EMS News

How U.S. Investors Can Play the Carry Trade

The ETF market---Exchange-traded fund was launched during the Reagan deregulation era. Previous to Reagan, we still had most of the banking restrictions imposed during the Great Depression. The first ETF incarnation was declared illegal in Federal Courts.


In 1993, ETFs were reintroduced to the US markets with the Standard & Poor's SPDR accounts. Like all things involved in increasingly unregulated financial product markets, this proliferated like weeds after a summer storm. This went from one entity just over a decade ago to over half a trillion in asset market with over 600 entities playing this new funny money game.


This market is part of the Derivatives Beast. It is also responsible for a goodly part of the flood of easy money creation out of thin air, the carry trade business has been a wretched excess creator, big time. And now, thanks to the near total collapse of all financial systems, it is even more powerful a force than before due to more nations playing the Japanese ZIRP game.


That is, keeping interest rates at near zero in the hopes that this will encourage business even in the teeth of obvious inflation or obvious collapse of the currency's value! Indeed, the noxious truth is, many export nations NEED a weak currency and this is a most excellent way to do it.

There was a million good reasons why these sorts of trust funds were outlawed in the early 1930's. They are immensely toxic. True, if you are fortunate and the world doesn't totally collapse due to your games, playing in this area can make speculators very rich. But on the other hand, this costs the real economic systems very dearly. Destroying whole civilizations just so one can get rich, quick, playing goofy paper games isn't very smart. But it is VERY TEMPTING.


Humans are very prone to temptation. We love temptations. We fall for temptations even knowing it is bad for us. This is natural. This is why we have to erect barriers to temptation rather than stroke it or fire it up even more. Yet, our culture is built on the concept of tempting people in a million ways via advertising, movies and other diversions.

We have certain social collective responsibilities. One is to maintain national sovereignty. Another is to keep civilization alive, not ream it out. The third is to prevent social unrest which might topple the system. Of course, if a system is very bad, it will be, willy-nilly, toppled. The after effects of all this are quite noxious: most revolutions are deadly affairs and ruin things, sometimes, terminally.


Bankers and investors can't be thieves and infesters. They have to be also working for the common good, just like doctors or lawyers or the police. If someone opens a business that begins to destroy the water and air of the community, it is not a positive factor. If someone moves next door and then opens a rowdy whorehouse or crack den, it behooves the community to shut it down, fast. Ditto, gambling dens.


Instead, we increasingly live in a culture that shelters gambling dens, even celebrates them! And which rewards people playing dangerous money betting games or run businesses that make international trade even more lopsided or even bankrupting their host countries such as say, Iceland was destroyed as an economic entity by exactly this sort of 'business'.


Any business that is endangering important life-support systems has to be stopped, not encouraged. Nothing on earth is more dangerous than the latest outgrowth of the financial business than these sorts of games like the ETF 'business'. The carry trade concept grew out of the collapse of the gold currency basis system and ever since Nixon decapitated this back in 1971, we now see no nation running the gold basis system and all the imbalances and imperfections of the floating fiat currency regime now are causing real economic damage to all domestic systems across the entire planet! This is just disgusting!


And instead of fixing this, note that these 'markets' are expanding again! And people pushing investment games are having a grand old time even as the imbalances in trade and the financial collapse of the US continues onwards, taking down our entire nation. What on earth do you plan to do? Move out when all goes totally to pieces?


Frankly, I see a lot of commentary saying exactly that! This is a serious problem.

The Commodities ETF Crackdown Continues

Derryl is correct here: US dollars were flushed all over the world during the long years the US ran a growing trade deficit. Now, the world is flushing these dollars out of FOREX holdings and banks and they have to buy something.

So they have been flooding the commodities markets since the summer of 2007. This has destabilized commodity markets and thus, the US has to demand changes so our sinking ship isn't swamped totally by this tsunami of former trade dollars.

This, incidentally, causes inflation in the US.

The Dogma of Low Interest Rates Is Wrong

Speculative bubbles are very much like gold rushes. Only, the modern way of doing this is to have some strange system set up that allows easy credit creation.

The entire derivatives business used by the bankers with the OTC and CDS scripts was to remove 'risk' to a legendary place (someone else, of course) and thus claim they had the capital credit available to offer cheap loans that were even below the real rate of inflation.

This way, we saw over $12 trillion in new credit money created across the planet, money that should never have been lent. To fix the collapse of repaying these many loans (the 'someone else' guys couldn't pay up, of course) governments had to become these 'someone else' people and insure the dying loans!

