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The world carry trade for US Dollars is over $9 trillion.
In today’s world of monetary insanity, investors seem to forget that $1
trillion is a staggering amount of money. So to put that $9 trillion carry
trade into perspective, if it were a country instead of a carry trade, it
would be roughly equal in size to the economy of China, the second largest
economy in the world.
Suffice to say, we’re talking about a truly staggering amount of
borrowed US Dollars that have been invested into other assets/ investments.
Carry trades only work if the currency you are borrowing in doesn’t rally.
As soon as it does, your trade very quickly goes into the red.
This is particularly true if you’re talking about a corporation that has
borrowed in US Dollars to fund projects in countries where sales are
denominated in other currencies (Europe, Asia, etc.)
The reason for this is that many multi-nationals do not hedge their
currency risk. So if, for instance, they are borrowing in US Dollars
without a hedge to invest in Europe and the US Dollar rallies, their projects
very quickly begin to lose their appeal… and a LOT of money.
Ka-Boom:
To put that move into perspective, it’s GREATER THAN the US
Dollar rally that occurred during the 2008 CRASH!
This tells us point blank that something MAJOR is happening in the
financial system right now. You DO NOT get
20+% moves in the US Dollar during normal, healthy environments.
Indeed, it is not coincidental that Oil and emerging markets like Brazil
imploded when the US Dollar carry trade began to blow up.
As usual, US stocks are the last to “get it.” But this won’t last for
long. The S&P 500 is sitting on the ledge of a massive cliff. And when it
finally tumbles, the move will be both fast and violent.
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financial crisis, we offer a FREE investment report Financial Crisis
"Round Two" Survival Guide that outlines easy, simple to
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