The article on short term strength in US Dollar can be accessed by going to
http://seekingalpha.com/article/100590-seeing-short-term-strength-in-the-usd
Sunday, October 26, 2008
access CDS article on www.seekingalpha.com
CDS article got published and can be accessed at
http://seekingalpha.com/article/101457-understanding-credit-default-swaps-a-case-for-regulation
http://seekingalpha.com/article/101457-understanding-credit-default-swaps-a-case-for-regulation
Thursday, October 23, 2008
Credit Default Swaps- the case for regulation
Understanding Credit default Swaps: the case for regulation
Imagine a market where you can trade your perception of someone else’s credit worthiness. Imagine a market where you can encash an insurance policy on an asset gone bad without owning the underlying asset itself. Imagine a market which is larger than the capitalization of New York Stock Exchange and is yet not regulated. Welcome to the world of Credit Default Swaps (CDS).
The Instrument: The Credit Default Swap market is massive, estimated to be in excess of $50 trillion. CDS are derivatives, ie financial contracts without the underpinnings of any actual assets. They are used to bet on the credit worthiness of a loan or debt instrument. The price of the swap moves in line with perception of the borrower’s credit worthiness. A swap seller believes that the borrower’s ability to repay the underlying loan will improve while a swap buyer seeks protection against the possibility of a loan or bond failing. Almost all players in the financial markets are involved in trading CDS be they banks, hedge funds, Insurance companies, mutual funds or pension funds. It is estimated that over 30% of the volumes of CDS markets would be on account of hedge funds. CDS were initially devised as a means of hedging loan default risk by banks in USA. Since then they have grown to cover bonds, corporate loans, CDOs (collateralized debt obligations), auto loans, junk bonds, credit card delinquencies and all sorts of debt securities. CDS can be structured on individual company debt or can be based on baskets of mix of securities or baskets of similar securities with varying risk profiles.
It is this very flexibility that makes CDS fascinating. The fact that it can be structured as per the requirements of the buyer and the seller and can be customized to cover the risk and offer protection being sought by the buyer makes CDS a prudent risk management tool.
Driven by global liquidity: However, with the massive amounts of liquidity injected into the system by the then Fed Chairman, Alan Greenspan, the advent of 2003 saw a significant decline in defaults on instruments of all sorts. The premium earned by hedge funds, who were a significant seller of CDS instruments, became a near riskless and lucrative source of profits in view of negligible defaults.
Sub-Prime assets: Very soon the path of CDS intersected with a reckless mortgage industry in the USA which was busy fuelling the upward spiraling home prices in the USA by bringing in home buyers with dubious credit history through innovative home loan instruments which created the optical illusion of highly priced homes being affordable to many. Borrowers with dubious credit histories and poor balance sheets got home loans creating the much maligned sub-prime category of loans. Then the ingenuity of human hubris took over and led to the creation of an out of control and spiraling circle of greed which now threatens the very banking system which created it.
Transfer of Risk: In the good old banking days, the home loans a bank made remained on its books and the bank earned a profit on the spread between its cost of funds and the return it got from the borrower. The bank had a vested interest in lending to a credit worthy borrower and vigorously following up with a borrower if he or she showed signs of falling behind in his monthly payments. The CDS market enabled the bank or the lender to transfer the risk of loan default on to a third party which often traded it out further. The CDS seller got a premium while the lender having effectively insured the loan against default risk traded the asset out. They buyer of the loan asset was smug in the belief that while he generated a higher than market return, he was covered for the downside of the borrower defaulting on the loan. If the risk of a borrower defaulting was being transferred out to somebody else, the lender had limited interest in evaluating credit worthiness and following up for timely payment. No one bothered to check whether the counterpart insuring the loan (the CDS seller) had adequate capital to back up his potential liabilities or the amount of gross CDS issued by them. This set the stage for massive defaults when the US housing market started collapsing. CDS were getting called in to be honored and the stage was set for collapse of the insurers who could not meet their liabilities.
Role of rating agencies: While all this was happening it was the rating agencies which in my opinion played one of the most critical roles in exacerbating the crisis. The rating agencies did not somehow see the risk in the real estate markets or did not downgrade the pool of toxic securities in time (or were the risks ignored in the chase of profits: that is a separate topic in itself) or did not see the huge quantum of contingent liabilities being underwritten by their investment grade clients. The net result was that banks all over the globe rushed in to capture the high yields being offered by CDO’s riding on the investment grade ratings. From an investor’s perspective, they were buying into graded securities offering high yields and capturing the spread between their cost of funds and the yield.
