Archive for the ‘In The News’ Category

Spreading Contagion

Monday, October 6th, 2008

Despite constant interventions in the financial market by the US Federal Reserve Board, the credit crisis is getting worse by the day and already investors are questioning how effective will the bailout plan be. Beginning with the bailouts of Bear Stearns in March to Fannie Mae and Freddie Mac and the latest for AIG, none of the corrective measures seem to have any effect in arresting the chaos which had ensue in the financial markets. The latest move led by US Treasury Secretary, Henry Paulson, led to the enactment of the Emergency Economic Stabilization Act of 2008. The $700 billion rescue plan calls for the US Treasury to buy up the “toxic assets” of ailing banks which were initially the root cause of the credit crisis. When the Federal Reserve Board refuses to extend any financial assistance to the Lehman Brothers, the demise of the century old investment bank had led to a cascading effect which had so far resulted in the current situation. What the Lehman Brothers failure had shown is that size is no longer a safety net for failure in the financial world.

In response to the global credit crisis, Australian banks had move swiftly to provide details of their limited exposure to the US mortgage investments hoping to alleviate fears of a financial meltdown locally as what had happened in the European Union currently. Lawmakers in Australia were also quick to add that the current problems in the US were due to lack of regulations unlike Australia which has existing regulations in place. However the latest development in Germany which resulted in the German Government bailing out Hypo Real Estate AG, Germany second largest property lender, for €50 billion seeks to show that this line of thinking might not hold true. The German’s Bundesbank is known for its conservative and prudent management of its financial institutions and yet this has not insulated Germany from the fallout of the credit crisis. Furthermore, globalization has not resulted in diversification of risks rather it has intensified risks and permeating even to areas which are supposing to be immune.

Shares prices in the Australian Stock Exchange (ASX) have been falling by as much as a third since the end of last year led on by the banking sector. The commodities sector is not immune to the declining prices as well. Blue chips mining shares like BHP Billiton Ltd has seen their value eroded despite the imposition of short selling of shares by the ASX. It goes to follow that if the current condition persists, Australian would be facing harsher times ahead. The Australian economy, in terms of its ability to remain insulated from the fallout, is on borrowed time.

The global contagion is already testing the supposedly bond that exist in the European Union (EU) as Finance ministers from member countries broke ranks in their bids to protect their own banks. The magnitude and speed of fallout had caught many of the European nations unaware that instead of a concerted effort to stem the effects of the crisis have ultimately resulted in disarray unilateral actions of EU member countries. The Irish Government on 30^th September, in its bid to starve off a meltdown of its financial system, had sought to guarantee the debts and deposits of its six largest banks. The move was decried by its neighbors and Brussels fearing a flight of deposits from the domestic banks the neighboring countries to Ireland. What the recent events had shown is that despite the ideal goal of unity that the EU has tried to embodied, no nations can be immune from the current financial crisis. Australia will not be the first exception to the rule.

The globalisation of the world’s economies has brought tremendous gains in terms of trade and finance. The development of instant communications, international trade and development of the capital markets has contributed to what is termed as the New World Order where the economies of the world are intertwined together. Businesses now are able to raise funds on the global capital market with ease. However it has brought disastrous repercussions as well. Globalisation has also sought to magnified risks in areas which are seemingly totally unrelated to the global economy. What traditionally used to be considered safe and worthwhile investments has now changed subjected to external factors thousands of miles away. The current credit crisis the global economy is facing is an example of a US domestic crisis spilling over to Europe now. Money market instruments before were considered a prime investment as they carried a well balanced mix between yield and stability. Due to the emergences of the toxic assets, investors are now shying away from investing in any of these types of instruments as no one knows the actual risks that are tied to these investments anymore.

Rapid advancements in technologies have totally changed the ways shares prices are determined. The intrinsic value of shares used to be determined by amount of dividend that share would yield thus reflecting shareholders values. Today the profitability of shares investments are derives from inherent market inefficiencies. The world’s major stock markets today are largely automated. In the London Stock Exchange for example, System like TradElect are programmed with algorithmic trading patterns designed to execute stock trades in 10 milliseconds while simultaneously processing 3000 stock orders per second. The computer systems are able to act to information about market conditions even before any human traders are aware of the changing market conditions.

It is through this manner which hedge funds have the ability to determine the price of a stock, by sheer volume trading. Use together with Statistical arbitrage which isolate assets mispricings, Algorithmic trading is powerful tool which had generated billions of dollars in profits for the hedge funds. This is the main reason why hedge funds are the top performing funds in the financial markets. However the high cost of development and maintenances of these sort of systems means that only those large firms with the funds are able to acquire sophisticated systems like this for their Trading desk operations. But a former London city stockbroker, Rajeev Shah, highlighted that the same quantitative analysis methodology could be applied to the world of Sport Arbitrage. Using softwares like the ArbAlarm developed using algorithmic blueprints; traders are able to isolate price differentials also in a matter of mere seconds. The only difference between the Sport Arbitrage market and the financial markets is the volume of trading that is being done. The Sport Arbitrage market smaller size makes it a more accessible market to the smaller investor. (To learn more, read “Sports Arbitrage–How to place riskless bets & create Tax free investments”).

