Further to yours....ref. Fleckenstein today (10.8.98)".... The yen rallied another "ten big figures" or approximately 8 percent. That means that in the last 24 hours the yen has rallied about 12 percent against the dollar. (Today's loss was the biggest in 25 years.) Folks, this is the functional equivalent of a nuclear event in the currency markets. G7 currencies don't move 10 percent in 24 hours. Furthermore, the dollar has imploded against a currency that we know to be a potential basket case".
As I have said repeatedly in an ordinary world these things don't happen; and what we are living through, this moment,are extraordinary times. Times in which "hedges" against indexes and financial instruments are unable to keep up.
...keep this great thread going.
With best wishes -
Clark
Hell I should quote the whole thing...
For Private Use Only
(C)
"....Yen rallies 8 percent... The large move in the yen that we spoke about yesterday continued overnight and into today. The yen rallied another "ten big figures" or approximately 8 percent. That means that in the last 24 hours the yen has rallied about 12 percent against the dollar. (Today's loss was the biggest in 25 years.) Folks, this is the functional equivalent of a nuclear event in the currency markets. G7 currencies don't move 10 percent in 24 hours. Furthermore, the dollar has imploded against a currency that we know to be a potential basket case.
As we have discussed numerous times in the past, this has occurred because the whole world (that was in a borrowing mode) was funding itself in yen. In the bonfire of the currencies (thank you, Jim Grant) the last log is being thrown on the fire, and the dollar is being incinerated.
Overnight there was a 6 percent move upward in the Japanese market, thanks to all the people who were short the yen and/or short the Japanese bank stocks. The ramification of this move and the ensuing fallout could be every bit as big as the blowup of Long-Term Capital, since nearly all the masters of the universe - including large institutions and banks - were short the yen. This is going to be a very big deal in the continuing destruction of capital and the spread of chaos.
Volatility continues... The levitation in Japan produced an S&P futures rally of about 2 percent, but by the time our market opened they were down half a percent. (Overnight S&P moves are becoming meaningless. I believe it is more a function of foreign markets than an indicator of ours. The same thing went on here in the late '80s when folks traded Nikkei futures based on our market action.) Then they rallied up a percent and the selling began. Volatility will be with us for a long time.
Knee-jerk response... Predictably, since a weak dollar is perceived to help tech, it was bought right off the bat. This knee-jerk response indicates that people don't understand how all of these linkages work. The dollar's weakness has been against a lot of other currencies, not just the yen. It just happens that the yen has been the most violent due to the short positions described above.
Internet lunacy... Interestingly, the Internet stocks had a big break as we head into the Yahoo! (YHOO) earnings announcement after the close. Amazon (AMZN) had a recent valuation of $2,000 per customer, which is more than cable stocks. Just another measure of the lunacy in Internet stocks.
Gold shines... Bonds were hit for a point after being down almost 2. Japanese holders of our bonds were crushed as the combination of currency and price declines cost them over 15 percent in two days! Gold was up over $4 (the XAU popped for 7 percent) as the currency of last resort continues to shine
Nasdaq annihilated... Stocks were sold almost wire-to-wire with many failed attempts to rally. The big carnage was in the Nasdaq, where volume was over a billion shares. Unfortunately, the selling isn't through yet. Tremendous damage has been done to people's portfolios and I think most investors are still in a state of shock.
I don't believe that this leg of the bear market can end until we see real panic. I think that is where we are headed and it will probably culminate in a crash.
As I see it
Live stock quote
(Oct 7 closing prices)
YAHOO! INC
YHOO 114 3/8 -10 7/16
AMAZON.COM INC
AMZN 93 7/16 -14 7/8
For more details on these stocks and more, go to Company Research.
As bullish as people have been on dollar as recently as a few months ago, we have worried for some time that it failed to take out its high from 1989. This is a problem. Stock bulls will try to construe this as bullish, since at the margin it will help exports. However, the dollar is going down because people have concluded we are going to have a recession in this country, and that the speculative bubble in the dollar has popped.
Furthermore, if the dollar slides too dramatically, it will further complicate Greenspan's life, as it is very difficult to lower rates. In countries where the currency is tanking, rates generally go UP, not DOWN. Just ask the IMF or anyone in Southeast Asia, South America, etc. The United States has the type of trade balance/balance of payments that precipitates weak currencies, so this is not a gigantic surprise. We now are between a rock and a hard place. Many Wall Street dealers are losing money every day as funding costs exceed their carry.
One final note on the dollar. Some of the weaker G7 countries, like the Australian and Canadian dollars, also have staged big turnarounds. This is sort of a 5 Sigma event as far as the currency moves.
I have been asked to clarify the point of a tradable bottom in the stock market. I believe that the stock market is headed for a crash, something I have spoken about for some time. The tradable bounce I am talking about is the one that will ensue from a crash-like event. Therefore, I am not getting bullish, but I do believe there will be a tradable bounce that will last for a while before we head even lower.
I am not bullish on Treasury bonds because I don't think that the yield compensates you for the type of event that we are seeing today in the dollar. This has always been my concern with long-dated paper, which is why I have advocated owning 2-year notes. I don't mind getting 4 or 5 percent to lend money, but I don't want to lend money to the U.S. government if the paper could end becoming confetti.
Motorola announced slightly better earnings (on better cost controls) and AMD did a touch better, too. Various cheerleaders have said that we are at the bottom of the semiconductor cycle for the 100th time in the last three years, yet AMD sold off on their better news. In the sub-$1,000 PC market, AMD announced that it now has over 50 percent market share. This just proves how processors are commodities, which will lead to an all-out price war. Between AMD and INTC they are producing 25-30 percent more parts than the number of PCs being built. There is going to be a processor glut.
We are back to the unfriendly ways of the old era. The notions that nothing can go wrong, that the government is going to bail us out, that currencies can be "managed," that volatility can be repressed, that the business cycle has been repealed, that cash is trash, and that stocks are without risk, have been revealed as the naive ideas that they were. The dollar's collapse closes the book that opened with the Asian crisis last summer. There will be many crosscurrents going forward, not the least of which will be tax selling and REDEMPTIONS as banks and hedge funds will continue to blow
I have heard people criticizing Greenspan for not having eased rates here recently. I think that totally misses the point. (In fact, it is off by 180 degrees.) Greenspan's mistake has been that he was too easy for too long, and he has spent five years printing money. His mistake was not in easing only 25 basis points, but in precipitating a bubble and letting the banks get chock-full of derivatives while allowing them become too illiquid.
Readers should continue to be VERY careful, as this is a most dangerous period".
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