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Cable Update (GBPUSD)

  • #166,641
  • Sep 17, 2009 9:55am Sep 17, 2009 9:55am
As jim says ranging is the killer of accounts...
On-site guru & also FF member's' psychiatrist, when not drinking tea
  • #166,642
  • Sep 17, 2009 9:56am Sep 17, 2009 9:56am
Quoting francish
cool guys. been riding harley sportster 883 past 5 years.


Now if this "stupid" long I took on EJ at 134.50.......doesn't go bad on me, maybe I can keep my bike for another month...

What the heck was I thinking??
Ghost Rider - WWTBMD?
  • #166,643
  • Sep 17, 2009 10:00am Sep 17, 2009 10:00am
You dont?

Quoting Que
This is why I am trading what I am trading...

I do not call myself a lemming...
On-site guru & also FF member's' psychiatrist, when not drinking tea
  • #166,644
  • Sep 17, 2009 10:05am Sep 17, 2009 10:05am
For how long, in the face of current climate when people are losing jobs and they cannot repay loans?


Ok, simple terms. Layman example:

Someone loaned you money/$100 @ 1% = $1 per month
To trustworthy parties (no bank is taking any risk atm, very tight), you can only loan $50 @ 4% = $2 per month. You also have to make sure you can pay $100 back if required to the person who gave you the loan.

''How long can you keep doing this? When will you earn profit (salaries, exp etc)?

This is the situation with banks atm.

Raise IR, then charge .25 - .50% more, get foreign investment, start new projects, hiring etc that's how economy works. Not the way it's operating atm. It's not beneficial for any bank or economy as they have to keep sufficient funds for rainy day under the new/existing law. So they don't have to rely on govt for funding later.

Meaning they cannot touch/lend the minimum amount money.

Your views/criticism is welcome. That would increase my knowledge.
MS - ''


Apologies for the amateur quote...I don't know how to use the quote facility...

I agree with your opinion, and read a very interesting arcticle from Matt newstraderFX at forex instructor if you are interested.

Personally I find this new law a bit strange and can't fathom the Fed's action at all. Why are they paying banks to hold cash reserves, while they verbally promote the key to recovery is too stimulate lending, and what all the QE etc, has been about? I can understand it so that lending does not get out of control again, but effectively they are giving the banks an opportunity to gain interest risk free if they hold reserves, so why would they then increase lending?

I am however, not the sharpest tool in box, but to me its counter productive, and makes me suspicious. Are they trying to create a bubble? Or is it something to do with the treasuries, any enlightment would be welcome.

Cheers
  • #166,645
  • Sep 17, 2009 10:07am Sep 17, 2009 10:07am
Sorry, meant to put for 'AMS' ...
  • #166,646
  • Sep 17, 2009 10:16am Sep 17, 2009 10:16am
Quoting ams
For how long, in the face of current climate when people are losing jobs and they cannot repay loans?


Ok, simple terms. Layman example:

Someone loaned you money/$100 @ 1% = $1 per month
To trustworthy parties (no bank is taking any risk atm, very tight), you can only loan/risk $50 @ 4% = $2 per month. You also have to make sure you can pay $100 back if required to the person who gave you the loan.

How long can you keep doing this? When will you earn profit (salaries, exp etc)?

[b]This is the situation with banks...
But banks will leverage up their equity capital by many times, thereby turbo-charging returns.

So, using a simple example, Bank A borrows overnight from the Fed at 0.21%p.a and lends the same amount to the US government, in the form of 30y treasuries, which yield them 4.26%p.a, thereby meaning an overnight rolling profit of 4%p.a for Bank A.

Now let's assume that, in view of this being perceived as a transaction free of credit risk (as money does not enter the wider economy), Bank A decides to leverage their equity base four times when entering this form of carry trade. All of a sudden, that 4%p.a profit is looking very appealing.

The hope is that, due to lots of banks playing this strategy with record amounts of liquidity in the system, yields on long-dated government paper will become compressed, thus making this trade less attractive. If this happens, then we will see Bank A borrowing from Fed at 0.21% and then, perhaps, lending to triple-a entities, in the form of corporate bonds or commercial paper - something which is starting to happen, as demonstrated by the collapse in corporate yields in recent months.

Eventually, the hope is, money will start to flow down the chain of credit-worthy borrows, so at first governments benefit as their deficits are easily funded, then top investment grade corporates, then low or sub-investment grade corporates, then small businesses and joe public finally start to see credit become available at reasonable prices.

