Tuesday, May 29, 2007

Mr Market Replies.....

I just received this reply from Mr Market regarding my queries on the recent behaviour of the major commerical real estate indices (e.g. S15REAL Index GPC W)

Dearest Cassandra,

So lovely to hear from you! You really should pick up that pen paper, sit yourself down and write the traditional letter more often! I can tell you from experience, it's very cathartic.

As to your question. I know what you'd like is a simple answer, but reality is perhaps more complex. You see my commercial real estate friends are caught in the tug-o-war between abundant liquidity and a slowing economy. And I've yet to write the middle chapters, let alone the final oness. But, I CAN tell you that I've made the price action choppy and trending lower, and because it's my job, I've engineered a large bounce on light volume today as a counter-trend move in order to confuse and shake-out potentially weak shorts.

I do this this helps, and do not hesitate to write me again if I can be of any further service to you.

Yours faithfully,

Mr Market

P.S. - Being omniscient, I will tell you that you really must do something about that frightful cash-position in your personal account. Being under-invested is terribly costly when asset prices are soaring.

6 comments:

Macro Man said...

"Being under-invested is terribly costly when asset prices are soaring."

Only if you feel that opportunity cost is more painful, expensive, and psychologically damaging than paying the top in a market you don't like (or at least feel is due a correction) and losing more on the way down than you made on the wayup.

(Spoken as a fellow member of the I Love Cash Society, p.a. version.)

"Cassandra" said...

The full name is: the "I Love Cash Society Because I Believe That Fiscal and Monetary Authorities Will Be Forced To Traditionally Respond To Inflation and Deficits Causing Large Asset Price Corrections That Make Cash The Superior Relative Investment Over The Investment Horizon".

Your chapter (and lodge hats) may be different. My chapter's lodge hat is currently a Daniel Boone cap fashioned out of a Donkey's Tail in recognition of the costliness of the Lodge's current allocation.

Macro Man said...

Ah.....our hat is a chav-tastic Burberry tartan baseball cap: we think they look great, everyone else thinks we look like cretins.

R said...

Given your cash preference, what is your view on the Yen?

"Cassandra" said...

Like Japan (and all it encompasses) I have a love-hate relationship with the Yen.

In the absence of official intervention - both overt (their $800bn horde) and endogenous policy (read: ZIRP, nearZIRP and all unnaturally low rates of discount that entice leveraged carry trades and domestic capital flight), the Yen would be amongst the world's strongest, with all that this entails (before the contradictory rot of the winner's curse of mild deflation, loss of competitiveness, hollowing economy, increased imports, etc.) sets in.

But MoF, BoJ, etc. has engineered a [globally anti-social) preemptive solution for this by uglifying the yen in order to preserve parochial mercantile advantage IMHO, which has been very effective (witness USD & Euro/Yen KRW/Yen even RMB/Yen).

This means: continued skew of small-size returns in direction of yen weakness, with infrequent but periodic large fat-tailed yen strength returns.

I say this with 20/20 foresight for the reality of this set in when I cut the vestiges of long yen last fall at 120.20 - not because I didn't think I'd get better at some point but because the directional skewness of mental anguish being long yen amidst such a headwind.

Final Score: MoF/BoJ -One ; Cassandra Academical - Nil

R said...

I appreciate the comment. Being Japan remote, I’m not clear on the political dynamic that is involved in impoverishing the older citizen-savers with the ZIRP interest rates. It seems to me that to be constructive on JPY, the penalty of the severe negative carry vs. other world currencies must abate.

I do know that a person who lives on investment income will scrimp and save if there is no prospect of making money on their investments. It seems really foolish to keep the retired Japanese savers with low incomes, which must inevitably harm their propensity to consume, and thus puts the Japanese economy in the toilet.

Does this view of economic life make sense to you? If so, will the MOF ever understand the damage that ZIRP may be causing to their economy?