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Yen May Extend Gain as Commodities Drop Fuels Carry-Trade Exit
March 20 (Bloomberg) -- The yen and Swiss franc may extend gains against major currencies as declines in gold and oil feed speculation investors are exiting purchases of commodities that were financed with cheap loans from Japan and Switzerland.
Investors, worried what excessive cheap loans (housing bubble) would do to our financial system, embraced cheap loans in an effort to protect themselves. Is that what I'm seeing? Further, in this era of excess stuff, buying more stuff was also embraced. That's probably me just being a bit extra (short-term) deflationary/paranoid these days though. Nevermind.
``There's massive deleveraging going on, forcing some of the fund community to cover the losses by unwinding trades in other markets,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. ``They are unwinding some of the one-way trades,'' including bets on euro-dollar. ``It triggered a domino effect.''
Toilet paper is/was a one-way trade for me. Then again, I'm fairly sure I didn't finance the purchase using a Japanese loan nor did I ever expect to resell the paper for fiat paper. If memory serves, that is.
The Fed on March 18 said ``inflation has been elevated, and some indicators of inflation expectations have risen.''
The comment helped ``to change things around in respect to commodity markets,'' said Hans-Guenter Redeker, global head of currency strategy in London at BNP Paribas SA, in an interview on Bloomberg radio. ``So we did see a lot of trends that had been in place over the past six to seven weeks being destroyed'' yesterday.
I would rank parabolic trends at the top of the list when it comes to trends most easily destroyed. Will the trends arise from the ashes (yet again for a variety of long-term reasons) like a Phoenix though? Maybe! Let's just say I'm still not willing to bury US Dollars in my backyard in hopes I'll be digging them back up in 20+ years thinking how well I did to hoard them. I may be crazy short-term, but I don't think I'm actually insane long-term. Time will tell though!
The Fed has cut rates 2 percentage points this year to restore confidence to financial markets and avert a recession. Banks are reeling from $195 billion in assets writedowns and credit losses since the start of 2007, according to Bloomberg data.
Nothing restores confidence like a good old-fashioned intermeeting rate cut panic!
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
13 hours ago
5 comments:
Stag,
http://www.bea.gov/national/nipaweb/TableView.asp#Mid
Per the above link, the metals & oils (and most other sectors) are subject to extremes in terms of profitability over time. Except for now that is. This time it's different. The prosperity is permanent.
Stag,
For some reason my link doesn't appear to be working. Anyway, if you get a chance, take a peak at table 6.17 from the BEA nipa. Interesting stuff on Mining Profits which include oil/gas, coal & metals.
Basically, from 1950 to 1970 profits were flat in nominal terms. From 1970 thru 1980 profits rose 6 fold in nominal terms. From 1980 thru 1990 profits were hugely negative. From 1990 thru 2000 profits increased, but were erratic. Since 2000, profits have absolutely soared - ALMOST 10X 1980S LEVELS. I don't have the profits charted, but I'm picturing a parabola with an event horizon.
MAB,
Newmont Mining is sure "buck"-ing the trend.
http://finance.yahoo.com/q/bc?s=NEM&t=5y
In 2004, I remember reading an article in Barrons singing its merits. The price of the stock was about $45 then and it is about $45 now. Oops.
I opted to own the metals directly (thank goodness and not that I still own them, oh well!) and not risk the costs associated with extracting the metals from the ground. I was also reminded of the saying "a mine is a hole in the ground with a liar standing over it." Whew!
Newmont says gold discoveries getting tougher
http://biz.yahoo.com/rb/080402/newmont_gold.html?.v=4
"As an industry, we are spending more and more on exploration but even in a high demand and high price environment, and more drilling happening, the gold sector is not discovering the same ounces as it used to," van Kersen said.
At the same time, costs for everything from buying trucks and fuel to hiring workers, up 24 percent in the last year, are biting into operations, he said.
I still believe the bull market in NOT chasing risk is alive and well.
Stag,
Do times ever change?
http://finance.yahoo.com/q/bc?s=VGPMX&t=my
This is Vanguard's best performing fund over the last decade - 20% + annually. Far, far better than BRKA over the past ten years.
The fund was introduced in 1984, right AFTER the big commodity boom of the 1970s & early 1980s. After the fund's inception, it was Vanguard's worst performing fund for the next 14 years. A huge loser. Go figure. Who could have known?
Brokers have been telling retail clients that they NEED exposure to commodities for over a year now. It's a great new asset class. Why? Commodities are going up of course. Why else!
Where is all this heading? The same place it has for the last 20 centuries. Mr. Market will not allow fools (the masses) to make easy money. EVER. I don't care whether it is tech stocks, houses or commodities - it won't happen. EVER, EVER, EVER. By definition, the masses can't be rich.
Yes, the initial commodity price increases were justified based on supply & demand. That part of the parabola is behind us imo.
To me, commodities are a global slow down OR a global recovery away from a fall. One whiff of positive real interest rates and it is game over for all the new commoditiy "investors". Unless it really is different this time.
MAB,
Brokers have been telling retail clients that they NEED exposure to commodities for over a year now. It's a great new asset class. Why? Commodities are going up of course. Why else!
600 Years of Silver
http://goldinfo.net/silver600.html
I was a silver investor from 2004 to 2006 but how can one sleep well at night looking at that chart? I couldn't. The first parabola made me sell.
Want pain? Forget the 1970s commodity bubble. Those who bought in the year 1477 and held for the long-term got truly slaughtered.
Yes, the initial commodity price increases were justified based on supply & demand. That part of the parabola is behind us imo.
As seen in the chart, fundamentals looked great 600 years ago ("European mines meet diminishing returns").
Where is all this heading? The same place it has for the last 20 centuries. Mr. Market will not allow fools (the masses) to make easy money. EVER. I don't care whether it is tech stocks, houses or commodities - it won't happen. EVER, EVER, EVER. By definition, the masses can't be rich.
Once all the low lying fruit is picked the tree is repackaged and sold to the public. It does seem to be the way of things.
To me, commodities are a global slow down OR a global recovery away from a fall. One whiff of positive real interest rates and it is game over for all the new commoditiy "investors". Unless it really is different this time.
I'm certainly not betting on positive real interest rates these days but in the same breath I can still say that commodities are not "safe" at any price. $8 silver is twice as risky as $4 silver. $16 silver is twice as risky as $8 silver. On the other hand, $20.99 toilet paper at Costco doesn't seem twice as risky as $19.99 toilet paper (toilet paper hasn't risen in price much in the last 5 years, unlike what would happen during a serious hyperinflation). Perhaps that's just me using old school math in a new economy bubble world though.
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