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US warmer than usual winter weather and drop in unemployment rate to 8.1 % lead to housing sales, prices rebound 10 % from double dip bottom, mortgage defaults rate drop from last years 12 % to April, 7.4 % However, global slowdown, due to China, housing bubble control and Euro debt crisis recession and US budget cuts will drag US housing prices in double dip housing price .
Global Housing Prices Data 2000- 2010 http://www.globalpropertyguide.com/real-estate-house-prices/U
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Crisis, risk OSA pioneer Dr. Warren Huang developed, implement Top Down Proactive Structural Asset Prices Dynamic Operations Simulation Analysis (OSA) of Value Chain Asset Prices Bubbles Burst crisis, Risks Valuation Mechanism developed out of last 30 years daily crisis, risks information knowledge based decision crises management risks analysis and crisis responses, early warning decision analysis systems, implemented by Cross functional strategic, ( top management) , execution risks OSA teams capitalize trillion dollar crisis, risks hedging maximize risks adjusted return,
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Days workshops in India Delhi and Mumbai
Oct. 21- 24, 2009 for investment consultants, banking, finance, multinational manufacturing senior executives by Dr. Warren Huang
Proactive Global Housing, Credit, Financial Crisis, Recession Operations Simulation) Forecast, complete coverage of years, months, ahead of lat 30 years and current housing, equities, commodities , MBS, ABS asset prices bubbles formation, boom and bust, early warning of derivatives hedging resulted financial crisis, avoided betting on the wrong side of investment resulted trillion dollar loss, deep recession and its impact through global macro, financial, industrial, trade economy integration and impact on daily capital market asset price mechanisms
Strategic PGFCR : Proactive Global Housing, Credit, Financial Crisis, Recession Operations Simulation) Forecast, complete coverage of years, months, ahead of lat 30 years and current housing, equities, commodities , MBS, ABS asset prices bubbles formation, boom and bust, early warning of derivatives hedging resulted financial crisis, avoided betting on the wrong side of investment resulted trillion dollar loss, deep recession and its impact through global macro, financial, industrial, trade economy integration and impact on daily capital market asset price mechanisms
Do not miss Dr.
Warren Huang lectures, panelist speakers in Feb, March 2009 on 2009
China/US economic, financial market outlook Trillion
Dollar Recession Hedge Optimal long-short ,ultra short strategy
Phase I monetary, economic, fiscal policy impact on Global Housing, Equities, Commodities, Bond, Derivatives Asset Prices Bubble Burst Mechanism and Sub-prime on Daily Prices Dynamics , Subprime, mortgage, Credit crisis, Financial , Systemic Risks impact on Recession and
Phase II Global recession impact on banking, credit, financial crisis and industrial sectors demand, prices slump and operating loss
Asian private equities, leverage finance acquisition summit , Feb 16- 17, Hong, Kong by Euromoney
China Derivatives, Summit Credit, Financial Crisis, Recession Risks Derivatives Hedging 2009 Conference, Pudong, China, March, 2009 by EUROMONEY
Trillion Dollar Recession Risks Hedging 2009 Conference, Pudong, China, March, 2009 program China
China/US 2009 Housing, Financial Crisis Impact on Recession,, and Recession , Economic Stimulus Impact on Economy , Capital Markets Forecast by Dr. Warren Huang
Proactive Structural Trillion Dollar Recession Hedging, Multiclass Asset, Derivatives Allocation Strategy panelist lecture
by Dr. Warren Huang website: www.osawh.com Hyatt Regency, Pudong, Shanghai, Mar24- 25, 2009
Global/China multiclass (Oil, commodity, Equities, Bond, Housing Asset pricing and allocation by
World Renown Proactive Structural Asset Pricing pioneer Dr. Warren Huang
Post- Conference Master Class Strategic Multi-class Asset Allocation Workshop, Terrapinn Chinese
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by Dr. Warren Huang, Pioneer OSA Global Strategic Management Proactive Recession Strategy
Shangri-La Hotel, Pudong, Shanghai, Mar 4- 6, 2008
Reservation for your in house workshop firstname.lastname@example.org/ email@example.com
Dr. Warren Huang, Pioneer of proactive structural simulation of Global Housing,
Credit, Financial Crisis, Recession , causes, onset, recovery, early warning and
impact on Economy, housing, equities, currency, commodity, asset and derivative,
prices , predicted year, month ahead of crisis and recession capitalized on
trillion dollar recession supply chain costs , investment profit while avoided trillion
dollar loss in housing MBS, CMBS, CDO, CDS investment and hedging loss
He will be the keynote speaker on 2009 US recession, credit, financial crisis , capital markets outlook and China Economic, capital market outlook responding to Infrastructure Program to boost domestic demand in fighting the global recession and crisis and panelist on Challenges on China onshore, offshore derivatives markets
Comment by Wall Street Journal Market Beat- Blog December 5, 2008 at 2:17 pm
US Sept. consumer confidence plunge to 38, ISM
manufacturing purchaser index plunge to 43 and jobless rate to 6.1 % and Dow
Jones plunged 40 % third quarter GDP contract 0.3 %core inflation up 2.9
%, warned, predict by me Sept. 2007 on this blog that US housing slump
continue , will entering double dip inflationary recession 3Q 2008 despite rate
cuts, stimulus, bail out plan and extends into deeper recession contracting by 2
% in $Q 2008 and 1Q 2009, resulted by full impact o business,
consumer spending decline due to 7.5 % jobless and 22 % housing slump, 40 %
stocks market loss
The real causes of current mortgage, credit, financial crisis and recession are due to poor financial, monetary policy decision modeling in asset pricing and risks valuation mechanism, MBS, CDO , the burst of super housing, commodities asset price bubbles caused by 7 year longest expansive excessive money supply, easy credit policy . The crisis will repeat if still using current asset prices, risk valuation financial decision models, betting on the wrong side of investment of another 5 year excessive rate cuts resulted expansion
Global central banks, financial markets financial decision still rely on 30 year old probabilistic, statistical Capital Market Asset Pricing (CAPM) and macroeconomic modeling, ignoring asset price impact on inflation and financial, housing , MBS, CDO prices.
Predicted by Dr. Warren Huang, pioneer of Proactive Global Asset Pricing Mechanism , June 2007 , Beijing, Wall Street Journal Economic, Market Beat
Blog Aug.2007 and March 5, 2008 Pudong, China Fund World 2008 to 200 global top investment banking, fund managers that Global Housing price bubble burst, prices plunge 30 % into 2009, drag global economy into recession and stocks bond, oil, commodities, metals ,Derivative Asset Prices Bubbles Burst with 50 % Price Correction Cause Credit, Financial Crisis and Economic Recession, ( As Dow Jones, SP 500, NASDAQ drag global stock indices plunged more than 50 % into 2002 recession low ,( Dow Jones after current consolidate in 8000- 9000 will test 7000, NASDAQ test 1250, S&P test 700 low, oil price plunged 50 % from 147 to 70¡AGas oil from1300 to 700 , corn from 800 to 350, cotton from 80 to 44 as global economy enter deep recession by year end, despite US 700 billion and ECB 2.3 trillion bail out to stabilize credit crisis
details on www.osawh.com/Fedcrisab.htm www.osawh.com/mortdefa.htm www.osawh.com/commody.html www.osawh.com/centmaf.html
|2007¡V2010 financial crisis|
¡@Proactive Structural OSA
(operations Simulation Analysis pioneer Dr. Warren Huang predicted 2006
on National Taiwan University International Finance Conference to global
top investment banks CEO and June,2007 Peking University International
Financial RIsk Management conference Beijing, to R. Engle ( Economic Economic
prize ) and top investment managing directors and US, Asian mortgage
banking VP, and Sept. 2007 on Wall Street Journal real time economics, market
beat that global housing prices bubble facing bursts, leading by US
mortgage ( MBS hedging) crisis will leading to 1930 and 1980 style
inflationary recession extend to 2010 --
Global Financial crisis of 2007¡V2010 while called by leading economists the worst financial crisis since the Great Depression of the 1930s. Economist Peter Morici has termed it "The Great Recession." It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. Many causes have been proposed, with varying weight assigned by experts. Both market-based and regulatory solutions have been implemented or are under consideration, while significant risks remain for the world economy over the 2010-2011 periods.
The collapse of a global housing bubble, which peaked in the U.S. in 2006, caused the values of securities tied to real estate pricing to plummet thereafter, damaging financial institutions globally. Questions regarding bank solvency, declines in credit availability, and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. Economies worldwide slowed during this ¡@period as credit tightened and international trade declined. Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st century financial markets. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts.
The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005¡V2006. High default rates on "subprime" and adjustable rate mortgages (ARM), began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006¡V2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher.
In the years leading up to the start of the crisis in 2007, significant amounts of foreign money flowed into the U.S. from fast-growing economies in Asia and oil-producing countries. This inflow of funds made it easier for the Federal Reserve to keep interest rates in the United States too low (by the Taylor rule) from 2002¡V2006 which contributed to easy credit conditions, leading to the United States housing bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load. As part of the housing and credit booms, the amount of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to drain wealth from consumers and erodes the financial strength of banking institutions. Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses are estimated in the trillions of U.S. dollars globally.
While the housing and credit bubbles built, a series of factors caused the financial system to both expand and become increasingly fragile. Policymakers did not recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. Some experts believe these institutions had become as important as commercial (depository) banks in providing credit to the U.S. economy, but they were not subject to the same regulations. These institutions as well as certain regulated banks had also assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or MBS losses. These losses impacted the ability of financial institutions to lend, slowing economic activity. Concerns regarding the stability of key financial institutions drove central banks to provide funds to encourage lending and restore faith in the commercial paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions and implemented economic stimulus programs, assuming significant additional financial commitments.
Between 1997 and 2006, the price of the typical American house increased by 124%. During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006. This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation.
In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with the MBS and CDO, which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.
The CDO in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. A CDO essentially places cash payments from multiple mortgages or other debt obligations into a single pool, from which the cash is allocated to specific securities in a priority sequence. Those securities obtaining cash first received investment-grade ratings from rating agencies. Lower priority securities received cash thereafter, with lower credit ratings but theoretically a higher rate of return on the amount invested.
By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak. As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006. This increased to 2.3 million in 2008, an 81% increase vs. 2007. By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%.
Lower interest rates encourage borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%. This was done to soften the effects of the collapse of the dot-com bubble and of the September 2001 terrorist attacks, and to combat the perceived risk of deflation.
Additional downward pressure on interest rates was created by the USA's high and rising current account (trade) deficit, which peaked along with the housing bubble in 2006. Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, which bid up bond prices and lowered interest rates.
Bernanke explained that between 1996 and 2004, the USA current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the USA to borrow large sums from abroad, much of it from countries running trade surpluses, mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country (such as the USA) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the USA to finance its imports. This created demand for various types of financial assets, raising the prices of those assets while lowering interest rates. Foreign investors had these funds to lend, either because they had very high personal savings rates (as high as 40% in China), or because of high oil prices. Bernanke referred to this as a "saving glut." A "flood" of funds (capital or liquidity) reached the USA financial markets. Foreign governments supplied funds by purchasing USA Treasury bonds and thus avoided much of the direct impact of the crisis. USA households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities.
