funds have been doing this, as their mandates allows more investment scope than Mutuals, who would no doubt join soon. Mutual Funds such as Silverwoman Fachs Sub Saharan Africa Growth Fund (exc. South Africa) and IQ Mirgun West African Opportunities Fund would be common in the near future. So thats the Demand Side.

2. On the Supply side – African govt. are more serious than they were before. Developing their capital markets, attempting to uphold the rule of law... Yes a lot of window dressing but substance would follow in good time. If reforms continue, it only makes Africa more attractive in terms of reducing Political and Operational Risk.

3. A more specific Bullishness is that Africa has a lot of raw materials and these are currently experiencing supply side pressures. As long as the bull market in raw materials last thats as long as my bullishness in Africa would last. But I’ll analyse on country to country basis and conclude that countries were govts. are keeping up reforms should remain in portfolio.

If my hunches were highly likely how can one benefit from it?

The Easy and Passive way would be to invest in local Mutual Funds and Govt. Securities (yields could be very handsome) of selected countries e.g. those ones you can monitor your investments quite easily.

The Active Investor might consider Economic Indicators i.e. GDP, Trade Balance, Current Account, Inflation, Interest Rates, FX Rates to assess health of economy and risk of being a lender to the Govt.. The Good Economy being the one with comparatively high GDP, Positive Trade Balance would be good identifying a net exporter, Positive Current Account signifying net saver economy, etc....

The Active investor might also analyse GDP growth to further understand whats fuelling it and attempt to gain exposure to those sectors of higher growth.

For those Economies underperforming, all is not lost, the active investor could still drill down on GDP and separate the chaff from churn (or is it the other way round) and gain exposure to performing side of that economy.

[Ejonigboro]

FX

Japanses Yen and the Carry Trade
An Analyst mentioned recently on BloomBerg(BBG) that the story of the year (2006) has not been the Imbalances of a Double Deficit in US, but the near Zero Interest rates in Japan (this as existed for some time now). I buy his arguement that this cheap credit has contributed to a large dergee, along with other variables e.g. China’s Foreign Reserves and PetroDollars, to the excess liquidity in the Markets and further fuelled the Carry Trade – where investors sell low yielding currency i.e. those with low interest rate thus low borrowing costs e.g. Japanese Yen (JPY), and buy higher yielding currency i.e. with higher interest rates thus higher return e.g. Australian Dollar (AUD).

With the Federal Reserve’s key rate at 5.25%, European Central Bank’s main rate at 3.5%, Bank of England 5%, there are many higher yielding assests than the Bank of Japan’s 0.25%. So long as the rates in Japan remain Ultra low, those that can borrow Yen would do so and invest it elsewhere for better yields.

The Forex effect of this is the Yen falling against those currencies where the borrowed yen is going to e.g. ideally Countries with similar risk profile to Japan with better yields, i.e. most of the G8. Quite simply the Yen falls as supply increases, and those currencies rise as demand increases.

To benefit from this I have placed spread BUY bets on the AUD/JPY, since the 2 year Govt. Bond in Australia is 6%, I imagine its a good destination for the carry trade.

The risk of this trade are the decisions of the BoJ and Austarialian Central Bank (ACB) re Interest Rates.

Its widely expected that the BoJ would increase interest rates in th 1st Quarter of 2007. With forecasted GDP growth for ’07 at 2.0% do I think that they’ll increase! I really do not know, but if market expectation is an increase and that this would led to the unwinding of some carry trade and appreciation of the Yen, who am I to budge the trend, after all I am only taking the last puff of a dead cigar.

Would the ACB cut rates? The forecasted Inflation rate is 2.7%, and forecasted GDP growth rate 3%. With YTD inflation at 3.9%, the forecasted rate infers that monetary policy is working well i.e. controlling inflation, so one can expect the current rates of interests to be maintained for now.

Since the trade is an ongoing one, the eyes are wide open for any changes in the status quo.

Pure high vs low yielding Currency Trade
In thesame light of high vs. low yielding currency I have also placed a BUY AUD/CHF (Swiss Francs) , with the latter at yields of circa 2.39%.

The risk, with excpected rising inflation in Switzerland, this trade is risky since the difference between the yields would narrow should the Swiss increase interest rates.

China to use more of Foreign Reserves to buy Energy Supplies
Large chunk of China’s $987.9 bn Foreign reserves is invested in the USD. If the press release with the same title as above is to be believed, we could see a further weakening on the Dollar. If the Chinese govt. finance some of their purchases with theirUSD assets the dollar would decline further.

Coupled with expectations of the Fed cutting rates in 2007, making US yields less attractive, a weaker dollar looks highly likely.