Enhancing Risk: The returns could be enhanced by using easily available leverage and the adventurous could further boost their return through effective use of carry trade (borrow in a lost cost currency to buy assets in another high yield currency). To put it in perspective, the underlying risk in assets was being multiplied by exchange risk and leverage risk though theoretically, the risks could be contained through forward contracts and swaps. However, friends in the industry aver that this was a fairly inefficient market where CDS trades were done in a non standardized format and settlements took a long time to close, exposing the participants to significant risks. This was a time bomb in the making.
Absence of Regulation: One of the biggest lacunas of the CDS was the absence of regulation. This enabled literally anyone to participate in the CDS market. There were no capital adequacy requirements which would have acted as brakes on profligate writers of CDS protection. There was an absence of a mechanism which shed light on the total exposure or contingent liability of the firms offering protection against default risks. The pricing in the CDS market was not regulated and quotes were not that easily available to players other than the market participants. Settlements in CDS trades were not following any established pattern approved by the regulators and unsettled trades abounded. When the markets started unraveling, there was a wild rush to the exits and price plummeted. Mark to market regulations ensured that banks had to provision for the fall in the value of the securities. With the Capital cover for the banks getting blown up, the stage was set for the de facto nationalization of banks all over the globe. AIG bailout, Lehman collapse, Bear Stearns blowout, Iceland collapse and governments stepping in guarantee deposits to prevent a global crisis of confidence in banking are symptoms of a severe crisis.
Need for strong regulatory bodies: Bailout packages have ensured that governments all over the globe will end up owning significant chunks in their banks. Hopefully, this will lead to better regulation and a clear set of rules governing the markets. It has been amply proven that in today’s electronic age where massive capital flows happen at the press of the button, all markets are interrelated. The need for strong regulatory bodies with participation from the government, the industry and independent experts has never been more acute. Such regulatory bodies will ensure a systematic growth, better risk management and will hopefully prevent sudden collapses with disastrous consequences.
Atim Kabra (October 22, 2008)
The author runs two private equity funds and can be reached at hiatta5@yahoo.com
Monday, October 20, 2008
commodity prices to go up with a lag
This blog was published first at www.hardnewsmedia.com on October 4th, 2008
Future gazing: Commodity prices to go up again???
One thing is for certain in this uncertain world hereafter… Life will be different for at least the next one year and the world will be in a state of flux as long standing assumptions and bedrocks of stability are overturned by market forces. The chain of events which has been set in motion by the exploding real estate crisis in the USA will have a global impact in many known and in many unknown ways. The pendulum has swung decisively in the direction of fear and it will take some time before the direction is reversed and greed manifests itself once again to complete the cycle of greed and fear.
Inspite of the estimated $700bn that Iraq war was costing the government of USA, the Federal Reserve still had an estimated war chest close to $800bn before the recent unraveling of the American banking system. Vast amount of liquidity was being pumped into the global financial system by continuous issues from the US treasury and the subscribers to these notes were the cash rich governments of China and the Middle East. In effect, USA’s war efforts were being funded by these countries as the Bush administration managed to turn the surpluses of Clinton era into massive deficits which have characterized the Bush era.
We are now faced with a budget deficit in USA of approximately $475bn for 2008 to which will be added the $85bn bail out of AIG, the $200bn bail out of Freddie Mac and Fannie Mae, the October 2nd $700bn bailout package and God knows how many more bailouts which the US government will be forced to engineer. And these numbers do not even include the measures being deployed to ensure that liquidity remain in the system and tightening of credit enhanced by growing counterparty risks do not end up completely drying the availability of credit in the system. It is clear that the treasury is committing more than what it has and printing notes to support the collapsing US government institutions. For the moment the support for dollar comes from the flight to safety which has prompted treasury yields dipping to record lows as growing risk aversion force investors to flee to the relative safety of bills backed by US government guarantee.
However, it is a matter of time as dust settles and investors start adding up the numbers and the numbers just do not add up in support of the US dollar. With the economy tanking and recessionary conditions looming large (assuming we are not already in recession in USA), it is not difficult to imagine that interest rate cuts to revive the economy will be soon on the cards.
