Channel News Asia: China spends US$195 billion to maintain currency peg

China spends US$195 billion to maintain currency peg
Channel News Asia

BEIJING : China's central bank spent 1.61 trillion yuan (195 billion dollars) buying foreign currency last year to maintain the yuan's peg with the dollar, a rise of 40 percent over 2003.

The People's Bank of China also drained 669 billion yuan from the banking system via open market operations last year, more than double the 282 billion yuan used in 2003, Xinhua news agency said citing a central bank report.

"The central bank faces comparatively large pressure in the management of money flow and currency control," it said.

China keeps its currency pegged to the US unit in a very narrow trading bank of about 8.28 yuan, a level which trading partners, especially the United States, say gives Chinese exports an unfair advantage.

The government is not only under political pressure to let its currency appreciate but the central bank is struggling to mop up the extra cash in the system flowing in on speculative bets that it will free up the peg.

China has resisted foreign pressure to loosen the yuan peg but has promised that it will move over time towards a more flexible exchange rate regime.

Balloning trade surpluses and years of foreign investment have flooded the financial system with cash and market players say the central bank has been virtually the only buyer of surplus hard currency such as the dollar.

As a result, China's foreign reserves in 2004 soared to a record 609.9 billion dollars from 403.3 billion dollars in 2003, with the increase equal to the total intervention amount.

Meanwhile, China's 60 billion dollar current account surplus, up 25 billion dollars from 2003, and 61 billion dollars of foreign direct investment (FDI), were additional large sources of foreign exchange, ING economist Tim Condon said in a note.

This still leaves 74 billion dollars (614 billion yuan) of non-FDI capital flows, coincidentally roughly the same amount as the central bank drained from the system through its open market operations.

"This is the monetary management issue that we believe will motivate the authorities to reform their exchange rate regime by introducing greater two-way risk some time in the second quarter of 2005," Condon said.

In attempt to ease pressure on the currency, China will cut its growing balance of payments surplus by permitting more foreign currency to leave the country, state media reported earlier this week. – AFP

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Prudent Investor says

While the going gets good...China has been able to finance its currency peg with its large surpluses, plump foreign reserves and 'turning on the crank'...until when?

Bloomberg: Oil Surges, Gasoline Rises to Record as U.S. Refinery Use Falls

Oil Surges, Gasoline Rises to Record as U.S. Refinery Use Falls

March 2 (Bloomberg) -- Crude oil rose above $53 a barrel for the first time in four months and gasoline surged to an all-time high on concern that oil production and refining capacity are not keeping up with rising demand.

Refineries used 89.3 percent of their capacity in the week ended Feb. 25, the lowest since October when companies were performing repairs after a hurricane hit the Gulf of Mexico, the Energy Department report showed. Hedge-fund managers and other large speculators purchased contracts after the report was released at 10:30 a.m. today, bidding prices higher.

``There has been a string of refinery disruptions when we need all of our refineries to be up and running,'' said John Kilduff, senior vice president of energy risk management with Fimat USA in New York. ``There is a speculative element as well. There are too many dollars chasing too few barrels of oil.''

Crude oil for April delivery gained $1.37, or 2.7 percent, to $53.05 a barrel on the New York Mercantile Exchange, the highest close since Oct. 26. Prices are up 45 percent from a year ago.

Gasoline for April delivery rose 8.11 cents, or 5.8 percent, to $1.4838 a gallon in New York, the highest close since the contract began trading in 1984. Prices are 30 percent higher than a year ago.

The average U.S. retail price for regular gasoline rose 2.3 cents to $1.928 a gallon in the week ended Feb. 28, the Energy department reported on Feb. 28. The price is up 12 percent from $1.717 a gallon a year ago.

U.S. stocks declined on concern that the rising energy prices will hurt company profits. The Dow Jones Industrial Average fell 18.03, or 0.2 percent, to 10,811.97. The Standard & Poor's 500 Index was down 0.33 at 1210.08.

Oil company stocks advanced with oil prices. Exxon Mobil Corp., the world's biggest publicly traded oil company, rose 58 cents, or 0.9 percent, to $62.68 in New York Stock Exchange composite trading.

Refinery Disruptions

Lyondell-Citgo Refining LP, a joint venture between Lyondell Chemical Co. and Citgo Petroleum Corp., shut a unit at its Houston crude-oil refinery yesterday, state regulators said.

Lyondell Chemical spokesman David Harpole declined to comment on the report or the refinery's operations. The refinery can process 265,000 barrels of crude oil a day.

A fire on Feb. 26 at BP Plc's Whiting, Indiana, refinery didn't reduce crude-oil processing or fuel production at the company's second-largest plant, a spokesman said.

U.S. Inventories

U.S. crude-oil inventories gained 2.4 million barrels to 299.4 million, the highest since July. The median forecast of 12 analysts surveyed by Bloomberg was for a rise of 1 million barrels. Gasoline stockpiles climbed 973,000 barrels to 224.5 million. Analysts expected an increase of 1.1 million barrels.

