Glatt kosher investments in the stock market?

This discussion will revolve around the following; money, stock market and loopholes in the Halacha.
What could be more exciting than this?
I came upon this gem while searching for some info on the Israeli derivatives market on my Bloomberg terminal. Problems areas to be discussed are highlighted.

Moreshet's Fund Follows Jewish Law to Outperform Israeli Market 2007-05-21 19:28 (New York)By Tal Barak May 22 (Bloomberg) -- Yaacov Moreshet's Shoam Gmisha fund,one of Israel's best performers last year, follows the dictates of Jewish law. Those rules are flexible enough to let him profit from potential gains in every stock in Israel.Moreshet, 43, runs Hilat Shoam Ltd., the biggest Israeli investment company offering mutual funds that strictly followHalakha: Jewish laws covering everything from diet to lending. Hecan't directly buy shares of companies open on the Sabbath, for instance.What he can do is buy options on the performance of Israel's principal stock indexes. Those bets, plus direct investments incompanies deemed compliant with Jewish law, helped his $35million Shoam Flexible fund become Israel's fifth-best-performing flexible fund in 2006 with a return of 23 percent, according toMeitav Investments & Securities Ltd. That is almost double the return of the benchmark TA-25 Index.``I buy the movement of the shares, I'm not its owner,'' Moreshet, who manages the equivalent of $328 million in threefunds, said in his office in Ramat Gan, Israel. ``The reason Istarted this company was based on a religion and ideology thatthere's a need for values in business.''Shoam Gmisha's performance has slowed in recent months,returning 30 percent in the past year while the TA-25 Index hasreturned 25 percent. It is lagging behind in 2007, posting a 12percent gain this year, less than the 20 percent return of thebenchmark index. A flexible fund lets managers choose how much toallocate to local and foreign stocks and bonds.

A Detour?
About 70 percent of Moreshet's assets are in options on the biggest Israeli gauges, including the TA-25 index, the Tel AvivFinancial Measure and the TA-75 Index. He can thus profit fromthe rise of such companies as Israel Chemicals Ltd., which operates on the Sabbath, the period of rest that starts Friday after sundown and lasts until sunset on Saturday. IsraelChemicals stock has risen 30 percent this year.Moreshet is ``using a procedure of a detour,'' said YairElek, who manages the equivalent of $35.3 million at AxiomaInvestment Management Ltd. in Tel Aviv. ``From the point of viewof the Halakha, this is fine, but essentially he still enjoys thegains of these companies.''Moreshet said he sees no contradiction in his investments in an index that includes a company that doesn't follow Halakha,since the fund does not actually own the shares.``I don't have an influence on the company's decisions, so there isn't a Halakha problem here,'' he said.

