Is the Carry Trade Dead?
When you look at the USD/JPY below what do you see other than what I have clearly outlined?
Right. You have some pent up synergy building in the pair.
Does it mean a break out of sizeable proportions is coming?
Well, it remains to be seen how much influence the BOJ still has on its currency.
The other question I would ask is, "does the BOJ even have to worry about its currency anymore with most central banks manipulating their currencies where they want them"?
This is a good question and one that I do not have the answer to at the moment. I think I am asking the right question though. Perhaps one that the pundits are missing.
In days of old when the markets were free, the Yen was a fabulous carry trade for the hedge funds and larger entities looking to add profits to their portfolios. You remember right. The larger fund managers would buy cheap yen and next to nothing as far as interest rates went and use the Yen to place in markets that they thought would appreciate. At the time the interest rate of the pair was so low that it really didn't matter what currency pair you were using you were almost guaranteed to make some decent gains in interest rate swaps. I have to think that this is still a strategy that most fund managers employ but nothing like it used to be because of ultra low-interest rates around the world.
Now as we see gold ratcheting up a bit and the US Dollar at the top of its range what might we imply by looking at the chart.
I think that if the BOJ cannot control the currency as has been the case in the past we might see the pair depreciate on a breakout.
How low?
It is hard to say because the BOJ is quite happy with the currency at current levels. If say the US Dollar were to fall like it has in the past and gold were to rise back up we might see the pair down at the 85 or lower-level again.
In the past, it would have been a no brainer for me at these levels but you see nothing works like it used to. You have heard me talk about this many times and it comes down to the faith you have in entities like central banks to maintain total control. I happen to have a very different view than a lot of the Perma bears that simply think the central banks are buying time before a big crash.
I have to agree with the time element of the equation however that might be measured in decades or centuries before anything happens and by that time who knows what our monetary system will look like.
Yes, debt is ultra-high again. Higher in fact than it has ever been. If a catalyst is coming then we might think that it is close. What I would do is hedge a small bet to the downside. Just in case things to come unraveled again. Add to the winner if it moves in your favor. Cheers!
Right. You have some pent up synergy building in the pair.
Does it mean a break out of sizeable proportions is coming?
Well, it remains to be seen how much influence the BOJ still has on its currency.
The other question I would ask is, "does the BOJ even have to worry about its currency anymore with most central banks manipulating their currencies where they want them"?
This is a good question and one that I do not have the answer to at the moment. I think I am asking the right question though. Perhaps one that the pundits are missing.
In days of old when the markets were free, the Yen was a fabulous carry trade for the hedge funds and larger entities looking to add profits to their portfolios. You remember right. The larger fund managers would buy cheap yen and next to nothing as far as interest rates went and use the Yen to place in markets that they thought would appreciate. At the time the interest rate of the pair was so low that it really didn't matter what currency pair you were using you were almost guaranteed to make some decent gains in interest rate swaps. I have to think that this is still a strategy that most fund managers employ but nothing like it used to be because of ultra low-interest rates around the world.
Now as we see gold ratcheting up a bit and the US Dollar at the top of its range what might we imply by looking at the chart.
I think that if the BOJ cannot control the currency as has been the case in the past we might see the pair depreciate on a breakout.
How low?
It is hard to say because the BOJ is quite happy with the currency at current levels. If say the US Dollar were to fall like it has in the past and gold were to rise back up we might see the pair down at the 85 or lower-level again.
In the past, it would have been a no brainer for me at these levels but you see nothing works like it used to. You have heard me talk about this many times and it comes down to the faith you have in entities like central banks to maintain total control. I happen to have a very different view than a lot of the Perma bears that simply think the central banks are buying time before a big crash.
I have to agree with the time element of the equation however that might be measured in decades or centuries before anything happens and by that time who knows what our monetary system will look like.
Yes, debt is ultra-high again. Higher in fact than it has ever been. If a catalyst is coming then we might think that it is close. What I would do is hedge a small bet to the downside. Just in case things to come unraveled again. Add to the winner if it moves in your favor. Cheers!
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