Posts Tagged ‘carry trade’

Black Swans And The Collapse Of Empires Swimming In Debt

Elaine Supkis passionately takes on Dr. Niall Ferguson. Her words in Niall’s LA Times excerpt are red. – Ilene 

Black Swans And The Collapse Of Empires Swimming In Debt

Courtesy of Elaine Supkis at Culture of Life News 

It is rather curious how people refuse to see obvious things. This is why so many things are ‘unexpected’ or a ’surprise’. People who do see obvious things are called ‘cynics’.  Cynics are the exact opposite of banking gnomes and their ilk.  Cynics disparage wealth and power in order to see reality and truth.  Often, cynics go around telling people, ‘You are doomed’ which makes them party poopers.  But then, often, they are right.  

black swan

Cynic – Wikipedia, the free encyclopedia

The Cynics (Greek: Κυνικο?, Latin: Cynici) were an influential group of philosophers from the ancient school of Cynicism. Their philosophy was that the purpose of life was to live a life of Virtue in agreement with Nature. This meant rejecting all conventional desires for wealthpowerhealth, and fame, and by living a life free from all possessions. As reasoning creatures, people could gain happiness by rigorous training and by living in a way which was natural for humans. They believed that the world belonged equally to everyone, and that suffering was caused by false judgments of what was valuable and by the worthless customs and conventions which surrounded society. Many of these thoughts were later absorbed into Stoicism.

The first philosopher to outline these themes was Antisthenes, who had been a pupil of Socrates in the late 5th century BCE. He was followed by Diogenes of Sinope, who lived in a tub on the streets of Athens. He took Cynicism to its logical extremes, and came to be seen as the archetypal Cynic philosopher. He was followed by Crates of Thebes who gave away a large fortune so he could live a life of Cynic poverty in Athens. Cynicism spread with the rise of Imperial Rome in the 1st century, and Cynics could be found begging and preaching throughout the cities of the Empire. It finally disappeared in the late 5th century, although many


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Gold and Silver Soar as Bank of Japan Commits 10 Trillion Yen ($115 Billion) to Combat Deflation

Gold and Silver Soar as Bank of Japan Commits 10 Trillion Yen ($115 Billion) to Combat Deflation

Courtesy of Mish

Kinkaku-Ji Temple

Commodities are soaring today, especially gold and silver, in the wake of news that the BOJ will Provide 10 Trillion Yen in Emergency Credit.

The Bank of Japan said it’s ready to pump more money into the financial system after unveiling a 10 trillion yen ($115 billion) program to help an economy battered by falling prices and the yen’s surge to a 14-year high.

“If there is a shortage of liquidity we are prepared to provide more funds,” Governor Masaaki Shirakawa said after an emergency board meeting in Tokyo today that decided to offer three-month loans at 0.1 percent to commercial banks.

Bond yields fell the most in 13 months, lowering borrowing costs for companies whose profits are being threatened by deflation and the yen’s advance. Today’s action constitutes “quantitative easing in the broad sense” said Shirakawa, who earlier today faced demands from government ministers to complement a stimulus package that Prime Minister Yukio Hatoyama will release this week.

“The BOJ was facing a lot of pressure from the markets and the government, so it wanted to show that it was being proactive,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The BOJ’s understanding is that deflation risks have increased.”

Unlike the unlimited lending facility, which required private-sector debt as collateral, the bank will accept a wider range of assets including government bonds as well as debt issued by local governments. The program has no time limit.

The measure will “further spread the strong effect of monetary easing and encourage a further decline in longer-term interest rates in the money market,” the central bank said.

Prime Minister Hatoyama welcomed the decision.

“I’m very happy that the BOJ and government share the same view” on the economy, said Hatoyama, who is scheduled to meet with Shirakawa tomorrow. “I applaud their efforts to show their resolve to stop deflation and spur the economy.”

BOJ Spawns Speculation and Carry Trades

While correlation is not the same as causation, I would suggest that a new round of “quantitative easing" by the BOJ would likely fuel further speculation in commodities and various carry trades.

One thing that QE is not going to do is help Japan out of its…
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WOULD YOU LIKE A CARRY TRADE WITH THAT?

