Comments on: The globalization of finance: Household carry trades http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/ Wed, 07 Jan 2009 21:06:12 +0000 http://wordpress.org/?v=2.6.1 By: df http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95047 df Tue, 20 Feb 2007 11:08:51 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95047 aggressive central banks lol since volker i ve never seen a contra cyclic monetary policy. Central bank now care only about consumption goods price inflation, given present deflationary forces, I doubt they will be the trigger. But through intenable change policies ... That may be. Politicians should not have voted independant central banking in the first place. We ve seen where it as led us, to pro banking monetary policies a huge credit bubble now about to pop. aggressive central banks

lol

since volker i ve never seen a contra cyclic monetary policy. Central bank now care only about consumption goods price inflation, given present deflationary forces, I doubt they will be the trigger. But through intenable change policies … That may be.
Politicians should not have voted independant central banking in the first place. We ve seen where it as led us, to pro banking monetary policies a huge credit bubble now about to pop.

]]> By: Guest http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95046 Guest Tue, 20 Feb 2007 08:35:01 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95046 "...if political heat is building at a time of strong global growth, it will only intensify when the economy weakens. ``The fear of politicians is that the boom will be brought to an end by aggressive central banks..." http://www.bloomberg.com/apps/news?pid=20601109&sid=a3BCpckL08XQ&refer=home “…if political heat is building at a time of strong global growth, it will only intensify when the economy weakens. “The fear of politicians is that the boom will be brought to an end by aggressive central banks…” http://www.bloomberg.com/apps/news?pid=20601109&sid=a3BCpckL08XQ&refer=home

]]> By: df http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95045 df Tue, 20 Feb 2007 06:55:21 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95045 Who s foolish enough to borrow in yen at present low levels ? I would do the opposite. Any way. Dear Mr Setser, do you see cracks in the international level equivalent to those building up :-) i mean widening in the US housing market ? The equivalent to the fall in housing price would be a fall in the dollar relative to the RMB-Yen, and that should, indeed the dollar has started slowly faling against the RMB (or has it if inflation and productivity are taken into account ?), but do we see at the international level the equivalent of the rise in deliquency rates ? Who s foolish enough to borrow in yen at present low levels ?

I would do the opposite.
Any way.
Dear Mr Setser, do you see cracks in the international level equivalent to those building up :-) i mean widening in the US housing market ?

The equivalent to the fall in housing price would be a fall in the dollar relative to the RMB-Yen, and that should, indeed the dollar has started slowly faling against the RMB (or has it if inflation and productivity are taken into account ?), but do we see at the international level the equivalent of the rise in deliquency rates ?

]]> By: Cassandra http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95044 Cassandra Tue, 20 Feb 2007 05:58:42 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95044 Surely there must be some parasitic outfit in the US, like for example <i>Quicken Loans</i>, that is touting their 150 diffferent mortgage products whose various names untold variations I cannot even begin to fathom, who might offer the equivalent of the "nearZIRP Mortgage" where the borrower who manages to put up a bit of "margin" (oops I meant downpayment) effectively can structure a nearZIRP mortgage based on a Yen rate (or for the less bold and manly, a SwFranc or Sing$ rate) with (buried in the fine print) a consent to shoulder the currency downside risk, say, reset semi-annually, or annually. The loan provider, with margin (sorry, again, I meant "downpayment"), some spread, and some compound "Calls on Yen Calls", can then whistle dixie until he forecloses sometime following the 2008 reset... Surely there must be some parasitic outfit in the US, like for example Quicken Loans, that is touting their 150 diffferent mortgage products whose various names untold variations I cannot even begin to fathom, who might offer the equivalent of the “nearZIRP Mortgage” where the borrower who manages to put up a bit of “margin” (oops I meant downpayment) effectively can structure a nearZIRP mortgage based on a Yen rate (or for the less bold and manly, a SwFranc or Sing$ rate) with (buried in the fine print) a consent to shoulder the currency downside risk, say, reset semi-annually, or annually. The loan provider, with margin (sorry, again, I meant “downpayment”), some spread, and some compound “Calls on Yen Calls”, can then whistle dixie until he forecloses sometime following the 2008 reset…

]]> By: Joe http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95043 Joe Tue, 20 Feb 2007 05:40:19 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95043 So the Japanese savers are taking all the risks? They buy the NZD bonds from Japanese banks for instance. The bank takes in lots of Yen for which it gets zilch. At the same time it owes lots of NZD on which it is paying a high rate of interest. So the bank hedges in the swap market. But surely somebody must be taking the opposite position to the Japanese saver and both are paying a large chunk of fees to the banks. Perhaps the fees are so large that some of these can be used to hedge? Oh i see they sell the Yen back to NZ so they can fund their trade deficit. Deficits are obviously such a wonderful thing, I call on all politicians to aim for as big a deficit as possible, who knows we may get to the stage where we need not produce anything. A deficit to GDP ratio of a 100%. So the Japanese savers are taking all the risks? They buy the NZD bonds from Japanese banks for instance. The bank takes in lots of Yen for which it gets zilch. At the same time it owes lots of NZD on which it is paying a high rate of interest. So the bank hedges in the swap market. But surely somebody must be taking the opposite position to the Japanese saver and both are paying a large chunk of fees to the banks. Perhaps the fees are so large that some of these can be used to hedge? Oh i see they sell the Yen back to NZ so they can fund their trade deficit. Deficits are obviously such a wonderful thing, I call on all politicians to aim for as big a deficit as possible, who knows we may get to the stage where we need not produce anything. A deficit to GDP ratio of a 100%.

