Never happen. Core inflation showed another gain today. The rate hike is a certainty based on the current course. All other countries have the deflation problem, but we are actually growing and seeing the seedlings of inflation.
I think you have really exposed yourself with that call on the 30 year lol. But I'm being proven right. Yesterday the Chinese central bank announced the second interest rate cut in four months. Now I know why the Yen decoupled from the U.S. 10 year. The factors for Asian currency devaluation are playing out presently. But of course, who cares they are not in the U.S. :)
If the Yen goes into the range I expect, I will make anywhere from $100,000 to $300,000. Where else in the world can you do that :) There's so much opportunity here, these complaints are just indicative of weakness. Do some self analyzing and make lots of money....you'll complain a lot less :)
The last time the Yen was at 125, back in 2007, the spread between U.S. 10 year and Japanese 10 year was 3.1%. That spread was only 1.7% when the Yen recently hit 122. That's another tell that the Japanese Yen could make some new highs and get a lot weaker. We're basically at the same exchange rate and it's being driven at a lower interest rate spread. U.S. rates are going to rise, and as that interest rate spread blows out a bit, so if that spread were larger, the Yen would weaken to 130 and beyond. This market differential shows that the market is valuing the Yen less even with a lower interest rate spread. The Yen will get a lot weaker. This is a great set-up.
The Japanese currency is bar far the worst foreign currency to own. With Debt to GDP the highest of any major industrial country at 237% according to the IMF, and rise in rates and this thing spirals out of control. GDP there is about $5 trillion, and debt is $12 trillion. Their annual public spending budget is about 20% of GDP. Here's the rub. If interest rates go back up to 5%, a normal rate for a 10 year bond, that adds $600 billion in annual interest payments. Instead of public spending being 20% of their economy, it leaps to 30%. That means they have to raise taxes 10% to cover the miss. If they raise taxes 10% that will drive the economy into a terrible recession.
The Japanese foreign currency situation is going to reach a point where the market just loses confidence in the entire process. This is why the situation with China's economy slowing, in large part because of the QE being done to bolster exports out of Japan, is such a fascinating and potentially profitable situation. If China takes the final step and weakens its currency, that could be the event that finally blows up the Japanese Yen, because it will be clear to the market that China's action will kill Japan's export growth fueled recover, albeit very meek timid recovery. The market will know it will take a currency war matching effort to increase Japan's QE, but that will only accelerate the growth in their debt to GDP ratio. If something like this happens, all bets are off and Japanese Yen could spike to 150 very easily.
The Japanese are in an incredibly vulnerable situation. They have run up so much debt to try this massive QE, but they don't live alone in the world. China dwarfs Japan and can crush them economically at will. China's economy is doing terribly, and they have to do something very soon to re-ignite the growth.
You're missing the point. Wage pressure is increasing, and I was very clear that it's in one sector of the economy hence the title, "Restaurant wages rise 3%." Core CPI was 1.1% so the whole pie is starting to see incrementally higher inflation pressure, and here is one reason why. A Jimmy Johns sandwich and chips used to cost $7.50 but now it's $7.72. That's exactly 3% increase in prices. I could cite countless other examples too.
The irony of normal inflation, and hence normal interest rates is that it will make the economy boom. That's right everyone inflation and higher interest rates will be good for our economy. Why would any company want to invest when they don't have the expectation that prices are rising. It means any capital investment over time will garner higher and higher prices. If the Fed would finally raise rates, it would attract so much domestic and foreign investment into the U.S. that it would fuel the boom in our economy and new jobs and wage gains, not crimp these things.
You are fighting the Fed being long TLT and you will lose.
The inflation signals are starting to build. Restaurant workers wages rose 3% in one year. The fed's inflation target is 2%. We are starting to get pockets of our economy where the wage pressures are happening. That's great for our economy but very bad for holders of TLT, because for all the fed's rhetoric about being patient, they are going to raise rates data dependently. Data like this wage pressure will further embolden the hawks on the committee to make the first rate raise in June. Even shorting TLT could be a bumpy ride, because not every data point along the way is going to scream rate increase, such as yesterday's GDP data which was good but not a barn buster. Shorting foreign currency, shorting oil, and shorting bonds are the trades right now. You can short yen, short oil, and short TLT. There are probably some REITS that could be shorted too. Any of those trades are smart trades. From a long side trade, and I don't have as much conviction in these as the others I just mentioned, but long home builders and maybe even long some high quality banks could work. Pending home sales hit a recent high, and a steepening yield curve should increase bank profitability. There are also lots of individual technology and biotech stocks that could do when from the long side too.
I think the trade you are advocating whether you realize it or not is to go long oil in euro terms. The QE announced by the European central bank hasn't even started yet. When they start buying the bonds next week rates there will plunge further the euro will weaken further and oil in euro terms may rise....a lot easier to just short the euro though
Japanese Yen was weaker today, so I'm not sure what you are talking about, unless it's the fact that interest rates on the 10 year fell, then I understand your point. You had a litany of Fed members saying they want the option to raise rates at the June meetings, so the move down in rates today is not at all aligned with the Fed member's commentary.
The economy is not tanking at all. The CPI number was stronger than expected. Pending home sales hit a couple year high. 2.2% GDP growth is not a tanking economy. I think you are the one who may need to re-consider the current landscape. Rates are going up. Nothing could be more certain. Rising rates, stronger dollar, Chinese deflation and currency weakening, and massive 8 trillion Yen per month BOJ QE is going to get the Yen weakening considerably. It consolidated the big move up over the past three months and now it's ready to rip again.
The Yen also decoupled today from the 10 year rate. Usually if yields fall Yen strengthens, but today yields fell and the Yen weakened. That's a tell.
It's interesting that the Chinese Yuan devaluation is actually in play today. The Chinese took the exchange rate up to a recent higher making the Yuan the weakest it has been in a while versus the dollar. There's a trade war brewing between Japan and China, and we're seeing it as recently as this morning. Couple that with the massive on-going QE in Japan and if this sentiment takes root in the market, the Yen is going to weaken considerably.
It was an ouch before yesterday. Ouch happens :) the only thing I have now is puts in fxy. Japanese yen should be a lot weaker with their QE program. Its amazing but the euro has weakened 30% in a year but Tue Japanese yen only 20%. Japan has been doing QE of 8 trillion yen for a while but EU hasn't even started yet. Yen should at least be 130-140. Plus if China does something stupid and weakens its currency it could start the Asian currency crisis and then who knows how much weaker the yen could get. Japan currently stealing chinas exports
Means that the short tlt short Japanese yen trade is back on....I've waivered on this one because the fed keeps waffling about being too hawkish,but the 10 year yield ripped again today. Getting close to new highs in yields headed to the 2.25-2.50% range. Short tlt, short Japanese yen works. The market knows the truth....economy getting stronger....fed members want the rate hike option on the table for the June meeting
Actually I can't believe it....because of the plunge today I just got out of some weeklys for a breakeven....unbelievably fortunate for me :)
I think you are right. got within 8 cents of yesterday's low. Making up for yesterday's illogical upward move and all those longs are trapped and crushing it.