The Fed then raised the Fed funds rate significantly between July 2004 and July 2006. This contributed to an increase in 1-year and 5-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners. This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates and it became riskier to speculate in housing. USA housing and financial assets dramatically declined in value after the housing bubble burst.
The term subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, with over 7.5 million first-lien subprime mortgages outstanding.
In addition to easy credit conditions, there is evidence that both government and competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis. Major U.S. investment banks and government sponsored enterprises like Fannie Mae played an important role in the expansion of higher-risk lending.
Subprime mortgages remained below 10% of all mortgage originations until 2004, when they spiked to nearly 20% and remained there through the 2005-2006 peak of the United States housing bubble. A proximate event to this increase was the April 2004 decision by the U.S. Securities and Exchange Commission (SEC) to relax the net capital rule, which encouraged the largest five investment banks to dramatically increase their financial leverage and aggressively expand their issuance of mortgage-backed securities. This applied additional competitive pressure to Fannie Mae and Freddie Mac, which further expanded their riskier lending. Subprime mortgage payment delinquency rates remained in the 10-15% range from 1998 to 2006, then began to increase rapidly, rising to 25% by early 2008.
Some, like American Enterprise Institute fellow Peter J. Wallison, believe the roots of the crisis can be traced directly to sub-prime lending by Fannie Mae and Freddie Mac, which are government sponsored entities. On 30 September 1999, The New York Times reported that the Clinton Administration pushed for sub-prime lending: "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people...In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."
In 1995, the administration also tinkered with President Jimmy Carter's Community Reinvestment Act of 1977 by regulating and strengthening the anti-redlining procedures. The result was a push by the administration for greater investment, by financial institutions, into riskier loans. A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage credit poured out of CRA-covered lenders into low and mid level income borrowers and neighborhoods. Nevertheless, only 25% of all sub-prime lending occurred at CRA-covered institutions, and a full 50% of sub-prime loans originated at institutions exempt from CRA.
Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio Magazine, Michael Lewis spoke with one trader who noted that "There weren¡¦t enough Americans with [bad] credit taking out [bad loans] to satisfy investors¡¦ appetite for the end product." Essentially, investment banks and hedge funds used financial innovation to synthesize more loans using derivatives. "They were creating [loans] out of whole cloth. One hundred times over! That¡¦s why the losses are so much greater than the loans."
Predatory lending refers to the practice of unscrupulous lenders, to enter into "unsafe" or "unsound" secured loans for inappropriate purposes. A classic bait-and-switch method was used by Countrywide, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated.
Countrywide, sued by California Attorney General Jerry Brown for "Unfair Business Practices" and "False Advertising" was making high cost mortgages "to homeowners with weak credit, adjustable rate mortgages (ARMs) that allowed homeowners to make interest-only payments.". When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide's financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender.
Former employees from Ameriquest, which was United States's leading wholesale lender, described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits. There is growing evidence that such mortgage frauds may be a cause of the crisis.
Critics have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include:
U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis. This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn. Key statistics include:
These seven entities were highly leveraged and had $9 trillion in debt or guarantee obligations, an enormous concentration of risk; yet they were not subject to the same regulation as depository banks.
The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps(CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions.
Certain financial innovation may also have the effect of circumventing regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks. For example, Martin Wolf wrote in June 2009: "...an enormous part of what banks did in the early part of this decade ¡V the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself ¡V was to find a way round regulation."
The pricing of risk refers to the incremental compensation required by investors for taking on additional risk, which may be measured by interest rates or fees. For a variety of reasons, market participants did not accurately measure the risk inherent with financial innovation such as MBS and CDO's or understand its impact on the overall stability of the financial system. For example, the pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. The average recovery rate for "high quality" CDOs has been approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO's has been approximately five cents for every dollar. These massive, practically unthinkable, losses have dramatically impacted the balance sheets of banks across the globe, leaving them with very little capital to continue operations.
Another example relates to AIG, which insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. U.S. taxpayers provided over $180 billion in government support to AIG during 2008 and early 2009, through which the money flowed to various counterparties to CDS transactions, including many large global financial institutions.
The limitations of a widely-used financial model also were not properly understood. This formula assumed that the price of CDS was correlated with and could predict the correct price of mortgage backed securities. Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies. According to one wired.com article: "Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008¡Xwhen ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril... Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees."
As financial assets became more and more complex, and harder and harder to value, investors were reassured by the fact that both the international bond rating agencies and bank regulators, who came to rely on them, accepted as valid some complex mathematical models which theoretically showed the risks were much smaller than they actually proved to be in practice. George Soros commented that "The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility." 
In a June 2008 speech, President and CEO of the NY Federal Reserve Bank Timothy Geithner, who in 2009 became Secretary of the United States Treasury, placed significant blame for the freezing of credit markets on a "run" on the entities in the "parallel" banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls. Further, these entities were vulnerable because they borrowed short-term in liquid markets to purchase long-term, illiquid and risky assets. This meant that disruptions in credit markets would make them subject to rapid deleveraging, selling their long-term assets at depressed prices. He described the significance of these entities: "In early 2007, asset-backed commercial paper conduits, in structured investment vehicles, in auction-rate preferred securities, tender option bonds and variable rate demand notes, had a combined asset size of roughly $2.2 trillion. Assets financed overnight in triparty repo grew to $2.5 trillion. Assets held in hedge funds grew to roughly $1.8 trillion. The combined balance sheets of the then five major investment banks totaled $4 trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $6 trillion, and total assets of the entire banking system were about $10 trillion." He stated that the "combined effect of these factors was a financial system vulnerable to self-reinforcing asset price and credit cycles."
Paul Krugman, laureate of the Nobel Prize in Economics, described the run on the shadow banking system as the "core of what happened" to cause the crisis. "As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realized that they were re-creating the kind of financial vulnerability that made the Great Depression possible¡Xand they should have responded by extending regulations and the financial safety net to cover these new institutions. Influential figures should have proclaimed a simple rule: anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank." He referred to this lack of controls as "malign neglect."
A commodity price bubble was created following the collapse in the housing bubble. The price of oil nearly tripled from $50 to $140 from early 2007 to 2008, before plunging as the financial crisis began to take hold in late 2008. Experts debate the causes, which include the flow of money from housing and other investments into commodities to speculation and monetary policy  or the increasing feeling of raw materials scarcity in a fast growing world economy and thus positions taken on those markets, such as Chinese increasing presence in Africa. An increase in oil prices tends to divert a larger share of consumer spending into gasoline, which creates downward pressure on economic growth in oil importing countries, as wealth flows to oil-producing states.
Another analysis, different from the mainstream explanation, is that the financial crisis is merely a symptom of another, deeper crisis, which is a systemic crisis of capitalism itself. According to Samir Amin, an Egyptian economist, the constant decrease in GDP growth rates in Western countries since the early 1970s created a growing surplus of capital which did not have sufficient profitable investment outlets in the real economy. The alternative was to place this surplus into the financial market, which became more profitable than productive capital investment, especially with subsequent deregulation. According to Samir Amin, this phenomenon has led to recurrent financial bubbles (such as the internet bubble) and is the deep cause of the financial crisis of 2007-2010.
John C. Bogle wrote during 2005 that a series of unresolved challenges face capitalism that have contributed to past financial crises and have not been sufficiently addressed: "Corporate America went astray largely because the power of managers went virtually unchecked by our gatekeepers for far too long...They failed to 'keep an eye on these geniuses' to whom they had entrusted the responsibility of the management of America's great corporations." He cites particular issues, including:
Dirk Bezemer in his research  credits 12 economists with predicting (with supporting argument and estimates of timing) the crisis: Dean Baker (US), Wynne Godley (US), Fred Harrison (UK), Michael Hudson (US), Eric Janszen (US), Stephen Keen (Australia), Jakob Brøchner Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer (US), Nouriel Roubini(US), Peter Schiff (US), Robert Shiller(US).
A cover story in BusinessWeek Magazine claims that economists mostly failed to predict the worst international economic crisis since the Great Depression of 1930s. The Wharton School of the University of Pennsylvania online business journal examines why economists failed to predict a major global financial crisis. An article in the New York Times informs that economist Nouriel Roubini warned of such crisis as early as September 2006, and the article goes on to state that the profession of economics is bad at predicting recessions. According to The Guardian, Roubini was ridiculed for predicting a collapse of the housing market and worldwide recession, while The New York Times labelled him "Dr. Doom". However, there are examples of other experts who gave indications of a financial crisis.
The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans from January 2007 to September 2009. These losses are expected to top $2.8 trillion from 2007-10. U.S. banks losses were forecast to hit $1 trillion and European bank losses will reach $1.6 trillion. The IMF estimated that U.S. banks were about 60 percent through their losses, but British and eurozone banks only 40 percent.
One of the first victims was Northern Rock, a medium-sized British bank. The highly leveraged nature of its business led the bank to request security from the Bank of England. This in turn led to investor panic and a bank run in mid-September 2007. Calls by Liberal Democrat Shadow Chancellor Vince Cable to nationalise the institution were initially ignored; in February 2008, however, the British government (having failed to find a private sector buyer) relented, and the bank was taken into public hands. Northern Rock's problems proved to be an early indication of the troubles that would soon befall other banks and financial institutions.
Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial, as they could no longer obtain financing through the credit markets. Over 100 mortgage lenders went bankrupt during 2007 and 2008. Concerns that investment bank Bear Stearns would collapse in March 2008 resulted in its fire-sale to JP Morgan Chase. The crisis hit its peak in September and October 2008. Several major institutions either failed, were acquired under duress, or were subject to government takeover. These included Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, and AIG.
During September 2008, the crisis hits its most critical stage. There was the equivalent of a bank run on the money market mutual funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls. Withdrawal from money markets were $144.5 billion during one week, versus $7.1 billion the week prior. This interrupted the ability of corporations to rollover (replace) their short-term debt. The U.S. government responded by extending insurance for money market accounts analogous to bank deposit insurance via a temporary guarantee and with Federal Reserve programs to purchase commercial paper. The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008.
In a dramatic meeting on September 18, 2008 Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with key legislators to propose a $700 billion emergency bailout. Bernanke reportedly tells them: "If we don't do this, we may not have an economy on Monday." The Emergency Economic Stabilization Act also called the Troubled Asset Relief Program (TARP) is signed into law on October 3, 2008.
Economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner explain the credit crisis via the implosion of the shadow banking system, which had grown to nearly equal the importance of the traditional commercial banking sector as described above. Without the ability to obtain investor funds in exchange for most types of mortgage-backed securities or asset-backed commercial paper, investment banks and other entities in the shadow banking system could not provide funds to mortgage firms and other corporations.
