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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (41749)	10/23/2008 7:30:07 PM
From: TobagoJack	Read Replies (6) \| Respond to of 218074

in order for the world to stablize, the way over-borrowed us dollar may have to die, and since that is not happening yet, the world may have to be unstable for awhile just in in-tray, per greed & FEAR · Sentiment remains extremely nervous. But GREED & fear still believes that the most likely outcome is for a relief rally in world equity markets through to year end and that the best way to play this rally is Asian financials. The key drivers for this anticipated rally will be gradual declines in signals of risk aversion and growing hopes that the authorities are getting ahead of the problem. · The latest Fed policy to buy money market fund assets is targeted at one of the key areas of vulnerability in the system. The supposedly safe money market funds have been at the centre of securitised ponzi finance in recent years given the nature of commercial paper issuance. · The Fed's growing willingness to lend money to a financial institution against almost every form of collateral is clearly an effort to reflate a credit-driven growth cycle in America. GREED & fear does not think it will work. But investors need to be aware that the authorities are trying. · The continuing strength of the US dollar is a sign that the deflationary deleveraging pressures unleashed by the unwinding of structured finance are more potent phenomena than Fed easing. But this will not be the case for ever, most particularly if a continuing strong US dollar and a clear further weakening of the American economy lead Billyboy next year to embark on his unconventional monetary policies. That will result in the real stress test of the US dollar paper standard. · The dollar is also for now been helped by the growing mess in Euroland where the ECB is also becoming increasingly hyper active about the extension of liquidity against every sort of collateral. · GREED & fear still hopes that the anticipated further decline in interbank rates and the like will lead to growing hopes that the economic downturn next year will not be as bad as currently feared. Still GREED & fear's view remains that any such relief rally will then unwind in early 2009. · The Reserve Bank of India's decision this week to slash its repo rate by 100bps is certainly a positive for the stock market. The biggest risk for the Indian economy and therefore for the rupee is growth, not inflation. GREED & fear continues to believe that inflation will disappear in India in coming months, a process undoubtedly aided by the continuing weakness in oil. · The investment in ICICI Bank in the Asia ex-Japan thematic portfolio will be removed and replaced by adding 1ppt each to SBI and HDFC while re-including emerging market proxy Standard Chartered. · Dubai interbank rates have surged in recent weeks as a result of collateral damage from the global credit crisis. This has caused investors to focus on the vulnerabilities of Dubai's debt-driven "build and they will come" model. This risk aversion has also gone hand in hand with a significant correction in the Middle East stock markets as they have succumbed to global risk aversion. · There is no doubt a sharp correction has begun with the pre-sale market already imploding. But GREED & fear reckons Dubai will be picking up again well before London or New York. The main reason is the proximity of a wealthy neighbour, Abu Dhabi, which has no wish to see a total destabilising collapse in Dubai. The second reason that GREED & fear would not give up completely on the Middle East story is that the infrastructure-driven growth story is likely to continue. · Asian stocks are not yet responding to falling interbank rates. One explanation must surely be forced selling. So far in this financial crisis there has been a conspicuous lack of casualties amongst the community of absolute-return investors. That may be about to change, which in turn would explain the continuing equity market trauma. · The continuing US dollar rally is profoundly deflationary since it reflects forced deleveraging as borrowers seek to buy back dollars. It also reflects the dramatic decline in the US current account deficit that is coming as American consumers turn from spenders to savers. · GREED & fear continues to believe there are no systemic risks in emerging markets outside the European periphery in terms of foreign currency debt exposure and the like. But so long as the dollar remains so well bid there is plenty of scope for further market hypervolatilation to the downside. · Hedge fund failures, in the context of dramatic market volatility, will also fuel calls for hedge fund regulation. One way to kill the hedge fund industry stone dead is simply to stop them from borrowing. That sort of measure will appeal to many politicians. But it would also herald a potentially lethal reduction in market liquidity. These sorts of outcomes are certainly in the realm of the possible.