Posted on 02/16/2009 7:47:40 PM PST by dangermouse
8:17 CT
I do not know what is going on here, and I don't think I want to.
Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading.
It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once - Euro, Pound, Yen - all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling.
At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds "not that big" to move these markets in a coordinated fashion like this is a trillion-dollar enterprise - this is not some small company that went bankrupt, or even a large company.
There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not "automatic selling"; this is forced liquidation.
Folks, if this translates into Eastern Europe where there are severe instabilities already brewing literally everything in the financial world could come apart "all at once."
The worse news is that if this happens Bernanke will have killed us (in the US) by extending those swap lines all over the planet during the last six months. These will become utterly uncollectable and they are massive, in the many hundreds of billions of dollars.
To those who are reading this, I hope if you're in the markets you are prepared for extreme levels of violence. You must expect that the authorities will try to arrest the destruction if they are able, but you must also be prepared for the possibility that we have reached a "critical mass" point beyond which "duck and cover" is the only winning strategy.
Unfortunately.
I hope I'm wrong; this is going to be a long night.
http://www.freerepublic.com/focus/news/2187216/posts?page=198#198
Possible coordinated Russian (Soviet sphere)/Chinese/Latin American/Iranian interference??? I think so
''six handles'' == trader slang for a 6-cent (US) move in a currency, for example for Euro, from 1.30 to 1.24.
''forced liquidation'' == involuntary buying, or more likely in this case selling, caused by (typically) a fund or other large trader holding a dead-wrong position in the mkts and being forced by the exchange to exit the position. This occurrence has the direct effect of exacerbating whatever sharp move is occurring at the time.
FWIW, and FYI, been a trader in futures since 1972, and have written extensively on futures and futures options.
Good trading to you!
Ping to Red Alert.
Thanks! NV Dave is it. My mind drew a blank. I could think of so many Dave’s on here.
February 2, 2009
Asia Morning Line - Severe GDP Contractions Across Asia
http://www.freerepublic.com/focus/f-news/2184907/posts
“Eric Fishwick and his economics team are forecasting severe GDP contractions across Asia. In ‘Blowout!’, their latest Triple-A report, they’ve taken the knife to the open economies of Taiwan (-11%), Singapore (-10%) and Korea (-7%). These figures are almost twice as bad as today's politically constrained “growth” numbers from the IMF. Given that the global economy was still robust in 1H08, we’re looking at some sharp YoY declines. What’s more, governments hell-bent on socialising private-sector debt will ultimately create massive tax burdens. (Not that this will worry the Democrats in Washington.) If our macro forecasts are realised, and as corporate taxes evaporate, they’ll leave a huge hole in fiscal receipts. So it seems we’re also in for some major sovereign downgrades. The painful reality is that the fastest way to deleverage is to allow bankruptcies and write off bad debts. Instead, the intervention path taken by governments around the globe will lead, at best, to Japan; at worst, Zimbabwe.”
I don’t trade FX, so my input would be merely speculation with information a bit better than most people you’d meet.
FX movements on one night aren’t something I pay much attention to. I look at trends over weeks/months on FX markets. There is a lot of whip and noise in FX markets because they enjoy high leverage and high liquidity.
The issues in the Asian equities markets aren’t unexpected or unemplained. The economic reports out of all export-dependent Asian economies are grim, grim, and grimmer. We’re takling China, S. Korea, Japan, Taiwan, you name it. I’m sure there’s some more turmoil from the Japanese Minister of Finance resigning as a result of his appearance of being, uh, comfortably numb at the G7 meeting. The grim truth of the Asian exporting economies is this: if you take away exports from their economic base, their domestic economic situation is mediocre, at best. They’re utterly dependent upon the US consumer buying, buying, buying.
As I’ve said repeatedly on several threads: the US consumer is in hock over his (and her) head, the ever-increasing mountain of debt with which the US consumer financed the last 10 years of consumption ceased growing in mid-2008, and is now imploding. Wages in the US are contracting as unemployment go up. The Asian export economies, therefore, have a rather grim future ahead of them in the near and medium term (out at least 12 to 18 months, IMO).
