Question is how far a distance can the dollar travel?

http://www.ft.com/intl/cms/s/0/15cec396-64ea-11e4-bb43-00144feabdc0.html#axzz3IH9vIgTt


20141106 by Dan McCrum

Indeed, the question may be less about the direction for the dollar than the distance it might travel: can the very big rallies of the 1980s and 1990s be repeated? That might be too much to expect, without an emerging markets crisis to send investors in search of hard currency. Investment flows have improved, but context is important: in terms of investment flows, the booming West Coast has nothing on the mania of the dotcom era.

Come back to the politics as well. Along with tight monetary policy, the dollar surge of the early 1980s was helped by Ronald Reagan’s tax cuts. The next Republican Congress may do many things, but a fiscal loosening (dare we say stimulus) is unlikely to be among them.

Bank of Japan opens the floodgates

http://blogs.ft.com/gavyndavies/2014/11/02/bank-of-japan-opens-the-floodgates/

20141103 By Gavyn Davies

Very good

Markets and policy makers will now watch the Japanese experiment even more carefully than before. If it fails to restore inflation to Japan, this will be taken as a sign that monetary policy everywhere is powerless in the face of the deflationary forces that appear to be gathering momentum in the world economy.

The lessons will of course be particularly salient for the euro area. In many ways, Japanese thinking on monetary policy has now become the inverse of the ECB’s.

Under Mr Kuroda, the BoJ has deliberately sought to take the markets by surprise, maximizing the announcement effects of QE by shocking the markets. The ECB, in contrast, seems always to raise market expectations ahead of each of its monthly meeting, only to disappoint consistently when the decisions are finally reached.

The BoJ has also relied deliberately on buying sovereign debt, while the ECB has eschewed this (though its parallel actions on the regulation of pension funds does mean that the BoJ will effectively be financing the purchase of private assets as well). On top of all this, the BoJ has forced the yen down by a third against the euro, which will add to deflationary pressures in the euro area.

If this shows any signs of succeeding in Japan, surely there will be irresistible pressure on the ECB to follow suit. If however the BoJ experiment fails, markets may become very sceptical whether there is any escape route from deflation in the euro area.

One final point will be of interest in global markets. If QE works at all, it seems to work mainly by changing expectations about asset prices in the financial markets. In the past, the Fed has always been assumed to be the dominant actor in changing market expectations. Now, the Fed is contemplating tightening policy while other central banks are stepping up QE.

The bullish response of global markets to the opposing Fed/BoJ announcements last week suggests that investors are no longer just slavishly following the Fed.

A weak yen is no panacea but Shinzo Abe needs it all the same

http://www.ft.com/intl/cms/s/0/7c26583e-52ed-11e4-b917-00144feab7de.html?siteedition=intl#axzz3FzgrRb9H

20141016 by David Pilling

Another reason that a weak yen may not be manna from heaven is that, contrary to common perception, Japan is no longer an export-driven economy. Exports account for about 15 per cent of output, as opposed to 51 per cent for Germany and 54 per cent for South Korea.

That is not as good as it sounds, particularly in an economy where companies have been hoarding cash for years. Higher profits have not done much for investment. Worse, the impact on consumption has been minimal. That is because real wages have continued to fall. That may be an inevitable side effect of inflation, at least in the initial stages before higher profits are passed on in wages. As Jonathan Allum of SMBC Nikko points out, Mr Abe’s insistence on raising consumption tax by 3 percentage points probably did more damage to household spending than a falling yen.

Either way, for the prime minister – who faces important gubernatorial elections this year and local ones in the spring – it is far from ideal that most voters feel poorer because of an economic policy that bears his name.

Mr Abe is correct in his hunch that a weak yen is no longer all it was cracked up to be. He is right too that inflation, without a compensating rise in wages, is more popular with macroeconomists than it is with voters. Yet it would be a disaster if he blinked now. Getting to sustainable inflation is the central tenet of Abenomics. A return to deflation would be to throw it all away. Like it or not, a weaker yen is part of the plan.

HongKong vs Singapore

http://www.ft.com/intl/cms/s/0/b18372a6-5297-11e4-a236-00144feab7de.html#axzz3GGLe0iDL

Japan_20140926

http://www.bloombergview.com/articles/2014-09-24/japan-s-debt-trap

1. Consolidate

Taxes now take about 28 percent of Japan’s GDP, so if Japan raised the consumption tax by 12 to 32 percentage points, it could whip the debt. But this may be politically impossible, because of the economic pain involved. When Prime Minister Shinzo Abe recently succeeded in raising the tax from 5 percent to 8 percent, Japan’s economy experienced a severe contraction. That echoes a similar experience in 1997. Why exactly Japan’s economy is so vulnerable to tax increases isn't clear -- after all, the U.S. recently carried out a similar tax hike with far less pain. But whatever the reason, the pain associated with tax increases means that getting to a sustainable level of taxes looks politically unlikely as well.

So if my friends in Japan are wrong, and consolidation isn't in the cards, that leaves monetization of debt as the only option to avoid a sovereign default. The Bank of Japan will be asked to pick up more and more of the burden of buying Japanese government bonds. Printed money will replace corporate savings and household pension funds as the chief source of demand for bonds. This is alreadyhappening.

2. Monetize

What will be the result of debt monetization? That depends on whether it leads to inflation. Without inflation, interest rates will simply go lower and lower, and the government will be able to roll over its debt more and more cheaply. In other words, the situation that has prevailed for the past two decades will continue. But if inflation strikes, it could rise high enough to hurt growth, and therefore tax revenue, severely. That would mean game over -- Japan’s government would be forced to default (or to hyperinflate, which amounts to a messier version of the same thing).

3. Default



--------------------------------------------------------------



The fact is, no one really knows what causes high-inflation episodes to begin. The Japanese central bank is embarking on a road that no country has ever traveled before -- a bold experiment to test the hypothesis that debt monetization can sustain an infinite ratio of government debt to GDP. It is being forced to do this by the dysfunctional nature of the Japanese political system, combined with Japan’s unfavorable demographics. I, for one, am interested to see where it goes.

