(FXY) Archives - Page 13 of 16 - Mad Hedge Fund Trader

Three Charts That Will Turn the Markets

I wrote at length yesterday about why this is not a new bear market, but a traditional 7%-10% correction instead. Now, I?ll show you three charts that will call the exact turnaround.

The ten-year Treasury bond (TLT), (TBT) is clearly the lead contract. It has, far and away, been the most accurate in anticipating the future direction of all asset classes. Get this one right, and everything else falls into line.

Take a look at the chart for the (TLT) below, which has clearly broken the 200 day moving average. I think that this is a false breakout, and that we are not trading in a new $108-$112 trading range that prevailed last spring. Note that while the 200-day average is busted, the 200-week is still putting up fierce resistance. This may well be the line in the sand that counts.

Next, take a look at the chart for the Japanese yen (FXY), (YCS). This is crucial because the yen is the world?s funding currency, thanks to its zero interest rates. When traders are in ?RISK OFF? MODE, they dump their positions in all asset classes and buy yen to repay their broker loans. This forces the yen to appreciate against the US dollar, something the Japanese government is loathe to seeing. This occurs on a scale of trillions of dollars.

When investors throw caution to the wind and pile back into ?RISK ON? portfolios, the reverse happens. They borrow yen and sell them to finance new positions, sending the yen down. Weakness in the yen is therefore the first place you will see a recovery in global markets.

The yen chart bellows shows that it is taking a run at its 200 day moving average at $97.91. That is only $1.70 up from here, and in line with ?100 to the dollar in the cash market, another important resistance level.

My expectation is that the yen will fail here and return to its longer-term downtrend, bringing a major 6% rally against the greenback to an end. That will send a great flashing green light to traders that the buyers strike is over and that its time to get back to work.

You see a very similar inverse chart with the S&P 500 (SPX). The bottom here also appears to be the 200 day moving average at 1,708, a mere 32 points below today?s low. That is only one bad day away. Watch for a rally from here to trigger simultaneous sell offs in the Treasury bond and yen markets.

You can play this game all day long. A confirming move of a top in interest rates would be a big rally in bank shares, which need higher interest rates to make more money. So keep a laser focus on Bank of America (BAC) and Citigroup (C). At the same time, gold (GLD) will once again get thrown out with the trash, since higher rates punish holders here with a greater opportunity cost.

This all may happen sooner than you think. The Friday January nonfarm payroll neatly sets up a double top in the volatility index at $21. Get a good number, like over 200,000, and see substantial back month revisions up, and volatility will collapse back to the mid teens. Everything else I described above will come to pass.

However, I won?t find out what transpired until Saturday. When the Department of Labor releases the anxiously awaited report, I should be fast asleep in my first class cabin somewhere over French Polynesia on my way to New Zealand. Send me an email on what happens.

The Nonfarm What?

My Market Take for the Rest of 2014

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I can?t believe how fast the year has gone by. It seems like only yesterday that I was riding the transcontinental railroad from Chicago to San Francisco, writing my 2013 All Asset Class Review. Now 2014 is at our doorstep.

As usual, the market has got it all wrong. There is not going to be a taper by the Federal Reserve next week. If there is, it will be only $5-$10 billion, which means that $70-$75 billion a month in Fed bond buying continues. Either way it is a win-win.

However, managers are eternally loath to trade against an unknown, hence the weakness we are seeing this week. I think that we have entered another one of those sideways corrections that has been a hallmark of the market all year, and that there is a reasonable chance that we saw the low of the entire move down this morning at 1,780 in the S&P 500.

That sets up a dead, range trading market into the Fed decision next Wednesday afternoon. Once their Solomon like choice is out, it will be off to the races for the markets once again, probably all the way until 2014.

However, we are heading in the Christmas holidays, when volume and volatility shrivel to a shadow of its former selves, with daily ranges often falling within 50 Dow points. So it is important to have a large short volatility element to your portfolio.

That way, you will make money on every flat day, of which there should be many. That?s why I have 70% of my current model-trading portfolio invested in call spreads.

My current holding in the (SPY) has me profitable at all points above $175.68. If we move below that, any losses should be more than offset by profits thrown off by the rest of the portfolio. The same is true for my call spread in the financial ETF (XLF).

The Japanese yen is clearly in free fall, probing new lows almost every day. That should take the (FXY) to $95, and explains my triple weight 30% holding in the area. Bonds (TLT) just can?t get a break, failing to rally over $105 for the third time. Lower levels beckon, making my bear put spread look pretty good, my second one this month.

