<?xml version="1.0" encoding="UTF-8"?>
<?xml-stylesheet type="text/xsl" media="screen" href="/~d/styles/rss2full.xsl"?><?xml-stylesheet type="text/css" media="screen" href="http://feeds.feedburner.com/~d/styles/itemcontent.css"?><rss xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:admin="http://webns.net/mvcb/" xmlns:rdf="http://www.w3.org/1999/02/22-rdf-syntax-ns#" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:itunes="http://www.itunes.com/dtds/podcast-1.0.dtd" version="2.0">
	<channel>
<title>ChrisLori.com RSS Feed</title><link>http://www.chrislori.com/index.html</link><description>Latest Forex News</description><dc:language>en</dc:language><dc:creator>info@chrislori.com</dc:creator><dc:rights>Copyright 2008 ChrisLori.com</dc:rights><dc:date>2009-11-10T20:07:08-05:00</dc:date><admin:generatorAgent rdf:resource="http://www.realmacsoftware.com/" />
<admin:errorReportsTo rdf:resource="mailto:info@chrislori.com" /><sy:updatePeriod>hourly</sy:updatePeriod>
<sy:updateFrequency>1</sy:updateFrequency>
<sy:updateBase>2000-01-01T12:00+00:00</sy:updateBase>
<lastBuildDate>Tue, 10 Nov 2009 20:09:01 -0500</lastBuildDate><atom10:link xmlns:atom10="http://www.w3.org/2005/Atom" rel="self" href="http://feeds.feedburner.com/chrislori" type="application/rss+xml" /><atom10:link xmlns:atom10="http://www.w3.org/2005/Atom" rel="hub" href="http://pubsubhubbub.appspot.com" /><item><title>Mother of all carry trades faces an inevitable bust</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-11-10T20:07:08-05:00</dc:date><link>http://www.chrislori.com/index_files/inevitable-bust.html#unique-entry-id-107</link><guid isPermaLink="true">http://www.chrislori.com/index_files/inevitable-bust.html#unique-entry-id-107</guid><content:encoded><![CDATA[Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates &ndash; as low as negative 10 or 20 per cent annualised &ndash; as the fall in the US dollar leads to massive capital gains on short dollar positions.


Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. 

...Yet, at the same time, the perceived riskiness of individual asset classes is declining as volatility is diminished due to the Fed&rsquo;s policy of buying everything in sight &ndash; witness its proposed $1,800bn (&pound;1,000bn, &euro;1,200bn) purchase of Treasuries, mortgage-backed securities (bonds guaranteed by a government-sponsored enterprise such as Fannie Mae) and agency debt. 

...So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe &ndash; for now &ndash; for the mother of all carry trades and mother of all highly leveraged global asset bubbles.


...But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate &ndash; as was seen in previous reversals, such as the yen-funded carry trade &ndash; the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. ]]></content:encoded></item><item><title>G20 Communique Contents Supports Risk Appetite</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-11-09T22:06:52-05:00</dc:date><link>http://www.chrislori.com/index_files/G20contents-risk-appetite.html#unique-entry-id-106</link><guid isPermaLink="true">http://www.chrislori.com/index_files/G20contents-risk-appetite.html#unique-entry-id-106</guid><content:encoded><![CDATA[Even the reported US push for planned global imbalance adjustments - in the context of which FX problems fall - failed to materialise, though this may raise the stakes of US President's upcoming Asia trip, where he may choose to address currency policy directly with regional leaders.


...The G20's concerns about the current state of the world economy - uneven recovery, dependency on policy support and high unemployment - were stressed at the beginning of the communiqu&eacute; and the logical conclusion is that it is recognized that monetary and fiscal stimulus are both still needed until these problems are fundamentally resolved. 

...Again, the G20 mentioned coordination during the exit phase, but there no timetable was given, and policymakers pledged to implement plans "flexibly, taking full account of variations in the pace of economic recovery and market conditions across countries and regions, and the complex interactions between different policy areas". 