WOULD YOU LIKE A CARRY TRADE WITH THAT?

Courtesy of The Pragmatic Capitalist

This excellent guest contribution, in response to Annaly Capital’s comments, comes from our friends at the PazzoMundo site:

The ‘carry trade’ is in the paparazzi’s sights.  Have a look how it is faring on Google Trends:

pazz1

It’s latest incarnation is via the USD.  And as David Rosenberg points out – it looks like the world’s reserve currency is being used to fund just about every asset beyond cash on the risk spectrum.

The U.S. dollar has become a huge ‘carry trade’ vehicle for all risky assets.  Historically, there is no correlation at all between the DXY index (the U.S. dollar index) and the S&P 500. In the past eight months, that correlation is 90%. Ditto for credit spreads — zero correlation from 1995 to 2008, but now it has surged to 90% since April. There was historically a 70% inverse correlation between the U.S. dollar and emerging markets, such as the Brazilian Bovespa, and that correlation has also increased to 90% since the spring. Even the VIX index, which historically has had no better than a 20% correlation with the U.S. dollar, has now sent that correlation surge to 90%. Amazing. The inverse correlations between the U.S. dollar and gold and the U.S. dollar and commodities were always strong, but these too have strengthened and now stand at over 90%.

My sense is that with it’s rise into public awareness, we are heading into the final throes of USD weakness.  For example, when someone like Felix Salmon writing for Reuters does a survey of “How US investors can play the carry trade” that’s got to be a flag.  And when phrases like ‘the gimme trade of the century’ are used (Annaly via TPC) in the same breath as describing it’s dynamics – the risk that complacency has set in is pretty darn high.

Think about it – the (currency version of the) carry trade says that you can borrow cheap in USD, sell those freshly minted dollars and buy into a higher yielding currency.  The assumption is that the USD will continue to fall – so that in addition to the yield pick-up, you make a capital gain when you buy your…
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Strong Dollar Lies & More On Lies – Strong Dollar

More On Lies – Strong Dollar

Courtesy of Karl Denninger at The Market Ticker 

South Korean Economy Boosted As Won Jumps To New High

10 handles came off the S&P 500 in less than 30 minutes (a 1% move) when the dollar strengthened by about two tenths of 1%.

What would be the impact of the dollar moving higher by 10%?

This is the problem with the carry trade.  The leverage that gets deployed, once it gets going, is typically in the range of 5:1, 10:1 or even more compared to the equity markets. (Absolute leverage in the FX markets is frequently 100:1 – in fact, even retail traders can run 100:1 leverage at most FX brokers!)

Just remember folks, ZIRP and it’s pals are always exploited by the politicians to issue debt "free" into the markets.  But once issued that debt has to be rolled over (since governments almost never run an actual surplus allowing them to pay down that debt), which means that the issue is not whether you can make the interest payments today, it is whether you can make them tomorrow given the possible changes in interest rates.

If interest expense ever exceeds income, you’re finished, just as was the "buyer" who took out an OptionARM and then had his payment reset to more than his income.  Instant Boom.

The same thing happens to nations.

The problem is that nobody knows exactly where the line is, because that debt must be rolled, and it is the future cost of that rollover, not today’s interest rates, that determine where the wall is.

Have we reached the wall?  Probably not yet.  But if we keep issuing debt into artificially-suppressed interest rates, we will hit it with certainty, and the carry traders are betting (successfully so far) that government will not stop issuing debt (spending more than they make) and Bernanke will not pull enough liquidity to cause short rates to rise by even 1 or 2%.

dollar Better hope all those "ands" and "buts" hold up folks.

(PS, if you think they will: Sold to you.)

Strong Dollar Lies

"His lips are moving."

