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That Other ?Great Reallocation? Out of the Yen

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.

FXY 12-2-13

YCS 12-2-13

NIKK 11-29-13

DXJ 12-2-13

TB ChartLook Out Below for the (TLT)

 

Woman - Hari KariNew Lows for the Yen

Taking Profits on the Yen?.Again!

This is my 14th consecutive closing Trade Alert, and the 20th including my remaining profitable open positions. I have only six more to go until a break my previous record of 25. It doesn?t get any better than this.

The yen is now in free fall, and the Japanese stock market is going ballistic, as I expected. Both the ProShares Ultra Short Yen double short ETF (YCS) and the Wisdom Tree Japan Hedged Equity ETF (DXJ) have pierced new five-month highs, and loftier levels beckon.

The immediate trigger was a meeting at the Bank of Japan, where the governors voted to maintain their ultra low, 0.1% discount rate. They also reiterated their commitment to growing the money supply by a blistering $600-$700 billion a year, or nearly triple the US monetary easing rate on a per capita GDP basis.

On the same day, we received month old Fed minutes showing a definite lean towards tapering our own quantitative easing. When this eventually does happen, the interest rate differential for dollar/ yen will rise dramatically. Needless to say, this is all terrible news for Japan?s beleaguered currency, as interest rate differentials are the primary drivers of foreign exchange markets.

Given all this, I am going to take profits on my existing short position in the yen through the Currency Shares Japanese Yen Trust (FXY) December, 2013 $101-$104 in-the-money bear put spread. At this mornings shockingly high prices for the spread, we can harvest 83% of the potential profit with one full month still to run to the December 20 expiration.

The outlook for the yen is no so bleak that I want to have plenty of cash to reload on the short side during the slightest recovery. I will move to closer strikes and more distant maturities to maximize your profits. It is now looking like we will soon challenge the 2013 low for the (FXY) of $94.80 and the $72 high for the (YCS).

We have a lot of new readers on board now, as my white-hot performance has become a talking point in the hedge fund community. So for the newbies to familiarize themselves with the basic structural flaws in the yen, please click here http://madhedgefundradio.com/rumblings-in-tokyo-2/, here http://madhedgefundradio.com/new-boj-governor-craters-yen/, and finally here http://madhedgefundradio.com/new-boj-governor-crushes-the-yen/.

FXY 11-25-13

YCS 11-25-13

CXJ 11-25-13

Woman - Hari KariThe Final Act for the Yen Is Just Beginning

Doubling Up On My Yen Shorts

My bet that the Japanese yen (FXY) would weaken against the dollar has paid off handsomely. I am now so confident that we are finally breaking out of a six month trading range to the downside that I am more than happy to double my short position in the yen.

I am therefore taking on the Currency Shares Japanese Yen Trust (FXY) December, 2013 $101-$104 in-the-money bear put spread, moving $1 down in the strikes, but keeping an ever shortening December 20 expiration. The other nice thing about this position is that we will benefit greatly from time decay going into the volatility sapping Thanksgiving and Christmas holidays.

The official reason for the weakness is that the shockingly strong October nonfarm payroll released on Friday will prompt the Federal Reserve to taper its quantitative easing program sooner than later, possibly as early as the December meeting. That would raise interest rates for the greenback while yen interest rates will remain nailed to zero for years to come. This is important, as interest rate differentials are the primary driver in the foreign exchange markets.

The real reason is that traders expect the Bank of Japan to become more aggressive in its campaign to weak the yen and further stimulate economic growth. Japanese companies are now reporting blockbuster earnings, thanks to a falling yen, and the central bank would like to see more of the same.

With the Japanese government actively seeking to cut the knees out from under their own currency, while the Fed will soon take moves to strengthen theirs, a short yen/long dollar trade here a no brainer.

The Tokyo stock market is certainly a believer. Last night, the Nikkei average soared by 2.2%, the biggest move in three months. That?s why I have also been recommending the Wisdom Tree Japan Hedged Equity ETF (DXJ) for longer-term investors, a long stock/short yen ETF.