Of course, only time will tell whether this strategy will work and have the desired effect.
  • #166,647
  • Sep 17, 2009 10:25am Sep 17, 2009 10:25am
  •  ams
  • | Joined Apr 2009 | Status: Perspective,Position,Plan ,Pattern | 2,859 Posts
You have a very valid point my friend.And you say you are not the sharpest!!

The whole point is, to do business sensibly.

Trsry is all about getting loan from other economies or investers.
But to revive economy, it has to come from the economy itself i.e. GDP has to grow strong. Tax revenues etc..

You cannot generate taxes when companies are outsourcing to save costs and shedding loads of workers to give benefit to shareholders.

Do not eat more then you can chew. Simple.

Fed is making sure that banks have sufficient money.

They are not paying them, instead they are asking for a nominal amount to keep that money. Which apparently is no use for banks as they cannot lend it. In other words they want banks to make money but by sensible lending only.

Banks without the help of govt, cannot raise rates. It'll be extortion. Majority of earnings for retail banks comes from lending. And for them the only way now to make money is, govt to increase rates so they can pass double the amount and make money on it. Hence they are making sure economy is rolling again by starting the inflation cycle. QE is good for existing climate (investment banks, not retail banks) not sufficient to progress further. We need to be "normal" meaning IR up, etc etc , yadi yadi ya…




Quoting annieb
For how long, in the face of current climate when people are losing jobs and they cannot repay loans?


Ok, simple terms. Layman example:

Someone loaned you money/$100 @ 1% = $1 per month
To trustworthy parties (no bank is taking any risk atm, very tight), you can only loan $50 @ 4% = $2 per month. You also have to make sure you can pay $100 back if required to the person who gave you the loan.

''How long can you keep doing this? When will you earn profit (salaries, exp etc)?

This is the situation with banks atm.

[i]Raise IR, then charge...
  • #166,648
  • Sep 17, 2009 10:27am Sep 17, 2009 10:27am
paul & ams : this is free education for me right here. I hope you guys don't kiss and make up quickly.
Thank You
  • #166,649
  • Sep 17, 2009 10:28am Sep 17, 2009 10:28am
  •  ams
  • | Joined Apr 2009 | Status: Perspective,Position,Plan ,Pattern | 2,859 Posts
No worries mate got it....

Gamasse1/Paul is a good fundamentalist as well. We have diff opinion sometimes as we are different people .


Quoting annieb
Sorry, meant to put for 'AMS' ...
  • #166,650
  • Sep 17, 2009 10:31am Sep 17, 2009 10:31am
Quoting ams
Banks without the help of govt, cannot raise rates. It'll be extortion. Majority of earnings for retail banks comes from lending. And for them the only way now to make money is, govt to increase rates so they can pass double the amount and make money on it. Hence they are making sure economy is rolling again by starting the inflation cycle. QE is good for existing climate (investment banks, not retail banks) not sufficient to progress further. We need to be "normal" meaning IR up, etc etc , yadi yadi ya…
Retail banks can charge whatever rate of interest they please. All banks love low rates and steep yield curves.

The market decides the cost of credit. In the UK, Bank Rate is at 0.5%, but the interest rate charged to SMEs is actually at the same level it was in 2007, prior to the aggressive rate cuts by the MPC. That's quite a spread for retail banks for the credit risk they are assuming.

This is my last word on the subject, as I don't want to take up too much space on this thread. Apologies if anyone is excessively bored by this discussion.
  • #166,651
  • Sep 17, 2009 10:34am Sep 17, 2009 10:34am
  •  ams
  • | Joined Apr 2009 | Status: Perspective,Position,Plan ,Pattern | 2,859 Posts
yeah paul but that's much aligned to IB's not much on retail banking though.
We both know, IB alone cannot pull economy. It can hardly survive like this.


Quoting gammase1
But banks will leverage up their equity capital by many times, thereby turbo-charging returns.

So, using a simple example, Bank A borrows overnight from the Fed at 0.21%p.a and lends the same amount to the US government, in the form of 30y treasuries, which yield them 4.26%p.a, thereby meaning an overnight rolling profit of 4%p.a for Bank A.

