April 19, 2010 – Uncle Yen

Featured Trades: (YEN), (YCS), (GS)

1) I have a new rich uncle. His name is Uncle Yen, and he is writing me a big fat check almost every day, enabling me to live my luxurious, in your face lifestyle.  Not only have I covered the Citation's fuel bills for the year, I managed to pay for the annual and two engine rebuilds as well. Since my initial call to dump the yen on March 5 (click here for the call), the Japanese currency has fallen from ¥88.5 to ¥95.5. So what's the big deal, you may ask? It is the way that the yen has shrunk that has been so immensely profitable. It is doing so in a choppy, volatile fashion that has become a day trader's paradise. Take last Wednesday, for example. Bernanke's testimony suggesting that interest rates aren't going up any time soon sent the June futures flying from 106.88 to 107.76. Sell! Then a few hours later China announced a white hot Q1 GDP of 11.9%. Dive! Dive! I covered at 106.98. Kaching! I normally don't engage in this kind of self abuse, and only day trade to keep from getting bored. But when the guy walking ahead of me keeps dumping hundred dollar bills on the sidewalk, I'm going to pick them up. I have probably taken ¥15 yen out of a ¥5 move. This is going on in the face of one of the largest short positions in the futures in history, which appeared practically overnight when the yen broke key support at ¥90. For a list of fundamental reasons why you would not pick up the yen, even if you've just had six strong drinks and she were the last girl at an out of town bar five minutes before closing time, please click here ).  My friend Dennis Gartman of The Gartman Letter has pointed out and additional headache for the yen (see chart below). Some of the more trading oriented central banks are going to start paring back reserve yen holdings. The only way this is not going to work is if we get another gut churning  sell off in the stock market which sends the big hedge funds back into risk reduction mode, forcing them to cover enormous yen shorts in a hurry. If you have missed the move so far, use the yen strength today triggered by Goldman Sachs's (GS) fraud accusations to scale into opening positions. And for good measure, buy the leveraged short yen ETF (YCS). Come to think of it, the Citation could also use a new set of tires too.