United States in making a terrible foam

Since March this year, all kinds of high-risk assets — stocks, oil, energy and commodity prices – have a strong rise, high yields and high grade credit spreads had narrowed, emerging market asset classes (shares, bonds, emerging markets and currency) increase is even greater. At the same time, the plunge in the dollar, Treasury yields to rise slowly, but remained low and stable.

To a certain extent, high-risk assets recovery by improving the economic fundamentals. With massive monetary, fiscal stimulus and banking relief, we avoided a near-recession of disaster and crisis in the financial industry. Regardless of whether the recovery was the V-type (like it was generally thought) or u-shaped and Gravis (just like I advocated by), asset prices should gradually upward.

However, when the United States economy and the global economy is just beginning modest recovery, asset prices are already in March of this year's round of larger synchronization rising surge in all the way. While asset prices have decreased sharply in 2008 (USD exchange rate at that time it appears to rise), but since March this year, asset prices have rebounded sharply, while the dollar has decreased. Relative to the macroeconomic fundamentals, high risk asset prices too early and too quickly, or are too large.

The sharp rise in asset prices because of? of course, this benefit from near-zero and quantitative easing brought a wave of mobility. But contributing to this round of asset bubbles in a more important factor is determined by all sources of margin trading power of the weak dollar. The dollar has become the main margin trading, financing currency because the Federal Reserve (Fed) has interest rates remain unchanged, and is expected to be a long time for adjustment. Those who do empty dollars, to a high level of leverage to buy higher-yielding assets and other global equity investors, not merely in order to borrow dollars interest rate; they are simply in a negative interest rate (annual interest rate of 10% for-or-20%), because the borrowed US dollar decline will have huge dollar short position on capital gains.

Let's summarize it: traders are to-20% of the borrowed funds, interest rate and a high leverage investment in many high risk global assets — because of excess liquidity and large-scale spread trading, the price of these assets are rising. All to play this game with high risk of investors to look like a genius — although they just riding on a (absolute value) of a higher negative cost of borrowing on the financing of large foam — since March this year, their total return rate has reached 50% to 70%.

It was supposed to become a strong perception to your total portfolio value at risk (VaR), because of the different asset classes of risk-related degrees between has been rising — all of these assets is the trend by the same monetary policy as well as spread trading. In fact, it has become a major common transactions: short the dollar, buy any kind of global high risk assets.

But at the same time, the various asset classes of risk can be perceived in the fall. The reason for this is that the Fed buying all visible assets policy lower volatility. For example, the Federal Reserve intends to purchase 1.8 trillion national debt, mortgage-backed securities (from Fannie Mae (Fannie Mae) and other government support for enterprise guarantee bonds) and agency debt. Through the effective reduction of each asset category of volatility, the trend of convergence, market diversification is now almost gone, value at risk is low again seem to be.