For more probing and illuminating depth on why the Japanese yen is about to crater, please read ?The Party is Just Getting Started With the Japanese Yen?.

FXY 11-12-13

YCS 11-12-13

DXJ 11-12-13

Woman - Hari KariIt?s All Over for the Yen

Selling the Yen, Again

The Bank of Japan released the minutes of its previous meeting last night, so we now officially know what?s bothering them.

While the inflation rate has edged up to 0.7%, it is still miles (kilometers) away from its two year target of 2.0%. The 100% growth in the money supply promised by the end of 2014 is arriving on schedule. Since October, 2012, the central bank?s balance sheet has ballooned by an awesome 45%.

However, the desired effects on the economy are starting to fade. Real wages are still falling in September for a hair raising 16 months in a row, creating a deflationary effect on the economy that is huge. Prime Minister, Shinso Abe, is also shooting himself in the foot by raising taxes next April, and again in 2015.

It is a problem that is all too familiar to those of us here in the US. The BOJ can step on the accelerator all it wants. But as long as the Diet (their parliament) applies the brakes at the same time to keep the deficit hawks happy, the economy will go nowhere. Indeed, the recent data releases from Japan, white hot in the first half of the year, are starting to cool.

So the BOJ will do exactly as Ben Bernanke has done and throw more gasoline on the fire in the form of further, aggressive monetary stimulus. In layman?s terms this means it?s time to speed up the yen printing presses. That is the only way the central bank can offset the fiscal drag coming out of Tokyo. This is terrible news for the Japanese yen.

The BOJ is certainly going to pursue what is working. By engineering a collapse of the yen in the first half of 2013, they delivered a windfall profit for Japanese exporters. Dollar sales, when brought home are now worth a quarter more. That?s how Toyota was able to announce yesterday blockbuster earnings up 70% YOY.

Rising sales in an appreciating currency deliver a hockey stick effect on profits. The BOJ will take more of that, thank you very much.

This means that it is time to sell short the Japanese yen once again. When we peaked in March around the ?100 level in the cash markets, I thought that we could enter a sideways consolidation that could last as long as six months, since the recent move down had been one of the sharpest in foreign exchange history. That is exactly what we got. In recent months, the currency has almost been nailed to the 50 day moving average.

So I am taking this opportunity to return to a short position in the Japanese yen, the currency that everyone loves to hate. The December 20 expiration gives us a nice ?RISK ON? position in the run up to the yearend, which should be the correct way to lean. It also gives us a December position we can carry after our five November positions expire deep in the money next week.

I have written endlessly on the fundamental case for a weak yen for the past two years (for a link why you should sell short the yen, please click ?Rumblings in Tokyo?, here ?New BOJ Governor Craters Yen? , and finally here ?New BOJ Governor Crushes the Yen?.

From a technical point of view, what is unfolding here is classic chart reading 101. When you get a huge move over a short period of time, such as the 25% collapse in the yen that started in November, 2012, the consolidation and digestion period that follows can be very long. A rapidly declining 200 day moving average, now at $102 in the (FXY) should cap any short covering rallies.

Japanese portfolio managers and corporations have now had half a year to realize their windfall profits on their foreign investments in dollar denominated assets. That was generating hundreds of billions of dollar selling and yen buying that was supporting the beleaguered Japanese currency, no matter how lousy the fundamentals.

Thanks to the BOJ minutes, that support is about to end. Whoever has not sold their yen by now is in for the duration, or at least until the next 10% drop, which may be upon us. A breakdown to new lows could take us as far as ?110 in the cash market, or $88 in the (FXY).

For those who can?t play the options markets, better to just buy outright the ETF (YCS).

