Markets – Forcing Your Hand And Clouding Your Mind
Banks are raking it in with the shutdown.
Weeks ago, you will probably remember a whole bunch of trade recommendations out of your bankers urging renewed investment in EM, fx trades, high yield bonds and such. The shutdown was dismissed as improbable.
As early as last week for example, customers were herded to sell USDJPY put options at the improbable level of 96.80.
Ho Ho Ho. Santa is coming to town for the banks and the trades unwind. Now they get another trade from you for the opposite and a potential US default which would then amount to nothing when more Republicans defect. Except another set of trades for the banks from customers eager to pile back in.
In times like these, it is hard to differentiate between manipulation and volatility and I am not even suggesting anything here. So stay out of fx and gold.
My suggestion is for us not to lose our heads except if we happen to hold Blumont in our portfolios (but I did notice something odd last month and wrote about it too). If you are sitting on mostly cash, you are safe. Why rush in for a trade only to reverse it tomorrow ? As if the US default will change anything especially when 32% of global bonds outstanding is in USD (i.e. 26 trillion out of 83 trillion) and 35% of global market cap lies in the US and not to mention the real estate assets ?
The US is 1/3 of the world and they are too big to fail, if we can forgive a technical default which will result in delayed payments that will be made whole.
For me, I am lying in wait for distress which is sad to admit. No, I am not budgeting for a distressed sports car from some hapless person who had bought Blumont at S$2 from their latest share placement. Opportunities are coming up.
PS : Buying some USD. Singapore is a junk bond centre and also a penny stock haven. Both of which are unappealing.
Singapore Corporate Bonds – You Call This Junk ? (tradehaven.net) 07/10/13