Goodbye carry trade?

[jkplay]

Well after a very choppy month in the markets alot of analysts are firming their previous views that the carry trade will stop following the markets up (if they rise!) and dramatically unwind over the next year.

I agree... what does the forum think?

Goodbye general indcie/carry trade long term correlation IMHO.

 

[ForexDude]

I don't think its going away. The interest rate differential is just to big to ignore

 

[Atilla]

I don't think its going away. The interest rate differential is just to big to ignore

I think it will unwind.

Risk factor coupled with pressure for rate reductions in US will impact market appetite for risk/reward.

 

[jkplay]

absolutely, and the real green light will shine through WHEN the BOJ decide on a hike when we start to see normal market conditions

 

[ampro]

a lot of analysts are firming their previous views that the carry trade will stop following the markets up and dramatically unwind over the next year.

... what does the forum think?

I don't think it really matters what it decides to do does it?

The important thing is they'll undoubtedly be tradeable opportunities up & down the ladder for those patient enough to execute with appropriate set up's?

 

[rav700]

I totally agree with atilla unwinding is the term to use...Also As long as this massive differential exists ...Hedgefunds have no reason to let go...........

 

[grantx]

According to Reuters (Monday), Japanese Companies cut capital spending by almost 5% for Apr-Jun, against a an expected increase of 11.5%. A strategist for a Japanese bank said hopes are for an increase in demand from overseas would pick up the slack. What, that much?

Goldman Sachs said it was too early to be pessimistic. Do they mean until clarification that the Fed/US Government will bail-out big time? Remarks that they won’t cover bad investment moves in property (second homes, speculation, under-funded) has pre-empted expectation of any significant rescue plan, I reckon. GS must be terribly long the Japanese market.

The US may cut, but I don’t see the Japanese following suit and undermining their economy. So, the carry-trade has some way to go.

Grant.

 

[jacinto]

According to Reuters (Monday), Japanese Companies cut capital spending by almost 5% for Apr-Jun, against a an expected increase of 11.5%. A strategist for a Japanese bank said hopes are for an increase in demand from overseas would pick up the slack. What, that much?

Goldman Sachs said it was too early to be pessimistic. Do they mean until clarification that the Fed/US Government will bail-out big time? Remarks that they won’t cover bad investment moves in property (second homes, speculation, under-funded) has pre-empted expectation of any significant rescue plan, I reckon. GS must be terribly long the Japanese market.

The US may cut, but I don’t see the Japanese following suit and undermining their economy. So, the carry-trade has some way to go.

Grant.

lol.

have a look at morganstanley's global economic forum.....they have had a nice little theory about the "japan home bias"......i.e. japanese money leaving japan for higher yield.................


errr.....kind of signals a lot.....if the "locals" carry trade............

 

[grantx]

Jacinto,

If the Japanese are shifting to international investments for higher returns, then not much confidence in domestic rate-hawks.

I couldn’t find anything specific re your suggestion but this is the best site for free market analysis (and better than many paid-for). So I thank you for that.

However, via a search (for “Japan home bias”) I came across this re USD/JPY from the archive: “Slightly Flattening the Paths for EUR/USD and USD/JPY” (and the following article, "Further Thoughts on the JPY Carry Trades”) at

www.morganstanley.com/views/gef/archive/2007/20070209-Fri.html

Although dated Feb 07, still interesting.

Grant.

 

[jacinto]

no worries Grant,

it really is very good. i cant remember when exactly is it that they published that. if you browse around, you will see to the right, that you can see the archive. have a look there. it tends to be updated daily.

also, at the top, you can have a look at their strategy bulletin. has some other interesting stuff.

finally, you can see for free Steven Roach's weekly review, also very good.

if i find the date on the archive where the article on japan was, i will post. otherwise, have a look, you wont be deceived by what you read.

j

 

[chump]

"finally, you can see for free Steven Roach's weekly review, also very good."...been reading it & MS for years...and I would guess his take is about right on a random basis.
Moreover , may I say he has a selective memory for the caveats that he uses (pretty much like most economists)..that is, I have seen him take "maybe" positions on issues, concerns, and when they arrrive has real concerns in the future the statements then tend to follow the lines " as I warned you back in X"..useful as a wet bog roll BUT hey what can I say MS clearly value him enough to payout a big one.

