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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Phil's Favorites

Pop Culture as an edge in business

 

Pop Culture as an edge in business

Courtesy of 

 

 

Josh here – once upon a time it was totally normal to be sitting face to face with a friend and talking across a table, and then they locked down New York City and you know what happened from there. Anyway, my friend Brooke Hammerling was the last person I met with before the shutdown and we taped this conversation about the importance being up on Pop Culture. Lots of business leaders struggle to understand what’s going on from day to day because they’re busy! Brooke’s new newsletter, Pop Culture Mondays, fi...



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Biotech/COVID-19

Trump Vaccine Czar Still Stands to Profit

 

Will there really be several hundred million doses of a COVID-19 vaccine by the end of 2020, which would be record fast vaccine develop, or is this just wishful thinking? Moncef Slaoui, former executive at GlaxoSmithKline and board member of Moderna (till recently) and newly appointed Trump official, says the vaccine will be ready. Either way, Moderna (MRNA) has received nearly half a billion dollars from the government, and its stock price has soared. Amee Vanderpool tells more of the story: 

 

Trump Vaccine Czar Still Stands to Profit

Courtesy of Amee Vanderpool, SHERO 

The Trump administration has announced an ambitious plan to develop and produce millions of doses of a new COVID-19 vaccine by t...



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ValueWalk

New home sales smashed expectations during economic crisis

By Gorilla Trades. Originally published at ValueWalk.

The major indices are all sporting considerable gains at midday, with the S&P 500, the Dow, and the Nasdaq all hitting new multi-month highs in early trading. The continued COVID-related optimism remains the main catalyst behind the rally in stocks and global risk assets and investors shrugged off the diplomatic standoff between the U.S. and China despite the protests in Hong Kong over the weekend. On another note, small-caps have been leading the way higher this morning, together with the key cyclical sectors and that bodes well for the rest of the week, especially as the main overseas indices have also been pushing higher this week.

[reit]

...

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Zero Hedge

"This Ship Is Sinking" - The Economy Is Holed Below The Waterline

Courtesy of ZeroHedge View original post here.

Authored by Bill Blain via MorningPorridge.com,

“Until then men felt they had found the answer to a steady, orderly, civilized life. For 100 years the Western world had been at peace. For 100 years technology had steadily improved. For 100 years the benefits of peace and industry seemed to be filtering satisfactorily through society. Life was all right. The Titanic woke them up.”

...



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Kimble Charting Solutions

King Dollar Could Double Topping; Commodities Would Benefit If It Does!

Courtesy of Chris Kimble

The U.S. Dollar has been a pillar of strength for the past 12-years, at it created higher lows starting in 2008, near the 70 level. Since these lows, it has rallied nearly 50%.

The 102 level was resistance for nearly 13-years (1987 to 2000) until an upside breakout took place.

The rally over the past 12-years took it up to test the 61% retracement level of its 2001 highs and 2008 lows and the 102 level again at (1), where it created back to back monthly bearish reversal patterns in 2017.

The rally over the past 2-years has King$ testing its 61% retracement...



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The Technical Traders

Chuck Jaffe Talks Technical Analysis on Money Life - Indexes & Metals

Courtesy of Technical Traders

Chuck Jaffe, the host of Money Life, is a veteran financial journalist and nationally syndicated financial columnist whose work appears in newspapers from coast to coast. Today he talks with Chris Vermeulen.

Chuck has been named to MutualFundWire’s list of the 40 Most Influential People in Fund Distribution and was the first journalist to make the list. Over the course of his career, he has won numerous awards for business and personal finance journalism.

...

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Lee's Free Thinking

US Southern States COVID19 Cases - Let's Give Credit Where Due

 

US Southern States COVID19 Cases – Let’s Give Credit Where Due

Courtesy of  

The number of new COVID 19 cases has been falling in the Northeast, but the South is not having the same experience. The number of new cases per day in each Southern state has been rangebound for the past month.

And that’s assuming that the numbers haven’t been manipulated. We know that in Georgia’s case at least, they have been. And there are suspicions about Florida as well, as the State now engages in a smear campaign against the fired employee who built its much praised COVID19 database and dashboar...



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Chart School

Is this your local response to COVID 19

Courtesy of Read the Ticker

This is off topic, but a bit of fun!


This is the standard reaction from the control freaks.








This is the song for post lock down!







What should be made mandatory? Vaccines, hell NO! This should be mandatory: Every one taking their tops off in the sun, they do in Africa!

Guess which family gets more Vitamin D and eats less sugary carbs, TV Show



...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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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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Promotions

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Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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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...

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