Top 20 Credit Default Swaps Exposure Net Notional Basis

Thanks to Paul Kedrosky at Infectious Greed for putting this together from the DTCC Report.

Never Fear, BIS is Here...

The Irish gnome checks in from Heidi-land:

…and these are the guys supposedly supervising the whole Global Casino!

Monetary and financial stability implications of capital flows in Latin America and the Caribbean
BIS Papers No 43
November 2008

Central Bank participants at the BIS 2008 Open Economies Meeting in Punta del Este, Uruguay, discussed trends in capital flows since 2003 and their monetary and financial stability implications.

Capital flows appear to be more benign today than in the past, partly because of a greater share of foreign direct investment and reduced reliance on foreign financing that has contributed to improvements in international investment positions (IIPs).

Participants held the view that the economies in the region had become more resilient. For instance, although currency and maturity mismatches are still a concern in some countries, they appear to be less relevant today than in the past.

The recent shift in the global financial environment and its regional implications were also discussed. Notwithstanding continuing concerns about risks, the impact of the financial turmoil at the time of the meeting was still limited. Indeed, there was more concern with the risks of a global slowdown than with direct financial contagion.

What would it take to shake these bureaucrats up? A direct meteor impact on their refreshments table? Or a downgrade to economy class?

How Important Is the Yen Carry Trade?

Fairly significant, at least for US equity markets.

We show the relationship of the SP 500 in our Yen chart every night.
But we like this format from our friends at The ContraryInvestor.com
who are true masters of the pictorial display.

This does not imply cause and effect per se. As equities decline, the trade goes off, and as equities rally the trade is on.

Is this use of international currency exchange rates arbitrage the types of thing that one had in mind when discussing competitive advantage and global trade?

Did Michael Porter fail to consider the sheer amount of gambling that can overtake markets?

Are the currency market relationships reflecting international trade balances, soundness of national economics, and relative returns based on ... Forex Roulette?

As you may recall in the short term markets given over to speculation may have little or no relationship to fundamentals, which assert themselves in the long term trends.

In the short run, the market is a voting machine but in the long run it is a weighing machine.

This is how equity markets can shake themselves apart. We had always looked to the bond and currency markets as better and more stable indicators of values. Certainly with large short term moves, but always showing more sense when the equity market punters were frothing.

Those trying to conduct productive business with 'real things' in this environment must feel like they are trying to play a game of chess on a roller coaster.

We appear to be in times of general speculation, with wide reversions to the means creating resonances that might shake the world. These are the types of markets that give rise to new powers and great fortunes, test the fabric of relationships, and bring down old institutions.

Is the tail wagging the dog? Again? It appears to be.