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We Beat George Soros by Eight Months on the Yen (and Made You 44%)

One of our promises here at Money Map Press is to keep you ahead of the curve - and certainly ahead of Wall Street.

Frankly, this is what you pay us for, and we take very seriously our responsibility to deliver.

Here's another example of how we have.

The Wall Street Journal reported that some of the country's biggest hedge-fund players have reaped billions in windfall profits by betting against the Japanese yen - capitalizing on the fact that the Asian heavyweight must weaken its currency to save its economy.

Billionaire investor George Soros alone has made nearly $1 billion since November on wagers against the Japanese currency, which has skidded about 20% during the last four months, the newspaper reported.

And Soros isn't alone. Investors say that David Einhorn's Greenlight Capital, Kyle Bass's Hayman Capital Management LP and Daniel Loeb's Third Point LLC have also made big money on the yen's decline.

Indeed, betting against the Japanese currency "has emerged as the hottest trade on Wall Street over the past three months," The Journal reported.

But here's the thing: Money Map Press Chief Investment Strategist Keith Fitz-Gerald was eight months ahead of the hedge-fund heavyweights in identifying this profit opportunity. In February he told Private Briefing, subscribers that the yen was headed for big fall - and he even recommended an ETF that would let them profit from his prediction.

The upshot: Keith's recommendation has so far reaped a 44% windfall - which is more than double the 20% yen decline the hedge-fund Johnny-come-latelies have been able to profit on.

And this isn't an empty claim.

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Japanese Election: The Promise of "Unlimited Easing" Sparks More Yen Weakness

Japanese equities have soared and the Japanese yen has weakened over the past week following prime minister Yoshihiko Noda's decision to dissolve the Diet and to call a Lower House election for December 16.

The Nikkei 225 Index, which is weighted more towards Japan's traditional export sector, is up 5.5% since the election was announced. The broad TOPIX index is up 6.2% The yen has fallen by 3.9%, more than 300 pips, and is now trading at an 82 handle for the first time since April.

The main reason for the weakness of the Japanese yen has been the repeated calls for "unlimited easing" by Liberal Democratic Party (LDP) president Shinzo Abe.

The LDP, which governed Japan from 1955 to 2009, is widely expected to be returned to power in the upcoming election. If the LDP wins an outright majority or leads a coalition government, Abe will become prime minister.

In the first few days of the election campaign, Abe made the case for aggressive monetary easing by the Bank of Japan to break the cycle of yen strength and deflation that is pushing the Japanese economy back into recession. Specifically, Abe wants the central bank to conduct "unlimited easing," with the aim of achieving 2% inflation and 3% GDP growth.

Among Abe's most controversial statements was his call for the Bank of Japan to directly finance a new wave of public works spending by directly purchasing construction bonds-off balance sheet government bonds used to fund long-term infrastructure projects considered to be investments.

Construction bonds are obligations of the Japanese government but are not considered to be part of the government's deficit.

"To protect people's lives and keep our children safe, we must implement public works spending and do so proudly," Abe said in a speech reported by The Wall Street Journal. "If possible, I'd like to see the Bank of Japan purchase all of the construction bonds that we need to issue to cover the cost. That would also forcefully circulate money in the market. That would be positive for the economy, too."

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Three Ways to Profit as China Dumps Japanese Debt

As a veteran trader, I have a tendency to look past the day's top headlines. That's why a recent Bloomberg News story - which stated that China sold a net total of 769.2 billion yen ($9.24 billion) worth of Japanese debt in September - really caught my eye.

By itself, this story probably wouldn't be a big deal. But this development is the start of an important new trend in the global currency markets. And the following three factors tell me that we should be taking a close look at why China has decided to dump Japanese debt. For instance:

  • Given that the same thing happened in August, September marked the second straight month Beijing has sold more Japanese securities than it purchased.
  • This marks the reversal of a seventh-month stretch of China being a net purchaser of Japanese debt.
  • The two months of sales nearly wiped out the net surplus of 2.32 trillion yen ($27.86 billion) that China had amassed as a result of seven months of buying Japanese debt.
  • Finally, the 2.02 trillion yen ($24.26 billion) worth of Japanese debt that China sold in August was China's single-largest monthly sale of Japan government bonds since 1995, when these statistics first started being recorded.
While there are other conceivable explanations, my take is that China is definitely unloading its yen-denominated holdings, and shifting its investments elsewhere as part of a much bigger reallocation strategy. As investors, this is a trend that we need to track - and to react to.

Let me explain....

To understand how to profit from this currency-market development, please read on...

Money Morning Mailbag: Japan's Rising Yen Struggle Signals Need for Industrial Shift

The yen strengthened as much as 82.75 per dollar Wednesday, fueled by speculation that the U.S. Federal Reserve would buy more government bonds after a drop in U.S. payrolls.

The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds - similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.

"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.

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We Want to Hear From You: Are You Prepared for the Global Currency War?

The housing market remains in the dumper. U.S. stocks - despite a rally - are still 22% below their record highs of two years ago. And the "official" unemployment rate remains at a heart-stopping 9.6%.

With their knees almost ready to buckle under such burdens already, how will American consumers respond when clothes, computer accessories or other key consumer staples at their neighborhood Wal-Mart Stores Inc. (NYSE: WMT) undergoes an overnight price hike of 30% to 60%?

