Posts Tagged ‘dollar carry trade’

Steve Meyers: Global Debt Crisis, Dollar Carry Trade, and 2010 Forecast Update

Steve Meyers: Global Debt Crisis, Dollar Carry Trade, and 2010 Forecast Update

Courtesy of Jesse’s Café Américain

"This is just a dress rehearsal for what’s in store for us."

 


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IMF: Rising Asset Correlations Prove Roubini’s Dollar Carry Trade Warning

IMF: Rising Asset Correlations Prove Roubini’s Dollar Carry Trade Warning

Courtesy of Joe Weisenthal at Clusterstock

It’s hard to think of a more controversial — and crucial — subject right now than the dollar carry trade. If indeed, Ben Bernanke’s cheap money is becoming the world’s lead funding currency for all manner of risky bets, then we may be in the greatest bubble the world has ever seen.

If cheap money is only a modest force in the rise of global asset values, and if much of the rise is due to improved fundamentals (which is indisputable, when compared to March), then the recovery may be sustainable.

The connection between Fed liquidity and rising markets has been discussed for awhile, but Nouriel Roubini has been the flag bearer for this idea, ever since he wrote an FT piece on the subject last month.

Over at Roubini.com (formerly RGE Monitor; it’s been rebranded) Heiko Hesse sites IMF research showing that rising correlations between various assets and the dollar are what tell the whole story.

carry trade

The results indicate that an index for the U.S. dollar has seen an increased negative co-movement with major asset price classes in recent months (here the MSCI Emerging Market index, the EMBI+ bond spread, S&P 500 as well as oil prices). For example, the negative co-movement between the U.S. dollar and oil prices is almost at its highest since the beginning of 2006 with -0.5. Jen (2009) recently provided a number of reasons why the correlation between the dollar and crude oil prices has been so negative.[3]

While the increased co-movement of the U.S. dollar with a range of risky assets does not provide any evidence for the dollar carry trade per se, the fact that the correlations have almost reached the highest magnitude since the beginning of the sample period in 2006 for all the asset classes in figure 2 does suggest that a dollar depreciation has gone hand in hand with a sharp appreciation of higher-yielding emerging market asset classes. This is consistent with a story whereby the unwinding of safe-haven flows has significantly led to the rebound of risky asset classes, and the U.S. dollar, bolstered by U.S. quantitative easing and low interest rates, could have increasingly served as a funding currency. In practice,


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Where the Wild Things Are

This week, John Mauldin discusses our trash currency and the dollar carry trade. Could the dollar go bump in the night and jump up and bite you…? – Ilene

Where the Wild Things Are

where the wild things are Courtesy of John Mauldin, Thoughts from the Frontline

Where the Wild Things Are
It Is Not Just Japan
The Euro-Yen Cross and the Dollar Carry Trade
New York, London, and Switzerland

From ghoulies and ghosties
And long-leggedy beasties
And things that go bump in the night,
Good Lord, deliver us!

--Old Scottish Prayer

Where the Wild Things Are is a beloved children’s book and now a beautiful movie. But in the investment world there are really scary wild things lurking about in the hidden recesses of the economic landscape. Today we look at one of the unintended consequences of the Federal Reserve’s low interest rate policy.

For quite some time, I have been arguing that we are faced with no good choices, not just in the US but in the entire "developed" world. I see a low-growth, Muddle Through world over the next years (with a double-dip recession just to liven things up). However, that does not mean that we will lack for volatility. Things could get volatile rather quickly. Let’s quickly set the background.

It Is Not Just Japan

Let’s look at today’s interest rate picture. Yesterday, we had the bizarre occurrence of banks actually paying the government to hold their cash. Three-month treasuries yield a miniscule 0.01% in interest. If you opt to buy a one-year bill you get all of 0.26%. You can see the entire spectrum below.

jm112009image001

Look at the graph of the yield curve below. It is as steep as we have seen it in a long time. But that is almost the point. Banks are essentially getting free money. If you are a banker and can’t make money in this environment, you need to quit and find meaningful employment.

jm112009image002 

And that is part of the rationale that the Fed espouses with its low interest rate regime. Not only does it allow banks to repair their balance sheets, it also encourages investors to put money into riskier assets in order to get some return on their investments. Over $260 billion has gone into bond funds this year, and just $2.6 billion into…
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YOU SHOULD BE VERY CONCERNED ABOUT THE PARALLELS WITH JAPAN

YOU SHOULD BE VERY CONCERNED ABOUT THE PARALLELS WITH JAPAN

Courtesy of The Pragmatic Capitalist

Busy City Street, Japan

We here at TPC aren’t the only ones concerned about the parallels with Japan.  There appears to be an increasingly loud drumbeat over the shocking similarities between Japan in the 90’s and the U.S.   This morning, Hong Kong’s leader Donald Tsang had some rather alarming comments:

I’m scared and leaders should look out.  America is doing exactly what Japan did last time.”

As opposed to dealing with our issues here at home, Tsang believes the Fed has created a dollar carry trade that is simply reflating bubbles all over the world:

“We have a U.S. dollar carry trade at the moment.  Where is the money going — it’s where the problem’s going to be: Asia.  You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”

As we’ve previously mentioned, the parallels between the current deleveraging cycle here in the U.S. and Japan’s deleveraging cycle of the 90’s, are numerous. Credit Writedowns recently posted this excellent video from Fox Business which succinctly touches on many of these similarities.   I highly recommend readers take a look (attached below).

