Using the Wall Street Journal to Gauge Investor Sentiment

I thought it’d be fun to peruse the Wall Street Journal to see if we could glean some insights into current investor sentiment. Mainstream business publications are famous for (unintentionally) signaling tops and bottoms in markets – but is this really the case, or more of an old wives tale than truth?

I couldn’t think of a better publication to test out than the Wall Street Journal. Those who believe they’re getting an inside scoop by reading the WSJ are amusingly naïve about their “inside source,” which is read by millions of other investors each morning. Even pre-Murdoch, the Journal wasn’t hiding any investment secrets. These days, it has the added bonus of catering to the masses – combined with its wide reach and coverage, what a perfect match!

So please join me, as I flip through the pages (web pages, of course) in this week’s Journal, in an effort to gain an edge – by taking the other side of the trade!

Further Evidence the Dollar Has Bottomed

From the front page of today’s Online Edition, we see a story entitled:

Small Investors, Big Bets on Currencies.

Oh my. The piece begins:

The dollar is zigzagging, falling below the 90 yen mark Friday and testing the depths it plumbed against the euro a year ago. That kind of action is music to the ears of investors such as Ray Firetag.

As most of America slept on a recent Monday night, Mr. Firetag was in front of his computer in Elk Grove, Calif., wagering on the Australian dollar.

For those of you not familiar with Elk Grove, please allow me to fill you in. It’s a (somewhat lower) middle class suburb about 15 minutes south of Sacramento. From 2002 until about 2006, it was regarded as an “up and coming” neighborhood, where many first-time home buyers in the Sacamento flocked to buy homes that were relatively cheap.

Three years or so after the top of the housing bubble, an astounding number of homes in the town sit empty – either officially foreclosed, or unofficially abandoned – while prices languish 40-50% off their highs.

You should always “short” Elk Grove – always. When their residents are buying homes, you should be selling. When they are trading the Australian dollar in their pajamas, you should probably be backing up the truck to go short!

When small investors are on the front page of the Wall Street Journal trading currencies, you’ve gotta think we’re probably in for a massive rally in the buck.

And Gold is Topping Out

Gold was down this week, settling once again below the $1,000. Thus my search for Gold related stories was initially disappointing, until I came across this great headline:

India’s ETF Investors Make Up for Missing Gold Buyers

Oh boy – this is going to be good!

MUMBAI -- Record prices have forced many of India's traditional gold-jewelry buyers out of the market in recent months, but a new source of demand is on the rise -- investors looking for the safety and convenience of exchange-traded funds backed by gold.

While India continues to be a price-sensitive market, with every rally hitting demand, the rising popularity of ETFs indicates that the Indian market could ...

I can’t read beyond the “…” because I let my WSJ subscription expire a few weeks ago – but that’s OK, it’s really not necessary.

It seems like we’re hearing that India, which traditionally bought gold hand over fist this time of year to, surprising, actually use as jewelry. Now they can no longer afford to buy it – at least for its traditional use.

So they’re speculating on the price instead – and best of all, via ETF’s that take long-only positions!

This is classic stuff! I’m downright giddy right now – I thought of this WSJ concept for a column on my drive to the coffee shop, with no idea that we’d be able to find such fantastic sources.

OK well we can’t just end with two. We need one more to close out strong. We had three wishes…thus far, we’ve used two…we know the dollar is set to rally, and gold is in some trouble.

What’s one more topic we can ask the Swami WSJ to look into its crystal ball and forecast? I got it…

Emerging Markets are Toast

Alright, I am typing “recession” into the search box…let’s see what comes up…OK here we go! Another nice short candidate:

“Emerging” Stock Markets Are Looking Better

The first paragraph says it all:

On the heels of one of the worst years in stock-market history, some experts say investors should shift more money into a surprising area: emerging markets.

Good to know that if you do shift more money into emerging markets, you’ll probably be one of the last investors to the party! This article should sweep in the 11th hour bulls just in time for the rally to die.

On the heels of 50-100% gains in many emerging markets, I can’t see how this could end well for longs. Fortunately we’ve got the WSJ ringing the bell for us here at the top!

