Sports Arbitrage News

Just barely a week had past since the placement of Fannie Mae and Freddie Mac under conservatorship, the US Federal Reserve bank was forced to lend the American International Group (AIG) $85 billion to help it tide over the crisis. Even then, the attempts by the Federal Reserve Bank have failed to placate the global financial markets. From the US to the Asian markets, losses ran into hundreds of billions as shares prices drops. As with all catastrophes, it is human nature to want to assign blame for this crisis. 

The person who has been receiving the most attention with respect to the crisis was the former Federal Reserve Chairman, Alan Greenspan. Hailed as the greatest Central Banker of the century barely three years ago, Mr Greenspan has now become a pariah within the communities of economists. According to his critics, the reasons were that between 2001 and 2003, the Federal Reserve lowered the interest rates too much. Although the move was to cushion the US economy from the dotcom bubble burst, the Fed was too slow to raise it to curb rising housing prices. Secondly, the Fed have also been blamed for being lax in their role as a financial regulatory body. Because of the lax regulations regarding sub prime lending, the market expanded tremendously adding fuel to the crisis, an overheated housing market and mounting debts of the financial institutions.

Today, the crises in the US have spill over to the global economy. As the world economies are intricately tied together, whenever the US ‘sneezes”, the world economies catches a cold. This can be seen clearly during the time when the fourth largest Investment bank in the US, Lehman Brothers, had to file for bankruptcy. The world’s stock markets took a beating as investors started liquidating their holdings of banks in the US. People are calling it “Meltdown Monday”

The UK being a major trading partner of the US is also suffering along similar lines as liquidity in the credit market dries up. The first casualty of the credit crunch in the UK banking industry was Northern Rock, which was nationalised by the Labour Government in February 2008. Due to the current instability in the financial market, the Bank of England now plans to injected fifty billion pounds into the financial market hoping to ease the credit crunch situation felt by British banks. Although these measures are laudable to prevent a total global meltdown of the financial market, analysts are still predicting worse times ahead waiting to unravel. The rationale behind this is that, measures adopted by the Centrals Banks throughout the world are just short term deferring measures. The financial market ultimately will still need to readjust itself to an equilibrium position. Banks ever worrying about their survival now are scouting for potential buyers or partners.

Even in Australia, the banking institutions here are feeling the ripples of the credit crunch. When news of the sub prime leading crisis first broke in the US, the general opinion was that there was no cause for Alarm. The incident was regarded as a domestic issue and was just a minor readjustment of the US housing market. As the situation developed, it became clear that the situation was more serious than previously thought. This was because of the fact that most of the subprime mortgages were packaged as triple A securities which Banks like the National Australian Bank (NAB) brought as part of their investment portfolios. Updates revealed that the NAB might be forced to write off as much as One billion Australian dollars in losses due to the credit crunch crisis.

Australia has been said to be an insular economy and that the country is pretty much protected from the effects of the credit crunch faces the global economy. The irony is that, despite the country enjoying a boom in the export of mineral resources, Australia had accumulated a negative balance of trade payment. Furthermore, households’ debt in Australia is running at 117 % of GDP, one of the highest in the world. On top of this, Qantas is laying off 1300 Australian workers and Ford ,15 %of its manufacturing jobs at its Geelong factory. Lombard Street Research analyst Gabriel Stein is predicting that Australia will be in worse shape than the US economy once the commodity market has soften. Another aspect of the effect that Australian is feeling in the increase in fees charges by the banks. Despite banks lending less for properties, to offset the drop in income, banks are reaping more in profits by increasing fees for household debts like credit cards debts. (See Graph below)

The stock market should be an option only for those with money to lose As Warren Buffet said, “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”. So what other options that is available that the average investors can consider? According to former London City Rajeev Shah, Using a mathematical system of statistical arbitrage known as sports arbitrage, it is possible to hedge bets, just like in the financial market, in the sports world and net a positive returns whichever way the market is going. (To know more, read this book; “Sports-Arbitrage - How To Place Riskless Bets & Create Tax-Free Investments”). The beauty of this system is that with modern technology and software like the ArbAlarm, you literally have access to information that is critical for investment purpose at your fingertips. Furthermore, the capital gains made from this form of investment are not subjected to tax. (For more insight see; Australian Tax ruling TR2004/DR17).

At the end of the day, you are solely responsible for the decision you make regarding to investments. It pays to be cautious in the light of situation like the Australian Capital Reserve Collapse. The mortgage brokers in the subprime lending crisis exacerbate the problems faced by us today by pushing borrowers to commit to investment that they could ill afford. Likewise, here in Australia, financial planners aggressively marketed over-priced properties to retirees in the prior to the collapse of ACR. At least with the Arbitrage system, you have total control over you situation unlike with shares and properties, you are at the mercy of the market and banks.