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
With the continuation of my last post some book rules for investments trying to reveal some of the structured products offered in the open economies of world amaze to see that more than 10 billions of structured products are sold every year :
- Reverse convertibles : They are unsecured short-term notes that are linked to the price of an underlying stock (typically not the stock of the issuer). The security comes with a high coupon rate (from 7 to as much as 25 percent). At maturity, the investor will receive the interest payment plus either 100 percent of his original investment amount or a predetermined number of shares of the underlying stock.
- An accumulator : This is one of the famous product in Asia. An accumulator is essentially a contract that obliges investors to purchase a security, currency or commodity at regular intervals at a fixed price. View full article »
This week is going to be fun; With Greece at the end of a gun; Will they resist? And get really pissed? Please wake me up when it’s done….
In the mean time during the weekend A “source in Berlin said Germany’s proposal was aimed not just at Greece but also at other struggling euro zone members”. German Economy Minister Demands Surrender Of Greek Budget Policy, First Of Many Such requests.Roesler statement means Germany will next demand Portuguese fiscal policy hand over. Then Spanish. Then Italian ????
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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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1. Atychiphobia – fear of failure
2. Autophobia – fear of loneliness (billy banker no mates)
3. Coulrophobia – fear of clowns (boss related)
4. Decidophobia – fear of making decisions
5. Ergophobia – fear of work or functioning (another boss related phobia)
6. Gelotophobia – fear of being laughed at (bonus related)
7. Gerascophobia – fear of growing old or aging (career related)
8. Halitophobia – fear of bad breath (usually boss related)
9. Nomophobia – fear of being out of mobile / cell phone contact
10. Sociophobia – fear of people or social situations (client related)
11. Scopophobia – fear of being looked at or stared at (layoff related)
12. Telephone phobia – fear or reluctance of taking phone calls (layoff related)
13. Tokophobia – fear of childbirth (maternity leave related)
The last series was ended with http://wp.me/pc3rd-cX
- The main difference between government bailouts and smoking is that in some rare cases the statement “This is my last cigarette “holds true
- The difference between banks and Mafia: banks have better legal regulatory expertise, but Mafia understands the public opinion. Or you can say”Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world”
- When a woman says about a man that he is intelligent, she often means handsome; when a man says about a woman that she is dumb, he always means attractive.
- When some one starts a sentence with “SIMPLY” you should expect to hear something is very complicated.
- Half the people lie with their lips; the other half with their tears.
- Technology is at its best when it is invisible
- Those who do not think that employment is systemic slavery are either blind or employed
- It’s a good practice to always apologize, except when you have done something wrong
- To be completely cured of newspaper, spend a year reading the previous week’s newspaper
- The most painful moment are not those we spend with uninteresting people, rather they are those spent with uninteresting people trying hard to be interesting.
FT did a great story with John Paulson famous for his greatest trade ever during the subprime crisis.
The writer makes an interesting point in having the ECB act as the bond-insurer of last resort. Of course this is not without its problems:
1) Demand for insured sovereign debt would likely be greater than currently, but nevertheless probably not going to attract many foreign investors now as the prospect for the euro declining significantly over the next couple years is very likely. This is a big reason why the EFSF is having trouble attracting foreign investors.
2) Italy is in recession, with a debt to GDP of 120% and likely to grow to 130% by this time next year. There are no growth initiatives in Italy. Austerity will have its effects, but looking at Greece, these are likely to be mostly negative in terms of deficits and growth. With that immediate outlook in mind, there is a significant and growing risk that Italy will have to restructure its debt, leaving the ECB to absorb all the losses under this proposal.
3) Why would the ECB charge 1% to insure Italian debt, when market rates are currently around 5%?
4) It is unclear whether the ECB, according to its laws and mandates, can undertake the role of insuring euro zone sovereign bonds.
5) There remains the moral hazard of providing steeply discounted insurance to the periphery, where austerity measures are politically hazardous to say the least, and may not be completed should the bond market pressure ease. Thus increasing the likelihood of losses for the ECB.
After the marathon weekend and meetings the European leader agreed only for the partial solution as reported by IMF.Dejavu for Harry potter and Twilight Saga where last part was not enough to conclude the movies so they have to make last edition part 2 sequels to conclude the series.
With the Summit having reached a climax, we now wait on a few final sex-scenes to play out. The plot started falling apart on Thursday with ECB boss Mario Draghi’s impotence, but by forming a circle, holding hands, and chanting IMF and G-20 over and over, he was able to perform to Italian stallion standards, at least for a day.
The difference between unlimited lending by the ecb to banks and unlimited lending by the ecb to governments, Seems like sleight of hand to me…you can print money in the banking sector companies they make crap loans and pay fat bonuses buy can’t lend money to the governments because they pay out welfare and health benefits? They are both wrong…the printing of money can equally mean the socializing of losses or no taxes for anyone… (Just print money and pay no tax!) .. Is the difference because banks are a better credit risk than governments or that banks are better run that governments? Looks to me that both are screwed up destroyers of savings and cash flows from tax payers.
Twilight is the rehypothication of Harry Potter. Formulated and without substance. An empty 2 part ending, because they read they should have a 2 part ending to make more money rather than the story demands it.
Pretty much where the EU is now, setting up an empty 2 part flop with hopes that more money spent on marketing will win the day.
It was a thanks-giving day in US, Financial media thought of not printing much news but many financial bloggers, media came out for work as it was the German bond auction.
Guess what: This is the worst received bond sale by Germany since the introduction of the Euro. The bond auction only managed to raise two-third of the amount targeted.
If you remember the crisis in 2008 where catastrophe, it could easily be called as a trial run for what may be offering.
CDS protection on the European financial institutions is already at an all time high, Italians (banks) were already up for a toss, they are the hardest hit with the CDS levels making new records for the trigger.
Few days back a financial institution in Europe quoted:
“There were reports last week that investors in Asia were starting to reassess their exposure to the core euro zone debt markets after already having pulled their horns in on the periphery. Though such stories can be difficult to verify, the results of recent euro zone bond auctions clearly show that confidence has started to flag, even in German Bunds.”
The trope goes: “The dollar is an I O U Nothing!, and the Euro is a WHO? O’s U Nothing’!
Came across a very nice paper prepared by Hyun Song shin titled global banking glut and loan risk premium.
The paper describes how the European banks intermediate the US dollar funds and influenced the credit conditions in US. Hyung Song suggested that the culprit for the easy credit conditions in US up to 2007 may have been “Global Banking glut” rather than the “Global saving glut”
The paper is based on the hypothesis that the cross border banking and the fluctuating leverage of the global banks are the channels through which permissive financial conditions are transmitted globally, focusing on the impact of global liquidity on advanced economies.
The gross capital inflows to the United States represent lending by foreign (mainly European) banks via the shadow banking system through the purchase of private label mortgage-backed securities and structured products generated by the securitization of claims on US borrowers. In this way, European banks may have played a pivotal role in influencing credit conditions in the United States by providing US dollar intermediation capacity.
Comparatively Euro zone had a roughly balanced current account while the UK is actually a deficit country.
The Paper also provides an opportunity to study why it was Europe that saw rapid increase in banking capacity and why did European (and not US) banks expand intermediation between US borrowers and savers?
The conclusion ends with a remark and a question why the European banks expanded so rapidly in the decade beginning in 1999.Introdution of the EURO lead to free-floating of money (bank liabilities) in the euro zone across borders but the asset size remained stubbornly local and immobile.
Link to the source paper. http://www.princeton.edu/~hsshin/www/mundell_fleming_lecture.pdf