As I am trying to communicate from my last post that the market for OTC derivatives is mammoth in size. I have tried to put my views in my past articles over OTC.Derivatives Central Clearning & Dodd – Frank .Central Clearning Of derivatives & Dodd – Frank continues… , Credit derivatives Cat bonds & Cat Swaps ,OTC derivative series CDS, Bonds and Basis Trade
I got the opportunity to read one of the recent paper on Reforming the OTC derivatives market by William C Dudley .
Dudley believes the pre-crisis OTC derivatives market needed reform. Let’e examine his case. View full article »
Takings from my last post A Prop Trader or Rogue Trader and my past posts on the same topic The Rogue Trader or The Rogue Banks and TO BE A ROGUE TRADER would like to share few more views over them. As I reveled in the past that prop trader don’t trade on behalf of clients but they use institution own money to trade.They speculate and their focus are is emerging markets.
The two principles on which they work :
- You need to be dispassionate about your trade, to control your internal hurdles that may attach you to it emotionally.
- You need to have specific knowledge of the asset you’re trading. You must have contacts in the asset’s country that can supply you with information that is open to anyone else (otherwise it’s insider trading) but that is still extremely valuable.
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The way derivatives have evolved over the years they attracted criticism along with the praise.Corporates continues to take advantage of leverage with them many went belly up and some made fortunes out of them.
Here are some of the Jargons these days the firms uses :
- Diversification : Lets do several things that we don’t know any thing about badly
- Sticking to the knitting or Focus : Lets get back to doing what we once did if any body can remember what it is and how it is to do it
Was going through Zerohedge and find some interesting facts the (TBTF) Too Big To Fail get Too Bigger To Fail. The top 5 banks of the world holds 97% approx $221 trillion derivative outstanding.
$220 trillion is more than enough for the world to collapse in a daisy chained failure of bilateral netting (which not even all the central banks in the world can offset).
Time and again history has repeated itself unregulated derivatives are prone to catastrophic failure. And yet, nearly four years after the crash, and nearly two years since the passage of the Dodd-Frank law, the multitrillion-dollars derivatives market is still dominated by a handful of big banks, and regulation is a slow work in progress. Unregulated derivatives are still an economic threat. That’s because derivatives have become deeply embedded in the global economy. ( an article from Ny times quoted) View full article »
On an average the Indian market has given a 19% return in the last financial year that is the 3rd highest return after Egypt & Brazil who gave the better returns. The underlying is how many made the money because the markets where volatile , ruthless and driven by crisis over the year.
Wondering whether the 20 golden rules holds true for today’s market scenario :
- Your investor’s edge is not something you get from Dalal/Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.
- Over the past 3 decades, the stock market has come to be dominated by a herd of professional investors. Contrary to popular belief, this makes it easier for the amateur investor. You can beat the market by ignoring the herd.
- Often there is no correlation b/w success of a company’s operations and the success of its stock over a few months or even years. In the long-term there is 100% correlation b/w the success of the company and the success of the stock. This disparity is the key to making money: it pays to be patient, and to own successful companies.
- You have to know what you own, and why you own it. “This baby is a clinch to go up!” dosen’t count.
- Long shots almost always miss the mark
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Yesterday Merkel quoted all EURO countries must contribute to fight the crisis, seems too bad all but Germany are broke, she also said that European nations will need to cede more power to EU and back to feudalism.Now the ball is in the Greece court.
A new proposal by ECB was that, ECB would tender its bonds in to Greek debt exchange and would help greek to achieve to save approx 11 billion Euros. The condition holds true is that ECB has approx 50 billion euro of Greek bonds, so that will allow Greece to have 39 billion euro of debt instead of 50 billion euro, saving approximately 11 billion euros.
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Press Trust of India confirmed that “India and Iran have agreed to settle some of their $12 billion annual oil trade in rupees, resorting to the restricted currency after more than a year of payment problems in the face of fresh, tougher U.S. sanctions.”
This is with response to few weeks when the US and Europe pretended that all is well .For anyone wondering how the abandonment of the dollar reserves status would look like reference, not with a bang, but a whimper or in this case a whole series of bilateral agreements that quietly seeks to remove the US currency as an intermediate.
As it looks prominent the world’s second China and third largest Japan economies will bypass the dollar by engaging them self in the direct currency trade, and few weeks back there was a bilateral contract between China and Russia where they drop dollar as a currency and involved in direct currency trade.
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Whenever talk about Gold happens in India, the eyes of the investors lit up. True Indians are more attached towards the Indian metal and there are solids reasons to be bullish on it too. None of natural or man-made catastrophes have made gold price go down confirmed from a website which holds the historical prices since 1901. (Kit co Metals)
Last year Gold provided the splendid return of 31% where as the equity markets shaded away and remained choppy.
But its pretty important to analyze and understand the real scenario, In dollar terms the return on the gold last year is only 10.5 %. The Rupee free fall has been a major factor behind those inflationary gains of 31%.
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The Reserve Bank of India (RBI) in consultation with the finance ministry may raise the interest rate ceiling by 400 basis points on raising finds via overseas borrowing as against the current cap of 500 basis points, in a bid to increase the supply of dollars and arrest the rupee slide, sources privy to the development. (source financial media)
The regulator will allow borrowers as much as 900 basis point above LIBOR( London Inter bank offer rate). where as the present scenario allow up to 500 basis point.
LIBOR : It’s the avg interest rate charged by London’s leading lenders when lending to other banks.
It is one of the biggest move by RBI and Indian government to boost the INR after it reached to a low of 54.30.
The other consideration from the regulators is they are looking at increasing the overall ceiling for ECBs to USD 100 million from the current cap of USD 20 million for securities with a three-year maturity period.
The Savior does it again , As expected the RBI has kept the key rates unchanged while announcing its mid year policy.
CRR 6% (unchanged)
Repo rate 8.5% (unchanged)
Reverse repo 7.5 % (unchanged)
and the SLR 24 %
The Indian economy has taken a serious hit as the quarterly policy describes :-
On Growth front its been moderated to 6.9% down from 7.7% in the Q1, and on the yearly basis 8.8%. Industrial performance detoriated. The only satisfaction is on the food front as the rabi crops has been satisfactory.
Exports have gone for the toss mere 13.6 % from an average of 40% in the 1st half og 2011-2012. The rupee has depreciated and RBI coming out in open and reducing the net overnight open position, or trading limits, for banks in the foreign exchange market. This is expected to trigger the selling of US dollars by some foreign exchange dealers who had been holding the greenback in hopes that it would gain further.
1) The impact of lowering the trading limits will be “huge because banks will not be able to keep speculative positions open for a long time.
2) The RBI said forward contracts booked by foreign institutional investors, once cancelled, cannot be rebooked.
To conclude the inflation remains the cause of concern , risks for growth has increased and the RUpee remains under stress.