FXY 11-6-13

YCS 11-6-13

DXJ 11-6-13

Japanese GirlBack Into the Short Side

Japan to Launch IRA?s

The Japanese government is about to introduce Individual Retirement Account for individual investors for the first time. The move is part of prime minister Shinzo Abe?s multifaceted efforts to revive Japan?s economy, and could unleash as much as $690 billion in net buying into Japanese equities by 2018.

The move was inspired American IRA?s, which were first introduced in 1981. After that, the Dow average soared 25 times. It is amazing to what lengths people will go to avoid the taxman.

Starting October 1, individuals will be permitted to contribute up to ?1 million a year into Nippon Individual Savings Accounts (NISA) or some $10,200, while married couples can chip in ?2 million. These funds will be exempt from capital gains and dividend taxes for five years. At the same time, capital gains taxes will rise from 10% to 20%.

Thanks to a 22-year long bear market, only 7.9% of personal assets in Japan are currently invested in stocks, compared to 34% in the US. Individuals account for only 28% of the daily trading volume in Tokyo, while foreigners take up 63%. Still, that?s up from only 21% a year earlier.

Over the past 10 years, individuals sold a net $214 billion in equities, keeping their eyes firmly on the rear view mirror. Almost all of the funds were deposited into bank accounts yielding near zero. Even 10 year Japanese Government Bonds are yielding only 0.68% as of today, the lowest on the planet. That doesn?t buy you much sushi in your retirement.

Over the past year, Japan has enjoyed the world?s fastest growing industrialized economy. The latest data show that it is expanding at a white hot 3.5%, versus a far more modest 2% rate in the US, and only 1% in Europe.

Early indications are that the NISA?s will be hugely popular. Japanese brokers have launched a massive advertising effort to promote the program, which promises to substantially boost their own earnings. Firms have had to lay on extra customer support staff to assist with online applications, where clueless investors have spent two decades in hiding.

To get some idea of the potential, take a look at how Merrill Lynch?s stock performed after 1981, which rose by many multiples. The bear market has lasted for so long that many applicants confess to investing in equities for the first time in their lives.

Since Shinzo Abe announced his candidacy for prime minister and his revolutionary economic and monetary program nearly a year ago, the Japanese stock market (DXJ) has soared by an amazing 80% in US dollar terms. The Japanese yen (FXY), (YCS) has similarly collapsed by a huge 25%.

The need to bolster Japan?s retirement finances is overwhelming. It has the world?s oldest population, with some 26% of their 127.6 million over the age of 65. The average life span in Japan is 82.6 years. That is a lot of people to support for a $6 trillion GDP. Thanks to plummeting fertility rates, the population is expected to decline to 106 million by 2055.

By yanking $690 billion out of the banks and moving out the risk spectrum, Abe?s new IRA?s provide additional means through which the economy can permanently return to health. Higher stock prices will provide cheap equity financing for public companies, which can then reinvest in the domestic economy and create jobs.

I have written endlessly on the fundamental case for a strong Japanese stock market this year (to read my previous articles on yen, please click the following links: ??Rumblings in Tokyo?, ?New BOJ Governor Craters Yen" and "New BOJ Governor Crushes the Yen").
And thank the US congress for behaving like such idiots. Their standoff is providing a decent entry point for a position here.

 

DXJ 9-30-13

FXY 9-30-13

NIKK 9-27-13

Girl - TickerSo How Does This Order App Work?

Going Back Into Japan

The smart people I know believe that prime minister Shinzo Abe?s plans to revive the Japanese economy will succeed, paving the way for a decade long bull market that will take the Nikkei Index ($NIKK) up to new highs. The dumb people I know argue vociferously and passionately that Abe will fail miserably, and that the economy and stocks will crash and burn as early as next year.

I think I?ll go with the smart people.

Last night, we learned that Japan?s Government Pension Investment Fund (GPIF) is going to carry out a massive reallocation out of domestic government bonds and into risk assets. The move not only sent Japanese shares flying, it has major implications for US and European markets as well.

