NUM13ER by Dreams@Work

Looks like we were way off in our prediction for the market.  But at least we can claim to be right that there will be a rally in the USD in the qtr and the USD is likely to find it’s final peak.

From here we are expecting a volatile range trading for the major currency pairs with EURUSD likely to trade the range of 1.2800 - 1.4000 for this qtr (2Q09).  We’ll try to come up with our prediction for the majors rate at end 2Q09 soon at the soonest.

As a note, we prefer to play the market from the crosses than straight pairs.  Example are AUDJPY, EURGBP, GBPCHF etc. We like Gold as well, but the volatility can be difficult to stomach for small time trader like ourselves.

Four small banks became the first to return millions of dollars of emergency aid, and more may soon follow as the industry tries to escape what it considers the onerous conditions attached to the government’s money.

Signature Bank of New York,  Old National Bancorp of Indiana, Iberiabank of Louisiana, and Bank of Marin Bancorp of Novato, Calif., had repaid a total of $328 million to the Treasury Department.  Talks of Goldman Sach returning the $10 billion of TARP money to the Treasury Department by end April, had all given the financial sector shares a booast lately.

But, what’s gonna happen to those who will not be returning the money soon?  Does it mean that their financials are still very week?  How’s the market going to treat them from those who had returned the moeny?  Does this mean that they are the ‘BAD’ bank?

I think this is one BIG question we gonna have to keep in mind.

The following was reported on Singapore Business Times today (02 Jan 2009)

SAIZEN Reit has proposed a renounceable non-underwritten rights issue with free detachable and transferrable warrants in a bid to raise $44.75 million to pay off loans and fund its operations.

The proposed rights issue is for up to 497.2 million new units in the trust at an issue price of nine cents each, on the basis of 11 rights units for every 10 units held, according to Saizen Reit manager Japan Residential Assets Manager (JRAM).

The free detachable and transferrable three-year warrant that comes with every rights share can be exercised at the same price. This means Saizen Reit will receive an additional $44.75 million if all 497.2 million warrants are exercised. In a regulatory filing on Wednesday, JRAM said that the rights issue price of nine cents represents a discount of 30.8 per cent to Saizen Reit’s last-traded price of 13 cents on Wednesday.

Assuming FY09 distribution income at JPY1.28B, DPU will be around JPY1.21, giving investor a dividend yeild of 15.32% (base on the price of 13 cents per unit.

15.32% yield might seems attractive to most, but we feel that the rights issue does not address the problem of re-fiancing for the remainder JPY13.4B due in Nov and Dec.

Even if the rights are fully subscribed, the gearing for Saizen is still at 35.87%.  Unless the credit market condition improve towards the Q3 of 2009, Saizen might face some difficulty in re-financing the debt due.  Note the current lender is a unit of Morgan Stanley, which itself is battling for its own survival back home.  so chances of re-financing the debt completely with MS is unlikely.  Our guess is for saizen REIT to take the route of cambridge REIT and seek funding from a few other banks.  MBS is as good as dead now, so that route is not feasible.

Luckily for Cambridge, they had NAB Capital as a ’sponsor’ plus their existing working relationship with HSBC, otherwise it will have difficulty finding someone to fill in the hole left by RBS (the owner of ABN, who is the original banker).  We are not certain of Saizen REIT banking relationship, but will like to highlight to our reader the importance of this relationship.  Most if not all banks are holding back their lending to new client.

The question that every banker will ask then is what’s the value of Saizen?  Frankly, we think the underlying assets are of sound valuation, but the problem lies in the fact that it is too spread out, making it difficult for the lending bank to exit those assets if need arise.  This could be a stumbling block now.

Although U.S. President-elect Obama has not to put a full cost on his economic stimulus plan but his advisers estimate it will be more than US$700 billion and could even top to US$1 trillion.  He proposed government programmes for bridges, roads, broadband internet and schools as well as plans for greater energy efficiency and health spending.

Obama’s economic team will not only be faced with the grand task of restoring confidence to Americas stricken financial sector, and may have to wrestle the U.S. economy out of its worst downturn in decades, they have to find means to finance this huge economic stimulus package.

At last count, U.S. national debt is already more than US$10trillions. Though this is is manageable when compared to the size of the U.S. GDP, the concernsare the impact on the rate of U.S. and the strength of its currency?

Together with the liquidity that the Feds are providing through its various measures, and the fact that most of U.S. national debt has been traditionally financed by foreigner, we reckon that rates in the U.S. should stay low for at least the next 2 years (2009-2010).  The USD is not likely to weaken much even though the rates in the U.S. is low, as foreigner buying of the newly issued U.S. governement debt will add a significant amount of demand for the USD  in the short-run.

