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ParticleMan

Keen Yen For Sunshine

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Now I know from past postings some of you are long Yen.

So I consider it fair and early enough warning to keep an eye on things out thataway because they're more complex than they seem (this was something that I had out with EDM a while back).

Yen strength (in this market) is quite literally the price of fear - don't ever forget it.

Which is all very well and good, and bags-o-cash for anyone trading that.

But, here's the fun bit - the structural side of this (the Japanese economy itself) is under severe stress.

So don't stay too long, too long, ok?

http://www.bloomberg.com/apps/news?pid=206...id=aDAfKJ4EN_CY

Jan. 23 (Bloomberg) -- The Bank of Japan said the nation’s economy is worsening “significantly,” downgrading its assessment for the third straight month.

“Japan’s economic conditions have been deteriorating significantly,” the central bank said in a report in Tokyo today, using the most pessimistic language to describe conditions since January 1998, when they started publishing the report.

The global slowdown has spurred record declines in exports and factory output in the world’s second-largest economy and the central bank expects the slump to deepen. Governor Masaaki Shirakawa and his policy board said yesterday they expect gross domestic product to shrink 1.8 percent in the year ending March 31 and 2 percent the following year.

“Financial conditions in Japan have become tighter,” the bank said in the report. “The stimulative effects” from low interest rates “have become increasingly limited given the significant deterioration in economic activity.”

The bank cut its benchmark interest rate to 0.1 percent from 0.3 percent in December.

Japan’s exports plunged 35 percent in December, the most on record, from 27 percent in November, a report showed yesterday. Factory output dropped 8.5 percent in November, the most in more than 50 years.

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Now I know from past postings some of you are long Yen.

So I consider it fair and early enough warning to keep an eye on things out thataway because they're more complex than they seem (this was something that I had out with EDM a while back).

Yen strength (in this market) is quite literally the price of fear - don't ever forget it.

Which is all very well and good, and bags-o-cash for anyone trading that.

But, here's the fun bit - the structural side of this (the Japanese economy itself) is under severe stress.

So don't stay too long, too long, ok?

http://www.bloomberg.com/apps/news?pid=206...id=aDAfKJ4EN_CY

If not JPY, where? CHF? Or USD?

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I'm rather looking forward to "age of the country at war" part 2.

They'll put up with rather a lot will the Japanese, but beware the fury of patient men and all that.

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If not JPY, where? CHF? Or USD?

A recurrant if natural enough question.

At this stage in the cycle you should have no naked exposure at all to day-to-day newsflow; it's just too volatile, you'll get burnt alive.

Which makes every call a macro call.

I'm going to be Uncle Rogi's bestest buddy for two seconds and tell you about a nice little AUD->XAU->AUD arb that's now totally possible...

But apart from low hanging fruit like that (and this is the meat of the post so gimme a bit of credit and re-read it once or twice till it sinks in proper like)...

*** The only currency you should be holding at present is the currency in which you need to fund your next asset purchase ***

And you should be holding it as a risk-free income bearing security (so Gilts, Treasuries, and "I can't believe they're not Treasuries" - investment grade debt where a sovereign issuer bears first loss).

Not cash.

If you can't answer the implicit question "um what do I want to actually buy with this" then anything you do (including nothing) is naked speculation.

The least costly kind of speculation is to sit in the currency of the country where you plan to live (because odds are your future asset purchases will also be in this currency).

Gottit?

Message ends.

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A recurrant if natural enough question.

At this stage in the cycle you should have no naked exposure at all to day-to-day newsflow; it's just too volatile, you'll get burnt alive.

Which makes every call a macro call.

I'm going to be Uncle Rogi's bestest buddy for two seconds and tell you about a nice little AUD->XAU->AUD arb that's now totally possible...

But apart from low hanging fruit like that (and this is the meat of the post so gimme a bit of credit and re-read it once or twice till it sinks in proper like)...

