The problem with China’s monetary reserves.

It is commonly known that China holds by far the world’s biggest stockpile of foreign-exchange reserves. You might think this is good for country, which it off course is, but there is a downside to it. These reserves consist of foreign currencies. To be more specific: about 65% of these holdings are in dollars. In the current economic and financial situation, China finds itself in a bit of a pickle. Over the past weeks, the US have pressured China to release the Yuan, in order to let it appreciate against the dollar. Now, if China does such thing, it would have to deal with severe losses on its dollar holdings. So China wants to get rid of the dollars and diversify its reserves. But if it sells its dollars to buy for example yen, the dollar’s exchange rate might drop. And currently both currencies are still tied, so if the dollar drops, the Yuan does too. So it looks like China’s sky-high monetary reserves were merely wishful thinking,

Sarah Duurloo

In need of a bigger boat
The Economist
October 16^th 2010

I believe in raw materials

Quantum Fund was founded by Jim Rogers and George Soros. They had an enormous success with this fund and had a yield of four thousand %. Since then Jim and George were considered as guru investors. Jim Rogers says that raw materials such as gold, silver, oil, sugar, coffee, orange juice and wheat are the future, which means that you can better invest in these raw materials than in stocks. Jim Rogers believes in these materials, it doesn’t matter what the evolution of the world economy is. If the economy goes up or down, the prices of raw materials will jump anyway, while shares only benefit from bull markets. Recently, the price of gold has been rising and rising, it reached peak after peak and yet Jim is still not selling his gold. What if this is just another bubble? There are also other interesting materials such as wheat, silver or sugar. These three are far below their historical peak and are likely to rally.

So Jim, we should invest in raw materials? No, don’t listen to me. You should only invest in the things you know and you don’t have to follow the markets or chase opportunities.

Is investing in raw materials a human investment? In my opinion it isn’t. It is possible that people in developing countries are not able to buy their necessary nourishment because of the fact that food prices are getting too high after all our speculations. 

Jonas Van der Slycken

http://netto.tijd.be/sparen_en_beleggen/beleggen/-Ik_geloof_niet_in_aandelen-_wel_in_grondstoffen-.8948748-2213.art

Three reasons to be very wary of wishful thinking

Why do we keep on believing in things we want to be true and delude ourselves rather than to face what really is? Tom Stevenson gives us three reasons why people make bad investments and blames wishful thinking to cause them. I will focus on one aspect.

2006. Although data predicts a downturn in 2007, people are still talking positive about a decrease in interest rates saying this is good for equities. However this could be true, it is also known that low interest rates have a bad effect on the GDP and reinforce a downturn. Why do investors still put their bets into markets while knowing their value will go down?

It’s because markets don’t immediately feel the effect of changes in interest rates. The first months after the decrease shares are likely to rise, making investors optimistic about the future. This optimism is misplaced. Eventually the consequences will come and profits will decline, making people who, based on this optimism, invested at a wrong time lose their money.

Although history gives us enough evidence to conclude interest rates are linked with profits, wishful thinking still makes people deny or underestimate the consequences of changing interest rates.

http://www.telegraph.co.uk/finance/2948314/Three-reasons-to-be-very-wary-of-wishful-thinking.html

Sander Van Ouytsel

The superboy of the next decade

Latin America is for many investors and multinationals the place to be in the following ten years.

Why? First of all, these countries achieved strong growth and were able to reduce the poverty among the people. On top of that, Lula da Silva turned his country, Brazil, in the last eight years into a real economic super power. In addition, western companies see Latin America as an alternative for China. Most of the Latin American countries are democratic and there isn’t a language barrier. Finally, this Latin American soil is plenty of natural resources.

That is why big companies don’t want to miss this trend and are investing a lot in this continent. Volkswagen and Fiat have built vast factories there and also AB Inbev, Arcelor Mittal, etc. are represented in the region.

These companies and conglomerates are all expecting extremely fast growth. But what if you invest in a  country that isn’t that democratic such as: Venezuela, Bolivia or Ecuador? Or what if next elections change the political balance completely? What if Mexican drug wars start to affect the whole continent? What if education and the national infrastructure aren’t that developed to maintain, support or secure this strong economic growth? Isn’t the Latin American economic growth threatening our ecological balance by chopping down a vast number of trees in the Amazon Rainforest?

