Opening Position
October 2007


Though the shakeup in the subprime market may not have been pleasant for many of us, it did show us how a major fiasco can turn market sentiment so quickly. Although most of us may not understand quite how hedge funds operate, we know that many were hurt by the crisis in the housing markets. And we saw a similar situation with hedge funds in Japan and Europe.

It's true that a financial crisis leads to reduced liquidity, which in turn affects most markets. Clearly, those countries that did not invest in the subprime market, especially emerging markets, will be affected only marginally. We are still seeing solid growth in Asia, a restructuring in Europe, and a turnaround in Japan. But if the meltdown in the subprime market accelerates, who knows how far it will get. The intervention by the Federal Reserve Bank prevented the financial system from seizing up. But is the worst over, or is it yet to come? If we expand our horizon beyond the short term I think we will see more negative news emerging, but given the solid fundamentals in the US economy, I don't think we will be seeing a recession.

BUT the short term -- now that's a different story. We have seen how the fear of holding speculative trades has spilled over into other markets, especially in the currency markets among carry traders.

When the markets collapsed, the yen, which was a big source of funding because of Japan's low interest rates, rose against the New Zealand dollar and the Australian dollar. But once the markets stabilized, the carry traders returned. This just shows you how volatile the currency markets are. Given that our focus this issue of STOCKS & COMMODITIES is on the forex markets, you'll find a lot of coverage on topics such as the carry trade and volatility that is so prevalent in these markets. But given the size and volatility of the forex market, how is a retail trader supposed to survive? You'll find a lot of information that will help you do just that in our collection of articles in this issue. I am sure you will find some useful nuggets that will help you achieve the success you are looking for.

Last but not least, I would like to take this opportunity to thank you, our loyal readers, for all your support. Without it we would have never been able to get as far as we have, nor bring you this, our 25th anniversary issue.

Jayanthi Gopalakrishnan,
Editor


Originally published in the October 2007 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2007, Technical Analysis, Inc.



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