JAPAN TAPS FOREX RESERVES TO HELP JAPAN FIRMS ABROAD
That is the headline doing the rounds from yesterday in Japan. The plan to lend USD 5 BILL from the USD 1 TRILL reserves to the Japan Bank for International Cooperation so that the bank can make dollar loans to cash starved companies.
First in the queue apparently is Toyota. Toyota! Known in Japan as "Toyota Bank"for its strong balance sheet!?!^?#@!
Tuesday, March 3, 2009
Monday, March 2, 2009
WHY THE US DOLLAR IS TOPPING OUT
1. I think most will concede that the wall of debt facing the US and the refinancing of that debt has to cause a devaluation in the dollar at some stage. In the short term the massive pickup in treasury issuance and non treasury issuance (non treasury alone was a whopping USD 261 bill in Jan and 413 bill in Feb) is causing short term dollar demand. Obviously that demand is going to continue but at some point the sheer scale of US indebtedness will tip the scale.
2. The other primary driver of demand has been the flight from the European currencies on fears of greater relative risk because of issues like Eastern European debt and put simply the "global deleverage trade". There is however a growing voice that fears about Eastern Europe may be overblown. UBS have published a piece on this recently and are pushing this view hard. This idea may become more mainstream in coming weeks.
3. There is no doubt that the long dollar trade is very crowded.
4. The Yen is weakening again and this is taking the lustre out of the deleverage/derisk trade, which should begin to erode the foundation for dollar longs. In fact some large dollar longs have been partially hedged by long Yen positions, these hedges are likely to be scaled back as the Yen weakens.
5. 19th March is a key date from a cycle analysis point of view. It also coincides with an astrologically derived likely turning point. I had been focused on it as a likely intermediate term bottom (not long term) for global equity markets but I am increasingly thinking it may also mark a top in the dollar and perhaps a simutaneous low in gold and commodities.
1. I think most will concede that the wall of debt facing the US and the refinancing of that debt has to cause a devaluation in the dollar at some stage. In the short term the massive pickup in treasury issuance and non treasury issuance (non treasury alone was a whopping USD 261 bill in Jan and 413 bill in Feb) is causing short term dollar demand. Obviously that demand is going to continue but at some point the sheer scale of US indebtedness will tip the scale.
2. The other primary driver of demand has been the flight from the European currencies on fears of greater relative risk because of issues like Eastern European debt and put simply the "global deleverage trade". There is however a growing voice that fears about Eastern Europe may be overblown. UBS have published a piece on this recently and are pushing this view hard. This idea may become more mainstream in coming weeks.
3. There is no doubt that the long dollar trade is very crowded.
4. The Yen is weakening again and this is taking the lustre out of the deleverage/derisk trade, which should begin to erode the foundation for dollar longs. In fact some large dollar longs have been partially hedged by long Yen positions, these hedges are likely to be scaled back as the Yen weakens.
5. 19th March is a key date from a cycle analysis point of view. It also coincides with an astrologically derived likely turning point. I had been focused on it as a likely intermediate term bottom (not long term) for global equity markets but I am increasingly thinking it may also mark a top in the dollar and perhaps a simutaneous low in gold and commodities.
Thursday, February 26, 2009
FURTHER DAMAGE TO THE SECOND HALF RECOVERY THEORY
At the centre of second half recovery theories was also the rebound seen in a number of Chinese indicators including iron ore data.
Now Chinese iron ore prices have fallen again recently and there has been a pickup in iron ore port stocks. More alarming however is the sharp rise in total ships (Panamax and Capesize) sitting at anchor off Chinese ports waiting to offload iron ore stocks. The number has risen to 75 from 55 at the beginning of February and 21 at the beginning of the year.
In addition daily rates for capesize vessels have plunged in recent days to $24000 from a recent high of $43000. Australian and Brazilian iron ore freight rates into China have fallen by 15-20% since last week.
At the centre of second half recovery theories was also the rebound seen in a number of Chinese indicators including iron ore data.
Now Chinese iron ore prices have fallen again recently and there has been a pickup in iron ore port stocks. More alarming however is the sharp rise in total ships (Panamax and Capesize) sitting at anchor off Chinese ports waiting to offload iron ore stocks. The number has risen to 75 from 55 at the beginning of February and 21 at the beginning of the year.
In addition daily rates for capesize vessels have plunged in recent days to $24000 from a recent high of $43000. Australian and Brazilian iron ore freight rates into China have fallen by 15-20% since last week.
Wednesday, February 25, 2009
MORE ON THE YEN
Todays MOF portf0lio flow data showed JPY 1,231bln ($12bln) foreign bond outflow. This follows last week's JPY 1,363bln ($14bln), and is the LARGEST 2 week outflow for many years.
Also Japanese investors bot Y215bn of foreign stocks, while foreigners sold Y75bn of JGBs and sold Y450bn of Nikkei.
This reinforces my view from my Yen turnaround post on Monday. Japanese repatriation in March has already taken place and in fact homeland flows are now going massively in the other direction.
The squeeze in USD/JPY and the crosses has been on all week, next to crack maybe Japanese margin traders who are still long JPY vs USD, EUR and GBP.
Todays MOF portf0lio flow data showed JPY 1,231bln ($12bln) foreign bond outflow. This follows last week's JPY 1,363bln ($14bln), and is the LARGEST 2 week outflow for many years.