Japan_20140924

1. 폴크루그먼
http://newspeppermint.com/2014/09/23/krugman-warns-abe-on-tax-increase/

2. This is the most important chart for investors
http://www.businessinsider.com/albert-edwards-says-watch-the-yen-2014-9

Japanese economy flounders after sales tax rise

http://www.ft.com/intl/cms/s/0/a0a023c0-2f2f-11e4-a054-00144feabdc0.html?siteedition=intl#axzz3C99isXzS

2014.08.29
By Jonathan Soble



"The bank has set a target for core inflation of 2 per cent but most private sector economists believe that, unless demand in the economy picks up suddenly, more monetary stimulus will be needed to reach it. Yet simply printing more money could further widen the price-wage gap, in the short term if not the longer."

Renminbi’s drop likely to prove temporary

http://www.ft.com/intl/cms/s/0/144ca96c-fdec-11e3-bd0e-00144feab7de.html#axzz36AkGPAJm

By Henny sender 

2014.07.01

None of this may be immediately obvious. Nor does Beijing wish it to be so, for a mix once again of political and market reasons. For a start, it has no desire to be seen to be kowtowing to the wishes of the US, especially when these wishes are considered hypocritical given the US wants a cheaper dollar to support its own exports (of everything except the energy and technology China wishes to buy). And Chinese regulators are sincere in their desire for two way trading in the renminbi.

현재, 어떤 것도 명확하지 않을 뿐더러 중국 정부의 의도 또한 정확히 알 수 없다. 일단 미국이 달러 약세를 통해 그들의 수출을 증대 하고자 하는 상황에서 그들이 미국이 원하는 (위완화 강세 추세 그대로) 방향으로 행동할 당위 또한 없는 상황이다. 또한 Chinese regulators는 그들 통화가 한방향으로 움직이는 것을 바라지 않는다.

At the Ira Sohn hedge fund conference in Hong Kong in June, one popular recommendation was to hold bearish options in the belief that the renminbi will fall to Rmb7 to the dollar by the end of this year.

But as long as central bankers everywhere else do not care about supporting their currencies, any further fall in the renminbi is likely to prove temporary.

Look to China for reasons behind strong demand for Treasuries

http://www.ft.com/intl/cms/s/0/f3a601f4-e5b3-11e3-aeef-00144feabdc0.html#axzz33Ff0LK3s

2014.05.27

Since peaking at $1.3tn last Nov, official Treasury data show China has allowed its holdings of US paper to fall to $1.27tn. The decline, however, has occurred even as China's currency has weakened and its foreign exchanges reserves have expanded.
...
A year ago, China's reported holdings of Treasury debt equated to 37per cent of its forex reserves. As of March this year, that relationship had declined to 32 per cent, but it would rise back to 38per cent if Belgium's growth in Treasury holdings were included




Coincidence?
interesting

Chinese savers can scorch the world

http://www.ft.com/intl/cms/s/0/0888c11c-be3e-11e3-b44a-00144feabdc0.html?siteedition=intl#axzz2y9bt6G4O

2014.04.09 by Martin Wolf

PBOC proposed dividing the task into three periods

1)     In the first three years, controls on foreign direct investment by enterprises would be relaxed

2)     Over three to five years, the aim would be to relax controls on trade related credit and spur internationalism of renminbi.

3)     Over five to 10 years, the plan was to open up capital inflows before outflows

4)     PBOC planned to leave personal transactions, money-market instruments and derivative to the end.

Advantage

1)     It could prove to be a sharp spur to domestic reform

2)     China’s huge savings are now locked up inside China.

3)     At $3.8tn last December. It would be far better if some of this were converted into real assets.

Risky

1)     Very large increase in gross flows(and so Stocks) would follow on both sides of the balance sheet.

2)     If the system being opened up is riddled with price distortions and suffered with moral hazard, the chance of mishap are great.

3)     If the regulators are operating in an unfamiliar environment, as would be the case in China, the chances become greater still.

4)     If the debt to GDP ratio is also very high, the chances become even greater.

5)     This is a matter of global concern when the economy in question will be the world’s largest

Wolf’s thought

-       China needs to reform first and only then open up, ideally in close dialogue with its partners.

Debt troubles within the Great Wall

http://www.ft.com/intl/cms/s/0/b78d8c0e-b661-11e3-905b-00144feabdc0.html#axzz2y9bt6G4O

2014.04.01 by Martin Wolf

This leaves the Chinese government with an apparent dilemma: let the debt accumulation continue, creating bigger problems in the future; or implement rapid reform and risk a fall in investment and a bigger unplanned slowdown now. The solution must be a middle way: accelerate adjustment and reform, while sustaining aggregate demand through monetary and fiscal policies operated by the central government.

China’s ability to postpone a crisis might lead the powers-that-be to prefer the option of adjustment delayed. That could prove a huge mistake. Growth cannot be sustained by increasing indebtedness indefinitely. Reform and rebalancing are essential. From what I heard at the China Development Forum last month the Chinese authorities understand this. Indeed without these reforms, their plan for liberalising the capital account could be lethal. China can avoid a financial crisis. That is a boon, though it also risks reducing pressure for reform. Yet reform must come – and the sooner the better.

China’s struggle for a new economy

http://www.ft.com/intl/cms/s/0/1e4472ae-b348-11e3-b09d-00144feabdc0.html#axzz2x1LxnDf2

2014.03.25 By Martin Wolf

The big question now is whether the corrective forces in the economy could overwhelm the ability of the authorities to manage the needed adjustments smoothly.

Some might argue that a crash is precisely what is needed. The authorities will disagree and so, which matters not at all, do I. They also have many levers under their control. Nonetheless, the downside risks from financial stress and macroeconomic adjustment have been rising sharply. I plan to assess the scale of the risks and possible responses next week.

울프 뷰 : When a superb horse meets a high obstacle, the odds are on the horse. But even the best may fail

<단어>

pessimism : Pessimism is the belief that bad things are going to happen

colossus : If you describe someone or something as a colossus, you think they are extremely important and great in ability or size

wager : 도박하다

superb : IF something is superb, its quality is very good indeed

imperative : If it is imperative that something is done, that thing is extremely important and must be done

mind-numbing : 너무나 지루한

peril : peril are great dangers.

implode : If something implodes, it collapse into itself in a sudden and violent way.

Dr. copper (relationship between china and copper)

1.     Letter of Credit

-       http://terms.naver.com/entry.nhn?docId=728417&cid=518&categoryId=518

-       http://blog.naver.com/tpqhd123?Redirect=Log&logNo=20198661832

2.     Dr. Copper and China

-       Copper is used extensively in construction and electrical applications, is more dramatic.

