(Chinese Professor crying (like a woman) over U.S. Dollar carry-trade)
China is complaining about the U.S. dollar carry trade.
It’s sort of ironic that the King of all currency manipulators is bemoaning our rightful place in the world as leader of the carry trade, master and commander of all things fiat.
Many of you worry about the carry trade, when, in fact, you should be embracing it, as if it was a winning lottery ticket— because it is!!! The dollar can weaken to Bernanke’s delight, providing the good folks from Wal-Mart Stores, Inc. [[WMT]] keep the pantries of the proletariat stacked with cheap goods. After all, we have our trading partners by the short hairs. All they need to do is shut up, manufacture “stuff” and finance our debt—indeud! Due to artificially low rates, coupled with an exceedingly weak currency, money shifters are borrowing dollars, in order to buy “things” (stocks, junk bonds, art, collectibles) and “stuff” (oil, wheat, sugar, corn, copper, gold) with it. Unlike the infamous “yen carry trade,” the dollar is supremely liquid and makes for a better weapon to combat any suggestion or hint of deflation. We are spend thrifts and we will not have it any other way.
Providing the dollar does not rally, commodity and equity markets will enjoy the splendor of speculative capital in search of a new home. As we all know by now, leaving it in cash is simply the wrong thing to do. If this relationship continues and the Fed is successful at keeping the game going, domestic and foreign real estate markets will be flooded with capital, causing rapid price appreciation, a boom of sorts—effectively bailing out underwater mortgage players and CDO lovers.
Now if things go awry and the dollar carry trade is unwound, well then, we’re just screwed. However, until that happens, let’s party like it’s 1927 or 2006, shall we? Pop champagne bottles and start eating colossal servings of carpaccio (trust me, you’ll like it). Let us remember, if the Fed didn’t inflate like a mother-you-know-what, by now, we’d be killing each other in streets for small overcooked pieces of bison meat.
Enjoy it while you can. God willing, by the time it unwinds, I will be residing in my permanent resting place: inside an egregious pineapple coffin.
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Good Post ……whats a few more thousand dow pts amongst friends…right?
If you really wanna be a team player, bust out your own carry trade at home and get Fly swearing again! I mean, it’s easy as shit, apparently. Trade forex through TOS, and get paid interest daily.
They can bitch about it all they want, but they (Chinese) still have to buy US Treasuries.
Yep Dave they have to. I say fuck Chinese. Give them all the dollars the US needs to repair the system
China = USA’s slave rabor.
Greetings Fly,
Would you know of a place where one could estimate the number of dollars short? Maybe some fed publication would capture it but I would think not since they dont even publish M3 anymore …
Thanks
Panda Bear
Japan growing like mad! http://www.bloomberg.com/apps/news?pid=20601087&sid=a9IWCa7qAAQ4&pos=1
Once again Karl ‘Doom Doom’ Denninger is proved wrong.
Mish happened to be wrong on that one as well.
See, after the Yen carry trade failed there was a period of ugliness in the Japanese economy but, look at that there – things have returned to a better ‘normal’.
“like a woman” — Fly is a backward, ignorant misogynistic dolt, stuck in the manly man world of 1959 or so.
Women cry a lot. What world do you live in?
http://www.youtube.com/watch?v=Ov-g59wMivc
That would be 1927, good sir woman
Le Fly, would you be buying Zhu Zhu pets this holiday season for your loved ones? Also any stock plays off Zhu Zhu pets? Yes I just found out about it and cant stop laughing …
-Panda Bear
Someone has to manufacture the critters’ AI and accessories. Looks absolutely adorable… Perhaps it is the next mutant WII Build-a-Bear? Turkey Clause’s new holiday item perhaps?
What is a zhu zhu?
Brace yourself.
_________
Dear God, that is going to be huge. I pity the sales clerks in stores for that one. I bet they haven’t seen such ferocity since the Cabbage Patch Kid craze.
People will be stabbed.
Remember the tamagotchii?
Haha, sadly. Or the Furby, as well?
He’s not crying! It’s raining sulfur dioxide outside his classroom.
But he breaks just like a little girl.
Damnit, the Fly wins again
Buy one panda and do some research.
does bernanke speak tomorrow? if he does anybody know the time ? i have to be some where @ 9 in the morn and wont get back till 2-3
If he does speak, does anyone care?
Actually a closer time period analogy would be 1985-1987.
The Plaza Accord in 1985 (between US,Japan,Germany,UK, and France) called for currency intervention to lower the dollar.
The DJIA went from about 1400 in 1985 to 2700+ in 1987.
And you know what happened in 1987- CRASH
http://en.wikipedia.org/wiki/Plaza_Accord
PS Times were different in ’85. I recall buying HealthCare (Pharma) stocks when it was announced because of heavy overseas sales by these Cos.
dollar trade, san-francisco COCK SUCKA!!
http://www.youtube.com/watch?v=4KsU89R1A8M
If I buy a low-end $200K house and inflation triples the dollar cost of things, will somebody step up and buy my $600K house? That is, with $9 gas, $15 dollar fast food burgers and $30 bags of coffee, who can afford a mortgage for $600K? Will salaries inflate with equal gusto?
