The dollar broadly steadied on Monday, recovering from earlier losses after continuing to take the brunt of concerns that weakness in U.S. high-risk credit markets could spill over to the broader U.S. economy.
The dollar had earlier slipped to a record low against the euro, fresh multi-year lows against higher yielding currencies like sterling and the New Zealand dollar and a six-week low against the ultra-low yielding yen.
But while trading was choppy in Asia following the sharp decline in global equities and bond yields on Friday, activity was calmer in Europe as the slide in bond yields slowed, stocks stabilised and traders pared back their bets against the dollar.
"The dollar's performance (in Europe) has been a little more mixed. It's more of a mixed bag today but I'd say that's more down to positioning - the euro and sterling go to new highs then we get a little bit of a pullback," said Frida Gjorstrup, currency strategist at JP Morgan in London.
"There's no shift in the fundamentals. The market will remain nervous in the near term," she added.
At 0945 GMT the euro was 0.1 percent down on the day against the dollar at $1.3813, having hit an all-time high earlier in the session of $1.3844.
Sterling hit a fresh 26-year high versus the dollar above $2.06, before paring those gains to trade flat on the day at $2.0565.
The New Zealand dollar rose above $0.80 for the first time since the currency was floated in 1985, and at 0945 GMT was still up 0.4 percent on the day at $0.8010.
The dollar was flat against the yen at 121.30 yen, having hit a six-week low of 120.82 yen earlier in the day, according to Reuters data, while the euro was also flat against the Japanese currency at 167.57 yen.
CREDIT, SUBPRIME DOMINATE
The dollar was up 0.3 percent against the Swiss franc at 1.2040 francs, while the dollar index against six major currencies was steady at 80.30 , albeit anchored near Friday's 12-year low of 80.117.
There are no major economic data releases from the United States, UK or the euro zone on Monday, leaving FX investors to focus on equity, credit and bond markets for direction.
The dominant theme is still likely to be the nervousness pervading credit sentiment after the problems with debt linked to risky subprime mortages.
"In the short term, we continue to see the subprime and credit concerns as a U.S., rather than global, issue. As such, we expect broader dollar weakness to remain the key theme in FX markets this week," Barclays Capital strategists wrote in a research note on Monday.
"There is likely to be considerable volatility in the carry trade as the anxiety in the U.S. credit market continues this week amid the CDO (collateralized debt obligation) crisis, further ratings downgrades and contagion to other credit markets."
The currency matching system of news and information provider Reuters Group Plc suffered a temporary outage on Monday, forcing some traders to switch to alternative venues or trade over the phone. [ID:nSP176161]
The outage hobbled trading in currencies primarily traded over the Reuters platform for much of the Asian session, affecting trades in sterling, and the Australian, New Zealand and Canadian dollars.
Thursday, July 26, 2007
Friday, July 20, 2007
The P/E ratio as a guide to investment decisions
Earnings per share alone mean absolutely nothing. In order to get a sense of how expensive or cheap a stock is, you have to look at earnings relative to the stock price and hence employ the P/E ratio. The P/E ratio takes the stock price and divides it by the last four quarters' worth of earnings. If AB ltd is currently trading at Rs. 20 a share with Rs. 4 of earnings per share (EPS), it would have a P/E of 5. Big increase in earnings is an important factor for share value appreciation. When a stock's P-E ratio is high, the majority of investors consider it as pricey or overvalued. Stocks with low P-E's are typically considered a good value. However, studies done and past market experience have proved that the higher the P/E, the better the stock.
A Company that currently earns Re 1 per share and expects its earnings to grow at 20% p.a will sell at some multiple of its future earnings. Assuming that earnings will be Rs 2.50 (i.e Re 1 compounded at 20% p.a for 5 years). Also assume that the normal P/E ratio is 15. Then the stock selling at a normal P/E ratio of 15 times of the expected earnings of Rs 2.50 could sell for Rs 37.50 (i.e rs 2.5*15) or 37.5 times of this years earnings.
Thus if a company expects its earnings to grow by 20% per year in the future, investors will be willing to pay now for those shares an amount based on those future earnings. In this buying frenzy, the investors would bid the price up until a share sells at a very high P/E ratio relative to its present earnings.