-       The fears emanate from China, which has driven demand for commodities for more than a decade, and accounts for about 40 per cent of global base metal demand

-       China accounts for 40 per cent of global copper consumption, but demand in the physical market has been weak this year.

3.     About Copper Financing

-       http://ftalphaville.ft.com/2013/08/12/1599272/the-great-chinese-collateral-trade-illustrated/

-       Point : getting access to CNY through cheap FX funding.

1)     Trader는 외국에서 구리를 가져올 때 Onshore의 거래 은행에서 LC를 받아 가져오게 된다. (이때 trade value의 10-20 퍼센트 정도를 은행에 담보로 잡아두면 발행 해 준다.)

2)     가져온 구리를 Onshore 에서 팔고 CNY로 High yield에 투자 (http://ftalphaville.ft.com/files/2013/07/Goldman-July-9-2.png)

Or

구리를 그대로 다시 Offshore 의 구리 공급자에게 넘기고 USD를 받아 이 USD를 CNY로 Onshore 은행에서 바꿔서 High Yield에 투자

(http://ftalphaville.ft.com/files/2013/08/Copper-warrant.jpg)

 Or

구리를 담보로 은행에서 USD차입 후 CNY로 변경 혹은 구리를 담보로 CNY 차입

3)     Trader 의 최종 상태 : CNY가 High yield에 투자 되어 있고 USD를 낮은 차입 금리로 차입한 상태 (LC로)

4.     그리고 지금(2014.03.12)

http://www.ft.com/intl/cms/s/0/fd88d012-a877-11e3-a946-00144feab7de.html?siteedition=intl#axzz2vhai6IM0

At face value Chinese import numbers appear to show that all is well. Copper cathode imports rose to 397,459 tonnes in January, the second-highest reading for that month. February figures were lower, but still up 27 per cent from last year’s levels.

But instead of heading to factories, much of the metal has been going into warehouses. Copper inventories at the Shanghai Futures Exchange have risen for eight consecutive weeks, to 207,320 tonnes last Friday. Meanwhile stocks in bonded warehouses in China had grown to 745,000 tonnes by the end of February, the consultancy CRU reported, close to the historical high of 825,000 tonnes in late 2012

2014년 1월 중국으로 수입된 copper의 양은 월별 수입 양 중 두 번째로 높은 수치를 기록했고 2월에 조금 줄긴 했지만 전년도 대비 27% 많은 양의 copper가 유입 되었다.

그러나 이렇게 유입된 대부분의 copper는 공장에서 사용된 것이 아니라 창고로 들어가게 되었다. 상하이 선물 거래소에 있는 Copper Inventory에 쌓이는 Copper는 지난 금요일까지 8주 연속 늘어나게 되었고 그 사이 중국의 bonded warehouse에 쌓인 Copper의 양은 2012년 말 후로 최고치인 852,000 톤에 근접한 745,000 톤이 되었다.

“Signals coming out of China have been weak for copper,” says Matthew Wonnacott, analyst at CRU. “A lot of people who bought material on long-term contracts are now keeping it in bonded warehouses when it arrives because prices are too low.”

Sluggish demand for physical metal and adequate supply of copper on the market have caused spot prices to fall below those on the Shanghai Futures Exchange. Last year spot copper traded at a premium to the exchange price.

metal에 대한 수요의 감소와 더불어 충분한 공급은 spot price를 떨어 뜨렸다.

The decoupling of Chinese copper imports from physical demand is a direct result of the attractiveness of the metal in financing deals. In the simplest type of scheme, a trader uses a copper purchase as collateral to take out a US dollar loan at a modest interest rate. The proceeds are then invested in a higher-yielding asset in China or lent on in the shadow banking sector for a favorable return. The renminbi’s appreciation against the dollar – taken as a given until last month – offered the opportunity for a further gain when the original dollar borrowing needed to be repaid

중국의 Copper에 대한 수요가 줄어 들면서 관련 금융 거래에도 직접적인 타격이 있다. Trader들은 차입 비용이 싼 US dollar를 조달 하면서 그 담보로 copper purchase를 이용 했었고 이렇게 조달된 달러를 이용하여 higher-yielding asset in China 혹은 shadow banking sector에 빌려주는 식의 거래를 통해 수익을 거뒀었다. 여기에 더해 계속되는 달러 대비 중국 통화 가치의 상승 (저번달 전까지..)은 처음 차입했던 original dollar가 상환될 때에 further gain의 찬스가 있었다.

In more complex deals, the interest-rate arbitrage transactions are rolled over.

Smelters, refiners and fabricators have also used working inventory as collateral to obtain financing, according to Andy Shaw, base metals analyst at Credit Suisse.

Up to a third of all copper imports into China may pass through financing deals, the bank reckons. If the deals suddenly unwind, a lot of copper could be released on to the market.

크레딧 스위스에 따르면 중국으로 들어오는 구리의 1/3 가량이 financing deals로 들어 갔다. 만약 이 거래가 한번에 unwind가 된다면 많은 양의 copper가 한번에 시장으로 방출 될 수 있다.

Analysts are keenly watching the local market for signs of increased demand for metal, which has been poor since the Chinese new year at the end of January. The period from March to June is traditionally the peak buying season for copper in China, as processors replenish stock.

“If demand fails to pick up from mid-March . . . there would be downside risks for the copper price.”

<Word>

fragility : Older drivers are more likely to be seriously injured because of the fragility of their bones

frenetic : if you describe an activity as frenetic, you mean that it is fast and energetic, but rather uncontrolled

reassessment : If you make a reassessment of something, you think about it and decide whether you need to change your opinion about it

extrapolate : If you extrapolate from known facts, you use them as a basis for general statements about a situation or about what is likely to happen in the future

replenish : If you replenish something, you make it full or complete agaion

Beijing guides renminbi lower in effort to manage financial risks

http://www.ft.com/intl/cms/s/0/ba53bbb2-9f9a-11e3-b6c7-00144feab7de.html?siteedition=intl#axzz2uZRXvU6H

2014.02.28 By James Kynge

In guiding the renminbi into its steepest dive since 2005 this week, Beijing was employing a strategy of “one arrow, two vultures”, as the saying goes.

