World Event Trading
09/15/2007 12:00 am EST
Astute traders learn to take advantage of critical global events, says Andrew Busch, in his keynote address at Forex…
In his keynote address, Andrew Busch, director, global FX market strategist, BMO Capital Markets, and editor, The Busch Update, gave attendees insight into how to trade and profit by keeping an eye on the unfolding of global events.
He cited examples of trading opportunities that arose from a variety of different events, including selling US dollars after hurricane Katrina, buying bonds after the Gore/Bush election, and the latest – the wholesale rush to purchase T-bills amid the sub-prime mortgage crisis. Busch mentioned that risky trades are some of the first casualties of a crisis, with traders unwinding their positions and selling what they can, not necessarily what they want to.
Busch noted that astute traders who were paying attention to these occurrences were able to quickly pounce and profit from the news. He also commented that big events occur much more frequently than people realize, bringing with them many opportunities for profit.
Busch further addressed the current subprime situation by noting that he expected an imminent rate cut by the Federal Reserve. (Editor’s note: He was right; the Fed cut rates ½% on September 18, 2007). And he also predicted that some slight government involvement would be necessary, as a result of the resetting of adjustable rate mortgages. Some adjustments are expected to reset more than 6% higher than current rates, driving many homeowners into foreclosure. Unfortunately, the impact of these foreclosures will spread much wider than the homeowners directly affected, as foreclosures on your block mean that your house just lost 15-20% in value.
But Busch is somewhat optimistic, as he sees more borrowing through the discount window, banks beginning to invest in distressed mortgages and also extending the time for borrowers to repay their subprime loans. He made an excellent point, in comparing the effect on the market of the current credit problems with technology stock trading of the late 90s, commenting that the panic was overdone. In reality, the situations are not the same at all, because a home may lose some of its value, but – unlike a stock – its value will not go to zero.
Busch anticipates that the situation will most likely not bottom out until the end of the 2008 spring selling season, but he also fully expects the financial markets to stabilize prior to that.
He commented on potential invest able situations, noting that the changing laws in China allowing individuals to own land may bring exciting opportunities. Bush predicted that if Democrats win in both the White House and Congress – a ‘harmonious’ occurrence – that investors and traders can expect small cap stocks to outperform larger-cap companies, while bonds will most likely under perform. A ‘gridlock’ – sharing power between both parties, will mean that bonds will prosper while large caps do better than small caps.
Busch wrapped up his keynote with a prediction that the euro might go to 150-55, the Canadian dollar, to $95 and the yen to 110-107.