Friday, January 26, 2007
A reader asked for clarification on how a high or low yen impacts equities. Well, here is a funny answer; most of the time it does not matter but occasionally it does. Last spring, as the chart shows, the dollar started rolling over against the yen before the S&P 500 started its decline.
I have no idea, looking forward, how often currencies will impact stocks in a meaningful way but they can and that is the important thing. I think big moves, an upsetting of the apple cart, is what causes equities to react swiftly.
For anyone who cares I reinstated my position in DB Agriculture ETF (DBA) yesterday at $25.90. If the entry point turns out to be a good one, well lucky for me, if it turns out to be a bad one I will have taken out two points which is OK too.
Bill Cara has a post up that expresses concern about a rising ten year yield. He feels that 5-5.25% could be real trouble for equities. I'm not sure if it would be real trouble or simply an excuse for a correction but at some point when enough time has passed after 1% Fed Funds and because of all of the dollar issues I tend to think that the ten year will yield 6.5-7% again. I can't predict when with any confidence but I think it will happen.
The benchmark ICEX-15 index in Iceland has been perking up of late; interesting that the recent yen strength has not seemed to hurt Iceland. Yet?
Iceland has very high interest rates and so is a beneficiary of the carry trade.
This is a very long term theme for me personally but not for clients. I have ridden out a few bumps along the way and will continue to do so. A couple of weeks ago, maybe longer, I reinstated a position in the Stockholm listing of Kaupthing Bank that I had previously sold months ago.
I find it interesting that the rally in SPX on Wednesday took VIX below ten and immediately had a big down day taking VIX back above eleven. I don't have much of a rebuttal to anyone who says it means nothing but nonetheless.