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The Day The Yen Carry Trade Died
While everyone is staring in disbelief at the USDJPY, the real carry action is in the high yielding-YEN pairs, i.e., the development, high growing countries. And it's a massacre: ZARJPY, NZDJPY, AUDJPY - all are plunging far more than the USD. This is nothing short of a complete carry trade unwind. The implications: the cheapest recurring source of funding for risk assets - the Yen carry trade, is over. Those who managed to sell early on are lucky. The rest will get such an onslaught of margin calls tomorrow they may need to access the discount window (if Primary Dealers and the luckier banks). Many will be forced to sell assets to satisfy collateral requirements as ongoing sales of carry pairs push the Yen ever higher, and force ever more liquidity out of the market. And if the Yen carry trade is done, the question is when will the USD, which has also been a carry currency for some time, follow suit. And, once again, the most troubling observation is that the BOJ has not intervened. Our sinking feeling is that after pumping 50 trillion or so in money markets, the petty cash may be running quite low. In any case, ES opens in 2 minutes. Grab the popcorn now.
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GS's FX desk are upside down is John notes are to be belived....
BELIEVED JUNIOR.
Can you say, "Black Swan event"?
I knew you could.
I am Chumbawamba.
Ok guys... calm down... this might not be over yet.
We've witnessed many, "can this be it" moments in the last two years.
What if the Japanese fix this "nuclear disaster" in the next 10 days and the Yen starts dropping like a rock? In that scenario, the carry trade lives on, and it's business as usual (for the fed's printing press, of course).
didnt know they could clean up radioactivity that quick wow.
www.silvergoldsilver.blogspot.com
The internet has really help solve a lot of problems. Radioactivity isn't one of them though.
The internet has really helped to solve a lot of problems. Radioactivity isn't one of them though.
It's not about the nuclear issue, it's about rebuilding a country. Any non-yen denominated assets are being liquidated and the proceeds from those sales are being re-patriated. Back in 1995 following the Kobe quake, the Yen appreciated 17% over a 3 month period. Was there a massively large carry trade back then? I don't know how it compares to today, but this disaster will take far more capital to rebuild. At some point the Central Bankers in Japan will try and slow down the appreciation...that will probably be an opportunity to add you your long Yen position should you be lucky enough to be long Yen currently.
Exactly right.
Sorry to camp the top thread, but I think I am not alone in my confusion (I am not a trader/finance guy). I try to dilligently put this type of stuff together on my own, but I don't fully grasp this scenario. Please enlighten/correct me as I am struggling to connect the dots.
The carry trade is a borrow cheap/short term (e.g. the yen because of ZIRP) and lend longer in another currency which has higher rates with the spread being profit.
Any thoughts from professionals/knowledgable parties would be great.
Thanks,
Cooter
Borrow cheap, take risk. That means lend long, buy stocks, RE, commodities, whatever. When it unwinds, it looks a lot like fall 2008. Risk assets all correlate. They don't want to buy back yen, but they have to because they're short and it's going up like a rocket and they get margin calls. So they have to sell the other side of the trade to free up cash to go back to yen. It tanks everything.
Ok, so the margin call trigger is just a broad based decline or fear of decline in yen denominated assets, which were used as collateral in the carry trade? And once the cycle gets going, its a positive feedback?
Cooter
Cooter - you really deserve a reply from an FX player, but I'll give it a shot. Did you notice Tyler's use of the term "margin call?" Even if a Japanese bank is willing to let you lever your collateral 10 to 1, if the value of your collateral declines (as the dollar is doing relative to the yens you borrowed), they will ask you to meet your collateral obligations to reduce their risk. So you are going to have to sell assets to meet your obligations - NOW. Another aspect of this is that the value of a banks assets are currently falling like a rock, so if Bank A needs to raise capital to meet a margin call, its losses could be stunning and if Bank A is sick right now, its going to get sicker.
BTW - I don't know jack about FX, carry-trade, etc. but I do know this - from nuke plants to big banks, risk analysis routinely ignores black swans and I see a flock coming right this way. Got gold?
