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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: stan_hughes who wrote (1033)	9/18/2007 10:42:16 AM
From: Real Man	Read Replies (1) \| Respond to of 71442

No, I am not -g- But I do think the biggest financial bubble in history is in the dollar and the carry trade in general. Fundamentals have been completely thrown out of the window in the recent years in favor of mechanical mathematical Gaussian models. All that matters are "risk-free" rates, carry trade is being taught in business schools, all new managers praise it as the BASIC ultimate currency/bond trading system. Well, it's got some math, but that math is definitely not rocket science. Moreover, it is well known that math is not perfect, it's almost perfect. Almost is the key -g- We have seen increased frequency of currency crises in the 90-s as the math became popular. -g- Printing and trade deficit no longer count because there are no bond vigilantes. Everyone is a carry trader - high rate currencies are being bid up to the sky no matter what the current account is or how much the printing presses work. Ditto for stocks - computers are trading those, and no matter how bad the news get, they don't react and see any selling as a buying opportunity. I call it LTCM under exponent. Fundamentals will have to catch up at some point, the carry trade bubble (400 Trillion notional) has gotten so big it's without precedent, and it's not even funny. The Fed actually counted on that in recent years. They raised and they printed. Printing has supported all the bubble blowing, while raising has supported the dollar via the carry trade. Printing did not matter. . . . . . Now the bad news. What happens if the Fed lowers rates and does not print? We should see soon enough.