Wednesday, August 15, 2007

Poof....There Goes The Carry Trade....

This should come as no surprise. On top of all the players that leveraged them to their eyeballs the clearest sign that something was about to happen came direct from Japan . The following stats are taken from Housewives Outmaneuver UBS, Deutsche Bank Trading Yen .

Das dürfte aber nun wirklich niemanden überraschen. Zu einen sind fast alle Marktteilnehmer bis über beide Ohren ins Risiko gegangen auf der anderen Seit kam das wohl klarste Signal direkt aus Japan. ( siehe Housewives Outmaneuver UBS, Deutsche Bank Trading Yen )

Japanese businessmen, housewives and pensioners betting against the yen in their spare time are wrecking the forecasts of the world's biggest currency traders

They tripled their trading in the year ended March to a record $11 billion a day

In Japan, individuals have opened 600,000 so-called margin trading accounts at brokerages that lend money for currency bets, 80 percent more than a year ago

Feels a little like the cab driver giving stock tips

Bei uns würde man das wohl "Milchmädchenhausse" nennen....

Thanks to Henry k. To. Chart taken from Market Not Close to Capitulation Just Yet

Chart does not include the brutal move today in Asia

As mentioned o n the above chart, the most recent correction in the four popular Yen cross rates is still not severe enough as what we witnessed during the late February to mid March correction. More importantly, these cross rates have only corrected to levels last seen during early June - definitely nowhere close to "capitulation" levels and a far cry to what we witnessed in Fall 1998, when the Yen - at one point - rose over 10% in a space of 24 hours!


> It will be interesting to see how all the Japanese investors will react.... I can imagine that some of them are drinkng more Sake than usual...... :-)

> Ich bin gespannt wie all die japanischen Investoren reagieren werden... Ich kann mir gut vorstellen das einige in letzter Zeit mehr Sake als gewöhnlich getrunken haben... :-)

Aug. 16 (Bloomberg) -- The New Zealand dollar slumped, heading for its biggest weekly loss since the 1987 stock market crash, as investors slashed holdings of high-yield assets funded by loans in yen.

Australia's dollar, another favorite for investors who bought the nation's securities with money borrowed cheaply in Japan, tumbled as a drop in Asian stocks encouraged investors to unwind their carry trades. Both currencies fell to their lowest in more than four months against the dollar and yen on concerns losses related to subprime mortgages are deepening.

``The subprime issue is the center of the credit crisis universe and everything else is orbiting around it,'' said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The kiwi is one of fringe planets in that universe and it's going through a meteor belt at the moment.''

New Zealand's dollar slid 3 percent to 69.39 U.S. cents at 3:08 p.m. in Wellington. It fell as low as 69.37 cents, the weakest since March 16. It has tumbled 8.4 percent in the past 5 days and 14 percent since touching 81.10 cents on July 24, the strongest since being allowed to trade freely in 1985.

The currency also tumbled 3.2 percent against Japan's currency to 80.79 yen after having the biggest loss since December 2005 yesterday.

The Australian dollar declined 1.2 percent to 81.40 U.S. cents from late in Asia yesterday. It touched 81.38 cents, the least since April 5 and lost 4.9 percent over the past five days, the most since May 2004. The currency fell 1.5 percent against the yen to 94.72.

`Jumped On'
``The kiwi and Aussie will underperform,'' said Jonathan Cavanagh, a currency strategist at Westpac Banking Corp. in Sydney, referring to the currencies by their nicknames. ``Any bad news is jumped on in a big way.''

The Morgan Stanley Capital International Asia Pacific Index of shares fell 3.4 percent to the lowest since March.

Japan's 0.5 percent overnight lending rate is the lowest of any major economy. New Zealand's central bank raised borrowing costs four times this year to 8.25 percent and the Reserve Bank of Australia increased rates last week to 6.5 percent, making their currencies more appealing for carry trades.

New Zealand Finance Minister Michael Cullen said the nation's currency, which has slumped 11 percent the past three weeks, is still unjustifiably high.

> And when you look at the cuurent account balance...... But who cared about fundamentals just a few weeks ago....

> Wenn man sich die Daten zum Defizit ansieht ist diese Aussage mehr als berechtigt.... Aber wen haben bis vor einigen Wochen Fundamentaldaten interesssiert.......

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Blogger jmf said...

Yen Rises, Heads for Best Week in Nine Years Versus N.Z. Dollar

12:18 AM  
Anonymous Anonymous said...

Es ist wirklich erstaunlich what happens in world finance...that I have no idea about. But that still can affect my holdings: buy GE (zB) and find out later that it loses value because some guy cannot pay his mortgage, or because of reverberations from currency moves as 'carry trades' are unwound.

But, to state the obvious, the selling will not go on forever -- snapback rallies will happen. I've taken profits on short positions and will, in general, trade more from now on, both short and long.

But any snapback rally now will have a different feel than the ones in early July, especially the big one that pushed the DJIA up near 14k for the first time. Then it was pumped by the media as confirmation that there was nothing to worry about.

But that feeling is gone now.


1:31 AM  
Blogger jmf said...

Moin Eh,

I have also sold a few shorts today (try not to be greedy).

I think every upswing will be a seen as a selling opportunity.

Quite a difference to the "BUY THE DIP" mantra that has ruled the markets for almost 4 years now :-)

And with all the leveraged bets out that have be sold in this markets the pressure to the downside will remain.

On top of this i will hedge my shorts with some more goldminers.

They have plunged as hard as the indices ( down 15% from the peak).

Maybe today i will watch CNBC the first time since almost 2 years....

Should be fun to watch the "experts" trying to explain why the market is cheap.

I will be disappointed if Abby Cohen does not appear :-)

4:03 AM  
Blogger jmf said...

Movie Gallery Extends Forbearance Agreement With Senior Lenders

Under the extended agreement, the senior lender group will forbear until August 27, 2007 from exercising rights and remedies arising from existing defaults.....


4:16 AM  
Blogger jmf said...

Chicago Mercantile to Raise Margin Requirements Today

5:27 AM  

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