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Mexican Central Bank Takes FX Warfare Into The 21st Century: Writes $600 Million Worth Of Dollar Options
The FX war recently launched by every central bank in the world, just entered its modern warfare stage: we have learned that the Mexican Central Bank has just sold $600 million worth of USD options. That's right - the central bank of our southern neighbor has moved beyond merely pedestrian cash interventions and has entered the derivatives game, in their attempt to raise the US peso and lower its Mexican equivalent. While there is no immediate indication of how the NAFTA treaty reacts to such outright open aggression between member states, it will likely be modestly to quite modestly frowned upon by the central banks of Canada, and most certainly, our own Fed. What we would love to find out, however, is who it was that was on the other side of the transaction, and bought $600 million worth of USD options. It would be supremely ironic if it it is discovered that it was the FRBNY that was taking the other side of the trade, as it would confirm that central banks have now gone AIG on betting on the outcome of currency wars.
Either way, the incremental systemic complexity introduced by this action will make plain vanilla interventions increasingly more unpredictable, and it is a likely validation that many other central banks also engage in this kind of synthetic trading. Also, who is to stop the counterparty on such trades to suddenly ramp up colletaral requests, very much in the fashion that Goldman and JPM destroyed AIG and Lehman, respectively? Should the Fed need to really pounce on the dollar, all it needs is to get the bank that did the deal (or itself) to make a few calls, and increase margin requirements from 5% to 100%+, forcing an immediate unwind of the transaction, and causing who knows how much havoc to both the synthetic and cash scenes.
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"All aboard!"
were they bullish dollar puts?
Target still 115
http://stockcharts.com/charts/gallery.html?s=%24usd
"...causing who knows how much havoc to both the synthetic and cash scenes."
Hyperbole
CENT-E-COM (Threat Level 3)
http://williambanzai7.blogspot.com/2010/09/cent-e-com-september-2010.html
For your "Reactions" choices you forgot to include: e) stupid f) who cares
(a) Stupid
(b) Who Cares
All right williambanzai7 since you have an excellent talent I have a request.
A visual :
Benny dressed up like Scotty from star-trek with a lever switch in his hand attached to a super-turbo dollar printing press that is flooding the world with dollars (everyone swimming/drowning in the background in Dollars)
With obama dressed up like captian Kirk behind him kicking him in the azz telling him in a caption to Get "His" economy back on track by printing QE 2 we have an election for crying out loud.
Benny answering back "I am trying captian, I'm giving it everything she's got"
With Giethner and the rest of the clan shown as alien elf's oiling the printing press' bearings with shirts on with name tags that say "maintenance"
could you do that?
TIA
Better the grim reaper
Challenge Accepted
Here it is:
SCAM TREK
http://williambanzai7.blogspot.com/2010/10/scam-trek-2010.html
Lather, rinse, repeat ... Outsource our mbs, import gold ?
What happens if the fed had asked for gold as the rest of the cb's dry hump'd our swap lines over the last few years to service their debts that are denominated in dollars.... ? Another reason you always see lust for our dollars ...
It's going to be really interesting to watch the whole thing melt down.
I disagree with your use of future tense.
I submit that it is really interesting to watch the whole thing melt down.
well this is getting interesting; please pass the popcorn.
Scotch anyone?
Oh yes please!
11:59:48
odelay vato holmes
So, basically, it's USA vs. All?
In other words, everyone is buying dollars?
Everyone racing to the bottom, but since currencies trading against one another, it deosn't work so well.
Buy gold until this stupidity comes to pass.
Maybe I'm missing something but if they sold puts for a notional amount of $600mm, they want the USD to rise vs the MXP. I suppose that sets them up to buy more USD or at least participate in that direction. They've been doing this monthly since February.
Bingo
Big4 long dollars
No no no no no.....
An options execution unless offset in the cash marketplace does not effect the supply of or demand for cash dollars.
