Tuesday, June 3, 2008

Libor

I was emailed a question by a reader (thanks BC) regarding Libor. The question pertained to a possible head and shoulders formation on the chart. I have posted a chart below on Libor for reference.



Now I am no expert on Libor but for the uninitiated Libor is the London interbank offered rate. It is basically the rate banks pay to borrow from one another. There has been much chatter about the lying going on by member institutions misquoting rates in an effort to conceal their financial state. C'mon bankers wouldn't do this would they. Irony of ironies in that Libor is pronounced lie-bore. Fitting no?

Anywat, back to the chart. The chart rising represents riskier credit environment with a falling chart a better one. There is no question that we have a head and shoulders formed with the right shoulder morphing into something of a continuation rectangle. Now this comes with a huge caveat. Readers know I follow the charts but I also am not completely oblivious to goings on surrounding said chart. That being said, I would caution trading on the Libor chart given the cheating and lying going on.

Would you play a game of dice if the dice were loaded or if you knew the card game was rigged. Of course you would not, no sane man or women would, but you must always remember who rides the short bus and that they do not necessarily think this way, or at all at times.

This is the question, legitimacy, that now faces Libor as the British Bankers Assoc. (BBA) investigates the malfeasance going on. As prefect Rick in Casablanca would say, I'm shocked to find gambling going on here!

Personally I will let others trade, I would surmise bullishly, the head and shoulder breakdown here on the Libor chart. Just realize that a fake out could be in order as this market appears/is rife with lies, corruption and collusion. Nawww bankers wouldn't do that would they. I am watching this but with a very weary eye.

Good speculating to you all.

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