The first vulture denotes the international speculators who have – in spite of warnings by Chinese officials – regarded renminbi appreciation against the US dollar as a one-way bet. The second vulture signifies the domestic shadow financiers who refuse to be brought down to earth.

……

A shadow banker in Ningbo, eastern China, recently described the attractions of such a trade. “It is easy to borrow abroad at around 1 per cent annual interest. Then change that money into renminbi and bring it into the mainland,” said the banker, who declined to be identified because of the illegal nature of his business.

“You can get around 10 to 12 per cent by lending it to a trust or around 20 per cent by putting it with an underground bank. On top of that you get whatever the renminbi has appreciated by the time you need to repay the foreign loan.”

One sign that this cross-border carry trade has been robust of late is evidence of an increase in the over-invoicing of exports, a common ruse used to spirit funds into the mainland. A China Confidential survey of exporters in January found that 44 per cent of respondents thought that such fake invoicing was on the increase.

Besieged by these pressures, it is hardly surprising that the PBoC was keen to shoot an arrow. Its hope is that by instilling in speculators’ consciousness a sense that the renminbi can fall as well as rise, it will staunch the inrush of speculative capital lured by the outsized returns available in the mainland’s shadow finance markets.

In this, as ever, Beijing is looking for incremental shifts, such as the 1.2 per cent that the renminbi has depreciated by so far this year. It knows that if it were to try to stop the inflow of illegal capital entirely, it may trigger the very wave of financial defaults it is hoping to avoid. Thus a gradual approach using exchange rate flexibility to generate a market response seems to suit the PBoC’s objectives for now.

About Delta one trade

1. Q&A: Delta One

September 15, 2011

http://www.ft.com/intl/cms/s/0/153d5486-e051-11e0-ba12-00144feabdc0.html#axzz2tYC6O2aq

<목차>

1.     What is Delta one?

2.     Does this mean banks are gambling with their own money again?

3.     So what are ETFs and what does Delta One have to do with them?

4.     Are regulators looking at any of this?

5.     Who use Delta One?

2. The Origins And Evolution Of Delta-One

October 29, 2012

http://europe.etf.com/europe/publications/journal-of-indexes/articles/8609-the-origins-and-evolution-of-delta-one.html?fullart=1&start=5

3. Delta One – What do they do?

Non 14, 2012

http://derivativetimes.blogspot.kr/2011/12/delta-one-what-does-it-do.html

“Any trading desk will want to find the cheapest hedge and will have to create innovative hedges to maximise its own profits. Hence the traders will engage in all kinds of trading and arbitrage activities in various derivatives, which could be seen as proprietary trading.”

4. Delta one and Un0understood Risk

Sep 15, 2011

http://blog.themistrading.com/delta-one-and-un-understood-risks/

Do you know about Delta One Desks? You will know more after today, considering it may be the division that is causing UBS to suffer yet another OMG “rogue” trading loss of $2 billion: Adoboli held over $2bn UBS “rogue trade”. Adoboli’s Linkedin page says he is director of ETF and Delta One Trading at UBS.

Delta One desks are named for the “neutral” type of trading strategies that exploit minute arbitrages among indexes and instruments trading in the plethora of trading destinations worldwide that they trade in. They are one of Wall Street’s best kept secrets. Every financial institution is deeply involved with Delta One trading. Delta One desks typically deal in prop high frequency trading centered around ETF’s, swaps, baskets, and also include futures and options. If you know this much, you know more about Delta One than most on the street.

If you are a hedge fund, and you want exposure to US oil refiners, excluding Haliburton and Baker Hughes, you might ask your brokerage firm to create a swap-based product for that customization, and Delta One would likely be involved. Lots of math and correlation is involved folks, more than my cave man brain typically can handle.

But you should also understand that Delta One is also about collateral, security lending and funding, and perhaps even ETF basket collateral.

I learned about Delta One over a year ago from, in my opinion, Business Journalism’s greatest reporter, Isabella Kaminska, of the Financial Times. In fact please read what she had to say about Delta One just a few months ago on the FT’s Site: Deta One: the Special Ops of Trading.Considering how large ETF’s have become relative to the market, and that the collateral involved in their creation/redemption processes by Authorized Participants can be varied and not intuitive, and that these activities fall under Delta One typically at Big Banks, perhaps it is time for Delta One to become less of a secret. Especially With the Regulators. Talk about un-understood divisions and black swan potential.

6. Delta one: the special ops of equity trading

Apr 11, 2011

http://ftalphaville.ft.com//2011/04/11/541181/delta-one-the-special-ops-of-equity-trading/

“What makes any Delta one trader successful is thus a canny blend of market timing (including HFT and algorithmically-assisted timing), innovative hedging, access to funding and flow. Interestingly, more often than not, a stock’s direction is entirely irrelevant to the trader, or so we are told — especially when it comes to trading the dividend side of the market.”

The European Debt Crisis Visualized

http://www.bloomberg.com/video/the-european-debt-crisis-visualized-iPA3~AbsSGG89LOGkkd~RA.html


유럽위기를 잘 설명한 비디오 클립

Korea-Take profit on 2/10Y IRS; receive 1Y1Y IRS

 https://research.standardchartered.com/configuration/ROW%20Documents/Korea_%E2%80%93_Take_profit_on_2_10Y_IRS;_receive_1Y1Y_IRS_23_08_13_07_40.pdf

2013.08.23. By Danny Suwanapruti

Summary

KRW 2/10Y IRS Steepener 로 39bp의 이익을 취한다. 이 트레이드는 이미 잘 수행되고 있고 한국 구조화 시장에 대한 우리의 분석은 dual-range accura l의 발행이 지난 몇 주 동안 ( 2013, 3Q 후로) 매우 활발 했음을 보여 준다. USD Interest rate vol이 높고 USD와 KRW IRS 커브가 Steep한 상황은 dual-range accrual 노트를 발행하는데 있어서 매력적인 상황이 되어 주었다. 우리는 이 같은 구조가 Q3~Q4 까지 계속해서 더 이어질 것이라고 생각한다. 그리고 이 같은 상황은 구조화 채권을 헤지 하기 위한 KRS 15Y IRS 의 리시브 포지션의 증가를 불러올 것으로 예상 된다.

