Steve Meyers: Global Debt Crisis, Dollar Carry Trade, and 2010 Forecast Update
by ilene - February 8th, 2010 8:35 pm
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
by ilene - December 4th, 2009 11:42 am
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.
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
by ilene - November 21st, 2009 1:08 pm
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
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.
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.
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
by ilene - November 13th, 2009 1:29 pm
YOU SHOULD BE VERY CONCERNED ABOUT THE PARALLELS WITH JAPAN
Courtesy of The Pragmatic Capitalist
We here at TPC aren’t the only ones concerned about the parallels with
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).
One of the most interesting takeaways from the video is the current
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The Dollar Carry Trade
by ilene - September 20th, 2009 12:31 am
The Dollar Carry Trade
Courtesy of Jesse’s Café Américain
A video from Warren Pollock regarding carry trades
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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...
Ilene is editor and affiliate program
coordinator for PSW.