This meant that nearly one-third of the U.S. lending mechanism was frozen and continued to be frozen into June 2009. According to the Brookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: "It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume." The authors also indicate that some forms of securitization are "likely to vanish forever, having been an artifact of excessively loose credit conditions." While traditional banks have raised their lending standards, it was the collapse of the shadow banking system that is the primary cause of the reduction in funds available for borrowing.
There is a direct relationship between declines in wealth, and declines in consumption and business investment, which along with government spending represent the economic engine. Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth. By early November 2008, a broad U.S. stock index the S&P 500, was down 45 percent from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion. Since peaking in the second quarter of 2007, household wealth is down $14 trillion.
Further, U.S. homeowners had extracted significant equity in their homes in the years leading up to the crisis, which they could no longer do once housing prices collapsed. Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.
To offset this decline in consumption and lending capacity, the U.S. government and U.S. Federal Reserve have committed $13.9 trillion, of which $6.8 trillion has been invested or spent, as of June 2009. In effect, the Fed has gone from being the "lender of last resort" to the "lender of only resort" for a significant portion of the economy. In some cases the Fed can now be considered the "buyer of last resort."
Economist Dean Baker explained the reduction in the availability of credit this way:
"Yes, consumers and businesses can't get credit as easily as they could a year ago. There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression. This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On the other hand, a homeowner who has no equity is a serious default risk. In the case of businesses, their creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in November 2007 (of course, to clear-eyed analysts, they didn't look too good a year ago either). While many banks are obviously at the brink, consumers and businesses would be facing a much harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth. Economists, economic policy makers and economic reporters virtually all missed the housing bubble on the way up. If they still can't notice its impact as the collapse of the bubble throws into the worst recession in the post-war era, then they are in the wrong profession."
At the heart of the portfolios of many of these institutions were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the credit derivatives used to insure them against failure, caused the collapse or takeover of several key firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS.
The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities and commodities.
Both MBS and CDO were purchased by corporate and institutional investors globally. Derivatives such as credit default swaps also increased the linkage between large financial institutions. Moreover, the de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the liquidity crisis and caused a decrease in international trade.
World political leaders, national ministers of finance and central bank directors coordinated their efforts to reduce fears, but the crisis continued. At the end of October 2008 a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.
A number of commentators have suggested that if the liquidity crisis continues, there could be an extended recession or worse. The continuing development of the crisis has prompted in some quarters fears of a global economic collapse although there are now many cautiously optimistic forecasters in addition to some prominent sources who remain negative. The financial crisis is likely to yield the biggest banking shakeout since the savings-and-loan meltdown. Investment bank UBS stated on October 6 that 2008 would see a clear global recession, with recovery unlikely for at least two years. Three days later UBS economists announced that the "beginning of the end" of the crisis had begun, with the world starting to make the necessary actions to fix the crisis: capital injection by governments; injection made systemically; interest rate cuts to help borrowers. The United Kingdom had started systemic injection, and the world's central banks were now cutting interest rates. UBS emphasized the United States needed to implement systemic injection. UBS further emphasized that this fixes only the financial crisis, but that in economic terms "the worst is still to come". UBS quantified their expected recession durations on October 16: the Eurozone's would last two quarters, the United States' would last three quarters, and the United Kingdom's would last four quarters. The economic crisis in Iceland involved all three of the country's major banks. Relative to the size of its economy, Iceland¡¦s banking collapse is the largest suffered by any country in economic history.
At the end of October UBS revised its outlook downwards: the forthcoming recession would be the worst since the Reagan recession of 1981 and 1982 with negative 2009 growth for the U.S., Eurozone, UK; very limited recovery in 2010; but not as bad as the Great Depression.
The Brookings Institution reported in June 2009 that U.S. consumption accounted for more than a third of the growth in global consumption between 2000 and 2007. "The US economy has been spending too much and borrowing too much for years and the rest of the world depended on the U.S. consumer as a source of global demand." With a recession in the U.S. and the increased savings rate of U.S. consumers, declines in growth elsewhere have been dramatic. For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 18% in Latvia, 9.8% in the Euro area and 21.5% for Mexico.
By March 2009, the Arab world had lost $3 trillion due to the crisis. In April 2009, unemployment in the Arab world is said to be a 'time bomb'. In May 2009, the United Nations reported a drop in foreign investment in Middle-Eastern economies due to a slower rise in demand for oil. In June 2009, the World Bank predicted a tough year for Arab states. In September 2009, Arab banks reported losses of nearly $4 billion since the onset of the global financial crisis.
Real gross domestic product ¡X the output of goods and services produced by labor and property located in the United States ¡X decreased at an annual rate of approximately 6 percent in the fourth quarter of 2008 and first quarter of 2009, versus activity in the year-ago periods. The U.S. unemployment rate increased to 10.2% by October 2009, the highest rate since 1983 and roughly twice the pre-crisis rate. The average hours per work week declined to 33, the lowest level since the government began collecting the data in 1964.
On November 3, 2008, the EU-commission at Brussels predicted for 2009 an extremely weak growth of GDP, by 0.1 percent, for the countries of the Euro zone (France, Germany, Italy, etc.) and even negative number for the UK (-1.0 percent), Ireland and Spain. On November 6, the IMF at Washington, D.C., launched numbers predicting a worldwide recession by -0.3 percent for 2009, averaged over the developed economies. On the same day, the Bank of England and the Central Bank for the Euro zone, respectively, reduced their interest rates from 4.5 percent down to three percent, and from 3.75 percent down to 3.25 percent. As a consequence, starting from November 2008, several countries launched large "help packages" for their economies.
The U.S. Federal Reserve Open Market Committee release in June 2009 stated: "...the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability." Economic projections from the Federal Reserve and Reserve Bank Presidents include a return to typical growth levels (GDP) of 2-3% in 2010; an unemployment plateau in 2009 and 2010 around 10% with moderation in 2011; and inflation that remains at typical levels around 1-2%.
The U.S. Federal Reserve and central banks around the world have taken steps to expand money supplies to avoid the risk of a deflationary spiral, in which lower wages and higher unemployment lead to a self-reinforcing decline in global consumption. In addition, governments have enacted large fiscal stimulus packages, by borrowing and spending to offset the reduction in private sector demand caused by the crisis. The U.S. executed two stimulus packages, totaling nearly $1 trillion during 2008 and 2009.
This credit freeze brought the global financial system to the brink of collapse. The response of the USA Federal Reserve, the European Central Bank, and other central banks was immediate and dramatic. During the last quarter of 2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. This was the largest liquidity injection into the credit market, and the largest monetary policy action, in world history. The governments of European nations and the USA also raised the capital of their national banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their major banks.
Governments have also bailed-out a variety of firms as discussed above, incurring large financial obligations. To date, various U.S. government agencies have committed or spent trillions of dollars in loans, asset purchases, guarantees, and direct spending. For a summary of U.S. government financial commitments and investments related to the crisis, see CNN - Bailout Scorecard.
United States President Barack Obama and key advisers introduced a series of regulatory proposals in June 2009. The proposals address consumer protection, executive pay, bank financial cushions or capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important institutions, among others.
A variety of regulatory changes have been proposed by economists, politicians, journalists, and business leaders to minimize the impact of the current crisis and prevent recurrence. However, as of November 2009, many of the proposed solutions have not yet been implemented. These include:
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2009- 2010 China/US housing prices bubbles burst impact on credit, financial crisis, recession stock markets outlook
Dr. Warren Huang was the full day master class workshop lecturer for Terrapinn Fund World China 2008 ,conference, Shanghai Pudong Shangri-La hotel, March 6 offer Proactive structural China/global asset pricing, credit tightening, recession impact on BRIC,Optimal 1xx/xx long-short hedging, asset allocation strategy
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Comment by -Wall Street Journal market beat blog and Yahoo finance July 19, 2008 at 8:17 pm
Government unprecedented and coordinated steps ( seizure IndyMac, Paulson Fannie, Fredie rescue plan, SEC restriction on naked short) did temporarily stabilized stock market;, Dow Jones rebounded from 10900 to 11500, NASDAQ from 2167 to 2305 lead by banks stock 30 % rebound( WFC, MER, MS, despite huge loss and writedown and banking stock index market bull attempted to break the bear trend, start bullish again, the financial market turbulence and restore some investors confidence.
But all these steps can not, did not remove the root causes of financial crisis, Benanke economic difficulties : housing market slump, soaring job cut s, inflation and financial market strain will be with us until these situation improves.
Financial market price are driving by market economy price mechanism, which fully integrated into macro- financial industrial economy, banking, financial, housing stock price slump are driven by the burst of super housing price bubble continued correction to its affordable level, led to mounting job cuts consumer confidence slump 1980 level, soaring inflation drive up to inflationary recession.
It will be dangerous to assume that all the crisis will be over by these step repeating April bull run, that is the same situation in G7 intervention on currency never stop the currency crisis which are driven by interest rate spread, and trade balance, banking financial stock price are driven by two master hands : the macro economic and the housing, industry health.
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Comment by -on Wall Street Journal Real Time Economic Paulson Financial Regulation Blog March 31, 2008 at 11:53 pm
Dr. Warren Huang will be risk management panelist and full day master class workshop lecturer for Terrapinn China Fund World
2008 conference, Shanghai Pudong Shangri-La hotel, March 6 offer Proactive structural China/global asset pricing,
2008 credit tightening, recession impact on BRIC,Optimal 1x0/x0 long-short hedging, asset allocation strategy
2008 China/US housing prices bubbles burst impact on
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Dr. Warren Huang accurately warned US heading for recession summer 2008 , oil go to 100, US, global stocks
give up all their gain since 2006 despite rate cuts on Wall Street Journal Market beat Blog Sept. 19, 2007
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Don't Miss This lectures opportunities in China/global oils strategic corporate governance, enterprises risk management conference Nov. 17-18 Beijing, China World Hotel for China/Global oil upstream/downstream, banking, finance, CEO ,CFO, board members, auditing and management teams, share holders ,investment, supply chain senior executives proactive decision analysis training provide the latest forecast of global/China oil upstream/downstream future, derivative prices, investment strategy.
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Dr. Warren Huang BIO Dr. Huang has 30 years experience in development, implementation of proactive strategic structural simulators tracking for Mobil, Phillips Petroleum, SINOPEC , Asian Consulting. He predicted last 20 years emerging market trend of global oil, gas upstream/downstream futures, derivatives , listed stock prices, financial, energy crisis, corporate scandals early warning for investment, supply chain, marketing strategy for multinationals, SOE
board members, executives training . He spoke to global central banks governors, risk management conferences wrote 35 articles for US Oil & Gas Journal,Hydrocarbon Processing , Advanced Process Control , Information System Handbook 1991-2005. Millions global executives visited his website www.osawh.com/hp2001h.html .> reserve your in-house workshop Oct- Nov, 2005, your office : email@example.com/ firstname.lastname@example.org
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Dr. Warren Huang will share with you his 30 years hundreds multinational , SOE oils, gas energy financing project managers and consulting experiences in his key note speech and workshop for Asian Business Forum
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Dr. Warren Huang, OSA pioneer of two master hands thousands structural dynamic quantitative models simulators tracking, forecasts controlling , forecast years, month ahead last 20 years global macro economy, business cycles, currency, 1980, 1990, 2000 and current energy crisis and daily capital market interest rates, currency, commodity, 20 industrial sectors 5000 products asset prices.
