11th March 2011, just after 1445hrs local time in Tokyo.
There was a sudden surge of activity in the currency markets. Orders to sell JPY across the board flooded the lines after a sleepy Friday morning of trading. My screen had come awake as prices changed in double-time, green and red, green and red, and shouts of 'what's going on?', 'who died?' flew across the room, until somebody mentioned the headline in red that just flashed across the newsfeed; 'Earthquake in Japan.'
 |
| USDJPY - It's Alive! |
Japan is no stranger to earthquakes, with at least 2 reported just the month before, and markets had largely brushed aside those events. What's so different now? Could this be The Big One?
As the trading day unfolded, the markets did what markets did (move around in a seemingly illogical fashion while analysts and talking heads on TV come up with obvious explanations after the fact - in as loud and forceful a voice as they can muster), and the media was all over the story; all I could do was stay glued to the screens with a sense of wonderment at how the markets (or more specifically, traders trading the markets) were reacting to this disaster.
Someone somewhere in Japan was fleeing for his life as the resulting tsunami claimed all his worldly possessions, while we traders around the world were busy trying to figure out how to profit from this situation. And most of those same traders are probably losing money by the minute, if you believe reports and studies that claim 95% of people lose money speculating.
What's wrong with that picture? Nothing really, it's just the way the world works. In recent months we've witnessed the unrest in the Arab countries (suddenly Libya is off the radar), natural disasters in Australia and New Zealand, and, cynical as it sounds, still the world turns.
What's interesting about the picture, is the way markets reacted.
1st reaction. Sell JPY, sell stocks.
Stock Index futures around the world were sold off, with Asian indices expecially hard hit. This sort of made sense. In the immediate future, a lot of companies based in or having dealings with Japan are going to lose a lot of money, although some are eyeing local construction companies.
Remember Kobe? In January 1995, the big Kobe earthquake sent the index spiralling down for almost half a year before it recovered to pre-disaster levels by the end of the year. This was the event that led to the downfall of one prestigious British Bank, thanks to a single derivatives trader in Singapore.
Some may argue that Japan is not in a secular bear market as it was back then, so the effects may not be so hard-hitting, but who knows? Oh yeah, those brilliant analysts and loud talking heads. Me, I'll just stick to the charts. Short Japan is a no-brainer for the short-term.
As the trading day unfolded, the markets did what markets did (move around in a seemingly illogical fashion while analysts and talking heads on TV come up with obvious explanations after the fact - in as loud and forceful a voice as they can muster), and the media was all over the story; all I could do was stay glued to the screens with a sense of wonderment at how the markets (or more specifically, traders trading the markets) were reacting to this disaster.
Someone somewhere in Japan was fleeing for his life as the resulting tsunami claimed all his worldly possessions, while we traders around the world were busy trying to figure out how to profit from this situation. And most of those same traders are probably losing money by the minute, if you believe reports and studies that claim 95% of people lose money speculating.
What's wrong with that picture? Nothing really, it's just the way the world works. In recent months we've witnessed the unrest in the Arab countries (suddenly Libya is off the radar), natural disasters in Australia and New Zealand, and, cynical as it sounds, still the world turns.
What's interesting about the picture, is the way markets reacted.
1st reaction. Sell JPY, sell stocks.
Stock Index futures around the world were sold off, with Asian indices expecially hard hit. This sort of made sense. In the immediate future, a lot of companies based in or having dealings with Japan are going to lose a lot of money, although some are eyeing local construction companies.
Remember Kobe? In January 1995, the big Kobe earthquake sent the index spiralling down for almost half a year before it recovered to pre-disaster levels by the end of the year. This was the event that led to the downfall of one prestigious British Bank, thanks to a single derivatives trader in Singapore.
Some may argue that Japan is not in a secular bear market as it was back then, so the effects may not be so hard-hitting, but who knows? Oh yeah, those brilliant analysts and loud talking heads. Me, I'll just stick to the charts. Short Japan is a no-brainer for the short-term.
 |
| More Downside for the Nikkei? |
Oh, but did you notice the little rally in US stocks later that day? That's another story for another post....
But sell JPY? that was the initial reaction, which is typical of all disasters around the world at any time; sell the currency of the affected country. But look how brief that move was. Hope you're not long (USDJPY, i.e. short JPY), like every trader and their uncle since time immemorial.
Look at the chart, simplistic as it is. Is this the event that's finally going to flush out all the JPY shorts?
But wouldn't Japan need to lower rates (indirectly of course, have you looked at Japanese rates lately?), borrow and print more money to pay for reconstruction efforts? Weren't their debt just downgraded recently?
Ah, who knows. Sell USD/JPY, if you're wrong, that's what stops are for.
 |
| USDJPY Breaking Lower? |
Right now I'm still following the news coming out of Japan, and my heart goes out to all the wonderful people of that country, whose hospitality I had the privilege to enjoy just late last year.
As for the markets, they'll always do what they always do, and whatever happens to the traders; well, unlike the Japanese, we asked for it.
Peace.
No comments:
Post a Comment
Feel free to share your thoughts. I do.