First, one can obtain some idea of a reasonable price to pay for the stock by comparing its present P/E to its past levels of P/E ratio. One can learn what is a high and what is a low P/E for the individual company. One can compare the P/E ratio of the company with that of the market giving a relative measure. One can also use the average P/E ratio over time to help judge the reasonableness of the present levels of prices. All this suggests that as an investor one has to attempt to purchase a stock close to what is judged as a reasonable P/E ratio based on the comparisons made. One must also realize that we must pay a higher price for a quality company with quality management and attractive earnings potential.
A Company that currently earns Re 1 per share and expects its earnings to grow at 20% p.a will sell at some multiple of its future earnings. Assuming that earnings will be Rs 2.50 (i.e Re 1 compounded at 20% p.a for 5 years). Also assume that the normal P/E ratio is 15. Then the stock selling at a normal P/E ratio of 15 times of the expected earnings of Rs 2.50 could sell for Rs 37.50 (i.e rs 2.5*15) or 37.5 times of this years earnings.
Thus if a company expects its earnings to grow by 20% per year in the future, investors will be willing to pay now for those shares an amount based on those future earnings. In this buying frenzy, the investors would bid the price up until a share sells at a very high P/E ratio relative to its present earnings.
First, one can obtain some idea of a reasonable price to pay for the stock by comparing its present P/E to its past levels of P/E ratio. One can learn what is a high and what is a low P/E for the individual company. One can compare the P/E ratio of the company with that of the market giving a relative measure. One can also use the average P/E ratio over time to help judge the reasonableness of the present levels of prices. All this suggests that as an investor one has to attempt to purchase a stock close to what is judged as a reasonable P/E ratio based on the comparisons made. One must also realize that we must pay a higher price for a quality company with quality management and attractive earnings potential.
Wednesday, July 18, 2007
FOREX Trading Systems - How to Get One for Big Long Term Profits
Buying a FOREX trading system can be a way of making big consistent profits and being automatic means that you can do so with the minimum of effort.
You can find good FOREX trading systems from vendors, but be warned over 95% of them are junk.
In this article we will look at how to find one with the potential for making capital gains.
1. Don’t Buy a FOREX day trading system!
Most novice traders do this and lose.
Day trading simply does not work – All short term volatility is random.
If you are trading FX, ignore the promises of profits, the reality is your account will get wiped out – which leads me onto my next point.
2. Always ask for a real time track record
Most FOREX Trading systems don’t have real time track records.
You do however get a hypothetical track record.
For those of you who don’t know what this is – it’s a track record designed in hindsight, knowing the closing prices already.
No wonder they all make a profit!
Ask yourself this question:
Why would you give money to someone who does not trade their own system?
If they don’t have the courage to trade it why should you?
Look for a track record of at least two years, ask for audited proof of the systems performance and this should be net of all fees.
3. Make sure you understand the systems logic
Never buy a black box system where the logic is not revealed.
The reason for this is that if you don’t know the logic the system is based on you probably won’t have the discipline to stick with it when it runs into a period of losses which all systems will do.
From understanding the logic comes confidence and from confidence comes discipline.
4. Drawdowns
Always look at the worst peak to valley drawdown and time to recovery and then ask yourself the question:
Can I handle that without throwing in the towel?
Many systems have great gains over the long term but can draw down by 50% or more – if you are not happy taking this risk you will probably not stay with the system.
Always assume your worst drawdown is ahead of you.
5. Guarantees and support
I like to know who I am dealing with find out something about their past, their views and what support they offer and think this is something all FX traders should do.
I also like a money back guarantee as well so if this is part of the package all the better.
Reputable vendors if you ask serious questions will normally be more than happy to answer your questions and queries so do so and don’t deal with a vendor until you feel comfortable with them.
Most FOREX trading systems sold are:
Junk and not worth the cash, the best way to weed them out is to do the track record test – get a real one or don't buy.
That may not guarantee you currency trading success, but if it is over a long period of time and has produced profits you can at least assume the logic is soundly based.
Picking a FOREX system to trade is really all about using common sense, cutting through the advertising copy and seeing the facts.
If you spend some time shopping around, you can find one of the minority of systems that not only can deliver you value for money, but also give you big profit potential from global FOREX markets.
You can find good FOREX trading systems from vendors, but be warned over 95% of them are junk.
In this article we will look at how to find one with the potential for making capital gains.
1. Don’t Buy a FOREX day trading system!
Most novice traders do this and lose.
Day trading simply does not work – All short term volatility is random.
If you are trading FX, ignore the promises of profits, the reality is your account will get wiped out – which leads me onto my next point.
2. Always ask for a real time track record
Most FOREX Trading systems don’t have real time track records.
You do however get a hypothetical track record.
