Nikkei at 1982 Levels, Exports Fell 45% in 2008, Watching Nikkei/Yen Relationship

The appreciating Japanese Yen and global recession has killed Japan's export driven economy. Here is the data from Japan's Finance Cabinet in a pdf file. A snapshot is provided below for the year 2008. Japan's Gross Domestic Product (GDP) fell -3.3% from the previous quarter, or at an annual rate of -12.7% from the Oct-Dec period. It was the "steepest slide since the oil shock of 1974 and more than triple the 3.8% annualized contraction in the U.S. in the same quarter" (Source: Reuters, AP). Exports got killed. On an annualized basis from the Oct-Dec period exports fell -45%. Since Japan is an export driven economy when global demand slows and the Yen appreciates it kills the top line. Export pain continued through January 2009 with exports "tumbling" -46% from a year earlier with the trade deficit widening for the 4th straight month (source).

Japan 2008 Numbers (Source: Esri.cao.go.jp)

What's interesting now is the Yen started selling off in February. Here are three possible reasons to explain this. Which is right? We will find out. 1) Risk appetite is coming back to the market with people building Yen carry trades. 2) The Yen lost it's safe haven status. 3) Yen Intervention threats.

Now to the Yen/Nikkei relationship. Looking at the chart below the Nikkei is sitting at levels not seen since October 1982. It's also down 81% from the 1990 peak! The Japanese Government is trying to stimulate its economy by "buying commercial paper, corporate bonds, and stocks from financial institutions to try to help infuse money into companies" (1, 2) and possibly intervene in the forex market to lower Yen/stabilize exports. Last month the Yen sold off while the Nikkei made lower lows (chart). Looking at the Yen/Nikkei relationship historically they either moved together or were inversely related. It will be interesting to see where commodities and the US Dollar go from here and how the Nikkei will be involved.

When will the Yen reach a point where Japanese exports catch a bid? As with the U.S market, wait for the Nikkei to base out and make higher lows w/ volume before scooping up a protected iShares MSCI Japan Index (EWJ) long position (not a recommendation)

Jon Stewart Ruins CNBC (Sir Allen Stanford Clip)

Jon Stewart ruins CNBC and has clips to back himself up. The best part was when Jon Stewart showed a CNBC clip with Carl Quintanilla asking Sir Allen Stanford (guy who ran an $8 billion dollar ponzi scheme) questions about how he avoided the subprime crisis and about being a billionaire.

Carl Quintanilla: "Before we let you go, is it fun being a billionaire.?"
Sir Allen Stanford: (Laughs) "Well uh yes, yes I have to say it is fun being a billionaire".
Jon Stewart: "F* You!".


Bernanke: AIG Was a Hedge Fund Attached to a Stable Insurance Company


This video is on Bloomberg.com.

Bernanke's Own Words on Government Bailout of AIG
"If there's a single episode in this entire 18 months that has made me more angry I can't think of one more than AIG. AIG exploited a huge gap in the regulatory system. There was no oversight of the financial products division. This was a hedge fund basically that was attached to a large and stable insurance company that made huge numbers of irresponsible bets and took huge losses."

$USO, March 25 Calls Made Moves, Trend Still Down but Contango Narrowing...

I saw some action in $USO and the March '09 25 Calls today. I have no idea if these moves were related but thousands of blocks hit the calls at 1:50pm for $1.45 right before a 4% upside move in the ETF. 21,398 Mar 25 calls and 17,294 Mar 24 puts traded by the end of the day. I got this quote from remoratrade.com or @remoratrade on twitter.
"~USO (UBOCY: MAR'09 25.00 CALL) 13:50 (15,204 @$ 1.45) [BID: 1.45 ASK: 1.50 BIDSIZE: 5,092 ASKSIZE: 47] (atBID) VAL: $2,204,580"
The value of the trade was $2.2 million and it looks like they hit the bid. I have no idea how the full trade was set up or if it was playing the long side (17k puts traded) but I'll show you what happened to the value of the calls and USO right after the transaction occurred. Here's part of the order book below.

Is the US Dollar a Black Swan?

Is the U.S Dollar a Black Swan? The consensus bet has been that the U.S Dollar would fall as the trillion dollar stimulus and monetary base spike would dilute the value of the USD. That makes sense however the break down in other currencies has put a bid under the US Dollar as a safe haven. The spot USD Index pierced through resistance at the November 2008 highs. The trend is your friend but watch out for unexpected catalysts that could reverse the trend (reflation/CRB currency bid). If it can sustain it's run here the next resistance level is around 92-93 from the highs made in 2005.


US Dollar Index Spot (Fxstreet.com)

Dollar Index March Future (Optionsxpress.com)


Dollar Index June Future (Optionsxpress.com)

S&P Technicals: Ugly Logarithmic Chart, Broke 2002 Lows, at 1996 levels (700).

The S&P closed today at 700 on the dot. We're at levels not seen since October 1996. In order to go long this market you have to wait until the market retests support successfully and sees higher lows. I'd also wait for the ^VIX (the market fear gauge) to implode. It recently broke out of a pennant formation and is currently testing resistance at 53. I feel like I have a couple blog posts talking about this. You have to keep your inverse index ETFs (DXD, SDS) hedged with some upside call protection until the trend reverses itself with conviction. If you're itching to be net long you have to wait until real market value is discovered. The market is still awaiting the fate of Bank of America, Citigroup and GM.

Below I posted linear and logarithmic charts of the S&P going back 30 years. The logarithmic chart evens out the percentage difference on the y-axis. The long term log chart is more frightening than the linear chart. The linear chart shows the trend line hitting today in the high 600s however the log chart goes into the 500s. Remember these are just lines but they do provide a historical look at supply/demand for the S&P. Also you can draw lines from different data points to provide a different perspective. Good luck.


S&P Logarithmic Chart (Bigcharts.com)


S&P Linear Chart (Bigcharts.com)