Making this up as I go along here, but ... some hedge fund takes 100 bucks, borrows 1,000 yen at 0% short term, converts the yen into New Zealand dollars, and lends the NZD at 5%.
All made up, but need something to hang my hat on. So the short term yen debt gets rolled into perpetuity and the long term risk is maybe a new convenience store somewhere in New Zealand.
Black swan shows up and does a Pu on the people of Japan.
So this hedge fund gets a margin call on the short term loan (1000Y), forcing the hedge fund to buy yen (lets call it an additional 100Y pushing the collateral from 100Y to 200Y) on the open FX market (like all the other hedge funds in the same boat), driving the price of yen to the moon?
If this is the answer, I guess I just don't understand why the carry trade loans got margin called.
Regards,
Cooter
<minor edits to clarify>
I understand your question...
If the NZD 5% is still there, why the margin call ?
Yeah. I was operating on the assumption that the collateral in the short term debt was the longer term investment.
Maybe that isn't the case?
Cooter
Here is the deal.
You borrow yen at 0% or v. close and then leverage it 200x. the 5% don't mean shit with this kind of leverage when it goes against you.
invest in something else. If the value of the Yen goes up .5% you have lost ALL of your capital. Not some of it but ALL.
Now you will be margin called way befor that so....... basically it only has to go up .2% to get margin called and then you are out of business. done deal !
Here's a little secret , sov debt is not debt - its money ( my interpretation yes).
It may appreciate or depreciate in value against Gold but it ain't debt in its truest form - at least it does not have to be.
I think the US could be losing its jewel in the crown here - its India if you will.
If Japan finally says fuck it we are not going to fund global speculation anymore because of its internal crisis and redirects resourses inwards and not be the client manufacturing colony of America and the world then the dollar could be truely fucked.
Remember fiat currencies value depend entirely on their yield potential - as they have already hyperinflated, if this characteristic is lost they are almost worthless.
I think we are watching the final death throws of the dollar here.
Tomorrow option exeration day will nuke ALL the markets.
People who didn't got out now got it comming.
Today I took a day off, and I bought food that holds for 6 months and enough bottled water for 3 months.
Whenever the radiation starts to move our way, I'm yet again going to stock in extra.
If I'm wrong, we'll be eating canned food for a while :)
And if I'm right, I'll be right.
Somehow, I've got a very very bad feeling about all of this.
you're preparing for an asteroid attack presumably, not an economic one!
...as for the radiation it'll be slight for anyone outside Japan and there isn't anything you can do about it (canned food won't help any!)
what must happen is the series of political mistakes made by Japanese politicians are brought to book for this avoidable tragedy... just like they were held to account (cough!) in Washington for the nuclear disasters the US Govt made of US property, US healthcare and US education!!!
i'm sure Barney Frank, who let us not forget 'knows it all' and is the worlds leading expert on property, health and education, is minutes away from telling Japan how to sort out this little nuclear leak
h/t to Johngaltfla.com for the post title reference.
http://johngaltfla.com/blog3/2009/11/18/the-day-the-dollar-died-a-blovel...
With all due respect, all credit goes to Don McLean
I just knew Tyler was old school. American Pie dude.
http://en.wikipedia.org/wiki/The_Day_the_Music_Died
http://www.youtube.com/watch?v=uAsV5-Hv-7U
Was wondering how long I would have to read through the comments til someone posted a link ;)
Yup
Is it in the realm of possible outcomes, that Goldman Sachs planted a bomb in some oil well of the coast of Japan?
How similar this feels to the oil spill.
I often wonder what the think tanks had "planned" in order to get the world to> the NEW World Order. Just connect the dots.
A little imagination goes along way. Einstein.
Hey, I'm a full on NWO believer, and I've been trying to correlate Japan with the plan. But even I can't come to terms with Tesla longitudinal wave scalar weapons. of course, you can never be too sure. Castro and Chavez DID blame the US for the Haiti earthquake. maybe I should pick up some more tin foil from the store JIC.
well I'm going long on tin foil!