As the returns on superannuation funds are declining, many are finding themselves unable to make ends meet. This in turn has force thousands to go on the aged pension. Even Julia Gillard ,the Deputy Prime Minister, has admitted that she couldn’t survive on the age pension, a fact that many are indeed living near the poverty line, there is currently no other alternative beside this. Unless one starts to consider alternative means to build up a retirement fund, with the recession looming around the horizon, retirement can prove to a hardship for many Australians in the near future.

Tags: Wealth Creator (Australia)
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The Global Economies Responses to the US bailout Plan

Saturday, October 4th, 2008

The Global stock markets instead of responding favorably to news of the enactment of the Emergency Economic Stabilization Act of 2008 in the US have instead been declining. In addition, the credit crisis has now taken root in Europe as European nations scrambled to put into place their own bailout plans to save their own domestic banks. Forbis NV, the largest retail bank in Belgium, was recapitalised with an infusion of €11.2 billion orchestrated by a tripartite efforts of Belgium, Luxembourg and the Netherlands. Ireland in a unilateral move, declared that the Irish Government will guarantee all debts and deposits of its 6 largest banks. Although the move was initially denounced by fellow EU countries, fearing a flight of deposits to Ireland, the measure was later adopted by the Greeks. The latest EU nation to adopt such a measure was Germany which virtually acts as a guarantor for all its saving deposits in the retail banking sector worth €560 billion, a quarter of its GDP. This is in addition to the €50 billion rescue package for the Hypo Real Estate AG, one of Germany largest property lender.

Investors are currently still holding to a wait and see attitude as to the trickle down effect of the US $700 billion bail plan. US Treasury bonds yields have remain extremely low due to the flight to quality from the stock market. Investors are avoiding the corporate bonds market as they are wary of what could be a Warren Buffett’s “time bomb” hidden within those investments. The loss of confidence in the financial system has resulted in investors avoiding anything that is remotely deemed risky. Even though the bailout plan seeks to unlock the credit squeeze in the financial markets, banks are still unwilling to lend and if they do lend, the lending comes at a premium. The bailout plan protracted journey to become law has also resulted in the market having doubts about the effectiveness of the plan.

Many analysts agree that what was initially regarded as a domestic problem of the US has now mushroom into a global crisis affecting Europe and ultimately Asia as well. The situation now faced by the Europeans echo that of 1971 when the US abandoned the dollar’s link to the Gold standard. Currently all eyes are on the European Central Bank (ECB) to see if it will cut its interest rate. The reason is that with the establishment of the Economic Monetary Union (EMU), EU nations no longer have the powers to lower interest rates nor devalue their currencies. To give the ECB supranational control of monetary polices, all these powers were surrendered to the ECB.

Thus today individual EU nations, no longer having these powers, are resorting to protectionist methods to insulate themselves from the fallout. The irony of the whole situation is that, the EMU was established to enable the global economies move away from its dependencies on the US dollar. Instead of diversifying risks, globalisation has instead intensified risks even to seemingly immune areas. With the scale of interaction in the global economies, this has resulted increased interaction between Europe and US, making the European nations more exposed to any situation in the US.

Analysts are warning that as the contagion spreads across the globe, Australia could be in for a rougher ride than the Americans. This is because despite a boom in the commodities market, Australia has been running a budget deficit. Household debts are at 177 percent of GDP, one of the highest in the world. Since late last year, the shares prices on the Australian Stock Exchange (ASX) had declined by as much as one third. Mining shares have also been declining. If the slide in the commodities sector continues, Australia will indeed be facing a crisis worse than the US with no means to pay for its imports and no means to borrow in the current credit crunch.

Today, the economies of the world are intertwined together in ways that we cannot imagine. Globalisation has intensified risks in even in areas which we once thought were safe. The traditional model of investing used to be based on three main asset class; stocks, bonds and money market instruments each with its own level of risks and with the money market instruments being the most stable relatively from fluctuations and inflation. Today with a proliferation of exotic financial instruments like CDO’s and MBS rated triple “A” by rating agencies, nothing can be taken for granted at face value anymore. Investing in the financial market has become as dangerous as sticking one;s hand into a nest of cobras and hoping not to get bitten. Shares prices used to be based on the dividends that it pays out but today this has all changed. Movements in shares prices are dictated by its earnings potential and market sentiments instead which are subjected to manipulative creative accounting as in the Enron’s Scandal.

The one thing which has not changed with globalisation is the inefficiencies of the market. With computerisation, trading on the stock markets are done using computer programmed with algorithmic patterns designed to execute trading orders even before human traders are aware of the changes in market conditions. Combined with the use of statistical arbitrages, algorithmic trading has changed the landscape of the financial market dramatically. This is the main reason why hedge funds outperform the other funds on the financial market. Quantitative analysis like statistical arbitrages isolates the price inefficiencies of assets allowing removal of risks while algorithmic trading takes out the emotional aspects of trading removing what Alan Greenspan termed as “irrational exuberance”. The downward side to this investment strategy is that it requires volume trading and a lot of capital as the price differentials are calculated up to two decimal points.