Geither said:

"I believe deeply that it’s very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar," he said at a roundtable discussion with Japanese reporters. "We bear special responsibility for trying to make sure that we


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Monday Market Mark-Up – 50 Ways to Dump the Dollar

"The problem is all inside your head", G20 said to me
The economy's an easy fix if you don't want to wait
All we need to do is globally inflate
There must be fifty ways to dump the dollar

G20 said it's really not our habit to deflate
Furthermore, we have elections and the voters hate to wait
So we'll indebt ourselves, buy lowering the rates
There must be fifty ways to dump the dollar
Fifty ways to dump the dollar

You just buy a few Yen, Wen
Push up the Pound, Brown
You buy up the troy, boys
Give Goldman the fees
Take the IMF bling, Singh
Let it drop like a rock, Barack 
Act like you're bored Jean-Claude
Let the dollar fall free

I heard they were dancing to this one at the G20 Meeting so I thought I'd share it with you.  Never have so many gathered so often to accomplish so little as our G20 in the past 18 months.  This weekend's meeting of the World's "top" Finance Ministers resulted in a split on whether to tax financial trading as part of a broader strategy to ensure the global economy’s expansion is less crisis-prone.  The idea of the levy was to prevent excessive risk-taking and fund future bank rescues but US Treasury Secretary, Tim Geithner said trying to get the banks to behave is "not something we’re prepared to support."

That was all the Gang of 12 needed to hear and the commodity markets went wild with the guarantee of no additional regulation on the horizon and the dollar was taken down to new lows in overnight trading, plunging to $1.50 to the Euro and $1.685 to the Pound, over 2% off Friday's lows.  They Yen Rose back to under 90 to the Dollar and the Nikkei, of course, did not like that one bit and an early rally turned into a flatline for the day.  The rest of the global markets, however, were off to the races with Europe up 1.5% at 8 am and the US futures up over a point as well as gold flies to $1,110 an ounce and oil heads back to $78.50, up $2 from Friday's low

Of course, doing nothing to prevent excessive speculation by the "too big to fail" crowd isn't…
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The Horrible Conundrum Facing The Fed

The Horrible Conundrum Facing The Fed 

firehose, money, bank of americaCourtesy of Karl Denninger at The Market Ticker


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US Dollar Replaces Japanese Yen as “Carry Trade”

US Dollar Replaces Japanese Yen as "Carry Trade"

Japan, gardenCourtesy of Trader Mark at Fund My Mutual Fund

How sad – as we yell out for all to hear that "we are nothing like Japan" we are piece by piece taking the role – from zombie banks supported by government, stimulus out the rear end for pork projects, a lost decade in the market, long term stagnant economic growth despite government report "hocus pocus", and now the US peso has replaced the disrespected yen as the world’s cheap source of funding for speculation worldwide. I can’t stress enough to US readers how every day the US dollar loses value, you lose purchasing power and over time a standard of living. But since most in this country live in a nominal world versus the real world, they are not understanding the implications of our "solutions".

A good opinion piece in Bloomberg (Hedge Funds’ ATM Moves from Tokyo to Washington) on the implications of the world’s RESERVE currency also turning into its CARRY currency.

  • China’s real problem is how quickly the dollars they hold in great quantity are getting all the respect of pesos these days. Sound like hyperbole? Not when you consider what may be the hottest investment of 2010: the dollar-carry trade.
  • Move over Japan. Investors spent a decade borrowing in zero-interest-rate yen and putting the funds in higher-yielding assets overseas. It’s the U.S.’s turn to flood the world with cheap funding and the risks of this going wrong are huge.
  • The carry trade has never been a proud part of Japan’s post-bubble years. Officials in Tokyo rarely talk about the yen’s role in funding risky or highly leveraged bets on markets from Zimbabwe to New Zealand. Japan never set out to become a giant automated teller machine for speculators. (well I guess in that 1 area we are different from Japan; it appears to be the government’s plan to be the ATM for all the world, especially American consumers. House ATM gone? No problemo – government ATM is here to replace it) It was a side effect of policies aimed at ending deflation.
  • The perils of the carry trade were seen in October 1998. Russia’s


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Kimble Charting Solutions

Are Energy Stocks Suggesting Long-Term Strength Here?

Courtesy of Chris Kimble

Energy stocks spent the decade of 2010 to 2020 mired in weakness… but is that trend coming to an end?

The past two years have seen the Energy Sector (XLE) surge as Crude Oil has rallied back over $80.

