let's look at the track record for a prediction when that will occur:
Posted on 11/04/2009 8:43:35 AM PST by TigerLikesRooster
'Mother of Carry Trades' Leading to 'Asset Bust': Roubini
Published: Wednesday, 4 Nov 2009 | 8:19 AM ET
By: Jeff Cox
CNBC.com
The "mother of all carry trades" that Nouriel Roubini warned of recently is growing and threatening to cause a global implosion, the economist warned in a CNBC interview.
For the second time in as many weeks, Roubini cautioned that investors using cheap US dollars to embrace risk will quickly reverse course once the greenback strengthens.
But he intensified his prediction, saying that the likelihood of the Fed keeping interest rates low and thus weakening the dollar will prolong the carry trade and make it all the more painful when it starts to unwind. Roubini is an economist at New York University and chairman of RGE Monitor.
(Excerpt) Read more at cnbc.com ...
Ping!
Guy on Coast to Coast last night was talking about credit card companies lowering the limit on credit cards, then demanding (almost) immediate payment of any outstanding balance if the new limit was less than the current load!
ie your limit is 10K, and you owe 6K.
They lower your limit to 4K and demand the 2K difference!!
let's look at the track record for a prediction when that will occur:
Friday, October 23, 2009
Roubini: Oil To Drop $50, Gold Has Nowhere To Go, Huge Bubble Being Created Will Crash In An Ugly WayOn Oil
Roubini says the "recovery justifies oil going from $30 to "maybe $50". Since oil is today at $80, the remaining $30 are speculation, and speculators and herding behavior.
However, there is a Finnish proverb: "Sh*t must be good. Millions of flies can't be wrong" (not Roubini who said that) , so oil can still go higher.
However, $145 oil killed the economy last year. He is worried that oil is going to go over $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 right now will have the same effects on the economy as $145 in 2008. No matter what GS says.
USD Carry Trade and Commodities Bubble
Roubini believes there a huge bubble fueled by zero interest rates in the U.S. and in other countries which are causing a huge carry trade. The dollars are invested in risky assets such as commodities, equities, and credit. An even bigger bubble than before is being created.
"It’s going to go crashing down, in an ugly way." "I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes."
On Gold:
He does not believe in gold. He says there are two reasons gold can go up:
1. Inflation, not the case now as are are in deflation (capacity glut, weak demand, big unemployment).
2. Armageddon, or another depression. He thinks this has been avoided will all the massive printing.
"So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go".
The dollar strengthens on a flight to safety. Look how strong the dollar got, temporarily, during the last winter’s stock market meltdown. People fled risk into bonds and dollars. This is what Roubini is talking about, not some long-term appreciation of the currency. Fiat currency will always devalue long term. He is talking about a sharp short spike in dollar strength that will cause people to have to repay debt in dollars, suddenly now worth much more than when they were borrowed.
Absolutely the long term trend in the dollar is down, down, and down some more.
However, the carry trade would be forced to unwind due to margin calls if it simply spiked up for a very brief period, which it does from time to time even though the long term trend is relentlessly down.
For example the dollar spiked up back in jan-mar 2009 because the entire world seemed to be coming to an end, and no matter how feckless the US dollar is, it is still better than just about anything else (although Obama is working hard to change that.)
So do not discount what the Professor says. We saw the dollar spike modestly last week and the market tanked several percent in no time flat. And every commodity tanked with it at the same time, gold, silver, oil, etc. Everything is trading in lockstep. That’s why gold will not necessarily save you when the carry trade unwinds.
When the carry trade unwinds, the USD spikes up and commodities crash, THE real, buying opportunity will present itself as a hedge against the hyperinflation which will eventually follow.
I can’t read most of the chart. What’s the comparison of value?
For many many year the US Dollar was worth 1/20th of an oz of gold. The “Double Eagle” was a $20 gold coin, the largest circulated, and was more or less an oz.
Today gold is at $1093/oz. That’s $54.65 for 1/20th an oz. of gold.
So since 1930, when we went off the gold standard, the dollar it take 55 dollars to buy what 1 did.
The chart doesn’t seem to reflect this at all.
1. Inflation, not the case now as are are in deflation (capacity glut, weak demand, big unemployment).
2. Armageddon, or another depression. He thinks this has been avoided will all the massive printing.
"So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go".
Poor Prof. Roubini, stuck in his little Keynesian ghetto. Can't think outside the box that has been constructed for him.
How about: Central banks decide that they are sick of a US Dollar as their main form of banking reserve and decide to move some reasonable percentage of their reserves to gold.
China is buying (but not talking about it much). India just bought 8% of the world's annual output from the IMF to add to their CB reserves.
Even a slow steady destruction of the dollar is going to lead many people with big money to look for alternatives. The Saudi's, the Chinese, the Russians...
We are just at the very start of the remonitization of gold. There is no telling how high it will go.
$1500 gold could be here in a few months, easily.
in 1925 the price per ounce was roughly $20.13, which matched the value of the $20 gold coin, as it contains 1 ounce of gold.
also in 1925, the average salary was roughly $1200. it would take about 34 hours of work to purchase/obtain 1 ounce of gold.
today, the median income for men is around $49,000 (or so i have been told) and gold is about $1090 per ounce. this means it will take the average (median) American 45 hours to purchase/obtain 1 ounce of gold
pretty close.
i would attribute the difference to illegal immigration and onshoring/offshoring devaluing the cost of labor.
http://www.gold-eagle.com/editorials_05/hommel060607.html
Total value of all the world’s gold @ $1100/oz is about 100 billion dollars which is nothing compared to the trillions in value of the world’s stock markets and bond markets and currency and lastly-—derivatives and credit default swaps. So in a debt implosion of massive defaults a mass panic into gold would easily swamp the gold market and drive gold into the stratosphere. Same can happen in a inflation
What the USG/Federal Reserve wants via it’s huge money expaqnsion and zero interest policies is a slow steady decline in the USD ....this slowly drives gold higher
Check out the Kitco main page and they tell you what part of today’s gold fluctuation is due to the US dollar or just plain buying /selling
The IMF wants to sell more gold. Some of that gold is ours.....we pledged it to them. It's an outrage
Lets see if China buys in bulk like India. There is a rivalry between these nations
Roubini was one of the few economists warning of the impending credit disaster. He’s hardly someone who doesn’t think outside the box.
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