The Economy Has The Flu...And So Do I!
The poor, poor economy. It has gotten sick and Papa Fed keeps trying to give it the same old medicine.
While the Fed seems to only have one prescription in it's medical kit, it seems that it has ceased to have the same effectiveness that it once had.
B-squard, Ben Bernanke and his fellow Fed bankers lowered both the Fed Funds and the Discount rate today by 1/4% to 4.25% and 4.75% respectively. The market proceeded to tank, losing 294 points on the day.
What happened? Rate cuts are supposed to prop up the stock market, not drive it down. While I was calling for a 1/4% cut in the rate, most of Wall Street was anticipating...in fact they were already banking on...a 1/2% decrease in rates.
Mind you, I may be a bit harsh on the Fed and rushing to judgement too quickly here since you have to give these rate cuts time to filter through, but who has time to wait nowadays.
Besides, commercial banks like the rate cut as they immediately trimmed their prime lending rates to 7.25%, the lowest rate in 2 years. This is a boon for real estate investors who are looking to either refinance properties, or get financing for new deals.
However, the thing with Wall Street is that they want what they want...AND THEY WANT IT NOW!
Sometimes even Wall Street does not get what it wants.
Unfortunately, this effects the individual investor, unless...the investor gets creative.
While, all of this is effecting many paper assets negatively, it is opening the window further on others.
One of the initial fuels to the real estate boom was the low interest rates in Japan. In the early part of the decade, interest rates on loans in Japan were hovering around 1%...yeah, that is right....1%!!!! Real estate developers from around the world, and the US in particular were going to Japanese banks and borrowing Japanese Yen, converting it to US Dollars and getting involved in the real estate boom. This was called the carry trade. Many of these loans are either ARMs or short-term development loans. Well, many of these loans are now coming due and the US Dollars are going to be sold to purchase Japanese Yen to pay back the loans.
What does this mean to you as an investor?
Well, there are 2 ways that this can be played. Either calls can be bought in the ForEx markets on the Japanese Yen, OR an investor can buy shares in the Japanese Yen Trust ETF (Symbol: FXY) that closed the day at 90.22. The Japanese Yen Trust ETF holds Japanese Yen and trades on the New York Stock Exchange. It is designed to track the performance of the Japanese Yen.
But wait, there is yet another way that you can play the Japanese Yen. The ETF also trades options. Now the options and the futures supply leverage to the trade and are much more volatile than the ETF.
So, there you have it...3 ways to play the selling of US Dollars for Japanese Yen for FUN and PROFITS!
Notes From The Underground:
Dow - 13,432.77 -294.26
Gold - 812.30 +4.00
Silver - 14.72 +0.03
Oil - 89.15 +1.29
SLV - 143.50 -2.12
FXY - 90.22 +0.71
To Your Investing Success,
Patrick
While the Fed seems to only have one prescription in it's medical kit, it seems that it has ceased to have the same effectiveness that it once had.
B-squard, Ben Bernanke and his fellow Fed bankers lowered both the Fed Funds and the Discount rate today by 1/4% to 4.25% and 4.75% respectively. The market proceeded to tank, losing 294 points on the day.
What happened? Rate cuts are supposed to prop up the stock market, not drive it down. While I was calling for a 1/4% cut in the rate, most of Wall Street was anticipating...in fact they were already banking on...a 1/2% decrease in rates.
Mind you, I may be a bit harsh on the Fed and rushing to judgement too quickly here since you have to give these rate cuts time to filter through, but who has time to wait nowadays.
Besides, commercial banks like the rate cut as they immediately trimmed their prime lending rates to 7.25%, the lowest rate in 2 years. This is a boon for real estate investors who are looking to either refinance properties, or get financing for new deals.
However, the thing with Wall Street is that they want what they want...AND THEY WANT IT NOW!
Sometimes even Wall Street does not get what it wants.
Unfortunately, this effects the individual investor, unless...the investor gets creative.
While, all of this is effecting many paper assets negatively, it is opening the window further on others.
One of the initial fuels to the real estate boom was the low interest rates in Japan. In the early part of the decade, interest rates on loans in Japan were hovering around 1%...yeah, that is right....1%!!!! Real estate developers from around the world, and the US in particular were going to Japanese banks and borrowing Japanese Yen, converting it to US Dollars and getting involved in the real estate boom. This was called the carry trade. Many of these loans are either ARMs or short-term development loans. Well, many of these loans are now coming due and the US Dollars are going to be sold to purchase Japanese Yen to pay back the loans.
What does this mean to you as an investor?
Well, there are 2 ways that this can be played. Either calls can be bought in the ForEx markets on the Japanese Yen, OR an investor can buy shares in the Japanese Yen Trust ETF (Symbol: FXY) that closed the day at 90.22. The Japanese Yen Trust ETF holds Japanese Yen and trades on the New York Stock Exchange. It is designed to track the performance of the Japanese Yen.
But wait, there is yet another way that you can play the Japanese Yen. The ETF also trades options. Now the options and the futures supply leverage to the trade and are much more volatile than the ETF.
So, there you have it...3 ways to play the selling of US Dollars for Japanese Yen for FUN and PROFITS!
Notes From The Underground:
Dow - 13,432.77 -294.26
Gold - 812.30 +4.00
Silver - 14.72 +0.03
Oil - 89.15 +1.29
SLV - 143.50 -2.12
FXY - 90.22 +0.71
To Your Investing Success,
Patrick
Labels: Fed, Foregin Currency, Stock Market
posted by Patrick Clark at
7:02 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home