The panic selling that hit high-yield bonds, high-yield currencies, and emerging-country debt and equity markets last month has utterly destroyed market consensus.
Investors and traders now divide into two camps: those who feel the markets can effect an orderly unwinding of the global carry trade as the US Federal Reserve proceeds with a measured return to normal monetary policy, and those who see a bubble bursting around us.
This divergence of opinion is a very good thing. Whenever the whole herd of short-term traders and long-term investors comes to agree on one view of markets, they are almost certainly going to be proved wrong. And when they all suddenly surge to escape their ill-judged positions and find no-one to take the other side of their trades, prices gap down and the unfortunate get trampled to death.
We?ve already...
