Monday, January 28, 2013

Long Yen

Reader asked...does long Yen (actually short USD/YEN) reflect as short US equities...and answer is "maybe" below.

Well kind of, usually USD/YEN and NZD/YEN move the same way, and the NZD pair is my risk on risk off indicator…but it has been acting odd last few week as currency wars get into full swing.

I am Short bonds through TLT short, and with unsanitized money printing by Big Ben, there is incentive to think that equities continue their upward climb (even though 5 RSI is amazingly "over bought" what a silly word).     We could go into a Bataan Death March type of pattern, an unrelenting steady slog upward that kills shorts, and leaves no pullback for the broken shorts and bulls that hesitated....leaves them no pullback to get long on and they all stare in disbelief and missed profits as the Death March trudges on.   

Long Yen could also be a very short lived position

The next step is when currency wars don’t get the balance of trade issue done….then the world goes into competitive devaluation, which doesn’t necessarily mean prices go down….but manufacturers may be forced to sell below profitability (like maybe they are just covering the overhead portion of their gross margin, and there is no profit portion of their gross margin).    Even though  prices are tight, commodities are up and so the price the consumer pay may not see “deflation” like the deflationistas predict (Pretcher Mish guys)

 Big News Week, this could keep the "parade" going if positive.  This quote from ILB

  • Tuesday, Jan. 29th – Consumer Confidence. The December report was ugly, with consumers' expectations for the economy falling 15 points.
  • Thursday Jan. 31st – Gross Domestic Product. Recent estimates of GDP show slow growth. Of course, the government's own heavily managed CPI inflation statistics have been used to paint a brighter growth picture. When adjusted using the same CPI calculation employed by the Bureau of Labor Statistics in the 1970s, as reported by, the GDP picture is downright ugly.
  • Thursday Jan. 31st – Jobless Claims. Estimates regarding the number of jobs created put the rate very close to what is needed to offset population growth. In other words, we are treading water. The percentage of people not employed, but not counted by bureaucrats as "unemployed" remains very near the levels seen at the height of the financial crisis. The problem is especially acute among young people.

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Insightful and Useful Comment!