29 Aprile 2009 Scritto da: Redazione
Charles Karasick is currently residing in Lugano, after spending more than 30 years in New York. During that time, he worked as a trader on the floor of the New York Stock Exchange, as a sales/trader, portfolio manager and institutional equity salesman for number of prominent Wall Street firms.
For the past 20 of those years, he has dealt exclusively with European financial institutions in a dozen countries, ranging from Sweden down through Sicily.
For the past few years, he has been writing a weekly newsletter to individuals and financial institutions throughout Europe.
How Do you think the trend of Us Dollar in the short and mid-term will be?
Trend of the US Dollar-Currencies have always bee, at least for me, the most difficult asset class to trade. One reason is that you have to pick two (one long and one short). Secondly, there are very few fundamentals. Most currency trading is done on sentiment. Third, there are many players who are not interested in profit or loss. including central bankers, farmers and tradesmen looking to lock in a price for some future delivery, amongst others.
But the situation in which we find ourselves in today offers a unique opportunity in the currency markets. This is due to the fact that the concept of a "safe haven" currency has all but been shattered by recent events. This puts the US currency in a position of what I call "the tallest midget in the room:"
For some period, the Japanese yen was considered to be one of these "safe havens": So much so, in fact, it was one of the bedrocks of the so-called carry trade whereby a low-yielding currency was sold and the proceeds invested in a higher yielding currency such as the commodity currencies. The yen achieved this exalted status even though its debt/GDP ratio is about 150%. The Japanese have very high personal savings rates and most of the debt is held by the Japanese, thereby mitigating a "run" on the currency while interest rates are essentially zero. Thus, currency traders felt safe in being short the yen. But last quarter, the government reported economic activity had contracted by 12.6% last quarter and said the outlook for the next few quarters are not much better. Deflation! All of a sudden, the traders woke to think that maybe Japan is in such dire straits that the basic underpinnings of the currency were not what they thought.
Now we turn to the Swiss franc, perhaps the paragon of the safe haven currency.The Swiss have been having a difficult time of it lately as we all know. First their flagship banks were hammered by the sub-prime mess, followed by the G-20 hammering them on bank secrecy. But now, we learn the Swiss National Bank has gone into the market place to DEVALUE the franc. And why would they do this? Because there is a whiff in the air of "the Japanese disease", another way of saying deflation. This situation presents the SNB with a potential problem the size of Mont Blanc.
There are many other export-led countries with surpluses that are toying with the idea of devaluation as a way to benefit their competitive advantage. After all there is virtually no demand for ANYTHING these days. And exports comprise 8.4% of the Swiss GDP. If every exported (including China) follows this path, if these countries refuse to allow these imbalances to right themselves, world demand must implode. And this is where being a safe haven currency has its downside. For in a crisis, everyone wants to BUY these currencies. But by buying a currency the country's monetary conditions are TIGHTENED, which is exactly the opposite of what the central bank was trying to accomplish. Large countries can offset this effect by either cutting interest rates or engaging in quantitative easing (printing money) But Swiss interest rates are close to zero anyway. the second option is also closed because there are not enough Swiss government bonds in the marketplace that can be purchased by the central bank and then to pump money into the economy (reflate). As a sign of how nervous the market is, recent prices of Swiss credit default swaps (CDO's) were higher than those of the UK, which is currently engaged in its own downward spiral.
Continua su Family Office n.2 - 2009