Friday, June 14, 2013


This is the entry that should have appeared yesterday, but you see I have something called spinal stenosis which from time to time will lay one so low with pain that you are simply incapable of functioning.  It started in the mid-afternoon and That was the end of That.

Anyway, after complaining that nothing was going on I woke up rather early on Tuesday and for a change got out of bed and dialed up the Straits Times expecting to see another quiet day in Asia.  Not happening.  Every market one could find was in the tank and the futures in the U.S. were heading right along with them.  It seems that the Japanese had announced that there would be no change in BOJ monetary policy and that set it off.  It wasn't long before the talking heads over here started explaining things, confusing everyome to an even greater extent and down went everthing on a roller coaster ride that was something to watch.

The interesting thing about what is going on is that there can be a number of different interprtations all of which might be correct.  Starting in Japan, the lack of increase in the amount of Yen the BOJ is pumping into the economy was taken as a negative by the Nikkei and down it went.  Down too, went every market in Asia but for the exact opposite reason.  On an equivelant basis to QE III in the U.S. which is pegged at $85 billion a month the amount for Japan given it's GDP would come in at about $180 billion a month!  Think of it; surely that must weaken the Yen and if it does, every other exporte driven economy in Asia will suffer and hence, the crash in equities.  It must be perceived as inflationary an sure enough yields, which Over Here have shown a decidely upward trend in the past month or two exploded upward putting the ten year at 2.24 and having the same effect on the Yen market as well.  Rumor has it that one institution in Japan owns pretty much all of one piece of the curve and anyone in a bond fund had to be feeling lousy around noon yesterday.  Suddenly, everybody started to ask10 Year closed at what in the hell was duration risk and the answer was, "You're looking at it baby!"  Much Wampum lost by the tribes.

So the question that was being asked was, is the party over?  More troubling, were the memories of the old guys (yours truly) who were asking, "Have we seen this movie in 1997?  The difficulties started in Asia 17 years ago and before you knew it...then again, there was a lot of credit risk involved in that little misunderstanding not to mention a tad of fraud which caused it.  I don't think that is the case here.

Then there is the silly side to it.  Right when everybody were wringing their hands in yesterday's goings-on, comes a report from some analyst at some firm that no one has ever heard of announcing that Citigroup was facing an $8 billion foreign exchange loss and I'm saying how in the hell can that happen when it's been one-way traffic for most of the quarter in Yen?  Big pow-wow on live tv and it finally sorts it self out to be a regulartory capital loss due to overseas exposure in branches and subsidiaries.  Oh.  And then I say to myself, "Self, this isn't Citigroup's first rodeo.  They've been in a 100 locations for over a hundred years.  I wonder if the concept of hedging exchange risk has ever entered their minds?"  Somehow I think it had and I go outside to trim the branches off a few trees cussing the unknown idiot and the unknown firm who got me would up in the first place.  And then I hurt my back.

It's today, and I am functioning on industrial strength doses of Indomethacin and actually feel pretty good.  Got up early again (couldn't sleep), turned on the tube and checked Yen/$.  The Yen was up and strengthened all day against the dollar again closing below 96.00.   Why?  I haven't a clue.  I could give the stock answer..."Well, this has always been a crowded trade and a lot of money has been made and..." which really means you figure it out.  All the equity markets are down again with Latin America getting hit the most today which points to a pretty broad decline is world-wide, dude, and I don't know what THAT means either.  What I would really like to see is someone over at Treasury--like Jacob/Jack...maybe--get up and explain things but he seems to have recused himself from the activities over which he is paid to be in charge; kinda like Holder at Justice or Sgt. Schultz at Stalag whatever.  10 year closed at 2.23 meaning that stopped bouncing all over the place but Over There the 10 year Bund is yielding firmly below 1.50 which I am sure will cause somebody to jump up somewhere and start screaming "Carry Trade!"  causing heads to nod sagely.  Perhaps another self-induced crippling is the best certainly makes one lose focus on everything else.  I wonder what knowledge Gin and Vicodin could impart?  At this stage to quote Mrs, Rosenfeld who lived below us in 2B, "It couldn't hurt!"  One should listen to Jewish grandmothers.

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