Volatility Suppression Turned The Entire Economy Into One Big Carry Trade
Odd Lots
Bloomberg
4.5 • 2K Ratings
🗓️ 1 October 2020
⏱️ 45 minutes
🧾️ Download transcript
Summary
In a carry trade, an investor borrows money cheaply to buy an asset that yields more. As long as nothing changes overall, the investors get to pocket the spread. In our latest episode, our guests argue that more and more aspects of the economy resemble this trade, and that the culprit is the policymaker suppression of volatility. We speak with Tim Lee, Jamie Lee, and Kevin Coldiron, the authors of the new book “The Rise Of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis”.
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| 0:00.0 | Together we have the opportunity to build a more sustainable and inclusive future. |
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| 0:45.0 | welcome to another episode of the Odd Lots podcast I'm Joe Weisenthall and I'm Tracy Allaway. |
| 0:48.0 | So Tracy one of the things that we've been talking about lately and we really sort of drove at home in the last episode |
| 0:56.2 | was this idea of the entire market kind of implicitly looking like it's one trade. |
| 1:01.8 | So many things seem to go up and down together that while you sort of think that |
| 1:06.7 | okay investing should be some search for interesting individualized opportunities everything kind of looks like it all trades as one. |
| 1:16.0 | Yeah, that's exactly right and I think there's been quite a lot of discussion at this point including on that last episode about how the market is being generally driven by interest rates aka the central banks. |
| 1:30.5 | Right so the story that multiple multiple guests have told us is that, well, we get into this situation, |
| 1:37.6 | you know, which growth is slow, perhaps due to income inequality, that means that asset prices rather than sort of actual |
| 1:46.4 | demand becomes a key vehicle of what drives the economy. That means the |
| 1:50.6 | Central Bank then is ends up becoming more sensitive to asset prices when it comes to easing policy that further fuels asset values that further exacerbates the inequality problem that further |
| 2:04.8 | causes weakness and growth that further causes the central banks to then act and that we're like in this |
| 2:09.7 | spiral that you know by some accounts maybe was gone on four decades and if that's the story |
| 2:15.8 | then I would say you know it really feels like COVID right now is sort of a |
| 2:19.9 | accelerant of that whole process. Yeah, I think that's right. |
| 2:24.0 | And I think it gets to a theme that we keep coming back to in all these episodes, |
| 2:28.0 | which is if we are slowly recognizing that the financialization of the economy is not a good thing |
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