]]> By: Hellasious http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95042 Hellasious Tue, 20 Feb 2007 02:24:52 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95042 In the last 6 mos. large Greek banks are aggressively promoting JPY and SFR mortgage and small business loans to retail customers. In their ads they emphasize the super low interest rates and monthly payments, but do not mention the FX risk, except of course in the ultra fine print which races illegibly at the bottom of the TV screen. The carry trades are hitting the remotest and "retailest" of markets. We all know what this means. In the last 6 mos. large Greek banks are aggressively promoting JPY and SFR mortgage and small business loans to retail customers.

In their ads they emphasize the super low interest rates and monthly payments, but do not mention the FX risk, except of course in the ultra fine print which races illegibly at the bottom of the TV screen.

The carry trades are hitting the remotest and “retailest” of markets. We all know what this means.

]]> By: Guest http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95041 Guest Tue, 20 Feb 2007 00:52:05 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95041 A minor point but New Zealand 2006 GDP was in fact NZ$164bn rather than the NZ$39bn originally stated in the FT article A minor point but New Zealand 2006 GDP was in fact NZ$164bn rather than the NZ$39bn originally stated in the FT article

]]> By: kaan http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95040 kaan Mon, 19 Feb 2007 21:37:08 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95040 Brad, I think algernon has a point that that you and almost everybody else use the term savings as to loosely. If we had a global currency supplied by IMF and increased by nominal growth of global GDP would we still have excess liquidity sloshing around? Would PBoC and BoJ still have all this pool of reserves when exporters would not need to exchange their earnings? I think we should be doing some philosophical thinking about the nature of money otherwise this current regime is becoming more Ponzi like. Brad,
I think algernon has a point that that you and almost everybody else use the term savings as to loosely.
If we had a global currency supplied by IMF and increased by nominal growth of global GDP would we still have excess liquidity sloshing around?
Would PBoC and BoJ still have all this pool of reserves when exporters would not need to exchange their earnings?
I think we should be doing some philosophical thinking about the nature of money otherwise this current regime is becoming more Ponzi like.

]]> By: stuart mills http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95039 stuart mills Mon, 19 Feb 2007 18:57:57 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95039 Brad, thanks much for you posts. the really frightening aspect of our new world of finance is that there are so many activities/products whose 'workings' are not immediately blatantly obvious to really smart people with extensive experience such as yourself. This includes "borrowing high", and deratives, such as the CPDO. Brad, thanks much for you posts. the really frightening aspect of our new world of finance is that there are so many activities/products whose ‘workings’ are not immediately blatantly obvious to really smart people with extensive experience such as yourself. This includes “borrowing high”, and deratives, such as the CPDO.

]]> By: psh http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95038 psh Mon, 19 Feb 2007 16:06:06 +0000 http://blogs.cfr.org/setser/2007/02/19/the-globalization-of-finance-household-carry-trades/#comment-95038 'financial technology has opened up new opportunities to borrow' In the end, the expertise we've gained shoehorning deadbeats into ostentatious houses will pay off. <A HREF="http://www.fitchmexico.com/reportesespeciales/rw_34.pdf">Project finance</A> is hot again like it was in the early '90s (funny how that happens whenever a hegemonic bloc collapses from soft credit and associated malinvestment). The sinister Ditchley cabal will be conspiring about infrastructure next month. Financial engineering talent will flow there when the MBS market has been sucked dry because the same tricks, loan pooling and credit enhancement, can eke foreign aid and cultivate domestic liquidity in LDCs. This helps integrate local and global capital markets. So, Joe Blow, your elegant granite countertops that got repossessed, they will in a sense promote concrete culvert rings for Angola or something. ‘financial technology has opened up new opportunities to borrow’
In the end, the expertise we’ve gained shoehorning deadbeats into ostentatious houses will pay off. Project finance is hot again like it was in the early ’90s (funny how that happens whenever a hegemonic bloc collapses from soft credit and associated malinvestment). The sinister Ditchley cabal will be conspiring about infrastructure next month. Financial engineering talent will flow there when the MBS market has been sucked dry because the same tricks, loan pooling and credit enhancement, can eke foreign aid and cultivate domestic liquidity in LDCs. This helps integrate local and global capital markets. So, Joe Blow, your elegant granite countertops that got repossessed, they will in a sense promote concrete culvert rings for Angola or something.

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