Today’s chart is a long-term “weekly” ratio chart of the Energy Sector to S&P 500. And this chart may be illustrating why energy stocks may be ready to out-perform in the weeks/months/years ahead.

As you can see, the XLE/SPY ratio formed a strong bottoming pattern over the past 24 months. And now the ratio is breaking o...



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ValueWalk

Another Promising Rebound

By Anna Peel. Originally published at ValueWalk.

We’re seeing a strong start to trading on Wednesday after what has been a very turbulent start to the week.

Q4 2021 hedge fund letters, conferences and more

We've seen some sharp sell-offs already this week but investors appear to be encouraged by just how quickly and strong markets have bounced back. Monday looked like it was going to be a bloodbath in equity markets but rather than panic, investors poured back in and seized upon the lower valuati...



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Zero Hedge

Nomura: Here Comes 'The Big One'

Courtesy of ZeroHedge View original post here.

Authored by Charlie McElligott, Managing Director of Cross-Asset Strategy at Nomura,

“Pre-FOMC drift” - but this time, thanks to a massive “kick-save” from Microsoft guidance which turned the entirety of global risk-assets from cratering lower in the after-hours trade last night to now, spasming higher into Fed later today (NQ +4.4% low to high) and with still substantial “short Gamma vs spot” out there for Dealer hedging purposes, as well as sharply “netted-down” exposure from Fundemental investors and outright “shorts” in CTA Trend….while conversely, we currently see a quiet R...



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Phil's Favorites

Indiscriminate selling

 

Indiscriminate selling

Courtesy of 

There are a few green stocks in the market today, and by “a few”, I mean you can count them on two hands and still have a few fingers left over. To gag yourself with. Those green stocks are things like Kohl’s (a special situation takeover story) and then it’s like grocery stores and shoe cobblers. That’s really it. Tesla is being absolutely mangled, which tells you which type of mutual funds and ETFs are being redeemed (liquidated?) today.

I have some buy limit orders in at completely out...



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Biotech/COVID-19

How mRNA and DNA vaccines could soon treat cancers, HIV, autoimmune disorders and genetic diseases

 

How mRNA and DNA vaccines could soon treat cancers, HIV, autoimmune disorders and genetic diseases

Nucleic acid vaccines use mRNA to give cells instructions on how to produce a desired protein. Libre de Droit/iStock via Getty Images

Courtesy of Deborah Fuller, University of Washington

The two most successful coronavirus vaccines developed in the U.S. – the Pfizer and Moderna vaccines – are both mRNA vaccines. The idea of using genetic material to produce an immune response has opened up a world of research ...



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Politics

5 things to know about why Russia might invade Ukraine - and why the US is involved

 

5 things to know about why Russia might invade Ukraine – and why the US is involved

Courtesy of Tatsiana Kulakevich, University of South Florida

U.S. President Joe Biden said on Jan. 19, 2022, that he thinks Russia will invade Ukraine, and cautioned Russian president Vladimir Putin that he “will regret having done it,” following months of building tension.

Russia has amassed an estimated 100,000 troops along its border with Ukraine over the past several months.

In mid-January, Russia began moving ...



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Chart School

Bitcoin Swings Down to Support

Courtesy of Read the Ticker

Come on! Seriously do you think a 400% rally for Bitcoin was going to be given to the public easily. Without any pain! Come on muppets!



The uniformed (public) buy when price is rising or breaking new highs, the informed buy when price is falling or breaking lows.



The informed have to do it this way as they are large volume players and the only way they can buy large volume is to create chaos. The chaos brings to the market the weak holders and a forced sell. Price is moved to where the volume can be accumulated, in a bull trend that is down to critical support.



Of course if price is in a true bull market the 'chaos' created should not break critical long term trend signals, ...



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Digital Currencies

The metaverse is money and crypto is king - why you'll be on a blockchain when you're hopping

 

The metaverse is money and crypto is king – why you’ll be on a blockchain when you’re virtual-world hopping

In the metaverse, your avatar, the clothes it wears and the things it carries belong to you thanks to blockchain. Duncan Rawlinson - Duncan.co/Flickr, CC BY-NC

Courtesy of Rabindra Ratan, Michigan State University and Dar Meshi, Michigan State University ...



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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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