Household FX Loans " Eastern Europe Edition"

Definitely a topic that won´t be included in any ( Austrian.... ) stresstest scenario.... Watching this Heat Map showing the foreign ( and mainly European ) bank presence in Eastern Europe i can understand why... ;-)

Mit Sicherheit ein Themenbereich der im "brutalst" möglichen Stresstest ( denke da besonders an Österreich ) keinerlei Beachtung finden wird....Wenn man sich auf dieser Heat Map den "nicht unwesentlichen" Einfluß der überwiegend europäischen Banken in Osteuropa ansieht, verwundert das wenig.... ;-)

BNP via FT Alphaville

[the forint] is under pressure and that around 70% of household loans in Hungary are FX loans (possibly either in swiss franc or euro), putting pressure on consumer balance sheets.

Now a special report only on CHF dominated loans..... You can do the math estimating the € share ( see next table )....

Nachfolgend eine Betrachtung der in CHF begebenen Kredite.... Daraus kann man die Summe in € in etwa ableiten ( siehe Tabelle )....

UBS via ZH

The total amount of outstanding Swiss franc loans to banks and non-banks rose from CHF 228bn in 1999 to CHF 558bn in the third quarter of 2008, before declining to CHF 488bn in 1Q 2010 (see Fig. 1).

To appreciate the magnitude of these figures, consider that the sum of these loans equals around ten times the sum of all Swiss banknotes in circulation (CHF 48 bn in May 2010), and that they are nearly equivalent to Switzerland's nominal GDP of CHF 535bn in 2009.

Further, the sum of franc loans abroad is equal to nearly 70% of the outstanding amount of loans in Switzerland (about CHF 723 bn in April 2010).

The CHF 488bn loans are roughly double the size of the SNB's foreign currency reserves. That means there is a large franc short position outstanding, which more than counterbalances the francs that the SNB has created with its current FX interventions.

Over the past decade, a growing number of foreign households and companies borrowed in Swiss francs to finance their local currency investments. Franc-denominated loans became popular in Austria and Eastern Europe owing to Switzerland's lower interest rates compared with their local currency loans. Moreover, the depreciation trend of the Swiss franc between 2003 and 2007 triggered demand for franc loans in Eastern Europe. As long as the franc weakened, demand for franc loans grew. And, for a time, mortgage payments denominated in francs (due to the weakening franc) became progressively less expensive. We suspect that many of these borrowers failed to anticipate the risk of rapid currency movements.

Since June 2010, the SNB no longer manages the exchange rate with interventions as it believes deflationary risks in Switzerland have largely disappeared. Since mid-June, the Swiss franc has appreciated sharply against all major currencies, which means that servicing franc-denominated debt has becomes increasingly expensive for foreigners.

•Absolute amounts of CHF loans outstanding to non-banks: In the Eurozone, Austria has the highest amount with CHF 81bn, followed by Germany (CHF 60bn), France (CHF 30bn) and Luxembourg (CHF 25bn). Outside the euro area, Poland is the leader with about CHF 53bn, followed by Hungary (CHF 36bn), the UK (CHF 23bn), and Croatia (CHF 7bn).

•CHF loans outstanding to non-banks as a share of total loans: The highest share can be observed in Hungary (34%), followed by Poland (20%), Austria (14%), and Croatia (13%).

•CHF loans outstanding to non-banks as a share of foreign-denominated loans: the highest share can be observed in Austria •(68%), followed by Poland (65%), Hungary (52%), and Croatia (about 18%).

•Romania and the Baltic states also have large shares of foreign currency-denominated loans, but they prefer the euro or US dollar (see Fig. 3).

Austrians have been borrowing in Swiss francs for more than 15 years (see Fig. 5), while eastern European countries started around 2004. As Hungary, Poland and Croatia have increased their Swiss franc loans aggressively in the last couple of years, the rapid appreciation of the franc and the weakness of their own currencies hurt borrowers in those three countries (see Figs. 6, 7, 8). New borrowers (who requested a CHF loan in 2007 and 2008), are affected more than earlier borrowers, as the latter took out Swiss-franc loans at lower exchange rates

In many cases, the rise of the franc will have lifted the value of the outstanding debt above the value of the asset(s) and made the credit/mortgage shaky.

At some point, franc borrowers might realize that the franc might stay strong for longer, which could induce them to switch their loans. While the franc is affected by many factors, should the borrowers of franc loans at some point decide to switch their loans into local currencies, it could support the franc further, as the borrowers have to unwind their franc short positions.

We therefore conclude that the large amount of outstanding Swiss franc loans to foreign countries remains a threat for the Swiss economy.

Unlike UBS i´m pretty sure that none of the borrowers cares about the stability of the swiss economy .... ;-)

Beim letzten Satz kann ich mir ein Schmunzeln nicht verkneifen... Bin mir ziemlich sicher das keiner der in Franken verschuldeten sich auch nur ansatzweise um die Stabilität der Schweizer Wirtschaft Sorgen macht.. ;-)

You Know Something Is Wrong When.......

A veteran like Art Cashin is scared that the markets cannot handle ( QUOTE: "Meltdown" , "800 Point Plunge" ) a 2 percent intraday "spike" in the $......Needless to say that after Cashin finished the interview the market scored the biggest gain fueled from the "blockbuster" Government Domestic Product report since July hand in hand with a weaker $...... Shocking to see that this "bulletprove" strategy cannot work indefinitely.....

Wenn ein Veteran wie Art Cashin Angst vor einem Crash ( ZITAT: "Meltdown, "800 Point Plunge") hat nur weil der $ nach einer langen Talfahrt keine 2% intraday Erholung vertragen kann sollte man zumindest mal kurz innehalten..... Brauche wohl nicht zu erwähnen das nur Minuten nachdem Cashin die Bombe hat platzen lassen die Märkte getragen von dem "überzeugenden" Government Domestic Product den größten Tagesgewinn seit Juli haben folgen lassen.... Hand in Hand mit einem stark schwächelnden $...... Schon schade das diese "idiotensichere" Strategie nicht in alle Ewigkeit fortgeführt werden kann.....



