Even though I rarely trade on macroeconomic trends, I absolutely love looking into them. If I were trading for a hedge fund, I’d be trading one of two things:
- Long and short technology stocks (as I write about on the blog)
- Macroeconomic trading (stocks, currencies, etc)
I’ve worked with a few different macro economy traders and have always found it fascinating. One of the biggest challenges is that things that seem illogical can go on for much longer than anyone would expect, which often results in bubbles, market crashes, government collapses, massive inflation, etc. One case that I’ve been reading a lot about in recent years is Japan. It’s truly fascinating how the country went from a miracle economy to one with deflation, no growth, etc. It’s depressing in so many ways. Look at the Nikkei over the past few decades:
The country has poor demographics, little growth and its government has an incredible amount of debt:
Economists have been predicting some type of collapse of the Japanese government for some time now. Just think about how alarming voices are saying that Greece, Spain, and others are in over their head in terms of debt.. yet they’re at far lower levels than Japan. So what’s going on?
It looks like things are changing now. The new government has promised to bring back inflation and economic growth, How? By taking the yen down…! There are two trades in the works now. Short yen and Long Nikkei. There are obviously many ways to play these, including trading the yen directly with forex tools, I also looked at some ETFs (as you can see below). Both have already moved a fair bit:
They could have a lot further to go. This is starting to become a crowded trade, which is always worrying but what if Japan finally moved to where it’s supposed to? Until mainstream media starts reporting on it (CNBC, etc), I have to think there’s an opportunity here. The big question would be when to get out of it.