![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
McBad leaves the building
Aug. 19th, 2009 12:59 pmI was running like Mr McBad of Badsville, with a five or six buy-in downturn, my long position on wheat looking like shit, and an attempt to short the market again being spectacularly ill-timed. To top it all, my bosses suddenly decided that, not only could I not access IGIndex, but I couldn't access www.iii.co.uk either. "Online Brokerage and trading" the forbidment page solemnly intoned. Oh heavens, God forbid that I might actually want to buy a stock during work hours.
The debate is ongoing on this matter.
But I finally got a bit back last night (well, $450 of it, to be precise, making me the grand total of six bucks up on the day, but still $400 down in table play for the week). I'll post last night's hands of interest when I get home this evening.
Yesterday's currency movements today caused one of the weirdest headlines that I've seen in the FT for a while. "Sterling jumps as inflation persists".
If anything were needed to convince you that currency traders were obstrepurous bastards with a zero grip on reality, that headline should be it. Presumably the Zimbabwe currency should be soaring in value, given the persistency of inflation there?
But, as we know, it doesn't work like that. When the government announced that QE would be expanded, Sterling fell, not because it meant that inflation would rise, but because it meant that interest rates would remain low for the near future. The strength of sterling is in effect tied to the 18-month future on interest rates. Higher inflation made it likely that interest rates would be raised sooner than previously anticipated, Hence, sterling rises.
It's no use shouting at currency markets "you are all wrong except me!". You have to accept that that is how the currency markets are thinking at the moment. Higher interest rates make for a stronger currency because the carry trade is back in fashion. Never mind that you are parking your money with a currency that is losing value faster than anywhere else. Provided it's earning interest, and provided that more carry-traders come along at the end of your contract, you will make a profit.
You may well have spotted the flaw in this logic. Like any pyramid scheme, the "buy currencies with high interest rates" depends on a bigger fool coming along at the end of the day to take the currency off your hands. Eventually you run out of bigger fools, and the currency collapses back to its purchasing power parity level. The last guy with the carry trade when the music stops is the big loser, while lots of other guys who got in and got out on the way up are the small winners.
If we are really looking at carry-trade attraction, Australia, New Zealand and Canada should re-emerge as the favourites that they were during the commodity boom years. Or possibly the various kroner countries in Northern Europe, many of which have long offered seriously attractive interest rates.
Then again, there's always the Zimbabwe dollar. Hell, inflation is stratospheric there. It must be a good bet.
++++++++++++++
The debate is ongoing on this matter.
But I finally got a bit back last night (well, $450 of it, to be precise, making me the grand total of six bucks up on the day, but still $400 down in table play for the week). I'll post last night's hands of interest when I get home this evening.
Yesterday's currency movements today caused one of the weirdest headlines that I've seen in the FT for a while. "Sterling jumps as inflation persists".
If anything were needed to convince you that currency traders were obstrepurous bastards with a zero grip on reality, that headline should be it. Presumably the Zimbabwe currency should be soaring in value, given the persistency of inflation there?
But, as we know, it doesn't work like that. When the government announced that QE would be expanded, Sterling fell, not because it meant that inflation would rise, but because it meant that interest rates would remain low for the near future. The strength of sterling is in effect tied to the 18-month future on interest rates. Higher inflation made it likely that interest rates would be raised sooner than previously anticipated, Hence, sterling rises.
It's no use shouting at currency markets "you are all wrong except me!". You have to accept that that is how the currency markets are thinking at the moment. Higher interest rates make for a stronger currency because the carry trade is back in fashion. Never mind that you are parking your money with a currency that is losing value faster than anywhere else. Provided it's earning interest, and provided that more carry-traders come along at the end of your contract, you will make a profit.
You may well have spotted the flaw in this logic. Like any pyramid scheme, the "buy currencies with high interest rates" depends on a bigger fool coming along at the end of the day to take the currency off your hands. Eventually you run out of bigger fools, and the currency collapses back to its purchasing power parity level. The last guy with the carry trade when the music stops is the big loser, while lots of other guys who got in and got out on the way up are the small winners.
If we are really looking at carry-trade attraction, Australia, New Zealand and Canada should re-emerge as the favourites that they were during the commodity boom years. Or possibly the various kroner countries in Northern Europe, many of which have long offered seriously attractive interest rates.
Then again, there's always the Zimbabwe dollar. Hell, inflation is stratospheric there. It must be a good bet.
++++++++++++++
