Carry Trade Unwinding?

[FTBagain]

http://news.bbc.co.uk/1/hi/business/5054484.stm

I think this artical has already been posted, but this little quote caught my eye....

"As long as such fears are out there, the local market will be pressured by sustained selling from large overseas investors, such as hedge funds, as they accelerate capital repatriation back to their home countries."

Is this the first indication, in the main stream press, of the international carry trade starting to unwind?

Sounds like it may be happening quite quickly. The beginning of an disorderly change in the markets. Here goes Bernankes 'baptism of fire'.

Edit: To correct title DOH!

Edited June 7, 2006 by FTBagain

[Realistbear]

As far as the carry trade is concerned, it is being ignored by Gordon and pals in the hope that if you don't mention it, it will go away.

The "carry trade" or cheap money from Asia is what caused the "Miracle Economy" of HPI and MEW. Reverse the carry trade largese and you reverse the "Miracle Economy" it spawned.

Gordon's "Miracle Economy" days are numbered.

[FTBagain]

As far as the carry trade is concerned, it is being ignored by Gordon and pals in the hope that if you don't mention it, it will go away.

The "carry trade" or cheap money from Asia is what caused the "Miracle Economy" of HPI and MEW. Reverse the carry trade largese and you reverse the "Miracle Economy" it spawned.

Gordon's "Miracle Economy" days are numbered.

Agreed, but is it already unwinding?

I was expecting it to keep going until the BoJ started hiking its rates.

Seems like the markets could be jumping sooner, rather than later. The US deficits and weekening dollar are seriously spooking the markets, it seems.

[Smell the Fear]

As far as the carry trade is concerned, it is being ignored by Gordon and pals in the hope that if you don't mention it, it will go away.

The "carry trade" or cheap money from Asia is what caused the "Miracle Economy" of HPI and MEW. Reverse the carry trade largese and you reverse the "Miracle Economy" it spawned.

Gordon's "Miracle Economy" days are numbered.

I do find it appalling that the engine at the heart of the Western World's recent economic "success" is so hidden away from public view. You need to root around in the economic minutiae to find out what is really going on.

Adults really are just large children for the most part.

[BoredTrainBuilder]

http://news.bbc.co.uk/1/hi/business/5054484.stm

Is this the first indication, in the main stream press, of the international carry trade starting to unwind?

No, it's been flagged in the mainstream press for some months now.

[Jason]

Where should you put your money as the carry trade ends?

http://www.moneyweek.com/file/13563/where-...trade-ends.html

I view the nightmare scenario something like the following:

1. End of quantitative easing (QE) in Japan

2. End of ZIRP in Japan (Rising interest rates)

3. Rising interest rates in Europe

4. Falling interest rates in the U.S.

5. Tightening credit in the U.S.

6. A rising yen vs. the U.S. dollar

Edited June 7, 2006 by Jason

[CrashIsUnderWay]

It's unwinding.

The less risk averse are exiting stage left.

Only the 'greater fools' are hanging in there - they hope not to be the last thru the doors.

When it pops, it will unravel REALLY fast - expect a number of small banks to go with it (prob US/Far east based)

[Guest Bart of Darkness]

Clearly, we are at a serious crossroads of the greatest liquidity experiment the world has ever seen, with multiple players, in multiple countries, doing mind-boggling things with tremendous leverage.

Oh oh!

[Smell the Fear]

Oh oh!

It's great to be alive in 2006! Such fun on the horizon.

[IMupNorth]

It's unwinding.

The less risk averse are exiting stage left.

Only the 'greater fools' are hanging in there - they hope not to be the last thru the doors.

When it pops, it will unravel REALLY fast - expect a number of small banks to go with it (prob US/Far east based)

Look guys, you're all clutching at straws again, that this 'carry trade' is going to save your HPC theory.

I suspect that given, the enormity of what we are talking about here, that there are many, many tens or hundreds of thousands of people through financial markets and governments, central banks all over the world who are alot cleverer and more knowledgable than 2,000 HPC desperado's, who will be working to ensure that our capitalist system just doesn't go pop.

The unwinding, may not be completely coordinated, but I have a hunch that all these clever people, with vested interests, may be working to ensure that it plays out over a few years in a semi controlled way.

Continued stagnation/soft landing in the UK housing market, irrespective of what happens in California and Florida etc etc.

[MarkG]

It's great to be alive in 2006! Such fun on the horizon.

Indeed: the entire post-WWII economic and political system is teetering on the edge.

Whatever happens, it's sure to be entertaining so long as you're mobile and not loaded up with vast debts you can't repay.

[BuyingBear]

Quickly? Iceland hit the skids for exactly these reasons over 8 weeks ago, all the signs were out there.

[FollowTheBear]

The unwinding, may not be completely coordinated, but I have a hunch that all these clever people, with vested interests, may be working to ensure that it plays out over a few years in a semi controlled way.

Yeah right. You can't surely believe politicans work for the best long-term interests. And you forget one thing that is unstoppable and is responsible for all economic imbalance - human nature.

Edited June 7, 2006 by FollowTheBear

[BuyingBear]

I was expecting it to keep going until the BoJ started hiking its rates.

It's not just about rates, Japan has ended it's quantitative easing. Contrary to popular belief the central banks do actually have quite a tool set to work with, aside from the interest rate hammer.

[FTBagain]

It's not just about rates, Japan has ended it's quantitative easing. Contrary to popular belief the central banks do actually have quite a tool set to work with, aside from the interest rate hammer.

