Sun, 25th September 2016

Anirudh Sethi Report


Archives of “Analysis” Category

ALERT- North Korea threatens another nuclear test

North Korea has suggested the possibility of either conducting its sixth nuclear detonation or test-firing a long-range ballistic missile next month.

Addressing the U.N. General Assembly, Foreign Minister Ri Yong Ho on Friday slammed the U.S. and South Korea as “outright aggressive and invasive” for staging two joint military exercises this year. 

 Ri said North Korea “will continue with a policy to strengthen our nuclear capabilities in terms of quantity and quality” to counter U.S.-led sanctions and “threats” against the country.

He called North Korea’s pursuit of nuclear warheads a “self defense” measure.

During his 15-minute speech, he referred to the U.S. 25 times in a manner that suggested North Korea has pitted itself against the U.S. He hammered the point that Pyongyang will continue pursuing its nuclear and missile programs despite sanctions imposed by a large part of the global community.

Pyongyang wants the U.S. to recognize North Korea as a nuclear power. To realize this, the country believes it needs nuclear warheads and missiles that can deliver them to the mainland of the U.S.

China Faces Banking Crisis After $2 Trillion Mountain of Toxic Debt Exposed

An investor checks stock market prices at a securities firm in Fuyang, in eastern China's Anhui provinceAccording to the agency’s Tuesday report, up to 21 percent of China’s loan pool is “non-performing loans,” (NPLs) which means debtors are struggling to make the repayments. At the same time, only 1.8 percent of loans were classified as bad ones by state authorities last June.

Moreover, Beijing’s reliance on credit growth for providing near-term GDP increase could exacerbate existing problems, Fitch stressed, as it “will increase the size of asset-quality problems in the financial system.” “There seems a high likelihood that banks’ NPL ratios will continue rising over the medium term, in light of this discrepancy,” the report stated. “There are already signs of stress, most obviously in the increased frequency with which banks are writing off or offloading loans, such as those to asset-management companies.” As of the late 2015, Chinese debt made up 243 percent of the national GDP with a prospect of reaching 269 percent on a condition of debt continuing to grow. The latest statistical data also revealed that loans will be increasing by 13 percent annually, surpassing the pace of the GDP growth that stands at 6.5 percent as of now.

Liquidation of bad loans would cost China some $2.1 trillion, if the country’s financial sector moved to address the problem immediately, the report assessed. In longer perspective, however, dealing with the growing economic pressure would require the government taking some drastic measures such as writing off debts or expanding repayment terms.

Still, some experts are skeptical about the Fitch’s assessments. Senior economist at Commerzbank’s Singapore Hao Zhou said that the problems of Chinese financial system are caused by the shadow banking sector and aren’t big enough to plunge the economy. “The size [of shadow banking] is about 12 to 15 per cent of the overall banking [industry] and most of the shadow banking assets are related to bonds and cash products, which is seen as a low-risk product,” he said in an interview with City A.M.

Merkel Rules Out Bailout For Deutsche Bank: Depositor Bail-In Coming Up?

The €42 trillion (notional) derivatives mess known as Deutsche Bank remains under severe pressure. Its market cap is $17 billion. It has no earnings and pays no dividend.

On April 23, Deutsche Bank was Fined $2.5 Billion over LIBOR rate rigging. Twenty-one people face criminal charges following a seven-year investigation.

On September 16, the US Department of Justice Fined Deutsche Bank $14B for mortgage securities fraud leading up to the 2007-2009 global meltdown.

Today, German Chancellor Angela Merkel Ruled Out Assistance for Deutsche Bank. 

Chancellor Angela Merkel has ruled out any state assistance for Deutsche Bank AG in the year heading into the national election in September 2017, Focus magazine reported, citing unidentified government officials.

The German leader also declined to step into the Frankfurt-based bank’s legal imbroglio with the U.S. Justice Department, which may seek as much as $14 billion in sanctions against Deutsche Bank’s mortgage-backed securities business, the magazine said. A German government spokesman declined to comment on the report Saturday. A Deutsche Bank spokeswoman also wouldn’t comment.

Understanding the Fine

Most Dangerous Person On The Planet Today: Hillary Clinton

On Monday, Hillary Clinton accused Donald Trump of giving “aid and comfort” to Islamic terrorists, and that terrorists use his rhetoric to recruit fighters.

On fighting terrorism, she chastised Trump “I Know How to Do This“.

I’m the only candidate in this race who’s been part of the hard decisions to take terrorists off the battlefield. I have sat at that table in the Situation Room,” said Clinton.

Here’s my counterclaim: Hillary Clinton not only sponsors terrorism, she is a terrorist.

I sent this as an Op-Ed to the New York Times. Rejected as expected.

Irony of the Year

The irony of the day, week, month and year is Hillary’s statement “I Know How to Do This“.

  • Hillary supported Bush’s inane war in Iraq.
  • Hillary supported Bush’s inane war in Afghanistan.
  • Hillary was the mastermind of US failed strategy in Libya.
  • Hillary is the single person most responsible for Benghazi.
  • Hillary supports president Obama’s drone policy.
  • There has never been a war Hillary did not support.

