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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: $Mogul who wrote (83592)7/16/2007 8:34:28 AM
From: westpacific  Read Replies (1) of 110194
 
Carry trade end game
So, if Japanese interest rates will not necessarily kill the Yen carry trade what will be the catalyst for the unwinding?

According to Robert Lind, 'It's currency volatility that ultimately kills carry trades. In 1998, the collapse of LTCM was the 'Black Swan' event that triggered more volatility and the end of the trade. By definition, none of us can forecast these events. But in a world of unprecedented financial imbalances, there are plenty of potential triggers for renewed currency volatility and an end to the current carry trade.'

I agree with this view. There are huge speculative excesses everywhere in the system. Hence, even a relatively minor event (a US fed fund cut in the fall) could trigger a massive re-pricing of risk and lead to an unwinding of all carry trades. Therefore, a gradual accumulation of Yen and Swiss francs should be considered.

This from Marc Faber.

---Whole end game now is when does liquidity dry up, until it does markets stay supported. Once it does go away, markets will go into a big retrench. Getting very late in many major cycle counts and we hit two massive cycle tops in early and mid 2008.

West
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