While the government will attempt verbal plays to shore up the dollar and prevent a flight out of the dollar, funnily enough a falling US dollar will be a boost to the only bright spot in the US economy, namely the export sector. It is the exports out of USA, aided by a falling dollar, which had kept the manufacturing sector humming over the last year or so inspite of the huge run up in the price of Oil.
A dollar collapse will once again trigger a run up in the prices of commodities, most of which are traded in US dollars and rise in tandem with a fall in US dollar in order to preserve the price to producers in real terms. True, that there is a slowdown in the fast growing economies of China and India which were blamed for an increasing demand for Oil. But the call you have to take is whether the slowdown in China and India and elsewhere would be enough to slowdown the demand for commodities.
The trillion dollar question is whether the demand slowdown resulting from slowing economies will be enough to negate the impact of a falling dollar. Compounding the calculations is the strong multiplier affect which is now exerted by hedge funds which tend to jump in to chase momentum magnify the movements in prices in either directions. Commodity focused hedge funds have had a good year inspite of the battering taken by them over the last few months and are still a force to reckon with. I am sure they are their watching the scenario play out and waiting to pounce on the currency movements. A slowing economy with rising commodity prices may just be the wrong prescription doctor ordered and may lead to a lingering health crisis for the markets in the short run. It will require bravery to bet on a continuing fall in commodity prices in view of the worsening scenario for US dollar. Expect an eventual fall in US dollar to lead to a reversal in falling prices of commodities .
Atim Kabra (hiatta5@yahoo.com)
Future gazing: Commodity prices to go up again???
One thing is for certain in this uncertain world hereafter… Life will be different for at least the next one year and the world will be in a state of flux as long standing assumptions and bedrocks of stability are overturned by market forces. The chain of events which has been set in motion by the exploding real estate crisis in the USA will have a global impact in many known and in many unknown ways. The pendulum has swung decisively in the direction of fear and it will take some time before the direction is reversed and greed manifests itself once again to complete the cycle of greed and fear.
Inspite of the estimated $700bn that Iraq war was costing the government of USA, the Federal Reserve still had an estimated war chest close to $800bn before the recent unraveling of the American banking system. Vast amount of liquidity was being pumped into the global financial system by continuous issues from the US treasury and the subscribers to these notes were the cash rich governments of China and the Middle East. In effect, USA’s war efforts were being funded by these countries as the Bush administration managed to turn the surpluses of Clinton era into massive deficits which have characterized the Bush era.
We are now faced with a budget deficit in USA of approximately $475bn for 2008 to which will be added the $85bn bail out of AIG, the $200bn bail out of Freddie Mac and Fannie Mae, the October 2nd $700bn bailout package and God knows how many more bailouts which the US government will be forced to engineer. And these numbers do not even include the measures being deployed to ensure that liquidity remain in the system and tightening of credit enhanced by growing counterparty risks do not end up completely drying the availability of credit in the system. It is clear that the treasury is committing more than what it has and printing notes to support the collapsing US government institutions. For the moment the support for dollar comes from the flight to safety which has prompted treasury yields dipping to record lows as growing risk aversion force investors to flee to the relative safety of bills backed by US government guarantee.
However, it is a matter of time as dust settles and investors start adding up the numbers and the numbers just do not add up in support of the US dollar. With the economy tanking and recessionary conditions looming large (assuming we are not already in recession in USA), it is not difficult to imagine that interest rate cuts to revive the economy will be soon on the cards.
While the government will attempt verbal plays to shore up the dollar and prevent a flight out of the dollar, funnily enough a falling US dollar will be a boost to the only bright spot in the US economy, namely the export sector. It is the exports out of USA, aided by a falling dollar, which had kept the manufacturing sector humming over the last year or so inspite of the huge run up in the price of Oil.
A dollar collapse will once again trigger a run up in the prices of commodities, most of which are traded in US dollars and rise in tandem with a fall in US dollar in order to preserve the price to producers in real terms. True, that there is a slowdown in the fast growing economies of China and India which were blamed for an increasing demand for Oil. But the call you have to take is whether the slowdown in China and India and elsewhere would be enough to slowdown the demand for commodities.