Rocheleau said he was influenced by the other accomplice, who believed he was being targeted by "the New World Order" and convinced Rocheleau that microchips had been implanted in his sister's unborn baby.
Read more: http://www.ottawacitizen.com/news/Second+pleads+guilty+robberies/4446560/story.html#ixzz1Gopc401z
Wow, I kept asking myself how long it would take to hear someone say Scalar weapons or Haarp. You did it Robobob.
When I searched YouTube on the earthquake I got so many hits back on HAARP I couldn't believe it. So I read many including this "Dutchsinse guy". Studied some of what he was saying to his crowd. I must say, HAARP is real, what they use if for, I'm not sure. But it does not look like a good thing for the Bankster's or elite's enemies. From what I understand the Banksters do not like Japan because they finance most of their own debt. I am going to Pinch myself again in the morning and ask myself it this whole thing is a dream or something.
Either way, I am 100% cash in these markets. Why would anybody own stocks now ?!!!?!!!? Physical PM's only.
P.S. If you think what they say about Haarp being used against Japan is amazing, you should listen to what the conspiracy theorist say about what they have planned for the U.S.
Is this kind of waht it looks like?
Wall Street + Federal Reserve Corporation Theft = World Economic Collapse
http://www.youtube.com/watch?v=WI8dfFN7H1w
WOW!
My Youtube just went blank! This is the second thought police attack on me this week.
Time to reinstall java and flash player again.
Maybe this?
US military blocks websites for Japan aid effort- http://news.theage.com.au/breaking-news-technology/us-military-blocks-we...
Only on its own network.
I just reinstalled the adobe flash player and it fixed it.
I know who you junkers are. You can run but you can't hide.
ppffftt... morons who think it matters.
I see it as a popularity quote :)
Junking?
William the Bastard will be glad to hear this.
Damn! Look at them accumulate! A higher count every time the screen is refreshed!
You've got friends!
You way, waaaayyyy overestimate your importance.
Importance is relative.
But Cramer just told me to buy buy buy.
Red open on ES and wow
Excuse my n00b question. ES = ??
http://en.wikipedia.org/wiki/E-mini_S%26P
Thanks, "ES" was too short of an acronym to google and get any obvious answers.
Its the S&P futures which trade all day/night.
Edit: yup ditto to above
Goldzilla bitchez!
Godzilla joined the bailed out Japanese zombie bankers on a flight out of Tokyo last night ...meanwhile the Jap Govt pushes aside safety standards and ask the peasents to risk their lives trying to rectify their political mistake siting nuke plants on the coast ....this is how it works, what a wonderful world
Complacency is a sin. Surely this an oil prices will wipeout Ben's "wealth effect".
Might want to look up when you walk past GS/BAC HQs, there's gonna be some falling bankers.
Promise?
Yea, the ones in charge are gonna throw out some of the low level employees so law enforcement overlooks the real crime scene of the past umpteen years which is INSIDE the building
http://www.youtube.com/watch?v=AQdBa9pT6zA
There is no Time out.
Many will be forced to sell assets to satisfy collateral requirements.
Our sinking feeling is that after pumping 50 trillion or so in money markets, the petty cash may be running quite low.
POOF
Value at risk is, however, coherent, under the assumption of elliptically distributed losses (e.g. normally distributed) when the portfolio value is a linear function of the asset prices. However, in this case the value at risk becomes equivalent to a mean-variance approach where the risk of a portfolio is measured by the variance of the portfolio's return.
I wonder what the next NYSE margin debt & free credit chart is going to look like?
http://www.zerohedge.com/article/nyse-margin-debt-hits-fresh-post-lehman...
(funny, I had to google this article link, which I found on a CNBC 'net page)
Yeah, what he said.
He said that the volatility in the VAR has overwhelmed the average.
Nightmare is now reality. There. Is. No. Spoon.
Where is Zombie Brian Sack?
