US Dollar and Japanese Yen against the Baht

[kittyboy]

An interesting article was in the New York Times today. Apparently uncertainty in the financial market has led to an increase in demand for dollar and yen denominated investments leading to a weakening of other currencies. The baht has been weakening against the dollar. This may be the mechanism driving those results.

http://www.nytimes.com/2008/10/25/busin ... ref=slogin (http://www.nytimes.com/2008/10/25/business/25currency.html?_r=1&hp&oref=slogin)

An interesting article was in the New York Times today. Apparently uncertainty in the financial market has led to an increase in demand for dollar and yen denominated investments leading to a weakening of other currencies. The baht has been weakening against the dollar. This may be the mechanism driving those results. ....

Hmmm....I'm not so sure about this analysis. I don't think its so much about "looking for a safe haven" as much as it's an unwinding of a lot of investment positions against the dollar and yen that have built up for decades.
Consider this:
Most of us Americans have been told for years to diversify our portfolios by buying foriegn stocks. When you do so you are "selling" dollars and "buying" foriegn stocks or essentially taking a short position on the dollar and a long position in foriegn currencies. Right now in the market panic we're having people are selling everything to raise cash. Now the trade works in reverse but instead of taking decades its happening in a few weeks. Americans are "repatriating" their dollars by selling forign stocks/currencies and buying dollars. So the dollar rises.
A similar thing is happening to the yen. For years the bank of Japan has held its interest rates below 1% forcing Japanese investors to look elsewhere for yield. For years the Japanese banks and investors were borrowing yen at .5% and investing in Australia, New Zealand, the US; anywhere with higher interest rates. This was the so called "Yen Carry Trade", again essentially going short the yen and long on other currencies. And this too is now unwinding which is leading to a rise in the yen.

If this was really a "flight to safety" it would be the Euro and gold rising. Both have taken gas lately so there's something else going on.

But I might be wrong..... :dontknow:

Oh, as far as the bhat...there are fundamental political and economic problems in Thailand right now and a lot of investors are bailing. This is not a case of throwing the baby out with the bathwater. There is no baby in the tub here, just dirty water.

Right after I posted that last I was reading Barrons and came across this:

From the article "That Was Way too Close for Comfort"

"...Strategist Ed Yardeni called selling by the $1.7 trillion hedge-fund industry the "greatest margin call of all time." The impact is apparent in the strength of the Japanese yen, which surged 3% Friday to 94 yen to the dollar, capping a month-long rally of 12%. Many hedge funds borrowed in yen to finance their leveraged trades because yen rates have been below 1%. Now that these trades are being unwound, the hedge funds have to buy back the borrowed yen at a big loss. European hedge funds are being hit even harder because the yen is up 23% against the euro in the last month...."



I'll post a link here but it may not work for long. Tis is a subscription site but they seem to give away free issues now and then when you visit the website and this week seems one of them.
Link: Barrons Article (http://online.barrons.com/article/SB122488832920168391.html?mod=b_hpp_9_0002_b_this_ weeks_magazine_home_top)

(Barrons is a weekly financial newspaper and sister publication of the Wall Street Journal. Its a good weekly summary of market action.)

An interesting article was in the New York Times today. Apparently uncertainty in the financial market has led to an increase in demand for dollar and yen denominated investments leading to a weakening of other currencies. The baht has been weakening against the dollar. This may be the mechanism driving those results. ....Other commentators have stated that the strength of the yen is "probably" the result of unwinding "carry trade" positions. For those who don't know what that is (and I suspect WhiteDesire's at the top of that list), essentially it's borrowing Japanese yen at 0% to 0.5% to "invest" in higher-yielding currencies such as the $A and $NZ - http://www.investopedia.com/terms/c/cur ... ytrade.asp (http://www.investopedia.com/terms/c/currencycarrytrade.asp)

Yes. Borrowing in one currency & investing in another is very high risk.

All the Hungarians who have bought property with Swiss Franc or Japanese Yen mortgages will be most likely to end up heavily in negative equity. They almost deserve it for taking such a daft decision.

Predicting exchange rates short term is difficult, however long term it's a safe bet that countries with excessive & unsustainable trade deficits will see their currencies fall against those with trade surpluses. Where both currencies are allowed to float freely. Where the other country holds it's exchange rate down at an artificially low level, that's not "free trade" & we should defend our interests by imposing tariffs on imports from that country (e.g. China). China takes the **** by adding 33% tariffs on many goods we try to export to them. The EU & the US need to wake up fast.

All said & done, personally I'm inclined to live with the exchange rates & concentrate efforts on picking up equities when the price is right.

[kittyboy]

Right after I posted that last I was reading Barrons and came across this:

From the article "That Was Way too Close for Comfort"

"...Strategist Ed Yardeni called selling by the $1.7 trillion hedge-fund industry the "greatest margin call of all time." The impact is apparent in the strength of the Japanese yen, which surged 3% Friday to 94 yen to the dollar, capping a month-long rally of 12%. Many hedge funds borrowed in yen to finance their leveraged trades because yen rates have been below 1%. Now that these trades are being unwound, the hedge funds have to buy back the borrowed yen at a big loss. European hedge funds are being hit even harder because the yen is up 23% against the euro in the last month...."



I'll post a link here but it may not work for long. Tis is a subscription site but they seem to give away free issues now and then when you visit the website and this week seems one of them.
Link: Barrons Article (http://online.barrons.com/article/SB122488832920168391.html?mod=b_hpp_9_0002_b_this_ weeks_magazine_home_top)

(Barrons is a weekly financial newspaper and sister publication of the Wall Street Journal. Its a good weekly summary of market action.)

-----------------------------------------------------------------------------------------------------------------------------------

Ray Dalio, who heads Bridgewater Associates, a Westport Conn. global investment firm that manages $150 billion in assets and is known as a currency and bond specialist, has been warning clients that the world is entering a depression caused by an irreversible deleveraging spiral in which super-low interest rates will have little economic impact. "We're in for a multi-year period of pain and the degree of pain will depend on policy responses,"

------------------------------------------------------------------------------------------------------------------------------------

Thanks for the link to the article. I hope Ray is wrong about a world wide depression. Not being able to finance trips to thailand would send me into a downward spiral of depression.

... the UK currency is going down so fast is that interest rates are going to plummet and pretty quickly, the US not so aggressive. Whilst the US is safe, I'm pretty sure that is not the reason why people are putting their monies into the US dollar, its because other countries' interest rates are low or soon will be!

[kittyboy]

Another NYtimes article about the yen and the yen carry trade.

I defer to Kenc's superior knowledge of the financial markets :)


http://www.nytimes.com/2008/10/28/busin ... en.html?hp (http://www.nytimes.com/2008/10/28/business/worldbusiness/28yen.html?hp)