Chillin' out till it needs to be funded
The global carry trade has had favorites. most know it to be long yen short dollar. then in 2008 it was mostly short dollar, long any nice looking Curls ( Aussie, Swiss, Canadian..endless list) Now the global carry trade has finally corrected itself in the Yen taking global forecasts on the Yen to above 100 yen to even 140 yen to the dollar a recognition of the weakness in that economy and hence that currency irrespective of their holdings which have been used as an excuse for 30-40 years
Now the global Carry trade is about to get a new home on the earthquake belt. It is shifting due west to buying the dollar and shorting US treasuries too. Again I have the same reservations. Firstly with inflation in strap at the Capitol Hill ruled denizens and the FED Gov statistics reports for all 5000 series, it looks unlikely that people have sat around waiting for June to signal the end of purchases by the Fed. Secondly, governments selling off their US Treasury reserves will wait a good 3-4 years before it becomes clear that they want to hold which other currencies for the reserve. thirdly, China has done it since 2008.
Also PIMCO has been doing it since Jan 2011 and it has not made that much sense any more. Even if the trade becomes profitable in long painful stretches, it is likely to leave indelible marks on the economy. If the shorting trend is really strong, it may wipe off all the healthy inflation and growth in the US economy and the resulting deflation monster may be a long-lasting friend albeit leaving the US and a few other global ambitions swirling the long way down esp as sooner or later republicans will be making significant policies and democrats still spending (
on a death-bed awaiting a mercy killing statute or two).
As Jim Rogers admitted tonight on Reuters, he is going short starting tonight but he is already worried because everyone is short on this one. Also the stronger dollar will hit the Capitol Hill and the Fed where it hurts the most till they further change their economic policy to fund the weakening of the Dollar on a consistent basis. A weak Dollar may remain the preferred reserve currency for the growing world’s mints but not a stronger one, when presented with a choice to carry Gold, SDR and Yuan reserves.
What you might be thinking is that Bernanke does not expect much rate rise after June so probably there is an opportunity here, but I think Bernanke has his assessment right!