The big talk in the financial markets this year was of the “Great Reallocation” out of bonds and into stocks.” The problem is that it was just that: talk. While redemptions of retail bond mutual funds have topped $147 billion since June, the big money has yet to move in size.
However, there is a great reallocation that is already well under way. In fact, it already completed its first leg earlier this year, and has just begun the second. That is the “Great Reallocation” out of yen (FXY), (YCS) and into the dollar. It is being executed not only by Japanese institutional investors, but foreign ones as well.
Take a look at the chart below, and you will see that the beleaguered Japanese currency broke to a new four year low this morning. Nothing like a jolt of fresh (FXY) to wake you up first thing in the day, and clear out those cobwebs.
This freefall was on the heels of my doubling up of my yen short positions for my model-trading portfolio with my Trade Alert on Black Friday. The (FXY), now trading at $94.80, is clearly targeting the $90 low set in 2008 for the short term, and after that, the $81 low last seen in 2007.
To understand why this is happening, take a look at this from the point of view of the Japanese money manager, who is running the world’s second largest pool of investable assets, after the US. After a 23-year performance drought, you have just had one of your best years in history.
The Nikkei rocketed by 48%. Better yet, the yen has fallen by 16% against the dollar, which directly translates into an equivalent increase on your foreign investments.
Why not visit the well a second time? Why wait until 2014, when everyone else is going to do the same thing again? In fact, why not drink twice as much this time, as the water is so sweet? What is the conclusion of all of this? Sell more yen, and lots of them. That was what I clearly saw unfolding a month ago. This is why you are making so much money now.
This explains why I have been running big shorts in the yen for almost all of the last two years, doubling up, taking profits, and then doubling up again. I have no doubt that when I total up my numbers for 2014, the yen will pop out as my most profitable trade. Domo Arigato Abe-san!
For readers who need to bone up on the fundamental case against the Land of the Rising Sun, and the trigger for the latest collapse, please click here for “Selling the Yen, Again” , “Doubling Up On My Yen Shorts”, and “The Party is Just Getting Started With the Japanese Yen”.
As for the original “Great Reallocation” from bonds to stocks, take a look at the chart of Treasury bond futures below lifted from the Gartman Report, reproduced from my friend, Dennis Gartman. Veteran traders will immediately recognize the “head and shoulders top” that is unfolding in the US Treasury bond market. This is the chart that promises of great things to come in the bond market in 2014….on the downside.