...However, US Treasury Secretary Geithner said in a post-meeting interview that a more flexible FX regime in China would be 'helpful', while Russian Finance Minister Kudrin said he was opposed to helping industry with artificial exchange rate adjustment. 

...The four-week average of initial jobless claims fell to the lowest level since Jan 10 this past week and we expect claims to continue to fall ahead, although, for now, they are still high enough to signal large monthly declines in payrolls.
]]></content:encoded></item><item><title>Ask Karl: Aussie Rules</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-11-05T12:10:20-05:00</dc:date><link>http://www.chrislori.com/index_files/aussie-rules.html#unique-entry-id-105</link><guid isPermaLink="true">http://www.chrislori.com/index_files/aussie-rules.html#unique-entry-id-105</guid><content:encoded><![CDATA[As is the case elsewhere in the world, Chinese authorities are beginning to call for a reduction in stimulus expenditures, and many observers expect to see government-driven spending slowing through the early part of next year. ...  Over the long run, commodity demand should remain strong as China and many other Asian nations build the infrastructure needed to support future economic growth, but it seems that a shorter-term demand-side correction is coming, and this may manifest itself in lower imports.


...In common with their Canadian counterparts, officials at the Reserve Bank of Australia (RBA) have repeatedly issued warnings of overheating in the real estate markets, and both rate hikes over the last month were accompanied by statements expressing concern about asset price increases. 

...While a close relationship with China and an overheating real estate market do represent short-term risks, Australia's fiscal position is extremely strong, putting the economy on a strong footing in the long term. ...  With benchmark interest rates sitting well above those in other countries, the RBA has plenty of ammunition to fire in the event that exports to Asia drop or the world economy takes a turn for the worse.
]]></content:encoded></item><item><title>Financial Sector Under Pressure</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-11-01T21:58:02-05:00</dc:date><link>http://www.chrislori.com/index_files/financial-sector-under-pressure.html#unique-entry-id-104</link><guid isPermaLink="true">http://www.chrislori.com/index_files/financial-sector-under-pressure.html#unique-entry-id-104</guid><content:encoded><![CDATA[The ECB is already uncomfortable with the dollar's decline and the upward pressure it places on the EUR and if the Fed's decision is dovish on Wednesday, the ECB will be compelled to follow on Thursday as it cannot afford to widen the policy differential with the Fed excessively at this stage. 

...However, with the rally in risk assets dependent on an abundant supply of cheap liquidity, and with the USD now being used as a funding currency, any hawkish undertones from Fed could have the opposite effect on risk assets, but would very likely be dollar-supportive. 

...The BoJ unanimously voted to keep the policy rate unchanged at 0.1%, and also announced that its facility for buying CP and corporate bonds will expire as planned in December. 

...Given that both the BoE and the Fed, operate similar schemes, Japan's experience when December comes will be studied carefully in an effort to assess the likely consequences for corporate credit markets when such measures are eventually withdrawn in the UK and the US.


...On the former, there is very little the ECB can do at this stage apart from continuing to appeal to the US to maintain its strong dollar policy with credibility, while asking for Asia, especially China, to appreciate up ahead. ]]></content:encoded></item><item><title>So, how close are we to intervention?</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-10-21T20:30:41-04:00</dc:date><link>http://www.chrislori.com/index_files/how-close-are-we-to-intervention.html#unique-entry-id-103</link><guid isPermaLink="true">http://www.chrislori.com/index_files/how-close-are-we-to-intervention.html#unique-entry-id-103</guid><content:encoded><![CDATA[Willem Duisenberg, then President of the ECB, said: "The current development of the euro's exchange rate has given rise to questions from European citizens who are concerned about the value of their currency...

...Finally, on Sep 22, 2000, the ECB announced joint intervention in the exchange markets: On the initiative of the European Central Bank, the monetary authorities of the United States and Japan joined with the European Central Bank in concerted intervention in exchange markets because of their shared concern about the potential implications of recent movements in the euro exchange rate for the world economy. 