Combine this with one of the biggest stock market rallies of all time ( chart ) & the Highest Risk Appetite Since April 2006 among the so called "smart money" and things can get "interesting"....... God forbid when the $ moves lower and the markets refuse to follow the inverse course.....Would probably qualify at least for a "Grey Swan".....

Wenn man nun noch bedenkt das wir gerade eine der gewaltigsten Aktienmarktrallies aller Zeiten ( Chart ) hinter uns haben und die Risikobereitschaft der "Professionellen" den höchsten Stand seit April 2006 erreicht hat kann es schnell "ungemütlich" werden..... Nicht auszudenken was passiert wenn der $ gen Süden geht und die Märkte daraufhin weigern zu steigen..... Denke dann dürften einige Marktteilnehmer zumindest einen "Grey Swan" am Horizont erkennen....;-)

BofA Merrill Lynch Fund Manager Survey Finds Risk Appetite at Highest Point Since April 2006

With almost all asset classes ( Dow 10.100, S&P 500 1100, N100 1780, Dax 5860, FTSE 5250, Oil $ 80 etc ) at new highs it looks like the herd mentality is once more rampant ( fueled in large part from the $ Carry Trade - €/$ 1,50 - & "Quantitive Easing" see also Speaking Of A Money Illusion........ ). Nice to see that after one of the biggest rallies in decades finally the "smart money" ( unlike the retail investor ) is getting more bullish..... As a contrarian it seems lots of folks are "all in"...... Another UPDATE: It remains to be seen if last hour drop from Wednesday was only a minor glitch in the Matrix..... Very telling that this (!!) "bulletproof" strategy seems the only relevant parameter that is important.... until it stops working ....;-) UPDATE: Taking todays ( Oct. 26th ) action into account i think this was more than a minor glitch in the MATRIX... There is now a reasonable chance that this guy will get the upper hand for some time to come..... At least all the "Cash On The Sidelines" ( sarcasm ) has now the opportunity to step in. Add to this that "Wall Street Finest" have only a sell rating on 5 percent of all stocks and the potential for some extra SCHADENFREUDE is not getting smaller.... ;-)

Da gerade heute praktisch alle Vermögenswerte nahe Ihren Jahreshochs ( Dow 10.100, S&P 500 1100, DAX 5860, MDAX 7450, TECDAX 775, FTSE 5250, Öl $ 80 ) notieren ( dank des$ Carry Trades invers zum $ - €/$ 1,50 - versteht sich, sowie dank des sog. "Quantitive Easing" , passend zum Thema Speaking Of A Money Illusion........ ) sieht es in der Tat einmal mehr so aus als wenn der Herdentrieb praktisch alle Marktteilnehmer infiziert hat... Da paßt es gut ins Bild das auch gerade jetzt die Big Boys ( ganz im Gegensatz zu dem Kleinanleger ) nach einer der größten Kursexplosion der letzten Jahrzehnte endlich Ihre Vorsicht über Bord geworfen haben und zum Teil massiv Ihr Risiprofil erhöht haben... Man könnte auch sagen das sie "all in" sind... Erneutes Update: Es bleibt abzuwarten ob der starke Abverkauf in der letzten Handelsstunde vom Dienstag nur ein kleiner Fehler in der Matrix gewesen ist... Wenn man sich aber die anscheinend momentan gängige "Strategie" (!!) ansieht wie die Märkte "funktionieren" sagt das einiges über Robustheit der Rally aus......;-) UPDATE: Nach dem heutigen ( 26. Oktober ) erneuten Abverkauf handelt es sich wohl um mehr als nur einen kleinen Fehler in der Matrix..... Es ist nun nicht unrealistisch das dieser Typ bis auf weiteres die Oberhand gewonnen hat ...... Immerhin ermöglicht dieser noch kleine Rückschlag ja den angeblichem "Cash On The Sidelines" ;- ) sich endlich massivst in den Aktienmarkt einzukaufen.....Wenn man jetzt noch bedenkt das die "Analysten" lediglich 5% der Aktien mit einer Verkaufsempfehlung versehen haben dürfte das die mögliche Schadenfreude nicht gerade mindern..... ;-)

H/T RobotTrader

BofA Merrill Lynch Fund Manager Survey Finds Risk Appetite at Highest Point Since April 2006 as Double-Dip Recession Fears Fade Marketwatch

--Investors See Brighter Corporate Profits on Horizon - Shift from Cash to Equities

Investors' risk appetite has reached its highest point in more than three years amid continued optimism about the prospects for a global economic recovery and rising corporate profits, according to the BofA Merrill Lynch Survey of Fund Managers for October

Investors are increasingly confident that the threat of a double-dip recession is waning. A net 65 percent of respondents believe a global recession is unlikely in the next 12 months, up from 47 percent a month earlier.

A net 72 percent of respondents believe the outlook for corporate profits will improve in the next year, up from 68 percent a month earlier.

The survey also shows asset allocators shifting out of cash and into equities as risk appetite grows. Their cash positions are at their lowest level since January 2004. A net 7 percent of respondents are underweight cash in October, compared to a net 10 percent overweight a month earlier.

A net 38 percent of panelists are overweight equities, up from 27 percent in September. Technology, Energy, Materials and Industrials are the favored sectors for asset allocators in October with investors still shying away from financial
stocks.

Investors seeing value in Europe hits eight-year high

Asset allocators are showing a growing conviction that global corporate profits will post double digit earnings growth, the survey shows. A net 39 percent of panelists think profits will rise by at least 10 percent in the next 12 months, up from just 25 percent in September.

Optimism about Europe is pronounced in the October survey. A net 30 percent of global portfolio managers see eurozone equities as undervalued relative to other regions, the highest reading since April 2001

. A net 9 percent of panelists want to overweight the region in the next 12 months, up from 7 percent last month. This contrasts with Japan, which a net 20 percent of investors regard as the least attractive region a year ahead.

The change in sentiment coincides with a shift in investors' appetite for European financials. Investors are overweight European banks for the first time since June 2007, courtesy of greater confidence in bank balance sheets and profitability trends.

"Europe is emerging phoenix-like from the ashes as confidence in its banks boosts overall confidence in European equities," said Gary Baker, head of European equity strategy at BofA Merrill Lynch Global Research.

