The only trade in existence today—short U.S. dollar

Roubini is worried about it. Mother of all carry trades faces an inevitable bust
Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

People’s sense of the value at risk (VAR) of their aggregate portfolios ought, instead, to have been increasing due to a rising correlation of the risks between different asset classes, all of which are driven by this common monetary policy and the carry trade. In effect, it has become one big common trade – you short the dollar to buy any global risky assets.
That's why I'm happy to mostly wait out this market until the bust starts rumbling...

Note that Roubini is late to this realization. Robert Prechter referred to the simultaneous rally in all assets during the 2000s as "all one market".

No comments:

Post a Comment