The Rise of Carry: the New Financial Order of Decaying Growth & Recurring Crisis

Hidden Forces

Demetri Kofinas

Business, Government

4.8 • 1.6K Ratings

🗓️ 7 September 2020

⏱️ 56 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

In Episode 153 of Hidden Forces, Demetri Kofinas speaks with authors Kevin Coldiron, Jamie Lee, and Tim Lee, as they explain how the behavior of financial markets today is not, as is commonly believed, some function of the economy, interest rates, or political developments, but rather a manifestation of what they call "the rise of carry" or the suppression of volatility.

In finance, a carry trade is typically thought of as an interest rate arbitrage expressed as a trade between two currencies, where the more historically stable currency is used to fund the purchase of an historically less-stable but higher-yielding alternative in exchange for taking on currency risk.

The authors extend this principle across every facet of the economy in an effort to show that the logic of carry has increasingly become the dominant force driving market behavior and by extension, asset prices.

If we are to agree that financial markets play a vital function in a capitalist economy and that their value ultimately derives from the underlying businesses and cash flows that their prices should reflect, then the rise of carry in a highly levered, fiat economy represents an existential threat to all aspects of human affairs.

The authors argue that we appear to be closer to this eventuality than ever before, but what will the collapse of carry or its ignition create? What will it look and feel like? What could allow it to continue? How might we stop it? Or is it already too late? We tackle all these questions and more during the course of this nearly two-hour-long conversation.

You can access the episode overtime, as well as the transcript and rundown to this week's episode through the Hidden Forces Patreon Page. All subscribers gain access to our overtime feed, which can be easily added to your favorite podcast application.

If you enjoyed listening to today's episode of Hidden Forces you can help support the show by doing the following:

Write us a review on Apple Podcasts

Subscribe to our mailing list through the Hidden Forces Website

Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

Subscribe & Support the Podcast at http://patreon.com/hiddenforces

Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

Episode Recorded on 09/01/2020

Transcript

Click on a timestamp to play from that location

0:00.0	Today's episode of Hidden Forces is made possible by listeners like you.
0:04.4	For more information about this week's episode or for easy access to related programming
0:09.7	visit our website at hidden Forces. I.O. and subscribe to our free email list.
0:16.4	If you listen to the show on your Apple Podcast app, remember, you can give us a review.
0:21.5	Each review helps more people find the show and join our
0:24.9	amazing community. And with that, please enjoy this week's episode. And the What's up everybody? My guests on this episode of Hidden Forces are Kevin Coldiron, Jamie Lee and Tim Lee.
0:56.0	I'm going to let them each introduce themselves at the beginning of the episode, but what
0:59.7	I do want to say is that they are the co-authors of a very thought-provoking book. The book is
1:05.1	titled The Rise of Carrie and in it they attempt to explain many of the
1:09.7	various phenomena that we've seen rise to prominence over the last few decades and during the
1:14.9	last decade in particular like declining levels of volatility in financial
1:19.4	markets rising expectations of mean reversion, diminishing returns on capital, in other words,
1:25.3	chronically low interest rates, sluggish economic growth, narrowing credit spreads,
1:30.5	rising debt levels, the widening wealth gap, and the rising levels of political
1:35.3	and social instability around the world. All of these phenomena have coincided with the growth of what they
1:42.1	call the carry regime.
1:45.0	Now, many of you will already know what a carry trade is and how it works.
1:50.0	But for those of you who don't know or who need a refresher, a carry trade is typically thought of as a type of interest rate arbitrage expressed as a trade between two currencies, with a more historically stable currency, the U.S. dollar, the Japanese yen, for example,
2:05.6	is used to fund the purchase of an historically less stable but higher yielding alternative.
2:11.6	A recent example of such a currency is the Turkish Lira, but we've
2:15.2	discussed a number of historical examples on this podcast as well, like the Thai
2:19.8	Bat in the mid-90s, or the Argentine peso in the early 2000s. It's important to note, however,
	...

Please login to see the full transcript.

Previous episode | Next episode

Disclaimer: The podcast and artwork embedded on this page are from Demetri Kofinas, and are the property of its owner and not affiliated with or endorsed by Tapesearch.

Generated transcripts are the property of Demetri Kofinas and are distributed freely under the Fair Use doctrine. Transcripts generated by Tapesearch are not guaranteed to be accurate.