The trillion dollar question is whether the demand slowdown resulting from slowing economies will be enough to negate the impact of a falling dollar. Compounding the calculations is the strong multiplier affect which is now exerted by hedge funds which tend to jump in to chase momentum magnify the movements in prices in either directions. Commodity focused hedge funds have had a good year inspite of the battering taken by them over the last few months and are still a force to reckon with. I am sure they are their watching the scenario play out and waiting to pounce on the currency movements. A slowing economy with rising commodity prices may just be the wrong prescription doctor ordered and may lead to a lingering health crisis for the markets in the short run. It will require bravery to bet on a continuing fall in commodity prices in view of the worsening scenario for US dollar. Expect an eventual fall in US dollar to lead to a reversal in falling prices of commodities .
Atim Kabra (hiatta5@yahoo.com)
Saturday, October 18, 2008
Strength in US dollar in short term
Future gazing: strength in US dollar in the short term:
In my previous post, I discussed the fundamental underpinnings which would lead to a weakening dollar in the medium term. This is expected to happen though when stability returns to the markets - be they financial, foreign exchange or commodities. Moreover for the dollar to start weakening, clarity on the fate of Euro zone economies is critical. As it stands today, in the short run, US dollar is perceived to be the currency of choice. Interestingly, the dollar is strengthening at a time when it is clear that the fundamentals of the US economy are deteriorating. The very pillars of financial strength and leadership in the areas of politics, high end financial services, manufacturing and R&D which gave the US dollar its underlying strength and resilience are shaky and no longer the sole hegemony of USA. The collapse of the unfettered laissez- faire Capitalistic system has Europeans and Chinese gloating over their version of Capitalism adulterated with Socialism in various degrees. The European Union under the leadership of a rejuvenated France is offering a non confrontational yet nuanced counter vision to the American world view. On the Industrial front, the Chinese are increasingly moving up the ladder of R&D driven manufacturing processes while the Japanese, Taiwanese and the Koreans continue to chip away the American dominance in high tech in their areas of expertise.
Then what is driving the US dollars strength in the short term. It is a combination of the following:
• A transparent & self cleansing US Capitalistic system: The faith in the US system’s inherent ability to cleanse itself at a faster pace than others is reassuring to the investors. It is a process driven to a large extent by transparency of the Financial Institutions now that they are under a scanner. The pace at which the US government has reacted to the crisis and the bipartisan manner in which both the Republicans and the Democrats have rallied around the Treasury’s efforts to find a solution has also worked to soothe investor nerves to an extent. It is reassuring to know that the entire might of the US government is at work trying to ease the crisis though the overwhelming view at this point in time coalesces around a prolonged economic slowdown. . I have been speaking to a whole range of financial players and the investors appear to be more scared of the dangers emanating from opaque holdings of various European banks than the relatively known problems of the Americans. It is no secret that European banks were significant investors in rated bundles of US mortgage securities, smug in the belief that the high yields were seemingly secure by the investment grade stamps provided by the various rating agencies. Now that the ratings have been rendered impotent and the value of the illiquid securities is plummeting with no buyers around, these banks will have to take huge write offs. Barclays, RBS and Lloyds have each sought $26bn to strengthen their balance sheets while almost all European governments have sought to guarantee investors deposits to shore up the faith in the banking system. A flight from Euro in such a scenario works in favour of the Dollar.
• Worsening European Economies: The fast deterioration in the European economies is unnerving investors globally. Sustained interest rate cuts in the Euro zone are on cards in face of the worsening economies thereby dimming the returns on the Euro. The Central banks across the North Atlantic are flooding the system with liquidity, as spooked lenders refuse to lend sparking a severe credit crunch all across. Short term commercial paper is finding no takers shutting off the spigots on a critical short term financing instrument.Britain is facing its own version of the mortgage crisis with the collapse of banks there and the fall in the real estate prices which has started gathering a momentum and pace of its own. Job losses in the financial sector are not confined to New York alone. London which had attracted droves of Investment banking activities and was positioning itself as the new financial center of the world will take some serious amounts of time to recover from the job losses there. Further, the hectic pace of events on the Wall Street and the massive US treasury response has left London reacting to events as a marginal bit player. Consensus seems to emerging on the impending acceleration in slowdown in Germany and France. The failure of Hypo Bank and Fortis and the bailouts in Iceland has unnerved further the already frayed nerves in Europe.
• Unwinding of short dollar trade: According to the foreign exchange traders I spoke to, there are still huge short positions in US dollar. The short dollar trade was a huge success for a long time though the reversal in dollar’s movement did catch a lot of investors by surprise. However, the prevalent belief is that there are still substantial short dollar positions that need to be unwound.