This is not intervention; t'is more speculation!
Agreed and they're spekin' for USD upside vs MXP so they could play wargames!
Gold Says, "We dont need no steen-kin dollars."
Mexican savagery at it's worst.
This is getting a little too real.
They're just still sour over the whole Texas thing.
Add Cali, NM, Arizona.
dup
Preparing to launch financial weapons of mass destruction in the currency wars of the 21st century. No one was killed, but all fiat currencies died.
One of the Tylers (at least one) is a writer. And a thumping good one.
In homage to greatness I will definitely use that phrase in my next story. You watch for it. I'm saying it and I will.
This article is silly. 600 bucks in $mxn is not that big. What strike did they sell? And there is no way the counterparties will raise "collateral" requirements on the CB of mexico. Honestly who writes this crap? A moonlighting CNBC writer trying to stir up angst.
Is this really that new? Apparently they do this every month. Feb they sold the same amount. Just asking...
Just when you think you've seen all there is... you then get something like this to come along.
I know I'm just a simple sock puppet, but is this starting to look like a house of cards?
Ok, so they sold what kind of options short against the long dollar ?
much ago about nothing. keep in mind that with billions of repurchases weekly in treasuries by the FED the idea that we're seeing some border-partners manage upcoming trade events at the end of Q3 with some forward calls which only serve to counteract Northern trade settlement is not anything new.
when I decide to sell my collection of 100 Ferrari's to the guy running Ecclectica, I'll sell some Euro-forwards as well, in order to limit volatility on final payment for delivery. because the USD has been in a downward trajectory, it's entirely reasonable to assume that Mexico saw this as *VERY CHEAP* insurance on managing its current trade account with the USA in the forward months. when Mexico stops running a surplus with the USA they'll stop selling currency forwards. frankly--- a ramping up of currency forwards would suggest that we're buying a LOT of stuff from Merxico.
Shawn A. Mesaros, Pamria, LLC
as per this http://online.wsj.com/article/BT-CO-20100927-712684.html Mexican Central Bank does this strategy every month
"The Bank of Mexico sells $600 million in options each month, which can be exercised when the peso is stronger than its 20-day average. Most have already been exercised as the peso has appreciated from above MXN13.20 to the dollar at the start of the month, which was its weakest level of the year."
Some of you are missing the point. It's the action itself that is the story. They are joining the choir in a sea of disharmony.....
umm, no, you are missing the point. this is nothing out of the ordinary, sorry to shatter the end of the world story.
Okay fine. Then you come up with an end-of-the-world story for us. Since FX is your thing, we expect something 007-ish. Currency crisis to end the world, narrowly averted and still time for drinks. Or not, go ahead and end the world outright we might find it amusing. There should be a gorgeous chick named Kitty or something, and a devious villain with perfect hair. These might even be the same person. And at some point a helicopter blows up.
[waits expectantly]
remember to listen to the crazies. the main thrist of this blog is to make us all thing hard. some ideas are created here, many worthwhile.
remember to listen to the crazies. the main thrust of this blog is to make us all think hard. some good ideas are created here, many worthwhile.
Sorry, it won't be 21st century warfare until El Banco lobs Fux$net across the border.
Then, it'll be there worm against our Worm.
Worms fighting in a Cyber-cage match! Now that is just too weird!
Not enough info to understand what the trade is, or even attempts to acheive.
I remember the last time the Mexicans tried this. http://www.youtube.com/watch?v=nsdZKCh6RsU&feature=youtube_gdata_player
Double post.
You think it's bad in the U.S. The peso is worth 1/2 of what it was vs. the dollar back in '94 when I was in Cancun getting obliterated on spring break.
Well, they know something about currency crashes since their's went down 80% 15 years ago. When Corona with a lime speaks, people listen.
Ooh that evil USA...