When the global markets turn down again, emerging markets are likely to get slaughtered. What great short candidates!

Three Solid Trade Ideas

Well kids, here’s what we’ve learned from reading the Journal this week:

1. Bet on the buck
2. Short gold – or at least stay away from it
3. Short the heck out of emerging markets

We’ll check on these trades in a few months to see how they worked out. In the meantime, can the last dollar bull out the door please turn out the lights!

Checking in on Our Leading Market Indicators

They are on the ropes. Can we get a standing 8-count?

On our August 16th update, we picked out three indicators that have led the markets over the past few years. They were:

1. China – the poster child of this economic recovery
2. The Baltic Dry Index – when the global economy is healthy, more stuff gets shipped
3. Oil – which is still the fuel for the global economy

When we last pulled up the charts on these, they were not looking so hot. All three had turned down. I thought this was probably a bad sign – but added a disclaimer that if they rallied to new highs, I’d be wrong.

You can check out the latest charts by revisiting that post and – here’s a cool feature of the charts – just mouse over them, and use the “hand” to drag them over to today’s date:

http://commoditybullmarket.blogspot.com/2009/08/why-commodityshipping-weakness-could.html

If a picture’s worth a thousand words, an interactive one has to be worth a multiple of that. You’ll see that these sick charts have gotten sicker since we last saw these three patients.
Stock market bulls, beware!

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Positions Update - Still Long the Buck

The dollar continues to see strong support at these levels, while sentiment appears to still be quite negative. The dollar's performed pretty well over the past couple of years for a sick, doomed currency!

Reports of the dollar's demise have, until now, been greatly exaggerated.

(Source: Barchart.com)

Open positions:

Thanks for reading!

Current Account Value: $25,239.83

Cashed out: $20,000.00
Total value: $45,119.83
Weekly return: 0.5%
2009 YTD return: -50.3% (Yikes!)

Prior yearly returns:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial trading stake: $2,000

Jeff Clark Agrees: It's Time to Buy the Buck

Last Sunday I wrote that I thought it was time to go long the US dollar. Investor sentiment is near record low levels, which usually means the price has nowhere to go but up, at least in the short term.

When making a contrarian pick like this, you usually prefer to see articles that take the opposite view, rather than the same one - otherwise you start questioning your original hypothesis!

But when I saw that expert trader Jeff Clark agrees that the buck is a buy, I was pleased...in fact, I would have had to reexamine my position had he taken the opposite side! Jeff writes:

But as we've seen so many times before, when everybody lines up on one side of a trade, the odds favor it going the other way. Consider what happened in July 2008. The dollar index was pounding out new lows, and the Daily Sentiment Index dropped to just 5% bulls. It seemed everyone was bearish on the buck, and they were betting heavily on its demise. Four months later, the dollar index had rallied over 20%.

We're seeing something similar today. Everyone is convinced the dollar is a doomed currency. And they're probably right over the long term. There are a lot of stops on the way to the graveyard, however. And like the monster, Jason, in all those Friday the 13th movies... just when you think he's dead for good, there's another sequel in the making.

You can read the rest of Jeff's analysis here - and if you're interested in checking out his premium trading services (they are expensive but excellent), you can learn more here.

How can you trade this? UUP is the ETF you're looking for. Or, you can of course use futures or options as well.

The dollar may be finding a bottom.

(Source: Barchart.com)

Why Trend Following is Your Only Hope for Investment Survival

Buy and hold. Stocks for the long run. Diversify. These investment mantras were gospel during the great bull market of the 80s and 90s.

Drinking this Kool-Aid will get you slaughtered today.

There is no freaking way I would "buy and hold" anything right now. Too dangerous. Buy and hold hasn't worked over the past ten years, and it's unlikely to work for the next ten. We're in a secular bear market, and these things take time...usually 15 to 20 years...to run their course.

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Buying and holding the S&P was a crappy trade over the last 10 years.

No doubt, we are in uncharted financial waters right now. Anyone who says they 100% know what's going to happen next is lying, or dilusional.

We've got historic deleveraging taking place, as unprecedented debt levels are slowly paid down. In the meantime, we've got the US government, among others, running the printing presses at full steam, and tossing boatloads of money down rat holes like Government Motors and socialized medicine.

