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8/30/2010 0 Comments The JPY rollercoasterThe behavior of the Japanese Yen and the country’s stock market illustrates the issues that result from the export driven recoveries of other countries. The BOJ announced today that they will inject $100 billion dollars worth of Yen into the system to try to weaken the currency, and as a result make their exports more affordable. While the Yen weakened against the dollar and other major currencies initially, it has since reversed course and it strengthening. Whether this is a sign by investors that they are not happy with the level of action taken or direct interference by neighboring China as some have speculated, the Nikkei could be closely tied to the Yen at these levels. It would be wise for anyone who is invested, or wants to invest in Japanese companies to pay attention to the BOJ policies and the Yen going forward.
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8/24/2010 0 Comments What to do in this MarketWith uncertainty like this in the market place it is easy to sell right before a rally or hold onto something that will drop 15% more. I think it is wise in this environment to take profits from positions that have been working and look for ones that were un-duly sold off. Days like today make for great opportunities to switch any money you may have in a Fixed income ETF or other low yielding (high priced) fixed income assets into higher yielding, relatively safe, stocks. There are many stocks that have been beaten down and could go lower in this environment and still provide a dividend yielding over 5%. Such opportunities could prove to be very rewarding in the longer term. More sophisticated investors can use leverage in their margin accounts to buy dividend stocks, where borrowing money to double down on a dividend stock position could easily return enough money to pay back the interest as well as make more than the 10yr treasury right now, depending on your broker’s margin rates.
8/19/2010 0 Comments Yield ConcernsI am quite worried about the current Yield curve and the run up of bond prices. Should a double dip recession occur there may be even more money put into the bond market. I will look into the implications of this occurring and probably write an article, as there is too much to cover in Market Thoughts. Knowing how this bubble will burst and when is key; will the money that was built up into US treasuries get dumped into the stock market? What if the US markets are still deemed too risky and the money move elsewhere? This would be a great transfer of money that will have effects in all types of assets worldwide.
There has been much debate over how GM should emerge from its prepackaged bankruptcy and get out from under government ownership. But no matter which way the IPO goes one thing is for sure, the average investor should avoid it. GM has lower margins than many of its competitors due to steep discounting of cars, which a company that has removed many of its legacy obligations should be posting some of the highest margins in the industry. This doesn't convince me that this company can be a profitable growth story long term. Shorting the stock is a bad idea as well; given that mutual funds have limited option for US auto makers right now to invest in they will be forced to buy into this company, potentially making the price rise in the near term after the IPO. With many other stocks at attractive valuations right now, and many with yields better than most fixed income, I see no reason to have to jump into the GM IPO without taking a quarter of two to see where the financials are headed. As Dennis Gartman would say, I will leave that to people much smarter, and much dumber than me.
8/16/2010 0 Comments The Yen Starts to BiteThe Growth numbers out of Japan this morning painted a clearer picture of what the higher Yen, along with other factors, have done to the world’s second (at least for now) largest economy. This puts the Bank of Japan (BOJ) into a position where they are now expected to intervene. Should the Yen break lower than the 15 year low it hit recently I think you will see actions taken by the BOJ to depress their currency, especially to its Asian neighbors. Should the BOJ intervene and weaken the value of the currency it will go a long way in helping out the Japanese economy. The instability of the yen from deflationary pressures and a drop in commodity prices has slowed speculative capital borrowing because the carry trade is too risky. Exports are less attractive compared to other pacific rivals, forcing companies to pare back investments and lower growth forecasts. The Japanese consumers are less likely to spend and borrow in a deflationary environment because they may be able to buy goods cheaper in the future and their debt become more expensive in real dollar terms. I would avoid Japanese companies, especially export driven companies with higher debt levels, until the BOJ makes positive moves to keep the economy from experiencing deflation.
With German exports back to post crisis levels I feel more confident in the 3rd segment of the Vine strategies gains and comfortable moving out of the 2nd segment. Depending on where the markets move in reaction to the Fed today, I might start to move into longing the USD/JPY pairing. In short, I believe that the BOJ will have to make their currency more competitive because of the pressures from China, Europe and others who are trying to stage export led recoveries as well. The fact that the BOJ didn’t speak of any stimulus measures during their meeting makes me believe that they feel the current ratio is a short term phenomenon.
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