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

To: Skeeter Bug who wrote (21394)	7/17/2009 3:40:51 AM
From: Real Man	2 Recommendations Respond to of 71441

Yes, derivative market is huge, more than 600 T notional, and up from 20 T or so in the 90-s. It caused 1987 crash, LTCM, 2008 meltdown, and a few other events. I can't explain the details of these rather sophisticated computer programs, and I don't even know them, but basically liquidity is the inverse of volatility. So, when lots of liquidity is added, volatility goes down, and the underlying asset or trade goes up. This applies to currencies as well, where the key determining the value of the currency is the carry trade - borrowing in low yield currency and investing in high yield currency. Since derivatives are so huge, nothing else matters - not the trade deficit, not China selling, not the printing. Last year as Ben cut rates, the dollar collapsed. Then it soared as the carry trade blew up ( it was borrowed, of course). Now as things recover, the dollar is crashing again.