Three major themes for the on-going correction:
1. Technical profit taking, which had long been expected.
2. Unwinding of Yen Carry trade
Supposedly, Yen Carry trade has been going on for more than 10 years, and with borrowed yen fund at 1Trillion, as measured by CME’s yen short contract (unverified).
3. Sub-prime mortgage may be snowballing into a credit tightening condition for
Except the first theme, the 2nd and 3rd themes caught the market by surprise, and market is still evaluating them.
How bad are the 2nd and 3rd one?
According to reuters:
"In the $1.9 trillion per day foreign exchange market, the vast majority of volume comes from speculative trading. Once the momentum starts to snowball...traders pile on and weak Yen carry trade players throw in the towel...Part of the problem (creating fear) is that it is difficult (or impossible) to get your hands around how much volume is behind this trade and how much resulting leverage has been employed."
And sub-prime mortgage meltdown in the most important asset in most Americans’ asset portfolio is definitely not a minor matter.
Before market figures out how bad they are and discount them fully into price, the “sell first and ask later” would continue.
