tag:blogger.com,1999:blog-34323687.post3091463961003778527..comments2024-03-19T03:05:57.184+00:00Comments on Macro Man: FX Carry: A SAFE havenMacro Manhttp://www.blogger.com/profile/12324967552369915949noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-34323687.post-57824973268371124802007-05-14T20:02:00.000+01:002007-05-14T20:02:00.000+01:00While the Japanese authorities have no doubt made ...While the Japanese authorities have no doubt made some decent scratch from trading domestic equities, I suspect that the HKMA takes the cake for best stock return, given what the Hang Seng has done since their buying spree ten years ago during the Asian crisis.<BR/><BR/>What's the endgame for PBOC/SAFE? If and when domestic interest rates rise sufficiently high that FX intervention starts costing money, one would presume that they will have to intervene less. One suspects that the reason for the QDII shift and for PIC/SIC/JFEC is to find an alternative seller of RMB.<BR/><BR/>With regards to the latter, I am not in any way suggesting that SAFE feels constrained by daily or monthly P/L shifts. However, it does seem clear that it is becoming ever more difficult politically to keep RMB appreciation slow enough to ensure a profitable return on SAFE's portfolio- hence the shift into riskier assets.<BR/><BR/>As to where the 'alpha goes'...well, one could argue that the lack of exchange rate volatility is a real boon to corporations, and makes them more profitable by reducing hedging costs. So perhaps the missing FX alpha is now part of the irrepressible equity beta!Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-86836431798792284262007-05-14T17:55:00.000+01:002007-05-14T17:55:00.000+01:00All good trades come to an end eventually. I'm not...All good trades come to an end eventually. I'm not sure I buy the concept of alpha disappearing because of cb intervention. Alpha just goes somewhere else.<BR/><BR/>So maybe we explore for a while, but the cb's ultimately have different agendas, and aren't necessarily chasing profit (at least in the same terms or on the same time frames).<BR/><BR/>Anyway, throw in a US hard landing and I'm sure something will come up :)<BR/><BR/><BR/>--QQuarrelhttps://www.blogger.com/profile/04966272626535388524noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-50965843629566657572007-05-14T17:46:00.000+01:002007-05-14T17:46:00.000+01:00The record amounts intervention in the capital mar...The record amounts intervention in the capital markets certainly make free trade much less real than is actually reported. Asia and the reserve accumulaters are flat out running the show. The private sector is being forced to do PE because they can't find any alpha.Jameshttps://www.blogger.com/profile/12183085827525696523noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-16264898374980976952007-05-14T17:23:00.000+01:002007-05-14T17:23:00.000+01:00Really interesting insight.From a traders perspect...Really interesting insight.<BR/><BR/>From a traders perspective you can see them wanting to manage the incremental returns as well as they can, and if the carry trade works (and works without having to get too much out of USD which might be a problem) then great.<BR/><BR/>However, Brad Setser's thoughts (and some of your own musings on Voldemort) on this accumulation worry me on a "more" macro level .. What's the end game for SAFE here? They're accumulating at stupendous rates and intervening in the FX market at greater and greater rates.<BR/><BR/>What choice do they have? And how does it end profitably for them, and without screwing the market in the process? How should they be managing it better? Floating the RMB may help, but they seem to be trying to establish a banking system to cope as fast as they can.. <BR/><BR/>While I understand yours was more a study on the carry trade in general, I think if SAFE thinks in terms of their month-to-month returns they'll hit a wall not faced by mere mortal traders.<BR/><BR/>--QQuarrelhttps://www.blogger.com/profile/04966272626535388524noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-3185106432745231432007-05-14T17:13:00.000+01:002007-05-14T17:13:00.000+01:00The BoJ is not bad at trading stocks either:See Bo...The BoJ is not bad at trading stocks either:<BR/><BR/>See <A HREF="http://nihoncassandra.blogspot.com/2006/10/boj-v-dic-whos-got-hot-hand.html" REL="nofollow">BoJ's Hot Hand</A><BR/><BR/>RE: The MoF/BoJ - It's easy to buy the dips in spades if you <I>know</I> i.e. possess the material non-public information that ZIRP or nearZIRP is/will continue to be the prevailing policy until ummmm errrr USA governemnt/people alter their respective fiscal/monetary savings/consumption policy mixes (i.e. when Italians go en-masse to Germany for culinary vacations)."Cassandra"https://www.blogger.com/profile/17412381249313151515noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-47203667160151621932007-05-14T16:15:00.000+01:002007-05-14T16:15:00.000+01:00Oh yes, I completely agree. The P/L that the MOF ...Oh yes, I completely agree. The P/L that the MOF has made from its 1Q04 intervention alone is probably $70 billion or so.<BR/><BR/>Of course, that's nothing co mpared to their purchases of USD/JPY in the 80's (that's price, not time) and subsequent sale in the 130's and 140's 3 years later. Genius!<BR/><BR/>SAFE, however, seems quite clearly the biggest, given the size of their portfolio.Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-75507562081430223512007-05-14T16:08:00.000+01:002007-05-14T16:08:00.000+01:00Perhaps this is just splitting hairs but one could...Perhaps this is just splitting hairs but one could argue that the Japanese Ministry of Finance is really the world's <I>best</I> carry trader for a number of reasons: 1) they've been at it for longer and have thus accrued more profit, 2) carry is larger meaning they hoover up more pennies every month, 3) they have historically been more active at buying the lows in USDJPY (note acceleration in reserve growth, bbg ticker JNFRRSRV Index, in the 1994-1995, 1999-2000, and 2002-2003).Anonymousnoreply@blogger.com