OT: Yen vs Dollar & U.S. Stock Market - "Foreign investors are asking themselves why they should keep funding the US to consume itself silly"

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BBC news article:


-- Jack (jsprat@eld.net), September 15, 1999




-- Jack (jsrat@eld.net), September 15, 1999.


You've got the stock market problem nailed. Right on!

Summers' statement against intervention is not welcomed. Intervention may not stem the drop but you don't want to announce to the world that you don't feel strongly about supporting the dollar.

Turn back the clock. Twelve years ago, the investment world looked rosy until Greenspan raised rates in August of 1987. In mid-October, AG warned rates could rise even higher and the Dow dropped 4% the next day (equivalent to 400 Dow points now). Shortly after, Treasury Secretary Jim Baker announced to the world on Sunday, October 18 that he would let the dollar slide in value. Foreigners don't like to invest in a falling currency and they started pulling out of the market on the open the next morning. By the end of that day on October 19, 1987 the market had tanked by over 20%. That was trhe largest single day drop in the history of Wall Street.

History never repeats in precisely the same way. We may get a crash, we may get a bear market or we may get sidewise action. But we do know that excessive price valuations, rising interest rates and falling currency values have been prescriptions for market drops in the past. Things are falling into place for a wake-up call to those investors who believe in the "new paragigm."

-- mike (maples@voy.net), September 15, 1999.

This should be page one material. The US economy is teetering and WILL fall down soon. The talking heads can't stop it, Alan Greenspud can't stop it, the funds can't stop it and the Japs sure don't wanna stop it. So guess what? It's gonna happen. It's happening now. Gotta hand it to Bob Rubin for stepping off at the right time, "way to bail bobby!". Summers is hosed, the poor guy. He will forever be remembered as part of the crew that ran this thing down. Anyway, to my point. Two articles I read today and one yesterday mentioned the same point, that this Yen/Dollar slide is being fueled by consumers repatriating Yen. They called it "capital flight"....Yes that's right Mr. Day Trader.Com, bubble buying, chipmaker frying, inflation flag flying dork, we are the place they are FLEEING! Get it? We suck. We suck huge. The entire world knows the games up but us. Duh.

Time for Joe 401Kay to start paying attention very closely, lest he get burned.

For ed and research purps only:

OPTIONS - Yen calls in demand, short dates soar > LONDON, Sept 15 (Reuters) - Demand for yen call options > remained brisk on Wednesday as the currency soared to all-time > highs against the euro for a fifth straight session and to > 3-1/2-year peaks against the dollar. > While yen options became pricier across the board, yen calls > were in focus as end users in need to hedge their dollar or euro > exposures were under increasing pressure, given the nosedive in > dollar/yen and euro/yen. > "No one's got any strikes down here, so you've got to expect > people to keep buying," said Simon Smollett, options strategist > at IDEAglobal.com in London. > Traders said the low liquidity due to a market holiday in > Japan and a shell-shock effect from the big spot moves > exacerbated the lopsided option supply/demand. > One-month at-the-money dollar/yen options were priced at > around 18.8/19.4 percent implied volatility at European > midsession, up nearly three points on the day. One-month > euro/yen was also up a similar amount to around 19 percent. > One-month 25-delta yen calls in dollar/yen were priced at > about 2.6/3.1 points over equally out-of-the-money yen puts. > While that put/call price differential was little changed on the > day, it is near the very high end from a historical perspective. > The yen puts remained priced below at-the-money in > volatility terms. > At-the-money volatility normally is at the bottom of the > so-called "smile curve" due in part to the possibility of a snap > back in spot, but traders said the dollar's one-way slide showed > no signs of reversing right now and the latest round of Bank of > Japan intervention had had very little impact on the market. > Traders said rises in volatilities in recent sessions had > been ahead of the accelerated decline in the spot dollar. > The spot dollar fell nearly three yen from overnight highs > on Wednesday to a low of 103.25 yen in Europe. > Its decline from a high of 111.17 yen -- the session high on > Thursday, the day Japan announced a surprise rise in its > second-quarter growth data -- came in at 7.1 percent, and the > 20-day close-on-close historical volatility was now reaching 17 > percent from around 12 percent on Thursday. > Along the way, the dollar's slide briefly accelerated at 108 > yen, 107 and today at 105 and 104 as triggers for knockout-type > options were taken out. > The triggers typcally generate choppiness in the spot rate > and a rise in short-dated option prices due to the need for > market-makers to drastically re-adjust their hedge positions as > the exotic options become void. > In addition, a Japanese bank trader noted, end-users who had > been using the knockout for genuine hedging purposes were having > to re-hedge, exacerbating the dollar's downmove and the bid-tone > for yen calls. > Due to the sharp slide in spot, the spot-sensitive shorter > maturities were better bid, steepening the inverted volatility > curve. One-week at-the-money rose to 23/26 percent from about 20 > percent mid-point on Tuesday. > However, demand was seen spilling over to the back end of > the curve. > "The back end looks cheap and I think people are going to > start looking at it again," Smollett at IDEAglobal said. > ((Shin Kishima, London Capital Markets +44-171-542-6721, > shinichi.kishima@reuters.com))

-- Gordon (g_gecko_69@hotmail.com), September 15, 1999.

Alan Greenspan and the Fed flooded the economy last year to stave off a collapse. We are paying the price now. Forget the government's phony low inflation numbers. Oil is going through the roof because the producers know that the dollar is slipping into the realm of the Brazilian rial and and Mexican peso. Even the American people will start waking up soon.

-- Mr. Adequate (mr@adequate.com), September 15, 1999.

how about this for an exogenous shock: Japanese investors get the feeling that they can't trust US banks or money managers to mark positions correctly, and pull their money out. Certainly for anyone whose net worth is counted in Yen, the past year's investment in US markets has been no fun. One of the last straws, maybe? We really need to look at this picture with an Orwellian "doublethink" capability. In the 70's I used to listen to the analysis of the Fed raising rates to stop inflation as one of the silliest things I'd ever heard. If the cost of short-term riskless money goes up, doesn't that ripple through to finished costs? (Some of it has to.) Granted, it isn't as silly as taking out food and energy from inflation, since those are so fundamental, and eventually show up in the price of everything. However, the underlying assumption about fighting inflation with higher rates is more accurately described as fighting economic growth with higher rates, i.e., causing recession. I agree that recession does work to stop demand-driven inflation.

The set-up is exactly like September 1929. US speculation and debt is extraordinarily high. Foreign investment in the US is being "punished" by a falling dollar. Any large, unplanned selling of US Dollar assets could now have the effect of tipping us over into recession...Depression just around the corner. .....................ITS OVER FOLKS

-- PonziSaysCrashInOctober (Ponzi@itsOver.now), September 15, 1999.

The numbers coming out of the government for consumer price index are also a load of crap, either that or about a year behind (wouldn't suprise me). Anyone who pays attention to prices when they shop knows that prices, especially for groceries, have been taking off for the last 6 months or so. I've seen many items nearly double within a few months. By the time they find out what has really been happening in our economy it will be too late.

-- @ (@@@.@), September 15, 1999.

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