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Carry Trade Implosion Precipitates Robotic Selling Into Close As 1,055 ES Level Breached
Attempts by carry traders to redeem some P&L after a month of agony crashed and burned promptly, accelerating into the close as the Yen funding unwind killed not just the carry pairs but broader equities. Of particular note is the hurt experienced by AUD longs funded with either USD or JPY.
It is officially time for Goldman to enter the stop losses on its various carry trades. The pain for the (leveraged) BRLJPY trade has now become unbearable.
The market took out the Friday's ES VWAP close and robotic selling panic set in.
This is what a perfectly uncorrelated market looks like. Sarcasm off.
Time to officially bury the Dow 10,000 v2.
One question I am now trying to answer is "where is all the wealth", I mean this countries collect revenue from their citizens including the US as we now, where is the money, when as we also know our nation and those around the world live on borrowing, and lending as we speak.
Who is reaping all the wealth?
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
Higher labor costs would cut Chinese export competitiveness while boosting domestic spending power and sustaining economic growth, according to the bank.
“Wage increases are a better option because they largely benefit Chinese workers,” Tao Dong, a Credit Suisse economist in Hong Kong who has covered the Chinese and Asian economies for more than 15 years, said in an interview yesterday. “Currency appreciation will only result in Chinese exporters losing out to competitors in countries such as Malaysia and Mexico.
"Reverse repos and the deposit facility would together allow the Federal Reserve to drain hundreds of billions of dollars of reserves from the banking system quite quickly, should it choose to do so," Bernanke said.
Bernanke said he planned to start testing out such programs this spring.
But he added that the "firming" of exit strategy policy would start with an increase in the interest rate paid on reserves, adding that the Fed could always take a more "rapid exit," by increasing the rate paid on reserves if the economy needed it.
Major Generals Zhu Chenghu and Luo Yuan and Senior Colonel Ke Chunqiao during a press conference, reaffirmed the country’s decision to stand up to US’ bullying but said there has been no decision yet on selling US treasury bonds. The military officials underscored the domestic pressure to punish Obama administration over the arms sales.
‘Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counter-punches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease,’ said Luo Yuan, a researcher at the Academy of Military Sciences told reporters.
Just like two people rowing a boat, if the United States first throws the strokes into chaos, then so must we,’ Yuan explained adding that China could also use economic means such as dumping some of its US government bonds, if requested.
The idea behind the dumping of US treasury bonds is not new. Currently the US government is the world’s and in fact history’s greatest nation in debt. If all the global cash money were to be gathered in one place today, it wouldn’t be enough to pay the US debts. A sudden dumping of US government bonds would force global traders run for safer havens other than the US dollar which could immediately crash the US dollar bringing down the US economy with it.
The summit will take place a day after civil servants in Athens staged the first major strike against the Greek government's austerity plans. The government wants to cut public spending in order to trim its deficit. Greece and its huge debt and opaque government finances have weighed down financial markets well beyond Europe.
Investors' nerves appeared to have steadied this week as speculation increases that Greece is too important to fail and will be supported. A list of top backers has emerged - including the International Monetary Fund (IMF) and European governments, notably Germany and France.
A diplomatic source was quoted as saying Germany and France want the summit to issue a statement of political support, backing Greece against market speculators.
But Thursday's summit will have to work out what - more than just words - can and cannot be done. The founding EU Treaty prevents eurozone member states from taking on each other's debts - meaning that even if the will for a bailout was unanimous, it would be legally tricky to accomplish. Another headache is possible "moral hazard", in that helping Greece would send a signal to other financially weak countries that they need not make tough spending decisions.
All of it is a threat to the euro, on which the fortunes of 16 countries rests.
"It's not about gifts of money or subsidies, but about loans with interest that can be extended quickly to help a country as quickly as possible so that it doesn't come to turmoil on the financial markets, and to a crisis that no one can control any more," Austrian Chancellor Werner Faymann said in a televised interview.