October 28, 2008

Good news? The US Dollar and Japanese Yen are rallying like never before. The bad news? The other currencies of the world are in total meltdown.


Books will be written about these days for the rest of time. And a special chapter will be dedicated to the unwinding of the biggest bubble of all - the Yen Carry Trade.

And seriously HP'ers, who amongst us would have predicted that the US Dollar would emerge from this carnage even more solid than gold, or Euros, or oil?

Cats are sleeping with dogs now. Up is down. All trust is gone. And countries from Iceland to Hungary, from Romania to the UK, are seeing declines in their currencies that may soon lead to significant social unrest.


Get some popcorn, get some ammo, horde those dollars and yen (for now, until they blow up?), and watch the world implode as panicked frogs jump from lillypad to lillypad in a desperate attempt to stay afloat.

Europe on the brink of currency crisis meltdown

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.
“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.

“The system is paralysed, and it is starting to look like Black Wednesday in 1992. I’m afraid this is going to have a very deflationary effect on the economy of Western Europe. It is almost guaranteed that euroland money supply is about to implode,” he said.

21 comments:

Anonymous said...

Don't Yen Carry Trade get cut when the gap between interest rate from one country tighten against the interest rate of Japan.

Isn't that what has been happening when Central Banks around the world cut their interest weakening their currencies and strengthening the currency of the carry country.

What would another round of global interest rate cut due if BOJ does not lower rates.

So if BOJ just intervene with cash, isn't a good time for Hedge Funds to safely unwind their position on BOJ's nickel

http://finance.yahoo.com/
q?s=USDJPY=X

Anonymous said...

Iceland just raised their rates a whopping 6%.

I wonder when ours will go to 18% like theirs?

Anonymous said...

Ok here's my question o' the day!

Should I buy RE now (with my dollars while they are still worth something!!) if I can get a house outside D.C. for a 2001 price??

Or will RE continue to plumment, but then again, so may my buying power if the dollar drops as well?

What's a girl to do???

emmy said...

What will this mean? To the average person? Please explain.

Anonymous said...

I'm not millionaire, but I'm not the type to care.
Cause I've got a pocketful of dreams.
It's my universe, even with an empty purse.
Cause I've got a pocketful of dreams.
Wouldn't trade the wealth on Wall Street/ For a road where nature trods.
And I cal-cu-late I'm worth my weight in golden rods.
Lucky, lucky me. I can live in luxury. 'Cause I've got a pocketful of dreams.
--- Burke and Montag

theloknesmonster said...

Should I buy RE now (with my dollars while they are still worth something!!) if I can get a house outside D.C. for a 2001 price??

Or will RE continue to plumment, but then again, so may my buying power if the dollar drops as well?


There doesn't seem to be any possible way that RE prices won't continue to deflate.

The rest of it all (and that means every meaningful socio and economic topic being discussed today) is impossible to predict.

Ask yourself this:

If I lost my job and couldn't find another one for 2 or 3 years, would I have to dump my house back on the market?

That might be the only way to be sure if, "now is a great time to buy"...

JaneZ said...

Keith said..

And seriously HP'ers, who amongst us would have predicted that the US Dollar would emerge from this carnage even more solid than gold, or Euros, or oil?

Mish.

Anonymous said...

Ha I knew this would happen long before the 'experts' on this site did. Too bad commodities will fall through the floor.

Anonymous said...

And seriously HP'ers, who amongst us would have predicted that the US Dollar would emerge from this carnage even more solid than gold, or Euros, or oil?


--------------------------------------

uh, i did and I am making a nice profit off of my double short euro etfs, DRR.

There was absolutely no value reason for the euro to be 1.5 to the dollar.

Anonymous said...

you all are yapping about the great unwinding but how many are really profiting from it????

do you own any DXD, DRR?

I do and have for a while now.

it is not too late.

the euro may fall another 30%. that would be a 60% profit in DRR.

i am trying to figure out what to get into next. I am thinking that short YEN might be the way to go in another 6 months.

Anonymous said...

this is DXD, DRR anon again.

when the final bottom comes, maybe I will take my profits and start a bank.

a bank that operates like a bank should. we will need banks like that in a couple of years.

Anonymous said...

HP'ers couldn't see it coming because no matter what, they believe America is a failure that deserves to be crushed. They can't think beyond their emotions.

It actually was right here on HP all along. A worldwide housing bubble, even bigger than the US in some places. The dollar tanking against currencies in those places with higher housing bubble.

Think. Put aside you emotions and think.

yoski said...

"who amongst us would have predicted that the US Dollar would emerge from this carnage even more solid than gold, or Euros, or oil?"

That will last only as long as leverage is unwinding and debts are settled in yen and dollar. After that the dollar will fall of a cliff along with most other paper currencies.
I am using this opportunity to load up on gold, silver, stocks and other commodities.
Don't wait until the first treasury auction fails, act now.

Anonymous said...

Hold on, hold on. Where are the Europeans now? I don't hear any crap anymore. Where are the people that were bashing the Americano crap????