Inventories of distillate fuel, a category that includes heating oil and diesel, fell 1.7 million barrels to 110 million, the report showed. Analysts expected a 1.2 million barrel decline.

``The crude number was slightly bigger than expected while the gasoline and distillate numbers were right on the money,'' said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. ``The most important thing about the numbers is that they are out of the way, which is allowing the funds to come in and buy crude with both hands.''

Speculators, including investment funds, last week had their biggest bet on higher oil prices in eight months, according to the Commodity Futures Trading Commission. So-called net-longs in New York soared by 22,548 contracts to 54,176 in the week ended Feb. 22, the commission reported. The net-long positions peaked at 82,451 contracts in March 2004.

Funds

Increased fund buying may boost commodity prices, Kevin Norrish, head of commodities research at Barclays Capital in London, said in a report yesterday. Funds are reaping the higher returns of investing in commodities. The Reuters-CRB index rose 11 percent last year compared with 9 percent for the Standard & Poor's 500 Index. Oil in New York gained 34 percent last year.

Prearranged agreements to buy or sell futures, known as stops, were clustered at $52.50 a barrel, Silliere said. We are now ``looking at the record $55.67 and the funds will then aim at $60,'' he said.

Oil surged to a record $55.67 a barrel in New York on Oct. 25 because of high global demand, particularly from China, and the threat of disruptions to oil shipments from Iraq, Russia and Nigeria.

Restraining Demand

``Oil prices will likely stay in the $40- to $50-per-barrel range and may have to move higher still to restrain demand,'' said James Buckee, chief executive of Calgary-based Talisman Energy Inc. The company produces oil and gas in North America, Asia, the U.K. and Middle East.

Prices surged in 1974 after an oil embargo that followed the Arab-Israeli war and from 1979 through 1981 after Iran cut oil exports. The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department, or $75.71 in today's dollars.

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, is concerned that rising inventories will lead to a decline in prices during the second quarter of the year. OPEC will discuss production targets at a meeting in Isfahan, Iran, on March 16.

The 11-member group's president, Sheikh Ahmad Fahd al-Ahmad al-Sabah, who is also the Kuwaiti oil minister, said in January OPEC may be willing to let global inventories get large enough to cover 56 days of demand before it cuts supplies. Al-Sabah said inventories covered 52 days of demand on Jan. 30.

``The higher-than-expected gain in crude oil inventories ensures that OPEC won't be increasing production when they meet,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago.

In London, the April Brent crude-oil futures contract rose $1.11, or 2.2 percent, to $51.22 a barrel on the International Petroleum Exchange, the highest close since Oct. 26.

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Prudent Investor says...

Notice that crude oil has been climbing in spite of increased stockpiles or supplies. On the contrary, there has been an intensive build up of net long positions. Put differently the market sees oil prices climbing either through speculations "too many money chasing oil prices" or anticipations that current supplies will not sufficient to meet demand. For me, this is just part of the unfolding rendition of the 5 year old trend, which is unlikely to be broken given current conditions.

Yahoo News: Iran, Russia sign key nuclear fuel deal

Iran, Russia sign key nuclear fuel deal

February 27
By Paul Hughes

TEHRAN (Reuters) - Russia and Iran (news - web sites) signed a nuclear fuel supply deal long opposed by Washington on Sunday which will pave the way for the Islamic state to start up its first atomic power plant next year, state media reported.

The agreement, signed by the two countries' nuclear energy chiefs at the Bushehr atomic reactor in southern Iran, came as Tehran faced heightened pressure from the United States, which accuses it of secretly developing nuclear weapons.

Iran denies the charge and has received strong backing from Moscow, which is keen to extend its commercial interest in Iran's drive to produce electricity from nuclear reactors.

"This is a very important incident in the ties between the two countries and in the near future a number of Russian experts will be sent to Bushehr to equip the power station," Iranian state television quoted Alexander Rumyantsev, head of Russia's Federal Atomic Energy Agency, as saying.

A key part of the agreement is aimed at addressing U.S. concerns, obliging Tehran to repatriate all spent nuclear fuel to Russia.

Moscow hopes this will allay U.S. worries that Tehran may use the spent fuel, which could be reprocessed to make bomb-grade material, to develop arms.

FIRST BATCH OF FUEL READY TO GO

Details on the timing for the supply and repatriation of fuel were not disclosed. Iranian officials said on Saturday disagreements over when Russia would send the first shipment of fuel to Iran had delayed the deal's signing by 24 hours.

Rumyantsev said the first batch of enriched uranium for Bushehr, which is surrounded by anti-aircraft defenses against possible attack, was ready to go.

Gholamreza Aghazdeh, head of Iran's Atomic Energy Organization, said Bushehr would be ready to go on-line some time after March 2006.

"Based on the agreement, the installation and assembly of the power station's equipment will finish in the next 10 months and six months after that ... the official launching of the power station starts," television quoted him as saying.