For those of you who don’t know what this is – it’s a track record designed in hindsight, knowing the closing prices already.
No wonder they all make a profit!
Ask yourself this question:
Why would you give money to someone who does not trade their own system?
If they don’t have the courage to trade it why should you?
Look for a track record of at least two years, ask for audited proof of the systems performance and this should be net of all fees.
3. Make sure you understand the systems logic
Never buy a black box system where the logic is not revealed.
The reason for this is that if you don’t know the logic the system is based on you probably won’t have the discipline to stick with it when it runs into a period of losses which all systems will do.
From understanding the logic comes confidence and from confidence comes discipline.
4. Drawdowns
Always look at the worst peak to valley drawdown and time to recovery and then ask yourself the question:
Can I handle that without throwing in the towel?
Many systems have great gains over the long term but can draw down by 50% or more – if you are not happy taking this risk you will probably not stay with the system.
Always assume your worst drawdown is ahead of you.
5. Guarantees and support
I like to know who I am dealing with find out something about their past, their views and what support they offer and think this is something all FX traders should do.
I also like a money back guarantee as well so if this is part of the package all the better.
Reputable vendors if you ask serious questions will normally be more than happy to answer your questions and queries so do so and don’t deal with a vendor until you feel comfortable with them.
Most FOREX trading systems sold are:
Junk and not worth the cash, the best way to weed them out is to do the track record test – get a real one or don't buy.
That may not guarantee you currency trading success, but if it is over a long period of time and has produced profits you can at least assume the logic is soundly based.
Picking a FOREX system to trade is really all about using common sense, cutting through the advertising copy and seeing the facts.
If you spend some time shopping around, you can find one of the minority of systems that not only can deliver you value for money, but also give you big profit potential from global FOREX markets.
Tuesday, July 10, 2007
S Koreans cash in on rising won
Lee Gui-nam and her housewife friends will soon join the hordes of South Koreans setting off abroad this summer, heading for a tour of eastern China’s picturesque Yellow Mountain and West Lake.
“People say it is a famous scenic spot and the price is reasonable – Won700,000 ($755, €550, £380) for a four-day, three-night package tour,” says Mrs Lee, who works at an insurance company and contributes to a travel savings account with her friends.
“We save up our money to travel abroad – we have been to the Philippines twice. But this is the first time I have been to China. It is getting more popular and easier for us to go overseas these days.”
Mrs Lee is one of the millions of Koreans who will venture abroad in the next few months, taking with them piles of Korean won that make comparatively cheap destinations such as China and Vietnam even cheaper.
While the strengthening currency has been hurting exporters such as Samsung Electronics and Hyundai Motor, it has been a boon to South Korean holidaymakers.
But the combination of declining profits from exports and increasing holidays abroad has created another potential headache for financial authorities – and a surprising economic occurrence. In this manufacturing-led economy, the travel deficit in the current account is now regularly exceeding the goods surplus.
“We think of Korea as an export powerhouse, making computer chips and phones, but whatever Koreans take in from exports they spend by going to the beach,” says Frederic Neumann, who tracks the Korean economy for HSBC.
Tourist departures from South Korea have grown by almost 30 per cent over the past three years, hitting 11.6m trips in 2006 out of a population of 48m. China is the preferred destination, attracting 3.9m Korean tourists in 2006, followed by Japan with 2.1m and Thailand with 1.1m.
“In the past everyone wanted to go to south-east Asia, especially Phuket, but these days they are keen to do China and not just Beijing. They want to go to unheard of places too,” says Kim Sung-hee, a travel agent for Mode Tour, one of the leading agencies.
When they go, they spend. Overseas expenditure by Korean tourists has grown at an annual pace of about 20 per cent in recent months, to total $1.2bn in April alone. Much of this has been due to spending on credit cards. Koreans charged more than $4.8bn (€3.5bn, £2.4bn) to their credit cards in foreign countries last year, an increase of 32 per cent from 2005.
This outward surge coincides with the steady appreciation of the won against the US dollar, gaining 14.5 per cent in 2004 and 9 per cent last year. It has continued to strengthen this year – last week hitting Won918 to the dollar, a seven-month high.
The finance ministry is uneasy about the continuing rise and its impact on industry. In a recent statement the ministry declared that the won’s movement “seems to be out of line with the country’s macroeconomic conditions”. It added that the currency would be closely monitored.
South Korea’s current account swung back into the black in May, recording a $925m surplus after a $2.1bn deficit in April, according to Bank of Korea data, and economists expect it to be neutral by the end of the year.