> Read this twice...... ;-)

> Das sollte man zur Sicherheit zweimal lesen....... ;-)

Chinese confidence rebounds: U.S. dollar confidence sinks

Confidence in the prospects for the Chinese economy and emerging markets in general remains robust. A net 49 percent of respondents think China's economy will strengthen in the next 12 months, up from 35 percent in September. A net 36 percent of respondents also said they would most like to overweight emerging markets in the next year.

Continuing weakness in the U.S. dollar has resulted in a growing number of respondents who believe the dollar is undervalued. A net 20 percent of panelists regard the currency as undervalued, compared to one percent a month earlier. Japan's economic outlook is marked by a growing number of asset allocators who view the yen as overvalued. A net 34 percent of respondents believe it is overvalued, compared to just 21 percent last month.

"Confidence in Chinese growth has rebounded but worries over a U.S. dollar crisis are on the rise. The dollar is seen as undervalued and the yen as very overvalued, suggesting that central bank intervention in currency markets in coming months could soon prove successful," said Michael Hartnett.

A total of 229 fund managers, managing a total of US$616 billion, participated in the global survey from 2 October to 8 October. A total of 195 managers, managing US$384 billion, participated in the regional surveys.

> It feels like my blog headline "Bubbles Are Normal And Non-Bubble Times Are Depressions...." is the new mantra among central banksters...... ;-)

> Ich fürchte immer mehr das meine Blogüberschrift "Bubbles Are Normal And Non-Bubble Times Are Depressions...." weltweit alle Zentralbankster erfaßt hat....... ;-)

UPDATE:

90% Of Fund Managers Think The Market Will Go Up Clusterstock

Maybe the street has become a bit too bullish afterall.

90% of institutional investors believe that the S&P500 will rise to 1,200 by the end 2011 according to a survey by The Markets. 75% then expect it to hit 1,500 by the end of 2013, and 75% believe that the market already bottomed earlier this year. The survey covered 103 invesors in 20 countries.

We don't necessarily disagree with these views, but naturally find it disturbing to find such a strong consensus on market direction. It sets off our contrarian alarm loud and clear.

From Paul Tudor Jones, who reports in his third-quarter letter to investors

While many of our surveys of aggregate hedge fund positioning would say net long exposure has rebounded to late 2007 percentages (though on a smaller base), and mutual fund cash/asset ratios have come in significantly, markets continue to trade as if most are not satisfied with their current commitment to equities.

Fall 2009 Big Money Poll Results Out: Only 13% Are Bearish, 70% Are Beating S&P, As Taxpayers Get Hosed ZH

On economic matters, 72% of respondents believe the recession has ended, and an amusing 52% believe there is no chance of a double dip recession. It is scary that over half of the "sophisticiated community" thinks that Fed can succeed where so many central planning administration have failed before.

Uh-Oh: Economists Say Recovery, Market Gains Solid BR

Nearly four of five economists surveyed by USA TODAY say the stock market rally since March is heralding a sustainable recovery.

> Needless to say that i agree almost 100 percent with this guy & Geremy Grantham....

> Kann nicht oft genug wiederholen das ich zu fast 100% mit diesem Typen & Geremy Grantham übereinstimme.....


JGLetter_ALL_3Q09 -

Eastern Europe Carry Trades.......

Over 50 percent of all loans in a foreign currency..... This "conservative" strategie is now backfiring.........No wonder the ATX in Vienna where lots of the dominant banking players are listed is one of the worst performing.. The main players in the Baltics are coming from Scandinavia and especially Sweden (UPDATE : Just in time Sweden braces for a Baltic backlash) ......... Here are more details about the debt & financing troubles in Eastern Europe..... On top of this i recommend this post Baltic Real Estate / Bubble World Tour on the the real epicentre....

Wenn über 50% aller ausstehenden Kredite nicht in der Landeswährung aufgenommen werden kann man nicht gerade von einer "soliden" Finanzierungsform sprechen.... Solange die nur Unternehmen betrifft kann man sicher noch ein Auge zudrücken...Wenn aber private Hypotheken und PKW´s über diesen Weg finanziert werden darf man sich über einen veritablen Kater nicht wirklich wundern......Kein Wunder das der ATX in Wien einer der am übelsten performenden Aktienmärkte überhaupt ist......Hier kommen weitere Details zur Schulden und Finanzierungslage in (der ehemaligen Boomregion ) Osteuropa. Die wesentlichen Spieler im Baltikum kommen aus Skandinavien und da besonders aus Schweden ( UPDATE: Wie passend Sweden braces for a Baltic backlash )....... Darüberhianus verweise ich auf ein früheres Posting aus dem Jahr 2007 Baltic Real Estate / Bubble World Tour das besonders auf das kommende Epizentrum der Krise eingeht.....


WSJForeign-currency borrowing, which is the normal way for Hungarians to buy homes, cars or other big items, are set to become more expensive because of the weak forint, which has lost about 12% of its value against the euro since Oct. 1.

Viktoria Erdos, a 30-year-old professional dancer smoking a cigarette in a café near Budapest's opera house, said her monthly payments on her Swiss-franc mortgage are up about 15%, but it isn't cramping her style too badly. "I'm buying fewer clothes and am partying a bit less," she said. "I'm not really worried yet."


But today's crisis is serious enough. Investors' concern has forced Hungary's authorities to seek a €5 billion ($6.7 billion) loan from the European Central Bank, as well as verbal support from the International Monetary Fund -- two gestures Hungary hopes will persuade investors that the country has strong allies.

All but one of Hungary's major banks are owned by big international banking groups based in Western Europe or the U.S. Around 40% of Hungary's short-term foreign debt is money that banks like Citigroup Inc. lent to their local subsidiaries, according to central-bank figures.

Around two-thirds of Hungary's foreign-currency debt is owed by the private sector, Mr. Simor said -- and most of that is owed by the local units of multinational companies, which dominate Hungary's business scene.

Alan Bernanke.......