Forgive the ignorance, but what is ES?
google is your friend, we are too busy watching train wreck
I googled ES...they are a skateboard manufacturer...
https://www.barchart.com/commodityfutures/All
3/4 down and look for the E-mini S&p 500
ES is the symbol for the S@P 500 futures market, You were junked because someone asked the same question in an earlier post and got the answer. .... you should have been able to find the answer yourself by simply reading the treads / post.
lol
http://en.wikipedia.org/wiki/Expected_shortfall
You can watch the trainwreck here:
http://finance.alphatrade.com/quotes/quote?s=@ES.1
Thanks HH, nice link.
So I'm watching it and i don't see the wreck, just a last of 1245 that goes red then green then red then green.
S&P mini futures contract symbol is ES
Ya I tried that
About 4,460,000,000 results (0.12 seconds)
http://en.wikipedia.org/wiki/E-mini_S%26P
es...S&p
It was one of the more widely used toxic financial derivatives that brought down the global financial system in the early part of the twenty-first century.
very interesting; I don't see why the demise,(or effective demise), of the Yen carry trade will be negative for whatever amount of USD carry trade exists. Rather the reverse, I would think. nature abhors a vacuum, more or less.
i was thinking the same thing.....at least for an intermediate term
Japans owns a lot of US debt.
A lot of US companies own Japanese assets.
Banks in General but also a lot of large internationals. BAC & C will soon get a hard hit.
so this will be the stack of bricks that broke the camels (camel = $) back?
yep
The Japanese have done 1 of 2 things:
1. Either decided to say "F**K the markets, and put the money to use for the people and infrastructure.
2. Plan on defaulting on purpose.
What other scenario's are there? I don't see any with their action(lack thereof) so far.
I ask how can they not default when this sort of natural disaster strikes (In it's current state) and if it worsens....
Of course the Japanese are going to default. Think Confederate notes or Tsarist bonds. You sell all of your assets and renege on all your liabilities. Businesses (and people) do it everyday. It's nature's way of restoring balance - as you have pointed out, nature trumps fiction every time.
Still, it was nice while it lasted, but there were too many variables that had break just right to survive 2007-08. For example, instead of the JP earthquake, what Ben needed was something along the order of an amazing new discovery of a Ghawar sized field.
Pity. Oh, and to all the micro-perspective guys, have fun playing the trade. Reminds me of gawkers looking at the tide pools as the ocean sucks out. If you don't understand that what is occurring is simply the closing bookend to the efforts taken 3 years ago to move all risk to sovereigns, then it's probably too late for you to figure out what that means.
Again, those focused on the micro may have also done their homework on the macro... further, I fail to see how brainstorming or projecting past some macro singularity would not also qualify back into micro examination... In other words, we can be perfectly aware of the inevitability of a macro event, but our presumptions about what happens afterward are no different than are presumptions of what precedes it.
But I thought most Japanese debt was held internally. How would defaulting on its citizens help rebuilding?
20yrs ago Japanese savings rates were 20%+(the greying of their society)has caused them to use their savings to get by
They have been for a long while now about 5%.
When the country has a 200%+ GDP to debt ratio, their populace's savings (now drawn WAY) down, will be sucked up in a nano sec.
Just like ours, except we are 10x's worse off than Japan was.
We are into deflation, headed for HyperInflation, and the world has seen nada like it.
In the 30's we were rich, and we basically owned the planet.
Now, we are dead ass broke, and not a chance in hell of meeting any obligations semi long term, past 2-5yrs if we tried.
All the top dogs in the BUSINESS are screaming to get out of the USD, and into CHF, Gold,Silver.
Our country is balanced on the edge of a cliff, and your USD's, could be worthless before morning.
THEY will be worthless(meaning NO one will accept them), we just do not know the date.(very soon)
Food,Water, and appropriate supplies,and the means to protect your families.
We are likely going to see a new Gv't system, one which none here are going to care for.The one we have now is broken, and run by thugs and crooks.I hate it.
Be prepared for anything, and get away from large cities......min 2.5hr drive.
Getting your shit together is a no go, should already have it ready,and able to leave at a minutes notice.
