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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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http://www.marketwatch.com/community/hwagner
could be him? enjoy the laugh.
Thank goodness i do chocolate with my coffee or my monitor would be hatin' it
Nice catch
Cool. I just discovered that pairing about ten weeks ago. Really liking it.
It so is him.. Always trying to convince people the doggie poo in his hand is chocolate..
Oddly, was thinking the same thing, as I recalled his Sunday night bluster...something about backing up the truck and BTFD. I wonder if he managed to get out from behind the truck before it backed up.
Is there a predominant asset class that served as destination for parking carry trade funding?
Is there a way to know that?
If so, that would be the most interesting one to watch / short...
Emerging Market everything, High Yield corporates .. especially in US/EU. I suspect Standard Charter, HSBC, Nomura, Macquarie, ANZ, et al are just shitting their pants
+1
+1
Thanks, great reply.
Surely.
I would be remiss if I didn't state the obvious to us old timers, but I was clueless myself about a couple of short years ago .. US Treasury Bills, Notes & Bonds and US money market funds. THE issue that has the fed & treasury shitting their pants since we are out of money without a debt ceiling extension and new auctions that the fed can print & buy up.
Cheers -
Here we go . First casualty in Asian banking circles ...
Macquarie Chairman Clarke Resigns on Health, McCann Appointed http://bloom.bg
And Mushizo ATM's stopped working...
Well, the risk-free, easy-money was to buy Treasurys, but ZIRP broke that perpetual money-machine.
F$CK 'EM. Margin call gentlemen. (I use the term gentlemen loosely)
Who is that guy Margin who keeps calling me?
Yoohoo,
Did someone say my name? Sorry I have been REALLY FUCKING BUSY tonight. Somehting big must be happening....
So, everybody must squeeze through this carry conversion funnel?
How many Trillions?
Not enough money in the world, to notionalize this new batch of sorry CDS, so That's Over!
Math Man, where are you? I need some reassurance through fact at the moment....... wait a second....
http://finance.alphatrade.com/quotes/quote?s=$$USDJPY
I can't afford bloomberg but it's still an unbelieveable scene from the nosebleed section....
With all the evacuees still needing basic necessities and help, the BOJ should spend that money to help the Japanese people versus manipulating currencies and markets-- the Japanese government (and this goes for the US as well) should be more concerned at solving society's greater problems than what the next tick of the ES means for the shit global ponzi fraud they refer to as the global economy.
I don't mean to interrupt the president's final four brackets, but we need an overhaul of our energy and infrastructure before it's too late.
Oh sure, Mr. Brave New World, ask the overlords to overhaul the energy infrastructure and see what you end up with. Let's just say, it will be what's deserving to beggars who rely on the kindness of others.
Here's your overhaul pal; Drill baby drill.
That Kenyan knows basketball, and all the press are reallyimpressed by his knowledge. Better check airforce one for gold bars before he leaves.
+2
That was absolutely Hillary-ous.
I suspect that Japanese merchants are running around the globe purchasing every bit of spare food, rescue equipment, survival gear, frozen fish, and water purifiers available. I'll bet Fex Ex is going to be busy flying this stuff to Japan. About 30% of the Japanese fishing fleet is grounded. Who is going to send them Sirimi and Sashimi?
You forgot Kobe beef. Don't forget Kobe beef.
Maybe King Poseidon was peed-off about all the whales slaughtered as part of the "research project".
The Sea Shepherd Guardians at the cove in Taiji survived ok. Just.
http://www.seashepherd.org/news-and-media/news-110312-2.html
In fact, now I think about it, Mitsubishi has a ready made emergency food aid supply they should now perhaps quickly release to help their own country?
http://www.worldfishingtoday.com/news/default.asp?nyId=3387
Bye bye Miss American Pie
http://www.youtube.com/watch?v=uAsV5-Hv-7U
AUD/JPY is worse. The $1 trillion borrowed from the world by the Aussies to keep their house bubble inflated is being repatriated at a rapid rate. The next rumble from the east will not be an earthquake but the pop of the Aussie house market and the lifestyle downunder.
It is absolutely AUD/JPY related. Directly and confirmed by ZH many times over the past 2 years. The stock market in the U.S. has become the AUD/JPY. tick for tick. Now as it unwinds, where does that leave stocks? In the gutter where they belong. Where does all the money Bernanke has gambled gone, just as the banks did and got slammed, he will too and needs to be jailed.
The next time the SEC tries to charge someone with price manipulation, just tell them to fuck off, and until they arrest Bernancompoop and Timmy, then don't come knocking on the door. They do it everyday for 2 years straight, and its legal?? BS
Nice observations by Gerriek and yourself.