단 기간에 Fed가 금리를 올리지는 않을 것 같아 우리는 KRW 2/10Y steepener를 통한 트레이딩을 계속해서 선호하고 있다.

반면 금통위가 금리를 상승 시킬 것에 대한 기대감에 IRS 앞부분이 너무 많이 steep 되어 있을 경우에는 KRW 1Y1Y IRS rate를 받는 걸로 포지션을 잡자.

지금 현재 상황의 IRS 커브에는 6개월 후 3M CD rate이 15bp상승 할 것이라는 기대가 반영되어 있다. CD rate을 올릴 수 있는 요소에는 CD 공급의 증가와 BOK의 금리 인상 두 가지가 있다. 그러나 우리는 적어도 3Q-2014까지는 BoK에서 금리를 향상 시키지 않을 것으로 보고 있다. 따라서 stop-loss 3.3% , target 2.75%로 보고 IRS 거래에 들어 갈 것이다.

What is priced into the KRW IRS curves?

-       우리가 볼 때 지금 현재 IRS level에는 다음 6개월 후에 CD금리가 15bp 오를 것 이라는 기대가 녹아 있다. 하지만 CD시장에 특별한 이슈가 없고 BOK가 금리를 인상 시킬 것 이라고 생각하지 않는다. ( 따라서 1Y1Y IRS Receive거래 고고)

The BoK’s outlook is considered neutral/dovish

-       Uncertainty surrounding fiscal plans for 2014 underpins our call for no near-term BoK rate hike

Quantos, EUR and KRW CMS steepeners popular in Q2

-       Q2-2013에 KRW 구조화 노트는 총 2.3tn이 발행 되었다. 우리의 조사에 따르면 dual-range accural은 그리 많지 않았다. 그 시기의 대부분의 발행은

1)     Quanto EUR constant maturity swap steepeners

2)     KRW leveraged CMS steepeners

3)     KRW 10Y versus USD 10Y structures,

4)     dual range accruals

이다. 1)번 거래의 경우 헤지를 위해 IRS 거래를 필요로 하지 않는다. 2)와 3)의 거래는 일반적으로 KRWIRS 10y-15Y 를 paying하게 하는데 이게 Q2에 IRS 커브를 steepening하게 만들었다고 본다. (자세한건 이 전 보고서 참조)

Dual-range accrual issuance volume to pick up

-       2013년 3분기에 들어 dual-range accrual 의 발행이 폭발적으로 증가하게 되었다. 첫 6주간 dual-range accural은 한국 구조화물의 대부분의 비중을 차지하는 상품 이었다. 이것은 USD interest rate volatility가 매우 크고 USD&KRW IRS 커브가 스팁되어 있는 상황을 생각해 볼 때) 그리 놀라운 결과가 아니다. (왜 이런 상황에서 range-accural을 발행하게 되는지는 이 전 노트를 참조). 또한 지금 상황도 큰 변화가 있지 않았기 때문에 계속해서 dual-range accural상품이 많이 발행 될 것이라 예상 된다. dual-range accrual note가 인기를 끌게 된다면 우리는 KRW 15Y IRS를 리시브 하는 수요가 증가할 거라고 예상할 수 있다. 즉 이 상황을 종합해볼 때 2/10Y IRS 트레이딩은 좋은 기회가 될 거라고 판단 할 수 있다.

A primer on dual-range accruals

-       Description : Pays a fixed coupon rate when the reference rates – such as the 3M CD and USD LIBOR rate – stay within a certain range, for example 0-5%

-       Suitable issuance conditions : IRS와 USD LIBOR의 Forward curve가 스팁되어 있고 Volatility 가 클때

-        Rationale : 채권 매입자의 포지션은 채권 발행자에게 Bermudan swaption과 digital option을 매도한 입장이다.

-       Hedge by : Receiving 15Y IRS

-       Rationale :  발행자는 매입 자에게 고정 쿠폰을 지급해야 하므로 15Y IRS를 receiving한다.

Rates trade idea

-       2/10Y IRS trade for a gain of 39bps를 하자. ( 계속해서 dual-range accrual Note를 발행하기 좋은 상황이기 때문에 헤지 물량인 장기 IRS 리시브 수요가 IRS금리를 계속해서 누를 것이다.)

-       또한 KRW 1Y1Y IRS 리시브 하는 트레이딩을 하자.

Financial and sovereign debt crises : Some Lessons learned and those forgotten

http://www.imf.org/external/pubs/ft/wp/2013/wp13266.pdf

IMF Working Paper

Financial and sovereign debt crises : Some Lessons learned and those forgotten

By Reinhart and Rogoff

1.     Introduction

역사상 가장 심각한 금융위기가 advanced world에서 발발 했음에도 불구하고 정책 입안자들이 정책을 펼치는 근간이 되는 뿌리는 그들의 상대국인 emerging market과 advance world는 완전히 다르다는 것에 기초 하고 있다. 2007-2008년 까지 위의 가정은 그들은 금융위기에 취약하지 않다는 것에 있었다. 금융위기가 발발하여 위의 가정이 무너졌을 때에도 advanced countries는 더욱 명민하게 경기 조정 정책을 펼 수 있는 능력이 있기 때문에 선진국 중심의 경제 개편이 당연하게 받아 들여 지고 있었다. 심지어 대부분의 전문가들이 예상하기보다 훨씬 더 경기 회복이 더딘 상황 속에서도 정책 입안자들은 downturn의 깊이와 지속 시간에 대해 계속해서 과소 평가 하고 있었다.

금융위기가 sovereign debt crises로 까지 전염된 유럽에서는, denial cycle(글에서 나오는 denial은 저자가 현재 정책 입안자 그룹을 현실을 부정하고 있는 그룹 이라는 의미로 사용 : 버냉키 그룹) 의 현재 단계는 normal growth가 austerity, forbearance, and growth의 mix로 복구 될 수 있다는 가정 하에 나온 공공 정책으로 행하여 지고 있다. 그 주장은 advanced countries는 debt restructurings, higher inflation, capital controls과 심각한 financial repression과 같은 emerging markets을 다루는데 사용하는 일반적인 도구는 소용이 없다고 이야기 한다. Advanced countries는 그러한 방식에 의존하지 않는다고 policymakers 가 이야기 한다. (즉 이번 위기는 기존의 그 어떤 금융 위기와는 차별되는 위기 이기에 이 위기를 해결 하기 위해서는 기존에 사용하지 않았던 정책을 사용해야 한다고 이야기 하는 것을 의미) 금융위기를 해쳐 나가기 위해 사용하는 정책은 어렵게 쌓아 올렸던 신용도를 버리면서 기대치를 불안정하게 만들고 경제를 악순환의 사이클에 몰아 넣는 것들 이었다. advanced country financial crises는 완전히 다른 종류의 것이고 따라서 종전에 대응했던 방식이 아닌 완전히 새로운 방식으로 대응을 해야 한다는 뷰가 반복되는 후렴구 인데 (특히나 European sovereign debt cries 와 U.S subprime mortgage crisis 에 대해) 역사적으로 보면 이러한 뷰는 잘못 된 것 같다.