Our only concern is the cost of borrowing for the U.S. government.  Normally the lender will demand a higher interest charge from a borrower whose borrowing had been increasing at a alarming rate.  Think of it from a corporate lending appraisal.  Bank will typically look at the debt/equity ratio or debt/total asset ratio.  In  the case of the U.S., the recession and the drop in value for most asset class in U.S. meant that the risk is getting higher for any lender to the U.S. government.  How this will affect the Feds action of lowering rates to give the economy a push is beyond our knowledge.

figures are taken from Zfacts.com

It had been sometime since we posted our forecast Nov 13, 2008), and it is about time to review it.

Our Earlier Forecast
EURUSD 1.1700 or lower
GBPUSD 1.3800 or lower
USDJPY 89.00
AUDUSD 0.5600
USDSGD 1.5700

It looks like we are terribly wrong in our forecast. Since our forecast was posted on Nov 13, 2008. The of <HIGH/LOW>Current> rate of the various pair had been:
EURUSD <1.4720/1.2423><1.4032>
GBPUSD <1.5724/1.4468><1.4773>
USDJPY <98.27/87.14><90.33>
AUDUSD <0.7139/0.6076><0.6833>
USDSGD <1.5351/1.4168><1.4432>

USDJPY is the only pair we got it right. So the big question is “What went wrong”?

Few possible reasons:
1) Return of risk appettite
2) Lower Oil & Commodities price
3) Lower interest rate in U.S. (Feds cuts rate to 0.25%)

Let’s look at each one of them closely.

1) Return of risk appettite
From the look of the equity market, we do see return of some risk money into the market, as everyone is betting on a mini rally towards the year end.

2) Lower Oil & Commodities price
With economies around the world starting to feel the impact of the financial crisis, global aggregate demand had slowed to a crawl in most sectors. This lead to an expectation of easing in the demand thus the price of oil and commodities.

3) Lower interest rates in U.S.
The Feds rate cut seems to filtering into the system, with long-term rates coming off its recent high. This makes the shorting of USD cheaper from the point of view of funding.

The question we ask ourselves now if we should revise our forecast.

We think there is a possibility of another round of USD buying in 1Q2009, before the USD hit its peak.

Our revised Forecast
EURUSD 1.2200 +/-50pips
GBPUSD 1.3900 +/-50pips
USDJPY 89.00 +/-50pips
AUDUSD 0.6100 +/-50pips
USDSGD 1.4900 +/-50pips

Let’s try to review this again at the end of Jan 2009.

Merry X’mas & happy New Year to all.

The team at Dreams@work wishes all a Merry X’mas & Happy New Year.

2008 has been a tough year for many, but never give up hope, and let’s all look forward to a great 2009.

To share with all one of our favourite quote:

“If you limit your choices only to what seems possible or reasonable, you disconnect yourself from what you truly want, and all that is left is a compromise.”

~ Robert Fritz

EUR traded higher to a touch above 1.3400 and retrace back to current level of around 1.3350.  Trader who had enter at 1.3000 downside yesterday would have taken their profit at the suggested level of 1.3370.

This morning trading action seems to suggest some selling pressure.  Reckon intraday, we can see this pair trades lower to 1.3270 level.

We prefer to stay on the sideline for now and look for opportunity to enter the trade again.

Have a great weekend.

NY close above 1.3000 level indicated a near term break out soon.

Stop below at 1.2935, take profit at 1.3370

Good luck

The pair briefly touches the day high of 1.3004 just as the London is starting another day of trading.  Still watching this pair clsoely for any sign of breaking out of the recent range trend.

Short-term trader can play the range market by selling near the 1.3000 figure and adjusting your stop as it retrace lower.  Buy back at 1.26 downside is highly desirable.

Breakout trader can buy on close above 1.3000 level (end of today) for move up to 1.3380, stop had to be tight below at 1.2940.

Good luck.

Equity markets across the Globe moves higher today on the back of promise of more economic stimulus from government around the world.  What really helps was the reassurance from President-elect Obama that recovery efforts will trump deficit concerns, giving market more hope that the U.S. or perhaps the Global economy will avoid deeper recession.

Together with the upmove in the equity market, the greenback is also giving back some of the gain it made against the EUR last week.  Technically, it might try to push higher above the 1.30 level again.  I will not be surprised if it does.  1.3380 is still the likely top side target if rates can hold above the 1.30 in the next 2 sessions.  We have to be careful with some unncessary noise given the year end market.

We will watch the EURUSD closely over the next 24hrs, and make our recommendation then.

Stay tune.