Where did investors find good news ? In many places in fact earnings have been very strong and valuations have improved in a number of segments of the market. The materials sector led the way , rising 35 % year to date (ytd) . Surging profits and consolidation conspired to generate spectacular returns during the past period.
A longer list of sectors performed roughly in line with the overall markets. Industrials , Telecom , Financial and Consumer Disctetionary have all provided excellent total returns. The news was also good for small caps, which are up 14 % on a weighted basis. For all these parts of the market it is a combination of improved earnings and valuations that have produced overall attractive returns, not to mention the ongoing consolidation activity in many aras.
Can earning trend higher ??? Will valuations continue to expand and grow ? What impact is consolidation having on the market >?? What are the significant risks ?
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We are not surprised , The Canadian stock market is doing quite well once again. During the past three years 2004, 2005,
2006 Canadian stocks rose 27 % , 14 % and 24 % respectively. The S& P and TSX composite Index up 15.5 % year to date.
It may well occur in 2007 that an energy sector correction. Are these fears warranted ? There is some degree of weakness in energy prices against a backdrop of sharply rising costs in the energy industry sector. The energy sector has not kept pace with the market during the past years. Energy services are down 18 % , royalty trusts are down 8 % if not more and oil producers are generally flat year to date. ytd
As investors we need deal with the cards that are dealt to us.
     The TTX has fard reseaonably well in the environmnet up nearly 1.98 percent , mostly in the materials and energy sectors. Gold stock prices have led the way down as gold prices have fallen $ 85 from their highs. The Canadian dollar also softened , as government bond markets are the beneficiary o f a fligh tin quality . Government of Canada 10 year bonds have slipped to over 4 % , narrowing the spreads a bit from 5.3 ^ U.S. Treasure yields.
While growth slowed in Canada and steadied in the United States a rebound is in the cards. The bank of Canada is likely to remain on the side lines as the respected pundit Max Labovitch noted. “Dodge will not raise the exchange rates until fall when the snowbirds return”.   The federal reserve on the other hand , may well attempt to settle nervous jitters  in the U.S. housing and mortgage financial markets later this year. On balance a a recovery is underway in stocks and more realistic spreads are priced in the markets. Risk takers are not a sanguine bunch about potential risks and risk factors , especially in emerging market stocks and bonds as well as some lower end priced mortgage backed securities.
            After adding to the perception of risk in the substantial increase in deliquency rates in rates in sub prime mortgages markets - mortgage lending to those with the weakest credit ratings. As interest rates edged upwards over the past few years , such ajustable rate mortgages are reset , recquiring heftier monthly payments. Unfortunately many financial insitutions - mainly mono line mortage lenders - were far too aggressive in making their financial loans and now the regulatory authorities in the United States , the E.U. Mexico and Canada are clamping down on credit quality , reducing the risk in lenders’ new mortgage extensions.
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     Stock markets around the world have been rocked in the last several months by an increasing perception of risk particularily emanating from Asia.  Previously stock markets had continued to perform well, an upward trend since 2003. The recent concerns reflects the instabilities of the Chinese stock markets, following its spectacular rise and announcements by the Chinese financial authorities that they are targeting slower growth - around  8 % , this year compared to 10.7 % in 2006 - which could trigger a subsequent decline in demand for commodities.
The People’s Bank of China and other Chinese government financial institutions have repeatedly taken measures to slow the overheated pace of infrastructure spending , while encouraging domestic consumer demand, This is exactly what the White House and the highly partisan U.S. Congress would like to see to forestall the threat of protectionist legislation.
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Sphere: Related Content      How does the economist acquire the necessary knowledge if the characteristics and limitations of an economic system and consequently its principles according to which economic system ought to be directed ?  Such knowledge is acquired by observation and logical deductions based upon that observation. The economist observes mankind’s economic activities and reactions to and of the economic environment in relation to foreign currency and foreign currency trading practices and norms.   Through repeated observations it becomes apparent of regular and standard forex tendencies and foreign exchange currency trading trends and behavioural practices. More observation of phenomena is not enough since through observation it well be learnt what events have taken place and what foreign exchange currency practices and graphs may be but not why these occurred. But the knowledge of why these foreign currency exchange trading events and crisises  is not only important it is most and crucially relevant and important to why these foreign currency forex crisses did occur.
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  The responsibility of an economist is to learn how the economic system of his or her country is supposed to operate , and ti advise the authorities , so that they may administer the economy most effectively.  If problems and difficulties arise , the economist should suggest solutions and economic and foreign currency strategies to deal with the foreign currencies status. The role of the economist in the status of currency controls and currency status is analagous to any professional or professional technical expert this time with foreign currency economic expertise. The economist must understand the normal operations of their country’s economic and foreign exchange holding system and foreign exchange reserves .  Of course the various consequences of the likely contingencies of acting without the central bank with its foreign exchange reserve holding and contingencies must be made relevant and aware.