Wild grasses and Mount Fuji, Fuji-Hakone-Izu National Park, Honshu, Japan

One of the most interesting takeaways from the video is the current tax situation in the U.S. In Japan, the credit crisis was prolonged mainly because Japan attempted to bail their way out of their sinking ship.  Rather than deal with the problems directly (IT’S THE DEBT STUPID!) they attempted to circumvent the problem by creating an environment where the government spent hordes of money to prop up failing institutions.  Here in the U.S., we have not only bailed out failing institutions to the tune of several trillion dollars, but we have also continued to promote fiscal irresponsibility via government programs such as cash for clunkers and the first time homebuyers tax credit. Making matters worse, we have a Federal Reserve and Treasury which have agreed to double team the ailing dollar as they print money to no end and effectively punish the prudent while rewarding the speculators (the same bastards that helped create this mess to begin with).  Our tax issues have…
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The Dollar Carry Trade

The Dollar Carry Trade

Courtesy of Jesse’s Café Américain

A video from Warren Pollock regarding carry trades

 


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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Phil's Favorites

Scientists are on a path to sequencing 1 million human genomes and use big data to unlock genetic secrets

 

Scientists are on a path to sequencing 1 million human genomes and use big data to unlock genetic secrets

A complete human genome, seen here in pairs of chromosomes, offers a wealth of information, but it is hard connect genetics to traits or disease. HYanWong/Wikimedia Comons

Courtesy of Xavier Bofill De Ros, National Institutes of Health

The first draft of the human genome was publ...



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Biotech/COVID-19

Scientists are on a path to sequencing 1 million human genomes and use big data to unlock genetic secrets

 

Scientists are on a path to sequencing 1 million human genomes and use big data to unlock genetic secrets

A complete human genome, seen here in pairs of chromosomes, offers a wealth of information, but it is hard connect genetics to traits or disease. HYanWong/Wikimedia Comons

Courtesy of Xavier Bofill De Ros, National Institutes of Health

The first draft of the human genome was publ...



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Chart School

Money Printing Asset Price Targets

Courtesy of Read the Ticker

The FED giveth and the FED taketh away. Right now the FED is giving a lot into 2022 US Mid Terms. 

Unless the FED breaks the market, here are some BRRRRR asset price targets, not normal price targets but money printing adjusted price targets. 


BITCOIN 175,000 to 500,000 USD

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DOW to 40,000 to 50,000

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More DOW

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Zero Hedge

China Buys US Treasuries For 4th Straight Month Amid Record LTM Inflows Into US Equities

Courtesy of ZeroHedge View original post here.

Amid the worst quarter for Treasuries since 1980, there was at least one big buyer.

For the 4th straight month, China bought US Treasuries in February (the latest period for which we now have data). That is the biggest holding since July 2019 and the longest buying streak since 2017.

Source: Bloomberg

But overall, foreigners were net sellers of Treasuries ...



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Politics

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

 

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

Venezuelans wait at the Colombian border to be processed and housed in tents in 2020. All Venezuelans now in Colombia will receive a 10-year residency permit. Schneyder Mendoza/AFP via Getty Images

Courtesy of Erika Frydenlund, Old Dominion University; Jose J. Padilla, Old Dominion University...



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Kimble Charting Solutions

Will Historic Selloff In Treasury Bonds Turn Into Opportunity?

Courtesy of Chris Kimble

Long-dated treasury bonds have been crushed over the past year, sending ETFs like TLT (20+ Year US Treasury Bond ETF) spiraling over 20%.

Improving economy? Inflation concerns? Perhaps a combination of both… interest rates have risen sharply and thus bond prices have fallen in historic fashion.

Today’s chart looks at $TLT over the past 20 years. As you can see, the recent decline has truly been historic. $TLT’s price has swung from historically overbought highs to oversold lows.

At present, the long-dated bond ETF ($TLT) is trading 7.8% below its 200-...



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Digital Currencies

Crypto - The Beginning of The Beginning... and the Coinbase IPO

 

Crypto – The Beginning of The Beginning… and the Coinbase IPO

Courtesy of Howard Lindzon

I am starting to say the ‘beginning of the beginning’ a lot.

Last month I used it in a blog post about active investing.

Bitcoin and Ethereum are a main reason I believe we are at the beginning of the beginning of active investing and the Coinbase ($COIN) direct listing tomorrow [Apr. 14] is likely why we are still just at the beginning of the beginning of crypto and decentralization.

If it was t...



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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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Promotions

Phil's Stock World's Weekly Webinar - March 10, 2021

Don't miss our latest weekly webinar! 

Join us at PSW for LIVE Webinars every Wednesday afternoon at 1:00 PM EST.

Phil's Stock World's Weekly Webinar – March 10, 2021

 

Major Topics:

00:00:01 - EIA Petroleum Status Report
00:04:42 - Crude Oil WTI
00:12:52 - COVID-19 Update
00:22:08 - Bonds and Borrowed Funds | S&P 500
00:45:28 - COVID-19 Vaccination
00:48:32 - Trading Techniques
00:50:34 - PBR
00:50:43 - LYG
00:50:48 - More Trading Techniques
00:52:59 - Chinese Hacks Microsoft's E...



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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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