However situation for arbitrages also exist in other markets and not just the financial markets. As former London City stockbroker Rajeev Shah pointed out, conditions for arbitrage can also be found in the world of Sports Arbitrage. Using computer programs like the ArbAlarm, one can capitalise on price differentials just like the financial markets. (To gain more insight, read “Sports Arbitrage–How to place riskless bets & create Tax free investments”).The main difference between this market and the financial market is the transparency which exist in the world of Sport Arbitrage. Mutual funds used to be the simplest and easiest way to invest in as an investment vehicle for retirement. The problem is that with globalisation and increased competitions, this no longer holds true. As demonstrated by the current financial crisis, many investors are caught with their pants down as they have no idea what they are investing in. What presumably was triple “A” class investments turns out to be nothing more than a proliferation of “toxic assets”. With the current economic climate, perhaps it is time to rethink outside the box and look beyond traditional models of investments for one’s retirement. An article published in the Financial Times called “Cherished myths have fallen victim to economic reality” explains why and how times are changing beyond our comprehension. Either way, it should be “Main Street” and not “Wall Street” who should reap the benefits. Instead today, “Main Street” is just bearing the losses of Wall Street’s greed and recklessness.

Tags: Australian Financial Review
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Lingering Doubts About Australian Economy

Monday, September 29th, 2008

A year ago, the house of cards on which the US mortgage industry was built on began to collapse with the demise of New Century Financial, the second largest mortgage originator in the US. Today as we look across the financial landscape in the global financial market, we find some of the top names in the banking industry have already become patrons of the corporate graveyard. Northern Rock (UK), IndyMac (US), the Lehman Brothers, a century old US investment banking tradition has all but crumbled into oblivion as the magnitude of the subprime leading crisis unfolds. Even the largest savings and loans bank, Washington Mutual, was not spared from the fallout. On 25 September 2008, the Federal Office of Thrift Supervision seized and placed WaMu under receivership in an effort to bring some semblances of sanity to the US financial market.

The US government, urged by some of the major developed countries in the world at the United Nation meeting in New York, proposed a $700 billion bailout plan for the troubled financial market. Due to its huge price tag, members of the US Congress have balked at giving their seal of approval. Even now as the members of congress debate over the nitty gritty details of the bailout plan, the world’s financial markets watched and wait in anxieties. No one really knows whether the bailout plan will work but the atmosphere around Washington DC is that of a somber nature. Everyone agrees that something needs to be done and that the plan was “too big to fail“.

Though we are at the opposite end of the globe, the Australian Stock Exchange (ASX) took a serious pounding as the banking industry shares resume their decline wiping out any gains made earlier in the week. The S&P/ASX index dropped nearly 130 points as a result of doubts whether the US bailout plan will work. The scene at the ASX was like a drama of epic proportion unfolding. At 00.57 GMT on September 24, shares of the mining giants’ BHP and Rio Tinto declined at an average of 0.85%. By 04.56 GMT, the banking sector was hit next by worries of the bailout plan. The Macquarie group shares and Westpac Banking Corp by dropped by 5.6% and 2.8% respectively. The National Australia Bank (NAB) was not spared either as worries of the bank’s exposure to the collateralised debts (CDO) resurfaced again. Shares of NAB declined 2.6%. According to the analysts at MM&E Capital, the deterioration in the shares prices has nothing to do with short selling but rather everything to do with bad debts.

A week ago, Kevin Rudd, our esteemed Prime Minister, assured the Australian people on The 7.30 report that Australia is very much protected from the cascading effects of the subprime leading crisis in the US. If that was true, the Australian economy would be the only developed economy in the world which could survive on international trade in isolation. The truth is that our Prime Minister is as in touch with the Australian economy as the US Republican presidential nominee John McCain, who made the comment that the US economy is “fundamentally sound”.

Experts are warning that as the process of “deleveraging” continues further, the impact of the crisis will get worse especially for those on ‘Main street” and not just Wall street. The reality is clear and brutal. Already there are signs of how we will be affected. The layoffs by Ford, and Mitsubishi are the initial ominous signs of what’s to come.

To make mattersworse, the credit crunch had made it next to impossible to get a mortgage nowadays. The irony is that while banks are lending less, their profits are still soaring! As the income from loans declined due to the credit squeeze, banks in order to make up for the loss of revenue from the lending sector, have to seek alternate means to improve their balance sheets. To do this, they have adjusted their fees upwards. Unless you own substantial holdings in Westpac or the Commonwealth Bank, there is no cause for rejoicing.