The GPIF is the world?s largest pension investor, with a staggering $1.23 trillion in assets. It will boost its allocation to domestic shares from 11% to 12%, unleashing $12 billion in net stock buying. A far more impressive $37 billion has been earmarked for foreign stock markets. This will come at the expense of bonds, which will see their share cut back from 67% to 60%.

The move was triggered by the terrible performance of the Japanese government bond market this year, which has seen prices plunge and yields soar. Since the 2012 lows, the ten-year JGB yield has ratcheted up from an unbelievably low 0.39% to as high as 1.20%, a threefold increase. This dragged down the overall return on investment for the GPIF to the lowest levels in history. Since the demands by Japan?s retirees are expected to skyrocket from here, the fund had little choice but to move out substantially on the risk spectrum.

This is most likely only the opening salvo of the multiyear Great Rotation by the GPIF out of bonds and into stocks globally. The GPIF is not only attracted by the far higher dividend yields and capital gains offered by foreign stocks. A weakening Japanese yen will also juice profits when translated back to the home currency.

In the meantime, it is pedal to the metal for Mr. Shinzo Abe, whose late father, Shintaro, I knew well. He is betting the future of the country on a potent, and unprecedented, mix of fiscal stimulus, monetary easing and deregulation. The Bank of Japan has been leading the charge here, targeting a 2% inflation rate in two years, and promising to double the money supply. My own forecast is that this package will eventually take the Japanese yen down from today?s ?99 to ?150 to the dollar.

If you are an old fart like me you will recognize this approach. President Ronald Reagan employed a similar strategy to get the US economy off the mat in the wake of the 1974 and 1980 oil crisis and the stagflation that followed. This paved the way for a move in the Dow Average from 600 to 15,000. Nope, newbies, that is not typo. It really happened. If nothing else, the Japanese are great students of history, perhaps better than we are.

The other incentive to make a move on the (DXJ) here is that a further move down in the Japanese yen (FXY), (YCS) is imminent. It has been hovering just below ?100 for six months now, and is on the verge of launching into a new leg down. All that has been missing until now has been the trigger for the break. The GPIF move could be it.

I have written endlessly on the fundamental case for a weak yen for the past two years (for a link why you should sell short the yen, please click here http://madhedgefundradio.com/rumblings-in-tokyo-2/, ?and here http://madhedgefundradio.com/new-boj-governor-craters-yen/, and finally one more http://madhedgefundradio.com/new-boj-governor-crushes-the-yen/.

DXK 9-26-13

YCS 9-26-13

FXY 9-26-13

Japanese Fan Dancer

The Yen Carry Trade Blow Up

When I staggered downstairs at 11:00 PM to check the close for the Tokyo stock market, my eyes just about popped out of my head. Yikes! Down 6.3%! The yen was up another 2% to ?94 against the US dollar as well!! It looked like the world was in for another round of ?RISK OFF? with a turbocharger. Fasten your seatbelts, and pack an extra pair of shorts.

So I called an old friend in Japan who always seems to know what is going on whenever the wheels fall off there. Ed Merner is the CEO of the Atlantis Japan Growth Fund (LSE-AJG), who has long been rated the number one stock picker in the Land of the Rising Sun. Ed?s fund, which trades on the London Stock Exchange, was, at one point, up a gob smacking 53% this year without a stitch of leverage.

When the ink was barely dry on the US Japan peace treaty in 1950, Ed?s father uprooted his family from the rural High Sierra hamlet of Truckee, California, and moved them to Tokyo. That gave him a front row seat to the economic miracle that followed in the fifties and sixties.

Ed started managing money just a few years before me, in 1970. He toiled away as a portfolio manager at Schroeder?s & Co. in Tokyo for 25 years and then launched his own firm in 1995. Ed, who is a fascinating individual and a genuine nice guy, is the man I always turn to for my long-term view on Japan. Suffice it to say, Ed knows which end of a piece of sushi to hold upward, and is said to be able to snatch a fly midair with a pair of chopsticks. His Japanese is flawless, and he is now regarded as a local celebrity.

