As the global economy continues to weaken investors have been forced to buy dollars as debts unwind and Yen as the carry trade unwinds. It’s been baffling for many investors because the U.S. and Japan are extraordinarily weak economies. If you’re in the deflationist camp (as I still am) and a believer that the worst isn’t necessarily over you have to continue being bullish on both. I think the stability in both currencies is a clear sign that the de-leveraging process is far from over. In addition, as the largest economies in the world, both currencies are safe when compared to others. The likelihood of a run on either currency is near 0%. I’ve been bullish on Yen for years (though I believe the dollar will remain strong I would not buy it) and moreso after the recent decline. With equity markets looking frothy and risks abundant, I believe we could easily see a 5%+ move in Yen to the upside before the end of the summer.
Tom Keene has some more insight here:
Disclosure – I am long Yen.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
Interesting. I’m very much a layman, not an economist (but learning fast in these times), but it seems that this also ties in with the Treasury play and oil. Everybody’s convinced that Treasuries will be going down in the near future and that oil is a sure thing to go up (i.e. inflation is sure to be a problem, and soon).
The contrarian in me says these are too easy. If that’s what everybody thinks and is betting on, maybe they’re wrong, at least in terms of the time frame. If debt deflation is really the dominant force in the next few years then that puts the lie to these theses. And I’m becoming more convinced that that is the case, and we’re all in denial about it. Clearly the Fed is mitigating that force, but the question is can Bernanke win that battle. Mish thinks not. I’m beginning to think this is the way to play things in the near future. It also portends a lower market which I think we will and should have.
Of course gold is a mystery and may be a good play even in this scenario. The uncertainty/crisis play. That’s also Mish’s viewpoint, I believe.
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