Carry On

Once I rose above the noise and confusion
Just to get a glimpse beyond this illusion
--Kansas

One problem bamboozling policy makers has been the lack of demand for the infinite amount of cheap credit being offered by the Fed. Despite borrowing ultra low price of credit, borrowers seem reluctant to borrow.

Perhaps all this cheap credit is finding a home after all--with offshore borrowers. This investigation suggests that speculators around the world are borrowing ultra cheap USDs, and then using them to bid up risky foreign assets. The dollar carry seems to be on en force.

We know how these things end. Folks get progressively bolder, borrowing ever more USD to lever up their bets. Subsequently, either the cost of USD carry increases or prices of risky assets tumble, which collapses the spread, which sends speculators fleeing for the exits in a rush to delever--usually all at once. All prices come in, and we're back in depression.

Carry trade vuja de.

position in US Treasuries