The Governor of the RAB, Glen Stevens, reaffirmed this situation by saying that due to higher costs in funding; the Australian financial intermediaries are passing on the added costs to the customers. In this respect, the market is working efficiently. For any financial market to perform efficiently, it must also be informational efficient. The subprime lending crisis is a perfect example of what happened when the market becomes informational inefficient. The lack of transparency resulted in investors making ill informed investment decisions when the exotic financial instruments like the CDOs, MBS were rated triple “A” by the rating agencies. In other words, the investors didn’t know what they were buying. The same goes for all of us at Main Street. It is so typical of us to follow whatever the financial planners or mortgage broker tells us because they are the so called experts. And today, in lieu of properties, financial planners are telling us to invest in shares.

This is where people like Warren Buffett and George Soros distinguish themselves when it comes to investing. The truly successful investors think along very different lines from the rest of the pack. They follow a definitive plan when it comes to investments. While everybody was loading up with CDOs and MBS, Buffett’s Berkshire Hathaway Inc was regarding them as “financial weapon of mass destructions” and a “time bomb” waiting to go off. Investors like George Soros who invest in the currencies markets hedge his bets when making investments decisions. This way regardless of whether the market is going or down, he makes a profit. By using a system of statistical arbitrage, the investor is able to capitalize on price differentials of an asset in different markets.

The mechanism to go about this is very clearly explained in a book by a former London city trader, Rajeev Shah. (To know more read, Sports-Arbitrage – How To Place Riskless Bets & Create Tax-Free Investments). This system of “fail safe” trading was pioneered by Morgan Stanley’s Equity trading division during the 1980s as a method to avoid losses due to price differentials. Since then, the system of trading has advanced tremendously to using softwares like the ArbAlarm to locate price differentials in the market. The fact of the matter is that, the successful investors do not let “control” out of their hands. Using different forms of investment vehicles, they are able to capitalize on any situations when everyone else is running for cover.

For some of us, the best years of our lives is supposed to be our retirement. But with the current financial crisis, this situation is becoming next to impossible. The slide in superannuation returns has forced some of our seniors to be on the aged pension. One can hardly call living near the poverty line an enjoyable situation. Even those who had a “nest” tucked away are starting to feel the pinch which shares prices drops and with it the dividends. The market might recover but you would hardly call yourself recovering when the majority of your assets are down the tube because all your investments are linked directly or indirectly to the globalised economy. Perhaps it’s time to rethink one’s investment strategy before time runs out like many of the retirees in the US now.

Tags: Australian Times
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Home Owners Drop Prices By 4000

Monday, September 22nd, 2008

Home owners trying to sell their houses have had to knock more than £4,000 off their asking prices in the past month alone, according to the latest gloomy property market survey.

The survey was done to see if there was any proof of a supposed shift in philosophies regarding investment methods.

Besides dealing with housing the researchers spent a lot of time reporting on an emerging industry that according to the survey investors worldwide have grabbed hold of by the millions. This is Internet gaming. With the use of new software, it is now possible to scan prices globally in seconds and uncover risk-free betting opportunities which provide guaranteed returns of as much as 12% per month. Actually, Internet gaming is the largest and most profitable Internet-based industry. It seems everyone is getting into it, including the government. The UK government recently announced through the Treasury that the profits made from sports arbitrage trading will continue to remain free of all tax. This includes income tax and capital gains tax on all profits. Using software like one called ArbAlarm, ordinary people can now easily profit from this unique method of investment.

In an interview, former City trader Rajeev Shah, famous author of ‘Sports-Arbitrage – How To Place Riskless Bets & Create Tax-Free Investments’ explained that an arbitrage occurs when different bookmakers’ prices on the same events overlap. In these cases, it is possible to bet on all of the outcomes in that event in such a way as to be guaranteed a total return which is greater than the total outlay. The mathematics of this type of trade are precise & the resultant profits are free of all risk.

Though Internet gaming is taking the world by storm the housing market is not fairing as well. The average asking price has fallen from by £4,345 to £235,219 between June and July, as sellers are forced to cut their prices because the “mortgage famine” is causing potential buyers to flee the market.

The monthly Rightmove house price report blames overly cautious banks for the stagnant housing market.

The number of mortgages on the market has fallen steadily since March and there are now fewer than 3,800 mortgage deals available compared with more than 12,000 a year ago.

New sellers are now asking two per cent less than a year ago, the first time Rightmove has measured a year-on-year fall.

Miles Shipside, commercial director of the property website, said: “Sellers are finally recognizing that they need to undercut their rivals from the outset, rather than testing the market and dropping prices later.

While this £4,000 reduction is on top of a £3,000 drop last month, sellers’ pricing needs to be at the level where deals are being done.

“It could be a lot better outcome to price aggressively and sell now, rather than accept a bigger reduction later as prices continue to fall.”

The lack of buyers has meant that estate agents have failed to enjoy the usual spring upturn in the market.

The number of unsold properties on estate agents’ books has now increased for six months in a row, with the average estate agent having 77 unsold houses.

Official statistics from the Land Registry have shown that the number of homes changing hands has plummeted by 50 per cent compared with a year ago.

Though some mortgage companies have started to trim their rates over the past two weeks, most experts believe the housing market will get worse before it gets better.

Sir Win Bischoff, the chairman of Citigroup bank, said over the weekend that he expected house prices to fall for another two years.

