Shock Over, Financial Markets Now Deleveraging
Published October 24th, 2008 in Fixed Income, Economy Tags: carry trade, currency, deleveraging, euro, financial crisis, forex, TED spread, yen.No question, this was a financial shock that leaves everyone grasping for superlatives. But as measured by the TED spread and other financial health metrics, it is all but over:
Unlike the CBOE VIX volatility index which reached record territory, this spread has been higher actually. I’ll scrounge up a very long term chart. But the important thing is that the TED spread has now come down so much that even if it blips up, it has put in a lower low. So while we may see an uptick or two since nothing every goes up or down in a straight line, the chart suggests that things have calmed down.
But what the shock has resulted in is just getting underway. A complete re-ordering of the financial landscape: RIP the carry trade. Now watch as the currency markets drive the equity markets. They are after all a zillion times larger.
Can you tell which chart is the S&P 500 and which the Euro Yen cross?
A dozen spoos points and a slightly singed Swingline stapler to the first lucky guesser.
carry trade, currency, deleveraging, euro, financial crisis, forex, TED spread, yen
Enjoyed this? Don't miss the next one, grab the feed or
Search
Trader’s Narrative is powered by
Of course the upper one is the Euro Yen carry trade and the lower one is SPX, SPX made a double top in July and October of 2007.
Hi all.
A good story I found about the RIP carry trade.
(With a couple charts-links more, in my website -> spanish).
And check out this longer term chart of TED:
Fundamentally, this is an awful multi-polar mess: CDS, carry trade, CDOs, Synthetic CDOs, (de)leveraging, big margin calls, and (still) frozen interbank lending. All that on top of an ugly recession and earnings shrink.
Technically, I expect an additional -20% before any respectable rebound (around S&P 700).
That should help to “optimize” the motivation of world leaders. I see some complacency in the 15-N meeting design.
Maybe I’m right, maybe wrong. Let’s see.
Saludos.