Also Japanese investors bot Y215bn of foreign stocks, while foreigners sold Y75bn of JGBs and sold Y450bn of Nikkei.
This reinforces my view from my Yen turnaround post on Monday. Japanese repatriation in March has already taken place and in fact homeland flows are now going massively in the other direction.
The squeeze in USD/JPY and the crosses has been on all week, next to crack maybe Japanese margin traders who are still long JPY vs USD, EUR and GBP.
Tuesday, February 24, 2009
Japan's export engine still stalled.
Exports in January saw a 46% YoY drop and another 10% MoM fall. Cumulative decline since Sep is 36%. Sure imports are down sharply too - off 33% since September, but this is more price than volume so there is still the negative impact on real GDP.
Every region is getting hammered. Asia -47% YoY, US -53%, Europe -46%. Every product also hammered. Transport equip -54% YoY, electric machinery -47%, general machinery -41%.
Is it any wonder industrial output is crashing - those figures for January will be out on Friday.
Exports in January saw a 46% YoY drop and another 10% MoM fall. Cumulative decline since Sep is 36%. Sure imports are down sharply too - off 33% since September, but this is more price than volume so there is still the negative impact on real GDP.
Every region is getting hammered. Asia -47% YoY, US -53%, Europe -46%. Every product also hammered. Transport equip -54% YoY, electric machinery -47%, general machinery -41%.
Is it any wonder industrial output is crashing - those figures for January will be out on Friday.
Monday, February 23, 2009
I have been long Yen for a significant period of time. Today I have taken the position off. Why?
My pimary reasons for having it on were:
1. Massive repatriation to plug balance sheet holes at home and the better tax treatment on repatriated funds after 1 April.
2. Japan's relative "safe haven" status of the Yen.
3. Technicals strongly suggested a new long term high (below 79 vs the USD)
Lets deal with these one by one.
1. I think that this has largely taken place. The need for funds especially at banks has been so great that this has already happened. So that leaves the more structural offshore assets. When I recently met with Mr Saji (Chief Economist at Mitsubishi UFJ Bank) we discussed this issue. According to him there is some Yen 17 trillion sitting offshore but that most of it is invested in fixed assets and it is only the assemblers like Canon and Panasonic that have cash. His checks have persuaded him that this is not going to be a factor and that as long as the domestic investment picture in Japan remains bleak there is no incentive for these funds to move home. I am inclined to agree with him.
2."Safe haven"? Japan is probably in a Depression already, the first of many nations to go there. Its export engine has ground to a halt. It has swung from current a/c surplus to deficit in a big way. The government has the lowest approval rating in history and there is no viable leadership elsewhere. the bankruptcy this week of SFCG may open the floodgates to much more systemic type bankruptcies. Japanese banks credit cost assumptions are way off the mark in my opinion. They all need capital injections urgently. Mizuho has had to pay a 14% yield on its recent issue!The financial system in Japan is once again in crisis. The global crisis has simply masked this to some extent.
3. The technical call is very much a long term one. The high was made in April 1995 and all the action since is probably a huge "supercycle degree" 4th wave, which could easily still be in progress for several more years. So we may still see a new high but not for a long time.
This change of heart has massive implications for my big picture view on things. I do not view the US dollar as a "safe haven" currency and I do not believe that its recent rise is really more than speculative/relative and a result of the deleveraging process. So if there is now NO safe haven currency. GOLD'S recent rise is complementary to that view. I started to go long GOLD two weeks ago for the first time in a long while. More on GOLD later.
My pimary reasons for having it on were:
1. Massive repatriation to plug balance sheet holes at home and the better tax treatment on repatriated funds after 1 April.
2. Japan's relative "safe haven" status of the Yen.
3. Technicals strongly suggested a new long term high (below 79 vs the USD)
Lets deal with these one by one.
1. I think that this has largely taken place. The need for funds especially at banks has been so great that this has already happened. So that leaves the more structural offshore assets. When I recently met with Mr Saji (Chief Economist at Mitsubishi UFJ Bank) we discussed this issue. According to him there is some Yen 17 trillion sitting offshore but that most of it is invested in fixed assets and it is only the assemblers like Canon and Panasonic that have cash. His checks have persuaded him that this is not going to be a factor and that as long as the domestic investment picture in Japan remains bleak there is no incentive for these funds to move home. I am inclined to agree with him.
2."Safe haven"? Japan is probably in a Depression already, the first of many nations to go there. Its export engine has ground to a halt. It has swung from current a/c surplus to deficit in a big way. The government has the lowest approval rating in history and there is no viable leadership elsewhere. the bankruptcy this week of SFCG may open the floodgates to much more systemic type bankruptcies. Japanese banks credit cost assumptions are way off the mark in my opinion. They all need capital injections urgently. Mizuho has had to pay a 14% yield on its recent issue!The financial system in Japan is once again in crisis. The global crisis has simply masked this to some extent.
3. The technical call is very much a long term one. The high was made in April 1995 and all the action since is probably a huge "supercycle degree" 4th wave, which could easily still be in progress for several more years. So we may still see a new high but not for a long time.
This change of heart has massive implications for my big picture view on things. I do not view the US dollar as a "safe haven" currency and I do not believe that its recent rise is really more than speculative/relative and a result of the deleveraging process. So if there is now NO safe haven currency. GOLD'S recent rise is complementary to that view. I started to go long GOLD two weeks ago for the first time in a long while. More on GOLD later.
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