+
+
+ yourself
+ poster above
Ouch.... so what's the best plays as individuals to minimise effect and maybe benefit? Will it lead to interest rates being reduced to try and stimulate the market ( we currently pay 7% on mortgage finance) What will be the effect on the AUD... back down to .70 USD? Suggestions welcome.
Boomberg --
Nikkei 225 Stock Average futures traded for 8,290 in Chicago, or 7.4 percent less than the closing level of 8,950 in Singapore.
------------
Eff! Is this purely forex effect (which is bad enough) ... or is Tokyo emptying out its populace like a bathtub with the drain open?
Unfortunately, with Japanese officials declining to engage the US and France on their claims that Fukushima Unit 4 already suffered a spent fuel rod fire which has been creating a heavy cloud of radioactivity for the past 24 hours, I have to assume the worst.
..
So Yen is the Financial version of Doomsday machine. Offcourse the only real safe asset now is the food and water ( and clean air ) , Gold and Silver may become after the dust settles.
Massive carry trade unwind indeed.
http://i52.tinypic.com/zvosc7.jpg
Did you see inflation numbers today (annualized PPI is 20% or 1.6% m-o-m)?
Bernanke cannot inject more liquidity to prop up the market (the market that was mainly driven higher by the liquidity pump) when inflation is spiking higher -- risk of America becoming the Weimar Republic.
Now that a zero bid situation in one asset class is leading/will lead to wholesale liquidation of any asset that still has a bid (aka deflation), we will now be able to answer the age old question about what "NOTIONAL" means in the $750 trillion derivative market.
Something tells me we should have reformed the financial system and split the TBTF's back when we only had minor problems like the housing crisis. Sometimes what looks like a mountain becomes only a mole hill in retrospect.
Yo, Timmay...That's Paul Volcker sneaking up behind you with a baseball bat you sorry ass little tweeb. Oh, yea, Dodd-Frank, the bell is going to toll for you, too.
Who coulda known?
We didn't know, but we had the clues.
While i agree on keeping the TBTFs was sheer stupidity, what exactly do you mean we shall see how the (notional) xxx$Tr derivative market plays out?
Either way, a loss is a gain. So perhaps the financial power will shift to smart players (Eu? Asian shops?) while American players once again require taxpayer dollars (and GS, of course, getting 100c on the $) to get through the next crisis, but this is not yet the setup for a total collapse.
Deflation might arrive, but not until QE is done and over with. Inflate away, ol' Ben.
a loss is only a gain where there is no counterparty risk. Sometimes a gain is a loss if, in addition to your winnings, they won't even give you your principal back. CF Lehman
Notional exposure - collect from peter to pay paul for the hedge, but peter is not returning your calls and his PB tells you his treasuries on deposit have been transferred to the national panamanian bank of jose. Paul froze your account and is demanding another 17,000,000,000 before the open tomorrow. But its all good, your VAR report says your perfectly hedged, maybe you better fax that sumbitch over to paul ASAP.
To use a Hollywood analogy, imagine the Lehman shock to the derivative market/counterparty risk was a Twinkie. The counterparty risk that is just about to evidence itself as the carry trade unwinds would be a Twinkie the size of......
You're up early, or did you already pack up and retreat to Europe?
I hate sleeping through the end of the world.
Back in my days in Japan, I used to work on a high floor. We occasionally had pretty good quakes that would sway the building and make walking difficult. I always ran to the window, figuring that if the building was going to tumble, I might as well get the best view.
By the way, one does not retreat to Europe; one retreats to where deprivation is a long standing tradition. Fewer dashed expectations and a more calm society.
You mean Mom's basement?
Third World=First Choice.
Three plantings a year in the fields, really fresh fruit, agreeable climate for old bones and worn out joints, no need for the Brioni's, very agreeable people with something called "time" for each other, and limited refrigeration devoted to the right priorities......beer
I was just kidding before, we are agreed - I'm right across the border from you in N. thighland.
So close. Hey, I have an idea. I've got a few empty tin cans, we could get some string...and before you know it we've got the New World's first telecom company!
I've been saying this for years. The Fed compounded the inevitable collapse X 3.
You should put that to rap lyrics. + 2
And everyone with basis in reality here screamed up and down that the worst thing they could do to compound an already treacherous situation would be to play politics, sweep it under the wrong, allow for the mask to be lifted off Wall Street capture of the government and resort to even further money printing and rule changes for the game in order to back ourselves into a corner that did not allow the markets and functional economy to be reborn.
