The guys at Karmabanque were right the carry trade tsunami is here, the water has just receded and the elephants are long gone. I hate to disagree with MJS this isn’t gambling it’s a stick up.
From Investopedia :
A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.
Here's an example of a "yen carry trade": let's say a trader borrows 1,000 yen from a Japanese bank converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.
The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.
From Financial Sense:
If foreign central banks don’t buy our debt, then the Fed will be forced to monetize it. With America’s twin deficits running at an annual rate of $1 trillion and total debt accumulation running at over $2 trillion annually, the supply of credit must constantly expand. The Greenspan Fed is caught in a trap of its own making. It is repeating the same mistakes made by two of his predecessors, Arthur Burns and William Miller. By targeting interest rates rather than targeting the money supply, we are about to revisit the stag-inflationary environment of the 1970s. Full
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Is it gambling...
if there are 3 cards and some guy named Monte is moving them about rapidly? Sleight of hand and a willing mark sort of dynamic--one born every minute--you can't cheat an honest man--a fool and his money are soon to be approached--see the cat, see the cradle? As I read somewhere once upon a time, money is made in broad daylight but it fairly breeds in the dark...
Everybody knows the dice are loaded
Everybody rolls with their fingers crossed...
Leonard Cohen
+++
it's gambling all right
except you and i are the suckers, and the players walk away from the table with winnings, or another chance to come back and win. of course the house always has its cut.
i look at this sort of thing, with the ignorant eye of a noninvestor, and all i can see is how this money will be squeezed out of the stones of the bloody poor. it's not like speculators actually earn or make anything of value. "leveraging" and "hedging" and "carrying" are all different ways of living the Trumpesque life:
"if i owe you 8 million dollars, it's my problem. if i owe you 800 million dollars, it's your problem."
the us taxpayer, worker, and business owner (small business, that is) have a "problem." the monetary gambling elite will come out just fine, while the rest of us are forced to mortgage the blood of our grandchildren to pay the "national" debt the elite saw fit to grant us. after all, they only have to make a fraction of a percent of the money they move/gamble to remain uberwealthy, while the aggregate of the rest of us have to find ways to squeeze blood from our stones, while we lose federal program after program, as an increasing share of our GDP goes to pay debt and interest that others decided "we" could afford.
Gambling implies choice,
This is some goon named the central bank turning you upside down and emptying your pockets. But point taken. You have no choice about investig in the Stock market, the bond market, or the currency market. Institutional investors take your pension and insurance money and throw it in there. We have no choice in our currency policy. The stock market is a leading indicator of the Enroning of a nation. Your utilities, your roads, your sewar and water are all rapped up in this, our infrastructure is being sold out from under us, because our debt is being monetized and passed on to what were public interest. You have to pay so much for enrgy because you are paying the debt from failed manipulations such as these. It's our version of the VAT (value added tax).
revaluation of the yuan
this kind of ties into my theory of what actually happened today in the markets, i.e.... the Chinese government let it be known to certain favored investors that it planned to make a not insignificant revaluation of the yuan relative to the dollar...and that China's export market in the US would get significantly smaller as a result....
Heck, if you were China, wouldn't you make your to become the predominant global power right about now?
Well, look. I'm sure there'll be no capital flight from the US
Let alone by our winger billionaires. Right?
No authoritarians were tortured in the writing of this post.
Howcome nobody mentions Mr. Andrea Mitchell's speech?
Greenspan predicts US recession by year's end, in a speech in Hong Kong no fucking less, and the only paper that picks it up is the Wilkes-Barre PA Times Leader?
Okay, some podunkly rags like Forbes had it too, but you'd think that before getting into esoteric speculation about China restricting stock purchases with borrowed money (that was NBC's take on the matter) and further revaluing the yuan (didn't they just nudge it a bit last week?) that The Marley-Like Visit Of The Ghost of Alan G would be noted by prognosticators.
This is in "hear hoofbeats? think horses not zebras" department. Or maybe he just decided to go short everything for a couple days for shits 'n' giggles, or because Andrea needed a do-over on the last round of tucks. If that's the case then tomorrow he calls his broker before notifying The Press that he was just kidding, everything in the US is coming up roses.
On the R word
Xan I love the bit about the long needles. Great catch on the Greenspan piece. I just generally concede that we are screwed. So i put all my money into tangible items. I shudder to think how the economy is going to look when we go into Iran and all our winger billionaires are waiting out the storm in the baghdad citadel with Cheney and crew.