...This time, major G7 economies would want to secure some assurances from Asia of their cooperation, and events on October 8 last year, when the PBoC cut rates simultaneously with the Fed, ECB, BoE, SNB and BoC mean that there is coordination. 

...Where last month the committee explicitly emphasised the possibility of an asset price/confidence-led 'upward spiral for the economy' this month the committee appears to take comfort from the same higher prices arguing that the strengthening is at least in part because of the QE programme and therefore welcome.


...Overnight, BOE Governor King said that the UK economy is likely to return to growth in H2 2009, but that it still faces two major long-term challenges: re-balancing the economy and reforming the banking sector. ]]></content:encoded></item><item><title>Fed Dovish</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-10-15T08:11:05-04:00</dc:date><link>http://www.chrislori.com/index_files/fed-dovish.html#unique-entry-id-102</link><guid isPermaLink="true">http://www.chrislori.com/index_files/fed-dovish.html#unique-entry-id-102</guid><content:encoded><![CDATA[Nobel laureate economist Stiglitz warned against the US intervening in the currency market to slow the dollar's slide, saying "There are fundamental reasons why the dollar is weak and trying to keep it up from where the market level is would be very costly."  

...ECB Executive Board Member Bini Smaghi expressed caution on the economic recovery saying that it was difficult to assess and that "the current situation is surrounded by high uncertainty about the position of the cycle, the speed of the recovery in front of us requires caution."   He also raised the prospect of policy rate divergence between the Eurozone and US, saying that the ECB cannot coordinate everything with the Fed, and that different rates of recovery in different economies would require different policy approaches.


It was reported that Bank of France Governor Noyer will be named by President Sarkozy to a second six-year term when his mandate expires at the end of the month.


...This comes after Japan's deputy finance minister yesterday said that current yen strength is due to USD weakness, that rapid FX swings are undesirable, and that rises in the yen are not a sufficient excuse for intervention.
]]></content:encoded></item><item><title>Treasury Purchases and China</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-10-14T19:54:32-04:00</dc:date><link>http://www.chrislori.com/index_files/treasury-purchases-and-china.html#unique-entry-id-101</link><guid isPermaLink="true">http://www.chrislori.com/index_files/treasury-purchases-and-china.html#unique-entry-id-101</guid><content:encoded><![CDATA[However, this does not suggest any rapid move away from the US as a reserve currency in the foreseeable future due to the lack of alternative assets available amongst other potential reserve currencies. 


...China may have been able to offload some of its current holdings at preferable prices due to the surge in demand during the financial crisis, while the Fed has been a willing buyer on the other side of the trade.   However, compared to cumulative holdings these changes are still miniscule and China may be resigned to the fact that it cannot engage in significant diversification of existing assets without causing major disruption. 


...Recently released trade numbers are welcome news for the domestic economy, but the result may be further reluctance on the part of authorities to move away from an export-oriented growth model.   This is good news for the dollar as it means CNY gains will be closely managed in the future, while other economies with managed regimes will be reluctant to allow appreciation of their own currencies for fear of losing competitiveness. ]]></content:encoded></item><item><title>The Bank of Canada's Indirection</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-09-30T20:01:41-04:00</dc:date><link>http://www.chrislori.com/index_files/BOC-indirection.html#unique-entry-id-100</link><guid isPermaLink="true">http://www.chrislori.com/index_files/BOC-indirection.html#unique-entry-id-100</guid><content:encoded><![CDATA[A number of methods are used to &ldquo;sterilize&rdquo; these interventions so that they do not have an undue effect on interest rates or money supply.


...In an effort to stem deflationary pressures and stimulate growth, the Bank has committed to keeping interest rates low through the middle of 2010 and possibly beyond if economic conditions warrant.   In looking at statistics collected over the last year by the Bank of Canada, M1+ (gross) money supply has risen by 15.4% over the last year, while the economy has contracted -6.5% and the trade balance has gone down to -6.3%.