It took the Fed only one quarter to reverse almost 50 percent of the past 2 years of rate increases. But this is what happens when all your models are so out of touch with reality & you are ignoring your duty for oversight. I think if there will be any rate increases in the distant future they will start with well telegraphed measured 0,125 % steps...... I assume that it is more likely that Elvis is still alive than that the Fed will ever orchestrate an emergency rate hike..... Unfortunately i havn´t found a broker that is willing to accept that bet :-) The next question will be if the Greenbag is on its way to become the new currency for the next wave of carry trades.....

Die Fed hat binnen eines Quartals bis Ende Januar vermutlich die Hälfte ihrer Zinserhöhungen zurückgenommen für die sie in ihrem mühseligen Normalisierungsprozess ( 0,25% Schritte ) zwei Jahre gebraucht hat. Eine echt reife Leistung. Das ist aber wohl der Preis dafür das man vollkommen an der Realität vorbeilebt und sich nach Modellen richtet die aus der Steinzeit stammen. Zudem hätte ein Großteil des Wahnsinns vermieden werden können wenn die Fed Ihrer Aufsichtspflicht nachgekommen wäre und die meisten der durchgeknallten Darlehensfinanzierungen nicht durchgewunken hätte. Ich befürchte schon jetzt das sich die Fed im nächsten Zinserhöhungszyklus (irgendwann in 10 Jahren) zu gewaltigen Zinsschritten von 0,125% entschließen wird.... Zudem ist wohl wahrscheinlicher das Elvis lebt als das die Fed jemals eine ausserplanmäige Zinserhöhung initiieren wird.. Leider haben ich noch kein Wettbüro gefunden das diese Wette entgegennimmt..... :-) Die nächste Etappe wird wohl sein das der Greenback die neue Carry Trade Währung werden könnte....

From panic to penicillin - Bernanke, blogged Ft Alphaville

Less Than Respectful Commentary on the Fed Put and Fiscal Rescue Efforts Naked Capitalism

Five Things You Need to Know: Emergency Rate Cut, What It Means and What to Do Minyanville

Greenspan Put Is Dead. Long Live Greenspan Put: Caroline Baum Bloomberg

The Fed Blinked: Now, What? Herb Greenberg

Bernanke Blinks Mish

Desperate measures Economist

Es riecht nach Verzweiflung FT Deutschland

Time to remember this great chart from Minyanville showing how stupid the case "Don´t fight the Fed" is...

Höchste Zeit sich den wunderbaren Chart von Minyanville anzusehen der einmal mehr eine angebliche Börsenweisheit "Don´t fight the Fed" entzaubert.....

Lots of the mess can be blamed on Greenspan but as shown in this excellent piece The Education of Ben Bernanke from the NYT ( Hat tip to Hellasious from Sudden Debt ) i doubt that Bernanke would have done much differently.... Especially after the latest actions......

Sicher kann ein Großteil des aktuellen Unheils Greenspan angelastet werden aber dieser großartige Bericht The Education of Ben Bernanke der NYT ( Dank an Hellasious von Sudden Debt zeigt eindeutig das Bernanke wohl ganz ähnlich gehandelt hätte ( siehe Aktion gestern ) .......

Bernanke is also firmly opposed to the notion that central banks should raise rates to prick bubbles in the stock market or elsewhere. In a paper written at the height of the dot-com mania, in late 1999, Bernanke and his friend Gertler argued that it is virtually impossible to identify a bubble before it pops.....

Bernanke made a small contribution to a problem that would blossom in a big way on his watch. In the aftermath of the 2001 recession, inflation was at its lowest level in decades. Though consumer prices were rising, Bernanke feared a possible bout of deflation — the potentially devastating phenomenon in which prices drop, leading to lessened business activity and then still lower prices and so forth. This occurred during the Depression and also in Japan in the 1990s. Bernanke’s argument provided a major element of support to Greenspan for keeping interest rates low

But as a goldbug/bull you gotta love these guys......

Aber als Goldbulle muß man solche Typen einfach lieben.....

Jim Rogers Shifts All Assets Out of Dollar to Buy Yuan

I´m not sure if the Chinese are happy with comments like this...... But there is little doubt that the Yuan is significantly undervalued. I recommend to visit Brad Setser´s Blog to read more about this topic. Lets be clear a rise of the Yuan will change the landscape for lots of regions and will have big implications for all asset classes for years to come. In the meantime the Chinese have to deal with lots of hot money that is chasing Chinese assets.

Ich kann mir vorstellen das die chinesischen Offiziellen solche Kommenate nicht gerne hören.... Aber es besteht kaum ein Zweifel das der Yuan deutlich unterbewertet ist. Mehr Expertise zu diesem Thema gibt es regelmäßig auf Brad Setser´s Blog. Ein schneller Anstieg dürfte zu einigen Verwerfungen führen und dürfte kaum eine Region oder Anlageklasse unbeeindruckt lassen. In der Zwischenzeit müssen die Chinesen damit leben das eine Menge "Hot Money" chinesche Vermögenswerte regelrecht jagt .

Jim Rogers Shifts Assets Out of Dollar to Buy Yuan Oct. 24 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium.

The dollar has dropped against all the 16 most actively traded currencies except the Mexican peso this year as slowing growth and the first interest-rate reduction since 2003 last month dimmed the allure of dollar-denominated assets.

Since the Fed lowered U.S. interest rates on Sept. 18, the first cut in four years, the dollar has fallen 2.8 percent against the euro and touched a record low yesterday. Gold rose to a 27-year high and platinum jumped to a record.

``It's the official policy of the central bank and the U.S. to debase the currency,'' said Rogers, a former partner of George Soros.

Reserve Currency
``The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange,'' he said. ``That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.''

The Chinese currency, known as the renminbi, or yuan, is ``the best currency to buy right now,'' Rogers said. ``I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple.''

