Monday, August 30, 2010

Data Point: Yen Surge

The surge in  the yen continues, anyone still in a carry trade position, short the yen, is getting killed.

Speculation continues that the BoJ will intervene directly in the currency markets. The prime minister and Ministry of Finance officials have both been jawboning intervention, but BOJ remains on the sidelines.

The yen is now at a more than a 15 year high against the dollar. Expect a flood of Japanese tourists in America. Further, and much more important, given the instability in global markets, such a huge swing in the yen  could result in shifts in vulnerable markets in unkown ways. Stay alert.

1 comment:

  1. With just an hour into this morning's trading,
    The Euro, FXE, is trading lower at 126.48; the Yen, FXY, is surging up at 116.79.

    The chart of the EUR/JPY shows trading lower at 107.53; this is reflected in a falling FXE:FXY, causing European stocks FEZ to fall lower. The 200% inverse of the Euro, EUO, is trading up.

    Japanese shares, EWJ, are up only 0.1%; the Bank of Japan’s loan efforts have failed to raise the market share value of EWJ.

    The AUD/JPY is trading lower at 76.02; this is reflected in a falling FXA:FXY causing BHP to trade slightly lower.

    Currency traders have reentered their short of the Swedish Krona-Japanese Yen carry trade, causing Sweden, EWD, to fall 2.0%. The direction in the FXS:FXY carry trade is down, taking Sweden’s shares lower.

    With the Yen, FXY, falling from 117, the world has entered competitive currency deflation. Currencies will all be tumbling lower together, albeit a different rates over time.

    World stocks, ACWI, are falling lower.

    Semiconductors, SMH, is off strongly this morning. Just as there is a yield curve, which has been flattening since August 11, 2010, i.e. the 30-10 yield curve, $TYX:$TNX, going flatter, I perceive the personal computing curve which has been steepening since March of 2010 will be flattening as semiconductors falls relative to hard drives, SMH:STX.

    I am expecting semiconductors to be a stock market loss leader; I see the bottom falling out of semiconductors, SMH. These started to fall heavily on August 19, 2010, and went ex-dividend on August 22, 2010. At that time they accelerated their loss compared to compared to the Russell, 2000, IWM, Banks, KBE, Basic Materials, XLB which is seen in the chart of SMH, IWM, KBE, and XLB.

    The chart of semiconductors, SMH, shows a recent bearish engulfing candlestick; then a one rally on August 27, 2010, that came by yen carry trade investing, and a sell off today.

    Pablo Gorondi, of the Associated Press writes that oil, $WTIC, falls below $75, on crude demand uncertainty and after retracing some of Friday August 27, 2010 meteoric carry trade based rise; USO fell 094%.

    US Government Bonds, TLT, are up 1.1%, recovering some of their terrific loss of August 27, 2010, when the yield curve flattened on the Federal Reserve Chairman’s announcement of a likely purchase of even more mortgage-backed securities which sent bond prices sharply lower and interest rates higher.

    I believe the trend now will be both stocks AND bonds lower, with semiconductors leading stocks down; and the longer out Treasuries, TLT, experiencing more loss than the US Ten Year Note, IEF. I believe the 30 Year to 10 Year Yield curve will be flattening even more, decimating those invested in long-term US Government bond funds such as PIMCO Long-Term US Government B, PFGBX.

    Systemic risk is quite high. Liquidity evaporation could happen quite easily, resulting in a liquidity crisis, where there may not be enough buyers of investment securities to meet sellers demand. Because of this risk I am invested in Gold bullion. I believe that out of the soon coming liquidity crisis, American Express, AXP, will be integrated with the US Treasury, through a Presidential Executive Order, or will become reconstituted as a bank, and be integrated with the Federal Reserve, and that what little lending occurs, will take place through this state corporate combine overseen by a Credit Seignior, that is a lending boss.