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"What about some other trades [that might provide opportunity in this falling market]?
I'm speaking for the asset-allocation unit at the firm. We have been substantially long the safe-haven currencies. We have been very long the yen and somewhat long the Swiss franc and short sterling, which is one of our favorite bets. We have been short the euro for three months, and slightly long the U.S. dollar. One of the paradoxes is, if the world is worse than people expect, the U.S. dollar will outperform."
50 yenCurrency Carry Trade: "A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.
Investopedia Says... Here's an example of a 'yen carry trade': a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.
The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar was to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless he"
Still Holding Back - Barrons.com: Interview with Jeremy Grantham, Chairman, GMO![Reblog this post [with Zemanta]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_v53c64skfrSTXMGAZqeMH9kd-1JKGw6NspLyZj-JW_TxeZadDxktXPow4goDhLhrBdZEg38e9bGn3zprayvvNqFdoWm11PL0Nnnl5sEvICW4EaVaDluFJEJIpk_ILzsOos4NZFt7WRSRz_q_ZETHsf=s0-d)
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