As per Great Lakes Tweets ‘Quick Trade Tweets’

Christmas came early today for our long-term Japanese Yen trades as profits were taken in both USD/JPY & GBP/JPY.

 

GBP/JPY Reached our long-term target of 139.00 set back in November 14th 2012. The position was long GBP/JPY @ average rate 129.83 profit taken at 139.03. This books a profit of 9.2

 

USD/JPY Profit taken @ 86.02 on our long $/JPY position held since 11th September 2012 @ 78.35. This books a profit of 7.67

We still favour a big Japanese Yen weakening throughout 2013 but a profit should always be taken. We expect the $/Jpy to pull back to the 84.80 level before a resumption in its up-trend continues. We see 86.00 86.50 (Guru Chart) capping this holiday thin market rally to get back into position in 2013.

 

Great Lakes (Prophets) always accepted. Readers enjoy the holiday season and look forward to your company again in 2013

 Abenomics and the Japanese yen

My conviction that dollar yen was a long at 77 was vindicated with a vengeance as the Japanese yen depreciated to 82.60 last week once it became obvious that the LDP’s Shinzo Abe will succeed the DPJ’s Noda-san as the next Japanese Prime Minister. Just as the Holy Roman Empire was neither holy nor Roman and after Napoleon’s humiliation of the Habsburg Empire at Wagram, no longer an empire. Ditto with the LDP, which is neither liberal, nor democratic, more clan of powerbrokers than a political party! The surge in the Euro after the Greek deal (a default by any other name smells just as sweet in Berlin to a kinder, gentler Frau Nein) boosted Euro-yen, a steroid shot for the short yen trade. Softbanks bid for Verizon reinforced my yen bearishness, as did the traumas of offshore flow reversals in Japanese money market funds where the return lay in the post 2009 implicit promise of endaka (strong yen), not zero return.

Japan’s exports/retail sales growth plummeted after the tensions with China and JGB yields sank, it was obvious that the smart money was now short yen, the reason Japan’s currency fell 5% against the dollar since October. My message to the Celestial Empire of the Rising Sun? Arigato gazaimasu, Abe-san. The LDP under Shinzo Abe will change the rules of Japanese fiscal/monetary policy and international relations. Expect greater tensions with China if Abe changes the post Hiroshima/Nagasaki pacifist (Article 9) Constitution. A political realignment in the Diet will also enable Abe-san to impose a “reflationist” bias on the Bank of Japan.

Abenomics means an inflation target of 2% and a U-turn on the DPJ’s fiscal spending cuts/sales tax hike. Ceteris paribus (sorry, my econ A levels still haunt me!), Abenomics means a lower yen, higher JGB yields and 850 on the Topix. The JGB macro trade is know as the widow maker trade in Wall Street hedge funds. In 2013, it has a hope under Abenomics.

The Bank of Japan asset purchase program is now 91 trillion yen after the 11 trillion yen rise in its October conclave. The BOJ will buy JGB, Treasury bills, corporate bonds, commercial paper and provide unlimited liquidity at the overnight call rate. The BOJ needs to escalate of policy to a Bernanke Fed or Draghi ECB shock and awe QE as long as deflation risk afflicts Japan. As Masaki Shirakawa’s term ends next April, Shinzo Abe will be both PM and de facto central bank governor. This is the most seminal change in Japanese monetary policy since the Nikkei Dow/property bubble popped in early 1990’s. Abenomics was a license to print money for readers of this column if they shorted the yen at 78 – 79, especially against the Mexican peso and Russian rouble.

Trade Alert Sold 50% of GBP/JPY position  @130.69

 

Our reason is pure UK politics  as Judge Leveson reports to the Government on Press Freedom we learn  Nick Clegg has  made a request to the speaker of the house immediately after the Prime Minister.

This is unprecedented and really means there is no collective responsibility in this coalition government. Nick Clegg will speak as Party leader of the Liberal Democrats who are as one with the UK Labour party on accepting the recommendations  of the Leveson report. We have had for good or bad an independent free press in the UK for 300- years the left of politics want control of the press , as free English, Welsh, Scottish & Irish people‘s we should ensure our press is never controlled otherwise we will drift towards the EU and dictatorship.

