Archives of “collapse” tag

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Ireland Rescue Imminent As Bund Spreads Pass 720bps

  
  Education
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At last check Irish-Bund spreads were north of 725 bps, meaning Ireland is now effectively insolvent, and joins Greece in the group of bankrupt European countries. If this blow out is not stopped immediately, the contagion will again spread to the periphery first and then to the core shortly thereafter. The only question is when, just like in the case of oh so coy Greece, will Lenihan admit defeat and ask the IMF and the ECB for help (oh, and do it so during a Citigroup-mediated conference call). However, as Market News reports, citing Handesblatt, the Irish rescue may be imminent, and may come as soon as today.

From Market News:

 
 

Eurozone governments are preparing for a possible Greece-style rescue for Ireland although the country has not yet asked for financial assistance, German daily Handelsblatt reported Thursday, citing German government sources.
 (more…)

U.S. Treasury to China – Revalue Remnimbi or We Will

  
Analysis, Economy, Education
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There’s a lot of talk around the markets and in Washington about China’s currency policy. What many want to know is whether the US Treasury will name China as a currency manipulator. Perhaps a more important question is, should China be named as a currency manipulator? And if it were named as such, what actions could the US take? In recent days the Chinese and the US administration have taken shots in the press at each other. The US is hinting that China is manipulating its currency to boost its economy. The Chinese is firing back saying that the US “should not politicize the remnimbi exchange rate issue.”

First, some background on the problem. Basic economics says that if you keep the currency of your country at a weak (but not so weak as to cause a collapse in it) level you help boost exports. The currency becomes weaker making your goods cheaper for foreign consumption. In a freely floating exchange system, the market determines the equilibrium value. Speculators look at economic statistics like GDP growth, interest rates, inflation etc. to figure out what a currency should be worth and then place bets accordingly. If speculators think that an economy can grow strongly while keeping inflation at a benign rate, they will bid up the currency of that economy. As that happens, the country whose currency is getting stronger could see a decrease in exports. This is caused by the larger amount of currency the importer uses to make the same purchase as previously made. (more…)

Marc Faber Discusses Chinese Economic Cooling Off, Sees Day Of Reckoning Delayed

  
Economy, Education
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Nothing notably new here from the man who has called for a Chinese crash in as little as 12 months. Now that the Chinese PMI came at the lowest level in 17 months (in line with the drop in the US ISM but completely the opposite of Europe’s PMI as everyone makes up their own data on the fly now with no rhyme or reason), Faber seems to have mellowed out a little on the Chinese end-play. He now sees the China government stepping in and prevent a collapse of the economy when needed, as the economy has dropped from a near 12% GDP growth to a collapse in the PMI in the span of a few months, even as Chinese banks lent another quarter trillion renminbi billion in July, and issued who knows how many hundreds of billions in CDOs to keep the ponzi afloat.

From Bloomberg TV:

On the cooling of China’s economy:

“I mean I’ve been arguing this year that the economy would inevitably slow down, because the impact of the stimulus would diminish. But having said that, the economy hasn’t crashed yet. It could still crash. But on the other hand, if you look at the performance of equities worldwide, it seems that the worse the economic news is, that the more the markets go up, because the market participants expect further easing measures, and maybe further stimulus. So altogether I would say it’s not going to be a disaster for stock investors yet. It’s interesting. The Chinese stock market began to discount the slowdown in economic growth actually precisely a year ago, in August, 2009. The market peaked out. And then drifted lower, but now that the bad news is essentially out, the market has started to rebound.”

