Sunday, August 28, 2016

Reverse Carry Trade, Part II

Image result for Aussie dollar

As we discussed yesterday, if a nation's central bank lowers its interest rates, the usual expectation is that it will weaken its currency. Part of the reason why: it will set up a carry trade, in which profiteers will borrow money at its low rates, then exchange that currency for another currency, that issued by a higher-interest rate country, so these profiteers (I use the term without animus -- it simply means "those seeking a profit") can lend out for a higher rate than the one at which they are borrowing, pocketing the difference. This activity, given supply/demand principles predictably weakens the currency the profiteers are leaving and strengthens that into which they're moving.

This brings us back to the mystery with which we began. Australia and New Zealand have both recently lowered interest rates. In each case, though, that has corresponded to a strengthening of the currency. Back in late May, you would have needed 1.39 Aussie dollars to buy a US dollar. By August 10 that was down to around 1.30.

What is going on? Perhaps part of the answer is a "reverse carry trade." Could profiteers actually have decided to work it the other way around? To exchange the higher interest rate currencies for the lower? And if so ... why?

Cignarella suggests that there is a reverse carry at work. The reason? Capital appreciation. One wouldn't borrow at a high rate to lend at a lower one, but one might borrow at a high rate to buy assets within a country, or a currency zone, with a lower rate.  Thus, one would accept interest rate losses and in return reap more-than-compensatory capital gains on those assets.

Is this happening? I don't know. Cignarella doesn't actually make a very emphatic case for it. He simply suggests that those who are "puzzled" by the counter-intuitive moves in Forex markets "should consider" the potential for a reverse carry.

Okay, consider it considered. I'll keep an eye out for further discussions of and perhaps evidence that this is underway.

Saturday, August 27, 2016

Reverse Carry Trade, Part I

Image result for Vincent Cignarella

I'm not sure I understand this, or agree with Bloomberg's analysis, but I'll put it in here anyway.

An Aug. 15th Bloomberg story, by Vincent Cignarella (portrayed above), starts with this: The central banks of Australia and New Zealand each recently lowered their benchmark interest rate. According to conventional wisdom, this should have weakened their respective currencies, giving their business a stimulative shot in the arm when functioning as exporters.

But that didn't happen. Rather, the lowered interest rates resulted in ... stronger currencies. What's going on?

If you don't understand why that result is counter-intuitive, you might want to take a step back, Consider a common FX trader's trick known as the "carry trade." The idea is: borrow money in the currency of a country where interest rates are low, then trade it for the currency of another country where interest rates are high, and lend the money out there. You're buying credit low and selling it high. Good on you -- free risk-free money!

Well, it isn't exactly risk free.Nothing is. Central bankers  have a way of changing their minds, and traders attempting the carry trade can end up getting locked into a situation of borrowing high and lending low. Oops.

Anyhoo ... when the central bankers of Australia lowered their interest rates they "should" have made the exchange of their currency, for another more high-interest currency, part of the playbook of carry trade strategists. This should in turn have played a role in the process of weakening the currency, for supply and demand reasons.

But instead what happened, Bloomberg tells us, was the development of a "reverse carry trade," where traders wanted in on the aussie after the interest rates were lowered, strengthening the currency.

I'll stop here and finish up tomorrow.

Friday, August 26, 2016

Resurgent Resource Nationalism?

I've been reading a book with the above title, including the punctuation mark as above. The book was written by a committee, the Mapungubwe Institute for Strategic Reflection (MISTRA). Michael Ndletyana and David Maimela are credited as editors.

MISTRA, I add (reading from the copy on the back cover) was "founded by a group of South Africans ... who saw the need to create a platform for engagement around strategic issues facing South Africa."  It is, in short, a think tank, launched in March 2011.

MISTRA's definition of resource nationalism is a political drive to increase the extent and types of state intervention in the extractive sectors of the economy. Extraction means what it sounds like it means -- what happens when something is taken out of the ground. That something may be oil, coal, diamonds, etc.

The  political drive in question is not necessarily limited to what happens in the capital city of the nation state where the resources to be extracted are to be found. No, a mining company can make its deal with the policy makers in the capital city and still encounter pushback in the community nearest to the mine's gates.

As the report says (p. 9), many mining companies assume that the royalties they pay and "the productive relationships they enjoy with the national government," and are then surprised at unexpected reaction in the pertinent localities. But "in many emerging markets [there] is little relationship between national politics and regional realities, especially when a tribal or ethnic divide separates the local populace from those in power i the capital city."

These are the first notes I've jotted down anywhere about this book. It always does help to get one's start.

Thursday, August 25, 2016

My Olympic Tweets

I tweeted my reactions throughout the recent Rio Olympics. Today, in stead of getting at all creative in making a new blog post, I'll simply compile those tweets. What fun! We'll go from last to first, again because that's the lazy thing to do in compiling.