Rabbinical Guidance
Moreshet works under the guidance of 97-year-old Rabbi Yosef Shalom Elyashiv, whose rulings on Jewish law and practices arewidely followed among the most religiously observant Jews.Halakha is based on religious laws whose origins appear in the Bible and in other early texts such as the Talmud.Elyashiv is one of the most influential leaders of theOrthodox community, said Menachem Friedman, a professor of sociology and anthropology at Bar-Ilan University in Ramat Gan.Rabbi Arie Dvir, another leader in the Orthodox community,is the director of the Hilat Shoam and represents Elyashiv inorder to interpret Jewish law on a day-to-day basis.Among Moreshet's direct investments are companies headed by a religious collective settlement. Albaad Massuot Yitzhak Ltd.,for instance, which is run by Itzik Ben Hanan and makes wet wipesunder the brand name Fresh Ones. Shares of Massuot Yitzhak,Israel-based Albaad have gained 18 percent this year.
Interest Laws
Moreshet also invests in Clal Insurance Enterprise Holdings Ltd., Israel's biggest insurer by premiums, which has added 26 percent since the start of the year, and Bank Hapoalim Ltd.,Israel's largest lender, which has gained 17 percent.Moreshet meets with representatives of each Israeli company that he plans to invest in to make sure they follow Halakha.Financial institutions need a religious endorsement of their lending practices. According to Jewish law, interest can't becharged on any kind of transaction. All banks and insurance companies in Israel are approved by various rabbinical courtsunder these guidelines.Moreshet also has other considerations in mind when choosing investments, such as having the option to change his position in the market in an hour.``The most important thing for me is liquidity,'' he said.``If there is a dramatic event such as soldiers being kidnapped,I want to know that I can immediately change my position in the market.''
Wartime Selling
On July 12, 2006, the Shiite extremist Hezbollah group attacked an Israeli army unit on the border between Israel and Lebanon and captured two soldiers. The TA-25 slumped 4.2 percenton that day -- after Moreshet had sold most of his shares in less than an hour.Because he invests in indexes, Moreshet's fund can profit from the rise in shares of companies deemed non-compliant, such as Israel Chemicals, which harvests minerals from the Dead Sea to make fertilizers.It has a 9.5 percent weighting in the TA-25, the largest along with Teva Pharmaceutical Industries Ltd.Over the past five years, the Shoam Gmisha fund has outperformed the TA-25. It has returned 127 percent since 2002,compared with the benchmark index's 99 percent advance.Moreshet also operates a Halakha bond and a dollar fund. The three funds received the highest rating of three diamonds byMaalot The Israel Securities Rating Co., which is affiliated with Standard & Poor's. Outside Israel Moreshet, who is married with three children, graduated witha bachelor's degree in economics and accounting and a master's in business administration from Bar-Ilan University. He previouslywas head of provident funds, long-term investment plans thatprovide tax benefits, at Clal Finance Batucha InvestmentManagement Ltd. and was the deputy director of financial planning at the Transportation Ministry.Moreshet said about 8 percent of his fund is invested abroad, mainly in indexes in China, Russia and South America. He has to make sure the person who heads the foreign company he is considering investing in isn't Jewish and therefore isn't subject to the restrictions of Jewish law.The company has doubled its assets each year for the past five years, except in 2006 when they tripled. Moreshet says he issure investors are drawn in part to the fund's religious affiliation.``Most people believe there is a God and they like tradition,'' he said. ``They want to be able to get a day ofrest. Otherwise we all go back 2,000 years to the epoch of slavery.'' --Editor: Taylor (aes)Story illustration: Enter {TA-25 MOV } for a chartof the share movements for members of the Tel Aviv StockExchange's benchmark index. To contact the reporter on this story:Tal Barak in Tel Aviv at +972-3-754-1151 ortbarak@bloomberg.net --------------------------------------------------------------------------------------------- Here are the basic transgressions you might be committing by buying a single stock in a company. (From Shulchan Aruch)
From JLaw-Stockmarket
from Orach Chaim - Shabbat prohibitions such as profiting from one's business, employing Jews and working animals; possessing leaven during Passover,from Yoreh De'ah - benefiting from a mixture of milk and meat, from avoda zara, and from orla; lending and borrowing at interest, doing business in forbidden foodstuffs; from Even Ha-Ezer - being a partner in licentious activities;from Choshen Mishpat - being a partner in robbery, withholding of wages, or commission of damages. Mr Moreshet refers to the following loopholes when he is referring to the fact that he does not hold ownership in these companies which are melacha Shabbat.
JLaw-Stockmarket
B. SHABBAT There are numerous prohibitions which relate to running a business on Shabbat. Two of them, working one's slave or beast, are of Torah origin and are dependent on ownership. Practically, the problem is limited to animals, since few-publicly owned corporations own slaves (though it may be that the definition of slave or servant for the purposes of Shabbat is broader than for other laws; see Rambam Shabbat 20:14). It is advisable not to hold stock of a corporation which owns animals that labor on Shabbat.The other restrictions, relating to the ban on directing others to do one's labor on Shabbat or even having them do so without orders, are of rabbinic origin and relate primarily to direct control. According to R. Feinstein (Igrot Moshe OC Vol. IV, 54), control is in the hands of management; the management resembles a sharecropper or contractor who acts on his own initiative, and not a hired worker. Therefore, a Jew may hold even a majority interest in a corporation which does business on Shabbat, provided that the controlling management is predominantly non-Jewish. (Minchat Yitzchak Vol. III, 1 rules likewise). In the case where the Jew is the primary owner, his ownership should, for appearances' sake, not be publicly known.If the management is primarily Jewish, severe problems arise, since it is still prohibited to have a Jew work on Shabbat even on his own initiative. Several authorities have permitted, in case of great need, a partnership with a Jew who would have worked on Shabbat regardless, if a condition is made that the business belongs to the shomer-Shabbat partner only on weekdays (Igrot Moshe OC Vol. IV, 55, Chelkat Ya'akov Vol. II, 54, Tzitz Eliezer OC Vol. II, 65); perhaps the company management, who are the representatives of the shareholders, are empowered to authorize such a condition with an individual shareholder.If the company's business cannot be conducted without Shabbat operations, this resembles the case of having the market day on Shabbat, and it is difficult to be lenient (see Shulchan Arukh OC 307:4 and Mishna Berura 15, Sha'ar Ha-tziun 15). This presumably refers to a case where business is impracticable, and not merely unprofitable, on weekdays only. ----------------------------------------------------------------------------------
I seriously have a problem with his detour method. He is indirectly reaping gains from companies who are mechalel Shabbat and which are represented on the index. I have never heard of any true frum Jews who indirectly reap gains from from a mixture of milk and meat, or from Avodah Zarah, or from orla; lending and borrowing at interest, from businessess in forbidden foodstuffs or from robberies. Have you? Would you invest in this fund? I wouldn't. I am also dying to know if this Halacha bond of his needs a heter iska. Obviously at the time of the transaction it is obvious who the creditor and debitor are.
JLaw-Halacha of Ribis
E. State of Israel BondsOne of the most popular and efficacious means of financing the State of Israel's burgeoning needs is the sale of bonds. Is a Heter Iska required for every transaction? Rav Pinchas Teitz, writing in Hapardes some 30 years ago, rationalizes the practice of selling Israeli bonds without a Heter Iska on the basis that Ribis implies a known creditor and debtor. Here, however, one cannot identify the individuals backing the bonds. Nor at the time of the transaction does the lender know the debtor's identity. Furthermore, it could be argued that all bonds are sold through a broker, invoking Rashi's opinion that is not prohibited. He also raises the corporate status of the Jewish State, the fact that the Ribis involved in each bond is less than a Perutah (the halachic equivalent of a penny) per citizen of Israel, and interestingly enough, the argument that Arabs are also issuers of Israeli bonds, thus involving a non-Jewish partner in the transaction. However, a respondent in the periodical Hamaor (Jubilee Volume) strongly disputes Rav Teitz's assertion and requires a Heter Iska for bonds.
The questions are:
1) Would you invest in this fund?
2) If, not, why not?
3) Are you comfortable with his detour method? If, yes, would you be comfortable with earning indirect gains from other prohibited activies listed in the Shulhan Aruch?
3) Do you think his halacha bond needs a heter iska? Crossposted at:Dov Bear and my blog Rebelwithacause