The foundation of the system has been permanently rocked, and stability, or even just the illusion of it, won't be back anytime soon.

With the Fed's printing press (an irresitable force of hyperinflation) battling massive deleveraging (an immovable deflationary object), the crux of any investment thesis today starts with "inflation, or deflation?"

There's no shortage of arguments on both sides, many made by folks much smarter than I. For awhile, I was reading them until my head spun...first I'd read a very well thought out argument on why hyperinflation will win out...then I'd read a perfect counterargument for the deflation case.

So I thought - what the heck can a guy like me do, if these smart dudes can't reach the same conclusion themselves?

Then it hit me - trend following.

If gold and commodities go up - get in those vehicles, because the market is screaming "inflation"! Gold at $1100 could go much, much higher...real, real fast.

On the other hand, gold still has not decisively broken through $1000. It could very well retest it's lows below $700. So if it breaks down below, say, $900 - that's the market telling us that inflation is not in the cards...at least not yet.

Early this week, gold stocks hit a 3-week low...so I sold all of them. And I'll stay out until they once again "break out" to the upside. That's the only way I can see to play these insane markets - buy the breakouts, and follow your stops. It's OK to have a hypothesis, but don't wed yourself to it. If the market says you're wrong...then you probably are!

My friend Brian Hunt (editor-in-chief of The Daily Crux, an excellent investment website) made a great point to me on Friday about investing in China. Nobody knows what's going to happen in China. Some think it's a trainwreck waiting to happen. Others think China will be just fine, still the growth story of the 21st century.

So what's an investor to do? Watch the price of copper, he says. As long as copper's doing fine, that means China's doing fine. Let Dr. Copper show you the way.

To facilitate my trend following strategy, I've pared my investment assets down significantly. I used to own 40-50+ different stocks, a few currencies, a few commodities...if something looked good in one of my many newsletters, I bought it!

Then I learned during the Great Deleveraging of '08 that diversification does not prevent bad things from happening. Overnight, the correlation of almost all assets went to 1, and everything dropped 40% in a matter of 6 months!

Because I believe the inflation/deflation question is the only important one, I only need a few asset classes to play it. That makes trend following much, much easier for an armchair investor like myself - get into positions and back out quickly - no problem.

Remember the market is the judge and jury combined, the final arbiter of your investment decisions. So let's listen to what it's telling us in the turbulent years ahead...after all, the trend is our friend! And this friend may be our only lifeline to investment survival right now.

In Case You Missed It...This Week's 5 Most Popular Posts...

1. How Herbert Hoover Put the "Great" in Great Depression
2. Richard Russell: We're Nearing Gold's Mania Stage
3. Marc Faber on American Economic Policy
4. Jim Rogers' favorite country (surprise: not China!)
5. Chinese students laugh Tim Geithner out of town

Positions Update

Last week in this spot, I mused:

"Nice week but I have to admit – I’m starting to get quite cautious that some of these trends have played out"

It looks like the caution I expressed last week was warranted...commodities got hit hard across the board this week.

I exited all positions on Monday morning, after seeing the rough start to the week - that was enough to chase me out of all positions. On Thursday, I did reinitiate an Australian dollar position, after reading how the Reserve Bank of Australia was working very hard to keep their currency down in the month of May.

Current Account Value: $31,483.93

Cashed out: $20,000.00

Total value: $51,483.93

Weekly return: -6.8%

2009 YTD return: -38.0%

Prior year's results:

2008: -8%

2007: 175%

2006: 60%

2005: 805%

Initial stake: $2,000.00

Australia Caught Sandbagging Their Currency

Nice scoop on the Australian dollar from our favorite currency analyst, Everbank's Chuck Butler:

And under the heading of "dirty float"... The Reserve Bank of Australia (RBA) is reported to have sold the most A$'s in the month of May, since February 2004! Now, go back to May and recall the move in A$'s... The currency gained almost 10% in the month... So, the A$ would have gained even more if the RBA had not sold A$1.4 Billion A$'s in the month! I personally think the RBA was just trying to smooth out the trading the A$, which given this information would have been moving up the charts with a bullet in May!

