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Yuki,
No I am not underestimating the raw panic.
Like you I am watching it in slow motion, rather than
participating.... that gives us extra time to react doesn't it?
Thanks for your answers.
I am not disagreeing with you here ... just prosecuting the status
quo.
You are quite right ... I am finding it unbelieveable to the point of
being almost surreal.
Classical theory is that the USD and the Yen are low risk and
liquidity havens, in times of distress, and that the USD is the
reserve currency of the world.... perhaps that is the answer.
I can understand Americans taking their money back home but I can't
accept that non Americans would move their money into US dollars, as
a safeguard, in the current climate .... especially at a time when
the only ones with big enough pockets to make a difference (non-US
corporations) are pulling back to home base to protect their balance
sheets.
Do you think Westerners or non-Japanese Asians would move their money
into Japan, as a safeguard, right at the moment?
I guess when you say American paper you mean treasuries (no corporate
paper is/was moving?).
I wonder what volume of trade it takes to move the USD 20% against
the Euro and whether that equates to what has been soaked up by
Treasuries ... not easy numbers for me to find.
Of course speculators would move to USD in a flash, assuming it does
have a record of valuing in a crisis.
It that is the case it will disappear in a flash too.
BTW in my reply to Siddhartha I meant to say that US Hedge Funds are
NOT obliged to report.
As I understand it the Japanese carry trade was a national strategy
to support Japanese exports via a created currency differential
(created at no cost to the nation too!).
For the sake of the argument, say that the US liked the idea, as a
national strategy, or that a sophisticated US investment culture
grabbed the idea and ran with it ... perhaps even further and faster
than Japan.
If that money was forced back home, all at the same time, that would
block up the pipes wouldn't it?
A odd observation:
Any one who wants a currency haven might look at the United Arab
Emirates Dirhan ... not volatile at all and the largest Sovereign
Reserves in the world.
Maybe the answer is in Tomasz's links ... I am off to read them now.
brian_z
--- In amibroker@xxxxxxxxxxxxxxx, Yuki Taga <yukitaga@xxx> wrote:
>
> The biggest reason for the strength is risk aversion. Perhaps you
> underestimate the raw panic in worldwide markets right now. It is
> palpable, I assure you.
>
> The one instrument that is seen (rightly or wrongly) as the safest
> vehicle around is US government paper. Time and time again that is
> where everyone runs in a financial crisis. The only exception would
> be if that crisis was the US dollar.
>
> Personally, I tend to share your astonishment at this, because I
feel
> the only "out" for this crisis is the printing press, and thus a US
> dollar crisis is potentially in front of us.
>
> But until that becomes apparent, or a widely shared view, the US
> dollar is where everyone runs. If they run there and it looks
really
> crowded, I might consider the other side of the trade. But I
> generally don't like currencies because you really need to use
> leverage to make them pay, and leverage can be the kiss of death in
> markets that can move 10 percent in a day.
>
> Yuki
>
> Sunday, October 26, 2008, 12:17:59 PM, you wrote:
>
>
> b> Does anyone have any idea why the USD is so strong at the moment.
>
> b> I am puzzled by this as I can't see any basis for it.
>
> b> The only explanation that I can come up with is that there has
been a
> b> silent emulation of the Japanese 'carry trade' based on low
interest
> b> USD loans (the US has low interest rates, a desire to protect
> b> exports, sluggish growth and a sophisticated investment culture
in
> b> common with Japan).
>
> b> quote from:
>
> b> http://goldnews.bullionvault.com/yen_carry_trade_101620084
>
> b> Japan sits at the epicenter of "bubble-mania" in foreign
exchange,
> b> because its yield starved domestic investors plowed $6 trillion
of
> b> their savings into overseas assets.
>
> b> Japanese investors increased their exposure to foreign assets by
¥59
> b> trillion ($566 billion) in 2007 alone, setting a record top of
¥610
> b> trillion ($5.9 trillion) and making Japan the world's largest
> b> creditor nation for the 17th straight year.
>
> b> In addition, global speculators borrowed $1.2 trillion worth of
low-
> b> cost Japanese Yen (Tokyo interest rates haven't got above 1.0%
per
> b> year since the start of this decade), in order to buy higher
yielding
> b> currencies, commodities, and stocks held abroad.
>
>
>
>
> b> "History never repeats, I tell myself before I go to sleep at
night"
> b> (Split Enz)
>
> b> http://en.wikipedia.org/wiki/Asian_Financial_Crisis
>
>
>
> b> --- In amibroker@xxxxxxxxxxxxxxx, "Tomasz Janeczko" <groups@>
> b> wrote:
> >>
> >> Hello,
> >>
> >> Did you see this daily effective FED rate chart:
> >> http://www.newyorkfed.org/charts/ff/
> >>
> >> Usually effective rate follows closely target rate (currently at
> b> 1.5%)
> >>
> >> In recent days effective FED rate dropped below 1%.
> >>
> >> It looks to me that FED is going to be walking in footsteps of
> b> Japan central bank in '90s.
> >>
> >> Now EBC funds still at 3.75% ? They are going to cut fast, much
> b> faster than FED, IMHO.
> >> If situation evolves in that direction we are going to see
EURUSD =
> b> 1.0 soon
> >> and probably Japanese Yen remaining the strongest currency for
> b> months to come.
> >>
> >> Any thoughts?
> >>
> >> Best regards,
> >> Tomasz Janeczko
> >> amibroker.com
> >>
>
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