Allright, party people!

I have not posted anything on my blog this week cause I took a break for a week. Starting Monday 08.24.2007 I will be executing around 100 trades per week. That of course electronically. I will pick out a dozen examples from those trades and post them on here on a weekly basis.
Hope you guys have a great weekend. :-)

Wrap up for week 13-17 August

No trades were executed since the volatilities were still within the higher percentiles.

Watery eyes?

Is it me or does Bernanke have watery eyes?

Bernanke, Trichet Urged by Markets to Do Rates U-Turn (Update1)

Where is gold going?

The question is:

Why is noone buying up gold?

And for the best answer, the price goes to Ron Goodis:

``In times of a liquidity crunch, people want cash, and that's Treasuries, not speculative stuff like gold,'' said Ron Goodis, who has been trading gold since 1978 and is director of futures trading at Equidex Brokerage Group in Closter, New Jersey.

Yay!!!! Ron Goodis for President! The rest of the article below.


Gold Lags Treasuries as Dollar Fails to Ignite Rally (Update1)
By Pham-Duy Nguyen and Saijel Kishan

Aug. 13 (Bloomberg) -- Gold is going nowhere.

Dollar-priced bullion, a traditional haven for investors in times of turmoil, is lagging behind U.S. Treasuries. The metal is stuck at about $670 an ounce in London, up less than 1 percent since July 16, when stocks started to tumble.

It should be the best of times for investors in the metal. The dollar has weakened 3.4 percent against the euro this year. The Federal Reserve says inflation remains the ``predominant risk'' to the economy. Commodity prices, as measured by the UBS Bloomberg CMCI index, are heading for a sixth straight annual gain. The supply of gold is falling for the third time in four years, and global stock investors lost as much as $2.66 trillion in the most volatile trading since 2003.

``It's a mystery,'' said Peter Schiff, chief executive officer of Darien, Connecticut-based brokerage Euro Pacific Capital, with $700 million in customer accounts. ``These are ideal conditions for gold. The fact that gold hasn't risen means there's a lot of complacency out there. People aren't panicked yet.''

Gold analysts are retreating. New York-based Citigroup Inc., the biggest U.S. bank, cut its 2007 forecast to $679 on average from $700. John Reade, the analyst at Zurich-based UBS AG who predicted last year that gold may approach its 1980 record of $850, now forecasts $670. Gold fell $2.55, or 0.4 percent, to $670.25 an ounce at 11:47 a.m. in London, for a gain of 5.3 percent since Dec. 31.

Central Banks Sell

Investors' optimism is waning because central banks in Europe have increased sales of reserves this year by 7.3 percent, or 24.5 more tons valued at $581 million, data from the London-based World Gold Council show. The world's central banks are the biggest holders of gold, controlling about a fifth of all known supplies.

The European banks have sold 358 metric tons of the 500 tons permitted annually, compared with 333.5 tons through Aug. 11 last year, the council said. Banco de Espana has sold 149 tons in the current year, more than double the sales in the previous two, says London-based research firm GFMS Ltd.

