Global Stock ETFs Feeling Currency-Induced Pain
Tuesday, February 9th, 2010
Gary Gordon submits:
Pundits argue causation; that is, some folks believe that a variety of economic uncertainties have led people to purchase perceived safer havens like the U.S. dollar and the Japanese yen.
I am in a different “causation” camp; specifically, the strengthening of the U.S. dollar and the Japanese yen force investors to sell riskier assets to pay back carry trade loans. Until recently, investors felt quite sure that the ridiculous deficits and poor monetary policy of the U.S./Japan would keep those currencies depressed. You could borrow the dollar or yen without any remorse, and invest in greater yield or the greater potential for appreciation.
