Posted On 10 Mar 2014
Algoam has monitored what happens when one chases risk during and in the aftermath of a crisis. There are many types of events that increase uncertainty. Historical examples are: The recent crisis in the Eurozone and the impact on stocks and bonds yields in Portugal, Spain, Greece, Ireland, France, Italy. The Japanese Nuclear disaster in Fukushima and its impact on Japanese equities and the JPY. The Turkish Lira crisis in 2001 and its impact on interest rates, equities. Impact on the shares of BP from the Deepwater Horizon, the largest man made disaster in the history of the petroleum industry. Following the Asian currency crisis, the Russian debt default of 1998 and its impact on Emerging Markets equities as well as the Ruble. Mexican Peso crisis of 1982. The latest is the mini crisis in Ukraine and the repercussions on Russian equities and currency. Even a minor crisis such as
Posted On 08 Mar 2014
Tim Hartford is the Undercover economist in the FT this morning and writes about Real-time economics. He asks: “What would it take to make economics more useful in a crisis?” Tim eludes to the transcripts of the Federal Reserve Open Market Committee following the collapse of Lehman Brothers and evidences that the men in charge are clueless about the economic consequences and undecided about what actions to take in times of crisis because they do not comprehend (or cannot) the economic outcomes of their actions. Tim suggests a few solutions: a more diverse group of members would improve decision making better data to link causes and effects which should lead to containing the crisis Tim concludes that “we need real time ecologists and economists to react to the latest toxic spill and the latest bankruptcy”. This is rather simplistic as it is impossible to contain the toxic spills in the
Posted On 04 Mar 2014
A few months ago we highlighted that commodity stocks had reached their nadir and that there was bound to be a recovery. We had wrongly assumed that this recovery will come from demand picking up in China and other emerging markets once the impact of tapering is discounted. The recovery in prices for resource stocks has happened but not because demand in the emerging markets has been the driver. It always happens that competent managers make structural changes to the business in time of challenges. They are willing to reverse their decisions, cut costs or postpone spending in light of the new realities. The losers are those who stick with their visions and forecasts from an earlier and rosier past. Companies such as Rio, BHP, Xtrata Companies such as Rio Tinto Plc (RIO.LN) and BHP Billiton Plc (BLT.LN) and many others are up 20-30 percent from their lows in 2013.
Posted On 01 Mar 2014
The recent sell off in China’s currency should not come as a surprise to anyone. There was a time, not long ago, when the renimbi was undervalued and there was much political complaint and economic reasons, primarily from the United States for the currency to appreciate. With the help and pressure on the Chinese authorities an ordered appreciation of the renimbi was achieved. But to assume that it should remain a one way bet in light of the significantly slower growth in China is short sighted and unrealistic. Since when has anything in life or financial markets been a one way bet? Billions of dollars worth of financial bets have been made on the continued appreciation of the CNY. Banks have sold such bets. Further depreciation may cause large scale unwinding of the bets and/or very significant losses. That in turn may cause further sell-off on the CNY. But there