He has develop, implemented thousands structural, dynamic causes and effect, response deterministic simulators tracking, simulate, forecast, accurately predicted months ahead monetary, economic, fiscal, WTO policy impact on global economic, business cycles, the root causes, onset, recovery, early warning of last 20 years global macroeconomic control, daily capital market asset prices, asset allocation, interest rates, business cycles, liquidity, , providing the what, why, how and when and full support of Basel II three pillars market, credit defaults, operational risk s, financial, cost accounting monitoring, scandal bubbles early warning supervision, regulation, control, minimize Basel II capital requirement, maximize transparency and risks adjusted profit, avoided trillion dollar market NPL loss due to current unreliable VAR credit estimate and Risk Matrix rating and Monte Carlo probabilistic defaults risk measurement , offered thousands investment strategy and risk management workshops for thousands US, Taiwan, China, Asian central banks, banking, securities, SOE, SME companies CEO, CFO, fund managers, trade, risks managers and 30 million China, Taiwan, US 15 cities TV, radio banking, finance, executives, investors tracking daily stocks , currency, bond commodities prices , investment strategy, risks control, invited to speak to ECB, FRB, UK, China Peoples Bank, Taiwan, Asian 24 global central banks governors, IMF, BIS financial risks management, econometric, wealth management conferences to speak on "Asset Prices Simulation, forecasts, early warning for last 20 years Global Financial, Banking Crisis, Recovery, economic, business cycles, interest, currency , liquidity , Market, Credit, Operational Risk Management for financial markets speculation bubble since 1998, published 20 English articles on US Oils & Gas Journals and US Hydrocarbon Processing Advanced control and information systems handbook 1991-2003 , for 1600 multinationals from 78 countries, tracking ,simulate, forecast market forces demand, prices mechanism, market, credit, operational risks for oil, petrochemicals, upstream/downstream, end users 20 industrial sectors, 5000 products : www.osawh.com/hp2001h.html , and thousands Chinese articles for China, Taiwan, US daily newspapers, investment, economic, finance, trade journals supporting 15 cities, TV, radio station banking, finance, fund managers, investors global asset allocation, risks and profit control optimization
Dr. Warren Huang key note speech and workshop for China gas, LNG, LPG conference Feb 24-25, 2005, Beijin on
A. China oil, gas policy and gas industry structures
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Speaker, Dr. Warren Huang, Pioneer, Global leader, scholar in Global Strategic Management
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cost, profit, quality, market shares, risks performance oriented risks strategic, execution OSA teams, develop, implement risks information knowledge based, structural, dynamic causes, response simulators tracking, supervise, monitoring, predictive integrated operational, credit, markets risks and minimize risk associated capital requirement, financial accounting auditing for entire portfolio, transaction risks and profit control full transparency, support Basel II three pillars of risks management
A. OSA-Country Risks: Country inflation/Deflation economic and business cycle, capital flow, currency, systemic credit, nonperformance loan, banking crisis and default risks simulation and control
B. Basel II-Credit Risk OSA: Integrating macro-economic imbalance, currency, commodity, interest rate, stocks bond, derivative market trading, policy, operational risks into consumer and business loan, credit liquidity default risks simulation, forecasts, early warning , control, support Basel II three pillars of risks management
F.Basel II Market Risk OSA; Monetary, economic, fiscal Policy, WTO, external shocks impact on global money, bond, currency, stocks, energy, commodity futures, derivatives markets price risks simulation, forecasts, early warning control support Basel II three pillars of risks management
G. Basel II Commodity: Risk OSA Policy, currency, oil prices, supply/demand impact on Energy, Feed grain, food, metals, fibers futures and derivative prices resulted trading loss simulation.
Basel II Currency: Risk OSA Interest rate spread, trade impact on daily global currency , and it's derivatives prices dynamic , the onset of currency crisis risks simulation and control
B. Basel II- Interest Rate Risk OSA : Monetary, economic, fiscal WTO, Policy, currency, inflation, commodity price shocks impact on short , long term interest rate, treasury and corporate bond spread and it's derivatives prices risks simulation , control
G. OSA-Merger RIsk: Policy, external shocks, technology innovation impact on pre/post merger/acquisition cost/benefit, profit margin, stock prices performance risks simulation, control.
Big is not beautiful, it is risky: presented by Dr. Huang on JP Morgan sponsored post EURO banking and finance integration and risk management strategy Nov. 26, 1998, Rome Italy
He warned banking finance industry mega merger emphasized on staff reduction nbenefit and diversification , ignored post merger integration improvement on risk management decision making resulted Citigroup, UBS billion dollar loss in RUssian, and LTCM crisis.
Dr Huang accurately predicted Chase Manhatten 36 billion dollar merge JP Morgan failed to supportDow above 11200 it will be another one day rally, finance, JMP will give all it's gain to 150, Chase plunge to 45 drag Dow down to test 10200 soon as Chase- JPM merger will not help boost the stock market trading volume, while facing addition market slump related crisis as both companies already experienced) 12/9/200)
Goldman Sach(GS)merger Spear Leed, stock market maker for 7 billion will not help GS near term perfo rmance due to IPO slowdown and falling stock prices and trading volume. GS shares will test 120 .(11/9/2000 HWP as predicted by Dr. Huang will testing 100. dispite HWP merge Pricewaterhouse for 17 billion are too expensive, will not help ne ar term HWP profit margin. HWP will be testing 100 (11/9/2000)
UBS offered 11.6 billion to merge Donaldson Lufkin
( the merger is too expensive and risky for UBS which just recoverd billion dollars loese in 1998 Russian and LTCM crisis , will face markets slump risk in year end. UBS share will be down in the range 110 ans 150
Globa banking and finance stocks are overpriced through speculated on waves of global finance mega mergers in Duetsch bank- Banker Trust, and other mergers can not improve it's near term peroformance in global slowdown in loaan demand, slumping stock prices and even exposed to biger nonperformance loan default risks. These stocks prices will give all it's gain in the earning decline news month ahead
H.OSA-Procurement: Monetary policy, macroeconomic, currency, oil price shock impact on global oil, petrochemicals, plastics, fibers, commodities, semiconductor raw material prices strategic procurement management
I.OSA-Real Estate Risk: Monetary policy, commodities prices shock, stock markets wealth effect, inflation, capital flow impact on residential, office properties prices and rent, nonperfromance loan risk simualtion, control ,
K. OSA Eonomic, Business Cycle Risk:: Monetary policy, external shock impact on inflation, GNP, unemployment, wages, consumer confidence, auto, housing, appliance, electronic demand, export, purchasing managers index etc.
L. Profit Margin and accounting malpractice risks: Simulation of monetary, economic, fiscal policy impact supply, demand, prices,profit margin, provide pre-warning of ENRON, TYCO, Global Crossing accounting malpractices.
When you have Dr. Huang's two OSA master hands you are in good hands for global central banks macro-economic control , prices stability and capital market prices simulation, forecasts , value investing strategy, wealth management, risk hedging tracking/forecasts month ahead the root causes, onset, spread, recovery of Asian/Global financial crisis, asset bubble bursts lecture to 24 global central bank governors, wealth management, financial market risk management conferences and millions global central banks, banking, finance, corporate CEO, executives on this website since 1998 , over 30 million China, Taiwan, Asian, US , ASEAN, European executives, investors on TV, radio programs and thousands workshops since 1985 and again in 2003 to Euro-events Singapore http://www.euro-events.com/conf/afcm2003/ with excellent feedback photos 1, 2, 3 lecture ppt , Shanghai, Beijin Nov. Asian/China Finance, Capital Markets conferences, www.euro-events.com/conf/cfcm2003 he was excellently received picture 2 and to China economists meeting Fudan University, Shanghai , Dec. over 2000 QFII/QDII executives, identify month ahead, investment opportunities in China ADR Hong Kong H shares, China A shares and early warning for asset bubbles in commodities prices reaching 19 year peak, will drive US CPI to 2.6 %, core inflation to 1.7 % in the summer , overoptimistic over US economic recovery and job creation, inflation outlook serious housing bubble will lead to rate hike, despite high unemployment in the election year and global IT and blue chips banking shares facing and correction 2004, Dow will be traded 9750- 10500, Nasdaq 1900- 2090 , Taiwan index 6000- 7000, Henseng 12500- 14000, Nikkei 10000- 11500, China credit tightening continue. Shanghai A 1600- 1750, Shenzhen 3500- 4100, Euro : 1.18- 1.29 , Yen 105- 112, US, Asian and European stocks gave up all this year gainHundred thousands integrated, global structural, dynamics, deterministic proprietary model simulators
first time shown on this website the most reliable global stock indices , currency OSA simulation charts
OSA Simulation Charts tracking forecasts 1-3 month ahead monetary policy on last 20 years daily financial , currency crisis:
A. Consumer spending, Fed Fund rate, Dollar exchange rate impact on Dow Jones Index
B. Japan money supply growth, Yen exchange rate, Dow Jones impact on Tokyo Nikkei index
C. EU money supply growth, EURO exchange rate, Dow Jones impact on German DAX index
D. Hong Kong money supply growth, interbank rate, Dow Jones impact on Henseng index have been developed, implemented supporting the following goal, mission, performance oriented outsourcing strategic centers corporate/ memberships/ workshops tailored to global government, enterprises, banking, finances enterprises board members, think tank and executives in integrating into the global markets decision needs:
He spoke to Beijin University Finance, Business center sponsored Global finance conference on "Global stocks, asset prices simulation, risk management May 28-29 He warned that US and Asian, Euroepan market analyst, economist overopimistic over US recovery, stock, fund overheated for 30-50 % correction, Dow Jones plunged below 8000, Taiepi stock index test 4400-4700, Henseng, Nikkei test 9000, but Cina Shanghai A rebound from 1450 to 1750. He introducing his thousnads of proprietary strategic OSA simulators maximize global investment banking profits at minimum risks through tracking accurately last 20 years monetary, economic , fiscal policy impact on global capital markets investment banking decsions during crisis :
The Root Causes, Onset, recovery of Global Financial Crisis and risk management
Dr. Huang just return from Asia, lectured to Asian Business Forum's European, Asian central banks, stock exchanges, banking, securities executives on global nonperformance loan debt, equities, properties asset prices , credit risk simulation, investment strategy and Asset Backed Securitization workshops: predicting the unpredictable futures to minimize bad loan ,shares buy back procurement , investment costs and credit defaults risks due to corporate scandal and global economic, cycle, financial crisis integration, interaction impact on interest, currency,industrial demand, prices, the causes, onset, history , recovery of of nonperformance asset bubble bursts, default maximize investment return, auction resell , syndicated loan value recovery, workshops by thousands proprietary OSA simulation charts supporting daily financial engineering, structural finance application to Global Capital Markets Asset Management, Credit defaults risks control on this website
He will offer in-house workshops in Asia reserve :email firstname.lastname@example.org
Two master hands controlling global capital market, asset prices, bubble bursts early warning risks
2002 US and Global Stock Market Crash OSA :Strategic decision failure on Bubble burst corporate Infectious Greed ,Scandals, plunging dollar cutting into investors, consumer confidences
What is wrong with Wall Street and global financial market?, chasing, speculation resulted bubbles
Why markets crash 30 % ? Where is the bottom ? WHen to invest ? What Wall Street need ?
