Thursday, January 7, 2010

All Banks Think They Are Immune So They Are Taking Risks On Emerging Markets: The Next Frontier For Crisis Through Carry-Trade

Simon Johnson was great on CNBC today: "Crisis is just beginning".

Why? Because it is shifting elsewhere. He says that in the short term the banks have won.

"We will see if is true that we cannot have back to back recessions".

Catastrophe coming. All big banks believe they ate immune to failure. Their balance sheets is 60% of U.S. GDP, they all looking to take risk, they basically have a 'Get out of jail free card'. Where this will invest to get higher returns? Where everyone is sure prices will go up: Emerging markets.

The carry trade is on fueled by cheap funding from the low rates in the U.S. (see our report on Brazil poised to raise rates).

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