Posted on 10/26/2009 9:54:24 AM PDT by TigerLikesRooster
We Are in the Mother of All Carry Trades: Roubini
Published: Monday, 26 Oct 2009 | 9:20 AM ET Text Size
By: Antonia Oprita
Associate Web Producer, CNBC.com
Most investors follow the same strategy of borrowing in dollars and investing in assets across the world and when the greenback's downward trend will reverse, there may be a crash in global assets, Nouriel Roubini, Chairman, RGE Monitor, told CNBC Monday.
cnbc.com
"There is a wall of liquidity…chasing assets," Roubini told "Squawk Box."
"Now we are in the mother of all carry trades," he added.
Asset prices have been inflated by the cheap funds but the dollar cannot keep falling forever, and there could be "a market crash all over the world" when the currency's course is reversed.
(Excerpt) Read more at cnbc.com ...
Ping!
What is a “carry trade”?
In its simplest form, the carry trade is when you borrow at one cost and then reinvest the money in a higher returning asset. By holding the assets (carrying it on your balance sheet) you grow richer through the spread between the cost of your borrowing the return earned on the higher asset.
Now that the United States has bottomed out interest rates, global investors can borrow money here at rock-bottom prices and then move the money to other countries and invest in stocks, bonds, real estate, commodities, private equity, or whatever else meets their needs. They’re able to make huge amounts of profits by simply holding on to the assets and pocketing the difference.
For instance, you could borrow U.S. dollars and invest them in Japanese stocks that pay high dividends. Not only will you pocket the difference, but if the dollar collapses, you can convert some of your earnings back to dollars and pay off the debt for next to nothing, making a huge profit on the transaction.
Welcome to FR!
Thanks!
The dollar is doing very badly, and so is the American consumer as a result.
Thanks Clintonfatigued.
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