With a dramatically weakening yen, you have to add to Japanese equities, which will benefit hugely. That?s why I doubled up on my position in Masayoshi Son?s Softbank (SFTBY) this morning. The day they announce the Ailibaba IPO, probably early next year, these shares should be up 10%-20%.

To summarize, this portfolio is perfectly set up for the following: ?A sideways move for four more trading days, then an upside breakout after the Fed decision, then going to sleep inside a slow grind up over Christmas and New Years.

The grand finale should come on January 2, the first trading day of 2014, when I expect the value of the portfolio to pop a full 5% or more. This will be delivered by a massive new wave of capital into the markets, which for calendar and legal reasons couldn?t be invested until this day.

What will they buy? Everything that worked last year. After all, that?s why these managers were hired. Why not start the New Year with a bang, and then spend the rest of the year trading against that profit.

It certainly worked this year.

Has It Been That Long?

That Other ?Great Reallocation? Out of the Yen

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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.

Look Out Below for the (TLT)

New Lows for the Yen

Mad Hedge Fund Trader Hurtles to 58%

Diary, Newsletter

The performance of the Mad Hedge Fund Trader?s Trade Alert Service is still going ballistic, falling just short of a 60% gain for the year last week. Every new subscriber since September has seen 100% of their trades turn profitable. This is your classic ?shooting fish in a barrel? market.

I know guys my age aren?t supposed to be packing in 16-hour workdays. But it?s all worth it when I can level the Wall Street playing field for the individual investor.

Including both open and closed trades, the last 21 consecutive Trade Alerts have been profitable. I am rapidly closing in on old record of 25 successful Trade Alerts, made earlier this year.

The Trade Alert service of the Mad Hedge Fund Trader is now up 58.00% in 2013. The November month to date record is now an enviable 13.54%.

The three-year return is an eye popping 113.05%, compared to a far more modest increase for the Dow Average during the same period of only 32%.
That brings my averaged annualized return up to 38.8%.

This has been the best profit since my groundbreaking trade mentoring service was launched three years ago. These numbers place me at the Mount Everest of all hedge fund managers, where the year to date gains have been far more pedestrian. It seems that their shorts are killing them.

I took profits on my long position in Citigroup (C), which just achieved a major upside breakout, and then rolled the capital into the Financials Select Sector SPDR (XLV). I cashed in on a long position in the Australian dollar (FXA). I also took profits on short positions in the Japanese yen as it approached new lows for the year.

My remaining long positions in Apple (AAPL) and the Industrials Sector Select SPDR (XLI) are contributing daily to my P&L, thank you very much. I am also keeping my short in the Treasury bond market, and will double up on the next ten basis point backup in ten-year rates.

This is how the pros do it, and you can too, if you wish.

Carving out the 2013 trades alone, 74 out of 89 have made money, a success rate of 83%. It is a track record that most big hedge funds would kill for.

My esteemed colleague, Mad Day Trader Jim Parker, has also been coining it. Since April, his own performance numbers have just come back from the auditors, revealing that he is up a staggering 279%.

The coming winter promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere in 2014. The Trade Alerts should be coming hot and heavy. Please join me on the gravy train. You will never get a better chance than this to make money for your personal account.

Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service and my daily newsletter, the Diary of a Mad Hedge Fund Trader. You also get a real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars.? Upgrade to?Mad Hedge Fund Trader PRO?and you will also receive Jim Parker?s?Mad Day Trader?service.

To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.

Doubling Up On My Yen Shorts

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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?.

It?s All Over for the Yen

The Rising Risk of a Market Melt Up

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The risk of a major market melt up just took a quantum leap upward with the European Central Bank?s surprise 25 basis points in interest rates a few minutes ago. The move had not been expected from normally sleepy and moribund European monetary authorities for a few more months.

The ECB?s action has major positive implications for the world economy. It gives a shot of adrenalin to a global synchronized economic recovery, which was already in the cards for 2014. The effect on all asset classes will be huge.

Of course, the Euro ETF (FXE) crashed by $1.70, as one would expect, one of the largest moves of the year in the foreign exchange markets. We already took profits on a short position we strapped on in the Euro the last time it ran up to $1.38, which turned out to be the peak of a multi month move. But it has also spilled over into the other currencies, expanding into a much broader move into the US dollar.

The Japanese yen (FXY), (YCS) has just puked up 60 basis points, where we have a major short position and were looking to add. As a result, we have already gained 58% of the potential profit for a position that we added only two days ago. The Australian dollar (FXA), where I am also attempting to go long on a bigger dip, has lost 50 cents. Gold took it on the nose, again.

The other blockbuster event, which transpired this morning, was the release of the early read of US Q3 GDP, coming in at a red hot 2.8%. This was much higher than expected, with many estimates hovering around the 2.0% level. This means that the 0.5% we lost in the Washington shut down will turn out to be just a speed bump. We should make it all back, and much more, in the run up to Q1, 2014.