When operational Bushehr will generate 1,000 MW of electricity. Initiated before Iran's 1979 Islamic revolution and badly damaged during the 1980-88 Iran-Iraq (news - web sites) war, the project was later revived with Russian help in the late 1980s and has cost about $800 million.

Iran has announced plans to build several more power plants, generating 7,000 MW from nuclear power by 2021. Russia hopes to claim a significant share of this new business.

The Bushehr power station has aroused less concern in the West than Iran's plans to produce its own nuclear fuel for future reactors using uranium mined, processed and enriched inside the country.

The European Union (news - web sites) and United States want Iran to scrap its uranium enrichment plans entirely. Iran has refused but has suspended enrichment while it tries to reach a negotiated settlement with the European Union.

(Additional reporting by Sonia Oxley in Moscow)

India Times: Commodities trading spreads into 400 cities

Commodities trading spreads into 400 cities

TIMES NEWS NETWORK[ WEDNESDAY, FEBRUARY 23, 2005 12:23:37 AM]

Equities could be the obvious road to wealth, but commodities are now beginning to capture the punter’s imagination too. From zero volumes a year ago, the combined trading volume achieved on the national commodity exchange platform has reached Rs 260,659 crore in ‘04.

Futures trading has landed in over 400 cities in India, covering 1,000 brokers through 5,000 terminals.

The budget can give it a further boost by straightening regulations, promising legal changes, and allowing institutional investors to buy commodity contracts (which are considered securities by the Securities Contract Regulation Act).

How big is the market? Already, the futures market for gold and silver is about four times and 40 times, that of spot markets respectively. With imports of over 700 tonnes of gold every year and around 10,000-15,000 tonnes of gold stocked in the country, the futures market is definitely raring to grow. In other countries like America, futures volumes are as high as 72.9 and 55 (‘01) times the gold and silver spot markets respectively.

India is in a hurry. More than a dozen Indian banks have already taken up stake in various exchanges. Jignesh Shah, MD of MCX, which is promoted by a consortium of 10 banks says, “banks and other financial institutions like mutual funds should be allowed to participate in trading.”

Mutual fund participation on commodity exchanges is also likely, considering the regulators are open to the idea. NCDEX CEO, P Ravikumar says mutual funds will be able to diversify investors’ portfolios and ensure higher returns at limited risks.

“The biggest beneficiary of derivatives trading could be the agricultural community”, says Kailash Gupta, MD, NCME — India’s first national commodity exchange. The government support price, quota system and intervention in procurement at administered prices has distorted the market, he says.

Exchanges agree that a major reform in this segment would be the introduction of options and index-based trading, which is currently not permitted by the Forward Contract Regulation Act.

Already the FMC has recommended a modification of section 19 of the FCRA Act to allow options. FMC is also favouring the introduction of exotic commodities like weather and emissions.

Brokers, who are largely responsible for getting liquidity, have sought a modification in section 194-H of the Income Tax Act, which stipulates commission and brokerage payments. Exchanges like the MCX, argue that commodities futures trading should be viewed at par with the securities business, so that the commodities brokers are not discriminated against.

The treatment of “speculative income” is another contentious issue. Exchanges say the government must recognise commodities trading as a “line of business” and not as pure speculation, as considered under section 43(5) of the Income Tax Act.

Industry expectation is that the negotiability status of the warehouse receipt could also find a mention in the budget. A proper warehousing mechanism supported by a receipt system could boost the trade finance system.

The industry also demands rationalisation of the stamp duty. Though it is a state subject, the fact remains that due to the applicability of different stamp duties, the cost of transactions varies tremendously.

The much talked-about VAT will also have an impact on the sector, says NCDEX chief economist Madan Sabanabis. The introduction of VAT would help clear quite a few issues relating to sales tax.

As often said, futures are a zero sum game. So there have to be losers. Regional exchanges have taken a backseat, despite having domain knowledge. Rapidly decaying volumes, dwindling membership and lack of professionalism are creeping into the system.

For example, the once-flourishing East India Jute and Hessian Exchange is a shadow of its former glory, with little liquidity in their Hessian contracts.

All exchanges are unanimous that a strong regulator is the need of the hour.

Financial Times Editorial: Philippine fiddling

Philippine fiddling
Published: February 24 2005 02:00 | Last updated: February 24 2005 02:00
Financial Times

It is not every day that government leaders warn that their countries are heading for an Argentina-style fiscal crisis. Gloria Macapagal Arroyo, the Philippines' president, has done so twice in six months, most recently last week, in an effort to goad lawmakers into acting to put its public finances in order. But is anybody listening?

Not, apparently, members of the national Congress, who are holding up Mrs Macapagal's proposals for badly needed tax reforms - yet who reacted indignantly when Moody's rating agency sharply downgraded the country's sovereign debt this month. Nor is the stock market, which remains strong. Nor, so far, do foreign investors seem any less tempted by the relatively high yields on Filipino issues.