I don't think the RBA would get involved if the move was a slow, general appreciation of the currency... So, I don't look for future intervention to keep the A$ from gaining the ground I believe it will gain rest of this year, as inflation fears grow stronger and stronger...

Chuck said it - these types of inverventions never last - at the end of the day, fundamentals always win out.

Based on this info, I went long the Aussie dollar once again yesterday morning (I had closed my position on Monday, on fear the US dollar was due to rally).

Those sandbaggin' sons of bitches won't get away with this!

Also let me make a quick plug for Chuck's company - they offer bank accounts and CD's denominated in foreign currencies. So if you're really hot to trot on the Aussie, you could open up a CD denominated in A$, and earn interest to boot, while the A$ appreciates - potentially a sweet dea. Here's the link to learn more.

Related reading: Australia Avoids a Recession...For Now

More Good News for the Australian Dollar

The rally in the Australian looks poised to continue, as their central bank left interest rates unchanged - which preserves the large yield premium the Aussie still enjoys over most other major currencies.

Here's the breakdown from legendary currency analyst Chuck Butler:

Down Under... The Reserve Bank of Australia (RBA) left rates unchanged (good for them!) and there was some good news for the economy too, so... The A$ has been underpinned, and poised for a renewed attack on the green/peachback! (for new readers, when I say green/peachback I'm talking about the U.S. dollar, who has changed its color to peach and you can't just refer to it as the greenback any longer... At least I can't! HA!)

Australia's Current Account Deficit narrowed in April to A$4.6 Billion, or 5% of GDP... Still too high for my liking, but, with China pushing the envelope on commodities, investors can look beyond just the deficit in Australia, as long as it keeps narrowing, which it has overall in the past year!

The RBA's statement following the meeting was a bit cautious, and leads me to believe they're leaving the door open to a rate cut in the future... I guess they wouldn't be prudent if they just closed the door! So... When this was first announced the A$ took a hit... But has recovered from that initial hit, and like I said above, poised for a renewed attack on the green/peachback...

Yesterday, before this news came out, I decided - what the hell - pyramid time. So I picked up another contract in the morning at around $0.808.

Most of the day this baby was in positive territory...then in the evening, I performed a cardinal sin...I checked the overnight session!

NOTHING good ever comes of me checking the overnight sessions. I get worked up, lose sleep, and ultimately make dumb trades - a hat trick of grief and stupidity.

Last night was no different...when I checked, I was slightly underwater on the position, panicked, and sold it off. In trader's parlance, I "sold to the sleeping point."

Then came the news, and where's the A$ sit now? Over $0.82! Moral of the story? Be careful trading those overnight sessions...the moves never seem to stick!

But don't worry - I wasn't going to leave it at that. No way, not when I can inflict more pain upon myself. I just reinitiated the position from the supermarket cafe I'm typing this from. What a boon wireless internet is - to make dumb currency trades 5-10 years ago, you'd have to dial the phone and talk to a real human being!

Now I'm off to the antacid aisle...

If you're toying with a move into the A$, here's some recent coverage you'll want to review:

• How much longer can the Australian dollar rally?
• Australian dollar still kicking ass!

Vegemite sandwiches are getting a bit more expensive, real fast.

(Source: Barchart.com)

Australian Dollar Still Kicking Ass

Monday night, we were fortunate enough to initiate a long position in the Australian dollar.  I took a long, hard look at it before entering the position - on one hand, it had already been rallying strong and was afraid may be due for a pullback.  But the fundamentals and technicals looked too good, so I closed my eyes and hit the Buy button.

And now am glad I did, as the Aussie earlier rallied above the 75-cent mark!  Here's the good word on the latest pop from my favorite currency analyst, Everbank's Chuck Butler:

But the Big Winner of yesterday and last night is the Aussie dollar (A$)... It's on a moon shot, since the Reserve Bank of Australia (RBA) left rates unchanged the night before, and issued a balanced statement afterward, with emphasis on waiting to see the affects of the previous rate cuts. The A$ got an additional boost this morning when it was reported that the unemployment rate in Australia fell for the first time in 8 months! The A$ is 75-cents and change this morning, heading to 76-cents... A 7-month high! 

