Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are We Ready for Another Yen Carry Trade Stock Market Plunge ?

Stock-Markets / Financial Markets Apr 19, 2007 - 01:33 PM GMT

By: Christopher_Laird

Stock-Markets

With the Asian markets all down heavily last night, and the Yen strengthening again, I thought to talk about another possible Yen carry related market sell off.

China bubble trigger
A month or so ago, Premier Wen of China said that their manufacturing and financial bubbles were unsustainable and out of control. This was in light of recent financial tightening in China, increasing reserve requirements for banks to over 10% now, and raising interest rates moderately. It is important to realize that China is determined to do something about their financial bubbles.


The trouble is, there is so much hot money flowing into China, and that combined with a bubble mania in financial assets as well as manufacturing and stocks by Chinese has created a flood of money flowing into their markets.

Since the last year the Shanghai stock index is up over 150% - again at an all time high right now. The recent panic 9% sell off that Tuesday a month or so ago led to a about of panicky selling in Asian markets in general. That both led to and was caused by a rising Yen after the EU stated several months ago that investors should not ‘make one way bets on a weak Yen'. Soon after that statement, there was the Shanghai stock sell off, Asian stock sell offs, and other world sell offs. Eventually, things stabilized, but it took over two weeks of Central bank efforts and calming to stem the repeated bouts of selling into markets world wide.

The US stock market at that time, though initially falling 500 points in the beginning of the mess, stabilized, and every time it failed to follow through on Asian sell offs the night before, the Asian markets subsequently calmed the next day.

That was our last bout of sell offs

But, that was that bout of selling. Now, with markets again at new highs, the Dow, and Shanghai, (up to today when it dropped over 4% again) seemed to flow ever higher, oblivious of the danger of any new bouts of Yen strengthening.

Well, we again have many of the same factors gathering for another bout of Yen strengthening, and related stock and financial market sell offs….

First, the Yen has been very weak and is very undervalued for YEARS. China, the EU, and every major trade partner of Japan is not liking this one bit. The Yen has a lot of reason to strengthen, not to mention the gigantic scale of the Yen carry that has built up in RISING stock markets all over the world in the last years.

The overall situation is that markets are heavily infected with leverage. I don't care if many of them mare making new highs again. Well, a few months ago they all made new highs, then we had that bout of Asian selling and Yen carry unwinding that led to weeks of stock drops a month or so ago that bad Tuesday. Now, markets have recovered to new highs, - except that now the Asian markets are just crashing again now – and maybe all we saw was a double top in these new highs?

It certainly would fit the idea of a pending second wave of Yen carry unwinding to come.

In the last few days, the Yen has strengthened very roughly 1%. It had been on a rather long downwind to about 83.5 on the $XJY.

IF the Yen begins another bout of strengthening, look out. We may have just seen the beginning of another –rather overdue- bout of Yen strengthening and Yen carry unwinding.

The thing is, with markets to toppy right now, it does not take a lot to cause new Yen carry unwinding…

Yen Carry monster is a hungry one!

Either there is a push to sell and capture profits – which puts upward pressure on the Yen as carry is paid off, and then puts more downward pressure on the financial markets, and or, because Yen strengthening itself causes more selling of Yen carry and then more Yen strengthening. As a matter of fact, once any Yen carry unwinding starts, it is almost impossible to stop before serious carnage accumulates in financial markets.

This is one reason why the G7 and EU have toned down their rhetoric about Yen carry and a too cheap Yen in the last meeting this month….the last time they directly addressed ‘one way bets on the Yen' (referencing all that Yen carry trade infecting markets) we had the last bout of Asian stock crashes…..with unwinding Yen carry eating up the world markets for weeks before things calmed down.

But I don't think that merely pretending not to see the big elephant about to turn around in the china shop called the world financial markets is going to stop him from turning around….

Cover your eyes maybe.

But anyway, the ingredients are once again gathering for another bout of Yen strengthening and financial/stock sell offs. Of course, gold would take a hit initially if there are serious stock sell offs coming again. Gold is a liquid asset people can use to cover margin losses.

But, we have again the same situation before the last bout of Asian crashes recently:

  • Recent Gold and PM profits
  • Stock profits – ripe for profit taking
  • A rising Yen again.

By Christopher Laird
PrudentSquirrel.com

© 2007 Christopher Laird. All rights reserved.
Chris Laird has been an Oracle systems engineer, database administrator, and math teacher. He has a BS in mathematics from UCLA and is a certified Oracle database administrator. He has been an avid follower of financial news since childhood. His father is Jere Laird, former business editor of KNX news AM 1070, Los Angeles (ret). He has grown up immersed in financial news. His Grandmother was Alice Widener, publisher of USA magazine in the 60's to 80's, a newsletter that covered many of the topics you find today at the preeminent gold sites. Chris is the publisher of the Prudent Squirrel newsletter, an economic and gold commentary.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in