Tags: UK News
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Rethinking our Future after the Subprime Lending Crisis

Thursday, September 18th, 2008

Compared to a year ago, the corporate bankruptcy rates in the US have raised by 42%.
(Source: BankruptcyData.com).

Firms are also finding it extremely difficult get credit to starve off bankruptcy due to the credit crunch crisis. A notable example is the auto parts maker Delphi Corp now fighting for survival from corporate insolvency. In addition, job losses, foreclosures, and stock market depreciations are engulfing the US economy. Never in the history of modern economics, have we ever seen bankruptcy the size of that of the Lehman Brothers case. The scale of government bailouts like the case of Fannie Mae and Freddie Mac are rewriting the rules of corporate survival as we plough through “uncharted waters”. No sector of the US economy is being spared as the financial market continues its deleveraging process. The domino effect of the crisis have spill over to the Retail sector, Home builders, Financial firms , Airlines and the Energy sector.

As the US economy is reeling in aftershocks, the FBI has launched investigations into firms which had triggered the US government involvement into bailouts for Wall Street. Some of the firms that have been under the inquiries of the FBI for possibilities of fraud are IndyMac Bancorp Inc, Countrywide Financial Corp, Fannie Mae, Freddie Mac, Lehman Brothers, and AIG. The Federal Reserve and the US Treasury department both agreed that the only way to resolve this crisis and bring stability to the financial market is to rid the books of these financials companies of their “Toxic Assets”. The bailout plan proposed by Treasury Secretary Paulson, requires a $700 billion injection into the market to soak up all the toxic assets. This is in order to unlock the credit squeeze the market is currently facing.

Even as the members of Congress debate over the bailout plan proposed by the Bush administration, leaders from developed countries are urging the US to quickly enacted the plan in order to stabilise the global financial market. The Canadian Prime Minister, Stephen Harper, have expressed worries about the fundamentals of the US economy. He acknowledges that the US economy had impacted Canada’s growth. At the United Nation meeting in New York, France and Australia joined in the chorus to call on the US government to quickly find a solution to the crisis. Australian Prime Minister Kevin Rudd said that it is time for the US government to act decisively to restore order in the chaotic financial market. Although the bailout plan may help to give the financial market a dose of confidence and help unlock the credit squeeze, no one had answered the question of what to do with the surplus homes in the real estate market. Furthermore, the positions of those mortgage holders on “Main Street” who are in a precarious situation have also not been addressed.

Many are demanding answers as to how the situation could have gone so bad. The hardest hit in Australia will most probably be the retirees. After the dot com bubble burst, many have shifted their investment focus towards Real Estate Investment Trust (REIT). Today, the REITs are also vulnerable to the credit crunch crisis. Centro, one of the largest property groups in Australia had announced a loss of A$3 billion for the year 2007/2008. Over a period of a year, up to 40% in values have been wiped off the Australian REITs. Another casualty of the crisis is the Superannuation funds. AMP, reported earlier in the year a 22 % drop in profits for the first half of this year alone. Voluntary contributions have also fallen considerably by as much as 33% since last year. In fact many retirees are turning to the aged pension for survival as the superannuation returns slide further. This number had increased by 40% since the last financial year.

Financial planners have advised that when it comes to investment, we should diversify. Another common advice we hear is that bricks and mortars are a safe bet. Many of those who took these investments from so called “experts” have ended suffering when they see their life savings disappeared into thin air. As early as last year, Australians had lost an aggregate of a billion to dubious investment schemes. The collapse of WestPoint, Fincorp and the Australian Capital Reserve (ACR), are all stark reminders that we need to really rethink our investment strategy. Today, in a globalised economy, none of our investments are insulated from any fallout from any major crisis in the world.

Successful investors like Warren Buffett do not follow what the rest of the pack do when it comes to investing. As early as 2002, he had warned of a “time bomb” that was waiting to go off in the US financial market. He had viewed the credit default swaps market as “financial weapons of mass destructions”. And true to his words, today, we are now reeling from the effects of that “time bomb”. The thing is that if we wish to be successful like Warren Buffett or George Soros, we have to adopt their mindset. There is no way to get rich quick. Everyone needs a plan, patience, and an investment vehicle to start with. Things like risk level and tax liability need to be considered and not just the returns. George Soros, uses statistical arbitrage, to hedge his bets whenever he invested in any assets. This way, he reaps a positive return regardless of the direction the market is going. In layman term, this is called riskless investment and it’s not just restricted to financial markets. (To know more read, Sports-Arbitrage – How To Place Riskless Bets & Create Tax-Free Investments). This system of investing was developed by Morgan Stanley Equity trading division during the 1980s. Today, statistical arbitrages have progressed to encompass technological improvements. With the use of software like the ArbAlarm, it is possible for one to execute a trade within mere seconds from the desktop computer.