Looosers. You are worst than us.

Dny

Anonymous said...

Did Iceland reverse it decision of lowering interest rate then raising it to 18 percent to keep Hedge Funds and Speculators from getting out of the Yen Carry Trade.

http://www.forbes.com/afxnews
limited/feeds/afx/2008/10/28/
afx5612439.html

Iceland raised interest rates by 6 percentage points to 18 percent on Tuesday

In Iceland, where the once-booming economy has been driven close to bankruptcy by bank failures, the central bank said the steep rate increase was part of a deal struck with the International Monetary Fund for a $2 billion loan.

Analysts said Iceland had increased rates, just two weeks after cutting them by 3.5 points, to try to refloat the Icelandic crown, effectively frozen since Oct. 22.

'This has come a bit out of the blue following the latest interest rate cut and it reflects a desperate attempt to restore a degree of confidence in the local market,' said Elisabeth Gruie, emerging markets strategist

Anonymous said...

Will Australia and New Zealand follow Iceland and raise interest rate, while BOJ lower rate to keep Yen Carry Trade in play.

http://www.reuters.com/article/
usDollarRpt/idUSSYD7252520081027

Australia's central bank intervened to prop up the Aussie dollar for a third straight day on Tuesday after the currency fell to fresh 5-½ year lows against the U.S. currency in offshore trade.

http://www.guardian.co.uk/
business/feedarticle/7947566

The yen climbed on Wednesday after suffering one of its biggest drops against the dollar ever the previous day, with market players saying the slide on Bank of Japan rate cut expectations and rebounding stocks had gone too far.

Reports the Bank of Japan could cut interest rates this week sparked a hefty stock rally and a recovery in investor appetite for risk.

Anonymous said...

How much of today Global Equities Markets rally were due to short covering caused by the sudden reversal of Yen Carry Trade

http://www.istockanalyst.com/
article/
viewarticle+articleid_2746274.html

Chart Of The Day: Yen Carry-Trade

One of the biggest factors for today's rally was the plunge in the Japanese Yen.

This was the largest one-day decline since Jan. 1974, a month that touched off a huge rally in the stock market.

The reversal in the yen could be indicative that large players that had been selling equities to buy back their yen positions are finally finished.

The unwinding of the yen carry trade is related to the overall deleveraging that we have seen in the markets, and that has contributed to the unprecedented and relentless selling pressure in the markets.

http://afp.google.com/article/
ALeqM5jiYz4hxk0uU1A62mYlzCuqWxgHVg

The surge came amid a strong rebound in global markets but a huge acceleration at the end of the session took market participants by surprise.

"There does not appear to be a specific news item to account for the surge," analysts at Briefing.com said, adding that the gains were "compounded by short-covering."

A so-called "short squeeze" occurs when traders with short positions, betting on falling stocks, are forced to buy to avert heavy losses.

Anonymous said...

Will a half point US Interest Rate Cut help Yen Carry Trade or hurt Yen Carry Trade.

http://www.reportonbusiness.com/
servlet/story/RTGAM.20081028.
wnewmarkets1028/BNStory/
SpecialEvents2/home

Fed chairman Ben Bernanke and the rest of the central bank's monetary-policy committee are expected to cut the benchmark federal funds rate by a half percentage point, to 1 per cent, matching a 50-year low.

Anonymous said...

Are inconsistencies from Central Banks on what direction interest rate should go hurting Hedge Funds, as Hedge Funds have to cover short on a wrong position.

Hedge Funds that are low on cash are getting burnt in both direction, as banks are unwilling to lend Hedge Funds cash to hedge their bets.

No cash to cover wrong trading strategy and heavy redemption.

http://www.hedgeweek.com/
articles/detail.jsp?
content_id=273599

The hedge fund industry could well be the next big victim of the credit crunch, according to the Bank of England, which says in its latest financial stability report that in the wake of one of their worst quarters on record, hedge funds were having to sell off assets to meet redemption requests.

Anonymous said...

I live in the DC/NoVa area too, and have been sitting on the sidelines for awhile, but plan to keep sitting because housing prices have nowhere to go but DOWN!!

Not only that, but if the government wants to get serious about moving inventory, they are going to have to do something RADICAL, like actually incent qualified buyers with low, low interest rates, and CASH, just like they are doing with BANKS!!

When this happens, it will be time to buy, but for now, no way!

www.patrick.net

(is a great refresher on why buying does not make sense right now)....

Best of luck to all!!

Anonymous said...

You keep mentioning gold going down. Has anybody actually tried buying a coin? on ebay they go for over 900 bucks. They have held their value. comex means nothing for gold and especially silver. Silver goes for 15-20 an ounce, not 9.30. palladium goes for 300 not 190 at comex.

Gold di its job, it held firm EVEn as the dollar had a huge bounce.

Think many years out when that 52 trillion REALLY starts to matter, inflation will be back. I still gotta love someo f these big companies selling for next to nothing. Those buyers will come back. I wish I had some money, id load up on energy and financials. Way oversold.