As the United States aims to increase exports by debasing the dollar, a global currency war is underway that could swallow consumers and investors if they don't prepare for the likelihood of a weaker dollar.

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Currency War Heats Up as Japan Lowers Interest Rates to Devalue Yen

In a move designed to jolt its economy back to life and protect its export industries from an international currency war, the Bank of Japan (BOJ) said yesterday (Tuesday) that it would expand its balance sheet and lower its benchmark interest rate to "virtually zero."

The bank cut the overnight call rate target to a range of 0.00% to 0.1%, the lowest level since 2006. It last cut the target rate to 0.1% from 0.3% in December 2008.

Policymakers also will establish a $60 billion (5 trillion yen) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating doing the same.

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Japan's Move To Push Down Yen Gives Its Exporters a Boost Against Global Rivals

Japan yesterday (Wednesday) intervened in the currency market for the first time since 2004 to weaken a surging yen that reached a 15-year high against the U.S. dollar - and the government intervention is expected to continue.

The Japanese yen hit 82.88 against the dollar, alarming the country's officials who are worried that the rising currency would cut into exporters' profits. The yen had risen more than 11% since mid-May.

"We can't overlook these movements that could have a negative effect on the stability of the economy," Finance Minister Yoshihiko Noda said Wednesday. "We will continue to watch developments in the market carefully and we will take bold actions including further intervention if necessary."

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Japan Stimulus Not Enough to Ensure Economic Recovery

Japan yesterday (Monday) attempted to halt the surging yen by outlining stimulus measures and easing its monetary policy, but markets failed to respond.

Prime Minister Naoto Kan detailed a plan to implement a new stimulus program by the end of September, and the Bank of Japan announced after an emergency meeting that it would introduce new loan programs to encourage bank lending to consumers.

The yen has climbed more than 10% against the dollar since May, last week hitting a 15-year high of 83.60 per dollar and threatening Japan's export-driven economic recovery. Analysts were skeptical that the moves would do anything to change the currency value or stimulate the stagnant recovery, and said the measures are largely a political attempt to pacify Japanese consumers instead of actually halting the yen's rise.

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Investment News Briefs

With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world. Nikkei Hits Three-Month High; Obama to Small Banks: Step Up the Lending; Tax Credit Fuels 7.4% Gain in November Home Sales; OPEC Leaves Oil Output Unchanged; WSJ: Apple Approaches CBS, Disney About Internet Television Service; Report: Computer Hackers Stole Millions of Dollars from Citi; Federal Court Upholds Ruling on Patent Infringement by Microsoft; Buffett Adds Comcast COO to Berkshire Board A weaker yen and strong technology stocks helped Japan's Nikkei 225 finish 1.9% higher at 10,378.03 yesterday (Tuesday), the highest level in three months. Most shares of tech companies gained after Barclays Capital (NYSE ADR: BCS) upgraded its rating on Intel Corp. (Nasdaq: INTC) from overweight to market weight on Monday. "The U.S. dollar strength is undoubtedly helping out the Nikkei," Cameron Peacock, an analyst at IG Markets told "With Japan being such an export-focused economy, the weaker yen is a real positive for Japanese companies' earnings." The White House will seek to remove bureaucratic barriers that prevent community banks from lending so they can help businesses seize "enormous opportunities" for growth, U.S. President Barack Obama told the heads of a dozen small lenders yesterday (Tuesday). The president encouraged the bankers to keep the nascent recovery of the U.S. economy going by increasing their lending to small businesses and supporting the financial reform measures being proposed on Capitol Hill.

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Hot Stocks: The Three Roadblocks to Sony's Turnaround

Sony Corp. (NYSE ADR: SNE) is facing the first consecutive annual loss of its 63-year history. The Tokyo-based company lost $1.1 billion (98.9 billion yen) last year, and it expects to lose another $1.4 billion (120 billion yen) in its fiscal year ending March 31. That would be Sony's first back-to-back annual loss since the […]

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Investment News Briefs

With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world. IMF to Raise Global Growth Forecast; CIC Investing $1 Billion in Oaktree; Yen Highest in Eight Months; Bombardier JV Wins China Contract; World Bank President Wary of Fed's Power; Trichet: […]

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Will the Yen Lose its “Safe Haven” Status as Japan’s Economy Deteriorates?

By Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report Historically speaking, the Japanese yen has proved to be a safe haven against global turmoil. Right now, however, Japan's economy is among the worst hit of all the global powers. It is ill prepared to weather the global storm and it's falling like a rock. That's why, […]

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Bank of Japan Holds Its Lending Rate Steady

From Staff Reports Bank of Japan policymakers yesterday (Thursday) voted 8-1 to leave the key overnight lending rate unchanged at 0.5%. Japan's central bank last raised interest rates in February, when it lifted the overnight rate by a quarter of a percentage point. The announcement was published on the Bank of Japan's website yesterday afternoon. […]

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Investments For A Weak Dollar World

By Martin Hutchinson Director of Global Investing Research The European euro hit a record value of $1.39 this past week, and the Japanese yen strengthened again to 114 to the dollar, well above the 120 it’s traded at most of the year. The British pound Sterling is at $2.03, back to levels it hadn’t seen […]

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