The dollar index fell to a new 16-month low today. In related news, the price of just about everything else went up.
Why is that? Well, it appears that the dollar carry trade may be larger than anyone suspected. On FT.com/Alphaville there is an excerpt of a report by Sean Corrigan of Diapason Commodities in which he looks at the explosion of foreign commercial paper. He comes to the conclusion that there is a global carry trade going on in the dollar, where market players are borrowing in dollars (at very low interest rates) and investing in all kinds of other assets.
Lots of commentators have noticed the wall of money being thrown at assets worldwide despite weak economies everywhere. It appears that the weak dollar may be the fuel behind the run up in asset prices. Whether this is a “bubble” or not is irrelevant. It is a trend that can be exploited. In the immortal words of Dave Steckler, “What you call a bubble, I call ringing the register.” As long as there is a supply and demand imbalance, the trend will continue.
This type of global effect from a macro-economic feature is exactly why we designed the Systematic RS Global Macro strategy. It allows investors, through exposure to a very broad range of asset classes, to adapt to strength in markets wherever it may occur.
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