Comments on: Debt madness

By: Tom

Tom — Fri, 17 Sep 2010 20:46:58 +0000

Yes, the guy has lost big money on all 3 sides from a single "investment".

By: Golem XIV - Thoughts

Golem XIV - Thoughts — Fri, 17 Sep 2010 20:26:37 +0000

Thanks Tom,

Made me laugh.

By: Tom

Tom — Fri, 17 Sep 2010 20:23:43 +0000

The carry trade works like this in my experience.
A well heeled American working in Japan borrows shed loads of yen at .5% interest and buys a flat in London (unseen and off plan with first year rent guaranteed)and invests a smaller amount of cash (20% say) into an investment fund which is supposed to grow and repay the Yen Loan in 25 years time (assuming the fund grows at 7%pa. Typically the yen loan and investment vehicle are through the same bank.

By: Golem XIV - Thoughts

Golem XIV - Thoughts — Fri, 17 Sep 2010 19:02:29 +0000

IanG,

Actually you have put your finger on the problem. Everybody does know when its a CB. The reason it still works is because of time scales.

If you are an FX trader holding currency at one value and a central bank comes in selling hard. They WILL move the market down simply because they will sell so much, so quickly. So unless you can afford to just sit it out until the value bounces back, then you will be forced to cover and get out. That is you sell to avoid a larger loss.

But that is just the short term. Eventually all CB's have to give up because even they run out of cash. But 'eventually' can be as long as two years. It was in the case of the Yen. Most raders could not wait that long.

You can't fight a CB in the short term. Not as a trader. But longer term the market as a whole will win.

By: IanG

IanG — Fri, 17 Sep 2010 17:29:21 +0000

But but, what I don't understand is when the central banks intervene and flood the market with their own money in order to bring the price down, everyone knows who is behind it. If it were anonymous people off-loading a currency you might think that it was a good thing to get out of so the price would drop. But if the central bank does it so what? We all know they want the currency to be valued less, they might wish for this but why should it just happen?

Confused...

By: Golem XIV - Thoughts

Golem XIV - Thoughts — Fri, 17 Sep 2010 14:02:29 +0000

Cheers Rob.

By: Rob

Rob — Fri, 17 Sep 2010 13:34:44 +0000

Golem - yes doesn't make a lot of difference in the end.

Another long article by Mr Hudson, BTW,

how-brazil-can-defend-against-financialization

Fits somewhat into the debt and globalisation debate. Must admit, only had time to read the first few paragraphs...

By: Golem XIV - Thoughts

Golem XIV - Thoughts — Fri, 17 Sep 2010 12:21:17 +0000

Unclear,
Seraphim futures are way too volatile.
Stick with the lower orders.

By: Golem XIV - Thoughts

Golem XIV - Thoughts — Fri, 17 Sep 2010 12:13:57 +0000

Rob,

I agree with you taht debt is how teh middle class have maintained thei standard of living. Does that make it a cause or a symptom? Political desire/economic method - two snakes eating each other's tail.

Main thing is we see both of them for what they are and how they lock in to each other.

By: Unclear

Unclear — Fri, 17 Sep 2010 11:41:59 +0000

Well I started out with plenty, but then I saw an opportunity to exchange them for a package of AAA rated Cherubs, Seraphs and Sprites, with enough left over for a yacht in Antibes. How was I to know that the celestial being market was about to collapse? Managed to mislay the pin too as it happens.

Still if anyone fancies a sail this weekend...

As ever, Unclear.