Shinzo Abe had a rough weekend and the result so far is that the yen is weaker against almost everything and the Nikkei 225 opened about 1% lower.Yen strength contributes to risk aversion selloffs. If the yen weakens over this political snafu we may see the carry come back into immediate vogue thus opening the door to all the cheer and merriment that markets enjoyed over the last few months since the last yen rally.
It is too early to know what the outcome is but this is the sort of thing that you need to be in touch with if you want to manage your own portfolio.
14 comments:
You need to know about the yen carry trade to manage your own portfolio?
Thats really interesting. I wonder why Harry Markowitz never mentioned this when he developed MPT.
here we go,
um yen strength hit the market in Feb and hit it last week.
You can ignore current events and get blindsided if you think that is best.
LOL @ prev. anon.....nope, but I've found that logging onto Bloomberg.com at about 2 am to see what's happening in Asia goes a LONG way towards eliminating the "WTF happened?" thoughts when out market opens.
jan
This event will be priced into the market before you can do anything about it.
Again, explain why the father of MPT doesn't mention anything about the yen carry trade in his landmark work on portfolio construction??
did he ever care about current events?
Current events certainly impact world markets with real time 24/7 media urgency and commentary. Their is always a daily feeding frenzy about something, somewhere
that serves to enhance media profits, as the zombies that need a life remained glued to the tv or computer bringing the latest in a world of billions of people on a single zealot car bomb attack or Lindsay Lohan behaving badly.
Long term investors with diversified portfolios tune out much of the daily hysteria and angst. And have a life.
Since I accepted that I will never know what goes on in the world (or be tuned in enough to anticipate events) I've been able to make some small profits by keeping it simple. Up or down? I totally understand that maybe we have a great up day, based on the yen's newfound weakness. Sounds better than the 5k that left the account last week. In a fit of brilliance, I even bought a call on EEM, hoping for a rebound, but not knowing from whence it may come. On Thursday I bought wic?, cause it was on cnbc as the bellweather of bad news, at 8.50. I sold it friday for close to 10.00, just feeling that things bounce back. I guess I'm just in the market for entertainment, using perhaps 1% of my total assets, but pretending that it's real money. And, love your blog, Roger!
So, the answer is Markowitz didn't think current events were relevant in portfolio management decisions.
Why Roger thinks they are is still a mystery. Perhaps Roger plans to trade on this event?
Hmmm, interesting debate. I think the world carve up into people who believe the markets are perfectly efficient, and those who think mortals can indeed add value if sufficiently rational. Full disclosure - I used to be in former camp, but gradually, reluctantly shifted to latter thinking. I think this is a core belief issue - like evolution versus creationism.
Can we all agree that nobody will change their fundamental belief on basis of a random blog comment? Also, it's ok to believe whatever you believe, but lets also agree to accept and appreciate that alternative beliefs don't necessarily imply stupidity on other guys part.
Just my $0.02.
I love a little bulldog in the morning. It seems that if you wish to follow Markowitz, that is fine. But, just don't expect everyone else to do so.
Roger has preached about understanding what is your risk and what is your exposure. This seems not out of line with that philosophy.
I do have a bit of an issue. I bought BEO. This is a covered call S&P 500 fund. But, it seems to be acting as an inverse and I don't understand that. Perhaps, the thinking is that when the market goes down, the covered call is less likely to be exercised and when it goes up the call is more likely to be exercised forcing the fund to repurchase the same stock at a higher price. I didn't expect that, though. Does that make sense to anyone?
Rick C.
Rick C, look at a chart of BEO and XBEOX on Yahoo finance. The NAV, XBEOX, did go down last week but the market price did not. Generally I expect call selling funds to hold up better but last week was a little strange.
The volume during this move went up a lot which makes me think someone was motivated to buy. Not really an answer but maybe more context?
Lets put Roger on the spot.
He said that to manage your portfolio, you need to be aware of what is happening to the carry trade.
Rog, was this just hot air, or did you actually alter your portfolio as a result of the events in Japan?
Hmmm, so surrounding an ETF with x...x gives the NAV. It worked for a couple of others I tried. Where, oh where, was that documented. Never mind, it is just helpful to know that the technique exists. Thanks, Roger.
Rick C
Rick C, I noticed that a couple of years ago on ETFconnect. Not every CEF has that but the ETFconnect page will tell you. Also I have only seen them chart on Yahoo Finance and StockCharts.com, nowhere else.
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