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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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From: russwinter11/5/2005 8:21:16 AM
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Excerpt from Doug Noland, picks up on Yen and Euro carrytrade as source of speculative engine:
prudentbear.com

To actually tighten global financial conditions today will entail concerted aggressive central bank rate increases, a scenario thought virtually impossible until recently - and still widely dismissed. While the European and Japanese central bankers have domestic issues to contend with, the longer they delay the rate normalization process, the more of a headache created for themselves and the Fed. In advanced contemporary financial markets, liquidity is instantly created and rapidly flows from the lowest cost “producer” to higher yielding targets (“carry trade”), and it is today flowing in destabilizing excess from both Europe and Japan. The Fed and U.S. interest-rate markets are now faced with the (previously unanticipated) dilemma associated with widening rate differentials to these energized Credit systems, both inciting a reversal of speculative positions and enticing “hot money” flows. This liquidity will continue to mitigate the tightening influence of rising U.S. mortgage rates, in the process prolonging the inflationary boom and delaying the desperately needed adjustment process.
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