Wall Street Oasis - Investment Banking & Finance Community: Is the carry trade the way forward?

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Is the carry trade the way forward? Nov 1st 2013, 02:30, by G.M.Trevelyan For many of you who do not know, borrowing in a low-interest market to attack countries with loose capital controls is something that helped bring about the Great Depression in 1929 -for those who do not believe me, read Barry Eichengreen's book, Capital Flows and Crises, it explains the role capital outflows had on making the cold a deadly contagious virus with dire infective power. But more importantly, today's carry trade carries many hidden factors. Let's look at the logic of the proposed carry trade in the long-run: The carry trade requires the belief the U.S. economy cannot grow significantly, it requires another view that the trade (since it is only possible with relatively low volatility currencies like the USD or JPY) will devalue over time in parallel with the national economy's lack of growth and investor's lack of confidence. Lastly, for the trade to be effective, it means that the Q.E. many believe is necessary for the U.S. economy will hinder the hard won victories by Abe in Japan as investors flock to the yen and their imports, a hallmark of their policy, stand still. This will have a negative impact around the Northeast Pacific region, which is resolutely dependent on a stronger Japan jumpstarting their growth, and will come back to hurt the American economy later on. read more Media files: preview (image/png, 0 MB)

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