``It certainly has been a source of frustration for gold investors,'' Sean Boyd, chief executive officer of Canadian gold producer Agnico-Eagle Mines Ltd., said on Aug. 3. ``We've had some well-timed central bank sales that kept us away from the magic $700 number earlier this year.''

Less Bullish

Hedge-fund managers and other large speculators have pared bullish bets. Speculative long positions, or wagers prices will rise, dropped 34 percent in the week ended July 31, the most in two years, based on holdings of New York gold-futures contracts tracked by the U.S. Commodity Futures Trading Commission.

Rising global interest rates have made holding gold less attractive for foreign investors. While the Fed has kept rates unchanged at 5.25 percent since June 2006, the European Central Bank has raised rates twice this year to 4 percent and the Bank of England made four increases to 5.75 percent. Gold priced in euros is up 3 percent this year.

Gold investors say the last time they saw as many reasons to buy was in the 1970s, after Iran cut oil supplies, U.S. inflation rose to 12.8 percent, the Standard & Poor's 500 Index fell to a 12-year low and the economy sank into recession. Gold reached its record high of $850 an ounce on Jan. 21, 1980.

The top reason investors buy gold is to hedge against falling U.S. assets, said Martin Murenbeeld, chief economist at DundeeWealth Inc. in Toronto. The firm manages $27 billion in mutual funds.

Supplies Decline

Gold jumped 23 percent last year, the sixth straight annual gain, as the dollar fell 11 percent against the euro. The dollar is down against all 16 of the world's most-traded currencies in the past six months, according to data compiled by Bloomberg.

Falling gold supplies are another motive to buy, says Agnico-Eagle's Boyd, who sees prices reaching $850 in 18 months. Output from mines, recycled metal and sales by central banks and speculators fell 2 percent in the first quarter to 808 tons from a year earlier and declined 22 percent from the first quarter of 2005, according to the London-based World Gold Council.

Still, investors haven't turned to gold as an alternative asset as stocks declined the past four weeks.

The S&P 500 has fallen 6.2 percent since July 16, including a 3 percent drop on Aug. 9, as concern mounted that losses in U.S. subprime mortgages may hurt economic growth and earnings. Central banks in the U.S., Europe, Japan, Australia and Canada added about $136 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets.

Treasuries Rise

``All these credit problems and bailouts are inflationary and creating dollars,'' Euro Pacific Capital's Schiff said. ``I'm expecting an explosive move for gold any day now.''

Yet as stocks fell, the return on 10-year Treasuries since July 16 was 1.5 percent, outpacing gold, according to data compiled by Merrill Lynch & Co. The bonds, which carry the highest debt rating and are backed by the government, provide a fixed return. Gold doesn't.

``In times of a liquidity crunch, people want cash, and that's Treasuries, not speculative stuff like gold,'' said Ron Goodis, who has been trading gold since 1978 and is director of futures trading at Equidex Brokerage Group in Closter, New Jersey.

Inflation isn't as much of a basis for buying gold now, said Eugen Weinberg, senior commodities analyst at Commerzbank AG in Frankfurt.

``If we see inflation rates rising to 5 percent and beyond, there will be a case to buy gold, but we are not there yet,'' Weinberg said.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net ; Saijel Kishan in London at skishan@bloomberg.net

Last Updated: August 13, 2007 07:28 EDT

Outlook for week August 13-17

-Volatilities are still in the higher percentiles.

Biggies are:

-Retails sales-13.08
-PPI-14.08
-CPI-14.08
-Industrial Production and Capacity Utilization-15.08
-Housing data-16.08

-No position on equity options rolling into this week.

Possible plays:

-Scalps on ETF or Index options

-Equity option spreads

EDITED: I have asked someone to post this one for me and I am not sure what he did but he combined an old draft with some stuff I wrote last week. So this post has been updated for the econ biggies.

Yeah, just deny it so investors won't be scared LOL

There is a guy on Bloomberg now and he just denied that his company is invested in anything that might be affected by the subprime crisis. Great strat, just deny it all so the investors won't pull out their money. Hahahaha!

Subprime `Tsunami' Hits Asset-Backed Commercial Paper Market

This was foreseeable....