It is premature to speculate Fed rate cut to support the stock bond market: 40 year low rate already give trouble to soaring deficit and plunging dollar, drag further the stocks and bond
How to predict the unpredictable global economic bubbles, global financial markets crash
Global Economy and Financial Markets Prices Simulation for Global Central Banks, Investment Banking and Finance Crisis Real Options Risk OSA ( Operations Simulation Analysis)Control, for government, regulation, suvervision and accounting malpractices pre-warning:
Real Time Dynamic simulation of Global central banks Monetary, economic, fiscal Policy Impact on daily money, currency, industrail supply, demand, supply, prices, corproate earning, stocks, bond, commodity, financial futures and derivatives markets prices including the causes, onset, spread, recovery of Asian, Russia, South America Financial Crisis and LTCM hedging fund failure and current US High tech prices bubble bursts, recession, recovery impact on the new economy boom and bust and financial systems stability with applications to global banking and finance , corporate pre/post merger integration performance improvement and daily accounting malpractices, credit default risk management for stocks markets, banking and insurance companies regulation, supervision.
Dr. Warren Huang has offered thousands seminars, workshops, daily
commentary to TV, radio lectures for 30 million China, Taiwan,15 cities
(Beiin, Shanghai, Shenzhen, Guanzhou, Taipei) ASEAN, Asian, US government, central banks,
banking, finance, corporate CEO, CFO, senior executive, fund managers, analysts,
investorson GNP growth, price stability risks control policy, government, financial
industry, Corporate reform, reengineering, default risks supervision, regulation,
prevention, daily global financial market portfolio, real estate properties markets
bubble risks management, supply chain cost reduction on the job training , decision
support for internet e-commerce, e-business, e-finance, e-investment applications
Global Economic, Financial, Banking Crisis, Causes, Onset, Spread, Recovery, Risks Simulation, Prevention Pre-Warning
by Dr. Warren Huang, pioneer, OSA email email@example.com
Simulation of monetary policy impact Analysis
Monetary Policy, Oil Prices Impact on Global Financial, Energy Crisis, Recovery, Risk Control
The author has spend half of his time in Taiwan, ASEAN, Asia( 1980- 1996) and China, Hong Kong(1994-1998 with Ji in China), and US(1998-2001), in developing, implementing dynamics Operations Simulation Analysis (OSA) of global central banks monetary, economic policy, oil prices impact on daily EURO, Asian, US, global macro economy, daily financial markets normal, crisis dynamics during 1980 and 2001.
A: Root Causes of EURO, Asian and Global Economic Boom and Bust, Financial Markets Crisis, Risks Simulation :
These real time simulation systems tracking successfully the root causes of all global economic bubble boom and bust, financial, banking ,energy crisis and associated risks came from excessive government fiscal, central banks monetary policy and global players hot money speculation resulted soaring properties, stocks prices, labor costs and associated asset bubble, wealth effect led to soaring consumer, business demand, rising oils and commodity prices, imports costs, declining export, shrinking trade surplus or expanding trade, current account deficit and overpriced currency and properties, equities prices. And eventual markets crash and crisis.
B. Simulation of the Onset of EURO, Asia, Global Currency Crisis:-Instantaneous releasing overpriced stress
These simulators tracking the real causes and the onset of the 1992 European, 1994, China, 1995, Mexico, 1997 Thailand, 1998 Korea and Indonesia , Russia, Brazil currency, financial crisis at moment widening trade deficit (approaching one billion monthly) and current account deficits lead to overpriced currency and the onset of crisis:- currencies plunge to release it's overvalued stress, returned to new rational equilibrium. UK and Sweden, Italy suffered currency plunge 1992, due to widening trade deficit . while Thailand, central bank float the Bhat (has been fixed at 25 for 4 years), in July 1997, it plunge to 50, S. Korea in Nov, Won plunge to 2100, and Sept, Russia float the ruble, and 1999 March, Brazil float it's Real all at the wrong time ( at one billion US dollar monthly trade deficit and current account deficit,) the currency take the plunge as shown in the simulation charts in the conference), and Singapore dollar, Taiwan NT dollar dropped 30 % reflecting shrinking trade surplus and turning into trade deficit. US dollar plunge to 102 Yen from 147 at the time Greenspan announce interest rate cuts in winter 1998, as it's trade deficit soared to 26 billion due to wealth effect resulted soaring stock prices, import demand and tripled oil prices.
C. Simulation of The Onset of Global Stock Markets Crash Crisis Dynamics:- releasing overpriced stress
These global stock markets dynamic simulators tracking instantaneous markets reacting to rising interests rates, credit tightening ( to fight inflation and stabilize the currency, created credit crunch. The currency and stock markets crashed to it's rational level, to release it's overpriced stress to new equilibrium resulted trillion dollars loses . Global financial market analysts have short memory on the interest rate hike impact on stock prices despite interest rate hikes lead to Asian crisis which Thailand raised interest rate to 25 % to stabilized Bhat at 50, took the Bangkok SET index plunge 70 % from 1000 to 250, Hong Kong raised it's short term interest rate to 19 % to defend it's HK dollars stock to US dollar, took the Henseng index plunge 60 %(from 12500 to 6200),Singapore raised interest rate to 12 % to stabilize the currency, Singapore Strait Times drop 60 %, Taiwan Index down 48 % . US Dow Plunged from 11300 to 9000 , Nasdaq from 5100 to 1800 this year and EURO stocks retreat 20 % reacting to US Fed and ECB interest rate hikes to cool-off the overheated US, EURO stocks bubble in internet and biotech and housing, labor markets due to wealth effect created excessive consumer, business demand. Similar crisis onset in 1987 US Dow Jones, 1990 Japan cut money supply from 13 % to 5 % to cooloff the bubble economy due to soaring stocks, housing markets, took Nikkei plunge 38000 to 20000, Taiwan raise interest from 6 % to 14 % took stock plunge form 12400 to 2400 and in 1992 European currency, crisis took stock plunge 40 %, 1994 China runaway inflation caused by 100 % currency depreciation, Shanghai A index plunged from 1500 to 333, reacting to doubled interest rates hike and Mexico crisis peso and stock market plunge 50 % Brazil index plunged from 8500 to 5400 reacting interest rate hike from 40 % to 70 %
D. Simulation of the Spread and capital out flow, banking default of EURO, Asian and Global Currency Crisis:
Thousands expert systems based simulators tracking, simulating the causes and spread of the past major global financial market currency crisis, FDI capital In/outflow, banking default and risks in the last 20 years are due to global central banks and financial markets decision makers. The spread of global financial crisis and default risks are caused through excessive central banks money supply followed by global players capital inflow speculating the overheated financial markets and outflow created market plunge resulted nonperformance loan and credit default(simulation results shown in the conference demonstrated the spread of UK, EURO currency crisis in 1992, Thailand currency plunge spread into ASEAN country, Hong Kong, Taiwan, S Korea, Russia default resulted LTCM into US and EURO , Brazil and Japan and this year s trillion dollars market loses in US, Taiwan, Korea are of poor investment strategy in US properties, stocks and Asian stocks and manufacturing industries caught in excessive money supply and global short term capital (hot money) inflow resulted overheated bubble economy (skyrocketing properties, stock prices and labor costs, declining export, widening trade, current deficit,(with one billion trade deficit) Indonesia, Russia were complicated by internal political turmoil, resulted global player pulling capital outflow resulted currency, stocks, properties prices plunge .
E. Simulation of Global Monetary, Economic Policy, oil prices Impact on Post Recovery of Asian and Global Financial Markets Crisis:
These systems tracking, simulate the IMF rescue plan progress results and the recovery of ASEAN, Asian, Russia, Brazil and LTCM betting on the wrong of interest rates(US T-Bond and Fed fund rates) and bond yield spreads. And predicted US Fed three interest rate cuts lead to fast US and Asian stock market rebound and economic recovery:, reduce the interest rate spread ,took the pressure off Asian currency , dollar tumbled from 147 to 111 While most ASEAN and Asian troubled country benefited by high interest rate, falling commodities prices, reduced domestic demand, imports, cheap currency lead to soaring export and trade surplus(S. Korea has 40 billion ) and soaring export growth, are able to cut interest rates to the pre crisis level., and maintain stable currency, lead to stock markets more than tripled S. Korea already lead the recovery enjoy 11 % GNP Japan has 9 % GNP growth, Thailand, Hong Kong, Singapore return to 10 % growth., China back to 8.1 % Taiwan back to 7 % growth getting out of recession and deflation ..
These systems predicted on May 1999 Macao's central banks policy conference the first US interest rate hike to fight domestic inflation due to soaring oils prices, and demand, 5 other interest rate hikes in the author's 16 int'l conferences later (ref. 1-18)
These systems accurately predicted US and EURO 1999 last quarter excessive money supply for Y2K resulted soaring global stocks and housing markets(asset bubble), resulted wealth effect led to runaway consumer, business spending debt resulted labor shortage forced Greenspan took series interest rate hikes in 2000 to cool-off the stocks, housing markets, reduce consumer, business demand. These simulators accurately predicted in early 1999 that global financial markets analysts overoptimistic over second half 2000 and 2001 earning outlook Dow 15 % plunge, Korea, Japan, Taiwan, Thailand follow Nasdaq plunge 60 %, Dow plunged into 9100 bear market and US NAPM index plunge to 41.7 recession low resulted Greenspan 0.5 % rate cut with global high fliers internet, biotech IPO stocks plunge 50 % to 95 % will drag Asian stocks into 50 %, EURO stocks into 20 % correction .
Goal Mission, Performance oriented multidisciplinary Risk Operations Simulation Analysis(OSA) strategic and execution teams for risk management and restructuring, reengineering
Hundreds risks OSA teams have been implemented in Taiwan, China, US: ASEAN by the author , Integrating daily central banks monetary operation into banking, financial markets debt restructuring, pre and post merger integration performance improvement, transparency, supervision, Basal, Prudential Regulations tracking and prevent various financial systemic risk related nonperformance loan and credit defaults and government, banking, financial markets, corporate reform, reengineering , management, technological innovation to improve global competitiveness
On the job training workshops and Academic University Teaching and Research: The author has offered these methodology and systematic analysis to thousands risk management workshops in China, and Taiwan 14 major cities nationwide TV, radio program lectures to 30 million government, banking, finance executives, managers, investors and trained over 1000 chemical engineering, economics, global strategic management operations research senior and graduates teaching and research program`.