This is bankrupting the major G7 countries. We are going bankrupt thanks to bailing out the bankers who made loans they couldn't guarantee, themselves. The transfer of the risk of lending was put onto untrustworthy organizations like AIG who had nearly zero capital.

The Dogma of Low Interest Rates Is Wrong

Wrong, E Nuff. Low interest rates drive investors out of country. Savers leave home currencies and invest in CDs overseas (a la Japanese savers using yen to buy into Aussie or New Zealand banks!).

No, if a country chooses to be at zero percent, it sees all savings flee this system because they can grow WITHOUT MUCH RISK in other places. This is why so much flowed to the US but no more.

The Dogma of Low Interest Rates Is Wrong

The US dollar is now a carry trade item. Places with higher interest rates will attract savers who are looking for an honest return. Both the US and Japan fudge inflation statistics to hide real inflation. When wages are dropping faster than prices, this is a form of inflation.

Namely, the number of hours worked to buy basic goods and services rises relentlessly. Japanese wages have fallen much faster than prices over the last 15 years. Car ownership in Japan is below 1987 rates, for example.

This is a hidden inflation! The cheap lending is for only the wealthy who can afford to pay up easily but are looking for free money to invest. Then, they simply send it overseas in some carry trade deal! Thus, the funds depart and the home base is more depressed.

When Japan fell into a depression, this was purely domestic. Toyota grew to the #1 automaker in the world during the Japanese depression, for example. While seeing declines in domestic sales.

But if the US can't buy endless Japanese cars, this hammers Japan greatly! Japan's economy nearly totally collapsed during 2009 due to the Japanese carry trade vanishing in the US sector (but NOT vis a vis Australia, for example!).

Australia buys far fewer cars than the US. Japan wants the US to receive Japanese carry trade deals. My blog emsnews.wordpress.com talks about this topic endlessly. It is life and death for us to understand that ZIRP is a trap.

The Dogma of Low Interest Rates Is Wrong

When I was a child and the book, 'Only Yesterday' was published (it is about the Great Depression), my grandfather gave me the book and said, 'Memorize it.'

He went on to explain how I had to avoid debt at all costs. Sure enough, I gained total economic freedom by the age of 50 and although I am not rich, I am not in danger of losing my home, for example.

Saving is important. When some people pay off debts, this allows the next generation who are starting their families to pile on some temporary debt. But when interest rates are ARTIFICIALLY low, then we get no savings and much more debt.

The US government as well as Japan both went very deep into debt with ZIRP (zero interest rate program) debts. That is, the cost of borrowing money from taxpayers or selling debts to dangerous foreign trade rivals like China, is very low. So there is a desire to pile on more and more debt since servicing it is so cheap.

But the PRINCIPAL remains to be paid! This is the killer. This is the kick in the teeth. This is the chain that locks you in a prison! Not interest rates. So, due to cheap lending to governments being such a temptation, they fall into the trap of building up massive credit principal due on loans and eventually go bankrupt when they have to roll over a mountain of cheap debts.

That is, if interest rates rise even a slight amount, this will force a default. This is why ZIRP is a trap, not a way to stimulate an economy.

The Dogma of Low Interest Rates Is Wrong

Also, there seems to be a poor understanding about hoarding hard money here. That is, when prices of anything falls but no one qualifies for credit DUE TO JOB LOSSES or potential job losses, lending freezes up and prices continue to fall even more.

Anyone paying off loans at the pre-depression rate is hammered. It is a lose-lose situation. But if we have inflation AND job losses like in the stagflation years, people have less and less money and that money becomes more and more worthless. This is the Zimbabwe mess and we can have it just as easily.

No one on earth likes stagflation. Bankers, businesses, politicians and the population all hate it. This happens when a country has to either import lots of important goods like oil or....are paying vast debts at a fixed interest rate to creditor nations.

That means, we can be Weimar Germany really easy.

The Dogma of Low Interest Rates Is Wrong

Savers did prosper during the Great Depression. My grandfather was a saver who had a lot of money in the form of hard currency which he hoarded.

He did very well during the Great Depression but my grandmother felt very sorry for the poor who had nothing so she had all sorts of people doing stuff for her and paid them with the hoard of hard money my grandfather had saved.

She must have saved quite a few people from starvation this way.