Trade 1: BUY GBP/USD, its expected that the cable would reach £1:$2 in 2007. If USD supply increases due to Chinese diversification and Fed’s rate cut, it will fall against the Pound.

Trade 2: SELL USD/ Thailand Baht, Korean Won, Hong Kong Dollar, Singapore Dollar, all these currencies are usually pegged to the dollar. A falling dollar essentially means their Central Banks would have to sell more of their local currency to sustain the peg. This sort of protectionist policies have failed in the past and I expect the same if attempted again, they are simply too costly. Also these economies are also the toast of the Investment community, and the increasing capital inflow could make such protectionist doubly costly. The recent attempt of Thailand Govt. to portect the Baht ended up in a reversal. Baht was 41:$1 a year ago, it was 35.9:$1 as at the 18th Dec. I expect further slide as the Dollar declines.

Commodities

With the Chinese Press release, perhaps its time we all got invested in some Commodity Index Tracker Fund, be it directly or via a Derivative product. Personally, once I find a broker that does I’ll be Spread Betting on the available Index.

[Ejonigboro]

FX

Japanses Yen and the Carry Trade
An Analyst mentioned recently on BloomBerg(BBG) that the story of the year (2006) has not been the Imbalances of a Double Deficit in US, but the near Zero Interest rates in Japan (this as existed for some time now). I buy his arguement that this cheap credit has contributed to a large dergee, along with other variables e.g. China’s Foreign Reserves and PetroDollars, to the excess liquidity in the Markets and further fuelled the Carry Trade – where investors sell low yielding currency i.e. those with low interest rate thus low borrowing costs e.g. Japanese Yen (JPY), and buy higher yielding currency i.e. with higher interest rates thus higher return e.g. Australian Dollar (AUD).

With the Federal Reserve’s key rate at 5.25%, European Central Bank’s main rate at 3.5%, Bank of England 5%, there are many higher yielding assests than the Bank of Japan’s 0.25%. So long as the rates in Japan remain Ultra low, those that can borrow Yen would do so and invest it elsewhere for better yields.

The Forex effect of this is the Yen falling against those currencies where the borrowed yen is going to e.g. ideally Countries with similar risk profile to Japan with better yields, i.e. most of the G8. Quite simply the Yen falls as supply increases, and those currencies rise as demand increases.

To benefit from this I have placed spread BUY bets on the AUD/JPY, since the 2 year Govt. Bond in Australia is 6%, I imagine its a good destination for the carry trade.

The risk of this trade are the decisions of the BoJ and Austarialian Central Bank (ACB) re Interest Rates.

Its widely expected that the BoJ would increase interest rates in th 1st Quarter of 2007. With forecasted GDP growth for ’07 at 2.0% do I think that they’ll increase! I really do not know, but if market expectation is an increase and that this would led to the unwinding of some carry trade and appreciation of the Yen, who am I to budge the trend, after all I am only taking the last puff of a dead cigar.

Would the ACB cut rates? The forecasted Inflation rate is 2.7%, and forecasted GDP growth rate 3%. With YTD inflation at 3.9%, the forecasted rate infers that monetary policy is working well i.e. controlling inflation, so one can expect the current rates of interests to be maintained for now.

Since the trade is an ongoing one, the eyes are wide open for any changes in the status quo.

Pure high vs low yielding Currency Trade
In thesame light of high vs. low yielding currency I have also placed a BUY AUD/CHF (Swiss Francs) , with the latter at yields of circa 2.39%.

The risk, with excpected rising inflation in Switzerland, this trade is risky since the difference between the yields would narrow should the Swiss increase interest rates.

China to use more of Foreign Reserves to buy Energy Supplies
Large chunk of China’s $987.9 bn Foreign reserves is invested in the USD. If the press release with the same title as above is to be believed, we could see a further weakening on the Dollar. If the Chinese govt. finance some of their purchases with theirUSD assets the dollar would decline further.

Coupled with expectations of the Fed cutting rates in 2007, making US yields less attractive, a weaker dollar looks highly likely.

Trade 1: BUY GBP/USD, its expected that the cable would reach £1:$2 in 2007. If USD supply increases due to Chinese diversification and Fed’s rate cut, it will fall against the Pound.

Trade 2: SELL USD/ Thailand Baht, Korean Won, Hong Kong Dollar, Singapore Dollar, all these currencies are usually pegged to the dollar. A falling dollar essentially means their Central Banks would have to sell more of their local currency to sustain the peg. This sort of protectionist policies have failed in the past and I expect the same if attempted again, they are simply too costly. Also these economies are also the toast of the Investment community, and the increasing capital inflow could make such protectionist doubly costly. The recent attempt of Thailand Govt. to portect the Baht ended up in a reversal. Baht was 41:$1 a year ago, it was 35.9:$1 as at the 18th Dec. I expect further slide as the Dollar declines.