• The collapse of the decoupling theory & few safe currencies: The myth of the so called decoupling of the Western and Eastern economies has been conclusively broken. The belief that somehow the rest of the world will be insulated by the troubles in USA has proven to be more of a hope than substance. The slowdown in the US has already started to impact Singapore where the government is warning of several stressful quarters that lie ahead. China has seen a collapse in the stock markets as well as real estate and a significant slowdown is on the cards there. Hong Kong is impacted by default. The implied slowdown in demand for commodities subsequent to a slowing global economy is reflected in falling commodity prices and as a consequence commodity plays like Australian Dollar have seen a significant fall. Semi Oil and commodity plays like Canadian dollar and Russia have also suffered though the reasons for fall in the rouble are many (Georgian invasion and deleveraging leading to a stock market selloff being significant contributors besides falling oil and commodity prices). India too has been impacted due to expected slowdown in earnings from software exports and FIIs taking over $25bn out of the country over the first six months of the current financial year. The fall in oil has not been able to compensate for deteriorating government finances in India. Japanese exporters too would be impacted by a slowdown in the US and China. The Japanese auto manufacturers have a huge presence in America while Japan was a significant beneficiary of the ongoing demand for Capital goods from China. The troubles and travails of currencies across the world has diminished the problems of the dollar in comparison and a short term flight to safety seems to be on the cards. That said the Yen probably might be better placed than others to withstand this financial tsunami affecting markets, economies and currencies across the world.
The Japanese have been adept at fighting a stagnant economy for over a decade now and their banks have rebuilt their reserves and war chests. Mitsubishi picking up a 20% stake in Morgan Stanley and Nomura buying the Asian and Indian operations of Lehman is a sign of Japanese strength. Another holdout might be Brazil where there have been huge oil finds and the macroeconomic indicators are holding up well with inflation in check and steady GDP growth estimates. Traditional safe heavens like Switzerland too will be seeing inflows in the short run.
The near unison in which almost all asset classes have moved down has been a significant feature of this crisis. Diversification across asset classes has not helped. The unexpected strength in the US dollar has caught many folks on the wrong foot. The swiftness of the crisis marked by forced deleveraging in face of incessant margin calls has seen many diminishing fortunes and a realignment of the pecking order of the global rich is on cards. Whether the US enters into a severe recession and a prolonged economic downturn will eventually determine the fate of the US dollar in the medium to long run. However, in the short term, the travails of rest of the world are helping shore up the US dollar.
Atim Kabra October 7th, 2008
In my previous post, I discussed the fundamental underpinnings which would lead to a weakening dollar in the medium term. This is expected to happen though when stability returns to the markets - be they financial, foreign exchange or commodities. Moreover for the dollar to start weakening, clarity on the fate of Euro zone economies is critical. As it stands today, in the short run, US dollar is perceived to be the currency of choice. Interestingly, the dollar is strengthening at a time when it is clear that the fundamentals of the US economy are deteriorating. The very pillars of financial strength and leadership in the areas of politics, high end financial services, manufacturing and R&D which gave the US dollar its underlying strength and resilience are shaky and no longer the sole hegemony of USA. The collapse of the unfettered laissez- faire Capitalistic system has Europeans and Chinese gloating over their version of Capitalism adulterated with Socialism in various degrees. The European Union under the leadership of a rejuvenated France is offering a non confrontational yet nuanced counter vision to the American world view. On the Industrial front, the Chinese are increasingly moving up the ladder of R&D driven manufacturing processes while the Japanese, Taiwanese and the Koreans continue to chip away the American dominance in high tech in their areas of expertise.
Then what is driving the US dollars strength in the short term. It is a combination of the following:
• A transparent & self cleansing US Capitalistic system: The faith in the US system’s inherent ability to cleanse itself at a faster pace than others is reassuring to the investors. It is a process driven to a large extent by transparency of the Financial Institutions now that they are under a scanner. The pace at which the US government has reacted to the crisis and the bipartisan manner in which both the Republicans and the Democrats have rallied around the Treasury’s efforts to find a solution has also worked to soothe investor nerves to an extent. It is reassuring to know that the entire might of the US government is at work trying to ease the crisis though the overwhelming view at this point in time coalesces around a prolonged economic slowdown. . I have been speaking to a whole range of financial players and the investors appear to be more scared of the dangers emanating from opaque holdings of various European banks than the relatively known problems of the Americans. It is no secret that European banks were significant investors in rated bundles of US mortgage securities, smug in the belief that the high yields were seemingly secure by the investment grade stamps provided by the various rating agencies. Now that the ratings have been rendered impotent and the value of the illiquid securities is plummeting with no buyers around, these banks will have to take huge write offs. Barclays, RBS and Lloyds have each sought $26bn to strengthen their balance sheets while almost all European governments have sought to guarantee investors deposits to shore up the faith in the banking system. A flight from Euro in such a scenario works in favour of the Dollar.