But wait! There?s more!! The price of oil has plunged by $20 in six weeks, thanks to the massive oversupply coming out of US fracking fields, and the movement of US-Syrian hostilities to a back burner. Even an Israeli attack on a Russian resupply of missiles at a Syrian port failed to generate any interest in Texas tea. Two months ago, this would have been worth a one day, $5 spike.

The US Energy Information Agency calculates that a $20 cut in the price of oil adds 0.4% to US GDP, and cuts unemployment by 0.1%. Newly enriched consumers spend more money and corporations with lower costs earn more profits. In other words, it cancels out the negative effects of the Washington shutdown in one fell swoop.

The University of California argues that ten out of the last 11 recessions were triggered by oil price spikes. The inverse is true as well. Collapsing oil prices create economic booms. Guess which way we are headed?

US Q3 earnings reports are generating extremely favorable comparisons, up about 10% YOY in aggregate. We have an extremely favorable calendar right now, as November and December are traditionally strong months for risk markets. Maybe it?s also that holiday grog. We also have the 2014 ?Great Reallocation? out of stocks and into bonds to look forward to, which has probably already started.

It all adds up to a first class market melt up, which could start at any time. Indeed, given the torrid market performance since the summer, and its Teflon like behavior during the October Washington shutdown, some strategists are claiming that a melt up has already started. The net net of all of this is that the world looks like a much friendlier place, and I am much more inclined to add risk than I was only a few minute ago when I dragged my sorry ass out of bed.

Below, please find the posture you should take in the markets listed by asset class.

*Stocks - ?buy the dips, running to a new yearend highs, especially in technology,? industrials, health care, and consumer cyclical
*Bonds - ?sell rallies, heading to the top of the 2.50%-3% 10 year yield range
*Commodities - start scaling in on dips in copper, iron ore
*Currencies - sell yen on any rallies, buy the Australian dollar on a China recovery
*Precious Metals - stay away, the world wants? paper assets
*Volatility - stand aside, will bounce along bottom
*The Ags - stay away until next year, great weather is killing prices, but too late to sell short

Selling the Yen, Again

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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).

Back Into the Short Side

Cutting Back My Risk

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By now, you have figured out that I executed a major ?derisking? of my model trading portfolio today, cutting my exposure by two thirds. Most of these positions only had a few basis points in maximum profit left, so bailing here was a no brainer, a case of ?Basic Risk Control 101.? Better to laugh about the market in a few days or weeks, than cry. My profits this year are so huge that they are well worth defending.

There is an eerie silence going on in the markets now. All real news has ceased. The government data releases that dictate the short-term direction of prices have come to a complete halt, thanks to the government shutdown. The rest of the news is all political, which is to say that it is useless. When markets are driven by opinions instead of facts and data, you want to run a mile.

I recently spoke to some Tea Party activists, and the extent to which they hate President Obama is frightening. They would happily subject the country to another Great Depression if it meant they could be rid of the community activist from Chicago for good.

The debt ceiling crisis gives them the means to do exactly that. Therefore, I believe that the current impasse in Washington will last longer than the market expects. What the Tea Party doesn?t understand is that once you shatter confidence, it is very hard to get it back.

As a result, my friends in the high frequency trading community tell me that the risk of a flash crash is rising. All you need is for the wrong comment at the wrong technical point in the charts on the wrong day and a deluge of cascading selling could result. That day could be October 17.

This is clearly a minority view, but it is not impossible. Take a look at how the momentum names, like Netflix (NFLX) and Herbalife (HLF) are getting hammered today and you?ll see what I mean. This was further confirmed by the volatility index (VIX) breaking through $20 today, up more than 50% from a month ago.

So I?ll let valor be the better part of judgment here and move from a serious ?RISK ON? trading book, to one that is more clearly market neutral. That demands I cash in my winnings in short positions in the Japanese yen (FXY), and my long in Apple (AAPL).

As for my long in the Japanese stock market (DXJ), I?ll have to settle for a stop out with a moderate loss. It?s not the first time that I have lost money in Japan, nor certainly the last. This was the ?Bridge Too Far? among my trades this year.

I still am sticking with my medium term bull case, which sees us moving to new highs by yearend. But we could see one big final flush before we turnaround. That?s when I want to jump in wit both hands and go fully invested once again. To best profit from such a scenario, you have to go into the next dump with the most cash possible. Today?s action gets us close to that point.

Japan to Launch IRA?s

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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.

So How Does This Order App Work?

Going Back Into Japan

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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/.

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