Commodities

With the Chinese Press release, perhaps its time we all got invested in some Commodity Index Tracker Fund, be it directly or via a Derivative product. Personally, once I find a broker that does I’ll be Spread Betting on the available Index.

[Ejonigboro]

FX

Japanses Yen and the Carry Trade
An Analyst mentioned recently on BloomBerg(BBG) that the story of the year (2006) has not been the Imbalances of a Double Deficit in US, but the near Zero Interest rates in Japan (this as existed for some time now). I buy his arguement that this cheap credit has contributed to a large dergee, along with other variables e.g. China’s Foreign Reserves and PetroDollars, to the excess liquidity in the Markets and further fuelled the Carry Trade – where investors sell low yielding currency i.e. those with low interest rate thus low borrowing costs e.g. Japanese Yen (JPY), and buy higher yielding currency i.e. with higher interest rates thus higher return e.g. Australian Dollar (AUD).

With the Federal Reserve’s key rate at 5.25%, European Central Bank’s main rate at 3.5%, Bank of England 5%, there are many higher yielding assests than the Bank of Japan’s 0.25%. So long as the rates in Japan remain Ultra low, those that can borrow Yen would do so and invest it elsewhere for better yields.

The Forex effect of this is the Yen falling against those currencies where the borrowed yen is going to e.g. ideally Countries with similar risk profile to Japan with better yields, i.e. most of the G8. Quite simply the Yen falls as supply increases, and those currencies rise as demand increases.

To benefit from this I have placed spread BUY bets on the AUD/JPY, since the 2 year Govt. Bond in Australia is 6%, I imagine its a good destination for the carry trade.

The risk of this trade are the decisions of the BoJ and Austarialian Central Bank (ACB) re Interest Rates.

Its widely expected that the BoJ would increase interest rates in th 1st Quarter of 2007. With forecasted GDP growth for ’07 at 2.0% do I think that they’ll increase! I really do not know, but if market expectation is an increase and that this would led to the unwinding of some carry trade and appreciation of the Yen, who am I to budge the trend, after all I am only taking the last puff of a dead cigar.

Would the ACB cut rates? The forecasted Inflation rate is 2.7%, and forecasted GDP growth rate 3%. With YTD inflation at 3.9%, the forecasted rate infers that monetary policy is working well i.e. controlling inflation, so one can expect the current rates of interests to be maintained for now.

Since the trade is an ongoing one, the eyes are wide open for any changes in the status quo.

Pure high vs low yielding Currency Trade
In thesame light of high vs. low yielding currency I have also placed a BUY AUD/CHF (Swiss Francs) , with the latter at yields of circa 2.39%.

The risk, with excpected rising inflation in Switzerland, this trade is risky since the difference between the yields would narrow should the Swiss increase interest rates.

China to use more of Foreign Reserves to buy Energy Supplies
Large chunk of China’s $987.9 bn Foreign reserves is invested in the USD. If the press release with the same title as above is to be believed, we could see a further weakening on the Dollar. If the Chinese govt. finance some of their purchases with theirUSD assets the dollar would decline further.

Coupled with expectations of the Fed cutting rates in 2007, making US yields less attractive, a weaker dollar looks highly likely.

Trade 1: BUY GBP/USD, its expected that the cable would reach £1:$2 in 2007. If USD supply increases due to Chinese diversification and Fed’s rate cut, it will fall against the Pound.

Trade 2: SELL USD/ Thailand Baht, Korean Won, Hong Kong Dollar, Singapore Dollar, all these currencies are usually pegged to the dollar. A falling dollar essentially means their Central Banks would have to sell more of their local currency to sustain the peg. This sort of protectionist policies have failed in the past and I expect the same if attempted again, they are simply too costly. Also these economies are also the toast of the Investment community, and the increasing capital inflow could make such protectionist doubly costly. The recent attempt of Thailand Govt. to portect the Baht ended up in a reversal. Baht was 41:$1 a year ago, it was 35.9:$1 as at the 18th Dec. I expect further slide as the Dollar declines.

Commodities

With the Chinese Press release, perhaps its time we all got invested in some Commodity Index Tracker Fund, be it directly or via a Derivative product. Personally, once I find a broker that does I’ll be Spread Betting on the available Index.

[Ejonigboro]

FX

Japanses Yen and the Carry Trade
An Analyst mentioned recently on BloomBerg(BBG) that the story of the year (2006) has not been the Imbalances of a Double Deficit in US, but the near Zero Interest rates in Japan (this as existed for some time now). I buy his arguement that this cheap credit has contributed to a large dergee, along with other variables e.g. China’s Foreign Reserves and PetroDollars, to the excess liquidity in the Markets and further fuelled the Carry Trade – where investors sell low yielding currency i.e. those with low interest rate thus low borrowing costs e.g. Japanese Yen (JPY), and buy higher yielding currency i.e. with higher interest rates thus higher return e.g. Australian Dollar (AUD).