(Sorry, there will be nothing here about the infamous 4 AM gas-station trashing. Well ... one brief mention.)

I'm not going to provide the links that originally went with the tweets, so in a couple of cases I've added a sentence of explanation. Also, I've left typos in place. Let's pretend that's authenticity, not indolence.

Chris Faille @ccfaille (Aug. 21)                               
, this is my last related tweet for two years. Next time I have anything to say on the subj, it'll involve and .
Chris Faille @ccfaille Aug 21
A big congratulations 2 athletes of . Here are some thoughts from on their medal haul.
Chris Faille @ccfaille Aug 20
Chris Faille @ccfaille Aug 20
Love the appreciative essay in abt
Chris Faille @ccfaille Aug 19
The news cycle has provided a convergence of , and . "I'm sorry for telling the truth"? .
In reacting and linking to a story about the Britain-versus-China men's badminton match, byline to Ian Ransom, I wrote:
Chris Faille @ccfaille Aug 19
-- what a great name for a reporter! Ifu mistype one letter, turning the "m" into "n," what a sentence
Chris Faille @ccfaille Aug 18
Chris Faille @ccfaille Aug 18
Fantastic performance by boxer to get into the semifinal round.
Chris Faille @ccfaille Aug 17
Yes, I get that the are supposed to be a tribute to the . But they're so weird they're driving me 2 !
Chris Faille @ccfaille Aug 17
results are in from China gold; Germany silver; Japan bronze. Fourth place was Singapore.
Chris Faille @ccfaille Aug 16
. Watching the event was inspiring! Bravo to all the finishers.
This next comment concerns the final in heavyweight boxing.
Chris Faille @ccfaille Aug 16
wins the gold medal for . Some in the crowd didn't agree with the judges but: so what?
Chris Faille @ccfaille Aug 15
Watched some this afternoon. vs . China won, will play .
Chris Faille @ccfaille Aug 15
Chris Faille @ccfaille Aug 14
Great game, US v. . US lost the first set, came roaring back. Don't sweat the PRC threat!
Chris Faille @ccfaille Aug 14
won the final. Its first gold ... ever. Some consolation 4 losing two big decisions before this term. No?
Chris Faille @ccfaille Aug 13
Great men's game in today -- Argentina v. Brazil. Two OT periods because neither team had any quit in it!
Chris Faille @ccfaille Aug 13
The next Winter games are slated for , in northeastern . Centered on ski resort.
Chris Faille @ccfaille Aug 12
If the 2016 is remember for nothing else, it will be remembered for that green swimming pool.
Chris Faille @ccfaille Aug 11
Chris Faille @ccfaille Aug 11
Story abt how news agency blurred a clad athlete out of photo: is on the case.
Chris Faille @ccfaille Aug 10
, boxing for , , won on points. All 3 judges agreed. The boxing in these games first rate.
Chris Faille @ccfaille Aug 10
Chris Faille @ccfaille Aug 9
Congrats to for his victory over in . (Up to 81 kg)
Chris Faille @ccfaille Aug 9
Dutch Olympian EXPELLED after night drinking in Rio to celebrate win via Those wild and crazy Dutch.
Chris Faille @ccfaille Aug 8
No such thing as an without politics. After all, they march in under their nation's . Consider presuppositions of that act!
Chris Faille @ccfaille Aug 8
Bad form, , bad form. Congrats on the victory, not on the mouth flapping.
Chris Faille @ccfaille Aug 7
If, back in prime, the Olympian had demanded 2 compete as , the women in Jenner's events would have said...?
Chris Faille @ccfaille Aug 7
one of the sports I never care about except when are underway. Add my "yippees" to rest of world's for !

Sunday, August 21, 2016

Galen Strawson and the Mind-Body Problem

Image result for galen strawson mental reality

A recent essay by the philosopher Galen Strawson has looked at the mind-body problem from a distinctive angle.

The title of the essay seems more straightforward than it is. "Consciousness isn't a mystery. It's Matter." One first gets the impression that Strawson is taking a straightforward materialist/eliminativist view: consciousness simply is matter in one of its operations. But that is to presume that the "it" in the second sentence is an unambiguous reference to the word "consciousness" in the first sentence.

Another reading suggests itself, though. The "it" could refer to the word "mystery." The second sentence would then mean, "It's matter that is the real mystery."

Both meanings fall within the scope of Strawson's intention.

It is what Strawson calls a Very Large Mistake to think that we know enough about matter, through the science of physics, to know that consciousness can't be a material fact. We don't know what matter is, and all physics tells us -- or can given the nature of the science ever tell us -- is what mathematical equations describe its behavior. Not what matter is.

Once we understand this we can free ourselves of any eliminativist temptation. This impulse to deny that consciousness exists because we think we know what matter is and we think this matter must be all there is -- that impulse is in Strawson's view "the most extraordinary move that has ever been made in the history of human thought."

He doesn't mean that in a good way.