5 Types of Mindset

1) An open mindset – Traders succeed when they see things that others don’t. Sometimes those are overarching themes and trends; sometimes they are short-term patterns in market behavior. To see things differently, we need a mind that is open to new and different information and open to shifts in market behavior.

2) A quiet mindset – Minds filled with noise can’t process new information. When we’re focused on ourselves and our profits/losses, we’re no longer focused on markets. We can’t exercise self-control in our actions if we are not able to sustain control over our thought processes.

3) A constructive mindset – Losses happen. We miss opportunities. The great trader learns from mistakes and embraces the lessons from drawdowns. If every day brings wins from trading or wins from learning, there is always something of value to be taken from each day.

4) A positive mindset – It’s because we cannot count upon our profits and losses to make us happy that we need to lead a fulfilling life outside of trading. A life that is filled with meaningful activities, fun activities, activities that bring us close to others, and activities that give us energy is most likely to provide us with the emotional fuel needed to power through challenging market times.

5) An action mindset – All the best ideas and intentions will get us nowhere if we aren’t prepared to act upon them. The action mindset is one focused on plans, translating excellent ideas into excellent risk/reward opportunities. Preparation is idea-focused, but also execution-focused. It is as important to work on our implementation of ideas as our generation of them.

How to Find Your Trading Tendency

  How you trade after you’ve made money versus after you’ve lost money:  Do you trade more?  Larger?  Do you trade differently based on recent P/L?  Do you become risk averse after recent losses?  Does that affect your future P/L?

*  How do you trade when you’re taking more risk versus less risk?  Does different size/risk exposure cause you to trade differently?  Are you actually making more money when you’re taking more risk? 

*  What kinds of markets and market patterns provide you with your greatest profits?  Losses?  Do you trade selectively to maximize your best opportunities?  Do you overtrade markets that are not ones providing you with opportunities?

*  What is your ratio of winning to losing trades?  What is the ratio of the size of average winners to the size of average losers?  How successful have you been in finding large winners?  In preventing large losers?

Many times, our greatest biases and psychological mistakes come through when we thoroughly review performance.  The decision to not review performance is perhaps traders’ greatest bias blind spot.

Oil Output Freeze Deal Could Drive Up Shale Production, Sink Prices

Energy Minister Alexander Novak is expected to lead the Russian delegation at the September 26-28 International Energy Forum (IEF) in Algiers, Algeria, where OPEC and non-OPEC countries will renew talks on a possible oil output freeze.

“There is the possibility that there’ll be an increase in oil production as a result of shale oil and then the prices will fall again,” Siluanov said in an interview with CNBC, a US cable business news broadcaster. The minister called Russia’s budgeted $40 per barrel oil price estimate for 2017-19 “conservative.” “In our view, this is a balanced price at the moment. It’s a price at which the oil producers, especially shale oil producers, are at their capacity levels at the moment,” he said.

Emerging Markets: An Update

  • The Hungarian central bank capped the amount commercial banks can keep at its 3-month deposit facility.
  • S&P upgraded Hungary from BB+ to BBB- with stable outlook.
  • Bank of Israel will move to 8 meetings per year starting in 2017, down from 12 currently.
  • S&P raise the outlook on Russia’s BB+ rating from negative to stable.
  • The South African Reserve Bank signaled a potential end of the tightening cycle.

In the EM equity space as measured by MSCI, Brazil (+5.5%), Turkey (+5.0%), and Peru (+4.9%) have outperformed this week, while Qatar (-0.6%), Hungary (flat), and South Africa (+0.3%) have underperformed.  To put this in better context, MSCI EM rose 3.6% this week while MSCI DM rose 2.1%. 

In the EM local currency bond space, Brazil (10-year yield -36 bp), Turkey (-26 bp), and Hungary (-17 bp) have outperformed this week, while Ukraine (10-year yield +9 bp), Mexico (+2 bp), and China (flat) have underperformed.  To put this in better context, the 10-year UST yield fell 7 bp this week to 1.62%. 

In the EM FX space, ZAR (+3.5% vs. USD), RUB (+2.3% vs. USD), and CLP (+2.1% vs. USD) have outperformed this week, while MXN (-0.6% vs. USD), PHP (-0.4% vs. USD), and CNH (-0.4% vs. USD) have underperformed. 

The Hungarian central bank capped the amount commercial banks can keep at its 3-month deposit facility.  Those deposits stand at HUF1.6 trln today, and the central bank said it would lower that amount to HUF900 bln by year-end.  This unconventional policy is akin to monetary easing, as it pushes funds out of its deposit facility and into government bonds and the interbank market.  The end result should be lower government borrowing cost, lower lending rates, and a weaker forint.

Russia’s July Oil Production Exceeds Saudi Arabia’s – State Statistics Service

Image result for oil rigIn July, Saudi Arabia produced 10,477,000 barrels of oil per day, according to the report. In June, Saudi Arabia was exceeding Russia in oil production, with 10,447,000 barrels per day compared to 10,136,000 barrels produced by Russia daily.

In total, the Organization of the Petroleum Exporting Countries (OPEC) states extracted 33,106,000 barrels per day in July, according to the report. The share of oil exports in the total volume of Russian exports amounted to 25.8 percent in January-July, as compared to 26.9 percent in the same period in 2015, the report said. According to the report, the average export price for Russian oil stood at $311.3 per tonne in July 2016.