With the Federal Reserve’s key rate at 5.25%, European Central Bank’s main rate at 3.5%, Bank of England 5%, there are many higher yielding assests than the Bank of Japan’s 0.25%. So long as the rates in Japan remain Ultra low, those that can borrow Yen would do so and invest it elsewhere for better yields.

The Forex effect of this is the Yen falling against those currencies where the borrowed yen is going to e.g. ideally Countries with similar risk profile to Japan with better yields, i.e. most of the G8. Quite simply the Yen falls as supply increases, and those currencies rise as demand increases.

To benefit from this I have placed spread BUY bets on the AUD/JPY, since the 2 year Govt. Bond in Australia is 6%, I imagine its a good destination for the carry trade.

The risk of this trade are the decisions of the BoJ and Austarialian Central Bank (ACB) re Interest Rates.

Its widely expected that the BoJ would increase interest rates in th 1st Quarter of 2007. With forecasted GDP growth for ’07 at 2.0% do I think that they’ll increase! I really do not know, but if market expectation is an increase and that this would led to the unwinding of some carry trade and appreciation of the Yen, who am I to budge the trend, after all I am only taking the last puff of a dead cigar.

Would the ACB cut rates? The forecasted Inflation rate is 2.7%, and forecasted GDP growth rate 3%. With YTD inflation at 3.9%, the forecasted rate infers that monetary policy is working well i.e. controlling inflation, so one can expect the current rates of interests to be maintained for now.

Since the trade is an ongoing one, the eyes are wide open for any changes in the status quo.

Pure high vs low yielding Currency Trade
In thesame light of high vs. low yielding currency I have also placed a BUY AUD/CHF (Swiss Francs) , with the latter at yields of circa 2.39%.

The risk, with excpected rising inflation in Switzerland, this trade is risky since the difference between the yields would narrow should the Swiss increase interest rates.

China to use more of Foreign Reserves to buy Energy Supplies
Large chunk of China’s $987.9 bn Foreign reserves is invested in the USD. If the press release with the same title as above is to be believed, we could see a further weakening on the Dollar. If the Chinese govt. finance some of their purchases with theirUSD assets the dollar would decline further.

Coupled with expectations of the Fed cutting rates in 2007, making US yields less attractive, a weaker dollar looks highly likely.

Trade 1: BUY GBP/USD, its expected that the cable would reach £1:$2 in 2007. If USD supply increases due to Chinese diversification and Fed’s rate cut, it will fall against the Pound.

Trade 2: SELL USD/ Thailand Baht, Korean Won, Hong Kong Dollar, Singapore Dollar, all these currencies are usually pegged to the dollar. A falling dollar essentially means their Central Banks would have to sell more of their local currency to sustain the peg. This sort of protectionist policies have failed in the past and I expect the same if attempted again, they are simply too costly. Also these economies are also the toast of the Investment community, and the increasing capital inflow could make such protectionist doubly costly. The recent attempt of Thailand Govt. to portect the Baht ended up in a reversal. Baht was 41:$1 a year ago, it was 35.9:$1 as at the 18th Dec. I expect further slide as the Dollar declines.

Commodities

With the Chinese Press release, perhaps its time we all got invested in some Commodity Index Tracker Fund, be it directly or via a Derivative product. Personally, once I find a broker that does I’ll be Spread Betting on the available Index.

[Ejonigboro]

FX

Japanses Yen and the Carry Trade
An Analyst mentioned recently on BloomBerg(BBG) that the story of the year (2006) has not been the Imbalances of a Double Deficit in US, but the near Zero Interest rates in Japan (this as existed for some time now). I buy his arguement that this cheap credit has contributed to a large dergee, along with other variables e.g. China’s Foreign Reserves and PetroDollars, to the excess liquidity in the Markets and further fuelled the Carry Trade – where investors sell low yielding currency i.e. those with low interest rate thus low borrowing costs e.g. Japanese Yen (JPY), and buy higher yielding currency i.e. with higher interest rates thus higher return e.g. Australian Dollar (AUD).

With the Federal Reserve’s key rate at 5.25%, European Central Bank’s main rate at 3.5%, Bank of England 5%, there are many higher yielding assests than the Bank of Japan’s 0.25%. So long as the rates in Japan remain Ultra low, those that can borrow Yen would do so and invest it elsewhere for better yields.