...The Bank&rsquo;s actions are ultimately geared towards stimulating domestic economic growth, but keeping rates low and keeping the printing presses rolling should have a depreciating effect on the currency in the long term.   Whether the Bank of Canada can outpace similar programmes being conducted by the Federal Reserve is another question entirely, and one that will determine the long-run value of the Canadian dollar.
]]></content:encoded></item><item><title>G10 Officials Express Displeasure</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-09-28T21:32:42-04:00</dc:date><link>http://www.chrislori.com/index_files/g10-officials-express-displeasure.html#unique-entry-id-99</link><guid isPermaLink="true">http://www.chrislori.com/index_files/g10-officials-express-displeasure.html#unique-entry-id-99</guid><content:encoded><![CDATA[The new Minister of Finance Hirohisa Fujii has already expressed some displeasure at JPY moves but also refused to commit to intervention, saying the market has been distorting some of his comments on FX. 

...He said the BoC remains committed to stay at 0.25% through June 2010, contingent on inflation, and was worried about persistent, material deviation of the CAD from fundamentals. ...  The Bank of Canada's recent statements have clearly laid out the central bank's displeasure with the CAD's strength, but beyond verbal interventional we do not expect any major action, barring a dollar collapse. 


...A series of conflicting messages from Finance Minister Hirohisa Fujii has once again cast the spotlight on the new government's tolerance for sustained JPY gains. 

...The ECB's Trichet and Nowotny both said a strong dollar is important for the global economy and that there is no need to rush into exit strategies from current policies. ]]></content:encoded></item><item><title>How Do You Trade?</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-09-24T21:43:00-04:00</dc:date><link>http://www.chrislori.com/index_files/how-do-you-trade.html#unique-entry-id-98</link><guid isPermaLink="true">http://www.chrislori.com/index_files/how-do-you-trade.html#unique-entry-id-98</guid><content:encoded><![CDATA[&nbsp;The Fed is currently barely half-way through the the MBS purchase program, and with a balance sheet standing at $2.12tln, assuming other factors remain steady, completing Fed MBS purchases would amount to another expansion of around 30%.


...The other side of this argument is that if the Fed begins to sell agency MBS and debt, spreads on MBS would widen and hurt the housing market - a risk the Fed needs to weigh heavily before any exit strategy is firmly applied.


However, UBS economists also note that some caveats on reaching conclusions about mortgage rate levels when the Fed unwinds its balance sheet as current yields on MBS may have already priced in eventual Fed sales. 

...As the table below shows, just looking at the G10 alone, the US ranks as the top export destination for Canada, Japan and UK, while ranks within the top 3 or top 2 for many others. ...  Canada's central bank, for example, has arguably been the most vocal on the need for a weaker USDCAD and has committed itself to holding rates at 0.25% until next April, which is probably around the time the Fed will be close to completion with its asset purchases and can begin contemplating exit strategies.
]]></content:encoded></item><item><title>The Quantitative Easing Binge</title><dc:creator>info@chrislori.com</dc:creator><category>None</category><dc:date>2009-09-10T17:33:23-04:00</dc:date><link>http://www.chrislori.com/index_files/quantitative-easing-binge.html#unique-entry-id-97</link><guid isPermaLink="true">http://www.chrislori.com/index_files/quantitative-easing-binge.html#unique-entry-id-97</guid><content:encoded><![CDATA[This creates demand for debt instruments, which drives bond prices up and yields down, making lending more attractive and freeing up money for bank lending programmes.


...In the short term, these funds seem to have achieved their aim, finding their way into a number of asset classes, supporting prices, and giving the economy a substantial boost. 

...The Federal Reserve is fully aware of these issues, but in order to forestall inflation, they must reabsorb this money supply by selling debt instruments and reducing bank reserves.   Attempting to sell a trillion dollars in existing bonds at the same time that the government is issuing several trillion in new debt is likely to cause a spike in interest rates, curtailing economic growth and putting central banks into a quandary. 

...In looking at the historical record, every previous monetary policy binge has resulted in inflation, and there is no reason to assume that this time will be any different. ]]></content:encoded></item></channel>
</rss>