On whether the property market is the biggest weakness in China:

“I’d like to make the following observation. We have a global economy, and an economy has different sectors. And you can have recession in some sectors of the economy. You can have a crash, say, in the property market, and you can have other sectors expanding. [Bolton: That’s the biggest weakness, right Marc, as far as you’re concerned, in the Chinese economy right now, it is the overheating in the property market?….] Well, I’m not sure. Because if they ease again, the speculation will go on. But we have credit problems in the property market undoubtedly. We have Ponzi schemes like loan sharking operations all over China. That’s a very dangerous. But what I would like to point out is that the agricultural sector, the rural sector in China and everywhere in the world is doing relatively well, because agricultural prices have started to rebound. And that was also seen in Thailand. In Thailand, new car sales are up very strongly.”

On whether the Chinese government will delay increasing interest rates this year:

“I think even if they increase it marginally it’s meaningless. Because interest rates are far below nominal GDP growth, and in my opinion far below inflation.”

Leeson: Rogue trader culture is more rife than ever

  
Economy, Education
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Nick Leeson, the original rogue trader whose actions led to the collapse of the venerable Barings Bank and to a six-year prison sentence, yesterday warned that the culture of the City has spun out of control.

With banks reeling from numerous scandals and the London financial district under intense pressure to reform itself, Mr Leeson said that unless punishments are increased traders will continue to run amok.

“Rogue trading is on the increase. The latest scandals are just a sign that the culture is running riot without any checks in place.

“Every day you wake up and see something different,” he told The Independent. (more…)

Five surprising lessons from a career on Stock Market

  
  Education
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1) Deep thought: Surprisingly few people rolled up their sleeves and thought deeply about why things in market are the way the are. What causes markets to go up and down? Why do things blow up? Why do most investors under-perform markets? Lots of myths and urban legends, not nearly as much quantitative evidence.

If you get really deep about it and study the data, there are some rules to learn. To succeed in markets, one needs to become a philosopher-mathematician.

2) Long-Term Greedy: Too many people went for the easy money, but that was never what motivated me. It was more about intellectual curiosity and honing ones craft, and less about the quick hit. I made less money compared to many of my peers, but I kept more of it and never blew up.

The phrase “long-term greedy” was coined by former Goldman Sachs director Gus Levy many years ago. You can make (lots of) money over time, but only by serving clients’ interests. Its amazing to me that view is so far out of fashion today.

3) Hard Work: There is no other field where a person of average skills and intelligence who is willing to put their head down and work hard can makes 100s of thousands or even millions of dollars a year — but only if they are diligent and patient and willing to put in the hours. (more…)

Bunting’s Laws of Investing

  
  Education
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1. Sell stocks of companies that announce huge acquisitions, that overdiversify, or that spend a fortune on a lavish new headquarters.

2. Avoid stocks where management picks fights with analysts (or, by extension, hedge funds). See Overstock.com in 2005; Netflix in 2010.

3. Watch out when executives start selling a lot of stock — regardless of plausible-sounding excuses. Top execs in homebuilders, mortgage underwriters and Wall Street dumped billions before the 2008 crash.

4. “Run a mile” from all stocks in an industry going through a huge investment boom: Massive overcapacity and consequent collapse is inevitable.

5. Steer clear of investing in manufacturing companies. Their industries are usually plagued with extreme cycles of boom and bust, overcapacity and slumps.

6. Pay little attention to economists or market gurus.

7. Mistrust all mathematical trading formulas as well — they invariably fail just when you most need them to work.

8. Look for companies where the insiders are buying lots of stock.

9. Look for companies generating a lot of cash — a great sign of sustained outperformance.

10. Look for companies which have monopolies (or near monopolies), and those which manage to take out their main competitors.

11. Remember you are buying businesses, not just stocks. Pay close attention to the quality of the business, and especially the quality of the management.

12. Look for companies which have earned the trust of consumers, and which have very strong brand names.

Crash of the Titans

  
Analysis, Education
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For many, many years, Merrill Lynch had good reason to be “Bullish on America.”

With more than 15,000 brokers and $2.2 trillion in client assets Merrill Lynch was the world’s largest brokerage. It clawed its way to the top and revolutionized the stock market by bringing Wall Street to Main Street.