The Forex effect of this is the Yen falling against those currencies where the borrowed yen is going to e.g. ideally Countries with similar risk profile to Japan with better yields, i.e. most of the G8. Quite simply the Yen falls as supply increases, and those currencies rise as demand increases.

To benefit from this I have placed spread BUY bets on the AUD/JPY, since the 2 year Govt. Bond in Australia is 6%, I imagine its a good destination for the carry trade.

The risk of this trade are the decisions of the BoJ and Austarialian Central Bank (ACB) re Interest Rates.

Its widely expected that the BoJ would increase interest rates in th 1st Quarter of 2007. With forecasted GDP growth for ’07 at 2.0% do I think that they’ll increase! I really do not know, but if market expectation is an increase and that this would led to the unwinding of some carry trade and appreciation of the Yen, who am I to budge the trend, after all I am only taking the last puff of a dead cigar.

Would the ACB cut rates? The forecasted Inflation rate is 2.7%, and forecasted GDP growth rate 3%. With YTD inflation at 3.9%, the forecasted rate infers that monetary policy is working well i.e. controlling inflation, so one can expect the current rates of interests to be maintained for now.

Since the trade is an ongoing one, the eyes are wide open for any changes in the status quo.

Pure high vs low yielding Currency Trade
In thesame light of high vs. low yielding currency I have also placed a BUY AUD/CHF (Swiss Francs) , with the latter at yields of circa 2.39%.

The risk, with excpected rising inflation in Switzerland, this trade is risky since the difference between the yields would narrow should the Swiss increase interest rates.

China to use more of Foreign Reserves to buy Energy Supplies
Large chunk of China’s $987.9 bn Foreign reserves is invested in the USD. If the press release with the same title as above is to be believed, we could see a further weakening on the Dollar. If the Chinese govt. finance some of their purchases with theirUSD assets the dollar would decline further.

Coupled with expectations of the Fed cutting rates in 2007, making US yields less attractive, a weaker dollar looks highly likely.

Trade 1: BUY GBP/USD, its expected that the cable would reach £1:$2 in 2007. If USD supply increases due to Chinese diversification and Fed’s rate cut, it will fall against the Pound.

Trade 2: SELL USD/ Thailand Baht, Korean Won, Hong Kong Dollar, Singapore Dollar, all these currencies are usually pegged to the dollar. A falling dollar essentially means their Central Banks would have to sell more of their local currency to sustain the peg. This sort of protectionist policies have failed in the past and I expect the same if attempted again, they are simply too costly. Also these economies are also the toast of the Investment community, and the increasing capital inflow could make such protectionist doubly costly. The recent attempt of Thailand Govt. to portect the Baht ended up in a reversal. Baht was 41:$1 a year ago, it was 35.9:$1 as at the 18th Dec. I expect further slide as the Dollar declines.

Commodities

With the Chinese Press release, perhaps its time we all got invested in some Commodity Index Tracker Fund, be it directly or via a Derivative product. Personally, once I find a broker that does I’ll be Spread Betting on the available Index.

[Ejonigboro]

FX

Japanses Yen and the Carry Trade
An Analyst mentioned recently on BloomBerg(BBG) that the story of the year (2006) has not been the Imbalances of a Double Deficit in US, but the near Zero Interest rates in Japan (this as existed for some time now). I buy his arguement that this cheap credit has contributed to a large dergee, along with other variables e.g. China’s Foreign Reserves and PetroDollars, to the excess liquidity in the Markets and further fuelled the Carry Trade – where investors sell low yielding currency i.e. those with low interest rate thus low borrowing costs e.g. Japanese Yen (JPY), and buy higher yielding currency i.e. with higher interest rates thus higher return e.g. Australian Dollar (AUD).

With the Federal Reserve’s key rate at 5.25%, European Central Bank’s main rate at 3.5%, Bank of England 5%, there are many higher yielding assests than the Bank of Japan’s 0.25%. So long as the rates in Japan remain Ultra low, those that can borrow Yen would do so and invest it elsewhere for better yields.

The Forex effect of this is the Yen falling against those currencies where the borrowed yen is going to e.g. ideally Countries with similar risk profile to Japan with better yields, i.e. most of the G8. Quite simply the Yen falls as supply increases, and those currencies rise as demand increases.

To benefit from this I have placed spread BUY bets on the AUD/JPY, since the 2 year Govt. Bond in Australia is 6%, I imagine its a good destination for the carry trade.

The risk of this trade are the decisions of the BoJ and Austarialian Central Bank (ACB) re Interest Rates.

Its widely expected that the BoJ would increase interest rates in th 1st Quarter of 2007. With forecasted GDP growth for ’07 at 2.0% do I think that they’ll increase! I really do not know, but if market expectation is an increase and that this would led to the unwinding of some carry trade and appreciation of the Yen, who am I to budge the trend, after all I am only taking the last puff of a dead cigar.

