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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (5557)	2/11/2002 7:44:00 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

WOW!!! That was an EXCELLENT POST Henry... You opened my eyes to several new perspectives that I hadn't thought of before, namely the trade surplus creating a demand for Yen (as they seek to convert earned dollars into local currency)... I hadn't thought of that variable. You should write that up as an opinion essay and send it to the WSJ or Financial Times... I think your post is one of the most concise explanations I've yet seen on the situation and it succintly details why it is so difficult for Japan to monetize its debt. Hawk

To: Henry Volquardsen who wrote (5557)

4/14/2014 3:18:15 PM

From: John Pitera

1 Recommendation

Recommended By
Davy Crockett

Respond to of 33421

read post I am responding too....it was written by Henry Voquardsen back in 2002. one of the most experienced Currrency, Long dated and Swaps professionals to ever be on SI. He was 2 threads that he wrote a number of timeless and very explanatory missives on Currencies, Derivatives and other aspects of Interbank Trading and positioning.

Subject 20640
Currencies and the Global Capital Markets

Subject 22689
Derivatives: Darth Vader's Revenge

Henry notes on the days in the late 70's and 1980's where the volatility and the bid ask spreads were massive and hence it was easier for dealers to make money.

Message 16804693

Message 16942824

To: Yorikke who wrote (5450)	1/22/2002 10:47:38 AM
From: Henry Volquardsen	Read Replies (2) of 15824

Hi Yorikke, Some interesting points. I'm a big believer in cultural differences and the impacts they can have on economic performance. As important as the issue of cultural differences are, the Japanese network of interlocking relationships and affinity practices were not what brought the Japanese banking system into its current state. The problems begin with the Japanese regulatory environment. The regulatory issues start with the capitalization of banks and return requirements. In the 80s, in response to the global banking problems related to third world debt issues, the BIS led a global effort to create uniform bank regulatory standards. The Japanese banks were operating under the narrowest capitalization requirements of all the major economies. In addition there were issues regarding what qualified as capital. Unrealized gains on equity holdings were among the items that were allowed to qualify. In an up market this fueled a ballooning of bank balance sheets. In a down market and with the imposition of global standards this caused a large percentage of capital to evaporate and damaged the system. Return targets were another issue. *When I met John Pitera we were both working for a large US bank. There was a saying around the bank was that the quickest way to get fired was to do a $10 billion 10 year transaction with locked in funding and zero credit risk for a return of 10 basis point. The reason being that despite the guaranteed profits the thinness of the return would never pass Fed requirements and the size of the deal would cripple the bank for years. Unfortunately the BoJ was not applying similar standards and the Japanese banks got in trouble because of it. In response to the capitalization problems addressed above the Japanese banks developed an aggressive appetite for high credit quality floating rate assets that they could match fund. The idea being that a 10 basis point return might be marginal but that a AAA piece of short term paper would require minimal capital and ANY profit, no matter how thin, would help restore the balance sheets. As they pursued this policy they started trying to lock up libor plus assets for longer periods. This made them a major player in the Floating Rate Note market where they could get high quality assets for 3-5 years but floating on a monthly or quarterly basis.* They funded these portfolios with short term interbank deposits that would matching the floating rate risk. The problem came as the Japanese bank's credit ratings continued to deteriorate. In the mid 90s we saw the birth of the Japan premium. In order to attract interbank deposits they now had to pay a premium, at some times as much as a couple of hundred basis points over the index. They had tens of billions of securities with multiple years of remaining life that they were now funding at a significant loss. These assets had nothing to do with affinity relationships but were merely the outgrowth of regulatory practices, and sotto voce encouragement, on the part of the BoJ. The mid to late 90s saw repeated fire sales as the Japanese banks were forced to divest these assets at deep discounts. In my original post when I said the Japanese banks played follow the leader with the government it was this type of regulatory practice I was referring to. Japanese industry has similar issues and the accounting for pensions is a ticking time bomb. Platitudes from government and industry about cultural uniqueness and a matter of honor are little more than hot air and cover the simple fact of bad business practices. It has nothing to do with not mastering any western concept of power. The west had nothing to do with creating these problems, bad business practices did. I find your last paragraph offensive and assume it was just pique at what you considered an insult to the Japanese

To: Fintas who wrote (2502)	4/13/2014 6:31:14 PM
From: John Pitera	2 RecommendationsRecommended By 3bar cmhj2000 Read Replies (1) of 2509

Hi my good friend...... technical analysis is just one part of the puzzle.... as I stated on Jan 20th 2000.....on my thread head..... I was taught by Tony Jalondoni....(the treasury manager of Citibank in Sydney ) back in 1986... that is interest rate differentials and the changes in the interest rate differentials in currencies .... spot... but even more in forward currency rates.... and not just 90 days but going out 2 to 5 years ......was the key driver of global asset flows through global asset classes. Henry Volquardsen inculcated this in me ...speaking with him several times a week on the phone for an hour or more and then by studying his masterful missives on Silicon Investor. Henry Volquardsen who was at 55 water street ... Citi's big dealing building just off Wall street when we were working together at Citi in the 1986-1988 time period.... Henry was on the long date FX desk and was doing a lot of trading with the Australian Dollar and AUD bond market..... the currency floated in 1985 started at 1.15 and by June of 1986 had collapsed to a low of .5790 The yield curve was massively inverted with 90 day bank accepted bill rates at 15 and 18% and the AUD 10 year bond was up at 12%..... a bulge bank trader had enormous opportunities to create swaps and engage in Forward FX positioning.......spreads you could drive a truck through......and de facto large arbitrage money to be made..... so long as you kept an eye on YOUR COUNTERPARTY RISK.... and Your LEVERAGE ratio's I would talk with Henry on the phone for an hour or more many mornings since when it's 8:30 AM in Sydney... it's the very late afternoon in New York..... the deal room in NY has mostly gone home and you are waiting for the action in Sydney and then in Hong Kong and Singapore to kick in. Mr Jalondoni had the 2nd biggest currency limit world wide at the Citibank, which was making 800 million in foreign exchange trading a huge cash cow for the bank and more than 400% larger than the number 2 and 3 players back then. He was a soft spoken man from the Philippines.... but he was an avid user charts and the large 10 year weekly charts.... available from Knight Ridder. ( I just hung 4 of my old charts up on the wall) I spent a lot of time in his office speaking with him and the lady who was running our OTC currency options book..... she was running it out of his office.. In 1983 when I got the first IBM PC I was on Summer break from UT and my Father and I were getting Price data from the Dow Jones Computer in Princeton NJ and having it sent to us via the internet.... and the initial modem baud speed was 300 bps. The data came in so slow you could read it crossing the screen on the computer.... and I'm talking about the basic open high low close and volume data on stocks, OEX options etc. anyway getting back to your point Technical Analysis is not the single key....... Now if you build Robust Trading Systems and manage RISK..... it starts to make sense. Risk Management is the Single biggest Key to Investment success. garp.org The Global Association of Risk Professionals has a very good program on Financial Risk Management garp.org I am thinking about taking it. my best regards, John