Wednesday, February 28, 2007


Ozone Layer In Markets Broken


Times like these, we have to assess major pointers and plan strategy. What we know:


1) This is a yen carry trade reversal fear, not a China thing anymore

2) This is largely fear based, rather than actual unwinding of stocks and bonds to buy back yen

3) Is growth intact, is earnings intact, yes and yes

4) What about inflation, if anything the US is headed for a soft landing

5) Now that the dust has settled, look at the interest rate differentials btw yen and uds, yen and ringgit, yen and aud, yen and euro ... the differentials are still very attractive to continue with the yen carry trade

6) Would carry trade unwind? Not likely, the differentials are still there... Why then the correction? Its largely fear-based, China dropped on silly rumours, yen held steady, Nikkei lost a bit. Dow carried on the losses but the yen gained 2 yen in strength during US time ... fear sets in that this is the beginning of a tide, but more likely it is just a lot of forex traders taking positions favouring the yen in anticipation

7) A real yen trade reversal will be accompanied by dramatic weakness in hot currencies such as ringgit, oz dollar, even sing dollar and brazilian real ... that was not evident, so its still largely fear based

8) Why the panic then? Equity markets rising 9 out of 10 days, no bad news, all are waiting for some excuse for it to correct, though the quantum may be overdone

9) BOJ does not want a strong yen as it will curtail recovery plans, other central banks also do not want a strong yen as that will rock their financial markets. Can expect a joint statement from Fed and BOJ on a view supporting a flat yen to calm markets

10) Correction of 10% is termed as a correction, many markets have reached that level already

11) Don't expect back to normalcy in a jiffy, it will take more than a few days for markets to rebuild their bases before continuing the bull run

12) Hence bull run is not deflated but rather interrupted

2 comments:

The Mumbling Priest said...

Thanks for the analysis Dali. Love the surgeon's pic. Didn't notice these pics before ... since when ah?

sopskysalat said...

I just did a mental calculation.

SIT, KLSE all done a 10% from top.

HSI, DOW, N225 only did a 5% so far.