Is Japan About to Implode the $10T $USD Carry Trade?

It is said that history has a sense of irony. The latest US election is not an exception.

Consider the following…

  1. Donald Trump campaigned aggressively on trade… particularly his opposing of the fact that the US gets taken advantage of by foreign nations via bad trade deals.
  1. Trump wins the Presidency on November 8, 2016.
  1. US trade gets royally screwed in the currency markets.

This is not conspiracy theory. Since Trump won the Presidency, Japan has absolutely SHREDDED the Yen relative to the $USD. In a mere three weeks, the Yen/ $USD pair has collapsed an astounding 12%.

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That doesn’t sound like a huge deal, so look at the longer-term chart.

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That is a massive currency crash. The Bank of Japan has accomplished in three weeks what previously took six months and a $100 BILLION+ expansion of a massive QE program.

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The real problem with this is that it is forcing the $USD sharply higher, triggering a potential crisis the debt markets as the $10 TRILLION US Dollar carry trade ignites.

If you’re unfamiliar with the concept of a carry trade, it occurs when you borrow in one currency, usually at a very low interest rate, and then invest the money in another security, whether it be a bond, stock or what have you, that is denominated in another currency.

Globally over $10 TRILLION of $USD is doing this right now. $10 Trillion: an amount greater than the economies of Japan and German combined.

Every tick higher in the $USD… means more of this trade blowing up. Already, it’s leading credit stress in Asia.

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Another Crisis is brewing… the time to prepare is now.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

 

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