Both.
Everything for the homeland, it's going to need it.
"All hands on deck" Either we save there ship or all hands lost. We need to render all assistance in there darkest hour.
The nuclear crisis in the disaster-ravaged country intensified Wednesday, prompting some countries to advise their citizens to stay away.
Tokyo Electric Power Co. spokesman Naoki Tsunoda said the power line is almost complete and officials plan to try it "as soon as possible" but he could not say when.
The new line would revive electric-powered pumps, allowing the company to maintain a steady water supply to troubled reactors and spent fuel storage ponds, keeping them cool.
Yup, that's pretty much the official story. I'll believe it when I see the lights on at Fukushmia and the radiation levels back to normal.
The lights may come on, but the radiation levels will not be back to normal for a long time. Cs137's halflife is 30 years, i129's 15.7 million years, and sr90 is about 29 years.
Would you settle for a soft glowing aura?
Is that you're final offer?
I didn't really think about that one...
A default would be very logical right now. The reason is: it just doesn't really matter if they don't.
So by not defaulting, they would miss the chance of a liftetime. Their markets are death anyway.
Everyone chill. Just CHILL. Barry O's got his picks on the Final Four out, it's all good now. Homeboy headed down to Rio, maybe he will find his birth certificate there.
http://www.latimes.com/sports/sns-rt-sports-us-obama-basktre72f83c-20110316,0,4011475.story - hahahaha. wait fuck me this is tradgic
i STARTED LOL'ING IN THE OFFICE AND EVERYONE IS LOOKING AT ME.
Same here!
<Re: Bush speech where he was mocking himself looking for the WMD>
Let's see, is that birth certificate over here? Nope, not here. Is it over there? Nope, not over there. Well, it must be here somewhere. I know that if we keep on looking for it we'll find it somewhere.
That actually SUCKS. A million+ dead based on a fucking lie. People laughed at this joke......so absolutely sad. We didn't learn anything so we'll just keep killing until we DO figure it out.
"It would be wonderful for people to maybe offer a little help to the Japanese people at this time - as they’re filling out their brackets."
http://www.whitehouse.gov/blog/2011/03/16/president-obamas-2011-ncaa-bra...
I am at a loss for words.
I am not at a loss for words. However, most of those words are not befitting a lady and I do try to keep up appearances.
Let me help.
The President and his crew are all a bunch of mother fucking cock sucking pieces of smoldering shit.
BINGO!!!!!! We have a winner!!!!!!
Of course, the one before BO was the same thing, the one before that, the one before that, the one before that.............
True enough. Now look at the trend line.
I don't see it getting lower.
Don't be shy. Extend that to the whole lot of them in DC. I prefer the phrase 'Bunch of worthless cocksuckers'.
thank you for saying that. please add the word, "traitor " in front of the word "shit" . I would have said it, but, I cannot bring myself to swear like you, Michael . I'm too much of a proper old lady.
You can't make this stuff up.
Probably 25,000 dead, and the leader of the free world is handicapping sports events on his way to a family outing in Rio.
Bread and circuses...
I thought you just made that quote up...wow. I mean come on can't we get enough respect for them to at least be dignified while they pillage us? Am I asking to much to be scammed by a charming gentleman with style and taste?
Was already pissed enough about trying to make streaming content a felony. So we can lock up kids who pirate music/movies but guys who steal billions walk free. Crime like anything, go big or go home. Anyone know where the door to the real world is? The surreal Twilight Zone is getting a little to crazy.
You mean like George Clooney. I suppose to be swindled by him would be better. He's got style and class.
Most company's have policies prohibiting gambling but like most rules they are not enforced. Any company worth its salt is going to ask employees to give anything they might have put into a pool and give it to a relief organization. Much like ZH is doing with all donations for the next week.
Gold just got slapped in the nuts......
A $6 drop? Hardly even a testicular exam.
Was actually $10 in 4 minutes...... that qualifies as a nut slap - but not a kick.
"But a flesh wound"
"Please turn your head and cough."