The president's alarmism may seem overdone. Unlike Argentina when it hit trouble, the Philippines has a floating currency and less of its debt is short term. It has also sought to boost revenue by raising alcohol and tobacco taxes and beefing up tax collection.

Yet those measures have, at best, only slowed the sharp deterioration in the country's public finances since Asia's 1997 financial crisis. Lax fiscal policies, lower tariff revenues and corruption have cut its tax take to only 12 per cent of gross domestic product. Public debt, including guarantees to state companies, is about 130 per cent of GDP, while servicing costs may absorb a third of this year's budget.

The country is far from achieving a primary budget surplus large enough to stabilise debt levels - a goal Mrs Macapagal has set for 2010. Congress has put even that leisurely timetable in doubt by passing only two of eight emergency fiscal measures she had vowed to enact by last autumn.

The economy's outwardly robust performance has fuelled political complacency. It grew more than 6 per cent last year and the current account is in surplus. However, this was due largely to remittances and call-centre earnings. Manufacturing exports to China have trailed those of the rest of Asia, and the foreign direct investment needed to increase them remains scarce.

Those structural weaknesses increase the Philippines' vulnerability to external shocks, such as a steep rise in US interest rates, a sharp fall in the dollar or higher oil prices. That makes reforms essential well before campaigning starts for the 2007 elections.

Mrs Macapagal understands the urgency. However, she has too often vacillated in public and yielded too readily to opposition from vested interests. Her re-election last May handed her valuable political capital. She should now spend it by staking her future on ramming her fiscal programme through Congress.

Congress's dawdling is as hard to justify as foreign investors' willingness to indulge it by snapping up public debt. Although some investors sense a crisis in the making, they reason they can get out in time. The longer Filipino politicians procrastinate, the more likely that is to prove a delusion.

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Prudent Investor says...

While the current flow of regional economic developments tend to favor the recovery of the Philippines, complacency by the country's political leaders are likely to cause a setback on its recent gains.

The deep-seated problem with most politicians of all nations are that they tend to be short sighted and reactive instead of being pro-active and work for the long term interests of their constituents.

Political impediments would likely cause short term volatilities, until the domestic leaders realize that the 'crisis' is staring them on their face. As for the Philippine President, hasn't she learned from Aesop's fable "The Boy Who Cried Wolf"?

Financial Times Editorial: Dollar scare reveals fragile support

Dollar scare reveals fragile support
Published: February 24 2005 02:00 | Last updated: February 24 2005 02:00
Financial Times

Crisis over? Not really. For sure, the market overreacted to reports that the Bank of Korea wanted to reduce the share of dollars in its portfolio. What the Koreans actually said was that they want to diversify out of low-yielding US Treasuries into higher yielding securities, which could include riskier US assets as well as non-US government bonds. And they intend to do so by diversifying the flow of reserves, not the $200bn (£105bn) stock. But while Tuesday's sell-off was founded on error, it nonetheless exposed the underlying weakness of the US currency. If the mighty dollar can be rocked by a single paragraph in a report to the Korean parliament something is amiss.

That something is the dependence of the dollar on a handful of Asian central banks, which between them control $2,400bn reserves. These reserves are already large relative to the size of the Asian economies, and getting bigger by the day. As they grow so does the incentive to guard against capital loss from further dollar depreciation.

Very obviously, if all the Asian central banks were to start selling their stock of dollars the US currency would plunge. But such a generalised rout would also force the Asian currencies to appreciate against the dollar. If either Japan or China were to sell dollars, the effect would probably be the same. However, the first mid-sized country to bail out of the dollar might be able to get a good price for its assets and maintain its bilateral exchange rate, encouraging others to follow.

But even if Asian central banks do not sell their stock of dollars, the US currency is not safe. With private appetite for US assets inadequate and volatile, the US relies on continued purchases by central banks to fund its current account deficit and acquisition of foreign assets by US residents. If their appetite dims, unless private flows soar, the dollar will still fall (and keep on doing so until the change in the relative price of imports and exports narrows the current account deficit to a sustainable level.)

Diversification might not succeed in its objective of minimising capital loss. It all depends on what currency one diversifies into. The euro is no longer obviously cheap. If and when Asia revalues the euro could even fall against the dollar. In this case the capital loss would be greater on euro holdings than on dollars. Asian countries need more Asian assets. Again, in aggregate they cannot obtain them without forcing up their currencies, though individual countries acting alone could do so.

In the end the only sure way to limit capital loss is to stop intervening and allow currencies to rise. The yen and Korean won have appreciated significantly since 2002. But while others remain pegged, such appreciation disrupts intra-Asian exchange rates and trade. The optimal solution is a co-ordinated revaluation, led by China. But while the Chinese economy thrives and inflation stays under control, Beijing has little incentive to agree.

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Prudent Investor says,

As editorial says, the recent gains of US dollar stands on tenuous grounds such that unconfirmed reports of Central Banks 'diversifying' away from the US dollar could provoke a dash to the exit doors. Currency volatility and the risk of a dollar run remains entrenched for as long as the structural imbalances exists. It surely does look as if Asian Currencies are the best bet in today's largely dicey environment.