If this time around, everything inflates (except income) how will the nicely inflated home prices find buyers? If a decimated dollar and overall price inflation brings misery to the middle class, who is buying a big ticket item?
I am not trying to argue here, and I agree with the dollar decline-inflation thesis. What is the exit strategy for home owners?
Wages will inflate too, duh.
_______
taxes will increase faster than inflation.
wages will lag inflation
few will be able to afford bank financing for homes – 20% down, points + v high rates
creative financiers will rule
true, also.
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and those who hedged their dollars with gold/silver
This is for the lenders bottom line, after you default.
Oh, poor people don’t really make out too well. Sorry, I forgot to add that caveat. People with capital do well.
Wages will inflate until we ship them yonder, Dr. Gint.
“Until” we ship them yonder? I’m pretty sure we are already shipping them yonder at current wages.
After so many have taken pay cuts and/or lost jobs, it will be interesting to see salaries increase 25 to 50 percent anytime soon. Considering the sense of entitlement in our fat middle class waistline, they will not go quietly into the poorhouse once the reality hits.
When houses get too expensive, people stop buying them. When houses prices come down and/or wages go up, people start buying more houses. It aint that complicated.
I am long the YUAN….not because I am smart but because it is China’s only way out of loosing a big chunk of their wealth….
They are going to make a 10% adjustment soon in the YUN…….its easy money with no risk unless you think cash is a risk, which is starting to look that way…….
By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — China’s central bank has made a rare change in wording on its exchange-rate policy ahead of President Barack Obama’s maiden visit next week, admitting upward pressures on the yuan from surging capital inflows and a weakening U.S. dollar.
The People’s Bank of China said in its quarterly policy report released Wednesday that it will consider “changes in international capital flows and the trends of major currencies” in its exchange-rate policy, according to reports.
That’s a phrase it hadn’t previously used and has attracted wide attention, and was widely seen as a hint it could let the yuan begin to appreciate again.
China has increasingly come under criticism for keeping its currency, also known as the renminbi, basically unchanged against the U.S. dollar for well over a year, despite allegations it is undervalued.
The yuan’s exchange rate has been kept steady at close to its recent rate of 6.826 yuan to a U.S. dollar for more than a year, in a move likely aimed at providing support to the nation’s exporters in the aftermath of the global financial crisis.
The U.S. dollar, meanwhile, has dropped sharply. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 75.13, -0.02, -0.03%) , which tracks the greenback against a trade-weighted basket of six major currencies, was recently at 75.08 compared with 81.21 on Dec. 31.
if the yuan value increases will the us dollar follow
you’re out of your tree. the only way the rmb increases is if the us$ increases. it is not the other way around. we all know what direction the us$ is going. however, don’t expect the dollar to achieve orbit until after the 1Q reset is complete. the dollar bulls need to stay long into june 10 to claim victory.
Waste of time. You’re better off running on a hamster wheel than being long yuan. They will never decouple from the dollar.
“If this relationship continues and the Fed is successful at keeping the game going, domestic and foreign real estate markets will be flooded with capital, causing rapid price appreciation, a boom of sorts—effectively bailing out underwater mortgage players and CDO lovers.”
Agree w most of post. But maybe foreign real estate markets will be flooded with capital, but the US bankers will not be lending nearly as much for re. There will be price appreciation but it will be somewhat constrained when compared to commodities. Real eastate will become much less liquid because of the difficulty in purchasing w conventional (bank) financing. Many sellers will resort to very creative financing only because they will have no other choice. Bankers will require borrowers to have more that just the ability to fog a mirror in order to get a loan – which was the only requirement just a few short year ago.
what happens if shit gets so cheap the chinese start buying things in america? oh, wait, hoku. remind me how that rmb/$ thingy works again?
It won’t get cheap. it will rise astronomically – at least for us, but it will be cheaper for chinese to buy things.
there was a time when the japanese were buying everything in the us. but china is very different from japan at the time
Don’t take your eye off the ball
http://www.youtube.com/watch?v=oSQJP40PcGI
and miss the obvious
i did
party like 1927!!
Nothing can wrong !!
(at least for a few years).
Carpaccio is fucking disgusting
Never had carpaccio, although I did eat a lobster cheesesteak last week and a foie gras topped burger last night. The last time I saw a dead animal dressed that fancy was when Alan Greenspan gave a speech about the credit markets.
Turkey Gawds are gobbling up a storm in Aye-shyur….
__________
Breaking!
Fly’s Blue Radio not deceased or land-filled…. spotted on the lam in Brazil.
_____________
Dude, your caption is that of a Japanese, not Chinese! Look at the board behind him, its Katakana plus Kanji. Also, his dressing is typical of that of Japanese, definitely not something you would find on a Chinese.
Little signs often point the way to the bigger things!
