[Marxism] The dollar carry trade (Was: How to Tell When the Market is Topping)

Marv Gandall marvgandall at videotron.ca
Thu Oct 22 06:03:17 MDT 2009


Artesian writes:

> Yes, the dollar has become the new mule of the carry trade.  Slight
> difference though, I think the yen was not depreciating when it was the 
> mule
> but actually quite stable.  Key was interest rates were near zero in 
> Japan,
> as they are now in the US.
=========================================
Actually, the yen did depreciate sharply over the decade until the US 
housing and financial crises. It began the decade at 105 to the dollar and 
then began dropping, recovering briefly in 2004-5 when it's GDP growth was 
among the fastest of the G7, and then resuming it's decline again, hitting a 
low of 122 in early 2007 at the peak of the carry trade and just as the US 
crisis was beginning. Then it it rapidly reversed course and crossed paths 
with the depreciating dollar, which now only fetches about 90 yen. As the 
yen shot back up, it destroyed the carry trade for banks, hedge funds, 
insurance companies, and other borrowers who were now having to rollover 
their yen-denominated loans in more expensive yen rather than the cheaper 
currency they had anticipated, and at a time when their own assets were 
collapsing. If the Fed has to raise interest rates either because of a run 
on the dollar or an unexpectedly strong recovery, the new mules of the 
dollar carry trade, as you call them, will really get skinned.

The yen-dollar series is at 
http://research.stlouisfed.org/fred2/data/EXJPUS.txt





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