• Worsening European Economies: The fast deterioration in the European economies is unnerving investors globally. Sustained interest rate cuts in the Euro zone are on cards in face of the worsening economies thereby dimming the returns on the Euro. The Central banks across the North Atlantic are flooding the system with liquidity, as spooked lenders refuse to lend sparking a severe credit crunch all across. Short term commercial paper is finding no takers shutting off the spigots on a critical short term financing instrument.Britain is facing its own version of the mortgage crisis with the collapse of banks there and the fall in the real estate prices which has started gathering a momentum and pace of its own. Job losses in the financial sector are not confined to New York alone. London which had attracted droves of Investment banking activities and was positioning itself as the new financial center of the world will take some serious amounts of time to recover from the job losses there. Further, the hectic pace of events on the Wall Street and the massive US treasury response has left London reacting to events as a marginal bit player. Consensus seems to emerging on the impending acceleration in slowdown in Germany and France. The failure of Hypo Bank and Fortis and the bailouts in Iceland has unnerved further the already frayed nerves in Europe.
• Unwinding of short dollar trade: According to the foreign exchange traders I spoke to, there are still huge short positions in US dollar. The short dollar trade was a huge success for a long time though the reversal in dollar’s movement did catch a lot of investors by surprise. However, the prevalent belief is that there are still substantial short dollar positions that need to be unwound.
• The collapse of the decoupling theory & few safe currencies: The myth of the so called decoupling of the Western and Eastern economies has been conclusively broken. The belief that somehow the rest of the world will be insulated by the troubles in USA has proven to be more of a hope than substance. The slowdown in the US has already started to impact Singapore where the government is warning of several stressful quarters that lie ahead. China has seen a collapse in the stock markets as well as real estate and a significant slowdown is on the cards there. Hong Kong is impacted by default. The implied slowdown in demand for commodities subsequent to a slowing global economy is reflected in falling commodity prices and as a consequence commodity plays like Australian Dollar have seen a significant fall. Semi Oil and commodity plays like Canadian dollar and Russia have also suffered though the reasons for fall in the rouble are many (Georgian invasion and deleveraging leading to a stock market selloff being significant contributors besides falling oil and commodity prices). India too has been impacted due to expected slowdown in earnings from software exports and FIIs taking over $25bn out of the country over the first six months of the current financial year. The fall in oil has not been able to compensate for deteriorating government finances in India. Japanese exporters too would be impacted by a slowdown in the US and China. The Japanese auto manufacturers have a huge presence in America while Japan was a significant beneficiary of the ongoing demand for Capital goods from China. The troubles and travails of currencies across the world has diminished the problems of the dollar in comparison and a short term flight to safety seems to be on the cards. That said the Yen probably might be better placed than others to withstand this financial tsunami affecting markets, economies and currencies across the world.
The Japanese have been adept at fighting a stagnant economy for over a decade now and their banks have rebuilt their reserves and war chests. Mitsubishi picking up a 20% stake in Morgan Stanley and Nomura buying the Asian and Indian operations of Lehman is a sign of Japanese strength. Another holdout might be Brazil where there have been huge oil finds and the macroeconomic indicators are holding up well with inflation in check and steady GDP growth estimates. Traditional safe heavens like Switzerland too will be seeing inflows in the short run.
The near unison in which almost all asset classes have moved down has been a significant feature of this crisis. Diversification across asset classes has not helped. The unexpected strength in the US dollar has caught many folks on the wrong foot. The swiftness of the crisis marked by forced deleveraging in face of incessant margin calls has seen many diminishing fortunes and a realignment of the pecking order of the global rich is on cards. Whether the US enters into a severe recession and a prolonged economic downturn will eventually determine the fate of the US dollar in the medium to long run. However, in the short term, the travails of rest of the world are helping shore up the US dollar.
Atim Kabra October 7th, 2008
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