By Mark Pittman and Elizabeth Stanton Aug. 8 (Bloomberg) -- Companies are extending payments on commercial paper backed by home loans for the first time as thesubprime mortgage crisis spreads to debt perceived to be amongthe safest in the market, according to Moody's Investors Service. Units of American Home Mortgage Investment Corp., theresidential-mortgage lender that filed for bankruptcy, Luminent Mortgage Capital Inc., facing margin calls from lenders, and Aladdin Capital Management LLC, this week exercised an optionallowing them to delay repaying the debt, Moody's said.
The three issuers are probably the only ones to deferpayments since extendible asset-backed commercial paper was firstsold 12 years ago, according to New York-based Moody's. Thefailure of some companies to pay on time has cast a pall over thesecurities, which are considered to be almost risk free, said LeeEpstein, chief executive officer of Money Market One.
``The subprime tsunami has come to the beach, as it were, tothe safest of the safe,'' Epstein said. Money Market One is a San Francisco-based broker-dealer of short-term securities. Commercial paper is bought by money market funds, mutual funds that invest in short-term debt securities and hold money for everything from individual savings to the coffers of Standard& Poor's 500 companies. The cash from money market accounts islent to entities such as those owned by American Home and Luminent to buy mortgages, bonds, credit card and tradereceivables as well as car loans. Extendible notes allow theissuer to delay repayment for as long as 397 days, the maximumU.S. money market funds may hold.
Higher Rates
Asset-backed commercial paper comprises about half, or $1.15trillion, of the $2.16 trillion in commercial paper outstanding,with extendible notes making up about 15 percent of the asset-backed portion, or about $172.5 billion, according to Moody's. Investors are demanding higher interest rates on so-calledasset-backed commercial paper, extendible or not, than oncommercial paper issued by companies like General Electric Co.and Citigroup Inc. to fund their operations, because of concernabout the value of the collateral. Extendible asset-backed commercial paper yesterday carriedyields of 5.75 percent to 5.95 percent, compared with 5.45percent for asset-backed commercial paper that isn't extendibleand 5.25 percent to 5.30 percent for corporate commercial paper,Epstein said.
``Commercial paper buyers are notoriously risk aversebecause they have such thin margins,'' said Simon Adamson, aLondon-based bank analyst at CreditSights Inc., an independentdebt research firm. Debt markets rebounded today after the Federal Reserve easedconcerns that a slump in credit markets would derail the economy.The perceived risk of owning corporate debt fell to the lowest inmore than a week, based on credit-default swaps, and at least 13companies lined up debt sales.
Luminent, Aladdin
Luminent Star Funding, sponsored by San Francisco-basedLuminent, is a securities program that invested in AAA ratedmortgages. Luminent this week extended its commercial papermaturities and canceled its dividend payments after bankersissued margin calls. The company today said two lenders sent default notices. Luminent Chief Financial Officer Christopher J. Zyda didn't calls seeking comment. Ottimo Funding Ltd., a securities program run by Stamford,Connecticut-based Aladdin, also invested in the highest ratedassets. George Marshman, a co-founder and chief investment officer of Aladdin, declined to comment. American Home Mortgage's Broadhollow Funding LLC extendedmaturities on commercial paper after being unable to roll over$150 million of the debt, Moody's said. The program can beextended by 120 days, Moody's said.
`Extraordinary'
Melville, New York-based American Home's secured liquiditynote program may be cut by Moody's from its top rating of Prime-1. Broadhollow had $138 million of subordinated notes cut to Ba1,the highest speculative grade, from Baa2. The notes remain onwatch for further downgrade. The change followed American Home'sfiling for bankruptcy on Aug. 6. American Home spokeswoman Mary M. Feder didn't return a call seeking comment. ``To my knowledge, there have been no extension events''until this week, said Everett Rutan, a senior vice president atMoody's Investors Service. ``What's happened recently has been extraordinary.''--With reporting by Joseph DiStefano in New York. Editor: MoodyTo contact the reporter on this story:Mark Pittman in New York at +1-212-617-3767 ormpittman@bloomberg.net;Elizabeth Stanton in New York at 1-212-617-5937 orestanton@bloomberg.netTo contact the editor responsible for this story:Emma Moody at +1-212-617-3504 or emoody@bloomberg.net.

Fire spreads!

By Gavin Serkin and Gavin Finch Aug. 9 (Bloomberg) -- The British Bankers Association said the overnight lending rate that banks charge each other toborrow in dollars rose to 5.86 percent today from 5.35 percent. The so-called London interbank offered rate in dollars isthe highest since the start of 2001. The benchmark borrowing rate is rising on concern banksface growing losses on investments linked to U.S. mortgages. The European Central Bank said today it is ``closely monitoring thesituation and stands ready to act to assure orderly conditionsin the euro money market.'' ``Liquidity in the market has completely dried up asinvestors aren't recycling their money back because of subprimeconcerns,'' said Saher Bin Jung, a trader on the commercial paper desk at Commerzbank AG. ``Levels have shot up dramaticallysince yesterday as issuers are trying to entice investorsback.'' BNP Paribas SA, France's biggest bank, today halted withdrawals from three investment funds because it couldn't``fairly'' value their holdings on concern about subprimemortgage losses. The ECB in Frankfurt said in its statement today that``there are tensions in the euro money market notwithstandingthe normal supply of aggregate euro liquidity.'' Three-month dollar Libor increased to 5.5 percent from 5.38percent.--Editor: Barrett

