Carry Unwind Magnifying Moves?
A: Tons of talk about this threat since middle of 2009. Has The Search For Yield ended with a fierce carry trade unwind?
When asked in November about what signs would indicate an that a carry trade unwind might be happening (5th comment), the response was:
Danny: Noah, what are some of the initial signs that may indicate the positive carry trade unwind is upon us?So lets see here:
Noah: the main sign will be a sharp, fierce rally in the US dollar and likely a similar fall in commodities/stocks. I wonder how metals will react as they may disconnect a bit given the nature of the crisis and actions taken across the world to stem it.
In Debt We Trust: The warning sign will be a jump in options volume for vix call futures.
1. Sharp/Fierce rally in US Dollar - check!
2. Selloff in Equities/Commodities - check
3. Disconnect in Metals/Gold - check!
4. Jump in options volume for VIX calls - check!
Eurodollar futures plunging which will reflect a rising LIBOR rate. HY/IG getting hit. These are all clear signs of stress. Sometimes the best discussions on this site occur in the comment threads! Hopefully that continues and reader participation and opinions only grow from here!
Posted by Noah
Thu May 6th, 2010 03:05 PM
markets down close to 4%. This is quickly becoming a nervous selloff and when these things happen, momentum and margin calls start to feed the move. hang tight, we may be in for a wild ride before this week ends.
Posted by Noah
Thu May 6th, 2010 03:07 PM
holy s@!t...what the heck was that? Dow down 1,000 for a moment?
Posted by Fred
Thu May 6th, 2010 03:42 PM
yeah, a few minutes after you posted. you could have bought AAPL @ $200 if you pushed the button at 2:43PM.......this is what you get when algos run the trades I guess. seriously, it is interesting to see what correlated with the spike in the DX; a few things stand out - oil futures decoupled pretty quickly but that could have just been a delay with the futures markets; big caps ran down just as quickly as commodities like miners; preferreds interestingly started selling off very early today and then were fiercely bought after the swoon.....PPT anyone?
Posted by In Debt We Trust
Thu May 6th, 2010 05:02 PM
Well, color me a bull but the market may rally a bit here. I haven't seen those kinds of swings since September 2008 - March 2009.
Would anyone sell stock puts at these levels?
Posted by alittle worried
Thu May 6th, 2010 05:39 PM
Money coming out of stocks and we'll quickly see how that affects real estate prices, even in NY. If we start breaching key levels, NY real estate prices could go into a tail spin. Which countries will buy our debt. This could be part II of the next global meltdown. I'm not even touching aapl.
Posted by Noah
Thu May 6th, 2010 07:03 PM
alittleworried - I still think we need a good 12-15%+ type of move to start to hit a nerve. Perhaps a move like today is enough to jar some buyers to the point where they start to 'think' about adjusting an offer or delay in submitting an offer. Not sure its enough yet. Considering where we came from, a 75%+ move, a 5-6% move down is nothing but normal to me. Even a 10% move would be normal considering the reflation we had.
So, gradual 20% move up, 5-7% down, 10-12% up, 5% down, 10% up, etc..healthy. If this is something more, we should see a noticeable adjustment of 15-20% at least. Lets see if that happens. Scary? Sure, especially with a glitch that sparks a 8% move down. That'll get your blood boiling and your eyes open.
Posted by anonymous
Thu May 6th, 2010 07:24 PM
I think the big risk here is if the markets start adjusting risk premiums for all types of instruments. Before the last couple of weeks, everything was smooth and up. Now, even if markets do not tank, the status quo volatility consensus will be called into question. That could mean increasing credit spreads which would be a big damper on just about everything.
Posted by Fred
Thu May 6th, 2010 08:40 PM
I actually think that what happened wasn't a fat finger at Citi on a PG sell order but a juicing of the DX futures, which in turn pushed the Euro down, gold up and triggered selling across the board because algorithmic trading makes certain assumptions and one of them is if the USD rallies, equities go down. Once stop losses were triggered it was just a mad rush. Something that got kind of lost in shuffle today was the power move the Yen put on the USD - 4% - which was probably like a 6% move on the Euro.
Posted by MeekSheep
Thu May 6th, 2010 09:53 PM
Citi claims it didn't "fat-finger" and to think, I just bought a few things two days ago only to see me down 8% since. Ugh! The timing.
Posted by faustus
Fri May 7th, 2010 08:32 AM
just think about all the positions that got stopped out on the plunge yesterday, only to find themselves in cash and sidelined as the market bounced back.
Posted by OT
Fri May 7th, 2010 09:56 AM
ALW - you're right, few bad days for the Dow and Manhattan real estate is headed for a tail spin. Never fails, the RE bears are looking for any reason to call the death of NYC housing. It hasn't come up for a while, but I gotta think from looking at inventory, average sales, etc. that the market is pretty healthy. I mean, for properties under 10 Mil on the UWS, the absorption rate is under 7 months!!!
Posted by anon
Fri May 7th, 2010 11:11 AM
OT - I knew you'd show up! Always can count on you to talk sense when things look dire! Like Kevin Bacon at the end of Animal House.
Posted by In Debt We Trust
Sat May 8th, 2010 12:02 AM
Europeans unveil emergency measures to defend the Euro at all costs. Or so they say.
http://debtsofanation.blogspot.com/2010/05/debts-of-spenders-eu-nations-establish.html
As for the vix:
The implied volatility of the VIX is currently at 133, which exceeds that high of 126 that was hit during the 2008 crisis.
I am still bearish on the Vix as betting on a further rise is betting on the EU melting overnight. Attractive for some bears but not very likely to happen.
Posted by Fred
Sat May 8th, 2010 11:49 AM
In Debt - yup. bears could get crushed getting too enthusiastic. the yield curve is far too favorable for risk assets. USD probably needs to pull back 5% or so vs. the Euro. Euro & USD are in the same boat.
Posted by Mbt
Wed Jun 2nd, 2010 10:44 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by coach handbags
Fri Aug 13th, 2010 04:17 AM
the main sign will be a sharp, fierce rally in the US dollar and likely a similar fall in commodities/stocks. I wonder how metals will react as they may disconnect a bit given the nature of the crisis and actions taken across the world to stem it.