currency wars

[don]

Re: currency wars

What seems to have been overlooked in the article above is that the EM creditors are under no obligation to repay the funds on demand. For every person/fund manager that wishes or has to sell their EM bonds there has to be a buyer. Who's doing the buying?

Of course you're correct, GR. Hidden in the NYTimes obfuscation is

"While these funds do not use borrowed money, as did the banks that failed during the mortgage crisis, they have invested large sums in a wide variety of high-yielding bonds and bank loans that are not easy to sell — especially in a bear market."

addressing, albeit weakly, your point.

[GRG55]

Re: currency wars

Of course you're correct, GR. Hidden in the NYTimes obfuscation is

"While these funds do not use borrowed money, as did the banks that failed during the mortgage crisis, they have invested large sums in a wide variety of high-yielding bonds and bank loans that are not easy to sell — especially in a bear market."

addressing, albeit weakly, your point.

They may not be "easy to sell", but unless and until there is a buy/sell transaction there is no way to judge price change either. For the bonds to fall in prices, somebody must be buying, at least in some limited quantity...

[ProdigyofZen]

Re: currency wars

They may not be "easy to sell", but unless and until there is a buy/sell transaction there is no way to judge price change either. For the bonds to fall in prices, somebody must be buying, at least in some limited quantity...

Actually not exactly. The bond market is OTC and arbitrary and not set up like the equity market. Since traders bid/ask for bonds they can make up whatever price they want before the bonds even trade.

For example: I am an American hedge fund and want to buy Ukrainian sovereign debt. The debt yesterday may have traded at say 90 on the dollar but news today came out and I will only bid 70 for the bonds.

A lot of times no one will buy the bonds and at the end of the day the bond funds have to mark to market. Well if the market will only bid 70 for my bond and that is the only bid I have eventually I have to mark it to that price.

No trading necessary. During the subprime crisis bonds were on the books at par and suddenly one day the bank offered them for sale, hedge funds came in and only offered 70 for the bond.

This is how the prices dropped so rapidly when there were really no bids for the bonds at any price.

I was told one time: there are no bad bonds only bad prices.

[ProdigyofZen]

Re: currency wars

looks like a replay [or at least a "rhyme"] for 1997. any nominations for who is set up for the role of ltcm? [maybe PoZ has an idea.] and with oil down does russia default again?

I do, US mutual fund companies. Remember it's the US mutual fund industry who picked up the slack of buying bonds that the international banks no longer do to facilitate trade.

I am looking squarely at you Franklin Templeton and TCW emerging markets income fund. Perhaps Ashmore or Oppenheimer as well.

[jk]

Re: currency wars

I do, US mutual fund companies. Remember it's the US mutual fund industry who picked up the slack of buying bonds that the international banks no longer do to facilitate trade.

I am looking squarely at you Franklin Templeton and TCW emerging markets income fund. Perhaps Ashmore or Oppenheimer as well.

those funds can empty out and be closed, or more likely merged with some other fund so they - and their records- can quietly disappear. but i don't think they're leveraged in a way to endanger the whole financial system like ltcm in its day, or all the big banks in '08.

it would be more interesting if you thought somehow the sponsoring companies were at risk. that could wreak a little havoc.

[ProdigyofZen]

Re: currency wars

those funds can empty out and be closed, but i don't think they're leveraged in a way to endanger the whole financial system like ltcm in its day, or all the big banks in '08.

True, but a large mutual fund company folding would upend the entire industry and cause all the financial advisers to rapidly exit all mutual funds that could also go under. LTCM hurt the "sophisticated investor" but a mutual fund company going under would hurt "the little retail guy."

[jk]

Re: currency wars

True, but a large mutual fund company folding would upend the entire industry and cause all the financial advisers to rapidly exit all mutual funds that could also go under. LTCM hurt the "sophisticated investor" but a mutual fund company going under would hurt "the little retail guy."

i agree, but how would some em funds' failures threaten the sponsoring fund families?

[ProdigyofZen]

Re: currency wars

i agree, but how would some em funds' failures threaten the sponsoring fund families?

Because they are public and short selling of their stock would ensue.

[jk]

Re: currency wars

Because they are public and short selling of their stock would ensue.

i'll match my doomster credentials with anyone's, but the full scenario seems farfetched. yes, em funds could tank, along with domestic high yield funds, maybe a sell off in corporates. so management companies' profits wouldn't be as good. but this would not pose an existential threat to the management companies. sure maybe their stocks go down as people anticipate lower profits, but most of the withdrawn money will just get parked in the same families' money market funds, and then redeployed down the road.

[don]

Re: currency wars

Celente

[don]

Re: currency wars

Luckily, here you buy your ticket and take your chances . . .


Losses have been cut in half after the opening collapse as a mysterious buyer in massive size lifts The Dow 600 points off its lows, cutting losses in half for now...



or do you?