Chinese government goes bezerk on the eve of subprime crisis

I got this as an email from a fellow trader:

China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard

LastUpdated: 6:00pm BST 07/08/2007 (Telegrahp.co.uk)The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of UStreasuries if Washington imposes trade sanctions to force a yuan revaluation.Two officials at leading Communist Party bodies have given interviews in recentdays warning - for the first time - that Beijing may use its $1.33 trillion(GBP658bn) of foreign reserves as a political weapon to counter pressure from theUS Congress. Shifts in Chinese policy are often announced through key thinktanks and academies.Described as China's "nuclear option" in the state media, such action couldtrigger a dollar crash at a time when the US currency is already breaking downthrough historic support levels.It would also cause a spike in US bond yields, hammering the US housing marketand perhaps tipping the economy into recession. It is estimated that China holdsover $900bn in a mix of US bonds.Xia Bin, finance chief at the Development Research Centre (which has cabinetrank), kicked off what now appears to be government policy with a comment lastweek that Beijing's foreign reserves should be used as a "bargaining chip" intalks with the US."Of course, China doesn't want any undesirable phenomenon in the globalfinancial order," he added.He Fan, an official at the Chinese Academy of Social Sciences, went even furthertoday, letting it be known that Beijing had the power to set off a dollarcollapse if it choose to do so."China has accumulated a large sum of US dollars. Such a big sum, of which aconsiderable portion is in US treasury bonds, contributes a great deal tomaintaining the position of the dollar as a reserve currency. Russia,Switzerland, and several other countries have reduced the their dollar holdings."China is unlikely to follow suit as long as the yuan's exchange rate is stableagainst the dollar. The Chinese central bank will be forced to sell dollars oncethe yuan appreciated dramatically, which might lead to a mass depreciation ofthe dollar," he told China Daily.The threats play into the presidential electoral campaign of Hillary Clinton,who has called for restrictive legislation to prevent America being "heldhostage to economic decicions being made in Beijing, Shanghai, or Tokyo".She said foreign control over 44pc of the US national debt had left Americaacutely vulnerable.Simon Derrick, a currency strategist at the Bank of New York Mellon, said thecomments were a message to the US Senate as Capitol Hill prepares legislationfor the Autumn session."The words are alarming and unambiguous. This carries a clear political threatand could have very serious consequences at a time when the credit markets arealready afraid of contagion from the subprime troubles," he said.A bill drafted by a group of US senators, and backed by the Senate FinanceCommittee, calls for trade tariffs against Chinese goods as retaliation foralleged currency manipulation.The yuan has appreciated 9pc against the dollar over the last two years under acrawling peg but it has failed to halt the rise of China's trade surplus, whichreached $26.9bn in June.Henry Paulson, the US Treasury Secretary, said any such sanctions wouldundermine American authority and "could trigger a global cycle of protectionistlegislation".Mr Paulson is a China expert from his days as head of Goldman Sachs. He hasopted for a softer form of diplomacy, but appeared to win few concession fromBeijing on a unscheduled trip to China last week aimed at calming the waters.

Something is burning, federal banks better bring some water!!!

First Bear Stearns, then this. Federal banks, also on an international level, increase the money supplies.