Bonus question: What is written in Katakana?
Answer: print (pu-ri-n-to)
$ commentary from Tony @ OEW:
“Typically when a currency declines, and/or debt is monetized, imports become more expensive and the end result is inflationary. With the overriding trend in the US deflationary, and China’s currency the Yuan pegged to the USD, its largest trading partner, the potential for inflation has been stable. This allows the US to maintain record low interest rates in an attempt to allow time for the economy to heal itself. The result of low inflation, low interest rates, a declining USD and an expansive monetary policy, is a rising stock market, and rising prices for Crude and Gold. Excess dollars, created by the FED, are flowing into the stock and bond markets. While Gold and Crude are rising inversely to the decline in the value of the USD. If the FED has the luxury of maintaining this posture for a few years (which is probably its intention) while the deflationary cycle runs its course, then when credit has stabilized and starts to expand again, the deflationary pressures will ease, and the expansive monetary policy can be begin to unwind. This is the best case scenario.
The problem with this scenario is that it requires a fine balancing act between deflationary pressures and re-inflationary intervention. Many things can go wrong. For example on the currency front; If the USD drops too fast, or breaks to all time new lows, the FED will have to act. The last time they did act was in mid 2008. The FED created a $600 bln currency swap to strengthen the USD. The end result was a crash in the stock market and commodity markets. CPI inflation, at the time, was running over 5%, and PPI inflation had hit 9%. If China decides to allow its currency to float more freely, which was announced this week, inflationary pressures will again start to rise in the US.” [tonight China announced that it wouldn’t do that for 4-6 mos]
“With $437 tln in interest rate derivatives worldwide, anticipating years of low interest rates, the FED will not be able to raise interest rates, and again [may] have to respond by supporting the USD [via currency swaps or other gimmicks]. This would not be good for stocks or commodities. If the economy rebounds too strongly and pent up demand (with plenty of excess dollars) starts to drive up prices due to limited product supply, inflation will become a factor again. Inflation, as they say, is the canary in the coal mine. For now, with the USD declining expect the Stock market, Crude oil and Gold to be generally rising, and Bonds to be generally steady. When inflation kicks in again, and it will, the FED will need to respond, and its options are limited.”
Market commentary:
“The current OEW pivot at 1107 has provided significant resistance during the October rally and now the November rally. Should this pivot be broken to the upside, the next long term pivot is at SPX 1179. We continue to observe negative divergences on the daily and weekly charts, plus a negative divergence in market breadth. Despite the recent rally in the US to new uptrend highs, only the uptrending sectors made new highs, and the downtrending sectors (HGX, KBE, KRE, R2K, SOX, TRAN, XLF and XLU) remained in downtrends. Also of note, the seven foreign indices we follow also remained in downtrends: ASX, BSE, DAX, EUR50, IBEX, NIKK and TSX. There certainly appears to be less participation during this recent rally.”
“This rally from the Nov 2nd SPX 1029 low appears to be another impulsive five wave structure. These types of short term structures have occurred since Primary wave B began. The problem is that these short term five wave structures have often overlapped into ABC’s during both of the uptrends. Or else we’d be in an OEW bull market. We are, however, in a relative bull market as a 50% retracement has occurred in the DOW, and nearly the SPX. The current rally is being counted as: wave 1 SPX 1061, wave 2 SPX 1045, wave 3 SPX 1105, and wave 4 currently 1085. Wave 4 may become a bit more complex as we noticed some weakness on friday afternoon. Wave 5 during these five wave rallies have been quite weak. Expecting the pivot at SPX 1107 to hold. The USD may be forming a diagonal triangle fifth wave. It’s action of late has been quite choppy. Also, continue to observe the Canadian dollar. It moves with the SPX.”
“Crude is still in an uptrend.
Gold made new highs +2.2% for the week. Gold has been extending its uptrend while Silver has been going sideways. Worth watching this relationship.
The USD (-0.7%) made new downtrend lows this week. The EUR (+0.4%) and the JPY (+0.3%) gained against the USD. A potential fifth wave diagonal triangle may be forming in the USD, while the EURUSD failed to confirm the USD low.”
Although I am not a Keynesian by any means —
Beware of a liquidity trap
Why did the boom turn into bust? It was the prior large scale expansion of liquidity that led to excessive credit creation. How can the problem be fixed by doing the same thing that caused the problem?
excellent piece, exactly describing the mentality of what brought about the financial crisis. Well done, keep up the good work, and we get screwed all over again. don’t you guys learn anything ???
Fly, was that you?
The funny thing about all of this is that one of the chief barkers Tweeted me yesterday to ask if I was “still selin (sic) doom.”
[latest post from Karl ‘DD’ Denninger
Fly, are you going to have some sort of celebration, or memorial, or anything, on Tuesday?
Now you mention the carry trade?
LOL.
This has been going on for 7 months.
Are you sure AMZN at 132.66 is safer than a $USD? I think some will disagree.
your mother
WATCH SQM