The world carry trade for US Dollars is over $9 trillion.
In today’s world of monetary insanity, investors seem to forget that $1 trillion is a staggering amount of money. So to put that $9 trillion carry trade into perspective, if it were a country instead of a carry trade, it would be roughly equal in size to the economy of China, the second largest economy in the world.
Suffice to say, we’re talking about a truly staggering amount of borrowed US Dollars that have been invested into other assets/ investments.
Carry trades only work if the currency you are borrowing in doesn’t rally. As soon as it does, your trade very quickly goes into the red.
This is particularly true if you’re talking about a corporation that has borrowed in US Dollars to fund projects in countries where sales are denominated in other currencies (Europe, Asia, etc.)
The reason for this is that many multi-nationals do not hedge their currency risk. So if, for instance, they are borrowing in US Dollars without a hedge to invest in Europe and the US Dollar rallies, their projects very quickly begin to lose their appeal… and a LOT of money.
To put that move into perspective, it’s GREATER THAN the US Dollar rally that occurred during the 2008 CRASH!
This tells us point blank that something MAJOR is happening in the financial system right now. You DO NOT get 20+% moves in the US Dollar during normal, healthy environments.
Indeed, it is not coincidental that Oil and emerging markets like Brazil imploded when the US Dollar carry trade began to blow up.
As usual, US stocks are the last to “get it.” But this won’t last for long. The S&P 500 is sitting on the ledge of a massive cliff. And when it finally tumbles, the move will be both fast and violent.
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