Australian Dollar Hits 6-Month High...Can It's Rally Continue?

The Australian dollar topped the 74-cents mark today to hit a new 6-month high against the US dollar.

The Aussie has been rallying strong of late, and this recent strength is now also underpinned by yesterday's decision by the RBA (Reserve Bank of Australia) to hold interest rates at 3% for at least the near term.  The positive rate differential for the Aussie compared with the US Dollar and Japanese Yen should be a bullish fundamental factor going forward.

Also in Australia's favor is the renewed strength in the Chinese economy, and commodity prices at large.  A continuation of these trends should help the Aussie's rally continue, since the Austrailian economy is largely commodity driven.

We can also credit some of the recent strength to the rally in world equity markets.  With markets rallying, risk aversion appears to be creeping back into play, as investors and traders are once again loading up on high yielding currencies.

Finally it's important to note that Australia is one of the lone major economies not to yet engage in quantitative easing - also known as "money printing."  The US, UK, Japan, and Switzerland have all turned to QE.  As strange as this may sound, a steady supply of money is usually bullish for a currency, especially when priced against others that are being printed at full speed and dropped from helicopters.

Potential roadblocks for the Australian dollar?  A downturn in the markets - which is a real risk, given this is likely a bear market rally - could once again dampen investors' risk appetite and prompt them to sell the "higher risk" currencies and flea back to that beacon of safety and fiscal responsibility, the US dollar. 

All in all, I weighed the risk/reward factors last night, and decided to go long 1 Australian dollar contract.  I am long-term bullish on the currency, and the recent breakout was enough of a technical indicator for me to take the leap.

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View the full FOREX:AUD-TN chart at Wikinvest

How can you too invest in the Australian dollar...without trading futures?

• Buy the ETF FXA, which tracks it's price
• Open up a CD with EverBank denominated in Australian dollars

For further reading... here's our most popular article of the day: How Bad Will The Financial Crisis Get?

Singapore Quits on its Currency, Too

Is ANYONE going to defend their currency?  Chuck Butler writes in the Daily Pfennig that Singapore is now the latest to throw in the towel on theirs:

A couple of weeks ago, when Chris was writing the Pfennig for me, he wrote about Singapore, and how the Monetary Authority of Singapore (MAS) had indicated it might push the Sing dollar lower. In fact, here's what he had to say in the Pfennig, March 30th, "Another currency you may want to consider exiting is the Singapore dollar. According to a story I read on Bloomberg this morning, the Monetary Authority of Singapore may devalue their currency and allow it to drop 4 percent against the US dollar in the next few months."

Well... Last night, the MAS announced a downward re-centering of the Sing dollar trading band while maintaining the width of the trading band and the policy of zero appreciation. OK... There it is... Forget all the trade widening and so on, and center on the "policy of zero appreciation"... That does not bode well for the Sing dollar... And for Chris' statement on March 30th? Bang On! Timely!

The thing I can't get out of head, is the fact that Singapore needs to keep its currency in line (value VS the dollar and euro) with the other currencies in Asia in order to keep its exports competitive... I guess, the MAS is thinking there aren't going to be any exports! And the ones that are there, they (Singapore) will have a "cheaper currency" and an advantage!

At least the MAS didn't devalue the currency, as these types of small countries tend to do to tilt the playing field toward them! And believe or don't... The Sing dollar rallied on the news that the MAS didn't devalue the currency... So... This is like manna from heaven for anyone trying to switch out of Sing dollars and into something else... The currency rallied overnight!

Just another reason to buy gold - it can't be "quantitatively eased" by any government.

Yen Falls as Japan Posts First Trade Deficit in 13 Years

Today, Bloomberg reported that the Japanese Yen dropped today against the dollar, euro, and Swiss franc as Japan posted its first trade deficit in 13 years.

“The poor Japanese trade-deficit data are giving further fuel to the idea that Japan, or the yen, is no longer the safe haven as the country’s external position deteriorates,” said Adam Cole, London-based head of global currency strategy at the Royal Bank of Canada.

