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Author: MDCigan Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 21031  
Subject: Japanese Yen - Naj? Date: 5/17/2013 12:06 AM
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Naj, would be interested to hear your thoughts on the yen in terms of a really long-term perspective if you care to share

For reference

http://peterlbrandt.com/is-the-yen-overdone-not-even-close/

The embedded paper shows a chart of the yen going back to 1970. Obviously, the secular strength in the yen versus the dollar lasted a very, very long time.

Also in my mind is the duration and magnitude of the dollar decline from 2001 to 2008.

Point being, it seems to me once currency moves get going, they appear to last a long time and move a great distance.

Maybe I'm misinterpreting, but haven't they basically flat out said, we'll print as many yen as is necessary to try and get some inflation and maintain export strength. Haven't they basically said devaluing their currency is basically official policy. Could it be that easy to just listen and responding to what they are saying. Sure yen has had a big down move already, but in the context of that 40 year chart it isn't much. I think about something like gold that went from 250 to 500 over a few years and it would have been easy to say heh it doubled I missed the move and it still had another quadruple in it over the next several years. I'm just wondering if maybe we are seeing the start of a secular decline in yen that could go on many more years with a lot more downside.

I'm currently short 1 mini contract (based mostly on the chart pattern), but thinking this is something I can maybe short and hold for a long, long time and periodically pyramid to more contracts.

Also short a bunch of Aussie mini-contracts from around 1.006. Thanks to whoever posted the notes from the Sohn conference with Soros and Druckenmiller mentioning the idea. That got me motivated to look at the chart in detail, and it looked like a massive top was building.
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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17160 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 9:51 AM
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...haven't they basically flat out said, we'll print as many yen as is necessary to try and get some inflation and maintain export strength. Haven't they basically said devaluing their currency is basically official policy. Could it be that easy to just listen and responding to what they are saying. Sure yen has had a big down move already, but in the context of that 40 year chart it isn't much.


I will leave the TA to the experts, but from a fundamental point of view, this argument makes a lot of sense to me. No, they don't explicitly say they want to maintain export strength, that would be a no-no since no one wants to be accused of starting a trade war with currency manipulation. They have basically gotten the blessing of the other G7 nations by saying:

"We Japs just want to do what you guys are all doing, running big deficits sans vergogne, stimulating our economy, keeping interest rates low to do that, and if it moves the Yen, well, that's what happens when you do all that low rate, stimulate the economy stuff, and that's what you guys have been doing for a few years now, and that may be why our Yen has been so high in the last few years, and now if we start doing that stuff too, well, you know, sorry about the Yen coming down, but fair is fair."

This is a very rough translation, as my Japanese will only get good when the Yen comes way way down and it becomes cheap to travel and live there, which is still a ways off.

It was a more obvious trade 6 months age, with the Yen at 80 to the dollar, than now, at 102 to the dollar today. But has it gone far enough? After all, currencies are supposed to be cheap when you are testing the limits of what happens when you run up one of the biggest levels of government indebtedness in modern history, except for Zimbabwe of course.

The only fundamental indicator I know of to measure whether a currency is cheap or expensive is purchasing power parity, which you can find here: http://stats.oecd.org/Index.aspx?DataSetCode=CPL (read the columns: what would cost 100 yen in Japan would have cost 82 yen in the USA, in March, for instance.) In other words, yen is still expensive, since you only need 82 of them to buy stuff in the USA that would cost 100 yen in Japan.

What that means is that the yen has gone from being really pricey to being a bit pricey, about 18% in March. So in addition to the government policy tailwind, you also still had a bit of an overvaluation tailwind in March, when it was at about 95 to the dollar, and maybe 10-12% at today's rate of 102 to the dollar.

My Japanese trade has worked out relatively well, as I put about 6% of my portfolio in 5 Japanese stocks a year and a half ago, with a counterbalancing short position in the yen. I figured the stocks would benefit from a devalued yen, and although they are priced in yen which would come down, my short yen cash position would cancel that out. Their share prices are up about 100% in the meantime (I doubled down when they had a nasty earthquake just after I started, thankfully), and I had the happy problem of being overexposed in yen because to the share price increase, and sold some yen short a few months ago, and that has worked out well too. So your question rings a bell for me: how much farther has this thing got to go, at this point, and how much is priced in already? I wish I knew, but after paring it back a bit, I'm leaving it on for now.

Regards, DTM

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Author: NajdorfSicilian Big funky green star, 20000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17161 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 10:08 AM
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Point being, it seems to me once currency moves get going, they appear to last a long time and move a great distance.


I completely agree.

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Author: EightTrack3 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17164 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 3:37 PM
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http://www.youtube.com/watch?v=uRz_QO_qSDk

Gundlach speaks about the Japanese stock market and to a lesser degree the yen starting at 3:00. Might as well go straight to the New Bond King.


All of these calls have elevated Gundlach into something of a rock star, even in jaded Los Angeles where entertainment celebrities, not money managers, rule the roost.

He was in an elevator at a local Whole Foods grocery store with the actor Mel Gibson and a third person, he told Reuters. But it wasn't Gibson who caught the other person's eye, it was Gundlach.

"The guy looks around the elevator and looks at me and says: 'You're Jeffrey Gundlach,'" said Gundlach, chuckling a bit.


http://www.reuters.com/article/2013/05/16/us-funds-investing...

ET

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Author: MDCigan Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17165 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 6:16 PM
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ET,

Thks for the link. At least recently, Gundlach seems like the guy who has had the best read on the markets. That short Apple/long nat gas trade for 2012 was one heck of a b*llsy contrarian call.