Would the ACB cut rates? The forecasted Inflation rate is 2.7%, and forecasted GDP growth rate 3%. With YTD inflation at 3.9%, the forecasted rate infers that monetary policy is working well i.e. controlling inflation, so one can expect the current rates of interests to be maintained for now.

Since the trade is an ongoing one, the eyes are wide open for any changes in the status quo.

Pure high vs low yielding Currency Trade
In thesame light of high vs. low yielding currency I have also placed a BUY AUD/CHF (Swiss Francs) , with the latter at yields of circa 2.39%.

The risk, with excpected rising inflation in Switzerland, this trade is risky since the difference between the yields would narrow should the Swiss increase interest rates.

China to use more of Foreign Reserves to buy Energy Supplies
Large chunk of China’s $987.9 bn Foreign reserves is invested in the USD. If the press release with the same title as above is to be believed, we could see a further weakening on the Dollar. If the Chinese govt. finance some of their purchases with theirUSD assets the dollar would decline further.

Coupled with expectations of the Fed cutting rates in 2007, making US yields less attractive, a weaker dollar looks highly likely.

Trade 1: BUY GBP/USD, its expected that the cable would reach £1:$2 in 2007. If USD supply increases due to Chinese diversification and Fed’s rate cut, it will fall against the Pound.

Trade 2: SELL USD/ Thailand Baht, Korean Won, Hong Kong Dollar, Singapore Dollar, all these currencies are usually pegged to the dollar. A falling dollar essentially means their Central Banks would have to sell more of their local currency to sustain the peg. This sort of protectionist policies have failed in the past and I expect the same if attempted again, they are simply too costly. Also these economies are also the toast of the Investment community, and the increasing capital inflow could make such protectionist doubly costly. The recent attempt of Thailand Govt. to portect the Baht ended up in a reversal. Baht was 41:$1 a year ago, it was 35.9:$1 as at the 18th Dec. I expect further slide as the Dollar declines.

Commodities

With the Chinese Press release, perhaps its time we all got invested in some Commodity Index Tracker Fund, be it directly or via a Derivative product. Personally, once I find a broker that does I’ll be Spread Betting on the available Index.

[fulani]

Hello there Ejonigboro!

Very informative response.

Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.

Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.

Interesting you mentioned excess liquidity in the world market...I just read an article in the latest Economist "The Global Gusher". In it they wrote "an abundance of liquidity has lured investors into riskier assets in search of higher returns"

Thats all good and well, Are you at all concerned about the level of inflation. it seems to me that when cheap money is chasing higher yields, sooner or later the 'gusher' will create a 'flood'

[fulani]

Hello there Ejonigboro!

Very informative response.

Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.

Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.

Interesting you mentioned excess liquidity in the world market...I just read an article in the latest Economist "The Global Gusher". In it they wrote "an abundance of liquidity has lured investors into riskier assets in search of higher returns"

Thats all good and well, Are you at all concerned about the level of inflation. it seems to me that when cheap money is chasing higher yields, sooner or later the 'gusher' will create a 'flood'

[fulani]

Hello there Ejonigboro!

Very informative response.

Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.

Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.

Interesting you mentioned excess liquidity in the world market...I just read an article in the latest Economist "The Global Gusher". In it they wrote "an abundance of liquidity has lured investors into riskier assets in search of higher returns"

Thats all good and well, Are you at all concerned about the level of inflation. it seems to me that when cheap money is chasing higher yields, sooner or later the 'gusher' will create a 'flood'

[fulani]

Hello there Ejonigboro!

Very informative response.

Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.

Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.

Interesting you mentioned excess liquidity in the world market...I just read an article in the latest Economist "The Global Gusher". In it they wrote "an abundance of liquidity has lured investors into riskier assets in search of higher returns"

Thats all good and well, Are you at all concerned about the level of inflation. it seems to me that when cheap money is chasing higher yields, sooner or later the 'gusher' will create a 'flood'

[fulani]

Hello there Ejonigboro!

Very informative response.

Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.

Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.

Interesting you mentioned excess liquidity in the world market...I just read an article in the latest Economist "The Global Gusher". In it they wrote "an abundance of liquidity has lured investors into riskier assets in search of higher returns"

Thats all good and well, Are you at all concerned about the level of inflation. it seems to me that when cheap money is chasing higher yields, sooner or later the 'gusher' will create a 'flood'

[fulani]

Hello there Ejonigboro!

Very informative response.

Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.

Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.