However, the scars of the Asian financial crisis 10 years ago have instilled a strong streak of financial prudence in the Seoul authorities, who continue to favour healthy surpluses and large foreign exchange reserves.
“The current account remains roughly in balance, but the Korean authorities have been very concerned about the external payments system and still feel the need to run a current account surplus, even though the trade balance has been positive for some time,” Mr Neumann says.
“They will have to run a much larger trade surplus in the future to maintain a current account surplus. But it’s difficult to see how Korean exporters could ramp up production enough to counteract this.”
This dilemma is likely only to worsen. Many financial analysts expect the currency to hit Won900 to the dollar by the end of the year and South Korea is likely at some time in the near future to be added to the list of countries whose citizens do not require visas for short stays in the US.
Once that happens, Koreans will have even more incentive to travel abroad and the current account will come under even greater strain.
Lee Gui-nam and her housewife friends will soon join the hordes of South Koreans setting off abroad this summer, heading for a tour of eastern China’s picturesque Yellow Mountain and West Lake.
“People say it is a famous scenic spot and the price is reasonable – Won700,000 ($755, €550, £380) for a four-day, three-night package tour,” says Mrs Lee, who works at an insurance company and contributes to a travel savings account with her friends.
“We save up our money to travel abroad – we have been to the Philippines twice. But this is the first time I have been to China. It is getting more popular and easier for us to go overseas these days.”
Mrs Lee is one of the millions of Koreans who will venture abroad in the next few months, taking with them piles of Korean won that make comparatively cheap destinations such as China and Vietnam even cheaper.
While the strengthening currency has been hurting exporters such as Samsung Electronics and Hyundai Motor, it has been a boon to South Korean holidaymakers.
But the combination of declining profits from exports and increasing holidays abroad has created another potential headache for financial authorities – and a surprising economic occurrence. In this manufacturing-led economy, the travel deficit in the current account is now regularly exceeding the goods surplus.
“We think of Korea as an export powerhouse, making computer chips and phones, but whatever Koreans take in from exports they spend by going to the beach,” says Frederic Neumann, who tracks the Korean economy for HSBC.
Tourist departures from South Korea have grown by almost 30 per cent over the past three years, hitting 11.6m trips in 2006 out of a population of 48m. China is the preferred destination, attracting 3.9m Korean tourists in 2006, followed by Japan with 2.1m and Thailand with 1.1m.
“In the past everyone wanted to go to south-east Asia, especially Phuket, but these days they are keen to do China and not just Beijing. They want to go to unheard of places too,” says Kim Sung-hee, a travel agent for Mode Tour, one of the leading agencies.
When they go, they spend. Overseas expenditure by Korean tourists has grown at an annual pace of about 20 per cent in recent months, to total $1.2bn in April alone. Much of this has been due to spending on credit cards. Koreans charged more than $4.8bn (€3.5bn, £2.4bn) to their credit cards in foreign countries last year, an increase of 32 per cent from 2005.
This outward surge coincides with the steady appreciation of the won against the US dollar, gaining 14.5 per cent in 2004 and 9 per cent last year. It has continued to strengthen this year – last week hitting Won918 to the dollar, a seven-month high.
The finance ministry is uneasy about the continuing rise and its impact on industry. In a recent statement the ministry declared that the won’s movement “seems to be out of line with the country’s macroeconomic conditions”. It added that the currency would be closely monitored.
South Korea’s current account swung back into the black in May, recording a $925m surplus after a $2.1bn deficit in April, according to Bank of Korea data, and economists expect it to be neutral by the end of the year.
However, the scars of the Asian financial crisis 10 years ago have instilled a strong streak of financial prudence in the Seoul authorities, who continue to favour healthy surpluses and large foreign exchange reserves.
“The current account remains roughly in balance, but the Korean authorities have been very concerned about the external payments system and still feel the need to run a current account surplus, even though the trade balance has been positive for some time,” Mr Neumann says.
“They will have to run a much larger trade surplus in the future to maintain a current account surplus. But it’s difficult to see how Korean exporters could ramp up production enough to counteract this.”
This dilemma is likely only to worsen. Many financial analysts expect the currency to hit Won900 to the dollar by the end of the year and South Korea is likely at some time in the near future to be added to the list of countries whose citizens do not require visas for short stays in the US.
Once that happens, Koreans will have even more incentive to travel abroad and the current account will come under even greater strain.
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