Ireland votes, some serious arguments by Irish

Ireland being the only country to carry out a referendum on EU fiscal treaty will vote today and the Irish are likely to support the treaty. The treaty would regulate fiscal spending and make it tougher for governments to borrow their way out of reforms all across Europe. A "No" vote would make the country ineligible for possible financing aid in the future if ran into trouble.

It is in fact true that Brussels could veto a future budget if the country were planning to overspend. This has given some "hefty" arguments to the opposition of the treaty (below you'll find some examples). Fresh comments from Irish people have been delivered by Financial Times:
- “I voted no because I don’t want to be governed by a Nazi state,” said one No voter, who would not give his name.
- Marie, a middle aged woman, said she voted No to be “on the safe side”. “It’s a very complicated treaty but I think it was safer to vote no,” she said.
- Another woman said she voted No because of the huge debts Ireland had to pay.

As you can see the opposition has done a great job by washing the brains of some voters since arguments above don't actually say anything about the treaty or the problems Ireland is facing.

You sneaky bastards - well played, Morgan Stanley!

Reuters article reports that just prior to Facebook IPO the underwriter on the deal Morgan Stanley delivered some negative news to their major clients by cutting revenue forecast for Facebook. Well played, I have to say! How convenient that their revenue projections were updated just prior to IPO.. If the word would have gotten out earlier the valuation which was labeled to the IPO with the help of Morgan Stanley of course the IPO would have failed miserably and the opening price wouldn't have said 43 USD per share. MS had a comfortable cushion towards 38 level where they began buying the stock. I bet MS has reduced a big portion of the stock they acquired on Friday causing the price go down further.

So the true market value of Facebook remains to be seen after MS has finished playing their games. Since most of the small shareholders have been screwed by these games I say once more, well played, Morgan Stanley! You just poured another drop to the "We-are-the-99%-cup".

The project of Europe - negative outcome the only outcome?

All major financial newspapers, TV channels and other media are speculating over the future of Europe with many experts claiming that there is no other way for Europe to go than to go bust and break up. Their reasoning is too often the notion that no currency union in history has survived without a common treasury. Even though this is not actually true (just take a look at the Indian rupee or the South African rand both of which have formed about 40 years ago). But the most important thing we can learn from history is that we cannot learn from it. Historic events are too often looked at as black-and-white situations where there is a simple model of a game with few participants with a very predictable outcome.

It is not the Nazi gathering in 1930-s, this is the Golden Dawn party gathering in Greece. Anyone knows who designed the party flag?

Populist parties like the Golden Dawn in Greece or the National Front in France are becoming popular since European economy is not doing great and the differences between countries are huge. Voters are hoping that new parties will reject tough austerity measures and everything will be solved. Everyone will have jobs, the pay is good and the overall quality of live will improve.

I do agree that Europe needs a plan for promoting growth all around Europe and Germany needs to be the one relaxing their obsessive fright of inflation. Some kind of economic stimulus is needed and I would strongly argue that issuing eurobonds for major investment projects will suit just fine for that purpose. But Germany is also right in their arguing that a large part of growth promotion can be done without spending a cent - through reforms in labor markets for example.

Greece's plan for their people is to reject austerity measures, possibly give up euro (making it possible to print as much money as they need) and close part of their market for industry protection. This will send the Greeks back to 1940 in my opinion.

The first effect of this policy change is a quick jump in inflation. Since no sane foreign investor will support Greece's astronomic budget deficits they have to print all the money themselves which leads to massive devaluation of their currency. This means that all imports will cost Greeks more. Greece will lose a huge amount of foreign investments which will result in - yes, you guessed it - fewer jobs. Multiply fewer jobs by massive inflation and add some rejection by Europe into the mix and you have a perfect recipe for a disaster. Is that what the voters of Greece are voting for?

Greece will probably have new elections in June with leftist parties taking most of the votes possibly allowing them to form a ruling coalition. Whatever happens the Eurozone is unfortunately the one who benefits. Europe's politicians are famous for making their decisions when they are urgently needed. Greece's exit from the euro would create just such an opportunity. Whatever big decisions are made then, Europe and the euro will come out stronger out of all this.

The project of Europe is a game where you lose when you exit the game. Every player will benefit from playing in the end. It is just a matter of following the rules. And why did former Greek politicians think that it is a good idea to be constantly increasing their debt? The Greek voters aren't getting anything new, they are voting for the same populist bulls**t that brought them into this mess. You can't spend more than you earn, this is the main  principle.

Why I think the euro will go down - starting TODAY

Today is an important day for equity, currency and commodity markets since the Fed will announce their rate decision at 16.30 GMT. Even though the rate will definitely not be changed today the markets will be closely watching whether Fed has anything else in mind to prop up the economy. Talk of another possible round of quantitative easing has caused a great deal of celebration on the equity markets and a huge sell-off in dollar futures. When equity markets have also been supported by good earnings the sell-off in dollar looks to be related to expectations. Just take a look at the following chart displaying the movement of dollar futures.

