FX News Trading For The Week Of June 24-And Beyond

Quoting NewstraderFX

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The week ended with markets being affected by the Bear Sterns situation, which actually has not been fully resolved to this point. Bear has decided to bail out the fund by loaning it money, but the problem comes from the re-valuation of the underlying securites (the CDO's) that it and many other hedge funds own.

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Quoting CrazyEconomist

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My father is a economist who studied almost every form of economics in university. He actually has standing invitations to speak at Harvard, Yale, Cambridge and many other universities around the world. I am not going to reveal his name for personal reasons but my father is a very well known and respected economist. As you can imagine this gives me a great deal of insight into economics, macroeconomics and to a lesser extent microeconomics. I have also personally met many great economists when I travelled with my father in 1999 and later in 2003. Men like the late Don Lavoie who is affiliated with The Austrian School of Economics and is a very accomplished economist.

The reason I bring this up is because in reading what you say I swear I see a lack of economic knowledge and several mistakes. My father says there are no mistakes in economics but some of the connections you make are grievously misplaced. I do not mean to offend but you seem a little amateurish.

Have you studied economics before?

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Quoting CrazyEconomist

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My father is a economist who studied almost every form of economics in university. He actually has standing invitations to speak at Harvard, Yale, Cambridge and many other universities around the world. I am not going to reveal his name for personal reasons but my father is a very well known and respected economist. As you can imagine this gives me a great deal of insight into economics, macroeconomics and to a lesser extent microeconomics. I have also personally met many great economists when I travelled with my father in 1999 and later in 2003. Men like the late Don Lavoie who is affiliated with The Austrian School of Economics and is a very accomplished economist.

The reason I bring this up is because in reading what you say I swear I see a lack of economic knowledge and several mistakes. My father says there are no mistakes in economics but some of the connections you make are grievously misplaced. I do not mean to offend but you seem a little amateurish.

Have you studied economics before?

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Quoting NewstraderFX

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The week ended with markets being affected by the Bear Sterns situation, which actually has not been fully resolved to this point. Bear has decided to bail out the fund by loaning it money, but the problem comes from the re-valuation of the underlying securites (the CDO's) that it and many other hedge funds own.

The CDO's traded by Bear's and many other hedge funds are backed by sub-prime mortgages and may be marked down by as much as 30%. The CDO market is estimated at around $1T, so it's deep. There is a potential $300B loss to be spread around just on the re-valuation. A worsening of the sub-prime market may also devalue the CDO's.

Loses in this market could mount if hedge funds try to sell these securites in a thinly traded market.

Friday's movement in equity and bond markets revealed that traders sold equities and bought bonds, a clear indication of a flight from risk. The strong drop in the DOW and S&P 500 was coupled with increasing bond prices (as demand for bonds rose) and decreasing yeild. Bond prices and yeilds move inversely.

A flight from risk in equity markets will very likely lead to a flight from risk in carry trades as well.

Some of this was seen fairly clearly if you look at the charts of 3 pairs-GBP/JPY, USD/JPY and GBP/USD. When carry trades unwind, the dollar will depreciate vs the JPY and appreciate vs the GBP, which causes a sharp depreciation in GBP/JPY.

The dollar lost around 40 pips vs the Yen in the last 4 hours of trading and around 10 vs the GBP in the last hour. The dollar's loss vs the Yen closely matched the timing of the loss in the DOW, as the sharp downward movement there occured between 12PM and 4PM as well.

Because of the apparent flight from risk seen in US equities, we could see the action mirrored in Monday's Asian trading session. If Asian indicies and bond yeilds continue dropping, a flight from risk will be percieved by market participants and further unwinding of carry trades could follow closely.

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Quoting CrazyEconomist

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It seems to me that it is more of a weekly newsletter type thing than just an opinion and an amateur giving his economic opinion as if he is an expert can be damaging to inexperienced traders. I just had a quick look through Bloomberg and he really is just reading articles and picking some of the sentences that apply to mainstream Forex.

I just want to know if he has any education in economics or if he is an amateur that reads a lot.

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Quoting CrazyEconomist

Disliked

My father is a economist who studied almost every form of economics in university. He actually has standing invitations to speak at Harvard, Yale, Cambridge and many other universities around the world. I am not going to reveal his name for personal reasons but my father is a very well known and respected economist. As you can imagine this gives me a great deal of insight into economics, macroeconomics and to a lesser extent microeconomics. I have also personally met many great economists when I travelled with my father in 1999 and later in 2003. Men like the late Don Lavoie who is affiliated with The Austrian School of Economics and is a very accomplished economist.

The reason I bring this up is because in reading what you say I swear I see a lack of economic knowledge and several mistakes. My father says there are no mistakes in economics but some of the connections you make are grievously misplaced. I do not mean to offend but you seem a little amateurish.

Have you studied economics before?

Ignored