{"id":20490,"date":"2013-06-04T08:58:15","date_gmt":"2013-06-04T12:58:15","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=20490"},"modified":"2013-06-04T08:58:15","modified_gmt":"2013-06-04T12:58:15","slug":"a-carry-trade-returns","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2013\/06\/a-carry-trade-returns\/","title":{"rendered":"A 'Carry Trade' Returns?"},"content":{"rendered":"<p>As I was charting long-term Treasury yields in NFTRH 241, I ran a chart of the ratio between the banks and the S&amp;P 500 and what do you know?\u00a0 The ratio had broken out to the upside right along with long-term interest rates.\u00a0 '<em>Hmmm\u2026'<\/em>said I, '<em>maybe this is relevant to the analysis.'<\/em> <img loading=\"lazy\" decoding=\"async\" class=\"wp-smiley\" alt=\";-)\" src=\"\/\/i1.wp.com\/biiwii.com\/wordpress\/wp-includes\/images\/smilies\/icon_wink.gif?w=625\" width=\"15\" height=\"15\" \/><\/p>\n<p>Excerpted from NFTRH 241:<\/p>\n<div class=\"wp-caption alignnone\" id=\"attachment_10947\" style=\"width: 470px;\"><a href=\"http:\/\/i1.wp.com\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/06\/bkx.spx_.tnx_.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-10947\" alt=\"bkx.spx.tnx\" src=\"\/\/i1.wp.com\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/06\/bkx.spx_.tnx_.png?resize=460%2C284\" width=\"460\" height=\"284\" \/><\/a><\/p>\n<p class=\"wp-caption-text\">BKX-SPX ratio w\/ 10 year yield, weekly<\/p>\n<\/div>\n<p><em>\"The Bank Index ratio to the S&amp;P 500 (BKX-SPX) is breaking out to the upside in defiance of a bear case in stocks.\u00a0 The BKX has modestly led the SPX since 2011.\u00a0 We have noted that this is a necessary bullish factor for the financialized economy, which is quite different from a real or organic economy.<!--more--><\/em><\/p>\n<p><em>Remember the 'carry trade' of the Greenspan era?\u00a0 That would be the same carry trade that helped bloat the banking sector, putting its big, fat too big to fail hands in just about every cookie jar in America. <\/em><br \/>\n<em>\u00a0<\/em><br \/>\n<em>The banks love rising long-term yields because they basically receive free money from the Federal Reserve as the first users of newly created funds on the short end, which is being held down by ZIRP.\u00a0 They then roll these funds into loan products, mark them up per long-term yields and voila, instant profits courtesy of a 'borrow short, lend long'gimmick. <\/em><br \/>\n<em>\u00a0<\/em><br \/>\n<em>Let\u2019s see how this develops, but we should note that Bernanke has not created anything new under the sun.\u00a0 The great carry trade of last decade was just another unnatural systemic stress that led to the 2008 resolution.<\/em><br \/>\n<em>\u00a0<\/em><br \/>\n<em>Do you suppose that Fed officials are ready to let the banks do the heavy lifting, now with the incentive (carry) to get the funds 'out there\u2019 to the public? This condition came hand in hand with an inflation problem last decade and now that everybody seems to know there is no inflation, would not a new phase of rising inflation expectations go well right about now?\"<\/em><\/p>\n<p><strong>Bottom Line<\/strong><\/p>\n<p>Talk of QE tapering may not only <em>not<\/em> mean the end of any prospects for inflation, but may actually be part of the kickoff to a new phase of increasing inflation expectations as the banks may now have incentive to get the newly printed money 'out there'.\u00a0 The banks have been liquified through ZIRP and the prospect of a profitable 'carry trade' dynamic becoming engaged going forward should be factored into investors' outlooks across a broad spectrum of assets and markets.<\/p>\n<p>With precious metals and commodities so far down in the dumps and a certain NYU rock star economics professor out front talking down gold and talking up a dis-inflationary backdrop, might we not at least consider the contrarian possibilities of an inflationary phase to come?<\/p>\n<p>If you'd like an affordable weekly guide (with interim updates as needed) that is always on the job for its clients' best interests, I'd be more than happy to welcome you to the '<a href=\"http:\/\/biiwii.com\/wordpress\/about-nftrh\/\">Notes From the Rabbit Hole'<\/a> Premium subscriber base.<\/p>\n<p><a href=\"http:\/\/www.biiwii.com\">Biiwii.com<\/a>, <a href=\"http:\/\/biiwii.com\/wordpress\/about-nftrh\/\">NFTRH<\/a>, <a href=\"https:\/\/twitter.com\/intent\/follow?original_referer=http%3A%2F%2Fbiiwii.com%2Fwordpress%2F&amp;region=follow_link&amp;screen_name=BiiwiiNFTRH&amp;tw_p=followbutton&amp;variant=2.0\">Twitter<\/a>, <a href=\"http:\/\/visitor.r20.constantcontact.com\/d.jsp?llr=9q6at7jab&amp;p=oi&amp;m=1110134781466\">Free eLetter<\/a><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>As I was charting long-term Treasury yields in NFTRH 241, I ran a chart of the ratio between the banks and the S&amp;P 500 and what do you know?\u00a0 The ratio had broken out to the upside right along with long-term interest rates.\u00a0 'Hmmm\u2026'said I, 'maybe this is relevant to the analysis.' Excerpted from NFTRH [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[1840,4273,7948,4785,1842],"class_list":["post-20490","post","type-post","status-publish","format-standard","hentry","category-general","tag-biiwiicom","tag-gary-tanashian","tag-guest-bloggers","tag-notes-from-the-rabbit-hole","tag-spx"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A &#039;Carry Trade&#039; Returns? - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2013\/06\/a-carry-trade-returns\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A &#039;Carry Trade&#039; Returns? 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