Ed says that the ?Rebirth of Japan? story is anything but over, and in fact, is just getting started. He thinks that the Nikkei index could soar from the current ?12,445 to above the 1989 all time high of ?39,000 in years to come. What we are seeing now is a long overdue rest for the world?s best performing major stock market. Bank of Japan mouthing?s of empty platitudes, rather than concrete action is what triggered the current rout.

Much of the money that went into Japan this year was of the hot, algorithm driven variety. You saw this in the dominance of the index names in trading, like Sony (SNE), Toyota (TM), and Honda Motors (HMC). Individual stock picking almost ceased to exist as an investment strategy. When the same hedge funds all tried to unwind their Japanese stock longs and yen shorts at the same time, you got the predictable flash fire in the movie theater. Margin calls became the order of the day.

As the index money leaves in this correction, it will be replaced by more traditional mutual fund and individual investors, who have a more stable orientation. Stock selection will become more fundamentally driven. That?s when Japan transitions from the flavor of the day to a serious core investment.

Now is about the time you should expect that to happen. Japan?s upper House of Councilors election will take place on July 21, and Prime Minister Abe?s ruling Liberal Democratic Party will win by a landslide. After that, you can expand Abe?s plans for an overdue major restructuring of the economy to mature from idle speculation to specific proposals. That is what the market wants to hear. Until then, he is loath to ruffle political feathers. He is going to have to break a lot of eggs to make this omelet.

On the table in his ?Third Arrow? plan are deregulation of virtually all financial markets, modernization of the health care system, immigration reform to open the way for more foreign workers, and rationalization of a bloated government bureaucracy. International trade will get streamlined and capital investment incentivized. More infrastructure spending will be aimed at maintenance and repair, so there will be no more ?bridges to nowhere.?

Oh, and he wants to enable the national pension fund system to step up its purchases of Japanese stocks. Abe wants to compress all of the deregulation that the US has enacted in the past 30 years into the next three.

The truly encouraging thing here is that Abe?s early actions are already bearing fruit. ?Arrows? 1 and 2 put the country on track to double its money supply in two years and paved the way for a staggering $150 billion in new public works spending. The crash in the yen this prompted is causing corporate earnings to go through the roof. Those results will be reported in the fall.

Then, the best company performance in two decades and a national reorganization plan on the scale of Roosevelt?s New Deal will be the impetus for the next leg up in the Great Japanese Bull Market of the 2010?s. That is why I banged out Trade Alerts on Wednesday to buy Japanese stocks through the Wisdom Tree Japan Hedge Equity ETF (DXJ) and sell short the yen through the Currency Shares Japan Yen Trust ETF (FXY) and the Proshares Ultra Short Yen ETF (YCS).

Atlantis Japan Growth Fund Atlantis Japan Growth Fund

DXJ 6-13-13

FXY 6-13-13

YCS 6-13-13

DXJ a 6-13-13

UUP 6-13-13

Proportional Seats

Asian Maids Use the Dip to Buy Japan

Japan is Just Getting Started

Constantly chained to my MacBook Pro at home writing this letter, it is not often that I am in the room when a major market-moving event occurs. That is what happened at the SkyBridge Alternatives Asset Conference (SALT) in Las Vegas on Thursday (click here for the link at http://www.saltconference.com/).

I was listening to one of the legendary titans of the hedge fund industry make the case for Japan. According to the rules of engagement, I can?t tell you who he was, or I would have to kill you. I don?t want to do that because if you?re dead, you might not renew your subscription, and that would be bad for business. But I can pass on the gist of his arguments, which are already well known to the readers of this letter.

He said Japanese companies have tremendous leverage to a falling yen. The Bank of Japan was doing what was necessary to move the yen down from ?100 to ?110 to the dollar. The game changer will come when the government announces its restructuring plan in a few months.