Anyways, this was a good video as well

http://www.youtube.com/watch?v=G5vKgZf0eOY

"currency devaluation is the solution for an individual country"
"bigger share of the export pie"
"looking at competitive currency devaluations"

Seems to me..thinking out loud...is that the million dollar question is simply asking which country(ies) are likely to be most committed to devaluing their currencies as part of their economic strategy.

Regarding the USD, I'm wondering if the old quote "rumors of my death have been greatly exaggerated" apply.

The USD had a steady downtrend from 2001 to the 2008 low. Since then it has been trading inside a consolidating triangle (see my chart mark-up below). It is looking like it is on the cusp of breaking that to the upside.

http://scharts.co/18R10uI

I'm thinking maybe we are in for multi-year period of renewed dollar strength versus other currencies.

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Author: readyteddy Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17166 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 7:39 PM
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As an aside, FCX spreads used to be the best leveraged play going. Mini contracts? Forgetaboutit!

I have been away from this stuff for a while but back in the day, a full contract in, say, the D Mark used to run you a thousand bucks but a DM/SF spread was $200. If you caught that one in the 1970's, you made a pile of money for your $200. Don't know if it's still true, but if you hate a particular currency and you got another one you don't hate so much.....

Just sayin'. Bet the margin deposit on a mimi is close to as much as a spread on the big contracts. More risky when you go naked too.

I could be wrong. Like I said, been away from this stuff a long time.

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Author: EightTrack3 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17167 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 7:46 PM
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The USD had a steady downtrend from 2001 to the 2008 low. Since then it has been trading inside a consolidating triangle (see my chart mark-up below). It is looking like it is on the cusp of breaking that to the upside.

It's Friday afternoon ... time for some BIG THEME thinking. Always fun (except for Martian).

Richard Bernstein penned a good article in November 2010, touching on the "weak" dollar (which actually bottomed in 2008) and how normal the recovery from recession appeared to be (sorry Pimco). He highlighted the long dollar theme for 2011 (along with some other ideas, some performing well and others not so well).

http://www.rba-llc.com/pdf/FourThings.pdf

http://www.rba-llc.com/pdf/ElevenThemesFor2011.pdf

I'm thinking maybe we are in for multi-year period of renewed dollar strength versus other currencies.

http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...

I think you may be right. I'll leave the technical read to you, but the ever breathless Evans-Pritchard touches on the major themes that I suspect will lead to dollar strength. I'll also add one or two:

1) Fracking (tight oil, unconventional gas) is turning the USA into Saudi America (hat tip: Mark Perry). So much of our trade deficit is driven by fuel imports. Energy production has to help at the margin.

2) America's got manufacturing game again. All those manufacturing layoffs and restructuring has made us lean and mean. But don't give me that 3-D printer gamechanger jive. Our higher degree of competitiveness can probably absorb a stronger dollar, so it will.

3) Japan is printing. The Europeans (at least the southern ones) are flailing.

4) To echo the late Maggie Thatcher, Michael Pettis is right and 364 economists are wrong. China is going to slow down too, leaving America as the preeminent economic power. Pettis is the best when it comes to combatting Chinese growth group-think.

http://www.mpettis.com/2012/12/28/the-imf-on-overinvestment/...

5) Korea and other countries will have to respond to Japanese export competition by weakening their currencies.

6) Finally, and most important: We haven't reached Peak Gundlach.

ET

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Author: MDCigan Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17168 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 8:31 PM
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As an aside, FCX spreads used to be the best leveraged play going. Mini contracts? Forgetaboutit!

I have been away from this stuff for a while but back in the day, a full contract in, say, the D Mark used to run you a thousand bucks but a DM/SF spread was $200.


LOL Teddy...don't tempt me...haha. I think going from options to futures is about the most leverage I should ever contemplate. Presently, I am sitting on a short AUD position that has a profit of $1800 on a margin requirement of $1650 with a .02 move from my average entry price. So at least as of today's close that is a 100%+ ROI on about a 2% move in the underlying. Probably enough leverage :)

If you caught that one in the 1970's, you made a pile of money for your $200.

Ha. Hence my interest in this yen short trade and if there is serious legs to this thing over the next several years. I've got a bit more than $200 here to roll with so I'm thinking pretty big pile here down the road.

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Author: EddieFelson One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17169 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 9:29 PM
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How do you implement your yen short if you don't mind me asking? Thanks!

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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17170 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/17/2013 10:44 PM
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Initially, i just bought my Japanese shares in a margin account, so i was automaticslly short the yen for the same amount (at least it works that way with Interactive Brokers).

Then, a few months ago, I had the happy problem of my shares almost doubling, so not wanting to lose my gains if the long awaited Yen implosion happened, I just sold enough Yen (bought USD with JPY) to bring me back to a Yen neutral position (well, actually I sold a bit more Yen than I needed to because I wanted to be net short the Yen).

Dtm

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Author: NajdorfSicilian Big funky green star, 20000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17171 of 21031
Subject: Re: Japanese Yen - Naj? Date: 5/20/2013 12:20 AM
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America's got manufacturing game again.

We never lost it! :)

China makes $4 t-shirts for Old Navy.

GE and Kodak make 6 and 7-figure MRI machines. Boeing, Loral, GenDyn make plans, satellites, defense equipment. We make skyscraper cranes, floating oil platforms and offsohre rigs, the Jaws of life, medical equipment, power systems, industrial turbines, helicopters, locomotives, power shovels, mining equipment, rocket transporters, excavators, steel, cars, trucks, tanks. Pharmaceuticals, gems, plastics, chemicals. Etc. etc. etc.

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