Apart from the risk level which we have to consider, there is another aspect most of us tend to overlook, that is the tax liability of the returns. Incomes derived from Real estate are subjected to Capital Gain Tax (CGT). Likewise too are the dividends we get from the superannuation funds. Until the superannuation has become your retirement pension, all the returns are subjected to 15 % CGT unlike capital gains made from statistical arbitrages which are tax free. (For more insight, see ATO Tax Ruling TR2004/D17). At the end of the day, we ourselves have to decide how we will live out our retirement years. Many seniors are finding it extremely difficult to survive on the aged pension as many do not have any savings. Even those who have a retirement nest tied in the stock market are finding their returns shrinking day by day as the credit crisis get worse.

Tags: Australian Times
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Lehman Brothers join the list of “wobbling on the brink” banks.

Sunday, September 14th, 2008

The UK public has had to learn some new terminologies in the last year or so.

They discovered (the hard way) what subprime mortgages were, and how they were about to burst the bubble of their credit dependant lives.

They have had to learn what a “credit crunch” is and how it will affect them.

They have learned about negative equity and foreclosure, inflation, deflation, what it takes to be declared a recession among many others.

And they have learned the names of some of the major banks in the United States, Fortunately before they got to say goodbye to them forever. At least in their existing form. The first and most famous bank that we got to know was Bear Sterns of Manhattan whose cry of “help, I’m drowning” signaled the official start of the subprime mortgage crisis in March 2007. After Bear Stearns were bought out of impending liquidation for around 20% of their book value, a number of smaller and less glamorous regional banking groups followed suit.

However the biggest upset was when Fannie Mae and Freddie Mac, the two massive mortgage underwriters began to show major signs of distress. Till their names began to hit the press, the average British man in the street probably thought that they were characters from the Beverley Hillbillies.

Today, another name has been added to list of US banks who are tottering on the brink of insolvency and about to fall. The name is Lehman Brothers, a US investment bank who will need to find a buyer, and pretty soon, before they too disappear from the scene. Lehman Brothers have been trading since the mid nineteenth century, with a strong record for conservative banking. Like so many other banks in the US, they couldn’t turn their backs on the massive profits seemingly being earned from financing subprime mortgage packages, and they now look like paying the ultimate penalty for it.

And how does this affect the UK consumer? The answer is, not a lot, except for the fact that Barclays Bank is one of the leading contenders to pick up the bank for a song.

What it does tell the UK consumer is that the script for the current global financial crisis is still being written, and nobody is really able to predict what is going to happen in the end.

The man in the street is more concerned about how his family can manage to survive on their consistently eroding salary, keep a roof over their heads, and food on the table. Not proving to be an easy task these days. Among those fighting for survival are those who invest all their energies in keeping their costs down to a minimum, whilst others adopt a different approach. To discover innovative, low risk, not labour intensive means of earning extra income to keep ahead of the recession. One of them is sports arbitrage investment.

This money maker is as far from gambling as could be imagined. Instead it is a foolproof form of trading which is a guaranteed money maker whilst being entirely risk free. And is even recognized by the UK government as such.

The system was initially explained by Rajeev Shah in his book ‘Sports-Arbitrage – How To Place Riskless Bets & Create Tax-Free Investments’ Rajeev, who gained his basic experience of arbitrage as a dealer in the city discovered a method of applying the principles to sports betting that can guarantee 12% return on investment. Not every year but every month. All that is required is some basic knowledge of computers and a broadband connection.

The introduction of this cutting edge software program opens the door to anyone to earn these profits. ArbAlarm is programmed to constantly monitor, recognize and alert players to a particular situation that occurs fairly frequently. This is a situation where online bookmakers fix the odds on any kind of sporting event. And they are taking place all around the World and around the clock.

ArbAlarm picks up immediately events where the odds set by two bookmakers vary sufficiently that it is possible to arbitrage between the possibilities offered so that a guaranteed profit will occur. The ArbAlarm software never sleeps or rests. Instead it scans the web around the clock, looking for these possibilities.

Sports arbitrage investment and Lehman Brothers live in two different worlds of finance. Yet it looks very much like Rajeev Shah and ArbAlarm will be around long after Lehman Brothers are history.

Tags: UK News
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Bank Lending At Heart Of Recession

Monday, August 25th, 2008

The British economy over the last 30 years has been accompanied by major fluctuations in monetary growth according to a new survey. The survey concludes the problem lies in the banking industry. What is notable is that there are new market trends that have been created as a result of the ailing economy.

The new survey hints at a shift in philosophies regarding investment methods. One example it provides is an emerging industry that investors worldwide have grabbed hold of by the millions. This is Internet gaming. With the use of new software, it is now possible to scan prices globally in seconds and uncover risk-free betting opportunities which provide guaranteed returns of as much as 12% per month. Using software like one called ArbAlarm, ordinary people can now easily profit from this unique method of investment. Aware of this trend, the UK government recently announced through the Treasury that the profits made from sports arbitrage trading will continue to remain free of all tax. This includes income tax and capital gains tax on all profits.

In an interview, former City trader Rajeev Shah, author of ‘Sports-Arbitrage – How To Place Riskless Bets & Create Tax-Free Investments’ explained that an arbitrage occurs when different bookmakers’ prices on the same events overlap. In these cases, it is possible to bet on all of the outcomes in that event in such a way as to be guaranteed a total return which is greater than the total outlay. The mathematics of this type of trade are precise & the resultant profits are free of all risk.