대부분의 advanced economies에서 debt restructuring of conversions, financial repression 그리고 higher inflation은 중요한 debt overhangs를 해결하는 핵심 이었다.

policymakers는 공공의 기대치를 다뤄 줘야 함은 틀림 없다. 그러나 과도하게 낙관적인 medium-term 시나리오를 바탕으로 한 정책을 계속해서 일관적으로 사용 함으로써 그들은 궁극적으로 신용을 잃고 미래 기대에 대한 불신이 팽배한 위험에 처하게 되었다. 이제 denial 문제는 과거 advanced country가 경험했던 (잊고 있었던) 많은 나라와 회사들이 restructuring을 경험했었던 deleveraging 시기를 떠올리게 하고 있다. This denial 은 deleveraging의 최종 비용을 악화시키는 위함에 몰아 넣는 정책이 펼쳐지게 만들고 있다.

이 보고서는 Reinhart가 2013년에 했던 세계 2차대전 전에 비교적 잘 알려지지 않은 default episode를 정리 했던 작업을 좀더 확장한 버전이다.

또한 이 보고서에서 debt overhang 문제가 경제 회복을 가로막는 매우 중요한 문제에 대해 이야기 할 것이다. 연구에 의하면 현재 사이즈의 지속되고 있는 debt overhang은 약 20여년간 지속되고 있는 평균 이하의 성장률과 깊은 관계가 있다. 이런 혼돈의 상황에서 이 보고서는 현재 세계 금융위기를 종결시키기 위해서는 신중한 금융 규제 하에 이루어 지는 financial repression과 outright restructuring of public and private debt, conversions, somewhat higher inflation 들을 지향하는 정책이 필요함을 이야기 할 것이다. 물론 어느정도 austerity가 다양한 방면에 있어서 필요 하겠지만 많은 경우 그것 만으로 public and private debt overhang 문제를 때려 잡는 데에는 어려움이 있다. 이 보고서에서 과거 자료를 바탕으로 많은 사람들, 특히 현재 정책을 집행하는 사람들이 망각하고 있는 네 가지 기초적인 교훈에 대해 살펴 보겠다

2.     Financial liberalization, financial crises, and crisis prevention.

Lession1 : 위기 예방 과 위기 대처에 대해. 우리는 전보다 후에 더 낳은 모습을 보인다. 허나 위기에 대한 기억이 점차 흐려지고 금융시장 참여자들과 그들을 규제하는 자들이 현실에 안주하게 되면서 이런 점이 변한 것 같다.

경제학자들이 최근에 금융위기가 점점 더 깊어지고 있음을 인지하고 있을지라도 금융부분의 큰 성장과 발전은 아마 금융위기의 물결을 항상 만들게 될 것이다. Diaz-Alejandro가 1985년 출간했던 유명한 논문의 제목처럼 많은 위기들은 financial liberalization gone amok 의 결과 이다. 그는 emerging market에 대해 이야기 했었지만 요즘의 advanced 국가들에게도 매우 유사한 이야기를 했었을 것이다. (그가 살아 있었다면?) Figure1은 banking, currency, sovereign default, and inflation crises, and stock market crashes 로 구성된 Index 이다. 개별 국가들은 그들의 world income의 비율로 weighted가 되어 있다. 그림을 보면 “Financial repression”기간 동안(특히나1945-1979)에 Financial crises는 그 전 후에 비해 주목 할 만큼 적었다.

3.     Today’s multifaceted debt overhang

Lession2 : debt의 크기와 위기의 정도에 대한 이해와 진단에 관해. what is public and what is private? Domestic and external debt are not created equal. And debt is usually MUCH bigger than what meets the eye.

오늘날 advanced economies가 직면하고 있는 총 부채 문제는 과장하기 어려울 정도이다. 노령화된 사회와, 복지문제 그리고 인구 증가의 정체는 그 어떤 상황보다 심각한 문제 이다. 이 부담은 정부 부채가 급속도로 커지는 것과 맞물려 금융위기 후에 엄청나게 커지고 있다. Figure2는 advanced countries와 emerging countries의 1900-2011동안 GDP대비 중앙 정부의 부채를 나타내고 있다. 그림에서 볼 수 있듯이 금융위기 전에 emerging countries의 부채는 적어지고 있었던 반면 advanced countries의 부채는 세계2차대전 직후 이후로 사상 유래 없는 최고치를 찍고 있었다.

External debt는 전반적인 취약성을 살펴 볼 수 있는 또 하나의 매우 중요한 지표이다. Figure3에서 external debt의 수준을 볼 수 있다. 다시 한 번 emerging market의 부채와 advanced market의 부채에 대해 확인 해 볼 수 있다. Reinhart 와 rogoff는 금융위기 시에 public 과 private debt 부분의 경계가 모호해 질 수 있기 때문에 total external debt이 또한 매우 중요한 지표가 될 수 있다고 이야기 했다.

인정하건대, advanced country의 external debt의 급격이 커지게 된 주요 원인은 intra-European debt의 성장과 관련이 있다. 유로존이 힘든 시기를 겪는 동안 국가 부채와 같은 통화를 사용하는 연합의 부채의 경계 또한 금융위기 시기에 모호해 졌다.

external debt와 domestic debt를 구분하는 것은 꽤 중요할 수 있다. 자국 통화로 발행된 부채는 외국 통화로 발행된 부채에 비해 partial default options이 다양하다.(external debt 보다)  Financial repression은 이미 계속해서 화자화 되고 있다. 정부는 발행한 채권을 규제라는 명목 하에 낮은 금리로 지방 연금 펀드나 보험회사에 밀어 넣을 수 있다. 그리고 이 국가 부채는 inflation으로 없앨 수 있다. Reinhart 와 Sbrancia가 이야기 했듯이(2011) Financial repression 과 inflation의 조합은 domestic-currency debt의 비중을 확실하게 줄 일 수 있는 길이 될 수 있다. 하지만 foreign-currency debt에 대한 옵션은 매우 적다.

