Comments on: The size of the global carry trade (once again) http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/ Wed, 07 Jan 2009 23:51:19 +0000 http://wordpress.org/?v=2.6.1 By: Joseph Wang http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95155 Joseph Wang Fri, 23 Feb 2007 13:29:08 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95155 Gamma: Does anyone know much about Taiwan politically? I know something about it. Gamma: What happens to the RMB, yen, won and dollar if China makes a military move on the island sometime before the end of the year? If war breaks out in the Taiwan straits, the only safe investments will be guns and gold. The economies of the US and China are so interlinked at this point that if anything bad happens to one, they other is doomed. (Which is why if the housing bubble bursts and causes a rash of defaults, China loses big since it is its money that disappears). Gamma: Does anyone know much about Taiwan politically?

I know something about it.

Gamma: What happens to the RMB, yen, won and dollar if China makes a military move on the island sometime before the end of the year?

If war breaks out in the Taiwan straits, the only safe investments will be guns and gold.

The economies of the US and China are so interlinked at this point that if anything bad happens to one, they other is doomed. (Which is why if the housing bubble bursts and causes a rash of defaults, China loses big since it is its money that disappears).

]]> By: Joseph Wang http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95154 Joseph Wang Fri, 23 Feb 2007 13:22:59 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95154 DC: With all these liar loans, coupled with adjustable-rate mortgages that are scheduled to adjust upward within the next 12 to 18 months, there will be well over a trillion dollars in mortgage loan defaults. You are making the same mistake that people make when they argue that Chinese banks are in trouble. Even if you assume that every single subprime mortgage in the United States goes bad, you are still talking about one trillion dollars in a $12 trillion dollar market. If you assume that one third of the subprime mortgages go bad, then you are talking about a 3% hit in the total mortgage market which is not enough to sink the economy. Also, if the US mortgage market goes a huge number of defaults, it will hit the Chinese economy hard since their foreign reserves is put into these mortgages. DC: With all these liar loans, coupled with adjustable-rate mortgages that are scheduled to adjust upward within the next 12 to 18 months, there will be well over a trillion dollars in mortgage loan defaults.

You are making the same mistake that people make when they argue that Chinese banks are in trouble. Even if you assume that every single subprime mortgage in the United States goes bad, you are still talking about one trillion dollars in a $12 trillion dollar market. If you assume that one third of the subprime mortgages go bad, then you are talking about a 3% hit in the total mortgage market which is not enough to sink the economy.

Also, if the US mortgage market goes a huge number of defaults, it will hit the Chinese economy hard since their foreign reserves is put into these mortgages.

]]> By: Joseph Wang http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95153 Joseph Wang Fri, 23 Feb 2007 13:12:17 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95153 Gamma: Right, but how hardline is the current President? It is my understanding that he is from the party that favors formal independence. What is are the chances he calls China's bluff before he leaves office at the end of the year and right before the Olympics. 1) It's not a bluff 2) Near zero. Chen Shui-Bian is a lame duck with 20% approval at this point. By himself, CSB doesn't have the constitutional power to do anything. The only thing that he could possibly do is to call a referendum, but there are a lot of counter moves against that. Gamma: Right, but how hardline is the current President? It is my understanding that he is from the party that favors formal independence. What is are the chances he calls China’s bluff before he leaves office at the end of the year and right before the Olympics.

1) It’s not a bluff

2) Near zero. Chen Shui-Bian is a lame duck with 20% approval at this point. By himself, CSB doesn’t have the constitutional power to do anything. The only thing that he could possibly do is to call a referendum, but there are a lot of counter moves against that.

]]> By: Guest http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95152 Guest Fri, 23 Feb 2007 03:46:03 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95152 "Founded in 1889, [The Bank of Bermuda] grew to span 17 of the world's key financial and offshore centers including Bahrain, Cayman Islands, Cook Islands, Dublin, Guernsey, Hong Kong, Isle of Man, Japan, Jersey, London, Luxembourg, New York, New Zealand, Singapore, South Africa and Switzerland prior to joining the HSBC Group's network in February 2004..." http://www.hsbc.com/hsbc/about_hsbc/international-networks/americas/bermuda "Bermuda's largest and second-oldest bank... established the beginnings of a second major banking house... by taking over the 3-year old branch in Bermuda of the Merchants' Bank of Halifax, Nova Scotia which split off in 1886 from its original agency-holder, N. T. Butterfield & Son Ltd. They called their new bank the Bank of Bermuda Ltd... and is now the largest bank in Bermuda by a considerable margin... Bermuda's oldest and second-largest bank... As N. T. Butterfield & Son, it held from the early 1860s until 1886 - when it was acquired by the new Bank of Bermuda Ltd - the Bermuda branch of the Merchants' Bank of Halifax, Nova Scotia..." http://bermuda-online.org/banking.htm “Founded in 1889, [The Bank of Bermuda] grew to span 17 of the world’s key financial and offshore centers including Bahrain, Cayman Islands, Cook Islands, Dublin, Guernsey, Hong Kong, Isle of Man, Japan, Jersey, London, Luxembourg, New York, New Zealand, Singapore, South Africa and Switzerland prior to joining the HSBC Group’s network in February 2004…” http://www.hsbc.com/hsbc/about_hsbc/international-networks/americas/bermuda

