Roubini on the Dollar Carry Trade
The USD is at one of its all time low. The interest rate in US is down to almost zero. Borrow cheap, invest in higher yielding assets? A quick get-rich investment or a recipe for disaster?
Professor Roubini commented this November in the Financial Times Opinion piece. Another article on the hidden dangers is posted here.
By leveraging on cheap US borrowing to fund risky assets (from emerging market stocks to commodities and real estate), all it takes to unwind this carry trade (and a waterfall of risky asset prices) is tightening of monetary policy or raising of interest rates by the Fed. Can the USD weaken indefinitely? To understand the carry trade, see this interactive explanation.
If based on what the professor believes bears fruition, 2010 wouldn’t be too peaceful for investors isn’t it? For thought.
Professor Roubini commented this November in the Financial Times Opinion piece. Another article on the hidden dangers is posted here.
By leveraging on cheap US borrowing to fund risky assets (from emerging market stocks to commodities and real estate), all it takes to unwind this carry trade (and a waterfall of risky asset prices) is tightening of monetary policy or raising of interest rates by the Fed. Can the USD weaken indefinitely? To understand the carry trade, see this interactive explanation.
If based on what the professor believes bears fruition, 2010 wouldn’t be too peaceful for investors isn’t it? For thought.
