Monday, March 05, 2007


Carry Trade "Turmoil" Rattles Markets

Bloomberg reports on currency trading. "The yen advanced to the highest level in almost three months against the dollar as global stocks extended a slump, prompting investors to unwind riskier investments funded by borrowing in Japan. The yen rose for a third day as investors exited so-called carry trades. The currency reached its strongest since October against the pound and the highest versus the euro since November."

"'Investors are cutting back their risk exposure,' said Max Tessier, vice president of currency management at CIBC Global Asset Management in Montreal, which manages $2 billion in currency assets. 'Carry trade is running against investors. There is no argument to sell the yen right now.'"

"The yen rose 0.9 percent to 115.77 per dollar at 4:05 p.m. in New York from 116.80 on March 2. It touched 115.15, the strongest since Dec. 8."

"The Japanese currency also advanced 1.7 percent to 151.59 per euro, from 154.10, after reaching 150.88, the highest since Nov. 24. The yen has rebounded from a record low of 159.65 on Feb. 23. The yen climbed 2 percent against the British pound, 2.4 percent versus the Australian dollar and 2.7 percent against the New Zealand dollar."

"Traders who borrowed the currency to finance their investments in foreign corporate bonds and emerging-market assets had to buy back the yen to pay their debt financed in Japan, pushing the unwinding of the carry trade. The rise in implied volatility, a measure of how much investors expect the yen to fluctuate, also discouraged the carry trade."

"The Swiss franc, another funding currency for the carry trade, gained against the pound and currencies in New Zealand and Australia as people exited the investment."

"'We may get a little bit more turmoil' in the short term, said Lara Rhame, a senior currency strategist at Credit Suisse Group in New York. 'There is no doubt that we are in a phase of correction, a phase of unwinding some of the risky trades that investors have had on.'"

From MarketWatch. "The Institute for Supply Management said earlier Monday that its nonmanufacturing index dropped sharply in February, down to 54.3% from 59% in January. Economists had been looking for the index to come in at 57.5%."

"Daniel Jester, an economist at Moody's, said that the weaker ISM services reading, in combination with other data including housing starts and capital spending, suggested that economic growth for the first quarter 'has slipped further below potential.'"

"'At this point, it is still early to become overly concerned; as long as the economy continues to add jobs, the expansion will remain intact. However, as evidenced by the increase in market volatility over the past week, the risks to growth are building,' he said."

"Gold in New York fell, erasing this year's gains, as investors sold the metal to cover losses in global equity markets. Silver also declined."

"Gold is little changed this year after gaining as much as 8.5 percent. Prices fell 6.2 percent last week following a global sell-off of equities wiped out $1.8 trillion in world market value. Investors who own gold in StreetTracks Gold Trust, an exchange-traded fund, sold about $617 million last week."

"'You've got some wealth deterioration in the stock market,' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. 'Gold is a store of value and it's convertible. People who need cash raise it through gold.'"

"Gold futures for April delivery fell $2.90 or 0.5 percent, to $641.20 an ounce at 12:21 p.m. on the Comex division of the New York Mercantile Exchange. Prices earlier declined to $635.10, dropping for the fifth session in a row, the longest slump since mid-September."

"Silver for May delivery fell 20 cents, or 1.5 percent, to $12.76 an ounce. Prices have dropped 1.5 percent this year after climbing as much as 15 percent."

"Japanese stocks dropped today by the most in almost nine months, wiping out more than $166 billion in share value. Europe's Stoxx 600 index has fallen 7.7 percent since last week."

"'In this type of market, people get nervous,' said Graham Birch, who helps manage about $8 billion in precious-metals equities at BlackRock Investment Management in London. 'People are looking to put a bit of money back in the bank.'"

"Concern of a global slowdown may also hurt demand for gold, analysts said. About 67 percent of gold was purchased for jewelry last year, according to data from the producer-funded World Gold Council. 'Jewelry is not something people need, it's something people want,' said Leonard Kaplan, president of Prospector Asset Management."

"Gold also fell as oil dropped below $60 a barrel, reducing the metal's appeal as an inflation hedge."

"Gold can recover should 'stocks start rallying,' McGhee of Integrated Brokerage said. 'It's all based on liquidity needs.'"

'Gold can recover should 'stocks start rallying,' McGhee of Integrated Brokerage said. 'It's all based on liquidity needs.'

I don't see how gold will rally if stocks recover. Why wouldn't one buy stocks?

IMO, there is a bigger question here. Are we at the end of a leg up or not? And if so, how big of a turn will this be? I wish there had been more technical analysis on the web today. Maybe tomorrow.
I posted a silver chart and technical commentary regarding gold, u can see it here:
Phase III doesn't begin until everyone realizes the truly dire circumstances lying ahead. Until then, Treasuries should benefit from a knee-jerk flight-to-safety reaction.

Me? I'll never sell my physical. I'll trade the ETFs and the miners, but my core position is always one of accumulation.
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