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Sphere: Related Content        Economic theory is a aggreagation of hypotheses , each being put forward as an explanation of some aspect of economic activity . This , there have been developed theories of how prices are determined , of how banking systems operate  and of why international trade developed. Each theory has been developed by a method and set of economic rules and assumptions.  Economists devised in their minds a model and models of the real world of economics , foreign trade and foreign currency trading models and strategies. Theories are advanced and subscribed of real world activities in foreign trade and foreign currency (Forex) trading activities and trends. Divergencies aside , the model and models develop in comparison to real world activities on the daily markets.
Very likely diffrences will exist. They will always exist. Divergencies aside. There are no hard and fast rules to assess and hudge the valdities of these rules and market trends in respect to forex market hypothesises , guesses and trading hunches.
HIGHER reserve of foreign exchange of Bangladesh has been reported in the press. The Bangladesh Bank has officially shown the reserve at 4.57 billion US dollars, highest ever in Bangladesh. The same reserve has been accumulated with earnings from export of different goods to countries in Europe and America. Above that, direct remittances from migrant workers of Bangladesh has augmented the reserve. These people, so far, used both formal and non-formal channels for sending money to their families at home. The recent decision of the central bank is to obtain collaboration of banks in countries where migrant Bangladeshis are working and earning their wages has been a step in the right direction. It has augmented transfer of foreign exchange through banking channels and reduced the use of hundees which keep the inflow of foreign exchange beyond official records.
Those in the field of banking have expressed their opinion on the need to upgrade the existing guidelines for flow of remittances from abroad. The trend of management of remittances via hundees from abroad has to be contained. The use of foreign exchange resources may be done under a coordinated plan. The earnings may be diverted to investment in different sectors of the economy. It is worth noting that foreign exchange reserves stood at around one billion US dollars in 2001 and the concerned quarters were wondering about the after-effects of such downtrend. The earning of foreign exchange showed an uptrend during fiscal years 2002 to 2006, when payment in foreign currencies was made mandatory. The Asian Clearing Union extended support to Bangladesh and channelled remittances from migrant worker and exporters. The Bangladesh Bank has of late instructed banks to enter into deals with banks in different countries for facilitating remittances of earnings of workers and traders.
The uptrend in foreign exchange earnings should be sustained with necessary supportive decisions of the government. The trade deals with foreign countries importing medicines, garment products, traditional items like raw jute, and even fish products, have to be upgraded. Along with that, Bangladeshi products should be shown at exhibitions in different countries. The flow of migrant workers of Bangladesh should also be put on the plinth of certainty, when necessary, by extending official support. The trend in earning more of foreign exchange may be strengthened by streamlining both export and facilitating the movement of migrant workers on jobs abroad. An evaluation of the present record forex reserve would also unveil the fall in imports. Adequate imports would have reduced the foreign exchange build up to some extent and given relief to consumers who are suffering for price hike of almost all items. While a large reserve is always a pleasant thing to know about as it helps debt servicing and import financing, proper utilisation of the same to keep the wheels of the economy moving and give consumers comfort is of utmost importance.
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The RBI, in its latest credit and monetary policy, has struck two birds with one stone. First, the slew of Forex market-related announcements can be seen as entirely in keeping with its approach of gradual dismantling of controls on capital account transactions. Second, it is also an invitation from the RBI to a large number of listed and unlisted corporate, small and medium enterprises, and retail investors to join it in fighting the battle of the bulge—in Forex reserves.
The wealthy Indian can now remit up to $50,000 per year against the earlier limit of $25,000. Retail investors can also seek for overseas stocks. More significantly, resident entities have now been enabled to speculate on future exchange rate movements. The RBI is evidently counting on the participation of even those who had until now viewed Forex as something of only remote interest. This way, it hopes to establish a vibrant two-way traffic market for foreign currency.
However, it is a moot point whether the RBI’s blandishments would help achieve this. The external account freedom that was available even earlier has not really led to too many resident Indians rushing to convert their savings into dollars and exit the Indian market. Mutual funds have also not been able to mobilize large enough sums from domestic investors to touch their investment limits in overseas stocks. As it happens, the domestic market offers far more exciting investment opportunities. Moreover, investor psychology plays a role in the evident disinclination towards dollar holdings.
In the earlier days of scarcity, the specter of shortages coupled with elaborate Forex restrictions had created a vicious cycle that was self-reinforcing in accelerating the flight of domestic capital. People devised complicated routes to funnel funds abroad. But the recently granted freedom of investing in the overseas market seems to have had a recoil effect—confident that restrictions have largely been lifted, capital is staying where it can fetch higher returns even as inflows from foreign investors increase, thus setting in motion a virtuous cycle.
The freedom of investing in the overseas market seems to have had a recoil effect—capital is staying where it can fetch higher returns even as inflows from foreign investors increase
In fact, dollars stashed away abroad by Indians during earlier times are thought to be returning to contribute to the domestic growth story. The typical entrepreneur who would inflate the value of his foreign procurement bills and understate his export earnings in the hope of creating a provident cushion, has begun curtailing outflows and dumping his Forex earnings.
What about
In theory, it sounds like a ‘no-brainer’ thing to do, but in reality it is a far more complicated issue. People are more likely to trust the RBI because it is run by technocrats as opposed to the government, which is run by politicians who are focused on winning the next election.
