itstoohot Wrote: ------------------------------------------------------- > “they are borrowing at very negative interest > rates – as low as negative 10 or 20 per cent > annualised” > > what does negative 10 or 20% mean? how does he > come up with that number? and why some traders’ > borrowing cost is twice as much? I think someone has already broadly made the point, but in terms of “who is borrowing at 0%?” - It is not really important to his argument that you and I cannot borrow at 0%. If you buy Brazilian equities, then you are effectively short the dollar (you have sold the dollar to buy Brazilian reals to pay for your shares). This is a carry trade in a loose sense because you are using a low-yielding asset (US cash) to fund the purchase of a high-yielding asset (Brazilian equities). In terms of “where does the -10-20% come from?”. If you use your dollars to buy Brazilian equities and sell 6 months later, by which time the US dollar has weakened 20% against the Brazilian real, then the cost of financing for your trade was effectively, say, 0.5% opportunity cost (what you would have earned keeping your USD in your bank account) minus the 20% gain you made from buying your US dollars back at a lower level. So, Roubini’s negative cost of funds idea is based on people buying back the US dollars they borrowed at 10-20% less.
^ Wow, that is really interesting. I would have never seen the relationship like that. Just more proof that; AF Intelligence > Nuppal intelligence.