Interesting you mentioned excess liquidity in the world market...I just read an article in the latest Economist "The Global Gusher". In it they wrote "an abundance of liquidity has lured investors into riskier assets in search of higher returns"

Thats all good and well, Are you at all concerned about the level of inflation. it seems to me that when cheap money is chasing higher yields, sooner or later the 'gusher' will create a 'flood'

[Ejonigboro]

“Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.”

I think your search would come up blank as those Mutual Funds I mentioned were fictional e.g. Silverwoman Fachs Sub-Saharan African Fund (exc. South Africa) was a play on GOLDman Sachs and IQ Mirgun on JP Morgan. The point I made was that such funds would be coming out of the wood work in due course.

“Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.”

No Nationalist sentiments over here, okay I lied, may be a little. But I did point out the economics to my bullishness and I am sure I made no appeal to sentiment.

And in response to the rest of your post
I read The Economist religiously, and also read the article you mention. Excess liquidity has been one of the main running themes in The Economists for the past five years or so, since the Tech Bubble.

I think any comments on inflation should be split into two, the Consumer Price Index and Asset Price Inflation.

The excess liquidity mentioned above is having more of an effect on Asset Prices rather than CPI. Consumer Price Index’s typically take into account average Household basket of goods e.g. Food, Clothing, Energy and Utilities Costs, etc. These items are by and large necessities, and the demand and supply for them exist irregardless of cheap credit. But an exception would be Energy and Utilities because they’re quite volatile for reasons such as, perceived, supply squeeze. In fact when most Indices are calculated with the exception of such goods or services, CPI is relatively under control i.e. below the target of Central Banks.

Asset Price inflation on the other hand is where the excess liquidity created by cheap credit has kicked in. It’s the reason for the Property Boom witnessed in most developed and popular developing countries; low yield spread between T-Bills and Emerging Mkt Bonds and many more. A browse through past editions of the Economist and you will find a plethora of evidence of what excess liquidity is doing to Asset Price Inflation.

The best one I have read is that of an unremarkable Property Developer in Indonesia, having stated in its bond prospectus the risk it faces i.e. ”social unrest (violent and non-violent); insurrection; earthquakes and active volcanoes; and “various bombing incidents directed towards the government and foreign governments and public and commercial buildings frequented by foreigners”, including the stock exchange and the airport,” and they also stated in this same prospectus that “ creditors might find it “difficult or impossible” to pursue claims” yet this Bond is paying a yield of 12 per cent equivalent to a Single B Rating. The economist describes the issue: “It is a small company in a difficult place selling bonds that have no more protection than a share.”

Is this evidence of a Flood to you!

[Ejonigboro]

“Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.”

I think your search would come up blank as those Mutual Funds I mentioned were fictional e.g. Silverwoman Fachs Sub-Saharan African Fund (exc. South Africa) was a play on GOLDman Sachs and IQ Mirgun on JP Morgan. The point I made was that such funds would be coming out of the wood work in due course.

“Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.”

No Nationalist sentiments over here, okay I lied, may be a little. But I did point out the economics to my bullishness and I am sure I made no appeal to sentiment.

And in response to the rest of your post
I read The Economist religiously, and also read the article you mention. Excess liquidity has been one of the main running themes in The Economists for the past five years or so, since the Tech Bubble.

I think any comments on inflation should be split into two, the Consumer Price Index and Asset Price Inflation.

The excess liquidity mentioned above is having more of an effect on Asset Prices rather than CPI. Consumer Price Index’s typically take into account average Household basket of goods e.g. Food, Clothing, Energy and Utilities Costs, etc. These items are by and large necessities, and the demand and supply for them exist irregardless of cheap credit. But an exception would be Energy and Utilities because they’re quite volatile for reasons such as, perceived, supply squeeze. In fact when most Indices are calculated with the exception of such goods or services, CPI is relatively under control i.e. below the target of Central Banks.

Asset Price inflation on the other hand is where the excess liquidity created by cheap credit has kicked in. It’s the reason for the Property Boom witnessed in most developed and popular developing countries; low yield spread between T-Bills and Emerging Mkt Bonds and many more. A browse through past editions of the Economist and you will find a plethora of evidence of what excess liquidity is doing to Asset Price Inflation.

The best one I have read is that of an unremarkable Property Developer in Indonesia, having stated in its bond prospectus the risk it faces i.e. ”social unrest (violent and non-violent); insurrection; earthquakes and active volcanoes; and “various bombing incidents directed towards the government and foreign governments and public and commercial buildings frequented by foreigners”, including the stock exchange and the airport,” and they also stated in this same prospectus that “ creditors might find it “difficult or impossible” to pursue claims” yet this Bond is paying a yield of 12 per cent equivalent to a Single B Rating. The economist describes the issue: “It is a small company in a difficult place selling bonds that have no more protection than a share.”

Is this evidence of a Flood to you!

