Flight to safety?

Two posts on the FT Alphaville blog caught my eye over the last few days.

The first included this diagram. The x-axis is government debt as a percentage of GDP, the y-axis is the annual budget deficit.



I don't know how much you're hearing about the situation in Greece, but the country's having a few funding issues with its national debt. Which (as you can see) is very large and growing very fast.

The markets are also getting nervous about Portugal, Ireland, Italy and Spain (the four countries are collectively known as the PIIGS).

There are a few others that look vulnerable - the UK is ratcheting up its national debt, and Belgium isn't looking great either.

The second post is that it sounds like the carry trade into the Australian dollar is unwinding.

http://ftalphaville.ft.com/blog/2010/02/05/142591/carry-trades-and-reverberations-down-under/

The problems in the Eurozone have caused investors to flee to the US as a safe haven. (I'm not convinced it's a clever idea.)

I think that both could have an impact on the functioning of the credit markets. The Eurozone problems could increase nervousness, and reduce bank lending.

Similarly, Economist said that the carry trade was helping support the Australian property market through providing capital. So if that unwinds, things could get tougher.

So neither is good news, but I don't believe that it's the end of the world just yet.
 
Two posts on the FT Alphaville blog caught my eye over the last few days.

The first included this diagram. The x-axis is government debt as a percentage of GDP, the y-axis is the annual budget deficit.



I don't know how much you're hearing about the situation in Greece, but the country's having a few funding issues with its national debt. Which (as you can see) is very large and growing very fast.

The markets are also getting nervous about Portugal, Ireland, Italy and Spain (the four countries are collectively known as the PIIGS).

There are a few others that look vulnerable - the UK is ratcheting up its national debt, and Belgium isn't looking great either.

The second post is that it sounds like the carry trade into the Australian dollar is unwinding.

http://ftalphaville.ft.com/blog/2010/02/05/142591/carry-trades-and-reverberations-down-under/

The problems in the Eurozone have caused investors to flee to the US as a safe haven. (I'm not convinced it's a clever

Gramesmart,,I might not be smart,but what's about to happen in several Euro Based countries will only make more money flow into the US dollar system, the big one for the US is in mid march from what i read about government funding to keep banks above the water line,:),no different
from any other times just different countries and different numbers..
willair..
 
Willair, I've come to the realisation that I don't have a clue about what's happening in the economy. And events continue to surprise me.

However, Ireland, Spain and the UK are considered to be at risk of default to various extents (the UK less so, though that might be local bias in the media), and the US is considered a safe haven. However its position on the chart I posted would be roughly in the same cluster of points (as Ireland, Spain and the UK).

The US has a get out of jail free card in the dollar being a reserve currency, but overall I'm not convinced that it's that safe a haven.

If institutions start pulling money out of the Australian Dollar and back into the US then the exchange rate will fall, which will push up the inflation rate. It'll also mean less capital for the banks to lend, and it was the inflow that Economist said was helping support the Australian property market.

So I'm hoping that he might have something smarter than I do on the situation. :)

Edit: Just seen some figures suggesting that the US's national debt is around 90% of GDP. So put a point midway between the UK and Greece. Does that look like a safe place to be?
 
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since when has Portugal been a big player in anything other surf competitions?

im sorry - the US tanked late last week because PORTUGAL has debt issues......? WTF?
 
I think that it's risk of contagion. If Greece goes, then Portugal, Ireland and Italy might be next. Suddenly it moves from being one small state to a chunk of the Eurozone, and the Germans aren't rich enough to bail everyone out.
 
I think that it's risk of contagion. If Greece goes, then Portugal, Ireland and Italy might be next. Suddenly it moves from being one small state to a chunk of the Eurozone, and the Germans aren't rich enough to bail everyone out.
You never know you make the best call with the judgement you have
plus Germany has enough hidden problems,the only question to ask yourself is do you invest in the Euro or the US dollar ,myself i thought
it was value at 93 cents,others can think what they want,but the powerfull US dollar is not going to fade only get stronger..willair..
 
You never know you make the best call with the judgement you have
plus Germany has enough hidden problems,the only question to ask yourself is do you invest in the Euro or the US dollar ,myself i thought
it was value at 93 cents,others can think what they want,but the powerfull US dollar is not going to fade only get stronger..willair..

I just use a 'simpler' view. Whats the long term average of the AU$/US$ rate.
How far above/below gives me my 'margin of safety'.

This has worked nicely for me as a diversification buffer in recent months. It also worked for me late last decade/early this decade when international investing was all the rage in australia (and why i didnt participate). Why? because the AU$ was dropping giving a nice kick to foreign equities. However it was significantly below its long term average.

People can say what they want, but i always ask, give me the alternative global reserve currency???
 
And another titbit of information coming off the institutional trading desks:

Traders and hedge funds have shorted the Euro by $8billion to date. This is the biggest ever short position against the Euro so far.
This was as of 2nd Feb.

So as i have been saying for a long time, what proportion of price is manipulated based on speculation and what proportion is based on 'natural exchange'.

This applies to all financial asset classes not just currency exchange.

In a world of global zero effective interest rates, increased hedge funds and long/short position players, there is now a third factor to consider when investing:
a) most important 'intrinsic value'
b) natural price (ie between long only players)
c) short term speculation flows.

Traditionally (c) has been only a comparitively minor consideration, but under current global conditions its importance has increased dramatically, especially for those investors that use debt as part of their funding.
 
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