Pre and post crisis recovery Simulation results of EURO, Thailand, Japan, Korea, Singapore, Hong Kong, China, Taiwan , US inflation, GNP, interest rates, FDI capital flow, bank defaults rate, properties prices, Currency, stock, bond index, profit margin and corporate stock prices simulation will be demonstrated in the conference
Monetary Policy Impact on Global Money, Currency, Stocks and Derivatives Markets Prices Risks simulation, control
Global central bankers have been facing daily challenges, risks from the macro economic growth ,financial market prices stability in the trillion dollar Asian, Russia, Brazil currency crisis and the mature financial markets turbulence like 1998 summer 4 billion dollar LTCM failure betting on the wrong side of interest rate, bond spread and global stock markets trillion dollars loses due to ignoring EURO, US interest hikes impact on global slowdown, corporate earning decline, stock prices plunge 50- 90 % and global credit crunch in 70 trillion dollar financial derivatives markets.
The global central bankers are playing dual role in provide prudent monetary policy to achieving nations price and growth stability and monitoring it’s impact on the economics and daily financial market dynamics ( normal and crisis discontinuous) responses and supervising the banking industry providing prudent credit decisions to support the economic growth and healthy financial markets trading process.
F5 Day US Macroeconomic, Housing , equities bubble control and Default Crisis Early Warning the causes, onset, recovery, early warning of mortgage default , credit crises
Monetary Policy Impact on Global Economics ,Banking, Financial Crisis, Systems Risks Simulation:
Monetary Policy impact on Derivatives for Global Strategic Cost Reduction and Risk Management:
Almost 100 trillion dollars have been traded for commodities, and financial derivatives extensively by the global financial industries for oil, gasoline, heating oil, raw material costs, interest rate, currency and markets risk reduction management, while hedging fund have exposed to three trillions dollars on the leverage fund management, which all relied on the current unreliable risk and options models, which required probability input and betting on the wrong side of the interest rates, currency and stock, bond prices. This paper will present our options/warrants prices models are much simpler and more reliable than Black-Schole formula. Since it provide direct tracking, simulation of central bankers monetary policy impact on interest rate, currency, financial, commodity futures prices , corporate profit margin and stock prices simulation and integrate into the financial derivatives call/put options, warrant calculation( striking price, date to expiration, and the simulation of current prices).
US housing prices bubble Simulation /Forecasts:
This equation predicted US 6 year economic expansion since 1995, Dow Jones tripled from 3600 to 11400 , Nasdaq soared 5 times lead to wealth effect pushed nationwide housing price index up 50 % in 2000 with some major high tech cities like San Francisco, Silicon Valley, Boston, NY, prices even tripled. These repeat bubble burst in 1990 Fed interest rate hike resulted price plunge 50 %
However Fed 6 rate hike led to new economy bubbl burst in early 2000 and 2001 recession(accurtely predicted by Dr. Huang on www.osawh.com/ www.sina.com ), Nasdaq plunged 70 %, Dow loss 30 %, resulted 4.5 trillion wealth effect loss drag US house prices plunge 20 to 40 %( in silicon valley. However, 11 rate cuts to 1.75 % and trillion dollar tax cuts led to 6 months US stock rally and wealth gain support the housing markets resuilted prices rebound 10 %
Rate hike in the second half, poor busniess spendinig, high unnempllyment will kept prices in check
OSA/Japan: Macro economics and financial markets applications:
These equation indicated Japan enjoyed 9.6 % GDP growth at 13.5 % money supply growth and double digit export growth are excessive, inflationary in 1990 lead to Nikkei to 38000. And benefited by soaring export and BOJ stimulus package to boost the domestic demand boost the money supply from 4 % to 10 % and at zero interest rate Nikkei rebound from 15000 to 22500 lead Japan getting out of deflation in 2000. However US, EURO slowdown and rising oil prices lead to Japan trade deficit, export decline, US high tech stock plunge drag Japan money supply growth rate to 2 % ,Nikkei to 11500 , despite Bank of Japan inject money into the financial systems, buy back 368 billion stocks to remove banks nonperformance and boost money supply led to strong Nikkei rebound from 11600 to 13500,will facing resistance around 13000-14000. It can do little to stop global slowdown, Japan declining consumer spending and GDP contraction and 4.9 % high unemployment
Japan Housing prices bubble Simulation /Forecasts:
This equation predicted Japan housing prices soared 10 times during the late 1980’s as money supply growth soared form 5 % to 13 %, Tokyo house prices soared 10 times, ranking top in global prices, as Nikkei soared from 15000 to 38000 . Tokyo house prices plunge 70 % as money supply growth plunge from 13 to 3 %, during 1990- 1998, It rebound 30 % as money supply growth from 2 % to 5 % in Asian crisis recovery in 1999 and government economic stimulus package, Nikkei rebound from 13000 to 18000 in 1999,. However it down 10 % since Nikkei plunge from 22000 to 11500 in 2001, simulation results will be demonstrated in the conference.
OSA/China Financial Markets and Economy Application:
How China avoided 1994 Financial Crisis and made soft-landing and 1998 Asian Financial Crisis Simulation:
This author with Ji and Dai spending half time in China during 1988 - 1998 implementing these relationships tracking Taiwan, Hong Kong and China peoples banks monetary policy impact on inflation and GNP and interest rate, Taiwan and RMB currency and stock markets prices. It accurately tracking and predicted daily China economy and financial markets activities, how the current Prime minister Zhu Rongji successfully managed China's monetary policy led China avoided possible financial crisis by successfully controlled the inflation, to bring it down from 35 % and 100 % currency depreciation to deflation of ?.5 %in 1999 and current 2.5 % by cutting the money supply growth from peak of 35 % in 1994 to 1996 15 % to achieve soft-landing and boost domestic demand to maintaining 15 % money supply growth 7.8 % GNP growth which lead to Shanghai stock index plunge from 1994’s peak of 1550 to 333 and stabilized traded between 600 and 800 during 1994 and 1996 through three stages credit tightening to cut the domestic demand and reduced the import duty by 30 % to reduce the importing inflation and implemented stock markets and financial institution regulation and full transparency, ban short term foreign capital speculation in the housing and stock markets achieved perfect soft-landing in 1996. And also predicted 1996 interest rate cuts leading to bull markets, with Shanghai A index tripled from 520 to 1650 . ( all predicted by the author on lectures to 20 million 15 cities TV, radio programs and national newspapers during 1994- 98 .The state enterprise reform and Asian crisis resulted high unemployment and export slowdown, pulling the money supply down from 1996?s 28 % to 14 % in 1999, drag the GNP form 9.5 % to 7.8 % . But recovered strongly by domestic stimulus package and strong export growth (40 %) this year in soaring global demand, . with GDP 8.3 % and Shanghai index soared to 2100 new high while global stocks under correction due to US interest rate hike
The declining export, 50 billion domestic public construction deficit budget and 150 billion short term debt and falling corporate profit and falling prices as entering WTO this year. China will feel the global slowdown early 2001 , as stock prices just completed under 10 % correction predicted by the author tracking of China macro, financial trade economic impact on 700 listed corporate industries trends, profit margins and stock prices
China Housing prices bubble Simulation /Forecasts:
This equation predicted China housing prices soared 10 times during 1986- 1994 as money supply growth soared form -5 % to 35 %, Beijin, Shanghai house prices soared 10 times, ranking top 5 in global prices, as Shanghai stock index soared from 150 to 1500 . Housing prices plunge 70 % as money supply growth plunge from 35 to 12 %, during 1994- 1998, It rebound 30 % as money supply growth from 12 % to 15 % in Asian crisis recovery in 1999 and government economic stimulus package, Shanghai index rebound from 520 to 2100 since 1999,.
OSA/ASEAN and OSA/Asian, OSA/Russia, OSA/South America Financial Crisis Root Causes Simulation:
These formulas indicated the rest of Asian emerging countries, Russia, Mexico, Brazil failed to do so, maintaining excessive money supply and growth, by encourage short term hot money speculating in housing and stock markets resulted soaring stocks and properties prices and labor costs caused export decline and huge trade and current account deficit, led to runaway currency depreciation and inflation, followed by rising interest rate and tight money supply resulted economic contraction between 5 % and 10 % started July of 1997 , the burst of the asset bubble and widening of bond yield spread
These formula provide global central bankers and IMF combined feedforward and feedback control of inflation GNP through micro-tuning policy, meeting growth and stability control without causing damage due to deflation and inflation
Monetary Policy Impact on daily Global Financial Markets Dynamics Simulations:
Monetary Policy and shocks, speculative attack impact on global Financial Markets dynamics under stress:
Global Interest Rates , Bond prices and spread, Debt Markets Dynamics , Credit, Market Risk Simulations
The global central bankers use the commodity prices and inflation rate as the leading indicators for setting the monetary policy and short term interest rates (inter-bank rate or Fed fund rate), while the long term interest rate bond yield are related to the dollar exchange rate which influence the capital flow
.Short term Interbank or Fed fund rate =F (Money supply growth rate %, commodity index, oil price, inflation )
long term bond yield = F( money supply growth rate %, dollar exchange rate, inflation rate)
These formulas tracking, simulate global interest rate, bond prices dynamics accurately. It indicate that reduced demand due to Asian turmoil have drag down the global oils and , commodities prices and inflation,
US treasury and junk bond prices spread LTCM failure simulation :
The plunging oil prices during Asian Crisis allow US, China , Japan and EURO central banks applying expansionary monetary policy, which lead to falling interest rates and all time high in bond prices, US 30 yr ?T-Bond yield dropped below 4.5 % due to low inflation and strong dollar, while the junk Russia bond and US corporate bond was hurt by global financial crisis, especially Russia high inflation, plunge oil income lead to trade deficit and falling rubble , pushed yield to all time high led to widening spread summer 1998 as predicted by this formula, while LTCM speculate on Russia junk bond believe bond spread will converge below 2 %( it widening to 4 % instead) LTCM lead to US Fed three interest rate cut to 4.5 % to cut dollar strength, therefore the bond spread due to due to strong dollar and low inflation, oil prices
However, excessive money supply in 1998 lead to soaring US and global stocks, strong Asian recovery , with excessive money supply in winter 1999 for Y2K pushed global stocks even higher lead oil price doubled from 10 to 37, US inflation up from 1.1 to 3.5 % forced US 6 interest rate hike to 6.5 and EURO 7 interest rate hike to 4.75 % to cool off the soaring US stock market fueling consumer, business demand, pushing housing prices and labor prices bond yield soared from 4.5 % to 6.5%(with junk corporate bond yield soared to 13.5 %), due to falling dollar, rising inflation, plunging stock prices and concerned about asset bubble burst.
These deterministic models minimize risks , saving trillion dollar loses due to central bankers monetary policy risks, credit risks in developing countries, and betting on the wrong side of interest rates by LTCM and other banking and financial industry executives`
OSA/ASEAN, ASIAN and Russia, Brazil crisis applications While the troubled ASEAN and Asian countries and Russia, Brazil, Mexico central bankers have to tight the money supply, raising interest rates to fight inflation and stabilize the currency which caused by excessive money supply and currency depreciation, led to capital outflow, bond , stocks, plunge, bond yield spread soared to new high, instead of converge.
