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Strategies & Market Trends : The Art of Investing -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (114)	9/17/1998 9:13:00 PM
From: Daniel Chisholm	Read Replies (2) \| Respond to of 10694

Sun, Do you know the Yen, Dollar, and DM long and short position right now The answer here is that the every long yen futures contract is matched by a short yen futures contract - it must be so! So there are always exactly the same number of long positions as short positions. Same with DM, same with all other futures. I think that other instruments (forwards, etc) would be the same. That's certainly not a very satisfying answer to your question, I realize. A more interesting piece of information would be how the long and short positions are distributed in the marketplace. That's the $64,000 question, and I don't really know. And what do you think of going long DM and short yen as a pair trade? Actually I'm thinking about going long D.Bundes and short Yen (not JGB). The idea here would be to remove the U.S. Dollar from the equation. You think the yen will weaken vs. "the world", but you don't know about the dollar (Clinton, etc), so by being long DM / short Yen, all that matters is the DM-Yen exchange rate (with DM acting as a proxy for "the world outside of US and Japan"). If that is what you believe, then the trade would be right for you. I've also seen Swiss Franc / Yen mentioned in TheStreet.Com. I don't know if it's because the rate is near the round figure of 100 yen per SFr, or if the idea is that SFr is an EMU-free proxy for "a sensible currency". Going long Bunds (10 year German government bonds) and short yen is another form of yen carry trade - borrow yen (at 0.25% or 0.5%), invest in Bunds (at what, three point something?). A similar idea to long 30-year US Treasuries, short yen. Both trades involve exchange rate risk, interest rate risk, and yield curve risk. P.S So many people were short JGB. As absurd as the JGB pricing was, I was almost certain that joining the masses would have spelled disaster. I doubt many of them got out with their skins in tact when the rates fell. This may be another reason for the strange yen behavior. Shorting JGBs (10 year Japan Government Bonds) when they were yielding 1.5% sure seemed like a smart idea to me (I didn't do it, but was intrigued by the idea). Now at well under 1% yield, it looks like an even smarter thing to do ;-). The thing about shorting bonds is that there is an absolute limit as to how high their price can go - that is the price at which their yield is zero. So the lower the yield, the safer (and cheaper, in terms of carry cost) it is to short them. Someday (visible only in hindsight, of course) it will be smart to short JGBs. - Daniel