Last Monday in NOTES, the possibility of YEN intervention was discussed following the news of VW overtaking Toyota in the race for gaining market share. It was not GM, Chrysler or Ford that overtook Toyota but VW, a EURO based auto producer. Sunday evening, the BOJ, under the direction of Finance Minister Jun Azumi, moved to intervene in the FX to attempt to stem the continued strength of the YEN. The initial round of intervention has worked as the YEN futures on the IMM dropped 300 points on a one minute bar and never recovered. In its most recent interventions, the effort by the Ministry of Finance failed as Japanese investors continued to repatriate money as the global financial situation remained so uncertain.
The market has come TO DOUBT THE EFFICACY OF JAPANESE INTERVENTION SO IT JUST USES IT AS AN OPPORTUNITY TO FADE THE INTERVENTION. Will this time be different? The interesting element in yesterday’s intervention was its timing. THIS FRIDAY BEGINS THE G-20 meeting and the Japanese generally do not court controversy and/or wish at the center of the world’s animosity. Yet, here was the BOJ at the behest of the Ministry of Finance moving to intervene before a major economic meeting. Thus, it seems that the Japanese acting on their own must have notified the other G-8 members and offered some quid pro quo. HYPOTHESIS: THE BUYING OF EUROPEAN SOVEREIGN DEBT. If the Japanese have offered to purchase large amounts of EURO-based debt, then there is a need for intervening on the EUR/YEN cross.
The Japanese do not need to buy the weakest EURO sovereigns but can purchase French, German, Dutch and Finnish bonds to satisfy EURO SOVEREIGN-BASED DEBT. If the Japanese are busy buying the higher-quality sovereigns, it forces other investors to purchase the weaker debt issues, which is the same logic as the FED’s QE program. Investor money has to flow somewhere so if Japan acquires the higher-quality debt other investors will move further down the credit food chain. Again, if the JAPANESE ARE SERIOUS IN THIS MOST RECENT BOUT OF INTERVENTION THEN EUR/YEN IS THE MUST AREA FOR YOUR TECHNICAL ANALYSIS. Is the MOF/BOJ A LONE ACTOR OR MERELY THE VANGUARD OF A MUCH BIGGER STRATEGY?
***The YEN intervention was the major news today but the MF GLOBAL bankruptcy certainly impacted the markets as many people liquidated positions as they feared a mini LEHMAN. There were large profits made this month and being that the previous month was so difficult, profits were booked ahead of any possible uncertainty. My sympathies to the many fine people at MF GLOBAL who have worked hard to make it a large participant in the GLOBAL FUTURES AND CASH MARKETS. The story of Jon Corzine is far different for it is another story of an overpaid, overrated WALL STREET EXECUTIVE. When not standing on the giant shoulders of Goldman Sachs, the global environment is much harder to navigate. JON CORZINE WILL BE FOREVER KNOWN AS THE LARUE MARTIN OF WALL STREET.
*** The most perplexing result of the Japanese intervention was the GOLD market. Currency intervention led to a DOLLAR RALLY as fear pushed the market to risk off, but if the Japanese intervention means that the BOJ will flood the market with YEN then the GOLD should begin to realize that the risk-on/risk-off model is going to undergo a change. Sunday in the NEW York Times, Christina Romer had an OP-ED piece directed at FED CHAIRMAN BERNANKE. Romer pushes Bernanke to adapt a Volckeresque posture in order to attack the continuing lethargic employment market.
In order to generate job growth Bernanke should be as aggressive as Volcker was in curbing inflation. The former CEA head prods Bernanke into depreciating the DOLLAR so as to create export growth. So in a world of currency intervention the FED will not allow the DOLLAR to become the repository of safety. GOLD can still correct but just are investors left to buy if the Japanese increase YEN selling and Bernanke adapts the Romer scenario.
Tags: Bernanke, BOJ, Christina Romer, Dollar, Euro, Fed, FX, G-20, G-8, GM, Gold, intervention, Jon Corzine, MF Global, QE, Toyota, VW, Yen
October 31, 2011 at 9:10 pm |
Yra,
I am a gold bull and generally staunch anti conspiracy theory, but between the weakness of gold post Swiss intervention and the continued weakness last night, do you consider there to be any chance that governments are holding down gold at times of intervention to help slow broad realization of the absurdity and futility of these measures? Thanks as always,
Ben
October 31, 2011 at 9:21 pm |
your note today replaced my need for coffee today yra
the ideas presented therein and their implications are truly staggering
even if they turn out to be batty in a doc brown sort of way, the way it was put together is somethingyou cant find anywhere else
and as for gold, i have been arguin with my dad over the same point – if gold goes to 10,000 will it really effect anything?
November 1, 2011 at 5:59 am |
Ben–I don’t htink so.What is going on is that deleveraging and lack of bank lending in the commodity sector is having an impact —there is a to and fro between those trying to raise cash and those who believe that raising cash is a silly gesture as the bernanke’s of the world are trying to make sure that your cash ain’t nothing but trash and there in lies the battle
November 1, 2011 at 6:19 am |
Yra,
Let us suppose, Japan and China fork up a hundreed billion euro each. Let’s also assume India, Saudi, SA, Brazil and the like, each come up with, as Russia shrewdly suggested, anywhere between 10 to …what, 50 billion… Aren’t we still short for a billion and something?
November 1, 2011 at 6:44 am |
USIKPA—with leverage the amount will be sold as more then needed and thus a “GIGANTIC SUPER BAZOOKA”–hell knows no falsifier of facts then a politician searching for cover—see Jon Corzine
November 1, 2011 at 9:43 am |
“Pissing pots”
haha fantastic
November 26, 2011 at 2:47 pm |
financial…
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