Posted on 08/05/2024 6:07:24 AM PDT by John Robinson
Stock markets around the world are crashing right now, but why?
The answer to this question is the Yen carry trade, a term you'll probably hear many times this week.
So what exactly is the Yen carry trade and why did it cause a market downturn?
It all started after the Bank of Japan (BOJ) decided to raise rates at their most recent meeting. The BOJ raised rates to ~0.25% in their second rate hike since 2007, effectively ending negative rate policy. For years, traders took advantage of these ultra low rates.
The Yen Carry trade explained:
For years, investors would borrow Yen at ultra low rates, such as ~0.4%, and use these Yen as a form of leverage. Investors could convert these Yen to US Dollars or other currencies and get *almost* free margin. Low rates made this possible.
The wide spread between rapidly rising rates in the US and other countries and negative rates in Japan made it possible. However, as the BOJ began raising rates, this resulted in an unwinding of the carry trade. Especially as rate cuts are beginning in the US and EU. As a result, the Japanese Yen strengthened and the USD/JPY currency pair just hit its lowest level since December 2023. You now receive 142 Yen for every US Dollar compared to 160 Yen for every US Dollar a few weeks ago.
But here's why this is the key point:
As the Yen strengthens, many of these Yen carry trades are being "margin called." Suddenly, the era of "free" Yen loans is coming to an end. As these margin loans are called, the underlying assets are being sold and crashing equity markets.
The carry trade is unwinding.
The solution to this problem is not as simple as it may seem and may require a separate thread. This is a vastly different situation than previous market downturns.
For now, we are trading the volatility.
Another as well, don't recall.
At least we can still rely on the reverse Cramer. So there's still a chance for sanity.
Yeah that didn’t age well...
Cocaine is a helluva drug.
Charles Schwab, Fidelity, E-Trade and Robinhood are currently experiencing trading platform outages. Yikes!
A reasonable thought the democrats always leave a trail of chaos.
Thank you for telling me about Schwab. I tried to access my account but was unable to. I thought it was me!
Yes, the thought of a Harris administration is the scary backdrop that is making things even worse than they already are.
“Basically ALL the market gains over the past 3 1/2 years are about to be wiped away - isnāt Kamala great.”
***********
The MSM will credit her with ‘stabilizing’ an overheated market. We’re about to hear propaganda and lies like we’ve never heard before.
She will save Americans who are suffering through this Trump crash by providing more welfare stipends as well as higher taxes for the rich. forgiving college loans and proposing free universal healthcare.
Investors are pulling their money out of the market in preparation to buy back in but shifted to wartime investing as things heat up in the Middle East.
BTTT
“Basically ALL the market gains over the past 3 1/2 years are about to be wiped away - isnāt Kamala great.”
Amazing timing by chance. I JUST moved all my retirement into a loss-less annuity.
War and rumors of more wars?-)
And so the currency traders / money changers have gotten caught with their pants down. Too bad for them and they take the rest of us with them.
Trigger points for a house of cards. Just kicks the stack of other weaknesses over. Things like sovereign debt, unemployment, wars and rumors of wars, that kind of thing.
Thanks for the post and explanation. Not something I have seen but it makes complete sense.
Cramer is only for entertainment. No serious person pays any attention him. Do they?
Markets don’t care who the president is. It’s the uncertainty they don’t like.
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