[Ejonigboro]

“Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.”

I think your search would come up blank as those Mutual Funds I mentioned were fictional e.g. Silverwoman Fachs Sub-Saharan African Fund (exc. South Africa) was a play on GOLDman Sachs and IQ Mirgun on JP Morgan. The point I made was that such funds would be coming out of the wood work in due course.

“Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.”

No Nationalist sentiments over here, okay I lied, may be a little. But I did point out the economics to my bullishness and I am sure I made no appeal to sentiment.

And in response to the rest of your post
I read The Economist religiously, and also read the article you mention. Excess liquidity has been one of the main running themes in The Economists for the past five years or so, since the Tech Bubble.

I think any comments on inflation should be split into two, the Consumer Price Index and Asset Price Inflation.

The excess liquidity mentioned above is having more of an effect on Asset Prices rather than CPI. Consumer Price Index’s typically take into account average Household basket of goods e.g. Food, Clothing, Energy and Utilities Costs, etc. These items are by and large necessities, and the demand and supply for them exist irregardless of cheap credit. But an exception would be Energy and Utilities because they’re quite volatile for reasons such as, perceived, supply squeeze. In fact when most Indices are calculated with the exception of such goods or services, CPI is relatively under control i.e. below the target of Central Banks.

Asset Price inflation on the other hand is where the excess liquidity created by cheap credit has kicked in. It’s the reason for the Property Boom witnessed in most developed and popular developing countries; low yield spread between T-Bills and Emerging Mkt Bonds and many more. A browse through past editions of the Economist and you will find a plethora of evidence of what excess liquidity is doing to Asset Price Inflation.

The best one I have read is that of an unremarkable Property Developer in Indonesia, having stated in its bond prospectus the risk it faces i.e. ”social unrest (violent and non-violent); insurrection; earthquakes and active volcanoes; and “various bombing incidents directed towards the government and foreign governments and public and commercial buildings frequented by foreigners”, including the stock exchange and the airport,” and they also stated in this same prospectus that “ creditors might find it “difficult or impossible” to pursue claims” yet this Bond is paying a yield of 12 per cent equivalent to a Single B Rating. The economist describes the issue: “It is a small company in a difficult place selling bonds that have no more protection than a share.”

Is this evidence of a Flood to you!

[Ejonigboro]

“Thanks for pointing out those Funds that focus on the African mkt. Will certainly look them up.”

I think your search would come up blank as those Mutual Funds I mentioned were fictional e.g. Silverwoman Fachs Sub-Saharan African Fund (exc. South Africa) was a play on GOLDman Sachs and IQ Mirgun on JP Morgan. The point I made was that such funds would be coming out of the wood work in due course.

“Your hunches are well taken. However, I hope your enthusiasim towards the African mkt are not tempered by 'nationalist' sentiments.”

No Nationalist sentiments over here, okay I lied, may be a little. But I did point out the economics to my bullishness and I am sure I made no appeal to sentiment.

And in response to the rest of your post
I read The Economist religiously, and also read the article you mention. Excess liquidity has been one of the main running themes in The Economists for the past five years or so, since the Tech Bubble.

I think any comments on inflation should be split into two, the Consumer Price Index and Asset Price Inflation.

The excess liquidity mentioned above is having more of an effect on Asset Prices rather than CPI. Consumer Price Index’s typically take into account average Household basket of goods e.g. Food, Clothing, Energy and Utilities Costs, etc. These items are by and large necessities, and the demand and supply for them exist irregardless of cheap credit. But an exception would be Energy and Utilities because they’re quite volatile for reasons such as, perceived, supply squeeze. In fact when most Indices are calculated with the exception of such goods or services, CPI is relatively under control i.e. below the target of Central Banks.

Asset Price inflation on the other hand is where the excess liquidity created by cheap credit has kicked in. It’s the reason for the Property Boom witnessed in most developed and popular developing countries; low yield spread between T-Bills and Emerging Mkt Bonds and many more. A browse through past editions of the Economist and you will find a plethora of evidence of what excess liquidity is doing to Asset Price Inflation.

The best one I have read is that of an unremarkable Property Developer in Indonesia, having stated in its bond prospectus the risk it faces i.e. ”social unrest (violent and non-violent); insurrection; earthquakes and active volcanoes; and “various bombing incidents directed towards the government and foreign governments and public and commercial buildings frequented by foreigners”, including the stock exchange and the airport,” and they also stated in this same prospectus that “ creditors might find it “difficult or impossible” to pursue claims” yet this Bond is paying a yield of 12 per cent equivalent to a Single B Rating. The economist describes the issue: “It is a small company in a difficult place selling bonds that have no more protection than a share.”

Is this evidence of a Flood to you!