Japs have not been given any reason to keep their money at home with net real rates, let's face it if you are japanese and not of the 'buy today' western mentality then where are you going to put it ? Not at home I think. I certainly wouldn't hold my breath waiting for the BOJ to raise rates. Anyone clueless enough to keep them this low for so long and not twig why they cannot stimulate domestic consumption isn't going to change posture anytime soon. Yen is benefitting from forced selling. If that dries up it will be business as usual.

 

[nine]

When enough people think that something has gone away ... then its time for it to return.

 

[grantx]

Chump,

“Anyone clueless enough to keep them this low for so long and not twig why they cannot stimulate domestic consumption isn't going to change posture anytime soon.”

Interesting point. Possibly an indictment, but with rates low what’s the problem with the Japanese economy? Being a net exporter (?), is it because the population is too small to support domestic output on its own (that is a wild speculation, by the way).

Re Morgan Stanley, it would be useful to have an opposite view with the same depth and clarity (for free). That may be a bit too much.

Grant.

 

[jkplay]

An interesting view:

http://www.ft.com/cms/s/0/4905a182-5000-11dc-a6b0-0000779fd2ac.html

 

[chump]

"Interesting point. Possibly an indictment, but with rates low what’s the problem with the Japanese economy?"...
The point is behavioural and yes,I'd say it is reflected in the balance they have between exports /imports/consumption. In the West we have been motivated to spend today, in other words 'borrow' our future 'earnings' because we at some level,perhaps even subconsciously, believe that we should and can do so. Specifically , we "should" because we sense that what we want will be more expensive in the future than it is today and we "can" because we have a social safety net that we know limits our culpability in terms of being able to take care of all the necessity parts of life. In addition ,our banks have a well entrenched behaviour of also riding to the rescue of anyone not on the margins whilst the easy credit to do so needs no further explanation other than to say it is not conservative in nature.
I am not an expert in all matters Japanese,but I do not think the above is as culturally pronounced as it is with 'anglo saxon' cultures. Certainly they seem to be running deflation into a self fulfilling prophecy,how can anyone believe in buying today when it is writ in cement that you can buy it anytime at no extra cost.

"Free"...subscribe to my blog starting somewhere near you sometime soon entitled
" Free Wet Bog Roll"...caveat is 'historic asre wiping returns are no signifier of future skid marks"

 

[chump]

correction to my post 11...I was being unkind to the guy in question and indeed the fact I have been reading views on that site for so long is a contradiction to my earlier opinion.
I find that and similar sites useful ,but for investment ideas and longer term things I might be interested in knowing more about. I can't however get anything useful out of it for trading ,because it is devoid of any element for the purpose of timing hence my earlier comment..consider this to be a caveat.

 

[jacinto]

the entry for sept 7.......have a look not only at the currency piece, also the petrodollar stuff. ......



http://www.morganstanley.com/views/gef/index.html

 

[grantx]

Jacinto,

Thanks for that. The whole lot is worthy of a read (you'll have an essay on your desk by 9:00 am, Monday).

To think I forked out £1.80 for that joke of a newspaper (the FT) today. Most of it was thrown in the waste-bin outside the newsagent.

Grant.

 

[grantx]

Regarding my previous remark re USD/JPY, “the carry-trade has some way to go.” , the Fed let me down badly this week. I thought we were friends. Markets can rise and fall and past performance is no guarantee of future performance.

Grant.

 

[jacinto]

Regarding my previous remark re USD/JPY, “the carry-trade has some way to go.” , the Fed let me down badly this week. I thought we were friends. Markets can rise and fall and past performance is no guarantee of future performance.

Grant.

well, i really cant say much, but the following:

a) yes, carry trades have a long way to go. the fundamental origins for its existence simply havent changed.

b) yesterday's turmoil is not carry trade related.

have we seen the low of USDJPY, EURJPY, etc. ?.....well, IMHO no, not yet.

but, i love it , before i would only go long EURJPY as a rule. now i can trade it both ways . and the volatility is adorable .

j