Yet here we are a market that needs perpetual devaluation, inflation of debt, 0% rates forever and welfare for all plus accounting fraud just to create the illusion of functional economies all while metals punch them in the face and call them liars. Oh yeah Chindit we are well passed the point of accepting deflation as a needed cure for price discovery and now we have inflation in goods and assured further deflation in housing. There can be no bailouts this time around.
My last sarcastic line is cover for an anger and frustration that is now on a faster boil than a pile of spent fuel rods in a shallow puddle. I want anyone who stood in the way of reform and breaking up the TBTF's to be force marched into Reactor No. 3 at Fukushima Daii-ichi. Banksters, lobbyists, Congresspeople, Timmay, Bernanke, Bush, Paulson, Obama...so many innocent Japanese suffered the last week, and so many who deserve suffering got away unscathed.
Time for scathing.
Your writing always has the perfect balance of poetry, insight and perspective.
Always a joy to read...
Agreed
CHF now at 1.1123 USD.
At that rate, silver swiss francs will be worth more by their face value than by their silver content in less than 2 weeks! Should have bought silver pesetas instead!
we could be REAL close to a mass sell off....of EVERYTHING....gather up that cash boys....there will be some deals mighty soon....
+1
About time, investment banks holding high yield longs and trading the differential on the YEN. Hedge funds kept HFT support on 50 100 MA's. That patten for 6mths at least. Lazy trading i hope this has shocked these a-holes into oblivion.
I guess this is why the carry trade is frequently referred to as "picking up nickels in front of a steamroller".
Works right up until when John Merriweather trips on his shoelace
@all: WHY has that happened? Why all of the sudden JPY is appreciating against all currencies?
@Tyler: Why do you see same thing happening with USD ("will follow the suit") ?
???
Yen will be soaked up by the people looking to purchase necessities.
With such a demand on the Yen and not enough to go around, the USD will make a great alternative.
It's a flight to cash and nothing else is safe.
If the BOJ stepped in, this wouldn't have happened. So either the BOJ had a short term interest to wipe out some exposed players for the greater good (i.e. for the other wolves to feed on, maybe some wolves in Japan got a heads up). Or it decided it had a longer term interest that a stronger yen is in Japan's interest.
It is the old carry trade problem. A lot of sheep enters through the narrow (liquidity) gate over a long period of time - but they all want to exit at the same time when the gate suddenly shrinks in size.
and or the sheep are fatter
BOJ online but there will be no offical annoncement.
It is much harder to drive 100 pips up now than was in september.
Hey..!!!
Who stole my Pop-Corn
I guess a Bud will do.!
So how long should I hold my physical yen? I've already nearly doubled my money on it......
So what exactly did people expect from a community organizer who was in the US Senate for just 2 years before deciding he was experienced enough to run for President as the "I'm not George Bush" option?
"Hey, Hey, Hey. Earthquakes followed by tsunamis just ain't cool. So, while you're filling out your brackets how 'bout giving a shout-out to our Japanese brothers and sisters."
Is that Obama's 'you're doing a heckuva job Brownie' moment?
deleted dup.
BOJ will stop at 81.40, after that , who knows
Am I the only one who's noticed that the infallible divine market is telling us that you cannot eat gold, nor will it keep you warm at night.
Japanese yen can do both these things, at least in Japan. If gold could also do them, the Japanese would not be selling their gold for yen.
BOJ intervened big time, there will be no official announcement.
"so how long should I jold my physical Yen"
Well....till it glows......of course.
Since goldman couldn't frontrun mother nature, heres hoping they took a huge loss in the carrytrade, swaps, derivatives and any other monkey business they have been up to
Yen swaps on the way!
Laughing at the people on that new CNBC FX show last Friday calling for for USD/JPY to go up to 88 this week. Wish I faded them like I promised myself I would instead of sitting out.
BOJ has already expanded their QE program from 5 to 10 Trillion Yen (120billion), to have the scale of QE 2 in the US, they need to implement the full size 30 Trillion Yen. As the government already indebted up to 200% of GDP, they are treading a fine line going forward. Japanese corporate, government and individuals own up to 850 billion worth US Treasuries. If they need to dip into their savings for reconstruction. Keep an eye for the yield curve on US debts.
http://theintrinsicvalue.com/news-analysis/boj-quantitative-easing%E2%80...
BOJ has already expanded their QE program from 5 to 10 Trillion Yen (120billion), to have the scale of QE 2 in the US, they need to implement the full size 30 Trillion Yen. As the government already indebted up to 200% of GDP, they are treading a fine line going forward. Japanese corporate, government and individuals own up to 850 billion worth US Treasuries. If they need to dip into their savings for reconstruction. Keep an eye for the yield curve on US debts.
http://theintrinsicvalue.com/news-analysis/boj-quantitative-easing%E2%80...