Pound & Euro Saver

While you are reading this post don't forget that ...

JF — Sun, 09 Nov 2008 16:14:00 +0000

I've just start reading "The Black Swan" (Amazon sponsored linked). Actually, I am just about to finish the prologue. I am going to like this book.

Among other things, the author is demystifying the r"The Black Swan"ole and the knowledge of expert:

... certain professionals, while believing they are experts,
are in fact not. Based on their empirical record, they do
not know more about their subject than the general
population, but they are much better at narrating - or,
worse, at smoking you with complicated mathematical
models. They are also more likely to wear a tie.

So while you are reading this post, don't forget that in my everyday life, I have to wear a tie.

Opening an account at the Rock

JF — Sun, 26 Oct 2008 18:56:00 +0000

I decided to open an ISA with Northern Rock. I think there is indeed a kind of arbitrage for any person with an ISA with National Saving and Investment (the other retail saving bank owned by her Majesty Treasury):

Britain is falling into recession and interest rate cut by the Bank of England are more than likely. Some analysts are expecting the rates to be around 2% next year.
NS&I is paying 0.3% above the Bank base rate (4.8% now). It is likely to go down by next year with the Base Rate
The Rock is and is likely to remain for the term of the fixed rate (3 year) a safe bank under state ownership. It will be backed by the government during the crisis.

Now the only question is to chose between 1, 2 or 3 years? The question is rather important as the longer the maturity, the more interests you loose when accessing the money.

On a economical point of view, I would definitely go for three years as I can't imagine the bank of England raising its rates soon in the middle of the downturn. Moreover with the government becoming more active, the spread between LIBOR and the bank rate will fall. Banks will not have to offer high rate saving accounts as they will be able to borrow from the market.
On the liquidity side, the main issue for me was when will I leave the UK. I now have a date in mind so let's roll !

Week end reading

JF — Sun, 19 Oct 2008 23:32:00 +0100

When junk was gold an interesting long article that brings more details on one of the many aspects of the generalized madness we have been through over the past few years. One has to reckon that the rating agencies were having a lot of fun on their side.
An interesting letter from ING, the Dutch bank, which is sending a letter to my address (even if I already told that the guy that had an account with them does not live here anymore). They are doing very well, all the saving with them are safe and they are in a position of strength (I will try to scan an upload the letter tomorrow morning)
ING takes €10bn injection from Dutch state: the previous item is now confirmed.

UK city councils lost money in the collapse of Icelandic banks

JF — Sun, 12 Oct 2008 15:40:00 +0100

The facts

Numerous city councils in the UK were investing their money (the proceeds from the taxes paid by people) with some the Icelandic banks who went bust last week. Those councils are now asking for the government to "guarantee" their deposits. .

So far, the Chancellor refused to give them financial guarantee and judged that these councils should have get sounder financial advice. Margaret Eaton, chairman of the Local Government Association, said that councils are spreading their assets to ensure the maximum return for their investments.

A few comments

I think this is a very odd situation.

On one hand, we have been recently hearing politicians from each side calling increasingly for the persons "responsible" to be punished. I think those kind of comments are very stupid especially when this crisis is the result of several years of common hysteria. Politicians will point out a few culprit whereas they will never take heir responsibility for not enforcing the insufficient regulation they had designed in the past. They purposefully closed the eyes on a situation that was favorable to them: voters are usually more easy to handle when they are enjoying a strong growth period (even if it is a growing bubble).

On the other hand I am still scrutinizing the newspaper to read about the resignation of the people that where managing the money in these councils. If we are about to do a which hunt let's start with the easy culprits They were not innocent victims.. If you are managing someone else money you are required to be a fully qualified investors. You have to know there is no free lunch and if you are getting a higher return their is a higher risk. Do they even know about risk adjusted returns?

Newspaper have been discussing about a potential collapse of this bank for more than a year now. You can gamble with your own money (and its even easier when there is a compensation scheme to help you) but things are much different when you are paying with tax payers money..

ps as I am reading this article I just discovered that Universities and hospitals money managers were also investing in these banks ...