Therefore, Japan?s TOPIX Index at a 13-14X earnings multiple looks cheap. That?s why his fund has been running a major long Japanese stock/short yen position since last year. If he is right, a Nikkei average of 20,000 is in the cards, up another 36% from last night?s close.

I was watching the Currency Shares Japanese Yen Trust (FXY) tick on my iPhone 5s as he spoke. It immediately gapped down 100 basis points. I surveyed the room and saw many heads bowed, fingers furiously typing the news to trading desks, or entering their own ?SELL? orders into online trading platforms.

That smashed the cash market through major resistance at the ?100 barrier, a new four year low. If I had been as digitally endowed, I would have sent out my own Trade Alert to dump the yen. But I?m not. By the Friday opening the next day, (FXY) had given up an additional 100 basis points.

I had been holding back on selling the yen in recent weeks for several reasons. First, we have covered a lot of ground very quickly, the beleaguered Japanese currency plunging 25% in just six months. That is prompting Japanese owners of the $2 trillion in direct and indirect foreign assets to realize some of the recent $500 billion in paper gains. That creates yen buying and downward pressure on the dollar.

Finally, my own trading gains have been so enormous this year, up some 35%, that I am becoming less inclined to stick my neck out and take inordinate risks. Trading has become more of a cherry picking game.

However, the yen?s move through ?100 has been so violent, and on such big volume, that it looks like the real deal. That means the old ?100 upside resistance level now becomes support. That equates to $101.00 in the (FXY). So my (FXY) June, 2013 $100-$103 in-the-money bear put spread actually looks pretty cautious.

This lines up nicely with my own long term downside target for the yen of ?150. This may sound like one of those outrageous predictions one finds so often on the Internet. For me it is not such a stretch. When I first arrived in Tokyo in 1974 and Nixon was taking the US off the gold standard, the yen had just devalued from the old Dodge Line of ?360 to ?305. The move I am predicting represents a give back of only a quarter of the gains since then.

If I am right, it would make my hedge fund friend?s upside predictions for the Nikkei look downright conservative. It would take the ProShares Ultra Short Yen ETF (YCS) from $68 to over $110. It would also boost the Wisdom Tree Japan Hedge Equity ETF (DXJ) from $49.67 to as high as $100.

I indicated to readers at the beginning of the year that this could be the trade that keeps on giving, like having a rich uncle. It looks like, so far, I am right.

FXY 5-10-13

YCS 5-10-13

DXJ 5-10-13

Japanese Girl Looks Like We?re Just Getting Started

Japanese Cash Tsunami Hits US

When Japanese central bank governor, Haruhiko Kuroda, announced the most aggressive monetary stimulus program in history last week, he no doubt expected Tokyo share prices to head for the moon. In that, he has succeeded admirably, the yen hedged Japanese equity ETF (DXJ) soaring by 13.4% in the five trading days since he lobbed his bombshell.

What the bespectacled bureaucrat did not anticipate was that his action would send American shares through the roof as well. Both the Dow average and the S&P 500 surged to new all time highs today, much of the move powered by new Japanese cash. Just when American traders were wringing their hands over the potential loss of quantitative easing, they instead were handed a second campaign of ultra monetary easing.

Until last week, the Fed was pumping $85 billion a month into the financial system. From this week, the Fed plus the BOJ monthly total doubles to $170 billion. I don?t have to draw pictures for you to explain what this means for stock prices.

Indeed, the BOJ?s fingerprints could be found daily on securities of almost every imaginable description. What they have been buying is size exchange traded funds of equities (ETF?s) and bonds of every maturity. Imagine the Fed coming in one morning, calling all the major brokers, and placing orders for a billion dollars each of the (SPX) and the (IWM). That is what?s happening in Japan now.

The problem is that domestic investors in Japan have been unloading positions they have been lugging for years to the central bank, and then reinvesting the cash into better quality, higher yielding US stocks. Notice how well the big cap dividend yielders have been trading, favorite targets of foreign investors. Notice, also, that technology appears to be staging a turnaround on the back of the international money, with recent pariah, Apple (AAPL) actually showing signs of life.