*** The only currency you should be holding at present is the currency in which you need to fund your next asset purchase ***

And you should be holding it as a risk-free income bearing security (so Gilts, Treasuries, and "I can't believe they're not Treasuries" - investment grade debt where a sovereign issuer bears first loss).

Not cash.

If you can't answer the implicit question "um what do I want to actually buy with this" then anything you do (including nothing) is naked speculation.

The least costly kind of speculation is to sit in the currency of the country where you plan to live (because odds are your future asset purchases will also be in this currency).

Gottit?

Message ends.

Gotit, thanks.

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A recurrant if natural enough question.

At this stage in the cycle you should have no naked exposure at all to day-to-day newsflow; it's just too volatile, you'll get burnt alive.

Which makes every call a macro call.

Don't trade the news, trade the reaction to the news? Stay light on your feet and liquid?

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The current level of 88 to the dollar is not especially high, it's been as high as 78 to the $ in the mid nineties.

What we are seeing is Gbp weakness caused by the unprecidented imbalances in the in the UK economy finally causing an economic collapse. It's a weak Pound story not a strong Yen one.

The SS 'Global Economy' is sinking fast but a least Japan has a place in the lifeboat. The Uk on the other hand is swallowing water and is only kept afloat by a large brown turd.

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There's no obvious safe have as far as I can see.

So I decided on GBP + a little gold.

but there are obvious non-safe havens ..........

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But, here's the fun bit - the structural side of this (the Japanese economy itself) is under severe stress.

So don't stay too long, too long, ok?

what are you saying ?

move it back to £s ????

no chance. the japs have a more 'sound fundamental structure, social discipline and no debt bubble"

i dont see anything changing in the next 5 years to make me move back to £.

every country will take a bath on this global freeze on trading,

the question is - who is the most out of depth ?

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the japs have ... no debt bubble

You sure about that? ;)

Really, really sure?

Because I'm pretty sure that they do have a debt bubble.

In fact I'm pretty sure that the economy is doing its level best to eat itself alive with demand failure making wildly speculative corporate borrowing go bang at a rate of knots last seen by our collective grandparents.

But hey, it's all opinion, right?

Until one of ours wasn't.

Edited by ParticleMan

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Now I know from past postings some of you are long Yen.

So I consider it fair and early enough warning to keep an eye on things out thataway because they're more complex than they seem (this was something that I had out with EDM a while back).

Yen strength (in this market) is quite literally the price of fear - don't ever forget it.

Which is all very well and good, and bags-o-cash for anyone trading that.

But, here's the fun bit - the structural side of this (the Japanese economy itself) is under severe stress.

So don't stay too long, too long, ok?

http://www.bloomberg.com/apps/news?pid=206...id=aDAfKJ4EN_CY

wow that's some fall in exports!

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Actually at the moment it's neither - it's a strong dollar story.

But you knew that, right?

PM, can you help me understand this a little better? Sure the dollar is strong at the moment, but relative to us so is the euro, yen, Yuan etc etc.

If we are not weak (relatively), why have we dropped against the dollar so much more than these other currencies?

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Gottit. (I really respect your mind Particle Man, so thanks a great deal for that.)

+1.

I actually understood today's missive PM. Many thanks for dumbing down to my level - much appreciated.

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PM, can you help me understand this a little better? Sure the dollar is strong at the moment, but relative to us so is the euro, yen, Yuan etc etc.

If we are not weak (relatively), why have we dropped against the dollar so much more than these other currencies?

I thought it was because of mass deleveraging by hedge funds with the cash raised by assets sold going into USD. But hey, I'm no PM!

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A recurrant if natural enough question.

Gottit?

Message ends.

I partciularly enjoyed the modest tone of this post. Some less eloquent posters would have come across as arrogant when dispensing such sage advice. Well done.

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I partciularly enjoyed the modest tone of this post. Some less eloquent posters would have come across as arrogant when dispensing such sage advice. Well done.

Nice one!

Edited by council dweller

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I thought it was because of mass deleveraging by hedge funds with the cash raised by assets sold going into USD. But hey, I'm no PM!