> Here is short term outlook from Morgans Stanley on this topic Fasten the Seatbelt

> Hier ein aktueller Kommentar von Morgan Stanley zu diesem Thema Fasten the Seatbelt

China has followed a gradualist approach. In 2006, the renminbi appreciated against the US dollar by 3.4% but against the currency basket (i.e., the NEER) by only about 0.8%. As of last Friday, the cumulative appreciation against the US dollar so far this year was 4%, but against the currency basket only about 1.4%

Since I expect the pace of renminbi appreciation against the US dollar to accelerate markedly for the remainder of the year, I endorse our FX strategy team’s forecast that the USD/CNY rate will reach 7.30 by end-December (see FX Impulse, October 18, 2007). This year-end target implies about 2.7% appreciation of the renminbi against the US dollar for the remainder of the year and slightly less than 7% for 2007 as a whole.

Despite this seemingly aggressive USD/CNY forecast, I estimate – based on our FX strategy team’s forecasts of the exchange rates for China’s major trading partners – the cumulative appreciation of renminbi NEER for 2007 will be only about 3.9%

The yuan strengthened past 7.5 to the dollar today for the first since the central bank ended a fixed exchange rate in July 2005. The currency has gained 10.5 percent since the dollar link was abandoned.

China, growing faster than any other major economy, is ``going to be the most important country in the 21st century,'' he said. China's gross domestic product expanded 11.9 percent in the second quarter, and analysts surveyed by Bloomberg estimate the economy grew by 11.5 percent in the three months to Sept. 30.

> I recommend to read Is the credit squeeze a prelude to a China crash? from John Plender via the FT. I suggest to read the entire link.

> Hier ein weniger bullische Meinung von John Plender Is the credit squeeze a prelude to a China crash? via der FT. Ich empfehle den kompletten Link zu lesen.

The backcloth has invariably been a shift in global power whereby the growth of an immature creditor country wedded to protectionist trade policy has contributed to imbalances of savings and investment. Attempts to manage the currency volatility arising from imbalances have derailed monetary policy and created bubbles in asset markets, leading to crashes and financial distress.

Rogers also is buying Swiss francs and Japanese yen, which he said have been ``pounded down'' because of the so-called carry trades.

Unwinding Carry Trades
In the carry trade, investors borrow in countries with low interest rates, such as Japan, and invest the proceeds where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.

The carry trades in yen and francs will ``unwind someday,'' which will send the currencies ``straight up,'' Rogers said. ``I'm buying the yen.''

The bull markets in bonds and stocks are ``over,'' he said. ``Bonds will be a terrible place to be for many years and will in fact be going down for many years.''

Rogers said he remains bullish on commodities because ``that's where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.''

Commodity Prices
Commodity prices have surged as demand for raw materials, especially from China, rose faster than producers were able to increase output. Agricultural prices have led recent gains, including a record high for wheat last month and a three-year high in soybeans.

``The number of hectares devoted to wheat farming has been declining for 30 years, the inventory levels of food are at the lowest level since 1972,'' Rogers said. ``Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things.''

He added, ``I think I'm going to make more money in agriculture than I make in precious metals.''

Platinum, gold, silver and palladium will ``be much, much higher during the course of the bull market,'' he said.

Credit Excess / Baltics

Wow! We have a clear winner in the category "easy credit". beforeThe the following charts and data are just breathtaking. .....The credit explosion explains why the Baltic Real Estate market is so "frothy".

Anschnallen! Wir haben den eindeutigen Gewinner in Sachen "Easy Credit" gefunden. . Die nachfolgenden Charts und Daten verschlagen einen aber wirklich den Atem....... Das erklärt natürlich auch diesen Bericht über den baltischen Immobilienmarkt.


Banking Risks Rise in Eastern Europe
Credit to the private sector has expanded at a fast clip in central and eastern Europe during the past decade, outpacing most other regions of the world.

Rapid credit growth (see Chart 1) reflects a number of factors:

• low levels of financial development and pent-up demand pressures following decades of socialist economic management;

• good macroeconomic discipline and membership in the European Union (EU), which lowered country risk premiums; and

• improved access to foreign capital following the entry of foreign banks and the opening of capital accounts.

Assessing the risks
Rapid credit growth has brought important benefits, helping channel domestic and foreign savings to households and investors and supporting financial sector development and economic growth in the region. But the brisk expansion of credit is raising concerns about macroeconomic and prudential risks (that is to say, whether banks remain sound).

Quantifying these risks is a challenge because countries in central and eastern Europe have not gone through a full credit cycle yet, and financial soundness indicators tend to improve in the upward phase of the credit cycle.

But experience in industrial and emerging market countries suggests that credit booms can be associated with unsustainable domestic demand booms, overheating, and asset price bubbles. Financial sector difficulties also cannot be ruled out—for example, loan losses may occur during a deep recession or following a large exchange rate depreciation if loans are denominated in foreign currency.

> from Baltic blues / Economist

How significant these risks are in central and eastern Europe and what role public policy should play in containing them are key questions facing policymakers.

Banking risks on the rise
On the surface, rapid credit growth in central and eastern Europe does not appear to have weakened banks. (It remains to be seen how the current turmoil in financial markets will affect banks in the region, but so far there have been no signs of a major fallout.) However, the reason financial soundness indicators are not yet pointing to a deterioration in credit quality could be that they are based on systemwide statistics rather than reflecting assessments of data from individual banks and there is a lag before bank data become publicly available.

Our analysis suggests that the granting of credit is becoming increasingly divorced from bank soundness—all banks, including weak ones, seem to be expanding at an equally rapid pace. This suggests that prudential risks are on the rise.

Our findings underscore the importance of forward-looking and risk-based supervision to keep the risks associated with rapid credit growth at manageable levels while maximizing the benefits of credit for financial development and economic growth.

In particular, supervisors need to give more attention to weaker banks that are growing rapidly. This would also be consistent with the risk-based approach to supervision that central and eastern European countries are moving to as they implement the new capital adequacy accord, known as Basel II.

Increased prudential risks are most apparent in the fastest-growing credit markets. These markets include lending to households, foreign currency-denominated or indexed lending, and lending in the three Baltic countries, where weaker banks are expanding at a faster rate than sounder banks (see Chart 2). A stronger policy response is thus warranted in each of these markets. Such a response may involve, for example, higher capital requirements and tighter loan classification and provisioning rules, differentiated on a bank-by-bank basis

But experience in industrial and emerging market countries suggests that credit booms can be associated with unsustainable domestic demand booms, overheating, and asset price bubbles. Financial sector difficulties also cannot be ruled out—for example, loan losses may occur during a deep recession or following a large exchange rate depreciation if loans are denominated in foreign currency.

