The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis (BUSINESS BOOKS)

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The authors do not make this distinction sufficiently clear, defining carry as a trade with ‘short exposure to volatility’. This is correct for short volatility trading, but not for FX carry where only volatility in the wrong direction is problematic. But perhaps I am being too pedantic. Higher yielding currencies are usually emerging markets. These get hurt when risk levels are elevated, whilst lower yielding currencies are normally ‘safe havens’ like the US and Japan. The ways that carry, volatility selling, leverage, liquidity, and profitability affect the business cycle Beschrijving: X, 229 p. Bibliographie: Includes bibliographical references and index. Dewey: 332/.0415 23 Onderwerp: Business cycles. (source)lcsh He is a co-author of The Rise of Carry (2020). He is also the author of the highly regarded Economics for Professional Investors (2nd edition 1998) along with many articles in newspapers and journals. His commentaries and analyses have been widely quoted.

Now, if you believe everything that was previously said, and thereby having established a coherent link between carry trades and the dual prongs of the fed, you come to some sobering realizations; namely:The more ambitious parts of the book are those that discuss carry as a wider phenomenon that affects large parts of the economy; from international trade to domestic macroeconomics, and even as a possible cause of economic inequality. The section on international financial flows is both original and interesting. But this may be less relevant if the US dollar is no longer the go-to currency for financing carry trades. Robin Wigglesworth, “Jane Street: The Top Wall Street Firm ‘No One’s Heard Of,’” Financial Times, January 28, 2021. This fact leads to a pernicious feature of carry. Leverage increases the risk of ruin, and carry involves leverage. Carry drawdowns are therefore likely to involve the risk of some participants facing ruin. This means the aggregate growth of carry is likely to represent a systemic risk to the financial system. It is therefore no accident that the increased involvement of central banks as lenders of last resort has coincided with the growth of carry. They are intimately linked (p. 72, LL&C)” Kevin Coldiron is a Lecturer in the Financial Engineering program at U.C. Berkeley’s Haas Business School. From 2002-2014 he was co-owner and co-CIO at Algert Coldiron Investors, a San Francisco-based quantitative hedge fund. Prior to that, Kevin spent 11 years in the UK where he founded the hedge fund business for Barclays Global Investors after serving as Head of European Research.

We are now in the midst of a perpetually moral hazard cycle in that carry traders, having their loses truncated, and walked out of the risk-of-ruin scenario relatively unscathed, they have incentive in ever increasing their prior behavior before, knowing the central banks will rescue them once again when the time comes. carry traders are often forced to close positions when prices move against them. This necessarily means selling assets that are falling in price (or buying assets that are rising in price). Thus, the dynamics of managing carry trade risks create fire-sale effects in which initial movements in prices are often substantially amplified. The expansion of carry trades always increases liquidity; the reduction or closing of carry trades leads to liquidity contraction (p. 3, LL&C).Protect yourself from the next financial meltdown with this game-changing primer on financial markets, the economy - and the meteoric rise of carry. Implications of the book are interesting, but the writing is unconscionably bad. Yes, it’s a book about carry, you should have one cohesive definition and explanation of what it is, you don’t need to repeat at the beginning of every chapter what carry is. Protect yourself from the next financial meltdown with this game-changing primer on financial markets, the economy—and the meteoric rise of carry.