I realise that, but I figured that if the IR differential was still there then it was still worth the effort. However, I have read a couple of good articals today that highlight the impact of currency flunctuations in the profitability of the Carry Trade.

Seems like the risks are now such that the more risk averse players are bailing out. If the move to the door turns into a rush we could yet see some pretty nasty effects.

Edited June 7, 2006 by FTBagain

[BuyingBear]

I realise that, but I figured that if the IR differential was still there then it was still worth the effort.

Quite, but is the never ending and free flowing liquidity there?

[CrashIsUnderWay]

Look guys, you're all clutching at straws again, that this 'carry trade' is going to save your HPC theory.

I suspect that given, the enormity of what we are talking about here, that there are many, many tens or hundreds of thousands of people through financial markets and governments, central banks all over the world who are alot cleverer and more knowledgable than 2,000 HPC desperado's, who will be working to ensure that our capitalist system just doesn't go pop.

The unwinding, may not be completely coordinated, but I have a hunch that all these clever people, with vested interests, may be working to ensure that it plays out over a few years in a semi controlled way.

Continued stagnation/soft landing in the UK housing market, irrespective of what happens in California and Florida etc etc.

hahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhahahahahahahahahahahhaha

this is without doubt the funniest pile of old badger turds you've ever written, Boobieboy, and you have written some BEAUTIES in the past!

Quick! Buy property! There's another 15 years worth of free money coming!

(from Wales)

[FTBagain]

Quite, but is the never ending and free flowing liquidity there?

I thought about that, but figured the bank would not be able to take money off people it had already loned it to. In other words, the liquidity being socked up was the uncommitted funds. I know money is always moving around the system, but how does a central bank actually take back money it has loned? I would expect to see some serious tightening of lending criteria as a result of the liquidity being removed.

I think I understand the theories, it is the practicalities that I would like to be able to spot.

Edited June 7, 2006 by FTBagain

[MarkG]

Continued stagnation/soft landing in the UK housing market, irrespective of what happens in California and Florida etc etc.

Indeed. Remember people, no matter how bad the housing crash is in the rest of the world, 'it can't happen here'.

[Warwickshire Lad]

What amazes me is that all of this turmoil is happening in the markets about Interest Rates - and Japan HAVEN'T EVEN OFFICIALLY RAISED THEIR RATE YET.

What happens when they actually officially move ?

[BuyingBear]

I thought about that, but figured the bank would not be able to take money off people it had already loned it to. In other words, the liquidity being socked up was the uncommitted funds. I know money is always moving around the system, but how does a central bank actually take back money it has loned?

The central bank buys government bonds, this reduces bank reserves and the fractional reserve multiplier goes into reverse. The opposite is true when they want to inject liquidity. There's been some interesting goings on in Japan, all the central banks are in a bit of a bind, they're at the end scene of the Italian Job, they've gotta come up with a cracking idea.

Edited June 7, 2006 by BuyingBear

[Last Hun Standing]

Probably less than you would expect as the market anticipates - therefore the actual move itself will probably provide a temporary boost, because it provides certainty whereas before there was only speculation. In this case higher interest rates reflect a recovering macro situation to positive inflation, not neccesarily a bad thing.

I believe the word is that the JGB market has been pricing in the possiblity of an increase slowly over a period of time. Credit repatriation could have major effects on those who haven't hedged though.

The change has been driven by sentiment as encouraged by the words of the various Japanese officials.

http://www.bloomberg.com/apps/news?pid=100...7QM&refer=japan

Of course at inflection points you tend to get exagerated effects in terms of data volatility and behaviour changes as people bring forward previously deferred expenditure. (Previously deferred in the sense that they wait for an item to get cheaper in the future).

However one would hope the data crunchers would be able to adjust for this noise.

[Realistbear]

http://quote.bloomberg.com/apps/news?pid=1...id=a0gK4Vt__cBU

William Pesek Jr. is a columnist for Bloomberg News.

Japan's Boom May Explode Yen-Carry Trade: William Pesek Jr.

Feb. 22 (Bloomberg) -- Surprisingly strong growth in Japan is raising many eyebrows, not least those at the central bank anxious to scrap its zero-interest policy.

Even so, it's not clear investors are taking the risk of rising Japanese bond yields seriously enough. Once the process begins, world markets may be surprised by how quickly Japanese rates shoot higher, taking the yen -- and all those who borrowed in it -- along for the ride.

The bottom line of the Bloomberg article. We have to remember that Gordon's "Economic Miracle" is nothing more than borrowing Asian money cheaply. When the cheap money ends the miracle pops.

Edited June 7, 2006 by Realistbear

[shermanator]

It's unwinding.

The less risk averse are exiting stage left.

Only the 'greater fools' are hanging in there - they hope not to be the last thru the doors.

When it pops, it will unravel REALLY fast - expect a number of small banks to go with it (prob US/Far east based)

Ahhhh, banking crisis. Didn't we have those in the 1970s?

[FTBagain]

The central bank buys government bonds, this reduces bank reserves and the fractional reserve multiplier goes into reverse. The opposite is true when they want to inject liquidity. There's been some interesting goings on in Japan, all the central banks are in a bit of a bind, they're at the end scene of the Italian Job, they've gotta come up with a cracking idea.

Again I think I read about that little occurance somewhere else. It seems that the markets are getting very highly strung. If it takes that much money to hold rates down, what will happen when they move official rates? This is not going to be a soft landing. It is going to be very nasty.