How significant these risks are in central and eastern Europe and what role public policy should play in containing them are key questions facing policymakers.

Banking risks on the rise
Our analysis suggests that the granting of credit is becoming increasingly divorced from bank soundness—all banks, including weak ones, seem to be expanding at an equally rapid pace. This suggests that prudential risks are on the rise.

Increased prudential risks are most apparent in the fastest-growing credit markets. These markets include lending to households, foreign currency-denominated or indexed lending, and lending in the three Baltic countries, where weaker banks are expanding at a faster rate than sounder banks (see Chart 2). A stronger policy response is thus warranted in each of these markets. Such a response may involve, for example, higher capital requirements and tighter loan classification and provisioning rules, differentiated on a bank-by-bank basis

Carry Trade & Economist Summary

The Economist has a good sample of what happened during the last weeks. As an example i have taken the report on the carry trade. I hope the links work without subscription. O top off this you can click at the labels to get more on last weeks topics. Please leave a comment if a certain Link doesn´t work.

Der Economist hat eine ziemlich gute Übersicht was in den letzten Wochen abgegangen ist. Beispielhaft habe ich mir mal den Report zum Carry Trade herausgepickt. Ich hoffe das die Links auch ohne Abo funktionieren. Hinterlaßt bitte einen Kommentar wenn ein bestimmter Link nicht abzurufen ist.
Banks in trouble
A liquidity squeeze "Bankers' mistrust"
Funding difficulties "A conduit to nowhere"
Hedge funds "Behind the veil"
Financial contagion "Mortgage flu"
Should central banks act as buyers of last resort?

Not-yet-desperate housewives
Is Mrs Watanabe doing her bit for global stability?

IN MOST of the world in the past week, attention has been on highly leveraged hedge funds that have been forced to dump assets bought on margin. In Japan, however, a different species of margin trader has—until now, at least—stood firm: the housewife. On her shoulders may lie responsibility for some of the stability of the global financial system.

On August 15th the Japanese currency climbed to a 4½-month high against the dollar and continued to surge against the New Zealand dollar, raising concerns about the sustainability of the carry trade, through which investors borrow in cheap yen to buy higher-yielding assets elsewhere. This had made fortunes for international investors but, lately, Japanese retail investors had become the carry trade's greatest enthusiasts.

> The latest strenght of the Greenback is worth mentioning and if the $ will sustain these trend it will be unusual. I doubt that that this will last. Brad Setzer is also wondering The dollar, still a currency that you run to?

> Die Stärke des US $ in den letzten Wochen des Chaos ist zumindest wenn dieser Trend anhält recht ungewöhlich. Ich glaube das dies nicht von Dauer sein wird. Brad Setzer stellt sich die gleiche Frage The dollar, still a currency that you run to?

The metaphorical Mr and Mrs Watanabe account for around 30% of the foreign-exchange market in Tokyo by value and volume of transactions, according to currency traders, double the share of a year ago. Meanwhile, the size of the retail market has more than doubled to about $15 billion a day.

One reason for the surge is margin trading. Brokers are offering leverage of as much as 200 times the down-payment (though the average is more like 20 to 40 times).

In July Japanese retail investors' short positions on the yen (a bet that it would fall) exceeded the amount taken by traders on the Chicago Mercantile Exchange, a foreign-exchange trading hub. “The gnomes of Zurich were accused in their day of destabilising markets. The housewives of Tokyo are apparently acting to stabilise them,” boasted Kiyohiko Nishimura, a Bank of Japan board member, in July.

Strikingly, as the yen appreciated, retail traders, rather than dump their positions, saw a buying opportunity and sold yen for other currencies, softening its rise. “The Japanese government has not intervened—they've not had to, because the Watanabe-sans have been selling yen for them,” says James Gow of FXOnline Japan, a retail broker.

Poof....There Goes The Carry Trade....

This should come as no surprise. On top of all the players that leveraged them to their eyeballs the clearest sign that something was about to happen came direct from Japan . The following stats are taken from Housewives Outmaneuver UBS, Deutsche Bank Trading Yen .

Das dürfte aber nun wirklich niemanden überraschen. Zu einen sind fast alle Marktteilnehmer bis über beide Ohren ins Risiko gegangen auf der anderen Seit kam das wohl klarste Signal direkt aus Japan. ( siehe Housewives Outmaneuver UBS, Deutsche Bank Trading Yen )

Japanese businessmen, housewives and pensioners betting against the yen in their spare time are wrecking the forecasts of the world's biggest currency traders

They tripled their trading in the year ended March to a record $11 billion a day

In Japan, individuals have opened 600,000 so-called margin trading accounts at brokerages that lend money for currency bets, 80 percent more than a year ago

Feels a little like the cab driver giving stock tips

Bei uns würde man das wohl "Milchmädchenhausse" nennen....

Thanks to Henry k. To. Chart taken from Market Not Close to Capitulation Just Yet

Chart does not include the brutal move today in Asia

As mentioned o n the above chart, the most recent correction in the four popular Yen cross rates is still not severe enough as what we witnessed during the late February to mid March correction. More importantly, these cross rates have only corrected to levels last seen during early June - definitely nowhere close to "capitulation" levels and a far cry to what we witnessed in Fall 1998, when the Yen - at one point - rose over 10% in a space of 24 hours!

bigger/größer

> It will be interesting to see how all the Japanese investors will react.... I can imagine that some of them are drinkng more Sake than usual...... :-)

> Ich bin gespannt wie all die japanischen Investoren reagieren werden... Ich kann mir gut vorstellen das einige in letzter Zeit mehr Sake als gewöhnlich getrunken haben... :-)

Aug. 16 (Bloomberg) -- The New Zealand dollar slumped, heading for its biggest weekly loss since the 1987 stock market crash, as investors slashed holdings of high-yield assets funded by loans in yen.

Australia's dollar, another favorite for investors who bought the nation's securities with money borrowed cheaply in Japan, tumbled as a drop in Asian stocks encouraged investors to unwind their carry trades. Both currencies fell to their lowest in more than four months against the dollar and yen on concerns losses related to subprime mortgages are deepening.

