Bloomberg News

CMC Markets’ Laidi Says Takeover’s Effects Unlikely to Linger

Published on the Bloomberg Terminal September 8, 2008

By Ken Prewitt and Tania Haas
Sept. 8 (Bloomberg) — Ashraf Laidi, chief currency analyst at CMC Markets, discusses the currency market’s reaction to the U.S. government’s takeover of Fannie Mae and Freddie Mac.  He spoke in an interview from New York.

On whether the yen’s drop is directly related to the takeover:
“Yes, but let’s just say something to the listeners. Everything that is happening in the currency market, whether it’s the yen, or the Aussie, or the dollar, is not happening due to a change in fundamentals, but is happening due to this thing called risk appetite.
“Before the Friday announcement, the dollar was actually rallying against practically every currency except the Japanese yen, and after the announcement, we just saw an unwinding of that trade. Does it make sense of the dollar to start to drop against the Aussie, the Euro, the pound, after this announcement, which
is supposed to be good against the fundamentals? No. And so it is just an unwinding of the currencies, and that’s just an opportunity for the people ahead.”
“If you look at the chart of the Chicago Board Options Exchange SPX Volatility Index, “each of these big interventions– whether it is a 75-basis-point rate cut, or it is the interjection of the special liquidity in December or in March, or the takeover of Bear Stearns — each of these coincided with a time when the VIX was at its peak.
“After these announcements, the VIX came down, and stocks went up, and then we saw what you call the fundamentals and the
credit crisis overwhelming the long-term impact of each these measures.”

–With reporting by Alberto Riva in New York. Editors: Eric
Morse, Theo Mullen