마지막으로 Figure4는 금융위기 전에 private sector debt의 explosion을 보여주고 있다. Central government debt과는 다르게 private sector의 debt는 안정적인 상태를 유지 하다가 financial innovation and globalization기간 동안(금융위기 전까지) 엄청난 속도로 증가가 하게 도고 그 증가 속도가 금융위기를 기점으로 주춤 하게 된다. 이 그림이 보여 주듯이 금융위기 후에 일어난 부채 해소는 매우 제한적 이었다. 사실 advanced countries는 심지어 금융위기 후에도 이 부채 시스템을 떠 받치기 위해 borrow를 위해 정부의 역량을 사용 하였다. 이 전략은 금융위기 초 위기를 너무 극심하게 만들지 않는 것처럼 보였었다. 그러나 이것은 부채 해소를 위해 굉장히 많은 시간이 사용 될 것임을 나타낸다.

4.     How will the debt be reduced?

Lession 3: Crisis resolution. How different are advanced economies and emerging markets? Not as different as is widely believed.

거대한 debt-to-GDP ratio를 줄이기 위해 역사적으로 사용했었던 정책은 크게 다섯 가지로 볼 수 있는데 다음과 같다.

1)     Economic growth

2)     Fiscal adjustment-austerity

3)     Explicit default or restructuring

4)     Inflation surprise

5)     A steady dose of financial repression accompanied by a steady dose of inflation.

  

          이 리스트의 첫번째 항목은 매우 드물고 나머지는 어렵고 대중들이 싫어한다. 최근의 정책 토론은 3)과 5)는 염두 하지 않고 advanced countries는 이 방법은 효과적이지 않다고 믿고 있다. 사실 5)번 방법은 advanced countries에서 세계 2차대전 후에 부채를 줄이기 위해 사용 했던 방법이다. 그리고 3)번 방법은 2차대전 전에 많이 사용 했던 방법이다. 지금 현재 부채 상태와 성장률이 꽤나 오랜 기간 동안 정체 되어 있는 지금 이 시기를 놓고 볼 때 fiscal austerity와 심지어 financial repression을 더 하는 정책 만으로 충분한지 의문이 든다. 거기에 더해 문제의 크기는 부분적으로 restructuring이 필요할 것으로 보인다. 예를 들어 periphery of Europe 국가 들에서. 물론 유로존 이라는 연합 덕분에 periphery 국가들의 debt을 northern country 의 세금을 이용하여 bail out을 한다든지 restructuring에 대핸 need를 줄이고 있기는 하지만 말이다. 그러나 이 전체 문제의 크기는 유로존 내의 견고한 국가들도 기존에 가지고 있는 복지 문제 라든지 debt문제와 함께 전체 유로존을 책임 져야 하는 문제가 겹쳐 유로존 전체의 성장율이 낮아지고 심지어 경기침체가 core countries에서도 일어나게 할 수 있다는 점이다. ( 좀 잘나가는 국가의 세금으로 어찌 할 수 있는 정도가 아니다. )

역사적으로 지금과 같이 정부 부채가 큰 기간에는 그림5에서 볼 수 있듯이 debt restructurings이 발발 했었다. 이 그림은 1826년부너 2010년 까지 인플레이션 대비 GDP-weighted 중앙정부 부채가 20퍼센트 보다 큰 국가들 중에 debt restructuring을 실시 했던 국가들을 나타낸 것이다. correlation은 매우 강하게 나타나고 또한 세계를 region으로 분류 했을 때 더욱 강하게 나타난다. Figure 6는 세계 banking crises 이후에 나타나는 sovereign defaults와 restructuring의 패턴에 대해 보여 주고 있다.

Table1에 advanced economies에서 과거에 일어 났었던 sovereign default에 대해 설명 해 놓았다. Table1에 소개 된 많은 에피소드들 속에서  credit event를 통해 부채 해소가 얼마나 됐는지를 알기는 어렵다. (because opaque nature of default)

…

이 자료들을 볼 때 지금 현재 상황의 debt을 타계하기 위해 explicit restructuring 같은 장치 없이 지금의 부채를 감당하기는 어려워 보인다.

5.     The Return of financial repression

Lesson 4 : On international financial architecture after global crises – the return of financial repression.

그림 7은 금융위기 이후의 이벤트 들을 나타낸다. 일반적으로 현재 단계는 capital controls, financial repression, inflation, and default를 섞은 적절한 정책으로 끝이 난다. 이번 턴은 (시계추가 왔다 갔다 하는 것에 비유.. 금융쪽이 liberalization <-> heavy-handed regulation)  더욱 강한 규제의 차례이다.

6.     Final Thoughts

물론, 정책 입안자들이 운이 좋다면 경제 성장이 restructuring, repression, or inflation 없이 지금 현재 악조건을 벗어날 수 있는 탈출구 역할을 하게 될 수도 있다. 그러나 debt overhang 에 대한 현재는 그러기에 힘들어 보인다. 지금 정책 담당자들이 지금 현재 수준의 debt 을 바탕으로는 growth 만으로 이 위기를 벗어나기 힘들어 보이니 신경 좀 써야 할 것이다. 

Failing elites threaten our future

http://www.ft.com/intl/cms/s/0/cfc1eb1c-76d8-11e3-807e-00144feabdc0.html?siteedition=intl#axzz2qS9A7PiD

2014.01.16 by Martin Wolf

In 2014, Europeans commemorate the 100th anniversary of the start of the first world war. This calamity launched three decades of savagery and stupidity, destroying most of what was good in the European civilisation of the beginning of the 20th century. In the end, as Churchill foretold in June 1940, “the New World, with all its power and might”, had to step “forth to the rescue and the liberation of the old”

2014년은 유럽인들에게 있어서 세계 1차 대전이 발발 한지 100년째 되는 해이다. 이 재앙은 약 30여 년간의 savagery and stupidity를 불러 왔고 20세기 초 유럽의 문명 대부분을 파괴 하였다. 1940년 6월 마침내 처칠은 …

The failures of Europe’s political, economic and intellectual elites created the disaster that befell their peoples between 1914 and 1945. It was their ignorance and prejudices that allowed catastrophe: false ideas and bad values were at work. These included the atavistic belief, not just that empires were magnificent and profitable, but that war was glorious and controllable. It was as if a will to collective suicide seized the leaders of great nations.