Bloomberg Analyst William Pesek Jr.: Is Kafka Running Korea's Currency Policy?

Is Kafka Running Korea's Currency Policy?
by William Pesek Jr.

Feb. 25 (Bloomberg) -- It's THE question in global currency markets: What force of nature prompted South Korea suddenly to scrap plans to sell dollars?

On Tuesday, the dollar was plunging amid a comment by Asia's No. 3 economy that it would diversify foreign-exchange reserves into other currencies. By Wednesday, Korea's central bank said it had no such plan, leaving traders scratching their heads.

Dumping dollars would be a logical move for the world's fourth-largest holder of reserves after Japan, China and Taiwan. Korea, after all, is going against the tide in Asia, letting its currency rise. It no longer needs so many U.S. Treasuries, nor does it want to sustain huge losses as the dollar falls.

Korea's hasty and counterintuitive about-face makes you wonder if U.S. Treasury Secretary John Snow himself made a call to Seoul. It's hardly in the U.S.'s interest to see Korea pull the plug on Treasuries. It could prompt other Asian central banks to do the same, driving up U.S. debt yields.

Or maybe it was Japan, the biggest foreign holder of U.S. Treasuries, pressuring Korea. Shortly after Korea's denial, Japan's vice finance minister for international affairs, Hiroshi Watanabe, referred to ``wild'' moves in the yen and said Tokyo ``will act when necessary'' if its currency rises too rapidly. Asia hardly wants a resumption of Japan's yen-selling campaign.

Franz in Charge?

Conspiracy theories aside, markets could be excused for wondering if Franz Kafka is roaming the halls of Korea's Ministry of Finance -- and whether the Czech writer is running its currency policies.

Kafka, of course, is famed for tales possessing bizarre, illogical and nightmarishly complex qualities. And there are some rather Kafkaesque aspects to recent events, not only in Seoul but also on currency policies throughout Asia.

Korea's retreat from dumping dollars shows the bind central banks are in these days. This region's mercantilist tendencies have manifested themselves in exchange-rate management efforts the likes of which have rarely been seen before.

``Bretton Woods II'' economists have dubbed the system that unofficially replaced the original post-World War II currency regime, which was based on a gold standard that collapsed in 1973. In gold's place, many nations adopted the U.S. dollar as an anchor, formally or informally pegging their currencies to it. We may be seeing the demise of this new system, with Korea in the vanguard.

`Risk Is Growing'

``The risk of a disorderly unraveling of Bretton Woods II -- a sharp correction of the U.S. dollar and of the U.S. bond market, a surge in U.S. long-term interest rates, and a sharp fall in the price of a wide variety of risky assets such as equities, housing, high-yield bonds and emerging-market sovereign debt -- is growing,'' Nouriel Roubini of New York University's Stern School of Business and Brad Setser of Oxford University said in a research paper this month.

As their findings suggest, the current system is looking more and more like a huge pyramid scheme. As long as Asian central banks stick together and buy dollar-denominated securities, things are fine. Once they start selling, virtually everyone loses -- central banks experience capital losses and economies become less competitive. Central banks have an interest in keeping the game going and hoping others do, too.

Yet this week's events underline ``how vulnerable the dollar is to negative news,'' says Carl Weinberg, chief global economist at High Frequency Economics, referring to the dollar's biggest drop against the euro in six months. The news, Weinberg says, ``unwrapped a lot of tightly-wrapped traders who were spring- loaded to sell greenbacks on adverse news.''

No Altruism

Sure, Korea's Treasuries holdings are much smaller than China's, Japan's or Taiwan's, but its $200 billion of reserves may be at the forefront of trends to trim dollar holdings.

Central banks here don't buy U.S. debt out of altruism; it's to hold down currencies to boost growth. Monetary officials find themselves in the unenviable position of having to buy lots of dollar assets they know are likely to lose value over time.

This may be as good a time as any for the region's monetary authorities to avoid losses ahead of a possible surge in U.S. debt yields. Investors won't ignore the record U.S. current-account and budget deficits forever.

Yet it's a complex issue for Asian economies, which find themselves in a ``damned-if-you-do, damned-if-you-don't'' situation.

Devalue vs Reform

Korea seems to have chosen to let the won rise, and it's a good thing. Asia spends inordinate amounts of time weakening currencies, worried about growth a quarter or two out. That distracts from repairing structural problems. It's always easier to devalue your way to growth than to reform financial systems, improve corporate governance and promote entrepreneurship.

Hopefully the rest of Asia will follow Korea's example. Rising currencies are a sign of confidence in an economy, not a problem. They lower bond yields and boost stock prices. Capital a hard money brings in can be more important than increased trade attracted by a softer one.

The Kafkaesque state of the global financial system may leave Asia little choice in the matter.

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Prudent Investor says

Should Mr. Pesek's wish come true, it would mean a BIG "OUCH" for the US dollar and its economy.

