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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: ChanceIs who wrote (225871)10/23/2009 8:32:48 AM
From: James HuttonRead Replies (1) of 306849
 
"Personal Comment: I will fill in Roubini's comments. In the carry trade,one borrows currency at extremely low rates from a country whose currency is declining. One then converts to a country with higher rates and invests there to earn a yield difference and a potential cap gain on the currency depreciation of the lending country. He has some data showing that recently (last six months?) one could have earned 30%. For this reason and many others he sees the American equity markets as very undesirable. He says that the carry trade today has gotten huge .... and everybody is in the same trade .... hence the comment that the VAR (value at risk) is monstrous. This is what killed rude a year ago. Everybody was long crude and carried out of the dollar. IMO if you don't understand the carry trade, you should get out of the market - I am deadly serious."

I think the Yen carry trade went on until the dollar started collapsing and the yen started strengthening, and then the carriers had to cover their yen shorts, etc. So it would seem the dollar trade will continue until the dollar starts to meaningfully strengthen. And nothing will strengthen the dollar that much except - IMO - responsible government spending and less dollar printing and/or a big bump in interest rates, and those don't seem to be on the near-term horizon. So while you may still get a few bounces in the dollar (e.g., with some foreign government intervention), I think the carry trade will keep pushing the dollar a lot lower.
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