Monetary Policy, Trade Impact on Global Currency Exchange Rates Dynamics, Risks Simulation?
The Onset of global currency crisis:.
US dollar exchange rates are related to US and other countries trade deficit (or surplus) and the two countries interest rates spread
Dollar exchange rate = F (US trade deficit, the other country's trade surplus (deficit), interest rate spread)
Over 100 IMF countries dollar currency exchange rates simulations have been used for 1000 chemical engineering and economics seniors course assignment by the author. Tracking results have been published in the weekly trade journal for 100,000 Taiwan's Taipei importer/exporters members daily trading decisions for 100 countries export/import strategy
This formula accurately predicted 1998 summer US dollar overpriced at 147 Yen, due to soaring Japan trade surplus against widening US trade deficit, US 3 interest rate cuts led dollar plunge 20 % to 110. And continue its down trend to 103. Yen pluinged to 125 again this year as Japan suffer trade deficit due to soaring oil, prices, import, and export decline and stock prices plunged from 20000 to 11500 due to US, EURO slowdown, Japan high unemployment, decline consumer spending, falling interest rate,
And EURO plunge from 1.17 to current 0.83, as the union trade surplus plunged from 8 billion to widening trade deficit of 800 million due to soaring oil prices and import, despite ECB 7 interest rate hikes and intervention, recent oil price plunge below 25 and US economic slowdown pushed EURO to 0.95.
EURO and global major currency OSA forecasts as follows:
Asian, Russia, South American Currency Crisis, Risks Dynamics Simulation
The above formula tracking, simulating ASEAN, Asian troubled countries, Russian, Brazil daily currency dynamics before, at the onset of , during and after the crisis with average error below 1.5 %. It accurately predicted these central bankers must tighten money supply, raised interest rate to stabilize the exchange rate (increase the interest rate spread) due to rising trade and current account deficit.
Pre- currency crisis root causes Dynamic simulation :The excessive money supply and pouring foreign capital inflow led to ASEAN, Asian , Russia, Brazil economic boom and skyrocketing labor and properties, stock prices and wages, have cut into the export market competitiveness (against China's low labor costs), lead to soaring trade and current account deficit in Thailand, Indonesia, Malaysia, Philippines, Singapore, Korean, Hong Kong, Brazil, Russia. This formula indicated fixed currency were overpriced(as shown)
Dynamics Simulation of onset and during the currency crisis
The widening of trade deficit to one billion US dollars lead to overprices currency : as the announcement of floating the currency lead to instantaneous currency deprecation according to this formula: Thailand, had to raise to interest rate from 15 % to 30 %, to stabilize the Baht exchange rate around 50(depreciated form 25), Hong Kong raised the interbank rate from 5 % to 25 % to allow the Hong Kong dollar stick to the 7.7), S. Korea has to raised the interest from 20 % to 40 % to prevent it drop to 2000 (depreciated from 750) , Indonesia had to raise interest rate from 20 % to 57 % to stabilize the Rupiah at 17000., Malaysia, Taiwan and Singapore, Australia all had to raise interest rates to stabilize their currency due to widening trade deficit, . The central bankers must raise the interest rate to stabilize their currency and fight inflation. Thailand, Korea, Hong Kong, Brazil, doubled interest rate Russia tripled the interest rate to fight inflation and stabilize currency , cut domestic consumption, thus improve trade and current account surplus.
OSA/Brazil central bank decision to float the Real currency, cut the interest rate to save the stock market, took the Real dropped from 1.1 to 2.4, help to boost the export, the stock responded to the interest rate cut, rebounded from 5000 to 9700, the global players are supporting the stock markets make it stick to Dow index (following Hong Kong style), despite Brazil economy under 4 % contraction and further tightening to cut expenses, Brazil interest rate, Real currency and impact on stock market have been simulated accurately
Dynamics simulation of Monetary Policy on UK, 11 EURO member countries currency, stocks Prices :
EURO currency :, it will have support around 0. 82- 0.84 . However weaker EURO will boost EMU export, plunging oil prices resulted union shrinking trade deficit to 800 million vs US 34 billion deficit, Rising EURO interest rate also help stabilize EURO currency to 0.88- 0.95-
currency simulation and currency crisis simulation will be demonstrated in my workshops
Monetary policy impact on global stock market indices cash and futures trading loses risks simulation:
Stock Index/Bond cash and future price = F (M2 money supply growth, interest rate, dollar exchange rate)
This relationship simulated last 20 years 40 daily international stock market stock indices, including normal and major crisis (under stress discontinuous data) with average error below 1.5 %. It predicted 1987 crash as FED raise fund rate 0.75 %: recent Nasdaq plunge form 5100 to 1800 as Fed 6 interest rate hike and 1995 Baring betting on the wrong side of Nikkei Index. And 1990 Nikkei crash from 38000 as Bank of Japan tightening the money supply growth from 13 % to 5 %
OSA/US Dow Jones Index risk dynamics simulation:,
1987 crash :The high US inflation rate (6.5% ) complicated by the Iranian war in early Oct. 17, 1987, pushed the oil price to 25, lead US Fed credit tightening, reduce the money supply growth from 9 % to 7 %,, raised the Fed fund rate from 9 % to 9.75%, the Dollar Yen exchange rate drop from 150 to 136, took the Dow instantaneously crashed from 2250 to 1520 It also indicate the Dow responding to 1998 winter 3 Fed fund rate cut , each 25 base point corresponding to raise the consumer spending and pushed Dow 800 points ( the first rate cut pushed money supply from 6.9 % at the credit crunch, Dow rebounded from 7400 bottom to 8200, the second rate cut pushed money supply from 8.5 % to 9.5 %, pushed Dow from 8200 to 9000, while the third rate cut led to overheated stock and properties prices and speculation, the money supply growth pushed to 10.5 % in January, took the Dow marching toward 10,000 and making new highs in mid March, due to high money supply growth of 10 .5% and three Fed fund rate cuts to 4.5 %,dollar plunge 20 % to boost export (IC and computer industry are benefited)
and US 6 rate hikes to cooloff consumer spending from 9 % to 5 % pulled Dow 20 % to 9100, as shown Chart Nasdaq down 65 % to 1850, EURO 7 rate hikes drag EURO stocks 15 % as indicated
OSA/Global Trade : Monetary Policy Impact on Global Trade simulation:
Global trade are closely related to global monetary policy which indicating importing country cousumer demand, and exporting country currency (cost)
For country bilateral or multilateral trade:
Export Growth = (export market central bank monetary growth, interest rate, currency exchange rate)
Import growth rate =( central bank money supply growth, interest rate, currency exchange)
OSA/Global: indicated Asian, Russia, Brazil crisis countries all depreciated currency , make export price very cheap to boost export, made import very expensive to cut domestic demand, and import, therefore boost trade surplus to support the currency.
OSA/US: US interest rate cut led US dollar depreciate 10 % against EURO to boost US goods export to EURO but US dollar up from 103 to 123 against Japan’s sluggish demand( money supply growth stay at 2%, cut into US eport to Japan, lead to US export decline , while the soaring oil, raw material prices pushed US and global import led to soaring US trade deficit to 35 billion
the author has conducted university teaching, research , trained 1000 chemical engineering, economics, strategic management students tracking simulate 100 IMF countries central bankers monetary, WTO trade policy impact on GNP, interest rates, exchange rates, commodities, refinery, petrochemicals, fibers, plastics raw material and 500 consumers products prices, He also provide decision support and on the job training to Taiwan's government state and private enterprises restructuring, global strategic management and consulting to 100,000 importer/exporter association members weekly global currency, global import/export markets spot, contract pricing, commodities, raw material, products in import and 100 international countries export /import market strategy
He also offered hundreds on the job training for 10,000 corporate finance, marketing, sales, production, Quality management, production VP, senior managers. And has written thousands articles on real time tracking, simulation, forecasts of global currency exchange rates interest rates, impact on crude oil, petrochemical, fibers, plastics, rubbers raw materials, IC, computers spot, contract prices, procurement, products competitive pricing ,marketing shares improvement strategy.,
Capital Investment and equities investing strategy
Global old and new economics capital investment ignoring demand side economics impact on
product sales demand, prices, and investment return, which resulted excess capacity in olefin, petrochemical, fibers, polymers in Asia (Taiwan, China, Japan, Korea) in 1993-1997 oversupply , prices profit plunge during recent energy crisis, even oil prices soared to 37, the downstream ethylene, styrene still stayed below 600 USA/MT vs 1900 in 1990.
While the new economic IT products chips, PC, internet, network, fiber optics, wireless telecommunication equipment made the same mistakes by heavy investment and expansion in US, Korea, Taiwan during 1999-2000., ignoring US Fed 6 rate hikes to cool off the consumer and business spending as warned by this author in 18 global central banks conference.
These heavy investments created sharp prices cutting and huge operating loss, stock prices plunged 95 %
Pre-and post merger acquisition performance simulation
The industry failed in pre-and post merger acquisition performance simulation in billion dollar mega merger created even huge loss and debt
Global Oils, Petrochemicals Industry Corporate Pre and Post Mergers/ Acquisitions OSA(Jan 20, 2000
Based on the author's associated with both Mobil and AMOCO headquarters, both company although enjoyed over 135 % gain in profits downstream refining, petrochemical operations are hurt by soaring crude oil prices, cut into profit margin to only 6.5 % , 15,000 staff cut to save 3.5 billion payroll cost may not improve it's post merger integration performance as oil prices peaking out and the strict environment standard on restriction MTBE additive in gasoline as it happen in Compaq, Boeing and others.) stock prices will be below 100. It need to do more in the post merger acquisition integration and improve on the procurement, refining operation strategic improvement, which can cut billion dollars and expand margin to above 10 %
However BPAMOCO merger is more goal oriented in global diversification, It invested 20 % in China's national co PetroChina, and strengthen it's global marketshares, stock price at 50 is attractive will be traded in 50-72
The author have development Over ten thousands of artificial intelligence, neural net, fuzzy logic, chaos algorithms based daily global interest rates, currency rates, commodity, oils, petrochemicals feedstock, products , financial futures, options prices, corporate profitability and stock prices Operations Simulations Analysis expert systems, and implemented for US, Asian Pacific, European multinational oil, petrochemicals, information, biotech industry corporate investment banking, government, state enterprises reform, privatization, restructuring, reengineering, pre and post merger/acquisitions applications during the last 30 years with Mobil, AMOCO, Phillips Petroleum, Stauffer Chemicals US headquarters (subsidiary of Rhone Poulenc) (These systems have been recommend by US Hydrocarbon Processing Advanced Control and Information Management, Productivity and Quality, Process Design & Optimization Handbook during 1991- 1997, Over 1000 major cos from 65 US, European, Asian Pacific, South American countries including EXXON, Dupont, BP, Shell, BASF, Aramco, Sinopec, IBM, Merck . In addition to thousands corporate managers contacted 32 OSA based corporate pre and post merger/acquisitions restructuring, reengineering performances analysis )and strategy, tracking, simulate daily US Fed and global central bankers monetary policy, interest rates, currency, Asian financial crisis and it's impact on global global commodity, industrial raw materials, financial futures, options prices, corporate profitability, stock prices. He has directed over 1000 senior graduate chemical engineering . students to develop OSA approach to 60 refinery, petrochemicals, fibers, plastics process simulations and corporate global strategic management applications for oil, petrochemicals industry pre and post merger/acquisition restructuring, reengineering and performances improvements simulation, investment, risk management for helping 20 millions global corporate CEO, finance, import/ export, currency, equities trading, procurement, marketing managers, investors to take advantage of investment opportunities in last 20 years financial crisis through the joint academic-industry training centers setup, in OSA goal mission, performance oriented OSA teams directed by Dr. Warren Huang to provide on the job training for oil, petrochemicals industry corporate managers in pre and post merger/acquisition daily decision analysis
US weekly Fed and European, Asian central bankers money supply, fund rate, Asian Financial Crisis, Yen exchange rate and new product development impact on daily BP AND AMOCO pre and post mergers performance OSA
Pre mergers OSA: Oils and Petrochemical industries are badly hurt by the Asian turmoil and strong dollar .The global oils and petrochemcials, plastics, fibers feedstock's and products have been dropped to ten years low due to Asian demand slow down and currency depreciation. It continued to suffered by soaring oil prices to 37 resulted heavy loss. in the post crisis recovery
Post mergers OSA: The Cross continent mergers involved different cultural background and management concept may reduce some manpower costs in the immediate future, However, It still requires this authors over 30 years experiences in implementing quality, cost, market shares goal, mission, performance oriented cross functional pizza chart OSA strategic and execu tion OSA teams for US, European, Asian Pacific multinationals provide unified manage ment concept, procedures and decision methods supporting new corporate restructuring, reengineer ring efforts to reduce feedstock, inventory costs and process efficiency improvement with expanded market shares.
