Archive for July 2011

Greatest Crisis Ever – US Debt Default?

If you thought that Greece was a major crisis, look again. Across the ocean, in the economy once considered the engine of the world, the Republicans are playing a waiting game while the world holds its breath. United States, once sacrosanct in terms of budget, my default on its debt. There are only 4 days left until the unthinkable can happen: Congress will not approve the new budget deficit and US will enter into default.
Neither FED, not Treasury commented on what would happen if an agreement is not reached and pushed through the Congress. United States had always in the past a huge deficit (as of June it reached -9.1% of the GDP in the budget balance deficit). Yet, a compromise has always been agreed mutually and the deficit was rolled over. These days, because of a political stand still, this might not happen once more. Read more

Swiss Franc Rising – Economic Miracle or Walking Zombie?

swiss-franc-picture-courtesy-of-the-investment-site-at-wwwdoitinvestcom If you are a forex trader, you of course noticed the advance of the CHF (swiss franc) against most of the other currencies. According to the OECD’s calculations, the swiss franc is 44% overvalued against the dollar and 42% overvalued compared to the euro. And this has happened steadily in the last 6 months or so, without a retreat.
What would be the explanations?
One of them, widely accepted among the forex traders, is that the CHF is a so-called proxy (similar indicator) for gold and other commodities. It is understandable that the investors are not willing any longer to bet on the gold, which has risen 6 times during the last years and which is causing a “tulip mania” among masses. And whilst other commodities are harder to trade and more volatile, the CHF is still a paper currency, backed by the Swiss National Bank, which has some advantages. Read more

“The Devil’s Derivatives” by Nicholas Dunbar – a Financial Book Review

the-devils-derivatives-by-dunbar-courtesy-review-wwwdoitinvestcom Well, this was a treat for me. The book was launched on July 12th in the US, and by a day later it landed on my desk, courtesy of the publishers (Harvard Business Review Press), who by a skillful marketing found out that I like such (financial management) books … and sent me this copy without any request from my side. Nice surprise.
I have read many books about the financial innovation and the crisis (at least 5 in the last year) – this should qualify me not as an expert, but at least as a knowledgeable person.
“The Devil’s Derivatives” is a book about both, so if you expect some stories about the history of the derivatives or a crash course on how to make money late in the night in front of your computer screen – call an expert. “The Devil’s Derivatives” rather illustrates the point of view of an outside historian – thus representing a relatively objective view on how the derivatives world exploded and then imploded in the last years.
“The Devil’s Derivatives” tells the most interesting financial story of our times – how the banks invented new financial products to make more money, how were the worldwide investors lured to buy them and how regulators were seduced by the siren song and adopted lax rules for the derivatives. It is a story of greed and deception, a story of smoke and mirrors in the heart of the world’s financial system.
Nicholas Dunbar is well placed to tell such a story. First of all, he is a well known financial journalist in the UK, and thus he followed the story step by step as it developed. Secondly, by his own account he lived in both London and New York and saw live the banking mentality. From the money splashing of the bonus system to the secrecy of the boardrooms, nothing is missed by “The Devil’s Derivatives”.
At last (but not at least), Dunbar is a physicist by education – thus the assertions that the derivatives are more complex that the quantum physics has finally found a worthy tester. He is actually drawing a very neat comparison between the two fields of science – with interesting results. Read more