The money supply is just one of a range of variables which the Monetary Policy Committee considers when thinking about interest rates. And it doesn’t seem to be a very important one at that. Some argue that this explains why the MPC missed the warnings of higher inflation. Similarly, is it now missing monetary warnings of recession ahead?

In response to recent turmoil, banks have moved activities on to their balance sheet, which means they now have more explicit liabilities to be included in the money supply measure.

Equally, they have outstanding lending commitments to a number of borrowers and in the most part they have honored these. As they have lent, so the recipients of the loans have deposited the money and so the money supply has expanded. And since many other sources of finance have closed, borrowers have turned to the banks for funding. Yet this will not necessarily continue. Banks have severely cut lending practices in the US and we may be next.

The current epidemic of property losses are super-charged, because they reduce bank capital and thereby impair the banks’ ability to lend. House prices fell by 32pc in real terms in the mid 1970s but because of rampant inflation this drop was achieved with hardly any fall in nominal prices. For banks this difference is critical, because bank liabilities are in nominal terms.

Whether a cutback in bank lending results in serious damage to the economy depends upon what the bank credit is financing. If it is financing financial activity, such as management buyouts, then the impact on aggregate demand may be minimal. Asset prices may be lower, and that would have some indirect impact on spending, but the direct connections would be weak.

By contrast, if it finances consumer spending or purchases of plant and machinery, or holdings of stocks, or covers running losses while businesses expand or cope with a downturn, then the real economic impact will be direct.

The banking system is the engine of the economy. Never forget that the Great Depression in America was associated with a collapse of bank lending and the money supply.

Even non-monetarists should be watching the money and banking numbers like a hawk. And if the growth of bank credit slows substantially, let alone contracts, then you should be on guard for an even worse recession than currently looks likely.

Tags: UK News
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Multi-million pound soccer in financially-stretched Britain

Tuesday, August 12th, 2008

For many years, and especially during the depression years of the nineteen twenties and thirties, attendance at soccer matches was as genuine and accurate an economic barometer as anything that the finest minds could come up with. It seemed that the worse the decline that the British economy fell into, the more people turned up to watch their favorite football team play on a Saturday afternoon. Whilst the lady of the house would count every penny to make ends meet, they would gladly find a few shillings to send their husband of to let of some steam, sing a few songs, drink a few beers and forget the grinding stress of their poverty for just a few hours.

Since those difficult genuinely difficult times, things have gotten better for Britain, beginning from the sixties till today. And the face of soccer has changed entirely. Soccer today is big business, with players earning in a week what many of their predecessors earned in their entire career, if not their lifetime. In order to subsidize these massive wage bills, entry fees for Premier League matches have risen steadily for years and has now reached an average sum of over £100.00, This represents an increase of 35% in the last two football seasons, according to a recent poll. Fans were prepared to pay that kind of money when earnings were high and the cost of living was lower than it is now.

This means that fans are staying away from games to save money and while it is still possible watch soccer matches on cable television for much less cost, anyone who has ever attended a Premier League soccer match will tell you’re that the crowd atmosphere is one of the major attractions. And a soccer match without a crowd is like watching football being played on the moon. A distinct lack of atmosphere

There are many people in the UK who need the feeling of belonging that supporting their beloved soccer team. They are prepared to deprive themselves of many other pleasures, and work harder in order to escape their worries, not dissimilar to those of their predecessors more than seventy years ago.

Thankfully in these modern, computer driven times in which we live, there are opportunities to boost income that were unimaginable then. The internet is responsible for generating most of these sources, and one of the most imaginative arbitraged online wagering..

Arbitraged online wagering is a scheme where you are only required to invest as much capital as you can afford, and requires the minimum of your valued free time. All you need is the will, the way and some limited computer skills and you guarantee yourself a return on investment up to12% every month, which translates and accumulates to around 150% annual return. And better still, every penny that you earn is regarded as profits on investments and free of all forms of income tax.

Based around a software program called ArbAlarm, the brainchild of ex-city trader Rajeev Shah, arbitraged online wagering allows full automization of the arbitrage process as it is applied to sports betting. If the rules of the system are totally adhered to, players who use it stand absolutely no risk of losing their investment.

Rajeev, who first gained considerable experience in the field of arbitrage during his time in the city, applied his considerable skills to turning sports betting into a highly profitable and risk free venture. At first this knowledge was confined to him and a few close friends. Word spread quickly and so many people were knocking on Rajeev’s door asking him to share his formulas and secrets that he decided to put down his theories on paper. He published a book on the subject to which he gave the name “Sports-Arbitrage – How to Place Riskless Bets & Create Tax-Free Investments. The book proved to be an unparalleled success, and the next logical was the launch of ArbAlarm that was designed and programmed to alert its users to a situation where odds set by competing bookmakers had been set to opposing parallels. In other words, one bookmaker fancies a team or a player to lose by such and such a margin whilst the other expects the opposite and is offering alternative odds.

