On January 26 2010, Greece sold EUR 8 billion of five-year notes, attracting orders worth EUR 25 billion, with foreign investors buying almost 75 percent of the securities. The apparent debt issuance success has turned for the worst one day after, when the 10-year government bonds tumbled, pushing the yield up to the highest since 1999. The bearish sentiment behind the sell-off was due to investors’ concern that Greece is not acting appropriately to fix the biggest budget deficit in the European Union. Financial Times reported that China turned down an offer to invest EUR 25 billion in Greek government bonds. The yield on the Greek 10-year bond went-up 49 basis points to 6.73 percent in Athens, with the spread against German bunds increasing by 50 basis points to 354 basis points, the widest since December 1998. Continue reading ‘Greece – Another Tragedy’
Monthly Archive for January, 2010
Since the beginning of the year, governments all over the world have worked on new sets of regulations for financial institutions after they spent more than a year bailing out firms like AIG, Northern Rock or Royal Bank of Scotland. In my opinion, the absolutely necessary process of re-regulating the banks is starting to get more traction and political support. The methods that lawmakers have used handling the too-big-to-fail investment banks, have created a moral gap between Wall Street and Main Street. Between 1933 and 1999, the Glass-Steagall Act restricted commercial banks to underwrite stocks and bonds, and investment banks to take in deposits from customers. It turns out that a very plausible cause of the global banking meltdown could be the 1999 repeal of the Glass-Steagall Act, which gave financial giants the power to outplay the regulators. Continue reading ‘Washington vs. Wall Street’
On January 11 2010, though CBOE Volatility Index [VIX] dipped shortly under 17.00 mark it did close at 17.55 – the lowest level since May 2008. Right after Lehman Brothers bankruptcy and the demise of AIG, the VIX hit its historic high of 89.53 on October 24, 2008 on concerns about the banking system stability. Prior to this crisis, the VIX had peaked at 38 on August 8, 2002. By definition, the volatility index measures expectations of volatility, or fluctuations in price, of the S&P500 index. Higher values for the volatility index indicate that investors expect the value of the S&P500 to fluctuate wildly – up, down, or both – in the next 30 days. The index is also known as the “fear index” because a high VIX represents uncertainty about future prices. Warren Buffett once said “Sir Isaac Newton gave us three laws of motion, but his talents did not extend to investing. He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men”. If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.” Continue reading ‘Fear Factor’
Since the beginning of the century, we have witnessed far more crises than anyone in the world expected. We all remember the dotcom bubble, September 11 events, the collapse of the housing market, the failure of Wall Street brokerage firms (Bear Stearns and Lehman Brothers), the failure of Freddie Mac and Fannie Mae, the failure of AIG or the bankruptcy of General Motors. Despite all these heavy challenges and mounting losses, the global financial system managed to stay afloat. A key role in holding the system together could be attributed to the government bailouts and central bank interventions. Nonetheless, a potential commodity crisis especially a near-term food crisis could bring the global financial system to its knees. Continue reading ‘Food Prices – Danger Ahead’
Despite hitting the 12-year low in March 2009 at 666 points, S&P500 index managed to outperform gold’s annual return. Even though, the precious metal has been one of the hottest investment topics in 2009, the S&P 500 finished the year up 26% versus 25% for gold. As of December 31 2009, gold price closed at $1,095, rising for an unprecedented ninth year in a row after traders and central banks joined investors who turned to gold for price performance and protection. In 2009, gold price advanced about $220, a sum eclipsed in recent history only by 1979′s $286 surge. On a percentage basis gold rose 25 percent from its 2008 close, short of 2007′s 31 percent rise. Continue reading ‘Golden Fever’
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