I would have to give qualified agreement here. It depends on who you are. The RBA Governor is doing a good job talking down the Aussie. And which one of the market wizards lost his pants when James Baker made a statement on the Dollar?
True, I'm not talking about central banks. I'm talking about hedge fund managers voicing their opinion simply to move their book. I think Bass knows what he is doing. And if you believe the data he presented, the Yen could go well beyond 200. Hell, what's stopping it from going to 500? Their debt to GDP ratio makes the US look like we are a debt free nation swimming in surpluses.
That is correct. He said go beyond, he did not say stay there ever after. If you look back at what happened to the Baht and Rupiah in the '97 crisis lows, nobody would have claimed it would be possible prior. By the same token if you catch the average financially informed youngster today who would be too young to appreciate '97, don't be surprised if they accuse you of exaggerating when you tell them what happened. Short term values can be ridiculous. I still remember a client meeting in Thailand in '97, which was being interrupted by phone calls. The company President apologised, his brother was meeting with bankers to secure trade finance and short term working capital. The best offer he got was 26%, and this from banks they had been dealing with for years.
Why is the Yen seen as a safe haven currency? Yes, I know Japan is the world's biggest creditor nation
A big move back in time... Can't help wondering where were all the hedge fund (there were fewer & smaller AUM back then) massive winners on the 1985 USD Plaza accord trade where USD depreciated by over 50%? Biggest slam dunk trade ever - so "obvious" - yet so few publically known winners? Even if they put a fraction of AUM in the trade & got a small portion of the move, they would have grown their AUM exponentially to bigger than all but the biggest funds today If so the best old school fund perf track rercords wouldn't be in the 20%+ range (if that), it would be 50%+ since inception... Where were all the winners coming out of the woodwork boasting about their success in shorting the USD? (money managers tend not to be a modest bunch)
Welcome to the thread trader31. Let's tackle the USD/JPY first. Yes, you are correct that if you are long Japanese stocks, you will get hurt somewhat by the yen depreciation. The volatility impact is far greater in stocks then in currency. The Nikkei is up over 50% YTD and the Yen is down about 16% vs the Dollar. And yes, the stocks are going up as a result of their weakening currency. Again, and I'll go over this several times, the easy way to think about this is if you had to pick one to hold, which is safer. If your currency is being devalued, do you want to own the currency or the equity. Generally speaking equities will go up. Why? Because companies are earning higher profits as a result of inflation. Their profits are higher in nominal terms, not in real terms. But you need nominal protection if you are holding cash. Now there is a ETF that I have talked about on this thread quite often that owns Japanese stocks and shorts the currency to hedge out the currency risk and that is DXJ. But the benefit in my opinion of saying being in the currency pair vs trading the Nikkei, is one, simplicity, it's not terribly easy to buy Japanese stocks. Yes, there are ETF's but you have to investigate how they are structured and their fees and all that. Then there is the futures, but then you have to roll and deal with insane volatility the Nikkei has. Being long USD/JPY has less volatility, is easier to put on and trades in a more controlled fashion. Your second question about being long AAPL/USD or SPY/USD, think of it like this. If I'm long shares of AAPL and I want to convert the shares into cash, do you want cash to be cheap or expensive? Cheap right? Because you are buying cash in a way. And when you are holding cash, what do you want? You want the price of cash to go up and you would like to see APPL go down. Because if you wanted to purchase those shares back, you want to do so at a lower price. So put another way, by being long shares of AAPL, you are forgoing all the benefits of holding cash, thereby short. An easy way to try to conceptualize this is by following the cash flows. I've tried to explain to people how you can synthetically short the housing market. It's hard to get your head around it at first until you map out the cash flows. A renter is a defacto housing short. Why? Because they are forgoing all the benefits of owning the house. What does a renter want? He wants housing prices to go down right? So he is a natural short. You can take a owner and a renter and line them up in both columns and their cash flows will net out over time so that one's gains is the others loss. You can do this with currency as well. In fact, the decision for money managers to be long bonds vs equities is often solved by evaluating the opportunity costs of money. If stocks get too rich and bonds get too cheap, then it might make sense to buy bonds and sell stocks. When bonds are cheap, rates are high. If rates get high enough they become more attractive then stocks. And vice versa. So a long stock investor could see himself as being a natural bond short and so on. When you make investments you always want to understand the opportunity costs. And also the true economic costs. The cost of owning something is not just the price of that product but also what you are giving up. That is the TOTAL economic cost. Hopefully these examples help explained this better.
It's not. Again, we need to understand what's going on in the big picture here and it's why I beat this to a drum over and over again on here. The Yen for years has been a funding currency to risk. This means the counterparties are by default on the risk side of the equation. In other words, they are borrowing Yen to take risk, in most cases, a lot of highly leveraged risk. Since Japan is on the other side of that, they are the benefactors of those who seek to be risk averse. So what happened during the 2008 credit crisis is money flowed back into Japan when risk sold off. Why? Not because it's safe there. But because it's the safe leg of the risk trade. Everyone and their brother was highly leveraged in the carry trade. They were long carry in high risk countries. So if you knew their was going to be a risk liquidation, where would you want to be? Long Yen of course. Think of being long Yen as squeezing a stock that has a short interest with a small float. People would often ask why hedge funds would buy some crap stock with no earnings. The answer often would be because they could squeeze the shorts by buying the stock knowing the shorts had to cover. You KNEW there was a buyer to sell into. Same thing with the Yen. If you know the entire world is short the Yen and we are talking trillions upon trillions of dollars here, wouldn't it be a "safe" bet to buy the Yen? Of course it would. Because all these players will have to dump their risk currencies and buy the Yen back. That is why the media often referred to the Yen as a safe haven because the Yen was always the benefactor of the unwinding of the carry trade. Again, not to beat a dead horse, but this is why I recommended those books to read and why I think the readers of this thread should study this stuff. So you gain a greater understanding of what's going on. The media often labels things incorrectly because they are trying to dumb things down for the avg viewer.
I don't think the developed world would allow a U/J of 200+...I mean we are not talking about something small like switzerland...but all valid points.
Allow? It use to trade at 360. In fact, almost the entire history of the Yen it traded north of 150. This recent move sub 100 was an anomaly, an outlier. It never should have got this low. It's fair value is probably somewhere between 150 and 200 like the Pound. Therefore it can easily overshoot to the upside over 300 or even 400.