Wall Street Winner's Elliot Gue: George Kleinman's Trading Tips

Commodity Trader George Kleinman offers us a few important tips, through Elliot Gue of the Wall Street Winners...

"If emotions kill you in the markets, then the way to survive and thrive must be by being unemotional.

"Years ago, a successful trader friend of mine cashed in on a major score in wheat. I saw him in the Member's Dining Room and said something to the effect of 'You must be feeling damn good, having cashed in right at the top.'

"He was a calm sort of fellow, and I still remember what he said: 'George, when the markets treat me well, I don't dance in the streets and when they don't, I don't beat myself up. Always remember this: Slow and steady wins the race.'

"Years later, I think I know what he meant by this. A loser hopes too much. He has an inability to get out of a losing trade early enough because he keeps hoping the market will turn back his way.

"There's one way to avoid this: Don't get attached to any position. This shouldn't be an ego thing. There's always another market and another day.

"I've seen thousands of trades from hundreds of brokerage clients over the years. I've seen what those who make money do, and I've seen what the losers do.

"Invariably, the losers make the same mistake. They make money initially, maybe even more than winners do, but there always seem to be those few large losses that wipe out whatever gains had built up.

"A few years ago, the Chicago Mercantile Exchange had an advertising campaign in which they tried to teach the public how to trade-an impossible undertaking.

"There was a full-page magazine ad that pronounced, 'Do not risk thy whole wad.' How profound. Yet this is the mistake too many novice traders make. They bet too much money on one trade or one market.

"This is the first tenet of good money management. You must know how much you're risking on a trade, and unless it's a small percentage of your risk capital, don't take it.

"I could start to get into theoretical probability here, but common sense is better. Some of the most important advice to listen to is to plan for slow and steady gains with minimal drawdowns. The way to do this is by quickly cutting the losses on bad trades.

"How much should this be? Definitely no more than 10 percent of your total trading capital, and ideally 2 to 5 percent per trade.

"If you trade and risk only 5 percent on each trade, you'll need to be wrong 20 times in a row to be totally wiped out, and you'd need a poor trading system for that to actually happen.

"To avoid major drawdowns, follow these other tips:

• Diversify. Don't put all your eggs in one basket, and don't put all your chips on one roll of the dice. This reduces the opportunity for any one trade to be your last.
  

• Stick with the trades that work and cull the ones that don't. If you don't have the discipline to get out of the bad trades when you need to, make it a personal rule to place a stop-loss order the moment you enter the trade. Tell your broker that if you haven't given him a stop, he or she should twist your arm until you do. Believe me, your stops won't be hit on the best trades.
  

Once you have a reasonable paper profit on a trade, move up your stop, and never let it turn into a loss."

Reuters: World Must Act on Bird Flu or Face Pandemic -- U.N.

World Must Act on Bird Flu or Face Pandemic -- U.N.
Wed Feb 23, 2005 04:16 AM ET
By Darren Schuettler

HO CHI MINH CITY (Reuters) - The world is overdue an influenza pandemic and it must act swiftly to prevent one being triggered by bird flu now endemic in parts of Asia where it has killed 46 people, U.N. officials said on Wednesday.

The world usually had a flu pandemic every 20 or 30 years, but it has been 40 since the last one.

"The world is now in the gravest possible danger of a pandemic," Shigeru Omi, the head of the World Health Organization in Asia, said at a bird-flu conference in Vietnam, the country hardest hit by the H5N1 virus.

Omi said it was "highly likely" the bird flu virus that swept through large parts of Asia from the end of 2003 would be the source of the next one, unless concerted action was taken.

Joseph Domenech of the Rome-based Food and Agriculture Organization called on rich countries to do more.

"If they don't do more, sooner or later the problem could appear in their place," he told reporters in Ho Chi Minh City, home to 10 million people and close to the Mekong river delta where Vietnam's latest outbreaks began in December.

"The ball is on their side," he said.

The latest outbreak in Vietnam has killed 13 people. All, like earlier victims, appear to have contracted it from direct contact with sick birds.

But what these experts fear is the H5N1 virus could get into a human or animal with a human flu virus and mutate into a strain that could sweep through a world population with no immunity and kill millions.

At the first bird flu summit in Bangkok last year, experts spoke confidently about eradicating the virus.

They now say it could take many years to eliminate and a huge effort is needed just to contain a disease that has jumped to a range of animals including cats, leopards and now flies.

Omi said Tuesday's news that Japanese researchers had found flies infected with bird flu last year showed the virus was "versatile and resilient."

COSTLY FIGHT

The conference, which ends on Friday, will review how Asian governments have fared against the stubborn virus and plot a battle plan.

Bird flu has already devastated poultry flocks in worst-hit Vietnam and Thailand, where most people live in the countryside and keep chickens, which are often free to wander and mingle with people and other livestock.

Nearly 140 million birds have been slaughtered or died in the Asian epidemic, and the financial cost is already up to $10 billion, according to some estimates.

