http://www.reuters.com/article/ousi...?src=050207_1334_INVESTING_comment_n_analysis I dont know the Hedge Fund forex demonination of the hedge funds investment base. But if LTCM of 1998 happens again...this was on 3.6 BN, now we have 1.4 Trillion. What currency is best to have your funds in, if hedge funds industry gets messy ? USD ..cause every one will flight to safety and buy USA Govt Bonds ? EUR or GBP as all will buy there govt bonds ? Q: Who would have the safest investment class to put your monies the UK or EUR or USA ??
Sure, long EURGBP is worthwile. Shorting the high swap pairs will hurt to carry. I like short CHFJPY as well. The combination of short USDCHF and short CHFJPY is short the synthetic dollar-yen; so I wouldn't run both. CHFJPY would be my top pick for a short for the neutral swap [$1.40 paid per 100k short daily swap]. EURGBP long -- costly to hold [$7 per 100k] USDCHF short -- costly to hold [$9 per 100k] I realize my short USDCHF + short CHFJPY seems counter-intuitive. I like Yen long followed by long swiss. Holding a neutral swap is the driver here.
If , and it is a huge if, there is a similar situation to LTCM and the Russian devaluation then you sell as much dollar yen, eur chf and stg yen as you can. In 1988 the dollar yen fell about 30 bigs figures in a very short space of time, 20 of those in about 24 hours. It won't be a case of worrying about the cost of funding either. The gains/losses on the currency movement will dwarf any cost of carry considerations. Don't forget also that when people say the $ needs to weaken because of the current acct deficit that it has already weakened about 70% against the euro in 5 years from 0.82 to 1.37.
.."f , and it is a huge if, there is a similar situation to LTCM and the Russian devaluation then you sell as much dollar yen, eur chf and stg yen as you can. "... SELL USDEUR or BUY EURUSD ??? Is this what you mean ???