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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (7637)	3/7/2007 6:23:47 PM
From: John Pitera	Read Replies (3) \| Respond to of 33421

Greenspan says carry trade has limited room to run Wednesday, March 07, 2007 1:13:51 PM (GMT-06:00) Provided by: Reuters News (Adds market reaction, background, byline) By Pedro Nicolaci da Costa and Tamawa Kadoya NEW YORK, March 7 (Reuters) - A popular investment strategy where investors borrow cheaply in yen to buy higher-yielding assets elsewhere can only continue for so long, former Federal Reserve Chairman Alan Greenspan said on Wednesday. The strategy, known as the yen carry trade, is still going strong, but "at some point it's got to turn," Greenspan told a trading technology conference. Japanese patriotism was partly behind the pattern, he said. Government debt is owned predominantly by domestic investors in Japan, despite offering some of the lowest rates in the world. "The people who are getting the carry trade spread are being subsidized by Japanese consumers," Greenspan added. The yen edged up against the dollar <JPY=> and the euro <EURJPY=> after his comments. It was not the first time Greenspan had moved markets. Last week, he took investors by surprise by saying he saw a chance that the U.S. economy could slip into recession this year. Already vulnerable to such fears, stock markets around the world took a severe plunge, with the Dow Jones industrial average <.DJI> losing over 400 points in a single session. Trading has been volatile since that turbulent Tuesday, with financial markets seemingly reassessing risk following a prolonged period of low volatility which some had worried was bordering on complacency. Revisiting the issue, Greenspan said the U.S. economy was in the midst of an inventory correction, and said gluts in both the housing and manufacturing sectors needed to be unwound. If home sales and housing starts continue at their current pace, he told the conference, "it will be a long haul to get rid of this stuff." But for home sales, Greenspan believed a bottom had already been reached. ETHICAL FINE LINE Asked about the narrow line he must tread as both private citizen and public figure with the power to move markets, Greenspan said it was a very difficult issue that he continues to grapple with. "I thought I had successfully moved into a state of anonymity that I cherish after being in the public domain for so long," he quipped. "I'm as much surprised that remarks I made supposedly affected the markets because I've been making those remarks for months and nobody noticed." "I try as much as I can to avoid comments relevant to what the Fed is doing," Greenspan said. "But I have a profession and I'm a private citizen." --------------------------------------------- Sterling down as market mulls further carry unwind Wednesday, March 07, 2007 9:17:57 AM (GMT-06:00) Provided by: Reuters News LONDON, March 7 (Reuters) - Sterling fell against the euro on Wednesday, as investors mulled the prospect of further carry trade unwinding that could undermine the high-yielding pound. Growing risk aversion has led investors to decrease their positions in carry trades where they borrow low yielding currencies such as the yen to fund purchases of higher return assets. The pound was hit hard as positions were unwound over the past week. Sterling/yen had been a popular carry trade, due to the yield differential between Japanese borrowing costs at 0.5 percent and British rates at 5.25 percent. A Reuters poll released on Wednesday found that 33 strategists expect the carry trade unwind to continue while only 13 think it has run its course. "There is nervousness about buying the pound because investors are worried that there will be a shakeout in sterling/yen. There is nervousness that there is more (carry trade unwinding) to come," Rabobank senior proprietary trader Lee Ferridge said. At 1455 GMT the pound was down 0.1 percent against the dollar at $1.9290 <GBP=>. The euro was up 0.2 percent at 68.10 pence <EURGBP=>. It was down a third of a percent against the yen at 224.27 yen <GBPJPY=R>. The Bank of England's Monetary Policy Committee began deliberations on Wednesday on whether to raise interest rates from their current 5.25 percent. Most forecasters polled by Reuters expect rates to be kept on hold in March with just nine out of 60 economists predicting a rate rise on Thursday. Further out, analysts said there was a risk that the pound could weaken further on Friday, when key U.S. labour market figures are released. "Tension is still high. If payrolls are disappointing it will show that the U.S. economy is slowing, which will lead the dollar to fall and high yielding currencies will also underperform," said Paul Mackel, senior currency strategist at HSBC. "People will be very cautious on building long sterling positions before the payrolls numbers are out."