“Bermuda’s largest and second-oldest bank… established the beginnings of a second major banking house… by taking over the 3-year old branch in Bermuda of the Merchants’ Bank of Halifax, Nova Scotia which split off in 1886 from its original agency-holder, N. T. Butterfield & Son Ltd. They called their new bank the Bank of Bermuda Ltd… and is now the largest bank in Bermuda by a considerable margin…

Bermuda’s oldest and second-largest bank… As N. T. Butterfield & Son, it held from the early 1860s until 1886 - when it was acquired by the new Bank of Bermuda Ltd - the Bermuda branch of the Merchants’ Bank of Halifax, Nova Scotia…” http://bermuda-online.org/banking.htm

]]> By: Guest http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95151 Guest Fri, 23 Feb 2007 03:38:27 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95151 Yen Carry Trade: Another Look - http://wachovia.com/ws/econ/view/0,,3629,00.pdf Yen Carry Trade: Another Look - http://wachovia.com/ws/econ/view/0,,3629,00.pdf

]]> By: Guest http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95150 Guest Fri, 23 Feb 2007 02:26:09 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95150 "...the attitude of private equity closely mimics that of the Chinese communist party. Both conceive of companies as networks of contracts between capital and labour that generate revenue streams to be manipulated by whoever has central control for personal or political advantage..." http://business.guardian.co.uk/comment/story/0,,2019474,00.html "...Six-month flows into the Swiss franc and Japanese yen... stand in the fifth percentile and sixth percentile respectively. The last time positioning in these two currencies were so extreme was June 1999. Six months later the yen had appreciated 17 percent against the dollar..." http://www.hedgeweek.com/articles/detail.jsp?content_id=50457 “…the attitude of private equity closely mimics that of the Chinese communist party. Both conceive of companies as networks of contracts between capital and labour that generate revenue streams to be manipulated by whoever has central control for personal or political advantage…” http://business.guardian.co.uk/comment/story/0,,2019474,00.html

“…Six-month flows into the Swiss franc and Japanese yen… stand in the fifth percentile and sixth percentile respectively. The last time positioning in these two currencies were so extreme was June 1999. Six months later the yen had appreciated 17 percent against the dollar…” http://www.hedgeweek.com/articles/detail.jsp?content_id=50457

]]> By: carmelus http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95149 carmelus Thu, 22 Feb 2007 16:42:29 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95149 Certainly it is hard to measure the real size of the carry trade as many contracts are made between private parties and not traded in organized exchange houses. From my point of view if you consider that the fiscal deficit in japan is too high (5% I guess) despite goverment debt acrrues 2% (peanuts)and that the ratio of debt to GDP is about 160% I do not foresee high rates in Japan for many many years. But what could unwind the carry trade is that the japanese banking system is still fragile and a bust could put them in a bad credit position again (indirectly they are financing speculative trasanctions)or maybe that the BOJ imposed a penalty to financial transactions. Certainly it is hard to measure the real size of the carry trade as many contracts are made between private parties and not traded in organized exchange houses. From my point of view if you consider that the fiscal deficit in japan is too high (5% I guess) despite goverment debt acrrues 2% (peanuts)and that the ratio of debt to GDP is about 160% I do not foresee high rates in Japan for many many years. But what could unwind the carry trade is that the japanese banking system is still fragile and a bust could put them in a bad credit position again (indirectly they are financing speculative trasanctions)or maybe that the BOJ imposed a penalty to financial transactions.

]]> By: Indonesia http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95148 Indonesia Thu, 22 Feb 2007 16:21:39 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95148 Hi Brad, concerning the purchase of property with a HK loan, you might want to try to understand China Motion: http://www.china-motion.com/eng/invest/pdf/2005_cir/00989cir-050421.pdf It is a telecom company listed in HK, but recently sold a few HK parking lots through a subsidiary in Bermuda. It also does business in mainland China with a company owned by one of the directors, and incurs huge uncollected receivables. It recently entered into a joint venture to offer online karaoke in mainland China with an apparently government linked entity in Beijing, again through a company in the Caribbean. With such "mini global empires" it is hard to think of a transaction that would not be possible. Hi Brad,

concerning the purchase of property with a HK loan, you might want to try to understand China Motion:

http://www.china-motion.com/eng/invest/pdf/2005_cir/00989cir-050421.pdf

It is a telecom company listed in HK, but recently sold a few HK parking lots through a subsidiary in Bermuda. It also does business in mainland China with a company owned by one of the directors, and incurs huge uncollected receivables. It recently entered into a joint venture to offer online karaoke in mainland China with an apparently government linked entity in Beijing, again through a company in the Caribbean. With such “mini global empires” it is hard to think of a transaction that would not be possible.

]]> By: Guest http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95147 Guest Thu, 22 Feb 2007 12:13:10 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95147 Dave Chiang, your saying that yen carry is used for US inflows ? It's nuts Dave Chiang, your saying that yen carry is used for US inflows ? It’s nuts

]]> By: Guest http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95146 Guest Thu, 22 Feb 2007 11:53:46 +0000 http://blogs.cfr.org/setser/2007/02/21/the-size-of-the-global-carry-trade-once-again/#comment-95146 re: India - responding in part to Old Vet's post further up. thought it was worth discussing. and its my impression that the purpose of many of these discussions is to determine how, not if, we can end up reasonably well whether or not China self destructs. re: India - responding in part to Old Vet’s post further up. thought it was worth discussing.

and its my impression that the purpose of many of these discussions is to determine how, not if, we can end up reasonably well whether or not China self destructs.

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