|Dow||-18.05 to 17,634.74|
|S&P 500||+0.49 to 2,039.82|
|Nasdaq||+8.40 to 4,688.54|
|10-YR Yield||-0.03 to 2.32%|
|Gold||+$28.90 to $1,190.20|
|Crude Oil||+$1.75 to $75.97|
The value of their money is collapsing. Right before their eyes.
No, I’m not talking about the Europeans, though their euro is trading at its worst level against the dollar since the summer of 2012. Nor am I talking about the Brits, though their pound tanked to 1.56 against the dollar today — down from around 1.72 at its peak to the lowest level in 14 months.
I’m talking about the Japanese. Their currency, the yen, is bar none the absolute sickest one on the planet — and there seems to be no end in sight to its collapse! Just look at this weekly chart of Japanese yen futures:
|Click chart for larger version.|
You can see that the yen is now trading for around 0.85, down from about 1.33 at its peak. That’s a whopping 36 percent loss of purchasing power against the dollar (and other world currencies) in less than three years.
And the amazing thing is, the country’s central bankers and politicians couldn’t be happier! They seem to think that driving up the cost of imports and basically stealing the wealth of their population is sound economic policy!
Things only got worse this week after Prime Minister Shinzo Abe called for early elections. The Japanese government is also strongly considering postponing a sales tax hike that was supposed to take effect in 2015. That has investors questioning the strength of the Japanese economy, and suggesting the Bank of Japan will have to go even more nuts on stimulus than it has already (never mind that the previous stimulus obviously didn’t work, or Japan wouldn’t be here in the first place).
So what does this mean for a U.S. investor?
Well, there are direct ways you can profit from a declining yen — such as the ProShares UltraShort Yen (YCS) ETF. It’s designed to rise 2 percent for every 1 percent decline in the value of the currency. But let’s face it, that ETF has already surged quite a bit and looks pretty extended.
|A falling yen is theoretically good for Japanese stocks.|
The collapse in the yen is supposed to boost profits and business prospects for Japan’s export industry, which would (theoretically) also be good for Japanese stocks. That’s why something like the WisdomTree Japan Hedged Equity Fund (DXJ) has done well for U.S. investors over the past several weeks.
As the name suggests, it invests in Japanese stocks and hedges away the yen’s currency decline. That eliminates the negative currency translation effect you would otherwise suffer.
But the other way is simply to own high-quality U.S. stocks in select winning sectors. I say that because of one key reason the yen is declining: Japanese investors are directing massive amounts of money into overseas asset markets.
They’re desperately trying to preserve their wealth by dumping yen, buying dollars, and buying U.S. stocks with the dough. In the regard, they’re joining the Russians, the Chinese, the Europeans and others in the global money shift I’ve been discussing for months!
Unless and until Japanese bankers and politicians stop declaring war on the wealth of their own citizens, that exodus is likely to continue. Just be thankful your dollars aren’t going up in smoke like their yen, pounds, and euros!
|“Just be thankful your dollars aren’t going up in smoke like their yen.”|
Now let’s talk turkey about this money implosion in Japan (and Europe, etc.). Is it affecting you? Have you been watching these foreign currency moves, and making money from them using some of the tips I’ve been sharing? How would you feel if you lived in Japan and the value of your currency was collapsing? Hit up the Money and Markets comment section and weigh in!
|Our Readers Speak|
The money tsunami. The Putin push in Europe. Lots of comments were piling up, so here’s a few of them to consider.
Reader Clary D. said in regards to shipping money here from overseas: “I live in Europe, in Italy specifically. That is why I am putting my euro in USD, and U.S. stocks.”
Clary certainly isn’t alone — a key reason why the euro has lost so much value. But Reader Mike L. believes at some point that will create value in foreign stocks. His take:
“Okay about the Money Tsunami, but, what about when markets are so depressed ‘over there’ that the money starts to flow back to pick up ‘bargains’? Do these things take enough time to develop that they can be detected and we can get out before the bubble pops here?”
Thanks for the comments. I’ve been a big believer in avoiding investments in countries or economic zones where the central bank is actively trying to devalue its own currency.
But yes, at some point, foreign stocks in places like Europe will get too cheap. We’ve seen the euro come so far, so fast that it may even be close to putting in a short-term bottom. Yet the longer-term picture remains clear: Unless and until our economy tanks compared with their economies, money is going to flow here.
Meanwhile, on Eastern Europe, Reader Hapuna said the following: “It’s no secret that Putin plans to retake territory that was lost after the USSR disintegrated. His plan is to strengthen Russia and expand its influence into Eastern Europe. The only thing that will stop him is force. Talk will not stop Putin.
“That said: Europe and America are both flat broke and cannot afford further debt or wars. So what’s the answer? The answer is to stop talking tough with nothing to back it up. Either move against Putin or let him have his pound of flesh and keep quiet.”
I tend to agree. Putin is not the kind of leader you can push around without a legitimate threat of force. That’s precisely why he hasn’t backed down yet!
Finally, Reader John P. weighed in on the issue of out-of-control bankers and asleep-at-the-switch regulators. His comments:
“You can complain about regulators not ‘doing their job’ all you want but it’s not going to change the fact that they’re not adequately funded or staffed to do that job in the first place.
“How does a politician get around popular outrage surrounding bank fraud and abuse? Play lip service to the voters and quietly cut funding to the SEC and other agencies in charge of enforcing laws. That way you can pretend you’re doing something while accomplishing the exact opposite and providing an easy scapegoat when laws aren’t enforced.”
I don’t know, John. To me, it’s not an issue of money. It’s an issue of having a culture of independence, foresight, and thinking outside the box on big-picture issues.
None of the officials at the Fed, the OCC, or any of the other regulators wrapped themselves in glory during the housing bubble, mostly because they failed to listen to the warnings coming from places like our independent research firm. Would tens of millions of extra funding per agency have made a difference? I’m skeptical.
But as always, thanks for your input. And please don’t hesitate to add more comments on any of these issues, or other ones, right here.
|Other Developments of the Day|
Few market sectors have been more hated than energy of late. But boy did that change late yesterday in a New York minute. The reason? News broke that oil services firm Halliburton (HAL, Weiss Ratings: A-) is planning to buy competitor Baker Hughes (BHI, Weiss Ratings: B).
No word yet on a price. But the price tag could run into the tens of billions of dollars — and be one of the largest energy mergers in history. Antitrust concerns could force some divestitures, considering the companies are the #2 and #3 players in the industry. But it could also be a game-changer in terms of shifting investor sentiment on the sector.
Speaking of energy, OPEC ministers are set to meet in Vienna on Nov. 27 to decide how to react to plunging oil prices. The global oil benchmark, Brent crude, just suffered its longest stretch of weekly declines since 1988. Increased diplomacy among OPEC’s 12-member countries could lead to production cuts, so stay tuned!
President Obama is planning to use executive orders to try to get things done in his last two years in office, after a brutal midterm election pushed the Senate into the Republican column. Up first? Action on immigrants, including the granting of legal status or deferred deportation to several million illegal foreigners currently in the U.S.
Euro-zone GDP rose a paltry 0.2 percent in the third quarter, showing the challenges faced by the $11.9 billion economic bloc. GDP in Germany inched up just 0.1 percent, while GDP in Italy fell another 0.1 percent – the 11th drop in the past 13 quarters.
Until next time,