Market crashes usually have the same mechanism - Unwinding of carry trades is helping - Margin Call
An unwinding of global carry trades is helping to jolt markets around the world.
People like a thing, so they buy it, so it goes up. More people like it, so they buy more of it, so it goes up more. It goes up steadily enough that people think “ehh I should borrow some money to buy even more of this thing,” so they do.
Eventually a lot of very leveraged investors own a lot of the thing. Then something goes wrong with the thing, its price goes down, the leveraged investors get margin calls, and they have to sell the thing to pay back their loans.
Wall Street has for months been minting money with various strategies tied to stock tranquility, often via products that sell protective options in order to juice returns.
But the scale of the boom in these so-called short volatility bets had stirred worries of what would happen when turbulence hit.
That test has now arrived.
Matt Levine Bloomberg 5 August 2024
https://www.bloomberg.com/opinion/articles/2024-08-05/the-good-trades-have-gone-bad
JPMorgan warns
‘We think that the carry trade unwind within the speculative investing community is maybe somewhere between 50% and 60% complete’
Joseph Adinolfi MarketWatch 6 August 2024 at 9:11 a.m. ET
Carry Trade - The Usual Suspect
https://englundmacro.blogspot.com/2024/08/carry-trade-usual-suspect.html
Watch out for Margin Call
Kommentarer