Domenech said affected countries will need hundreds of millions of dollars from donors to sustain a prolonged fight against the disease.

Host Vietnam, where bird flu resurfaced in 35 of 64 provinces, has ramped up surveillance systems and imposed tough restrictions on poultry movements.

But like many poor countries hit by bird flu, it has limited knowledge of the virus, its veterinary staff need training and its labs are poorly equipped.

"In order to prevent and control the disease efficiently, international cooperation should be strengthened," Vietnam's Agriculture Minister Cao Duc Phat told the conference.

A central issue in Ho Chi Minh City will be how to overhaul age-old methods of farming in Asia -- where families live cheek-by-jowl with chickens and ducks that roam freely in farmyards, spreading the virus.

Public awareness campaigns about the health risks of bird flu are running in several affected countries. But traditional practices, such as drinking raw duck blood, still go on.

Experts and government officials agree the task will be huge, costly and may be impossible.

"It's a rural disease and people have diehard traditions that are difficult to change," said Omi.

Bloomberg: Dollar Declines as Bank of Korea Plans to Diversify Reserves

Dollar Declines as Bank of Korea Plans to Diversify Reserves

Feb. 22 (Bloomberg) -- The dollar fell the most in more than two years against the yen and dropped versus the euro, Korean won and at least 30 other currencies after the Bank of Korea said it plans to diversify its reserves.

South Korea's central bank, which has a total of $200 billion in reserves, said in a Feb. 18 report to a parliamentary committee it will increase investments in assets denominated in currencies such as the Australian and Canadian dollars. The country's reserves are the world's fourth-biggest, behind Japan, China and Taiwan, according to data compiled by Bloomberg.

``The market will now be looking to other central banks and what they will be doing, including the European central banks and Middle Eastern banks,'' said Mansoor Mohi-Uddin, head of currency strategy at UBS AG in London. ``The market has got nervous and has continued selling the dollar.''

The dollar fell to 103.87 yen at 11:15 a.m. in London, from 105.54 late yesterday in Toronto, according to EBS, an electronic foreign-exchange dealing system. It dropped to $1.3216 per euro, from $1.3068. U.S. markets were closed yesterday for a national holiday. UBS forecasts the dollar will fall to a record $1.40 per euro by year-end.

``Support for the dollar is quickly disappearing,'' said Kenichiro Ikezawa, who manages $1 billion in overseas debt at Daiwa SB Investments in Tokyo. ``This Korean story is having quite an impact because it feeds into suspicion that others are also seeking to cut their exposure to the dollar.''

Pimco's Call

The dollar has dropped for the past three straight years against the euro and the yen, in part on concern demand for U.S. assets will fail to match a widening current-account deficit. The gap was a record $164.7 billion in the third quarter, meaning the U.S. must attract $1.8 billion a day to fund the shortfall and support the dollar's value, according to Bloomberg calculations.

``I'd prefer not to own dollars,'' said Andrew Bosomworth, a former European Central Bank economist and a fund manager at Pacific Investment Management Co. in Munich. Pimco manages about $415 billion in assets. ``The list of fundamentals doesn't add up to a stack of positives for the U.S. currency.''

Korean investors, including the central bank, are the fifth- biggest foreign holders of U.S. Treasuries, with $69 billion as of December, the most recent figures available, according to the Treasury Department. Japan, the largest, has $711.8 billion. The Bank of Korea report was given to some legislators on Feb. 18 and reported by Reuters yesterday.

`Still Have Faith'

``The likes of Thailand, Taiwan and smaller, medium-sized central banks may follow suit'' in diversifying their reserves, said Stephen Jen, global head of currency research at Morgan Stanley in London. Japan and China, the two largest holders of Treasuries, probably won't shift out of the dollar, he said. They ``cannot diversify while the dollar is under pressure.''

China has kept its currency pegged to the dollar since 1999. Japan sold a record amount of yen in the first quarter of last year to help stem its advance. The dollar in 2004 fell for the third straight year against the yen and the euro. It is up about 3.6 percent from a record-low $1.3666 per euro on Dec. 30.

``In the long run I still have faith in the U.S. dollar,'' said Jen, who raised his forecasts for the currency on Feb. 10. Jen predicts the dollar will trade at $1.24 per euro and 96 yen at year-end, up from previous estimates of $1.32 and 92 yen.

The Bank of Korea report, distributed to members of the parliament's finance and economy committee in advance of a debate scheduled for Feb. 24, also said the bank will expand investments into assets with lower credit ratings than the South Korean government. The plan must be approved by parliament.

`Sheer Size'

``The sheer size of Korea's reserves makes it unignorable,'' said Tetsu Aikawa, currency sales manager in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth-largest lender. ``That revives the memory in people's minds how badly the dollar was sold when Russia said it was diversifying.'' The U.S. currency may weaken to $1.32 per euro today, he said.

