Some market signals are well-known and easily understood. Others are arcane and more-complex, but just as telling.

There's mounting evidence that the "carry trade" is ending, or that at least institutional investors are decreasing their use of it as an investment tactic.

In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) and buy assets in a country where returns are higher. The investment can take many forms, including stocks, bonds, funds, or even the higher-interest currency itself.

Carry trade: A growth confidence indicator

Now, investors/readers may legitimately ask, Why is it important to know what's happening to the carry trade?

Economist Peter Dawson told BloggingStocks that it's important to monitor carry trade flows and data because it's one indicator of investor confidence in a market's ability to produce a return on equity, and by extension, in its economy to grow.

In other words, the carry trade abounds when investors are confident; it wanes when they're not, he said.

"The fact that the carry trade appears to be ending is an indication that institutional investors are concerned the global economy is slowing," Dawson said. "The euro-zone reported a 0.2% GDP decline for Q1, including declines in Germany and France, its two largest economies. There's concern about a substantial slowing in the United Kingdom, and we know about the U.S. economic distress. The pull-back in the carry trade is a statement by institutional investors that they expect the world's major economies to slow in Q3 and Q4, if not longer."

Here's one carry trade indicator: the British pound-Japanese yen currency pairing. During the economic expansion of 2004 to 2007, investors borrowed money in Japan to invest in Britain -- and why wouldn't they, with Britain growing at a healthy rate and interest rates very low in Japan? The British pound-Japanese yen carry trade help drive the pound up to more than 250 yen from about 180 yen in 2003.

However, earlier this summer, when it became clear that the U.K.'s economy was slowing, roughly along the lines of the U.S. slump, investors began to unwind their carry trades, because they're not likely to earn an adequate return on money borrowed from Japan, and the British pound fell. Already weakened by the U.S. economic slump, the pound fell another 10 yen in about three week this July/August to its present level of 205.83 yen.

Other carry trades, euro-yen, New Zealand dollar-yen, and the Australian dollar-yen, have displayed similar characteristics.

In Dawson's interpretation, the signal is unambiguous. "Capital continually scans the world in search of return and yield. When that capital starts returning home, in this case with the tapering of carry trades in the cheap yen, that's a signal that institutional investors believe the global economy is slowing," Dawson said. "So look for the global economy to continue to slow through Q4 of this year."

Economic Analysis: With the above in mind, investors/readers should keep an eye on the British pound-Japanese yen trend. Presently the trend is: British pound lower. If that trend persists in the second half of the year, that's a bearish data point for the major economies of the world, for at least the first quarter of 2009, and perhaps longer.