BNP Paribas Freezes Funds as Loan Losses Roil Markets (Update2)2007-08-09 05:40 (New York) (Adds analyst comment in eighth paragraph, BNP Paribas'sPapiasse in 12th, fund manager in 13th).By Sebastian Boyd Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank,halted withdrawals from three investment funds because itcouldn't ``fairly'' value their holdings after concern over U.S.subprime mortgage losses roiled credit markets. The funds had about 2 billion euros ($2.76 billion) ofassets on July 27, including 700 million euros in subprime loansrated AA or higher. The Paris-based bank said today that it willstop calculating the net asset value for the funds, ParvestDynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia. The bank's announcement sent its shares down as much as 4.5percent, pulled the benchmark European stock index lower by morethan 1 percent, and helped U.S. Treasuries rally for the firsttime in four days. Bonds backed by home loans have lost value aslate loan payments by borrowers with poor credit histories roseto the highest since 2002. ``The complete evaporation of liquidity in certain marketsegments of the U.S. securitization market has made it impossibleto value certain assets fairly regardless of their quality orcredit rating,'' BNP Paribas said in the statement. The French bank joins Bear Stearns Cos. and Union InvestmentManagement GmbH in stopping fund redemptions. Dutch investmentbank NIBC Holding NV said today that it lost at least 137 millioneuros on U.S. subprime investments this year. BNP Paribas shares were down 2.56 euros, or 3 percent, to82.89 euros by 11:38 a.m. in Paris, valuing the bank at 77.6billion euros. The stock is little changed this year. Losing Value Global stock indexes gained over the past three days,lifting the MSCI World Index of shares in developed countries by3.1 percent, as concern over the subprime meltdown eased. Chief Executive Officer Baudouin Prot said the bank'sexposure to U.S. subprime was ``absolutely negligible'' when thecompany reported a 20 percent increase in second-quarter netincome last week. BNP Paribas Investment Partners oversees about356 billion euros. ``On BNP's scale this isn't too significant,'' said Benoitde Broissia, an analyst at Richelieu Finance in Paris. ``It willimpact clients. It's more of an image problem.'' The Hague-based NIBC, which is owned by a group includingJ.C. Flowers & Co., said ``severe instability'' in U.S. creditmarkets reduced the value of its U.S. asset-backed securities. Itexpects ``further mark-to-market losses,'' the company said.
`No Prices'
Union Investment, Germany's third-biggest mutual fundmanager, stopped withdrawals from one of its funds on Aug. 3after investors pulled about 10 percent of the assets. FrankfurtTrust, the mutual fund manager of Germany's BHF-Bank, haltedredemptions from a fund after clients removed 20 percent of theirmoney since the end of July. Two hedge funds run by New York-based Bear Stearns filed forbankruptcy protection in the Cayman Islands on July 31 followingsubprime losses. The New York-based securities firm then blockedinvestors from withdrawing money from a third fund. ``For some of the securities there are just no prices,''Alain Papiasse, head of BNP Paribas's asset management andservices division, said in an interview. ``As there are noprices, we can't calculate the value of the funds.'' Blocking investors from withdrawals ``was a very gooddecision because it avoids huge redemptions,'' said Jean-EdouardReymond, who helps manage $63 billion at Union Bancaire GestionInstitutionelle SA in Paris. ``If they had had redemptions theywould have been obliged to sell the securities they might have intheir portfolio at very cheap market prices.'' Reymond doesn't hold any BNP Paribas stock, he said. The ABS Euribor fund's assets dropped 18 percent to 850million euros between July 24 and Aug. 7, according to datacompiled by Bloomberg. The ABS Eonia fund's total assets dropped7 percent to 73 million euros over the same period.--With reporting by Hortense Bioy in London. Editor: Connelly(rlh)To contact the reporter on this story:Sebastian Boyd in London at +44-20-7673-2075sboyd9@bloomberg.netTo contact the editor responsible for this story:Adrian Cox at +44-20-7673-2334 or acox2@bloomberg.net

Thursday and Friday wrap up

No trades were executed on Thursday and none will be executed today. The volatility is still in the upper percentile range.

I also see no room for any scalps.

Wrap up for Wednesday

The indices seem to be still in higher percentile range as far as volatility is concerned so no trades were done today.

I also did not see any potential for a scalp trade.

I read the following article today and found it to be interesting.

