In the News:
USA Today

USA Today discusses Axel Merk's view that U.S. markets may suffer as the carry trade unwinds:

"While acknowledging that the unwinding of the carry trade is 'contributing to the roughness' in foreign markets, Axel Merk, manager of Merk Hard Currency fund, says the bigger culprit is the return of market volatility for the first time in years.

' When you have record-low volatility, people become risk- takers,' Merk says. 'When volatility comes back, people have to pare down their leverage. They have to raise cash. To do that, they have to liquidate investments.'

In the current global downdraft, people have been selling once highflying investments that have seen steep price corrections. ... He warns that investors should not assume that U.S. markets are immune from the fallout from the dying carry trade."

In recent years, hedge funds have been borrowing in low yielding currencies, such as the yen and Swiss franc; the borrowed currency has then been used to purchase assets in higher yielding currencies. This trade, which is done with great leverage, is referred to as the carry trade. Please read the Merk Insights for a discussion of some of the distortions the carry trade has contributed to.