Now I'm not saying that the US and their loose monetary policy should reward a strong dollar, I'm saying that compared to the euro for example US data has not been bad. Just take a look at EUR vs USD on the following chart. 

And this all on the background of Eurozone's worsening debt crisis. Europe is probably already in a recession, UK's numbers this morning confirmed that. German manufacturing and services data are implying that. The yields on Spanish and Italian bonds are rising once more, now France and other core countries might follow. Most of the LTRO money (in Southern Europe all of it) supplied by the ECB has already been spent on those bonds. Europe has to cut interest rates or possibly come up with another growth promoting measure, loose monetary policy will help here. So the question would be - why the strength in euro vs dollar?

Here is my interpretation of the situation:

• Expectations for another round of QE by Fed causing speculation of a weaker dollar
• Reduction of US nominated assets by European banks hence the demand for euro
• ...
• And that's about it

I wouldn't bet on Fed doing another round of QE in an election year before things would look really bad. And by bad I mean the S&P500 at 1200 (currently trading near 1375), consumer confidence dropping fast, low inflation and possible recession looming. The Fed already commented in the beginning of year that they expect job market to weaken due to cyclical trends. Also, stronger dollar would ease gas prices and food prices which would help Obama in his campaign. 

All in all I expect that euro will enter a bear trend after the Fed's announcement today and trade down to about 1.26 in coming months. I'm short euro. 

The best performing stock market in the world is..

The Cambodian Stock Exchange of course which started its first trading day in history with a decent 47% increase. The first (and only) company listed on the exchange is the government owned Phnom Penh Water Supply Authority.

Will we have Cambodian teachers soon leaving schools to become professional investors as it happened in China? We'll see, but Myanmar is next to follow to open their stock exchange. I welcome the trend since Asia is open for business!

Swaps - what a short memory we have

The Commodity Futures Trading Commission in the US has just increased the amount of swaps a company can sell by 80 times. Yes, that's right! The same instruments that led us here in the first place have been re-regulated. But let's start from the beginning.

Swap is a financial instrument which allows two counter-parties to exchange the conditions or cash flows of a financial instrument they both own with each other. So for instance if I took a loan that had a fixed interest rate and you took a loan that had an interest rate dependent on the market rate we could exchange the terms of our contract. As long as the market rate would stay lower than the fixed rate I would receive the difference between two interest rates from you and vice versa (I would get the interest cheaper since we swapped the terms of our loan contracts). But enough of the science. 

One of the big problems that made things worse during the financial crisis was the selling of credit default swaps (CDS) by vast and uncontrolled quantities. By selling a CDS you undertake the risk that the underlying credit will default. So if the underlying credit actually would default the one who sold the CDS would pay to the buyer. So it's kind of like insurance. So by not knowing how much CDS-s had been sold on the market nobody had any idea of the leverage that the market had hence also now knowing the risks involved. 

After the markets crashed and the world was about to end the US introduced new financial regulation called Dodd-Frank regulation that was intended to not make the same mistakes again. It was proposed that a single company could not sell more than 100 million USD worth of swaps. After two years of lobbying this was raised to 8 billion per company. There you go - we are back where we started considering that there are currently 119 companies eligible for that amount.

The problem here is that any time that the finance industry creates a new kind of exotic instrument that can be sold and made money off of the regulators are unaware of the risks involved. Regulation is usually introduced after things go bad. And after it is introduced the regulators are lobbied and paid off so that regulation wouldn't actually change anything. The world goes on. 

Killer trading system

You think that stock market movements are difficult to predict? Not according to some traders and companies providing trade calls. For example take a look at the following tweet from Twitter tweeted by Trade Manager (@fxtradersystem) Twitter post: "MAs for NZD/USD on m15: A=0.8211,B=0.8211: a possible short entry is expected after 1 d 1 h 30 m". Let me translate: "Moving averages for New Zealand dollar vs US dollar currently have values 0.8211 and 0.8211: a possible short entry is expected after 1 d 1 h 30 m".

Sorry but this is just hilarious! Most active and profitable traders know that it takes a lot of time to find good setups that realize with high probability. The right set of conditions might occur only for a second when the trade needs to be done. And it is not even possible to say (and should it be said at all?) whether these conditions will be fulfilled within the next 5 minutes or not. And in the previous tweet we have a trade call recommending to short NZD in 1 day 1 hour and 30 minutes. That's why I find these "predictions" hilarious. If somebody actually finds any value in these predictions then please let me know!

Instead of taking these calls seriously I would recommend flipping a coin - you would have the same odds of making a successful trade. There's an idea - flipping a coin and announcing trade calls based on the outcome.

By the way, Twitter is full of calls like this, search any of the currencies and you will fiind a similar tweet.

Or maybe I'm the one who's been living in a closet, enlighten me please!