You are on page 1of 2

Greece Implications for Global Carry

June 22, 2015

by Alexander Giryavets
of Dynamika Capital L.L.C.
The information, tools and material presented herein are provided for informational purposes only
and are not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to
buy or subscribe for securities, investment products or other financial instruments, nor to constitute
any advice or recommendation with respect to such securities, investment products or other financial
instruments. This research report is prepared for general circulation. It does not have regard to the
specific investment objectives, financial situation and the particular needs of any specific person who
may receive this report. You should independently evaluate particular investments and consult an
independent financial adviser before making any investments.
At least some large money managers have been seriously concerned about possible Greece
implications for global asset dynamics. We briefly present one counterintuitive and
contrarian point of view on possible Greece implications for Global Carry and possible
hedges and tail-hedges based on recently emerged link of Global Carry and Dollar.
Below we depict Global Carry1 (with a minus sign) vs EUR/USD exchange rate:

There is no precise day-to-day co-movement here but there appears to be some undeniable link
Page 1, 2015 Advisor Perspectives, Inc. All rights reserved.

which we assume works though asset hedging.

What this also appears to imply is that weak dollar (strong euro) is the possible source of trouble for
Global Carry, not the other way around, at least for now. How long this relationship would last we of
course do not know.
What this also implies is that scenarios of Greece outcome where strong Euro is projected
are the ones to be most afraid off. Also long Euro calls and deep otm Euro calls are
possible cheap hedges.
This is quite counterintuitive as mildly strong Euro scenarios are actually base case
scenarios with short term Q2 resolutions until the next debt rollover in coming years.
JPM outlines three scenarios:
(1) resolution in Q2 until the next rollover hump in coming years;
(2) intensification through Q2 then resolution in Q3 or Q4;
(3) intensification with a path towards EMU exit.
They have the following implication for EUR/USD pair:
(1) Euro rises 2-3%;
(2) Euro falls 2-3%;
(3) Euro falls 10%.
So should US asset managers be afraid of Euro default or actually prompt resolution?
Fair Winds and Following Seas
1 Dynamika Commentary, Global Macro Framework, 11 March 2015

Dynamika Capital L.L.C.

Page 2, 2015 Advisor Perspectives, Inc. All rights reserved.