We continue to follow developments in the Yen as we continue to monitor our short position.

Chuck Butler, my favorite currency analyst, also weighed in this morning on the comments from "Mr. Yen":

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as "Mr. Yen", Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar... WOW! He also said that it would range trade between 100 and 70... He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm... I just don't know about all that... For one, I'm not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan... And two... The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So... There you have it... I don't like yen's chances to go to 70, but do agree that it could hold 100... It's darn close to 99 as I type...

Upcoming Rally for the Norwegian Krone?

Everbank's Chuck Butler highlights the reasons he foresees a possible rally in the Norwegian Krone on the horizon in today's Daily Pfennig:

I had a great lunch yesterday with the Big Boss, Frank Trotter, and we were discussing what we would talk about next week at the Orlando Money Show. I told Frank that I really believe in the prospects of a nice big rally in Norwegian krone... Let me tell you why... First and foremost, it remains a Surplus country... A positive balance of payments... And that surplus has allowed Norway to weather the storm that's hit just about every other country in the world... See, why I believe the Surplus countries should always be considered when buying currencies? Anyway... The main reason it lost ground from last July's levels is the drop in Oil prices... They like the other types of Commodity driven currencies like Aussie, Canada, Brazil, New Zealand, South Africa, just got hammered due to the selling in Commodities... But... You know my outlook for the inflation in this country, and that will be driving Commodity prices higher by year-end... But the leader in the forefront of all this move will, in my opinion, be Oil prices... And IF Oil prices rebound like I suspect they will, that will be a very nice underpin for Norwegian krone...

Chuck's currency insights are often quite prescient, and he doesn't always come out flatly and say what he likes to rally soon in the Pfennig, so this is worth noting.

If you're looking for a place to make this trade - your not alone - my futures broker doesn't offer this contract either. One good option to consider is a foreign currency account with Everbank.

Dollar Index Falls Below Key Technical Indicator

According to Everbank's Chris Gaffney, the dollar index has fallen below its 55-day moving average, a key technical indicator.

But even before the automakers got the bad news from the Senate, the dollar was falling faster than we've seen in the past few weeks. Chuck shouted out across the trade desk around noon yesterday that the dollar index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc, had fallen below the 55 day moving average. This is a major level for technical traders, and signaled the dollar could be headed for a further fall.

Bank of Japans Ready to Intervene Against the Yen's Rise

Sean Hyman from World Currency Watch says watch out, the Bank of Japan is not one to be reckoned with. They are ready to intervene to stop the Yen's rise - and you don't want to test them.

And our pal and trusted currency advisor, Chuck Butler at the Daily Pfennig, agrees with Sean in his letter today:

And... While I don't want to spend the whole letter today on Japan... I must say that I think we should all be very wary of the BOJ and their history of intervening to keep yen weak. This will be a huge battle between the Carry Trade unwinders and Uridashi Bond sellers VS the BOJ... Just don't get caught up in it... If it happens, stay to the sidelines, you don't want to get caught up in an intervention battle...

Roll Over, British Pound! Going Short Two Contracts

A jolly good day to you, dear reader chap. This morning, over tea and biscuits, I posed the following query to myself:

Q: What's better than one short British Pound contract?

A: Well that's easy, my good man - the answer is TWO short British Pound contracts.

Check out this chart - is this dog waking up anytime soon?

Look, George Soros made $1 Billion shorting the British Pound in his most famous trade - I've got some catching up to do!

Further reading:

• FX Street: How Much Lower Can the Sterling Slide?
• "The news for sterling has gone from bad to worse," said Ian Stannard, a currencies strategist at BNP Paribas in London. He said that the pound could test resistance at $1.8180 area "before a corrective rebound develops," as sterling catches up with the dollar's recent move lower.

Kevin Kerr: The Food Crisis, A First-Hand Report

Same story we've been following here. A nice rally in the grains today, and a little bit of life in the softs as well.

Can corn continue to break out from here? It's been rangebound for the past couple of months - I keep thinking that fundamentals will eventually prevail and push corn past the $7 mark.