Week end newspaper (FT) clippings

JF — Mon, 06 Oct 2008 00:25:00 +0100

Very busy week end for me and I ended up reading only the Financial Times. Four articles were particularly noteworthy:

The Bear: Merryn Somerset Webb thinks that the market are still overpricing. Doom and Gloom are on the menu
The Bull: Fidelity's Anthony Bolton is putting his own money on the market. Good sign?
Fat tails and counterparty risks: explanations on usually underestimated risks. A must read for ETF and structured products investors
Mortgage Fraud: Some details on the last few years miraculous growth. Wall Street and the CIty are obviously responsible for the collapse but the previous unprecedented growth period (could also be qualified generalized insane period) was a courtesy of our respective government supervision.

It was a year ago ..

JF — Wed, 01 Oct 2008 23:47:00 +0100

... and Chuck Norris has not fixed the credit crisis yet

Anyway that is still funny

Spread betting

JF — Tue, 30 Sep 2008 23:51:00 +0100

I opened a spread betting account tonight.

For those who don't know spread betting is a very popular way to trade in the UK. This popularity is explained by several reasons:

It is tax free. You are actually not buying or selling financial instruments. You are just betting that their price is going to go up or down.
It is highly levered. You can bet £10 for every £1 change on the price.
You can lever the leverage Why not spread betting on the price of options?

I haven't funded yet. A few remarks though:

Give me access to real time pricing
I am very looking forward to receiving the training materials they provide you with. Two of the biggest providers here in the UK are providing their new customers with binders and special trading conditions for the first few weeks after subscribing.
Their is a lot of warning and they are providing you with options to limit your losses but two clicks and it is actually done: you can have opened a positions. If you passed the company's credit check you don't even have to have the money on your account. One loss? I'll do better on the next one. It is really crazy and losing a lot may actually be stupidly easy.
Even if the spreads are tight, lots of fees around. Leverage has a cost.

Will keep readers posted on the experimentation.

Isn't it ironic ?

JF — Tue, 23 Sep 2008 07:23:00 +0100

The SEC has just added GLG partners, a listed hedge fund manager, to the list of the securities that cannot be shorted ....

GLG lost its star manager at the beginning of the year and markets have been wondering since whether the hedge fund is going to suffer net outflows the manager set up his new competing fund.

That all. Will come back on this later but right now I am a bit short ... on time

Cash ETFs

JF — Tue, 09 Sep 2008 07:56:00 +0100

Lyxor (Soc Gen) and db-x (Deutsche Bank) are distributing money market ETFs that can be used to invest in EUR, GBP and USD money markets.

This funds are replicating and compounding everyday the performance of overnight cash investments, namely:

EONIA (Euro OverNight Index Average) for the Lyxor ETF EURO CASH (CSH.P). EONIA represents the weighted average all the unsecured overnight € denominated borrowings
SONIA (Sterling OverNight Index Average) for the db-x-tracker GB £ MONEY MARKET ETF (XGBP.L). SONIA represents the weighted average all the unsecured overnight £ denominated borrowings
FED FUNDS EFFECTIVE RATE TOTAL RETURN INDEX for the db-x-tracker US $ MONEY MARKET ETF (XUSD.L). It will stick to the performance of the FOMC stated retaes.

The good

Very tight bid-ask spreads and relatively low management costs
Access to the money market.
Even though these rates are for unsecured borrowing, Lyxor and DB seems to be holding collateral and entering into swaps to replicate these indexes, providing you with a slightly more secured products and enabling them to replicate more closely the performance of the indexes.

The bad

Beware of the cost. Even though the bid-ask spreads are very tight you still have to pay your brokers.

This week end newspaper clippings

JF — Sun, 07 Sep 2008 21:33:00 +0100

Saving from the ground up: The Sunday Times finance makeover column is giving some advise to a couple in their late twenties that does not have any saving. A good example if you don't know where to start.

Use momentum to cross choppy waters: David Stevenson, the Financial Times' adventurous investor, investigates some of the no-hassle investment vehicle if you want to try momentum investing, an investment strategy that buy the stars (the stocks whose price is rising most) and sells the dogs (the stocks whose price is falling most) and rebalancing regularly). I personally share David's view that an ETF replicating the returns of SocGen's index would definitely a potential buy for me.

Hark, the return of the bull market : David Schwartz, FT Money's trader sees signs of a bull market on the horizon.

Good readings