Friday, April 01, 2011
So Long (and thanks for the all the....)
August 2008 now seems to be so far away (unless you are Jeff Gendell or similar). Most things have returned to "normal" (lower case "n"): Israeli's and Palestinians are fighting; Fox network presenters make nightly asses of themselves; Wealthy Russians battle amongst themselves for top rung on the BLING! ladder; BRICs (and most of what was formerly known as The Developing World") grow robustly; American party politics and State dysfunctionality plumbs new depths; kids and adults alike waste evermore time networking socially on-line, and the ratio of executive-to-line-worker-pay ascends higher. Markets too, have normalized, with most prices finding the place they left off before The Vomit Scene threw them off course: commodities march higher as BRIC demand conspires with all species of specs to vault levels upwards; the dollar descends; stocks globally rally; bonds remain relatively neutered by intervention. Indeed we could be in 2007 again, were it not for upsided-ness of middle-eastern politics, peripheral European CDS, and the American President's tan and articulateness.
Everything, that is, except the Japanese Yen (and by extension, the Nikkei), the former which remains at, levels incongruent with, well, everything else in the world. Of course most FX traders horizon is measured in units corresponding to the winding of the average mechanical watch (or less!). Even Google finance's "all time" historical data for Spot USDJPY yields the beginning of time as somewhere in 2004. The credit crisis took the USDJPY from 110 to 90. Many carry trades were necessarily puked. But not all. 2010 began with Short Yen being one of Drobny's "trades of the year" - a curse and sure sign of crowdedness for those seeking instant gratification or truly asymmetrical risk vs. reward. They, too, were puked out by the market's swap of the dollar for yen in carry trades, sending the Yen from near-term macro peak-crowdedness levels near enough in the mid-nineties to 80. This, accomplished all the usual things of further puking carry trades not unwound previously, and sucking in the mimetic trend followers. The quake, and subsequent market response, was probably the last hurrah, in comparison to a world of increasing relative normality.
Timing is a of course bitch. When EURJPY was stupid in late 2006 it was a year and a half of topping and volatility before it moved decisively from 170 to 110. The Yen has been "up here" now for more than two years two major episodic pukes, reddening the arses of even the cleverest of specs. Big picture long term market memory has been erased from most grey matter. I do not make prolific calls, but I must exclaim, the time is now. The moons are aligned. Par (vs. USD) though 20% distant, will be here almost as fast as you can say "Jack Sparrow". It's spring, and it's a mighty fine time to sell some Yen calls and buy twice-as-many 1yr out-of-the-money yen puts, and then go do whatever it is you enjoy doing.