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Francis Ayensu
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Francis Ayensu is currently the CEO of Freelance Investment Consult (FIC) which is a freelance contract business that provides financial advisory on a customized basis to individuals and organizations in need of Financial Service & Advice (FSA) and also translates Financial Academic Works... More
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  • European debt Crisis: Who’s next?

    After EU leaders found a final deal to the Greece debt crisis, focus has now shifted to Italy as the nation’s debt has reached alarming level and Prime Minister Silvio Berlusconi is expected to resign after 2012 budget approval.

    The stock markets have now focused attention on Italy debt crisis. Global indexes have been down lately while rallying on good news on debt crisis.  European stocks and indexes were down in early Thursday’s market open with Stoxx Europe 600 index, German DAX 30 index, French CAC 40 index, FTSE 100 index and Italy FTSE MIB index all falling between -0.6% and -1.7% as focus on Italy heightened.  US and Asia stock markets showed a similar trend.

    Italy is now next in line to a possible debt default after Greece. Italy’s debt stands at 1.9 trillion EUR ($2.6 trillion) and exceeds that of Greece, Spain, Portugal and Ireland combined. Italy is the world’s third-largest bond market and the world’s eighth-biggest economy. It is the third biggest economy within the Europe. Italy’s default would be of greater consequences not only for the euro zone and EU but also for the global economy.

    Greece debt crisis is a forgone case and updates are expected on the formation of a unity government with a new Prime Minister to lead the implementation of the bailout terms. However as investor take relieve from the Greece debt crisis, other EU debt threat members take focus.

    Italian government bonds have reached the 7% interest rate threshold considered to be the point of no “return” and hiking interest rates.  Investors are more than worried of the government’s ability to honor its debt obligations. Italy has long been put on a rating watch and already downgraded by Moody’s Investor Service and Fitch Ratings.

    The euro zone is put up to another challenge and this time the whole EU existence is called into question. EU leaders during the Greece bailout meeting agreed to expand the European Financial Stability Fund (EFSF) to $1.4 trillion (1 trillion EUR) but as Italian government debt surges due to hiking interest rates, doubts are raised to how EU leaders would react to this situation.

    The feared risk of contagion is now set in place. As Italy debt crisis unfolds, other EU debt threat members would be of interest to investors and to the financial markets. Are we to contemplate on the on collapse of the euro zone?

    The markets are volatile and this is the right moment for trading. Investors should consider ETFs based on major European indexes such as Stoxx Europe 600 index, German DAX 30 index, French CAC 40 index, FTSE 100 index and Italy FTSE MIB index.  A bet against EUR/USD would reap good investment.

    Nov 11 9:37 AM | Link | Comment!
  • European debt Crisis: Final Deal Is Not The Best

    Finally, EU leaders have reached consensus on the European debt crisis. The measures announced in the deal aim at supporting the banking sector and stopping the Greek debt crisis from spreading to the whole Euro zone. The deal proposes various measures to solve the Greek debt crisis. Private banks will voluntarily write off 50% of their exposure to Greek government bonds. The deal sets 50% write-down on Greek debt. Other aspects of the deal include recapitalization of European banks and boost of $1.4 trillion (equivalent to 1 trillion EUR) to the European Financial Stability Fund (EFSF). The write-downs aim to bring Greece’s public debt down to 120% of Gross Domestic Product by 2020. The rescue plan for Greece is € 100 billion which aim to keep the country funded till 2014.

    The European stock market reacted well to the news. On announcement of the deal, German DAX 30 index gained 3 % while French CAC 40 index and UK’s FTSE 100 index respectively rallied 2.8% and 1.7 % according to market reports by WSJ Matchwatch. The Stoxx Europe 600 Index surged 1.9% at trade open. The currency market also had it fair gain of the good news. The EUR soared against the USD to reach $1.4 for the first time since September. Asian shares and US futures also soared. Individual stocks that posted strongest gains across Europe were Societe Generale up 7.9%, Deutsche Bank up 8% and Barclays up 7.4 %.