유럽의 정치 경제 그리고 지식 상류층의 실패는 1914~1945년 동안 그들의 국민들에게 커다란 재앙을 불러 왔다. 대재앙을 불러온 건 그들의 무지와 편견 이었다. 이것들은 제국의 번영과 영광 에 대한 잘못된 신념 뿐 아니라 뿐 아니라 인간 본성의 신념을 포함한다.

Third, in creating the euro, the Europeans took their project beyond the practical into something far more important to people: the fate of their money. Nothing was more likely than frictions among Europeans over how their money was being managed or mismanaged. The probably inevitable financial crisis has now spawned a host of still unresolved difficulties. The economic difficulties of crisis-hit economies are evident: huge recessions, extraordinarily high unemployment, mass emigration and heavy debt overhangs. This is all well known. Yet it is the constitutional disorder of the eurozone that is least emphasised. Within the eurozone, power is now concentrated in the hands of the governments of the creditor countries, principally Germany, and a trio of unelected bureaucracies – the European Commission, the European Central Bank and the International Monetary Fund. The peoples of adversely affected countries have no influence upon them. The politicians who are accountable to them are powerless. This divorce between accountability and power strikes at the heart of any notion of democratic governance. The eurozone crisis is not just economic. It is also constitutional.

세번째로 유로를 만드는 과정에 유럽인들은 사람들에게 더 중요한 실질적 측면 보다는 통합 그 자체에 집중했었다. 유럽인들에게 그들이 어떻게 돈을 manage해야 하는지는 마찰만 남아 버렸다. 아마 피할 수 없었을 금융 위기는 여전히 풀리지 않은 어려운 미해결 문제만 남겨 놓았다. 위기에 직면한 국가의 경제적 어려움은 명확하다. 거대한 침체, 실업률 그리고 많은 이민과 커다란 부채 문제. 이것들은 이미 잘 알려진 것이다. 그러나 아직 덜 부각된 구조적 문제가 유로존 에는 존재한다.. 유로존 안에서의 힘은 독일과 같은 채권국과 비선출직 관료인 세 개의 큰 기관에 쏠리게 되었다는 점이다. (European Commission, The ECB and IMF) 불리하게 영향 받는 국가의 사람들은 위의 기관에 영향력이 없다. 그것에 책임이 있는 정치인들도 힘이 없다. 의무와 파워의 단절은 민주주의 통치 방식에 의구심을 갖게 했다. 유로존의 문제는 단지 경제의 문제가 아니다.  It is also constitutional

<Comment>

같은 이야기 일지라도, 변하기 쉽지 않을지라도 지식인들은 이렇게 계속해서 반복하기를 해줘야 하는게 아닌가 싶다.

<단어>

calamity : 재앙

befell : 안좋은 일이 닥치다

atavistic : 인간 본성의

magnificent : 감명깊은, 훌륭한

despotism : 폭정

bequeath [bɪ|kwi:ð] : 물려주다, 유증하다

lethal : 치명적인

breakdown were disastrous : 실패가 처참했다.

sacrifice : 희생하다

friction : 마찰

disorder : 엉망

20140115

1.  Lower income groups say the party has policies that improve their standard of living.

2. They are heading to their local city hall to show their support for the government.

3. The current wave of protest was triggered by an amnesty bill, proposed by current government that could have opened the way for his return.

Time to think more about Sarajevo, less about Munich

http://www.ft.com/intl/cms/s/0/37adb544-749a-11e3-9125-00144feabdc0.html?siteedition=intl#axzz2pfxBWO6N

2014.01.07 By Gideon Rachman

Sino-Japanese relations are poisoned by bitter memories of the previous wars, just as relations between France and Germany, a century ago, were embittered by memories of the Franco-Prussian war of 1870-71. In 1914, the established hegemon, the UK, was pulled into the war because of its rivalry with a rising Germany and its alliances with France and Russia. Today, the obvious danger is that the US, worried by the rise of China, will be pulled into an Asian conflict by its alliance with Japan.

In 1914, national leaders were so keen to appear strong and to protect their honour (or “credibility” as they would call it nowadays), that they were unable to step back from the brink of conflict. Reflection on the Sarajevo crisis might just prevent today’s leaders from falling into the same trap, if Sino-Japanese tensions heighten again. But, unfortunately, many of today’s political players still approach their rivalries with a Munich mindset. Neither Japan nor China is prepared to look “weak” by backing off in the East China Sea. The US is also worried that its “credibility” will be damaged, if it fails to show toughness. A prominent official in the Obama administration explained to me last year that – while he understood Chinese objections to US naval patrols near China’s coast – America could not cut back these patrols because that would be seen as weakness.

This is the kind of playground logic that four-year-old children are encouraged to grow out of. But, unfortunately, it still seems to be the dominant mode of thinking in international affairs.

The Munich mindset is so entrenched that a real intellectual shift would be required to change it. The many commemorations of the first world war that will take place this year might just serve that purpose, by influencing world leaders to take a less dangerously macho approach to their rivalries. With tensions rising in East Asia and conflict spreading in the Middle East, the 100th anniversary of the Great War comes at an important time. Let’s hope it does some good.

<단어>

goldbug : 금본위제 지지자

rampage : (파괴 등을 저지르며 벌이는) 광란

embitter : (오랜 시간 동안) 원통하게 만들다

keen : ~을 열망하는

entrench : (변경이 어렵도록)단단히 자리 잡게 하다

2013 3Q 주식시장 유입량

http://www.bloomberg.com/news/2014-01-05/stick-with-south-korea-in-2014.html

Investors have flocked to South Korean stocks recently. From July through late December, $14.4 billion flowed in, reversing the $8.2 billion that left in the first six months of 2013. South Korean equities aren’t cheap, trading at 16.8 times earnings over the last 12 months, but foreigners want to invest in the country’s companies, especially in the technology, retail and automobile sectors.