I understand the reason for the dollar strength, my understanding is the same as yours.. money being repatriated etc.

I think the point I was trying to understand was PMs comment that it is not a story of pound weakness, despite that fact that ours is one of the only currencies that appears not to be rising in line with it. Also very surprised by the guilts/treasuries comment.. my understanding was that these were all in a bubble, but then this is an area I really know very little about. If PM could clarify this also it might help me and other to understand a little.

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I think the point I was trying to understand was PMs comment that it is not a story of pound weakness, despite that fact that ours is one of the only currencies that appears not to be rising in line with it. Also very surprised by the guilts/treasuries comment.. my understanding was that these were all in a bubble, but then this is an area I really know very little about. If PM could clarify this also it might help me and other to understand a little.

Ok so we'd need to split this a little and this is way more art than science (so it's all opinion and all views are equally correct and I'm not trading any of them because no bargepole is that long).

You're quite correct and I wouldn't deny for a second that we have roiling great wobbles of volatility in Fx - ruddy great fortunes being made and lost; unfortunately some of this is quite clearly at the cost of Sterling at present, but it's all essentially on the back of who's got the fear-tastic negative newsflow on a day to day basis. On some days we lose, on some days we don't.

The trading band is as wide as Oprah on fried chicken - implied volatility in some pairs passed 25% long ago.

But far more importantly if we can pull our heads out of the pit for a few minutes we also have structural issues to consider; and this for the armchair expert is far more important to get right - because the day to day noise has sufficient swings to utterly destroy your margins at present. You're gambling on a six-horse race and all seven of them are doped.

So the most recent structural issue was of course the great and greatly deserved trashing of USD (it's been oversupplied to the whole planet since Greenspan first wrote his ultra-easy put); and as a minor sideshow fear-driven Yen repatriation (redemptions and unwinds in all Yen-denominated lending and the associated carry-trade reversals required to bring it about).

What I'm getting at and the reason I feel the need to spray this forum with my ever-questionable intellect (and choose to do so at this time) is that Yen is going to falter because Yen denominated lending is faltering because Yen denominated borrowing is toast. There's diminishing demand for borrowing (in fact the net borrowers are trying to repay as quickly as possible - they know what's coming) and the borrowing that remains is unpayable - this part has been borrowed to gear up production for demand which is (and always was) a global fairy-tale.

Once the roiling fog of repatriation lifts this will be evident to all and sundry - and calls within Japan (as a net saver and net exporter) will be to weaken the currency in response to these conditions at home. There won't be any warning of this to the market, you'll just wake up one day and the Yen will be half the gal it used to be. Getting from here to there though involves a whole lot of bruising to the Japanese banking sector and all the signs of this happening are here now for those who care to go look.

I'm not saying for a second that things aren't grim here - let's face it, we've got a bloody long hard slog ahead; even the markets agree with this.

But there's nothing newly built-up to destroy - Sterling today is just as weak as it needs to be, anything extra is a gimme in economic terms. We'll "choose" to do it rough, cease consuming, lower our standard of living, flog what we can on fleabay to anyone with currency left to buy it, pay more tax, eat grassburgers and hot dogs, all of it.

But we won't be doing is reducing production (we could scarcely produce less than we do today), and if anything the balance of UK-denominated borrowing which results in export income will grow from here on in.

So on to gilts and treasuries.

Short-dated Treasuries are a great way to lose money. I have no qualms with that call at all, right there with you.

But not all instruments are USD-denominated and not everything that is USD-denominated is equally underwater.

You might say they're all in the mire, but depth definitely varies.

So the point is that holding cash is pretty dumb. You want your cash to be your cash and you want it to be intact the day you want to spend it - emminently understandable.

But in the mean time you also want it to pay some sort of coupon. And hopefully, either the coupon or the price should net-off Fx moves as they happen (and this is why holding cash as cash is dumb - it has no coupon so what you got is what you bought the day you bought it).

