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The $9 Trillion US Dollar Carry Trade is Blowing Up
The US Dollar rally, combined with the ECB’s policies are at risk of blowing up a $9 trillion carry trade.
When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.
And if you can borrow in US Dollars at 0.25%... and put that money into anything yielding more… you could make a killing.
A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%... locking in a $9.75 million return.
This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.
Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).
This worked while the US Dollar was holding steady. But in the summer of last year (2014), the US Dollar began to breakout of a multi-year wedge pattern:
Why does this matter?
Because the minute the US Dollar began to rally aggressively, the global US Dollar carry trade began to blow up. It is not coincidental that oil commodities, and emerging market stocks took a dive almost immediately after this process began.
This process is not over, not by a long shot. As anyone who invested during the Peso crisis or Asian crisis can tell you, when carry trades blow up, the volatility can be EXTREME.
The market drop in October was just the start. Once the US Dollar rally really begins picking up steam, we could very well see a crash.
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Best Regards
Graham Summers
Phoenix Capital Research
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When hydrocarbons and third world republics become cheap enough, then they are carried again. Risk off and risk on. Too much money for a sustained dip.
I like your posts; simple, good explanation of very important financial positions.
MSM mostly likes to use smoke and mirrors or just brushes away problems because they know not to bite the hand that's feeding them.
Congratulations!
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The $9 Trillion US Dollar Carry Trade is Blowing Up
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I thought the main funding currency was JPY, not USD.
The JPY has had very low interest rates for 20+ years, only much more recently for USD.
Watson
When bad news hits some people just remember that every cloud has a silver lining, at least for the stacking bitchez.
Crash, burn, whatever. We rugged band of silver stackers are used to disaster. We laugh in the face of the banker's follies.
A manly laugh, like this- Ha Hahahaha!
I know its early in the weekend but check out the futures. OIl is barely above $45 now. Euro 112 and still falling. Dow down about 150. Snow about to start falling on the eastcoast.
and your point is?
up and down, cycles, black swans?
Wife starring as Madame Secretary?
Truth is out there?
;-p
Where the fuck are all my old buds on ZH? I don't recognize one name of the poster's here. Been here seven years. Did everyone kewl, my old ZH buds, leave because this site is a troll? WTF is going on here? Mr and Mrs Cog, Janus, Radical Marijuana, etc., where ya be? Is it time to move on?
.... internet friends always fade away
Well where in the fuck have you been ?
robnume, they'restill around, posting infrequently.
Good. This house of cards has to come down sometime. Let's rage against the machine; it has to start sometime. What better place than here, what better time than now? All hell can't stop us now! I wanna be a renegade!
The fact of the matter is, blowing up borrowers was the intent of the Fed all along. What the Swiss did to currency traders last week is a standard CB tactic. I'm surprised anybody trusts them enough to leverage bets for any length of time. A new group has been schooled in the ways of central bankers.
a new group?
Old folks with little understood tactics, perhaps.
And now, the end is near;
And so I face the final curtain.
My friend, I'll say it clear,
I'll state my case, of which I'm certain.
Remembering Paul Anka...
Or, old blue eyes?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/113004...
What I want is a good answer to WHY the dollar boke out of that nice wedge pattern. Once it did this was a done deal but was it on purpose or is someone somewhere saying "Oops"?
Silly question. Of course it was done on purpose, NOTHING happens naturally, didn't you know? Every plane crash is a CIA plot, every dead celebrity, politician, journalist, bank employee, or basically anyone who is anyone that dies are all part of the big scheme.
Every market move is meticulously planned to extract your hard earned welfare checks from you grubby little hands.
Hell, even earthquakes and hurricanes are now planned by the almighty (TPTB I mean).
To understand who is behind every event, you must just look first at who is hurt the most by it, and then follow the incredibly convoluted trail that would need the silent cooperation of hundreds, maybe thousands, to cover up, and you will discover the real culprits, which are never the obvious ones that hardly need any mental gymnastics and total suspension of reason to consider.
Once you understand these simple facts, you will be free to spend your time plotting revenge on an internet site, where surely together a bunch of useless dorks can overcome the almighty PTB!
Hallelujah!
because they stopped printing so many QE 2 ends Japan turned thier printing press on now Europe race to the bottom see we will turn the press on next like never before then Japan then ..... got the game till China and Rusia nuke the shit out of all 3 of us
"Coming events cast their shadows before." - Thomas Campbell
You mean the BRICS are toast and any one holding USD wins.
Been saying that for some time.
BRIC based world currency never was inthe math.
congrats on just clocking up 4 years here, Quad
No, I'm sure the rug will eventually be pulled up from under the dollar. In the end, anyone holding PM's wins(as well as food, water and lead for the ugly transitional period).
http://stockcharts.com/def/servlet/SC.pnf?chart=TLT,PGTLWANRBR[PA!B13][D20150123][F1!3!!!2!20]&pref=G
20 year US bonds The gift that keeps on giving
hahahaha...what Draghi does by pumping QE hiccups to euro zone is to collaterally collapse the USD carry trade that blanched white the Bric economies....
Currency wars are now a return to the 30s... Watch out for the awesome political price that the US Oligarchs will see the world asking them to pay by waging vengeance currency porn wars.
And that brings us closer to all out war.
Isn't that the ultimate stop?
Except that Oppenheimer has made that impossible for rational man.
Oh the pain...we want Iran not to go nuclear all the while we have 8000 war heads sighing to be nuclear porn abused.
Putin strums his harp and call Mongelovich to come play chess with him in dreams of polonium porn stabbings.
We are all invited to the Count Dracula ball in Vladivostock. When the bullet train becomes the vampire's silk road to Peking suck a gazprom gas-tit odyssey.
Tony Blair enters the Libyan dead tiger's lair in liar liar pants on fire despair. What a pair of catholic balls of hot air.
Dude - lighten up on the bong
you sing a better song?
no one sings better...
Only the puppet masters know/knew, and they aren't singing.
cant sing but luv the blues, gets me in touch with reality and what you write-don't hold back f.p., your shit is as good as it gets...