Sports Arbitrage Trading In The News
Even those who undertake the time honoured method of investing in bricks and mortars are not immune from the crisis. Investing in properties has long being regarded as the safest and most practical way to build up our equity value. But as recent developments in the global economy have shown, when the US sneezes, the whole world catches a cold. Here down under, we are not immune as well. Over the past few months, it has become harder to get a loan from the banks to pay for our housing purchases. Interest rates have also got up making it more expensive to borrow as well. This is on top of the fact spruikers generally have a free rein to milk unwary investors of their life savings like in the case of Fincorp, ACR and Westpoint. Together, the collapse of these companies has resulted in losses of A$1 billion for thousands of unsuspecting retirees. Regulatory authorities like the Australian Securities and Investments Commissions (ASIC) could have done more to protect investors but did not. Their reasoning was the fact that the ASIC cannot be accountable for approving any investment prospectus but rather that burden lies with the issuer or its advisors.
In addition to investing in properties, most Australians also resort to financial planning to build up a portfolio of assets. Being a social welfare state, we also have the option of not doing anything but just relying on the aged pension. But like Ms Gillard, our Deputy Prime Minister, has mentioned even she will not be able to survive on the pension currently doled out by the pension system. If living impoverishly appeal to one as an ideal way to retire then the state welfare system can be depended upon on to provide for this living standard. In fact, the majority of these pensioners are living near the poverty line. Alternatively, we can also choose to self fund our own retirement with the superannuation funds. Regrettably, the superannuation funds are not immune from the effects of the credit crisis that the global economies are facing today. Due to the tightening of credit in the financial markets, share prices on the Australian Stock Exchange (ASX) have been declining by as much as 30 percent since late last year. The ultimate result is that returns on superannuation funds have also declined.
The tightening of credit on the world’s financial markets is due to the fact that the financial system is currently being poisoned by the exotic money market instruments like Collateralised Debts Obligations (CDO’s), Mortgage Backed Securities (MBS’s). Most of us have never even heard of CDO’s, MBS’s until we are witnessing the effects of these “toxic assets”. For many of us, especially those who are nearing retirement age, the credit crisis is proving to be excruciating costly lesson. To add insult to injury, the effects of the credit crisis are not just confined to declining shares prices and superannuation funds. Local councils like the Wingecarribee Shire council have lost monies earmarked for the development of schools and road due to these “toxic assets”. The money market instruments have traditionally been regarded as prime value investments due to the fact that the fixed yield and stability of these instruments are a well balanced mix over shares and bonds.
Because globalisation has changed the way the world’s economies interact with each other, the traditional views and models of investments are no longer applicable. Even the way share prices are determined has also changed. Dividend payouts used to be the beachmark on how a share is priced. With increased competitions among the market traders, news ways of generating revenues are being adopted. Computers, algorithmic trading programs and quantitative analysis like statistical arbitrage are now leading the way how market traders generate profits. When used together, these factors become a powerful trading tool for hedge funds to milk billions of dollars in profits daily from even two decimal points differences in share prices. With the volume of shares traded by these hedge funds, they are able to cause share prices to rise or fall due to their trading methodologies. It doesn’t matter which way the market is moving as the use of statistical arbitrage allows hedge funds to cover both ends of the market movements. Their risk level is effectively zero or near zero level.
Unfortunately for many of us, we will not have the ability to capitalise on these systems on the financial markets as the cost of development and maintenance of these complex system runs into millions of dollars. Nevertheless, a former London City stockbroker, Rajeev Shah, demonstrated that with a customised algorithmic program called the ArbAlarm, one can also apply the same mathematical principles to sport arbitrage. (To gain more insight, read: “Sports Arbitrage–How to place riskless bets & create Tax free investments”). The globalised economy has opened up increased trading opportunities among the nations of the world. It has also allowed corporations to raise capital globally to fund their investment. However with the increased interaction between trading nations, globalisation have also brought with it risks that has a profound effect on our lives whether we like it or not. Our retirement nest, like many retirees in the US are finding out now, is slowly diminishing in value day by day. Perhaps it is time for us to open up our minds and look for alternative investment vehicles to fund our retirement. Maybe the only safe haven to fund our retirement is from somewhere which has no relationship with the global financial market, regardless of how unorthodox it may be.