Just to add to your information - “handles” is context-dependent. In equities, we say “a six handle” meaning that a stock has a price in the $60 to $69 range...
The other thing you might add for people is how the high gearing in the FX market makes forced liquidations happen with a more vicious snap that the lower-geared equities markets. I’ve explained to people how margin calls work on equities here before — perhaps you could tell folks here how a margin call would work on a FX speculator?
That is not what the $-X is saying. Holders of $ are doing fine. Just about every other currency in the world is declining against the $. Celebrate our (perhaps temporary) good fortune. Your European vacation will cost 30% less this year than last.
Fair enough?
BTW, the SP (and ES) Mar/Feb calendar spreads on the 775 and 750 put strikes were just outrageous late last Thursday, and I took a piece of them. Not to say that SP has to collapse this coming week (although I think we'll see it lower), but this was almost literally ''down I win, up I don't lose, or not much''. Helluva trading opportunity.
Good trading, and FReegards!
>Of course, with the damn Spendulus, inflation will be rearing its ugly head sooner rather than later. But I don’t expect that to start seriously showing up until later this year.<
Inflation notwithstanding, prices of food have been going up. For example, a simple box of namebrand saltine crackers is now $3.00.
The most eloquent (and accurate) comment I ever heard or saw about overgearing was this:
''Minimum margin is a sign of minimum intelligence.'' -- the late Harrison Roth, in his book LEAPS.
And, oh, how right he was. These fund quants who deliberately seek maximum leverage (which is, of course, identical to minimum margin) are merely examples of insanity in action. Moral hazard (cough) aside, naturally.
Thanks for the info, even though you dropped a few more slang terms in there I was able to figure those out. I appreciate the help.
Also of interest: http://www.thecomingdepression.blogspot.com/
Spot FX trading (as opposed to futures foreign-exchange trading) is a cash-only game. The reason for this is that, unlike futures, where the contract expiration may be months away, in spot trading the expiration of the 'contract' the trader is trading is exactly 2 days away.
If you buy EUR/USD (for Americans, that's ''selling Eurocurrency'') at the price of USD 1.30 sometime on Tuesday, then you can hold the position without doing anything at all until close of business (generally Greenwich Mean Time, or London time) Thursday. At which point the trader must settle; collect his profit if any, or pay his losses.
If the trader is still in his trade, short Euro vs US dollars in this case, at any time between entering the trade on Tuesday and expiration on Thursday, and the trade has moved against him (i.e. Euro has risen against US dollars), then the broker will require him either to deposit more capital (the well-known ''margin call'') or to exit the trade and pay his losses RIGHT now.
In the case where the trader (being a stupid bastard) does not have enough capital in his account to handle more than X points loss (in forex, a point is called ''a pip'', btw), then the brokerage will auto-exit him, or try to, before his account goes into deficit. This practice -- as a sort of amusing sidelight -- has also been adopted by bookmakers wolrdwide.
Most FX spot traders do NOT stay for the full 48 hours possible in the trade. They've usually a target at which they intend to exit (and usually place the exit order in advance with the brokerage), and also usually a stop-loss point (which order, again, they place at the time of entering the trade).
Good enough explanation, Dave?
Good trading, m'FRiend!
**HEADS UP!
COMING TOMORROW NIGHT
~~~~~~~~~~~~~~~~~~~~~
FRONTLINE - PBS
Inside the Meltdown
Feb. 17, 2009 (Check local listings)
http://www.pbs.org/wgbh/pages/frontline/
PREVIEW
http://www.pbs.org/wgbh/pages/frontline/video/flv/generic.html?s=frol02s1e30q709
,
,
TRAILERS
http://www.pbs.org/wgbh/pages/frontline/meltdown/
FRONTLINE investigates the causes of the worst economic crisis in 70 years and how the government responded. The film chronicles the inside stories of the Bear Stearns deal, Lehman Brothers’ collapse, the propping up of insurance giant AIG, and the $700 billion bailout. Inside the Meltdown examines what Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke didn’t see, couldn’t stop and haven’t been able to fix.
Learned those in 1942-1943.
FReegards!
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