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Monday, October 27, 2008, 12:19:36 AM, you wrote:
b> Yuki,
b> No I am not underestimating the raw panic.
b> Like you I am watching it in slow motion, rather than
b> participating.... that gives us extra time to react doesn't it?
b> Thanks for your answers.
b> I am not disagreeing with you here ... just prosecuting the status
b> quo.
b> You are quite right ... I am finding it unbelieveable to the point of
b> being almost surreal.
b> Classical theory is that the USD and the Yen are low risk and
b> liquidity havens, in times of distress, and that the USD is the
b> reserve currency of the world.... perhaps that is the answer.
b> I can understand Americans taking their money back home but I can't
b> accept that non Americans would move their money into US dollars, as
b> a safeguard, in the current climate .... especially at a time when
b> the only ones with big enough pockets to make a difference (non-US
b> corporations) are pulling back to home base to protect their balance
b> sheets.
Keep this in mind, too: When this crisis began to flesh itself out,
it was initially assumed that this was going to be primarily a US
problem, with maybe some milder European and Asian spillover.
Emerging markets were still being called safe, and the place to be,
along with commodities (remember them?). Since that was the
prevailing view, US assets, including the dollar, got hammered the
worst, first. The first six months of this calendar year, the dollar
was still on the defensive against the Euro, for example. It has
only been since early August that that trade has swung violently the
other way, as it becomes apparent that this is a global problem to
exactly the same degree that it is a US problem, maybe even more so
in some cases. Since the dollar had been punished early, you may
simply be seeing the rest of the world getting massively punished
relative to the dollar right now as sort of a catching up.
Japan is obviously an outlier, but the yen was the funding currency.
I suspect the yen was primarily funding leverage, which is being
unwound massively right now. That said, at 94 to the buck, what are
we, 8 percent off what many peg as "fair value" [102] (as if
currencies trade at "fair value" very often, anyway)? And what is 8
percent in world markets right now? A single day's trading range.
(Well, maybe a couple of days for the JPYUSD.) But it's not like
there has been any massive JPY/USD realignment.
b> Do you think Westerners or non-Japanese Asians would move their money
b> into Japan, as a safeguard, right at the moment?
It depends, I guess. No major Japanese banks seem close to
insolvency. And as long as the currency is appreciating, why would
someone *not* want to hold it in this environment. Moving money
these days is a piece of cake, and it happens at the speed of light.
Anyone parking in yen looking for a temporary port in the storm can
go storming right out of the parking lot in a big hurry if the need
arises.
b> I guess when you say American paper you mean treasuries (no corporate
b> paper is/was moving?).
b> I wonder what volume of trade it takes to move the USD 20% against
b> the Euro and whether that equates to what has been soaked up by
b> Treasuries ... not easy numbers for me to find.
b> Of course speculators would move to USD in a flash, assuming it does
b> have a record of valuing in a crisis.
b> It that is the case it will disappear in a flash too.
b> BTW in my reply to Siddhartha I meant to say that US Hedge Funds are
b> NOT obliged to report.
b> As I understand it the Japanese carry trade was a national strategy
b> to support Japanese exports via a created currency differential
b> (created at no cost to the nation too!).
I don't think it was ever articulated precisely, but there is no
doubt that corporate Japan (thus the government as well) was happy
with an interest rate differential, and a strong dollar. The
interest rate differential may not exist in 48 hours or so.
b> For the sake of the argument, say that the US liked the idea, as a
b> national strategy, or that a sophisticated US investment culture
b> grabbed the idea and ran with it ... perhaps even further and faster
b> than Japan.
b> If that money was forced back home, all at the same time, that would
b> block up the pipes wouldn't it?
b> A odd observation:
b> Any one who wants a currency haven might look at the United Arab
b> Emirates Dirhan ... not volatile at all and the largest Sovereign
b> Reserves in the world.
One by one, there seem to be no survivors. I'd much rather choose a
currency that has been hammered beyond what seems reasonable.
Picking one that hasn't been nailed yet, particularly one whose
primary asset now trades only about 20 percent above deficit inducing
levels, wouldn't be the way that I would go. (A lot of economists
reckon that below 50 a barrel -- and who is to say that's impossible
-- most of the Gulf states start bleeding red ink.)
In any case, I don't think I want to stake my wealth on what is
basically a collection of tiny city states at the bottom of the
Persian Gulf. They may hold the most sovereign reserves, but those
reserves are likely mostly dollars, so maybe you're just holding
dollars by proxy? (Don't they more or less peg to the dollar anyway
in some kind of band?) And it would take their entire GDP for about 8
months (based on 2007 figures) just to bail out AIG. ^_^ (Projects
like the Dubai Mall could become fantastic white elephants if
sufficient world wealth continues to evaporate. As far as I can tell
they are terribly dependent on construction, which can be extremely
cyclical, and tourism, ditto.)
Yuki
b> Maybe the answer is in Tomasz's links ... I am off to read them now.
b> brian_z
b> --- 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
b> 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
b> 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
b> been a
>> b> silent emulation of the Japanese 'carry trade' based on low
b> interest
>> b> USD loans (the US has low interest rates, a desire to protect
>> b> exports, sluggish growth and a sophisticated investment culture
b> 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
b> exchange,
>> b> because its yield starved domestic investors plowed $6 trillion
b> of
>> b> their savings into overseas assets.
>>
>> b> Japanese investors increased their exposure to foreign assets by
b> ¥59
>> b> trillion ($566 billion) in 2007 alone, setting a record top of
b> ¥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
b> low-
>> b> cost Japanese Yen (Tokyo interest rates haven't got above 1.0%
b> per
>> b> year since the start of this decade), in order to buy higher
b> yielding
>> b> currencies, commodities, and stocks held abroad.
>>
>>
>>
>>
>> b> "History never repeats, I tell myself before I go to sleep at
b> 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
b> 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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