Sally Redux

jmood

Love that page!

bigglesworth

Probably worth having a look at AEP in the Telegraph today. If the USA has recovered sufficiently to sustain a rate rise, and if that coincides with the ECB easing, life could get a whole lot more interesting.

Editha

I doubt it. On the other hand exchange rates might be affected.

Michael

The Federal Reserve isn't likely going to raise interest rates until at least next March at the earliest but investors try to anticipate when that will occur. If it is perceived that the US economy is on a sustainable growth and job creation path, investors may react earlier than expected to when the Fed will likely raise interest rates.

bigglesworth

Absolutely agree. But markets are strange and unpredictable. and have a habit of popping up in strange places. The USA (and the UK) have spent the last 6 or 7 years in a "currency depreciation society". If the markets truly believe that the Fed will not just taper, but halt, and that interest rate rises are around the corner (and for a trader March is pretty close), September could be very interesting indeed.
And the stresses in the EZ economies could well force some unexpected action by the ECB.
China effect now in reverse. And China now at grave risk of (hopefully controlled) implosion.
Further dollar strength, combined with dollars heading home, China and Russia burning reserves, and the EZ behaving like a bunch of headless chickens.

LTCM was a confluence of Black Swans. These aren't Black, but there are an awful lot of them.

I am reminded of a half remembered quote from ?Mongo? in Blazing Saddles "Sometimes I feel like I am just a pawn in some great celestial conflict".

And that oft repeated Chinese curse " May you live in interesting times". (Although no Chinese person I have ever met has recognised the phrase and it seems to have been invented by a British diplomat)

Michael

The world markets today and currencies are totally unpredictable. Japan is a case study of something that doesn't make sense. For 24 years, Japan has been in and out of recessions on regular cycles, the national debt went from a surplus to the highest in the developed world as a percent of GDP, the stock market is currently down over 60% from it's 1990 high with each high lower and each low lower, it's stock market has the highest p/e ratio in the developed world, an Asia/Pacific mutual fund almost always indicates excluding Japan, and it has major structural problems in it's economy that hasn't been addressed but for about 23 years, it's currency moved higher against other developed country's currencies and only recently moved lower due to extremely loose monetary policies.

I don't know why it's currency should be so high since I can't think of one single reason to invest in Japan.

The only reason I can possibly think of as to why it's currency was so strong is that the Yen was used as a "carry trade" currency since interest rates in Japan were so low for over 20 years.

China is becoming a problem child for several reasons. If you look at it's stock market chart for the past 5 years, it not nice. The country is growing at 7% annual rate so everything should be good but it has overproduction, competition from cheaper labor countries, over speculation in housing, and even though it's p/e ratio is low, there is no profit growth in the companies. I wonder if the Chinese miracle is coming to an end just like the Japanese miracle came to an end at the end of the 1980s. It may be able to continue to thrive if it changes it's economy to be geared more towards home consumption instead of exports.

Mr Weeze

The longer term price forecast (5 year) I saw recently was at $1.67 to the pound. There was a reasonable amount of work that went into that, and then it was held flat at that. Doesn't help much with short term variations I'm afraid though.

Pulaski

It doesn't take much to come up with that prediction as the GBP/ USD rate has spent most of the past 25+ years in the range $1.67 +/-15¢.

Mr Weeze

Depends on what implications a change in FX assumptions has for multinational companies.

Pulaski

What does a "change in FX assumptions has for multinational companies" have to do with the GBP/USD FX rate?

Mr Weeze

Annual budgets are typically set in one currency. Even if you operate in many countries (as oil companies typically do) and spend large amounts of money in the local currency, it is all translated back to dollars. Therefore being wrong by $0.05 on FX (Foreign eXchange) assumptions can have a huge impact for both the company and the asset.

There is a several month long process in coming up with the price deck (FX, WTI, Brent, differentials, Henry Hub, NBP gas, NGLs, etc.) which have a material impact on the amount a company will invest in any area.

I'm purposely not going to go into any more detail though.

bigglesworth

lansbury

As I've booked a forward contract for February 2015 this afternoon, that will guarantee the pound strengthening against to dollar for the next 6 months.

Sally Redux

Still rabbit in the headlights here.