The financial world focuses far too much on stocks. The stock market, despite being at record highs (meaning record market capitalizations) remains one of the smallest, and least sophisticated markets on the planet.
Consider that stocks, even at current lofty levels, have a global market capitalization of slightly over $60 trillion.
In contrast, the global bond market is well over $100 trillion.
And the global currency market trades OVER $5.3 trillion per day.
It is currencies, not stocks, where the most significant moves occur. The currency markets are the largest, most liquid markets in the world. They are always first to move when things change. Stocks are the DUMB money compared to currencies.
So who cares?
Everyone should care, because, globally, the world is awash in borrowed money… most of it in US Dollars.
When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.
I’ve written before about this problem. Last month I projected that the US Dollar carry trade (borrowing in US Dollars to finance other investments) was the largest carry trade in the world. At that time I believed the US Dollar carry trade is believed to be north of $3 trillion.
I was WRONG… WAY, WAY WRONG. It’s MANY MULTIPLES LARGER THAN THAT.
Off-shore lending in US dollars has soared to $9 trillion and poses a growing risk to both emerging markets and the world's financial stability, the Bank for International Settlements has warned.
SOURCE: the TELEGRAPH.
The US Dollar carry trade is north of $9 trillion… literally larger than the economies of Germany and Japan COMBINED.
And the US Dollar is rallying… HARD.
The fact that Oil is imploding at the same time this happens is not coincidence. Oil producers and explorers were financing their projects using what? BORROWED DOLLARS.
This is going to begin seeping into emerging markets and other assets soon. Imagine what the world would look like it $9 trillion worth of shorted Dollars had to be covered? Imagine the SELL PRESSURE this would induce in all other assets.
Just like 2008.
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