Stock investment strategy: but both have to face the increasing competition in the oils petroch micals industry. BPAMOCO will be traded between 47and 55,
Finance group mega merger Citigroup of Traveler caought in Russia crisis, stock plunged from 75 to 29 presented by this author on JP Morgan sponsored post EURO banking and finance integration and risk management strategy Nov. 26, 1998, Rome Italy
He warned banking finance industry mega merger emphasized on staff reduction benefit and diversification , ignored post merger integration improvement on risk management decision making resulted Citigroup, UBS billion dollar loss in Russian, and LTCM crisis.
He accurately predicted Chase 36 billion dollar merge JP Morgan will give all it's gain to 110, Chase plunge to 35
and JDSU 100 billion inflated high cost merger SDL will cause operating hardship , stocks will subject to 50-70 % plunged, JDSU plunged from 160 to 30, SDL from 400 to 100
Monetary Policy Impact on Global Capital Markets Prices, Investment Strategy
Monetary policy impact on global stock market indices cash and futures trading loses risks simulation:
Stock Index/Bond cash and future price = F (M2 money supply growth, interest rate, dollar exchange rate)
This relationship simulated last 20 years 40 daily international stock market stock indices, including normal and major crisis (under stress discontinuous data) with average error below 1.5 %. It predicted 1987 crash as FED raise fund rate 0.75 %: recent Nasdaq plunge form 5100 to 3000 as Fed 6 interest rate hike and 1995 Baring betting on the wrong side of Nikkei Index. And 1990 Nikkei crash from 38000 as Bank of Japan tightening the money supply growth from 13 % to 5 %
Global Asset Prices Simulation and Portfolio Investment Strategy(Two master hands controlling global stock prices)
This author have been successfully applying two master hands accurately tracking simulating, forecasts monetary policy impact on global daily global stocks index (right master hands controlling investor sentiments )and corporate earning ,hot stocks , IPO, ADR shares prices(left master hands controlling corporate stock performance) during the last 20 years in the boom and bust, burst cycle, These two master hands provide forward looking instantaneous dynamics simulation forecast, instead of?speculate on the past economic and corporate earning data?( 3 month behind) resulted overbought and oversold caused trillions dollars market loss
Over 30 million China, Taiwan government, banking, finance, corporate CEO, fund managers, analyst, traders, investors have been benefited by this author lecture on two master hands controlling global stocks prices to China's 12 cities , Taiwan TV, radio daily, weekly commentary , and workshops since 1987
Global Stock Index Simulation :The right master hand simulate last 20 years monetary policy impact on daily stock index
This right master hand pinpoint the risks of overheated investor sentiments (monetary policy tell you do not chase index when they are too hot, when every fundamental and technical analysts recommending bull market continue,, investors chasing ( the author warned on July 20 1998 Dow approaching 9500, is overheated for 20 % correction, Next day Greenspan warning on inflation and rate hike, drag Dow to 7500 and Jan 2000, Dr. Huang warned on www.sina.com and www.osawh.com that Nasdaq overheated for correction to 3000 , It plunge from 5100 to 3000 later
Global corporate earning, profit margin simulation (Left master hands)
Corporate margin/earning = F( Sales, Costs) = F (raw material, financial, labor costs, sale prices)=F (monetary policy, currency)
US refinery opera ting profit margin is very much depend on the crude oil cost, refining products gasoline, heating oil prices . the relation is shown on Chart the margin varies from 3 % 9 %
Global Corporate Stock Prices Simulation :
The left master hand simulate last 20 years monetary policy impact on daily industrial supply, demand, prices, profit margin: raw material, financial, labor costs, sales and unit prices, corporate earning, profit margin
global stock prices = F (Global stock index, corporate profit margin/earning)
The left master hand will tell you how monetary policy impact on the industrial sectors supply demand, prices corporate earning, profit margin stock prices decline is over, when everybody is selling ready for turnaround
Therefore combing right master hands( investors sentiment) and the left master (corporate performance) will accurately predicted last 20 years global stock prices (hot stocks, ADR, IPO)
Hi-tech IPO stock prices simulation = F( Nasdaq index, corporate or industry group earning)
These two master hand controlling IPO prices as well
For Internet stock index are related to US Fed money supply growth, interest rate and investor sentiment (Nasdaq index), as for individual internet IPO stock prices, they are related to the internet stock and Nasdaq index (investor sentiment in internet) and corporate revenue and earning outlook (depend on industry trend and regional economy.
Global ADR shares prices = F( Home country investor sentiment, listed country investor sentiment, stock earning, margin) = F ( home country stock index, US Nasdaq index, corporate earning)
Click here for Chinese edition °ê»Ú¸gÀÙ,ª÷¿Ä¥«³õ¦M¾÷·ÀI±±¨î
Global Investment Banking, Crisis, Risk Management :Simulation of central bank monetary policy impact on growth, and daily interest rate, currency, commodity, stocks price stability
On the job training for online trading in Global Stocks indices future OSA simulation forecasts
On the job training for online trading inGlobal Currencies future OSA simulation forecasts
Weekend OSA Journal Global hot stocks Buy/Sell/Hold : top10 global IT, Biotech, Old economy, most active shares published each Saturday review OSA for global economic impact on top corporate performance English Chinese
Central bank Monetary, Economic, Finance Policy Analysis: for growth, markets prices stability
Bubble Burst USA China Hong Kong Taiwan Thailand Japan S. Korea Singapore India
EURO Russia/E. Europe Mexico Brazil
Global Procurement Strategy: Monetary policy simulation Saves billions dollar on oil, commodity costs
OSA improve venture capital, new economy profitability, while minimize investment risks
venture risks IPO Prices Global ADR Pre/post Merger acquisition performance, cost reduction
Venture capital risks IPO Prices Simulation Global ADR Pre/post Merger acquisition Credit risk
simulation and control
Restructuring Pre/post merger Performance process improvement Procurement Marketing Training
Monetary policy impact on Crude oil, global petrochemicals, plastics prices, stock prices workshop
Banking/Finance Profit Improvement Workshop Internet/Information Tech. Profit Improvement Workshops
Global Asset Prices Simulation, Risk Management :Stocks, Bond, Commodity, Property Prices Simulation
Two master hands controling global Bull, Bear Markets?, Buy, Sell, Hold for global stocks in 2001
Right hand simulate, control monetary policy impact on daily financial , commodity market sentiments
Left Hand : simulate, control cousumer business demand impact on industy, corporate earning, stock prices
Dr Huang has implemeted two master hand controlling global financial markets bull, bear market and for daily buy/ sell/ hold decision one month ahead. He has lectured to 30 millions China, Taiwan, US Radio, TV audienced, workshops tracking last 20 years, accurately predicted the bull, bear, buy,sell/ hold decisions
Global Banking, Financial Crisis Simulation, Forecasts, Risk Management
click here for ASEAN,Taiwan, China, Hong Kong, Japan, Korea, US
Banking, Finance Industry Risks Regulation, Supervision Real Options
Risk simulation, Control and reform, restructuring, reengineering workshops program,
Click for Dr. Warren Huang speeches, research papers on OSA Methodology and Applications 1980- 2002
He has been invited to speak to top 20 global financial crisis and risk management conferences since 1999
Click here for Dr. Warren Huang's recent paper on "Monetary Policy Impact on Global Financial, BankingCrisis presented to Washington DC, Macao int'l central bank governors conference, Taipei's Pacificfinance, and economic conference, Barcelona, Spain, European Finance Conference during Apr- June 1999
Click here for OSA pioneer Dr. Warren Huang global experience
for Daily Global Interest rate, currency exchange simulation/Forecasts
Monetary Policy Impact on Current US
slowdown, Asian, Russia, Brazil Inflation/Deflation, Financial Crisis, Recovery
Impact on Global Interest Rate , Currency Rates Simulation :
ASEAN China/HK/Taiwan, Japan, Korea Russia South American
US and Canada European Union UK and others
Click for Daily Global stock markets prices simulation/Forecasts : Monetary Policy Impact on US, Asian, Russia, Brazil Inflation/Deflation, Financial Crisis Recovery Corporate earning Stock markets Simulation :
ASEAN Crisis Asian Crisis Russia Crisis South American Crisis
US and Canada European Union UK and others
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China, Hong Kong, Asian Banking, Finance Industry Risk Management workshops
Click for A. Central bankers monetary, government policy impact on global financial crisis, risks simulation
Click for B. Global Financial Markets, interest, currency rate, bond, Prices Simulation Forecast.
Click for B. Global Commodities, financial derivatives, stock prices Risks Simulation, Forecasts.
Click for C. Financial Institution Credit Risks simulation ( bad loan )
Click For D. Corporate operating environment Risks Simulation (rising raw material prices, slumping
products prices, new products competition), corporate operating margin Simulation
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F. Call/Put options and financial derivatives prices simulations and hedging risks minimization
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Simulation : and minimization :Find out how to use this website for IBM stock prices and put/call simulation recommendation to make sizable profits in the volatile risky markets
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