Why did I feel one of your hands on each of my shoulders during the exam???!!!
The sound of it hurts though.
If a nut is slapped on a desk, and there is no one to hear it....
If you think that's bad...the USD index is now 76.29
This is good for Japan. They'll be importing more than exporting. It's strategic.
Check out this article from 2007 on the yen carry trade - you won't believe the title!!!
http://www.moneyweek.com/investments/the-carry-trade-a-tsunami-in-the-ma...
Lets discuss the LEGS of these trades. aud/jpy comes to mind.
Short term, yen repatriation and FX panic send the yen up. But longer term, won't most of the materials (coal, iron ore, cement, copper) and energy (get ready for a big ramp-up in LNG imports ) for rebuilding Japan come from Australia? Then the pendulum should swing the other way.
Good!
Carry trade ponzi shit.
I hope your right. Die, pig die and take goldfuck and JP with ya.
Over the winter my dog has left her mark. I will gladly send the little treasures to all banksters as the bonuses they deserve.
let's pray for those that are short vix.
Anyone short volatility in this environment deserves to be separated from their capital. Mercilessly, without prayer.
Does this mean "goodbye" to a bunch of free money (from arbitrage)? New to this and trying to understand.
Glad I sold all my FXA and kept my FXY despite Mad Hedge Fund Trader's assurance it would tank last year. FXF also strong. Getting smoked on some other things though.
Obama's final four picks are in...wtf?
Full retard.
Obama's final four picks are in...wtf?
Funny huh?, the whole world is about to crater, and all that Ckskr is concerned about is round ball, and gun control.
Get ready, talking Exec Orders here,the SHTF may be VERY close.
I hear he picked Brazil, Russia, India, and China.
Alot of superheros may have bought their last dip today.
70 to wash things out and then a collapse from there ala 1995?
Awe too bad. Now you fucking FX carry-trade dweebs will have to actually WORK for a living.
they can always pile into USD ... after all Bernanke keeps saying "I got your back".
And they will be.
With Yen melting up, you can bet the USD will be the next currency grabbed by the Japanese.
It's a currency run, but in the other direction than everyone thought.
When (Kampo)says it is, then it is.
On other news, riots about to erupt in France, Germany and other enlightened plutocracies of Europe, as Colonel Muammar Gaddafi discloses he funded political campaigns for Sarkozy, Merkel, and others -the very same bunch of idiots that want to re-colonize Libya.
One can only wonder the reasons why the self-appointed Adonis DNA wikileaks fraud Julian Assange conveniently never disclosed this very important piece of information.
Oh, that's friggin' awesome!
+1
Is that really true?
Source?
No source, no truth.
http://www.rttnews.com/Content/GeneralNews.aspx?Id=1577508&SM=1
Gotta love the timing of this forex raid (and that's surely what it is) -- while New York traders were headed home, and Tokyo traders were still heading for work (if they didn't leave town).
A thin market between New York and Tokyo business hours is the perfect opportunity to slam it by four whole handles, after spending all day positioning.
It's a zero-sum game, so someone made a damned fortune from this -- as legendary as Soros 'breaking the Bank of England,' perhaps. Any guesses who it was?
Relax, the Fat Lady hasn't even put on her panties yet.
Expose the derivatives we will find out,,wait they are the stealth financial weapon.
When this unwinding carry trade is complete,,,watch out, yen 140+
I would think you are spot on ... however there are many traders who could see this coming.
Astute observation, although all disciplined FXers would have left their scripts running so as to back away and dump/cover in such an unforseen situation.
Either way, definitely lots of pain for people on either side of this. Cant wait to see how the Nikkei opens despite the futures which arent really all that low.
The silver shankings seem to happen in the lunch line and right before they hand out the nightly meds. Somebody is doing some serious work there. Nuestra Familia, AB or La Eme?
Where in the world is Harry Wagner (AKA DB sell side douche bag)?
Must be getting hosed
Don't say his name three times, or he will appear.
He's too big a wimp to show when the real is going down.