Tuesday, Nov 10, 2009

IMF fears dollar carry trade

Business Insider: IMF: Dollar Carry-Trade Creating Bubbles Around The World

The International Monetary Fund (IMF) highlighted the fact that low interest rates in the U.S., plus an apparent "one-way" bet against the dollar has created a global dollar carry-trade that is driving capital flows into emerging markets. If not handled properly, this will lead to emerging market asset bubbles, which arguably have already begun to inflate. We've highlighted before how places like Hong Kong are seeing property prices go through the roof due to low U.S. interest rates.

Posted by mountain goat @ 08:56 AM (874 views)
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10 Comments

1. mountain goat said...

From a Bloomberg article on this subject

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5ritflpCi34&pos=6

Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York, said the dollar carry trade is likely to continue in coming months, and he expects the U.S. currency will decline further.
“The key wildcard to dollar carry trades is whether people continue to show an appetite for risk,” Chandler said. “That’ll weigh on the dollar.”


Or a mad dash the other way when fear hits.

Tuesday, November 10, 2009 08:59AM Report Comment
 

2. Tom101 said...

MG, Do you have any predictions for other currencies over the next 6 months? Thinking in particular of NZ$. Not overly clued up on currency trading you see

Tuesday, November 10, 2009 09:27AM Report Comment
 

3. charlie brooker said...

This is precisely what Roubini was warning against last week.

http://www.ft.com/cms/s/0/9a5b3216-c70b-11de-bb6f-00144feab49a.html

Tuesday, November 10, 2009 09:56AM Report Comment
 

4. Ndg said...

So now everyone decouples their pegs sir, innit.

Tuesday, November 10, 2009 10:08AM Report Comment
 

5. 51ck-6-51x said...

That bubble is already pretty huge, but yes it can get even bigger before it pops, and the bigger they are the louder they bang ( as the bishop said to the actress ).

Tuesday, November 10, 2009 11:19AM Report Comment
 

6. mountain goat said...

Carry Trade FT graphic.

Tuesday, November 10, 2009 12:18PM Report Comment
 

7. stillthinking said...

The US might have misjudged China. The only way that China can keep the yuan down and accumulate dollars is if they extract so much dollar wealth from their own workers that they can't afford to purchase their own production, i.e. domestic prices in China are too high. But there is an output gap represented by cheap expansionary labour from the third world aspect of their population. I mean, irrespective of the costs of any company you set up in China, as soon as that company joins in with the modern economy, there is a cheaper method of production available from the disconnected population. The situation between the US and China effectively exists within China also.

So the long term trend might be purchasing power parity between dollar and yuan, without an inflationary spike to burst the bubble. Why would the Chinese ever stop scooping up dollars, when the end is so beneficial to China? The end being a developed economy plus a gargantuan amount of dollars.

Tuesday, November 10, 2009 12:30PM Report Comment
 

8. mountain goat said...

Stillthinking - the carry trade is really about US investor behaviour. For example "According to the WSJ, US investors have pumped roughly $26bn into emerging-markets funds this year, $15bn of which was invested via exchange-traded funds." FT Alphaville yesterday.

Tuesday, November 10, 2009 01:28PM Report Comment
 

9. stillthinking said...

hmmmm...

Tuesday, November 10, 2009 03:05PM Report Comment
 

10. techieman said...

MG at 6 - i like the graphic. I think this is right - the sale of the dollar has been a new bubble. As 666 says how far and how long that goes on for is the question. We shall see. Calling market tops and bottoms is the most challenging and interesting part of the game.... and sometimes the most expensive! :-).

Wednesday, November 11, 2009 07:36AM Report Comment
 

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