James,
With delay (I was travelling), a response to your questions:
1. For the past few years a lot of people (and mostly hedge funds) have been borrowing Yen (because of the low interest rates there - 0.5%), converting the Yen to $s, and buying dollar investments (from bonds to stocks or other things). Now, for first time, it seems that the Japanese authorities are doing something that maybe be credible, i.e., spending a lot of money to bail out their banks and their economy. This means higher Yen interest rates. So people are buying back the Yen they sold to cover their positions. The biggest Yen borrowers have been hedge funds and you must have read what has happened to them in other fronts. So they are liquidating big time.
2. The discrepancy between financials and other is, in my view, more of a financial stocks sell-off than the other way around. It has been caused by the fact that banks have had major losses coming from their exposures in emerging markets, and to credit products in general. Since I work for a bank, I can tell you that banks have lost money, but the reaction of the stock market is way overdone. In my view, great stocks like MER and JPM are great buys at these levels (I bought).
I hope the above helps
Tavros |
