Carry Trades Revisited...

I was away for a couple of days and when I came back -- I found that, lo and behold, 10-year treasury notes are out of their 6-month range (4.30%-4.67%), the yen has taken a massive beating, equities have had a decent pullback from overbought levels and, most importantly, all kinds of emerging markets and carry trade favorites (from Brazil to South Africa) have been taken to the cleaners (well... relatively speaking at least to the level of complacency that we have seen in recent weeks!).

Part of the reason for all of this has been, of course, the realization that the Fed might not stop until we see rates well above 5%. This tends to unnerve people who are running a lot of risk (and are thus are sloshing around in the global pool of warm liquidity - courtesy of the worst central [now retired] banker in history Mr. Alan Greenspan): so, what we have seen in the space of the last couple of days may just be a general reduction of overall risk. Still, it's quite disconcerting.

I would stay on the sidelines for now. Again, there is going to be plenty of time to get on the fun train of unwinding ALL carry trades -- should that case materialize. Virtually the whole world is long carry. The market may well go where it sees the most weakness...