``The subprime issue is the center of the credit crisis universe and everything else is orbiting around it,'' said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The kiwi is one of fringe planets in that universe and it's going through a meteor belt at the moment.''

New Zealand's dollar slid 3 percent to 69.39 U.S. cents at 3:08 p.m. in Wellington. It fell as low as 69.37 cents, the weakest since March 16. It has tumbled 8.4 percent in the past 5 days and 14 percent since touching 81.10 cents on July 24, the strongest since being allowed to trade freely in 1985.

The currency also tumbled 3.2 percent against Japan's currency to 80.79 yen after having the biggest loss since December 2005 yesterday.

The Australian dollar declined 1.2 percent to 81.40 U.S. cents from late in Asia yesterday. It touched 81.38 cents, the least since April 5 and lost 4.9 percent over the past five days, the most since May 2004. The currency fell 1.5 percent against the yen to 94.72.

`Jumped On'
``The kiwi and Aussie will underperform,'' said Jonathan Cavanagh, a currency strategist at Westpac Banking Corp. in Sydney, referring to the currencies by their nicknames. ``Any bad news is jumped on in a big way.''

The Morgan Stanley Capital International Asia Pacific Index of shares fell 3.4 percent to the lowest since March.

Japan's 0.5 percent overnight lending rate is the lowest of any major economy. New Zealand's central bank raised borrowing costs four times this year to 8.25 percent and the Reserve Bank of Australia increased rates last week to 6.5 percent, making their currencies more appealing for carry trades.

New Zealand Finance Minister Michael Cullen said the nation's currency, which has slumped 11 percent the past three weeks, is still unjustifiably high.

> And when you look at the cuurent account balance...... But who cared about fundamentals just a few weeks ago....

> Wenn man sich die Daten zum Defizit ansieht ist diese Aussage mehr als berechtigt.... Aber wen haben bis vor einigen Wochen Fundamentaldaten interesssiert.......

Housewives Outmaneuver UBS, Deutsche Bank Trading Yen

other examples have shown that when the broader public is entering a market that the end is near..... but with the Bank Of Japan in power......

andere beispiele haben gezeigt das wenn die breite masse etwas für sich entdeckt das dort eher das ende naht.......aber mit unterstützung der Bank Of Japan......

Japanese businessmen, housewives and pensioners betting against the yen in their spare time are wrecking the forecasts of the world's biggest currency traders.

The yen has slumped 4.6 percent to a 4 1/2-year low against the dollar this quarter, making it the worst performer among 72 major currencies and confounding predictions by strategists at Deutsche Bank AG and UBS AG for gains of about 1 percent.

The banks didn't reckon on the risk appetite of Japanese individuals, who are borrowing money like never before to buy currencies with higher yields. They tripled their trading in the year ended March to a record $11 billion a day, according to Tokyo-based Yano Research Institute Ltd., publisher of an annual report on the business. Globally, currency trading by retail investors rose 54 percent in 2006, according to research firm Greenwich Associates in Greenwich, Connecticut.

``Japan's interest rates are too low,'' said Hiroshi Ono, a 40-year-old sales clerk at a telephone company in Tokyo. Ono said he has made about $17,000 since March by borrowing $200,000 of yen and buying U.S. dollars to take advantage of the 4.75 percentage-point difference between Japanese and U.S. interest rates.
Japanese investors are borrowing yen at the central bank's 0.5 percent overnight lending rate and buying higher-yielding currencies in New Zealand, the U.K., Australia and even Brazil to increase returns on 1,536 trillion yen ($12.5 trillion) in savings. The strategy is called the carry trade.

Global trading by investors other than banks, fund managers and companies surged 54 percent last year, said Peter D'Amario, a consultant at Greenwich Associates. The category, which includes retail investors, accounted for 16 percent of trades handled by 1,700 firms surveyed, up from 10 percent a year earlier. It grew 80 percent in Europe, 55 percent in Asia Pacific and 30 percent in the Americas.

In Japan, individuals have opened 600,000 so-called margin trading accounts at brokerages that lend money for currency bets, 80 percent more than a year ago, according to Yano Research

Deposits in margin trading brokerages have risen 60 percent to $4.9 billion in the past year, Yano Research found. While that's about 2 percent of the $272 billion that Japanese individuals have put into mutual funds that invest overseas, borrowing typically makes their positions 10 to 30 times larger

Asian investments "The dark side" / Economist

gold rush mentality........ unregulated trading, stakes without voting rights, paying premiums to the ipo price.....some of the players are obviously desperate to invest the excess cash.

goldgräberstimmung......nicht regulierte handelsbestimmungen, anteile ohne stimmrecht, kaufpreise über ipo preis.....klingt ein wenig nach verzweiflung bzw. heftigen anlagedruck.


For better or for worse, obscure private markets are booming in Asia

TWO years ago a flock of wealthy hedge funds and private-equity firms converged on Hong Kong and Singapore, sensing vast opportunities in Asia. They soon found a problem: where to put their money. Competition was so fierce for new listings that they had trouble getting a glimpse of them, let alone being allocated shares. They found it almost as hard to take part in buy-outs...

The result is a growing market in which hedge funds, buy-out groups and investment banks, club together to finance private deals for firms that are too small for initial public offerings, or are growing so fast that they would rather wait. Investments come mainly through an off-market convertible-debt-style security, paying interest....There are four common factors: unlike private equity, the investment does not give managerial control; the terms are set by private contract rather than public securities law; the timeline is finite—typically three years; and there is almost no public information on them.

The investment banks act as more than middlemen; they may also co-invest. Goldman Sachs has done 40 deals and taken stakes in each one. Deutsche Bank and Merrill Lynch have each done more than 20, worth several billion dollars

A few highly lucrative transactions first set the ball rolling. In 2005 Goldman and a group of private-equity firms made a $100m non-controlling investment in Suntech Power, a Chinese solar-energy company. A year later it floated and its shares have risen 15-fold...