On a risk-weighted basis if you take the product of "actually I'd like to spend this money in the future" against "on an asset which produces a cashflow that gives me sufficient wood to make the exchange palatable" then quite literally the only sensible thing to do here and now is exercise patience; and while you're chewing your cud, lend your cash to one and only institution likely to share fate with the ability to sell ownership rights to the same damn asset you're looking to buy - John Q Taxpayer, Inc.

So that's why we do that bit.

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I understand the reason for the dollar strength, my understanding is the same as yours.. money being repatriated etc.

I think the point I was trying to understand was PMs comment that it is not a story of pound weakness, despite that fact that ours is one of the only currencies that appears not to be rising in line with it. Also very surprised by the guilts/treasuries comment.. my understanding was that these were all in a bubble, but then this is an area I really know very little about. If PM could clarify this also it might help me and other to understand a little.

Pull up a Euro USD chart from somewhere - here will do.

http://www.fxstreet.com/rates-charts/live-charts/

US Dollar Index (USD)

The U.S. Dollar Index® is computed using a trade-weighted geometric average of six currencies. The six currencies and their trade weights are:

Euro 57.6 %

Japan/yen 13.6 %

UK/pound 11.9 %

Canada/dollar 9.1 %

Sweden/krona 4.2 %

Switzerland/franc 3.6 %

PM will no doubt have a much more informed understanding of the way this stuff is calculated, but in my simplistic world, dollar strength is 60% dollar strength v Euro, rightly or wrongly and Euro looks a rather sickly infant right now and in spite of rhetoric to the contrary from certain quarters sterling is still above its pre-Xmas lows here. (not a prediction, just a statement of fact).

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Ok so we'd need to split this a little and this is way more art than science (so it's all opinion and all views are equally correct and I'm not trading any of them because no bargepole is that long).

- SNIP -

Many thanks, that will take a while to digest! Leaves me wondering whether the dollar should face a similar trashing to Japan for the same reasons but for now I will go away and re-read it.

PM will no doubt have a much more informed understanding of the way this stuff is calculated, but in my simplistic world, dollar strength is 60% dollar strength v Euro, rightly or wrongly and Euro looks a rather sickly infant right now and in spite of rhetoric to the contrary from certain quarters sterling is still above its pre-Xmas lows here. (not a prediction, just a statement of fact).

Ok, I had only been looking at the face value of the currency rather than anything trade weighted.

Thanks for giving me another angle to look at :)

Edited by libspero

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If not JPY, where? CHF? Or USD?

I've recently opened up an account in RMB. If you ask HSBC nicely they might do this for you. They have a presence in about 20 cities across China. If you have no preference, go for the main branch in Shanghai as this appears to be where the central customer services team is based. I can access the RMB account online and can send GBP over whenever I like (up to a maximum of $50,000 equivalent per year). I've only just recently opened it and I am kicking myself why I didn't do it sooner. In early October last year, the exchange rate was 1GBP=14RMB. Today it has dropped below 9.4RMB. Oh well, better late then never.

However, one word of caution, there are strict currency controls on China's capital account, meaning that if you transfer money over, you will not be able to transfer back out into the UK under normal circumstances. Only proven earned income from business activity within China can be converted out into foreign currency. I am hoping that in the next few years, they will relax these foreign exchange controls and allow full withdrawal of savings, but if they don't then I will think about moving over there to live and work permanently. It is also a strong possibility that RMBs will be common place in the satellite countries bordering China within the next few years. So this course of action is only suitable for some people, particularly those who are thinking of going over there to live

Best,

L

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And you should be holding it as a risk-free income bearing security (so Gilts, Treasuries, and "I can't believe they're not Treasuries" - investment grade debt where a sovereign issuer bears first loss).

Not cash.

Almost totally with you, thanks. But due to my ignorance in these matters I'm slightly confused by the above. I've put pretty much all my savings into NS&I. Does that count as "I can't believe they're not gilts", rather than cash?

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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