Jonas Van der Slycken

http://www.tijd.be/nieuws/politiek_-_economie_economie/De_superboy_van_het_volgende_decennium.8984251-3153.art?utm_source=picks&utm_medium=direct

How trustworthy are stop-loss orders?

First of all I’d like to inform you why I chose this topic.
On May 6^th of this year, the Dow Jones fell by almost 10% in little over an hour. I saw this happening live on the internet and was dumbfounded for a cause. It was then, that I was told of stop-loss orders. Now, what exactly are these financial creatings and how is it possible that they have such an influence on the exchange rate?

A stop order is an order to buy or sell a share at an agreed exchange rate called a trigger. So let’s say, you give your broker a stop-loss order to sell your shares when the rate goes beneath $50, and if the rate does, the order must be executed.  

On May 7^th, the news said that a broker had accidentally typed three 0’s too much, and had thereby sold shares to the value of 16 billion instead of 16 million. This caused the rate to plummet and to trigger a vast amount of stop-loss orders, causing the rate to plunge even further. Even though the stock exchange reinstated itself in a few hours, there had been losses.

Personally, I find this explanation a bit too trivial. How do we know that these stop-loss orders haven’t been triggered on purpose?  One might see a very lucrative business in buying shares when the rate is at its low, knowing it will recover quickly. And aren’t profits the one thing the stock exchange is all about?

Sarah Duurloo

http://nl.wikipedia.org/wiki/Stop_order

http://925.nl/archief/2010/05/07/handelaar-tikt-drie-nullen-teveel-en-de-beurswereld-stort-in-of-

Gold prices soaring, but it may plunge soon

In these bad economic times, there are only few markets with rising prices, so called bull markets. The most remarkable one is definitely the gold market, which kept on increasing and reached an all time peak at 1,264 dollar per ounce. GFMS (Gold Fields Mineral Services), an independent consultancy specialized in metal market research, announced it will even reach 1,3 dollar by the end of the year. Although a nonstop increase encouraged investors to put their bets on gold, well-known investor George Soros is rather cautious saying this situation could come to an end very soon. He predicts that the gold price will plummet soon after this peak and advises investors not to put all their money in the gold business.

http://www.thaindian.com/newsportal/business/gold-prices-soaring-but-it-may-plunge-soon_100429609.html

Sander Van Ouytsel

Bad beat

Traders control a lot of money and they actually have a huge responsibility in the world economy because we are talking about billions. Maybe you have not heard about trading or traders yet, well, they buy and sell shares, futures, options, currencies, obligations and other financial products. While doing this, traders try to make as much yield as they can. Most of the people will like this, traders will give you an interesting yield, so what is the problem?

The problem is that traders sometimes take extremely high risks and most of the time their employers aren’t aware of these risks. What if it goes wrong? Well, in that case you can lose lots of money. Kerviel, Hunter, Meriwether, Hamanaka and Leeson are 5 great examples of how big these risks and losses sometimes are. These people lost all together 15.7 billion dollars, brought their bank down or were sent to jail. These are definitely not examples to follow. So think twice before you take unjustified risks in financial markets.

Jonas Van der Slycken

http://netto.tijd.be/sparen_en_beleggen/beleggen/De_5_grootste_-losers-_van_de_beurs.8225185-2213.art

Wishful thinking and betting of Verizon iPhone and Apple.

This link refers to a recent article that deals with the rumors about the wishful thinking of Verizon iPhone.  It is not an example where selling & buying shares,  hedging or something else is the link to the topic of this blog.  It is a decent example on how a decision can affect the success of various companies.

There is a raising possibility that Apple’s treasured iPhone is making its way to Verizon Wireless.  It is told that there could be legitimate plans for Apple to drop its exclusivity contract with AT & T. Both Verizon and AT & T have their niche but some people say it doesn’t sound like Verizon exactly needs the iPhone...

AT & T earned some of the worst reviews of its network and business management. Furthermore, the latest  rumors could be the culmination of Steve Jobs’s frustration with the provider but it is confirmed that there is a five-year contract between Apple and AT&T that doesn’t end until 2012. It is now up to Apple to make its best financial bet.

http://www.minyanville.com/businessmarkets/articles/verizon-iphone-apple-steve-jobs-verizon/6/30/2010/id/28999

Matthijs Vanrapenbusch