    The measures share fairly the debt to all stakeholders. Private bondholders are participating in the debt as much as governments. These concessions between private investors and the governments would help reduce the entire burden of the debt on the state and pressures on budget cuts. However the essential question is- Was the deal reached in hast to rebuild investors’ confidence and calm public agitations or to find long-lasting solutions to the debt crisis? My earlier article on the question of the European debt crisis, entitled “European Debt Crisis: Continuous Bailout Is Not The Answer”, suggests temporary suspension of debt threat members from the euro zone so as to allow flexibility in reviving these economies. I still stick to this view since the deal announced by the EU leaders neglects the fundamental problem facing the Greek economy and other EU debt threat members such as Italy, Spain, Ireland and Portugal. Growth is low in Europe and the global trend is nothing better. Europe economy is currently weak as its governments keep fighting recession and the future looks gloomy. Would Greece be able to satisfy its bailout terms and improve its macroeconomic indicators so as to ensure that it will not default again? Time will tell but I doubt Europe’s debt crisis is over.

    Market rallies are the order of day anytime EU leaders announced major decisions to address Europe debt crisis. Thursday’s market day rally is probably another attempt by EU leaders to reassure investors and the public of a safe investing environment.

    Looking forward to our economic and investment environment, the outlook is still negative as current trends are not different from past and future trends can’t be expected to be better. Short term market swings are right moments for trading. So look out for major news that would move the markets and play it safe as the likelihood of a bearish market ahead is high.

    The winners of this current market rally would be those who can predict its end. Best trading strategy is going long European ETFs based on FTSE 100, DAX 30 and CAC 40 and shorting EUR/USD.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: USD, ETF, DAX-OLD, CAC, Economy
    Oct 27 1:13 PM | Link | Comment!

    The Fed, last week, held its FOMC meeting to decide on its interest rate policy. The two day meeting ended with FOMC statement release, announcing the launch of “Operation Twist” to purchase $400 billion long term treasury bonds to replace its short term treasury bonds by the same amount. The Fed further announced that it would reinvest proceeds from its maturing mortgage securities back into the mortgage market. The Fed’s outlook on the US economy is gloomy. The European debt crisis also created greater concerns last week. All these contributed to the week’s worst performance.

    We look at the week ahead with great vigilance as market news points to a global recession threat. The week would be dominated by news on Europe debt crisis which has been doing so since some weeks now. Third quarter data are expected for release as the final week of the month comes to an end. US Data on housing, economic, and consumer sentiment are scheduled for release this week. German economic data and UK Gross Domestic Product data are also scheduled for release. German Bunderstag will on Thursday vote on European Financial Stability Facility (EFSF) changes which will determine to a large extent whether EU default threat members would receive further bailout. A watch out on rating downgrade should also be expected.          

    How likely is a global economic recession? The US government and Fed last week deployed coordinated initiatives to boost the US economy and get Americans back to work. President Obama economic plan proposes a $447 billion in tax cuts and government spending. Yet market observers and economists still see a gloomy future for the US economy as they consider these economic measures insufficient.

     The stock market will definitely be on the watch out on these events. The global stock markets would be much intertwined. A bad performance of the US major stock indexes would trigger similar outcome for European and Asian market indexes. So, smart investors would be on the outlook for clues of market downturn.

    Is the market likely to suffer severe losses this week? That would depend to a large extent on investors’ expectations on EU policy outcome on solving the European debt crisis. The markets will focus on news coming out of Europe this week.

    What should investors do this week? Investor shouldn’t be too afraid to buy stocks. The market is more likely to be volatile. However, whatever happens in Europe, the market would show some good performance as market sentiments change.  

    Market sectors that investors should avoid are financials. Possible downgrading of global financial institutions is likely since Greek debt default is probable and continues to make the news. The US Treasury bond market has attracted attention lately. In fact, the Treasury bonds market recorded weekly high performance after the Fed announced that it was going to fuel the Treasury Bonds market by reinvesting proceeds from matured Treasury Bills.

    Yields on the 10-year Treasury recorded a +6.61% gain while yields on the 30-year bond recorded +3.46% gain at the close of week’s trading. Perhaps, these gains are results of market rally to take advantage of the FOMC statement release. I recommend shorting directly on Treasuries and longing on ProShares Short 20+ Year Treasury (NYSEARCA:TBF), ProShares UltraShort 20+ Year Treasury (NYSEARCA:TBT).

    Equity ETFs that investors should consider for exposure and diversification are SPDR S&P 500 ETF (NYSEARCA:SPY) and iShares MSCI Emerging Markets Index ETF (NYSEARCA:EEM). SPY tracks the performance of S&P 500. It has an expense ratio of 0.09 and a current dividend yield of 2.13%. EEM tracks the performance of the MSCI Emerging Market Index. It has expense ratio of 0.69% and a current dividend yield of 2.45%.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Sep 26 12:16 PM | Link | Comment!
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