U.K.'s Subprime Crisis May Be Worse Than U.S.'s: Matthew Lynn
By Matthew Lynn

Aug. 8 (Bloomberg) -- We are now all familiar with the damage that can be done to financial markets by a subprime lending crisis. Global equity markets have taken a battering recently because of concerns about U.S. home mortgages.
So which country is next?
The U.K. has had a property bubble every bit as crazy as the U.S.'s. Valuations were stretched, and lending criteria loosened. And now arrears are starting to rocket, even while the economy remains healthy.
Not only does the U.K. face its own subprime crisis, it could be far worse than in the U.S.
The latest figures on debts and mortgage arrears in the U.K. certainly make grim reading. Households ``are getting into more trouble when it comes to their mortgages,'' London-based consulting firm Capital Economics Ltd. said in a note to investors. ``With higher interest rates yet to have their full effect, mortgage arrears are likely to rise further, while unsecured bad debt might start to rise again too.''
The signs of trouble ahead can be seen in the number of homes now being repossessed because their owners can't keep up the payments. According to the Council of Mortgage Lenders, lenders foreclosed on 14,000 properties in the first six months of the year, 30 percent more than in the year-earlier period. That reflected ``the impact of an increasing amount of subprime lending within the overall market,'' the council said in a statement on the figures.
Britons in Debt
Arrears aren't in great shape either. An estimated 125,100 households are behind with their mortgage payments, about 1 percent of the total, according to the council. Home owners behind with the payments will have their homes repossessed a few months down the line, unless their finances improve.
The wider picture of indebtedness isn't much more comforting. The British are deeper in the red than any other major economy. According to data from the National Institute of Economic and Social Research in London, the ratio of household debt to personal income is 1.62 in the U.K., compared with 1.42 in the U.S., 1.36 in Japan and 1.09 in Germany.
The U.K. is now facing a subprime crisis on a similar scale to the U.S. As anyone who has taken out a mortgage in Britain will know, banks shovel out money without asking many questions. A review by the U.K.'s Financial Services Authority last month criticized reckless lending in the subprime sector, which has, it said, ``resulted in the approval of potentially unaffordable mortgages.''
No Proof of Income
The British market doesn't fall neatly into ``prime'' and ``subprime'' categories. Most of the mainstream lenders offer so- called self-certified mortgages, which require no proof of income. Plenty of prime borrowers -- meaning people who haven't defaulted on a loan yet -- are likely to take out mortgages that will be hard to make the payments on.
The U.K. subprime crisis may be a lot nastier than the U.S one. Here's why.
First, despite the mounting evidence that people can't afford them, house prices continue to soar. The National Housing Federation predicted this week that British house prices will rise 40 percent in the next five years, taking the average value of a home to 302,400 pounds ($618,000) by 2012.
The average British home already costs 11 times the average local salary, and that figure continues to increase. It is driven mainly by the U.K.'s small geographic size, high levels of immigration, and very low levels of house building. People have to live somewhere -- a home, after all, isn't an optional item for most of us.
The net result is that even as payment problems mount, people will carry on taking out bigger mortgages. What choice do they have?
Rate Differences
Next, U.S. interest rates may have reached their peak and could soon fall. In the U.K., that isn't the case. The Bank of England is likely to raise borrowing costs at least once more to 6 percent. If the housing market and general inflation don't show any sign of responding to that treatment, interest rates could go higher still. That won't help borrowers already hard-pressed to make their payments.
There should be two self-correcting mechanisms for fixing a subprime crisis in the housing market. House prices should gently fall, making properties more affordable, and reducing the size of loans. And interest rates should stabilize or fall, making the payments on those loans easier to maintain.
Neither seems to apply in the U.K.
Instead, interest rates are rising and so are house prices. The result is that thousands of families are left in a vulnerable position -- and so are the banks that have lent them money (not to mention the investors who have bought those loans as they have been sold on).
Just Walk Away
While the property market rises, everyone will be safe. If your house is worth more than your mortgage, you will be desperate to hold on to it. If you get into trouble, you can always sell it, repay the loan, and move somewhere cheaper.
Yet, as the U.S. has discovered, if house prices start to fall, that arithmetic changes. If you are in trouble with your mortgage, you can't pay it off by selling. There is little incentive to keep up the payments. Why not just walk away, and hand the keys and the problems over to the mortgage company?
Britain hasn't reached that point yet. But if it does, the mess could be even worse than in the U.S.
To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net .

I love it when pessimissts feed on the negative news. I think it's highly unlikely that UK will go into a subprime crisis.

Pre opening thoughts

The European markets seem to be still on the high end of the volatility percentile.

I doubt that Bernie boy will say something to ruin the mood of the stock market.

I might do some light scalp plays but later in the day.

High drama?

I was about to write this post and blogger asks me if I want to type in Hindu. Wth? Great to know that bloggers has Hindu fonts but I don't think you wanna read this in Hindu.

Anyways, three biggies:

-Lots of volatility in the market although it's this is not usual before announcements of Fed

-Crude falls to 72.06

-Gasoline futures fall, due to no worries in supply.

Trades:

Although the volatilities in ETFs were in the upper percentiles, there was still little room to play so I decided to scalp some QQQQ options.

Entry:Buy 100 ,QQQHV, QQQQ AUG 48 Call at 0.66

Execution stamp: 8/6/2007 3:44:34 PM

Exit: Sell 100 QQQHV, QQQQ AUG 48 Call at 0.73

Execution stamp:8/6/2007 3:57:46 PM

I made 399.68 $ on this little scalp trade. So I have lunch money for tomorrow. lol.

My take on the Fed's announcement:

Bernie boy won't increase rates, he will probably reassure his confidence in the economy.

The funniest thing I heard today:

One guy on CNBC asked: "So who is responsible for the subprime fall out?" The other guy said "Bernanke!".

Right, so we finally have our scapegoat. After all Greenspan is not around, so let's blame Bernie boy, and this is not a problem that developed in a couple of months, the subprime problem has existed since the 1990s and it has been ignored. Sort of the like a troubled child.

Weekly outlook 6-10 August

Instrument:ETF options; QQQQ, SPY, DIA

-Flat

-No spread trades for this week

-No directional plays

-Maybe some scalp plays

Instrument:Gold futures options: 100 oz Gold Futures Options (Underlying ZG-CBOT)
Electronic: OZG (OZGC for calls and OZGP for puts)

-Flat

Instrument:US Equity options:

Might do some spreads on a couple of volatile stocks.


I would like to display my portfolio snapshot (it's in Excel but I think blogger has no function to display Excel tables?) ugh....