In a "close your eyes and buy" trade, I picked up a mini Nat Gas contract this morning. I've been itching to buy it since it crossed the $8 mark, but lacked the testicular fortitude. I hate the volatility of Nat Gas, but no doubt which way the trend is going.

Also keeping a close eye on the Yen and Swiss Franc here. Both appear cheap, but could head lower as long as the "good times" remain on Wall St. When the next leg of the bear market hits, I expect these two to shoot up.

FT.com: Is the Yen still a Japense Currency?

David Bloom makes the case that the Japanese Yen is no longer trading based on Japanese events.

From personal observation - I agree, the Yen has been basically an inverse proxy of risk appetite in America for the past year or so.

Chuck Butler on the Swiss Franc

Chuck Butler on the Swiss Franc and potential end of the carry trade, from his must-read currency newsletter, the Daily Pfennig:

Swiss inflation is really putting the pressure on the Swiss National Bank (SNB) to raise interest rates... Inflation in Switzerland accelerated faster than expected in March. In fact, it was the fastest monthly pace in 14 years! OK, get ready for this... Because from that introduction, you would think inflation was out of control here, right? Well... Inflation rose to 2.6%... Nonetheless, this is higher than the SNB's target of 2%... So... Hopefully the SNB will not rely strictly on the stronger franc to combat this rise in inflation... A rate hike in Switzerland could all but end the short selling in francs...

Why you ask? Ahhh grasshopper, sit... You, see... When a low yielding currency is used as the funding currency of the Carry Trade, it is sold "short", and the proceeds are used to purchase a higher yielding currency... Since the "short" currency's yields are low, the borrowing costs are low too... (when you sell short, someone has to lend it to you to sell, thus you are borrowing the currency)... But if the borrowing costs begin rise, that causes the trade to lose... And who wants a "losing" trade?

So... Grasshopper... If Switzerland's interest rates would go higher, their borrowing costs would go higher. This would cause the Carry Trades using Swiss francs as a funding currency to unwind, which means the "short" would get covered, and to cover a short... You BUY the currency! Thus driving the price of Swiss francs higher! YAHOO! That's it... That's all there is!

Times Online: Dollar tumble spells trouble for yen trade

Full article

Summary:

• We all know the yen carry trade - folks borrow "cheap" yen (paying unnaturally low interest rates), invest in higher yielding terrain (ie. Australian dollar) and leverage the shit out of it.
• This doesn't work when the yen rises - as it is now. I had assumed that most of the carry trade was "unwound" - but this article suggests the real fireworks could be ahead of us.
  

Daily Pfennig: Yen Rally May Pause

From Chris Gaffney at the Daily Pfennig:

Both Chuck and I have had positions in Japanese Yen for some time now, so you will have to excuse us if we seem a little excited (relieved) that the yen is finally moving up. But as always, the move in yen won't be a one way ride. News released last night could put an end to this recent rally as there is the makings of a political standoff in Japan. Japan's main opposition party said it will reject Prime Minister Fukuda's candidate to lead the central bank only a week before the current governor's term expires. This may lead to the central bank's top post becoming vacant, but is that really so bad? I can think of a few central bank heads which we would probably be better without!!

Both the Yen and the Swiss Franc were acting funny, down quite a bit in the last 24 hours - enough for me to take off my positions in both for the time being. I think this run may be over for now.

On the bright side, grains are rallying and rice is looking good again, with a new breakout after last week's sharp correction.

Jeremy Grantham Interview in Barron's

An interesting interview with superinvestor Jeremy Grantham.

Perhaps of interest to readers of this blog: he mentions he is long the Japanese yen, the Swiss franc, and the Singapore dollar.

Dollar Ready to Rally vs. Euro?

Interesting take in Daily Wealth on why the dollar is about to rally vs. the Euro (scroll to bottom - though the top article is good too).

My opinion - even if the dollar does not rally vs. the Euro, I don't think it has much farther to fall vs. the Euro either. However the dollar does have a ways to drop vs. the Asian currencies in order to restore some sort of balance to the trade balances - those currencies have been artificially depressed for some time.

And don't forget the carry trade currencies - favorite of Jim Rogers right now - the Swiss franc and Japanese yen.