The ArbAlarm software provides and guides its users through the procedure of placing a series of wagers covering any conceivable mathematical outcome on the event, guaranteeing a profit. A profit that you may well be earning as you sit in your seat watching your favorite soccer team thrash their opponents.

So get yourself out of the “reds” and into the “blues” with ArbAlarm.

Tags: UK News
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Investors Buy Gold In Record Numbers

Wednesday, July 16th, 2008

Volatile stock markets and a lack of confidence in the UK banking system has boosted demand for gold bars and coins from private investors to levels not seen for 25 years according to a report just released.

The report says investors are using numerous investment methods to turn a profit. One of the most used is Internet gaming. Gaming has mesmerized the investment community for the past few years. Why? With the use of new software, it is now possible to scan prices globally in seconds and uncover risk-free betting opportunities which provide guaranteed returns of as much as 12% per month. Using software like one called ArbAlarm, ordinary people can now easily profit from this unique method of investment. Aware of this trend, the UK government recently announced through the Treasury that the profits made from sports arbitrage trading will continue to remain free of all tax. This includes income tax and capital gains tax on all profits.

The use of alternative investment methods has become widespread among the investing community. Besides Internet gaming, investing in precious metals is also at the top of the list. Tens of thousands of investors have rushed to buy gold from bullion dealers over the past year, during which the gold price has broken through the $1,000 barrier on occasions.

Tony Baird of Baird & Co, one the UK’s biggest gold bullion dealers, said business was getting busier and busier – with punters investing £1,500 to £150,000 in gold bars and coins. Baird, who has been in the gold business for 40 years, claimed that demand was on a par with the late 1970s.

“We have had queues in here. People are nervous of the stock markets and they are nervous of the banks. Northern Rock was a trigger and now Fannie Mae and Freddie Mac have stirred things up again this week.”

Bullion Vault the online marketplace for gold bullion bars – said that number of private individuals investing in gold has more than doubled over the past year.

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UK Economists- Off the Fence

Saturday, July 12th, 2008

Let’s be frank, UK economists, and heck, economists around the world, have something of a reputation for being very wishy washy. When you’re making predictions about something like the economy, in general, it’s actually a good idea to make someone broad predictions. Nobody has a magic crystal ball. All an economist can do is look at the numbers and make an educated guess. It may turn out to be true, and it may turn out to have been just that, a guess, but there’s never a one hundred percent guarantee that they’ll get it right. In other words, predicting the economy in the chaotic world of early twenty first century financing is a lot like predicting the weather. All we have to go on is what it “looks like might happen”.

And so, when economists across the board finally come off that fence and settle down, together, on one side or the other, it’s usually because they’re on to something. Very cautious about making predictions in anything but uncertain terms, today’s economists are now pretty much in agreement: The economy is in a sucky state of affairs.

There’s just no denying the words written on the wall anymore. The housing market is going nuts, gas prices are at incredible all time highs, there’s the credit crisis, inflation, and so on.

We may see the silver lining before too long, but the most conservative estimates place the financial woes we now face to last, at the very least, another year or two.

For this reason, it’s a good idea to take whatever disposable income you do have, while you still have it, and put it towards something smart, something that will pay off. If this means skipping your daily latte, so be it. Citizens of the UK and citizens of the US alike, we can’t really afford to keep blowing through our extra income, because the worst is yet to come, and we really do need to be prepared for that rainy day just on the horizon.

In the early 1990’s, real estate was a pretty safe bet, it looked like the market would only keep improving. The 1990’s have been over for awhile, though. In the early twenty first century, real estate isn’t the safety net it once was.

Rather, today’s investor is having to get a bit more creative, to come up with low risk solutions to investment worries. One such alternative would be the arbitrage trading industry, which the UK government is helping to support by promising no taxes charged for arbitrage based income.

Arbitrage consists of finding two bookmakers placing the odds in such a way that you can bet for one outcome with bookmaker A, and the other outcome with bookmaker B, without putting yourself at risk to lose any money. It sounds nuts, but it actually holds up. It’s only really made possible by the internet, where you can find bookmakers in any given area and place bets with them.

If you’re interested, look for ArbAlarm or similar software, which helps you to find and capitalize on these opportunities without having to scour the internet and check the odds yourself.

On the other hand, if you’re not so sure, check out “Sports-Arbitrage, How to Place Riskless Bets and Create Tax-Free Investments” by Rajeev Shah. “Sports-Arbitrage” should have all the information you need to make an informed decision and see if arbitrage is right for you.

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Archive for the ‘In The News’ Category

Spreading Contagion

The Global Economies Responses to the US bailout Plan

Lingering Doubts About Australian Economy

Home Owners Drop Prices By 4000

Rethinking our Future after the Subprime Lending Crisis

Lehman Brothers join the list of “wobbling on the brink” banks.

Bank Lending At Heart Of Recession

Multi-million pound soccer in financially-stretched Britain

Investors Buy Gold In Record Numbers

UK Economists- Off the Fence

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