The dollar fell to a then record against the euro on Nov. 23 after Russia's central bank said it may increase the amount of euros in its reserves. The dollar fell as much as half a percent against the euro on Jan. 24, after a survey sponsored by Royal Bank of Scotland Plc showed central banks boosted euro holdings.

Almost 70 percent of the 56 central banks surveyed said they increased exposure to the 12-nation currency, according to the survey conducted by Central Banking Publications Ltd., a London- based publisher, between September and December 2004. Fifty-two percent said they reduced exposure to the dollar.

`Good to Diversify'

U.S. Treasuries were the second-worst performing major government market in the world last year, returning 3.5 percent to investors, according to Merrill Lynch & Co. indexes. Only Japanese bonds, which returned 1.3 percent, did worse among the world's largest government bond markets.

``To have a high proportion in U.S. assets is far from ideal so it's good to diversify,'' said Mark Austin, head of currency strategy at HSBC Holdings Plc in London. HSBC forecasts the dollar will fall to a record $1.40 per euro and to 98 yen, the weakest in a decade, by the end of the year.

``South Korea wants to start picking up higher yields so that includes moves in to the Australian currency and sterling, and they'll be buying government bonds,'' said Austin.

The yen's advance began earlier today on speculation Japan's economy will recover from its fourth recession since 1991. The U.S. currency also weakened versus the euro.

Traders may renew bets on the yen after it retreated 3 percent from a five-year high of 101.69 on Jan. 17, said Sabrina Jacobs, a currency strategist at Dresdner Kleinwort Wasserstein. Japan's trade surplus widened for a second month in January, a government report tomorrow may show.

Japanese Economy

``Investors are increasingly realizing that the second-half recession in 2004 was the low point in Japan and that it's most likely getting better,'' said Singapore-based Jacobs. ``That's helping the yen.''

Japan's trade surplus probably grew to 508.5 billion yen ($4.84 billion) from a year earlier, according to the median forecast of 24 economists surveyed by Bloomberg.

Finance Minister Sadakazu Tanigaki said on Feb. 20 Japan's economy will ``improve in the latter half of this year,'' after it contracted at an annualized 0.5 percent pace in the fourth quarter. The economy contracted for three straight quarters.

Japan's Cabinet office kept its assessment that the economy is recovering, in its February report released today. The government removed currency moves as a risk for the economic outlook in its report. A stronger currency may slow export growth by making Japanese goods more expensive abroad.

Heineken NV, the world's third-largest brewer, said today profit may fall for a second year, in part because the dollar's drop against the euro will crimp U.S. revenue. The firm may shed 50 million euros in net income this year because of currency effects, Chief Financial Officer Rene Hooft Graafland said on a conference call today.

****

Prudent Investor Says,

If the article is accurate to say that South Korea's Central Bank is intending to diversify into Canadian and Australian currencies, then this simply exhibits the Bank's recognition of the unfolding commodities 'boom'.

Reuters: Oil Exporters Behind Weak Dollar-Soros

Oil Exporters Behind Weak Dollar-Soros
Mon Feb 21, 2005 05:23 AM ET

By Mona Megalli, Gulf Economics Correspondent

JEDDAH, Saudi Arabia (Reuters) - Moves by Middle East oil exporters and Russia to switch some revenue from dollars to euros lie behind the U.S. currency's weakness, and a further rise in crude prices could prompt more declines, the billionaire investor George Soros said on Monday.

Soros told delegates to the Jeddah Economic Forum that the dollar's fall should help to lower the U.S current account and trade deficits, but warned that a fall beyond an undisclosed "tipping point" would severely disrupt markets.

The U.S. current account deficit is more than five percent of gross domestic product despite the currency's three-year slide. The dollar, however, has staged a comeback recently, gaining about 3.6 percent against the euro and three percent versus the yen so far this year.

"The oil exporting countries' central banks ... have been switching out of dollars mainly into euros and Russia also plays an important role in this. That is, I think, at the bottom of the current weakness of the dollar," Soros said.

Soros, dubbed "The Man who broke the Bank of England" for his role as a hedge fund manager in betting the pound would drop in 1992, said he was not predicting further falls in the value of the dollar. But he linked its fate to the price of oil.

"The higher the price of oil the more the dollars there are to be switched to euro (so) the strength of oil will reinforce the weakness of the dollar," he said. "That is only one factor, but I think there is such a relationship."

U.S. crude hit a record $55.67 a barrel late last year and prices remain close to $50 a barrel.

In later comments to Reuters, Soros said the U.S. current account deficit could be financed at the current level of the dollar. "There are willing holders of the dollar. There are the Asian countries that are happy to accumulate dollar balances in order to have an export surplus and a market for their dollars," he said.

Soros would not make detailed comments on why long-term borrowing costs have fallen in the face of short-term rate increases, a development U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday he found difficult to explain.

"A flattening of the yield curve is usually an indication of a slowing economy, but here I don't know," Soros said.

The Hungarian-born financier, a critic of U.S. involvement in Iraq, said he was considering backing an Arab foundation to promote the ideals of civil and open societies in the region.