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Strategies & Market Trends : The coming US dollar crisis
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To: dybdahl who wrote (13206)10/21/2008 7:41:50 AM
From: RockyBalboa1 Recommendation  Read Replies (1) of 71475
 
Much of the deleveraging out of various US assets (which includes stocks, convertible bonds and MBS held by hedge funds) contributes to the repurchasing of dollars on a net basis. It essentially reverses the hedging and borrowing of dollars through FX Swaps - borrowing occurred whenever a EUR denominated hedge fund invested in USD denominated assets. As funds flow out and also due to lower market values, currency hedging requirements also are lower.

It is impossible to tell whether liquidations of funds are halfways completed. The rout continues this month: hfrx.com and this will lead to some further liquidations.

There is no offsetting trade in a similar size in the opposite direction (i.e. US funds invested in Europe in the past (again with Euros borrowed and rolled over to purchase them).

That said, I also gave it a try and sold USX but, technicals are ugly, trading is ugly and fundamentals in Europe are not pretty either. At one point of course some stop will kick in.
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