G7 'preparing to drive down the yen'

[phirang]

Re: G7 'preparing to drive down the yen'

I got my ass whipped nicely today on my Yen trade but have stayed short.

Paul Tudor Jones once said that the greatest challenge in trading is getting your ass thoroughly whipped every so often. The markets regularly test the nerves and confidence.

Sterling (that lousy currency) has rallied from $1.52 to almost $1.60 now!! If that is not incredible I don't know what is. The Yen also got whipped - even worse. I surrendered a chunk of my gains on that trade today.

I agree with the bearish comments re: Sterling. Actually, they don't go far enough if you ask me. Britain does not have the resources to bail out the cowboys in the City of London who will eventually sink the currency and with it, this ridiculous so-called "miracle economy".

But short term bear market spikes are painful to watch when you're on the other side of the trade. Im staying short though. Even with the Japanese Government's desire to drive down the Yen, its a better place to be than Sterling. And if Im wrong, my savings are worth more in any event.

Try being long Au/shrt USD... talk about a mugging!:eek:

As for GBP, I'd keep an eye on North Sea oil production... we both know where sterling would be without that!

[hayekvindicated]

Re: G7 'preparing to drive down the yen'

Try being long Au/shrt USD... talk about a mugging!:eek:

As for GBP, I'd keep an eye on North Sea oil production... we both know where sterling would be without that!

Could you elaborate on that a little more? North Sea went into decline around 2000 and has seen consistent drops in production. But the Pound really went into a rally between 2000 and 2007. Or was that the Pound just tracking the oil price?

[phirang]

Re: G7 'preparing to drive down the yen'

Could you elaborate on that a little more? North Sea went into decline around 2000 and has seen consistent drops in production. But the Pound really went into a rally between 2000 and 2007. Or was that the Pound just tracking the oil price?

If we look at capital flows data, with the City in the Sewer, any major decline in oil prices and production in the North Sea could really hurt BoP.

I haven't done the math yet, but it's part of my macro b.s. that keeps me very GBP bearish.

[c1ue]

Re: G7 'preparing to drive down the yen'

You think so? I encourage you to watch the spread on agencies before and after the G20 meeting.

If they widen, then yes, I'm wrong. If the close, then ha!

One G20 meeting, or even 10, isn't going to change the course of a world economy running on 30 years of momentum.

Agency debt spreads are completely useless to gauge long term behavior; or haven't you noticed the extreme volatility in those numbers?

Its like saying if Monday next month is sunny, I'm right. Or flipping a coin.

That's somewhat disingenuous, because it presumes that the British are going to buy exactly the same stuff they did before, despite the change in exchange rates.

Going forward, Britain's new aircraft purchases will be Airbus not Boeing (now at a 25% relative discount). Vacations in New York and Florida, will be substitued by vacations in Paris and Spain (or worst case, Bognor Regis).

There are obviously two competing tendencies here (American prices up vs. fewer American goods purchased), and it's not clear which would win out, but it seems to me that the recent flight to the dollar, which is based on panic rather than strong US fundamentals, is likely to be extremely damaging to the US's remaining export capabilities, and could be something of a let-off for Europe and the UK.

Scotch-man,

Certainly there will be some substitution.

However, the primary point is that the GBP vs. dollar was making the UK currency account deficit appear - and more importantly feel - less dramatic than it was. Even a substitution of US$ by the Euro doesn't help - because the GBP/Euro cross doesn't benefit the UK as much as the GBP/USD cross used to.

It is far more likely that the UK will be forced to spend less on imports and vacations.

This is exactly the same situation as in the PIGS: having a strong euro allowed those nations (Portugal, Italy, Greece, and Spain) to run up quite amazing currency account deficits. Now that the Euro is falling, the corresponding impact on their respective national budgets will ultimately get them booted out of the EU.