>no wonder their trading and principal investment is making the main earnings source

>kein wunder das deren handelsgeschäft und beteilungsverkäufe den löwenanteil der gewinne ausmachen


As in most leveraged deals, abundant liquidity has given recipients of money a big edge over providers. Initially, equity was to be available at a discount to a public-offering price (assuming that there was to be an IPO); then it was to be at the offer price; now, it is at a premium to the offering price, which makes it a good deal only if the price of shares jumps a lot once they are issued. The interest rate companies pay has also fallen.

But those terms have not dampened enthusiasm. Investors have sought to spice up returns using a version of the “carry trade”—they have borrowed from Japanese banks at 1% to invest in deals that pay 7%. The early deals included strong legal protection, such as a stipulation that disputes would be heard in the courts of Hong Kong or Singapore. These have become less common as worries about what could go wrong have waned. At first, too, Chinese deals used a complex structure involving the transfer of ownership to the Cayman Islands, which made the process of putting in money, and getting it back, far easier. In September China put a halt to such transfers, though those agreed on before then are still going ahead.


Because the deals are opaque, there are no aggregate performance figures. Banks are loth to admit to losses but cracks are beginning to show. In one of the largest of these private deals, China's Asia Aluminum received more than $450m last year in debt and warrants; since then its ambitious expansion has suffered from delays and cost overruns, according to Moody's Investors Service, a credit-rating agency that looks at its publicly rated debt. In another large deal, APBW, a cell-phone company in Taiwan, received a large loan. In March the former chief executive of its parent company was indicted for embezzlement. Investors must be jittery.

Some disasters may well be lurking—if not with these companies, then others. Almost all today's transactions will mature between 2008 and 2011. Inevitably there will be tears; if the market for public offerings cools, expect howls.

carry trade spreading to japanese households / retail investors

looks like the carry trade don´t need hedge funds and the big player to continue and to inflate.... thanks to the boj for the zero interest rate policy.....

read more about japan and the bank of japan http://nihoncassandra.blogspot.com/

sieht ganz so aus als wenn der carry trade inwzischen sogar den kleinen mann und normalen anleger erreicht hat. ob sich die notenbank bei solch einer entwicklung nicht fragt ob sie was verkehrt gemacht hat. mehr zur boj unter dem o.g. link

The yen was lower against all 16 of the world's most- actively traded currencies over the past month, with the biggest losses versus higher-yielding currencies such as the Australian and New Zealand dollars. Borrowing costs in both countries are 5.75 percentage points and 7 percentage points higher than those in Japan, respectively.


``The yen's downtrend will continue as Japanese, who are fed up with low returns, will continue to export capital,'' Tokyo-based Umemoto said in an interview on April 2. ``Individuals will play the leading role.'' The fastest pace of growth in three years in the quarter ended Dec. 31 gives individuals greater confidence to send money offshore, he said.

Overseas assets held by Japanese households reached 46 trillion yen ($387.2 billion) in 2006, nearly 10 percent of the nation's gross domestic product, but only 3 percent of their total financial holdings, based on Umemoto's own calculations.

Breathing Room
The Japanese currency traded at 118.85 per dollar at 3:04 p.m. in Tokyo from 118.96 late in New York yesterday. The yen is down 0.9 percent this week, the first of the fiscal year that started April 1.


It gained 1 percent last quarter as some investors exited carry trades, where they borrow and sell yen for better returns elsewhere, because of a global slump in stock markets.

``It's likely that there's breathing room for households to shift money from safe but low-return deposits to riskier, higher return assets abroad,'' said Masafumi Yamamoto, a strategist at Nikko Citigroup Ltd. in Tokyo and a former Bank of Japan currency trader. ``The Japanese ratio at 3 percent does not look particularly high.''

Yamamoto is less bearish on the yen than his counterpart at Barclays, predicting the currency will fall to 119 a dollar by June 30. He said Japanese overseas holdings rose 27 percent last year from the previous year, citing data compiled by the Bank of Japan, monthly data from the Investment Trust Association Japan, and Citigroup's own estimates.

Bank Deposits
Japanese mutual funds boosted purchases of assets abroad to about 40 percent of the total from about 8 percent in 2002, according to the Investment Trust Association. The mutual funds now have about $244 billion of assets denominated in foreign currencies, including $98 billion in the U.S. dollar.

The yen weakened 5.9 percent versus the New Zealand dollar and 5.3 percent against Australia's currency in the past month. Australian and New Zealand 10-year government bonds both offer a yield premium, or spread, of 4.20 percentage points over similar-maturity Japanese debt. Securities in Germany give an extra 2.4 points.

>coinicidence / zufall ?

thanks to http://kevinsmarketblog.blogspot.com/index.html

more on the correlation of risk taking and the yen from mike larson http://tinyurl.com/2a5xap

The ratio of Japanese household savings parked in banks and post offices accounted for about half of their total financial assets of 1,550 trillion yen, compared with 10 percent in the U.S. and 30 percent in Europe, Barclays' Umemoto said. That will continue to decrease as more funds go overseas, he said. ....

Japan is seeing a rise in so-called margin trading, where retail investors borrow part of the money necessary to buy currency, seeking to make a profit on price gains.

``The presence of foreign-exchange margin traders is increasing in Tokyo,'' said Kenichiro Yoshida, a senior economist and currency analyst in Tokyo at Mizuho Research Institute, a unit of Japan's second-largest lender by assets. ``Younger generations such as in their 30s are trading currencies even by mobile phone.''

Individual Power
Japanese individuals' foreign currency-denominated assets exceeded 40 trillion yen in 2006, topping such assets held by life insurers, the Nikkei newspaper also reported on March 31, excluding the estimated amount of foreign-currency positions by Japanese foreign-exchange margin traders.

Life insurance companies, commonly known as Seiho in Japanese, used to play a major role in the financial markets of the late 1980s during Japan's asset-inflated bubble economy by purchasing massive amounts of foreign bonds.

``We cannot ignore individual power,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``Japanese individuals account for about 20 percent to 30 percent of foreign-exchange margin trading in the Tokyo time zone. Institutional investors will lag behind households.''

> should be no suprise that gold is speaking loud and clear

>gold in yen spricht hier ne eindeutige sprache......

........to be continued......