lbsterling

Bank Earnings: Revenues Falling, Losses Rising

I think you "overuse" smart quotes.

Citigroup to Increase Common Stock, Government to Reduce Spending - Are They Serious?

You'd lose 10 percent of your net worth on that bet, because Hoenig is right: rates are going to have to rise or else there will be no buyers for U.S. treasuries.

So yes, they will raise, and yes, "Splat" for housing and the markets.

The only other option is the Fed as sole buyer for treasuries, and that would mean mega-inflation and dollar collapse.

More likely is that they'll try to walk the line: slight rate increases AND heavier Fed buying of treasuries etc, leading to some inflation (who knows how much) AND more recession (who knows how much).

Stagflation is the best case scenario.

It's a wing and a prayer right now and the Fed has no good options.

The Unintended Effects of Bad Policy

Manya05,

Yes, that clarifies things. Whereas the carry trade always has an element of currency risk, as interest rates approach zero everywhere, it's pure currency risk.

Why not just cut out the middleman and speculate in currency?

I know that one vision of the future says buy Australian dollars and Rand and watch as everything else implodes, but frankly I'm not planning to bet the farm on that scenario.


On May 18 08:33 AM manya05 wrote:

> lbsterling, all the speculator has to do now is borrow at zero interest
> in dollars, just carry it to a currency that is not being debased
> as much (even if it pays 0%), and just wait. The carry trade does
> not even need to be invested in shares, any currency healthier than
> the dollar will do.

The Unintended Effects of Bad Policy

But with all central banks racing to zero rates at the same time, where would speculators carry the dollar to?

The future is very hazy.