Yen Carry Trade Cracking Like Humpty Dumpty

McAlvany Weekly Commentary

$6.4 Million Million Lost In Recent Weeks Powell Is Caught Between Wall Street & The World Economy Legendary Central Banker Tells David Gold Is A Good Thing To Own "When liquidity dynamics change, speculative dynamics change and market prices follow. You could say that bull markets are driven by an excess of liquidity; bear markets by its scarcity. In recent years, excess liquidity has been fed by extra cheap capital, low interest rates. There was a world brimming with it during the zero interest rate experimentation phase, and when the global zero interest rate policy came to an end, the Japanese central bank continued to feed the speculation beast with zero rates. This is the carry trade, but what is perhaps new is being witness to a carry trade unwind." —David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. Well, welcome back. One of my favorite times to see you, Dave, is after you've seen your parents. You guys went over to Italy. Was it Tuscany where you spent your time? David: We spent some time in Tuscany, spent some time in Amalfi, and it was great seeing my parents. We get to see them for that kind of time once every two years. They're getting into their late 70s, early 80s, and they're doing well. They're still working with orphans homes out in Asia. The Asian Pacific Children's Fund is going strong and it's fun to see. They're thinking and planning for how they want to impact the next thousand kids. Kevin: They never stop thinking about orphans. That's awesome. Now I've got to tell you, though, last night when we were meeting you said, "Hey. Do you want to see some pictures?" And invariably, especially in Tuscany, I see pictures of meat. That's what you mainly show me. It's like, "Here's the sausage we bought." What were the steaks that you had? David: When I'm on vacation, I love to cook. It's where I actually unwind. So for my wife and I to head to the markets and find a little of this and a little of that and put together a feast is absolutely a treat. Kevin: You had an itty bitty grill outside and you had this gigantic meat that was larger than the grill. I have no idea how you fed— David: Yeah. Two steaks, 10 pounds or roughly that. I don't know how to do the math. 4.78 kilos, I do remember that. But yeah, just simple things are the things that kind of make me go. Kevin: Over the last— Well, we've done this now how many years? Since 2008. So this Commentary has gone on for quite a while, and what we've seen over a decade is it was the decade of the central bankers. As you recall, in 2011, the central bankers basically came out and said, "Whatever it's going to take, we'll do whatever it takes." David: Well, the big transition actually was when Greenspan went from being the master of Greenspeak, where no one knew what he was talking about—and he was intentionally opaque—to every central banker communicating exactly what was going to happen. So there was no surprises in the market because, after all, the market does matter to central bankers. Kevin: Well, and they said, "We'll give you whatever money you need," and that's what has fueled the market. That worked for a while. But Dave, you've been talking to central bankers here on the Commentary, and then when you were in London you had dinner with a central banker. And the thing that gets my attention is they're sober right now. The things that worked in the past may not work in the future. And when a central banker from the Bank of England or central bankers that were friends with Paul Volcker, when these guys get a sober look and they say, "The tools that we've used in the past don't necessarily work in the future," it gets my attention. It reminds me of the scene, Dave, sorry, I have to bring up Jurassic Park again. John Hammond who had this park that he was managing. Dinosaurs were working, it was almost like a theme park, almost like Disneyland,