Meanwhile, Mexican officals tell US to stop sending Mexican criminals back to their homes in Mexico. It's causing them problems.
http://www.judicialwatch.org/blog/2010/sep/mexico-asks-u-s-stop-deportin...
If our government had any sense, we'd be giving Mexico a 2-fer by sending along one of our dangerous criminals for each of their own repatriates.
Oh that great sucking sound.... lord have mercy.. I aint buy'n Nuttin !!!
1) Counterparty would be Soros.
2) $600m seems like a piker trade for a sovereign, even if it is Mexico.
Holy crap. Would that be $600M notional?
I didn't know Mexico had nukes.
http://alanrdennis.files.wordpress.com/2010/03/taco-bell-box.jpg
Tyler:
I think this is more clever than we give the Mexican Central Bank credit for. If options written expire worthless, they keep premium. If options go against them, the refuse to honor any collateral calls thus potentially putting the U.S. bank that purchased the options in an overall hedged book in deep crap. This would require the Fed to bail out the bank purchasing the calls thus visiting a financial penalty on the Fed itself.
I was in Mexico a week ago, south of Guadalajara. U.S. dollar is no longer accepted as legal tender except in exchange for peso, by law.
umm.. is this breaking news from almost a year ago?
anything more timely perhaps..?
on Thu, 09/30/2010 - 18:34
#617256
umm.. is this breaking news from almost a year ago?
anything more timely perhaps..?
You are insatiable.
Like vs trader said this is old news....which it is. Mexican Central Bank has been doing this for months, and 600 mio usd in the peso market is not much. I trade pesos interbank....when usd/mxn ripped to the topside a couple yrs ago they came in and did auctions the other way.....selling usd for pesos. Just like Russia did, just like Brazil did, just like everyone did. All the central banks try to smooth it out when it gets one sided. I absolutely love Zero Hedge, but I'm sorry, this news is not only old, but worthless. Points on O/N swaps in the peso just collapsed to negative the past few days....now that is news that you haven't talked about. You should earn on the roll if you own pesos (mxn interest rates are higher than the US), but past few days you have actually had to pay away to own pesos.....rare event, just window dressing for quarter/month end...and the whole universe is short usd/mxn i guess....Still the market is literally impossible to trade because of the moronic robots.
I guess everyone understands it, but I will put my own 2 cents in. This market has just turned into a huge arb. The ONLY positions that get put on in all these markets are just arbs from the HFT trash. Every position that you put on is instantaneously underwater, because the only reason you will get done is because it is an arb, thats it. This market is now owned by robots that only care to make a miniscule spread and do that a jillion times a day. The one thing that everyone forgot about, is that you have eliminated all the human players that had to make some spread to stay in business. The humans are gone, and the last remaining (me) are soon to be gone. I know, you fat cat trader you deserve to lose your job, you are one of the enemies. This profession has been a living hell except for 1 year in stocks, and maybe 1 or 2 years in fx. I wouldn't wish it upon my worst enemy. The funniest thing about all this, is that people think of a trader, and then say they are filthy rich, and total scum, and so on and so forth. The only traders I know, I know a decent amount, are either out of work, most have lost their hair or are gray (me, at 35, going gray), are severely depressed, are definitely not rich, and are barely clinging to any hope at all.
Nader said the world had been invaded by aliens that were corporations, who had more privilges and not the responsibilities of persons.
Now we have the invasion of the robots, and there is no room for the human trader.
Where will the humans go to prosper?
Terminator IV: The Day of Currency Redemption.
The terminator is now the Gov. of a large western state. This was what the Computers at Skynet were planning. Money has been substituted for IOUs and thousands of pallets of IOUs are now appearing from the future (and due in the next year). These pallets are to drain the middle-class into of any chance of an American Dream and therefore into oblivion as terminator banks finish the humans off.
You get the idea?
Bernanke eats 600 mill for breakfast.
If they are selling covered calls, not a bad strategy......question is, who is buying insurance or setting up a trade based on a big move?