Therefore the Leveson report is dynamite and  could be the catalyst to Split the government and force an early election. This should not be about left or right just rights of a free people.

 

We remain short Cable and are  very happy our target is 1.5450 area.

I have been bearish on the Brazilian real in 2012 since it grossly underperformed the Mexican peso/Colombian peso/Peruvian sol even in the frenzied risk on milieu after Mario Draghi’s fateful OMT/bumblebee speeches. The BRL is down 11% against the dollar. The new government in Brazil has every intention to punish hot money inflows, cap consumer finance/utilities rates, regulate Petrobras gasoline prices. Finance Minister Guido Mantega publicly disses the Real, even though the central bank in Brasilia intervenes via local FX swaps. I am now convinced that Brazil now has a classic “credere” (Latin for believe) problem with global investors, the reason I would short Petrobras/EWZ against the MSCI EM index or the Mexican Bolsa. The Brazil real, in my view, will depreciate to 2.25 by next June.

The Turkish lira (TRY) is overvalued despite the euphoria of the Fitch sovereign upgrade, hostage to inflation risks, hot money risks, current account deficit risks and multiple political risks (constitutional amendments, Syria, AKP – military relations, PKK secessionist violence). So I would fade the post Fitch rating upgrade lira strength. A major Turkish lira fall to 1.90 is not implausible in the next three months.

 

The tragic shooting incident in the Lonmin mines, the sovereign debt downgrade and the political shocks at the pinnacles of the ANC under President Zuma triggered a predictable run on the South African Rand (ZAR) has fallen more than 10% since September I doubt if any rally is in sight unless the ANC confirms a second term for President Zuma, whose past as the ANC’s Zulu intelligence chief in the 1980’s does not negate his pragmatic, pro-business credentials after  he ousted Thabi Mbeki for the Party leadership in 2007. Risk aversion, political risks and a major fall in gold/platinum prices could well see another exodus from South African asset and a Rand that could fall as low as 9.5 against the dollar.

The Indian rupee’s downtrend is not over even at 55 INR due to the inexorable depreciation pressure exerted by 8% WPI inflation and a rising current account deficit at a time of sub 6% GDP growth and Wall Street risk aversion. While Dr. Manmohan/Fin Min Chidambaram shock and awe September reform announcements have slashed the tail risk of an imminent sovereign downgrade, the RBI cannot cut the 8% repo rate without credible evidence of an inflation peak or a fiscal settlement. Yet higher diesel/electricity/coal/fertilizer prices and pre-election public spending by the Congress/UPA political parties make a rise in WPI inflation to 8% almost certain even as the current account deficit slippage rises to 4% GDP. This means no RBI repo rate cut till March, higher G-Sec yields to 8.5% and an INR that could well trade as low as 56. Since Mamta Banerjee exited the UPA coalition, I doubt if the Lok Sabha can railroad pension, insurance, retail RBI reforms in its winter session. This could trigger global runs on the INR I would exploit to establish strategic positions in Indian assets.

The Russian rouble benefits from a hawkish central bank since CPI inflation has risen to 6% due to wage increases, food prices spiral due to bad harvests in the Volga/Ukraine and rise in utilities indices. Unlike most EM central banks, the Bank Rossiya must tighten monetary policy even as offshore capital inflows rise to take advantage of the Kremlin’s new pro-FDI policies. Since Cyprus, Malta and the BVI are among the leading foreign investors in Russia, billionaire oligarchs will be tempted to buy rouble debt that can now be held in Euroclear/Clearstream as well as cheap assets on Micex/RTS. A 4% GDP growth economy, a $80 billion current account surplus and $500 billion in hard currency reserves are all rouble positive. This means there is compelling value in the Russian rouble at 32.50 against the dollar, my preferred buy zone for the rodina’s legal tender.

 

We were stopped out of our long-term long gbp/jpy position earlier this week, however after assessing the market once again and the rally back above 126.50  we have decided to re-instate the position for a loss of 55 pips to our average.

New Stop in place at 122.50

Targets still remain 133.00 and 139.00

Our entry rate average has now moved against us to 129.83 from original entry position taken at 129.28

 

This is a decent hedge against our short Cable position. Confidence will be high closing above 127.00 tonight in New York on this position.