On Oct 07 03:09 PM thiazole wrote:

> So are you saying that savers prospered during the Great Depression?
> NO ONE prospered. Some were better off than others, but everyone
> suffered.
>
> The haves will always be required to bail out the have nots. Allowing
> deflation and a megadepression will just delay the inevitable and
> increase the burden for those who saved money. Besides, you've seemed
> to have forgotten that currency is just a trading medium - it isn't
> wealth. The nation isn't given currency to hoard it. That is what
> is wrong in Japan. There is so much currency being hoarded by the
> masses that they could buy everything off the shelves several times
> over. What good is hoarding a trading medium if there aren't enough
> goods available to spend it on?
>
> As far as your ideals go, allowing deflation in the 1930s caused
> the government to tax wealthy people at the rate of 90% during the
> Great Depression in an attempt to bail out the rest of the country.
> Do you think it would be any different this time?
>
> Lastly, quit giving me thumbs down because you disagree with me.
> I don't go around giving every comment you make that I disagree with
> a thumbs down and I don't appreciate you doing it to me either.<br/>

Is Obama Mimicking 'W.' on Trade?

The ultimate treason against the US was to allow our trade to run in the red for over 40 years. The only year the US ran a trade surplus was in Gulf War I when Bush Sr. sold our soldiers to Saudi Arabia and Kuwait as mercenaries.

Since 1991, the trade deficit grew in leaps and bounds with each free trade treaty. It nearly hit a trillion dollars a year in 2007. The only thin that reduced it by 50% was a global depression.

But we are still in a massive, massive trade deficit. We import energy, manufactured goods and services. Most of which we could very easily produce at home, ourselves. So our entire economic structure was hollowed out.

emsnews.wordpress.com/...

The NYT ran an editorial yesterday demanding even more 'free trade'. The Washington Post loves free trade. Many media outlets love free trade. These same outfits are either owned by foreigners, funded by foreigners or were bought out by foreigners who then got US citizenship so they could weasel their way into our public discourse.

For example, the NYT new half-owner is a billionaire in Mexico. Mexico runs a big trade surplus with the US.

Every single fix applied to our trade problems has made this worse. Selective tariffs don't work. We need to rip up all our free trade treaties and impose PROTECTIONISM or we will be enslaved.

Protectionism is an interesting name: it means to preserve and control. If there is an economy on this planet screaming for protection, it is the US economy. Far from being evil, this is, for us, a good thing. Asia wants access to all our markets. We have to stop them.

Gold Stocks vs. Gold: Who's Winning?

I have a long, long family memory. Periodically, since the 1880's, ancestors of mine owned gold mining stocks. Heck, one of my ancestors went to California in the 1840's to find gold mines!

And these always ended up badly. Holding onto gold mine shares is extremely hazardous.

Problem Bank List Updated: Sovereign Defaults Ahead?

Nearly half of US debt is owed to investment bankers, foreign powers and trade rivals. 85% of Japanese government debt is owed to Japanese people, not outsiders.

This is a HUGE difference. Japan can simply default and it would be like a tax hike. The US defaults and we won't be able to buy oil or a lot of other stuff.

Rising Exports: The Basis for Sustained Economic Recovery

Sorry to pop a silly bubble but this article is garbage.

The exports are now going up but IMPORTS are again, rising faster than exports. Go look at the latest data.

Our export markets have grown and grown for the last 35 years but always has been outstripped by imports. Nothing has changed here. Nothing at all.

And all this is still happening with a weak dollar. Talk about pathetic.

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

What is really funny is, the pending $3 billion we are getting as a 'gift' from Congress equals the gift Congress gave Israel this year!

The US government must get this money being given to both Israel and the US taxpayers from somewhere else: China. And in the last two debt auctions, China was not a dominating buyer anymore. OOPS.

And worse: the free trade gang demanded this stimulus money be also spent on buying foreign cars that are imported to the US. So, we go deeper into debt and this is restarting Japan's auto import industry. Great. This, alas, won't fix our trade deficit which, during the worst collapse of international trade, is still nearly half a trillion dollars this year! Amazing.

This rebate bonanza doesn't address this problem at all. The dual budget and trade deficits are still roaring along. In 2006, the two together was $1.5 trillion and today, the two together are now $2.5 trillion. My god, are we going into a very deep hole!

Bonds: Dropping Real Yields Indicate Inflation on Horizon

NO Fed chief tries to kill inflation until it is way too late. They live for inflation. They fear depressions because then, people begin to ask questions about the Fed even existing.

Starve the Economic Beast, Part 3

Capitalism does not 'always work'. It collapses regularly. It causes these things we call 'credit bubbles'. These, in turn, create faux capital which then causes inflation in asset and equity markets. When things deflate, all the faux capital vanishes into thin air as we see today with trillions of dollars simply vanishing off of various computer bank's ledgers.