It?s easy to see why this is happening. If you were a Japanese investor, would you want to buy a low growth, low yielding stock in a depreciating currency? Or buy a share in a faster growing company with a much higher dividend an appreciating currency. I rest my case. God bless America!

Needless to say, beyond the sunset made a complete hash of my few remaining short positions in the S&P 500, which only had seven days left to run into expiration. Thank you, Mr. Market for my biggest loss of the year.

Fortunately, that hickey was more than generously offset by profits on shorts I harvested last week, in addition to remaining longs in Bank of America (BAC), Apple (AAPL), and hefty shorts in the yen. As of this writing, I am up a breathtaking 37% so far in 2013.

Where does this party end? Now that we have two QE?s, instead of just one, I think it is safe to say that risk assets everywhere are going much higher. How high is anyone?s guess. It also means that the ?RISK OFF? assets of gold (GLD), silver (SLV), and Treasury bonds (TLT) are headed lower. That?s why I added a long in the leverage short Treasury bond ETF (TBT) this week for the first time in years. The punch bowl just got topped up again, and I don?t have to be asked twice to refill my glass.

DXJ 4-10-13

INDU 4-10-13

SPX 4-10-13

XLK 4-10-13

AAPL 4-10-13

Punch Bowl

The Punch Bowl Has Just Been Refilled

New BOJ Governor Crushes the Yen

Wow! What a day! In perhaps the most dramatic policy move by any central bank, anywhere in history, the Bank of Japan pulled out all the stops to stimulate its moribund, demographically challenged economy. Japan is now lapping its competitors in Europe and the US in the international race to the bottom.

The markets certainly got the memo. Japan?s beleaguered currency collapsed nearly 4% over night, one of the biggest single day moves ever. The ten-year Japanese government bond yield plummeted to a breathtaking 44 basis points, another record low, making our own Treasuries look positively high yield. The Japanese stock market rocketed.

I was busier than the proverbial one-handed paperhanger. There?s nothing like waking up early in the morning and finding that your largest short position has just enjoyed one of the sharpest falls on record. It doesn?t get any better than that in hedge fund land.

So I shipped out the Trade Alerts as fast as I could write them, burning up the national broadband covering those shorts. I also took profits on my short in United Continental Group (UAL). I then turned around and plowed some of my profits back into an increased short position on the S&P 500 Index.

The actions on the new BOJ governor, Haruhiko Kuroda, who only moved into his office on Monday, were nothing less than mind blowing. He plans to double the money supply in two years. He broadened the range of instruments it plans to buy to cover everything from 20 year government bonds to equity ETF?s. No time wasted getting one?s feet under the desk here!

Quantitative easing will be increased to $82 billion a month, nearly the same as Ben Bernanke?s munificent efforts. Keep in mind that Japan?s economy is only one third that of the US. It is the most inflationary and currency depreciating set of policies since Indonesia?s hyperinflation of the 1960?s. All of this, just to get the country?s inflation rate back up to 2% after decades of negative real numbers.

While the yen made it back up to ?95.6 this morning, we are clearly targeting ?100 in coming months. That has the ETF (FXY) falling from today?s $101.60 to $96, and the leverage short ETF (YCS) rising from $61.4 to $67. Use every two-point rally to slam the daylights out of the yen on the short side. That has been my advice for the past six months, and I?m going to stick with it as long as it is working.

Get to 100, and the international community will rise up against Japan?s obvious efforts to grow its economy at their expense. Korean companies are getting slaughtered by the six-month, 20% devaluation of the yen against the Won, rendering their exports prices uncompetitive. China is also pretty unhappy, and could well step up their military posture as a way of expressing its displeasure. Then, watch the fur fly!

FXY 4-4-13

YCS 4-4-13

DXJ 4-4-13

BOJ Govenor I See You a Trillion and Raise You Two Trillion