Now let's assume that, in view of this being perceived as a transaction free of credit risk (as money does not enter the wider economy), Bank A decides to leverage their equity base four times when entering...
  • #166,652
  • Sep 17, 2009 10:34am Sep 17, 2009 10:34am
Quoting gammase1
This is my last word on the subject, as I don't want to take up too much space on this thread.
Too much space? Nonsense. This tops the "cable going up/cable going down" calls every 5 minutes. Please carry on paul. Good stuff
Thank You
  • #166,653
  • Sep 17, 2009 10:34am Sep 17, 2009 10:34am
Quoting gammase1
Retail banks can charge whatever rate of interest they please. All banks love low rates and steep yield curves.

The market decides the cost of credit. In the UK, Bank Rate is at 0.5%, but the interest rate charged to SMEs is actually at the same level it was in 2007, prior to the aggressive rate cuts by the MPC. That's quite a spread for retail banks for the credit risk they are assuming.

This is my last word on the subject, as I don't want to take up too much space on this thread. Apologies if anyone is excessively bored by this discussion....
C'mon Paul, we're following this with great interest...and enjoying it as well...
Hear the music before the song is over ...
  • #166,654
  • Sep 17, 2009 10:36am Sep 17, 2009 10:36am
Agree with WB.

This is free education.

Thanks paul / ams / gamasse1.

i would probably have to read it over and over again 10 times to really grasp what has been said.

economics excites me, but can be one hell of a tongue twister!!!
  • #166,655
  • Sep 17, 2009 10:36am Sep 17, 2009 10:36am
Quoting gammase1
This is my last word on the subject, as I don't want to take up too much space on this thread. Apologies if anyone is excessively bored by this discussion.
Don't be silly Paul. Please continue. Isn't this what FF is all about? Or am I just a fool?

I'm learning boat loads here between you two....
Ghost Rider - WWTBMD?
  • #166,656
  • Sep 17, 2009 10:37am Sep 17, 2009 10:37am
Quoting gammase1
Retail banks can charge whatever rate of interest they please. All banks love low rates and steep yield curves.

The market decides the cost of credit. In the UK, Bank Rate is at 0.5%, but the interest rate charged to SMEs is actually at the same level it was in 2007, prior to the aggressive rate cuts by the MPC. That's quite a spread for retail banks for the credit risk they are assuming.

This is my last word on the subject, as I don't want to take up too much space on this thread....
integral part of forex analysis, after all everything relating to banks`affairs is pertinent to forex as they are the main currency movers
Thank you Malcolm, Belekas, Jim, raczekfx and Ryanmcd !
  • #166,657
  • Sep 17, 2009 10:37am Sep 17, 2009 10:37am
thanks for the explainations, AMS and gammaes.

If I've got what you said correct, basically until Interest rates rise, expect stagnation.

I am interested in the fundamental aspect with regard to trading, yet the few bits I've gleaned only highlights how little I know.

cheers, apologies for taking thread off topic
  • #166,658
  • Sep 17, 2009 10:39am Sep 17, 2009 10:39am
  •  ams
  • | Joined Apr 2009 | Status: Perspective,Position,Plan ,Pattern | 2,859 Posts
They can charge but again to how many customers? Without govt's support they cannot resume risky lending.
Like any business they have to accept losses and give to people they know will or might default. atm they are not doing that. can you run fx trading without assuming any loss? that's what banks are doing.
They are asking for minimum of 25% deposite for buying a house. Else minimum is 15% on 6% rate. Not many are buying and economy is stalled. Backup from central bank is required for them to start risky lending. Even if they could charge .25 - .50 more on loans they make mill / billions ever year. Retail banks are not in profit. Which they should be for the health of economy / people.



Quoting gammase1
Retail banks can charge whatever rate of interest they please. All banks love low rates and steep yield curves.

The market decides the cost of credit. In the UK, Bank Rate is at 0.5%, but the interest rate charged to SMEs is actually at the same level it was in 2007, prior to the aggressive rate cuts by the MPC. That's quite a spread for retail banks for the credit risk they are assuming.

This is my last word on the subject, as I don't want to take up too much space on this thread....
  • #166,659
  • Sep 17, 2009 10:44am Sep 17, 2009 10:44am
  •  ams
  • | Joined Apr 2009 | Status: Perspective,Position,Plan ,Pattern | 2,859 Posts
Hey WB,

atleast something's moving :-) lol




Quoting wormboy
paul & ams : this is free education for me right here. I hope you guys don't kiss and make up quickly.
  • #166,660
  • Sep 17, 2009 10:47am Sep 17, 2009 10:47am
yes i agree paul ....carry on bro! ....loving it as well
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