But in September 2008 – at the height of the financial crisis, it ceased to exist as a separate entity when it was acquired by Bank of America

The world, the company, the Street was in shock.

How could this American institution collapse almost overnight?

In his meticulously researched new book, Crash of the Titans: Greed, Hubris, The Fall of Merrill Lynch and the Near-Collapse of Bank of America, Greg Farrell reveals it all in never before reported detail.

In this guest author blog Farrell shares how his book came to be and if you continue on, you can read an excerpt from Crash of the Titans.

Lessons Learned

  
  Education
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Lessons learned from the past few years… Taking smart risks means cutting back when necessary and getting back in the game when the opportunity arises. To borrow an example from sports psychology, the fear of re-injury is a feeling experienced by athletes long after they have been hurt and are on the road to recovery. The same holds true for investors who saw their holdings collapse in 2008.

 

True top performers train themselves to rely on their short-term memories, avoiding a mindset of fear that leads to missed opportunities to grow and prosper. The average person can learn from the example of elite investors and traders — never take winning or losing personally – especially when it comes to money. View each situation on its own merits. If there is a great opportunity for success, then take the risk. If not, then don’t. The formula sounds simple enough, but emotions continually cloud our better judgment.

Why does it happen?

  
  Education
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There seems to be a consistent pattern when it comes to these trading teachers turned rogue traders. The story usually is that a trader struggled for years, then “made it”, and decided to teach others. Students etc began offering them money so they set themselves up as a money manager and then *bling* collapse in flames and do a runner.

One obvious theory is that their trading psychology had adapted to trading their own money at a certain equity level, and they might even have been very successful at that, thus making them confident and bold. But then all of a sudden they are thrust into new territory in terms of both a massive influx in equity and thus volume to have to trade, and the burden of being the crux for investors hope and fear all day.

Imagine it – you are happy trading 1 or 2 standard lots and you have a good rate of return on your own account, but now all of a sudden you are trading 100 lots per trade, and the phone is going every half an hour with someone yapping “So?! How’s it going? What level is my investment at now?! Has their been any losses??!!”

*Brring Brrring!!* – “Someone grab that god damn phone, I’m trying to focus here!”

You could almost feel how this would cause your heart to start pumping and you would break out into a sweat; your mind would go foggy – yet you are supposed to stay cool and trade. I personally sense that many of these guys just didn’t consider this at all. They thought they were ready; they weren’t.

Add to this possible new market issues that throw a spanner in the works, such as trying to get filled with bigger volume, slippage – your positions maybe starting to show up on the radar of other market players and drawing interest to yourself.

The trusty old scalping system seems to not work like it used to work. One bad day and you’ve drawn down 20% of the account and you can’t sleep at night. You can’t bring yourself to tell the investors right now until you try to reduce that loss, so you tell a bit of a white lie.

Down the rabbit hole you go. Soon everyone is calling you scum and saying the honourable thing to do is commit suicide and you are facing six years jail. The moral of the story – think twice before becoming a home-brew money manager.

Winston Churchill for Traders and Analysts

  
  Education
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Twenty five quotes from Winston Churchill for traders and financial analysts:

1. I love this war. I know it’s smashing and shattering the lives of thousands every moment — and yet — I can’t help it — I enjoy every second of it. (A letter to a friend, 1916)

2. I pass with relief from the tossing sea of Cause and Theory to the firm ground of Result and Fact. (The Story of the Malakand Field Force, 1898)

3. True genius resides in the capacity for evaluation of uncertain, hazardous, and conflicting information.

4. The truth is incontrovertible. Panic may resent it, ignorance may deride it, malice may distort it, but there it is. (Speech in the House of Commons, May 17, 1916)

5. Success is not final, failure is not fatal: it is the courage to continue that counts. (The Prodigal Project : Book I)

6. It is a mistake to look too far ahead. Only one link in the chain of destiny can be handled at a time. (Speech in the House of Commons, February 27, 1945) (more…)

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