Beware Of Pundits Bearing Wet Blankets, Or ...

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Includes: FXY, JYN, SPY, UDN, USDU, UUP, YCL, YCS
by: Bill Kort

How to take a silk purse and turn it into a sow's ear in one easy lesson. I give the prize to CNBC … more specifically Bob Pisani and Art Cashin (with runner-up honors going to Barron's Magazine). This exercise might be especially instructive for kortsession followers with short attention spans. You may have forgotten how strong the dollar was (until it wasn't). In fact, some of the residual weakness in 1Q earnings might be laid at the feet of the strong dollar. On November 18, 2015, it took almost 124 yen to buy one greenback. Friday 4/8/16 it only took 108 yen to buy the same dollar. Back in November the bears were growling about how the strong dollar was killing multi-national corporation earnings, putting the US at a competitive disadvantage. Ergo, you would think that the recent weakness in the dollar versus the yen and euro would have had them placated. Not so.

Believe it or not, these guys have quickly turned this PLUS to a MINUS. What was touted as a positive has now become the potential sign of global economic weakness, as Japanese and European goods would become more expensive on world markets, putting a further impediment in front of their already-struggling economies. Here is the clip:

Cashing: Funny things about to happen in Japan

Art Cashin
'Somethin' Funny …

Here is an article from MarketWatch, 4/7/2016 (same message): "S&P 500 Lower, erases 2016 gain on global economic worries." And, of course, the ever-prescient Randal Forsyth had to add his two cents in this week's edition of Barron's magazine, "How the Yen's Rise Could Effect the Stock Market" (link only available to WSJ/ Barron's Subscribers). Forsyth quotes one source, BCA Daily Insights:

The yen's rise could be a "canary in a coal mine for global risk assets," according to BCA Daily Insights. Japanese currency and stock markets tend to be leading indicators for the US equity market having peaked ahead of the major top in the S&P 500 index in 2000 and 2007.

Canary sans coal mine

Hmm, just like the peak in January of 1987 at nearly 160 yen to the dollar (yen/dollar Historical prices). By January of 1995 the yen had strengthened to 84.25 to the dollar. During that same period the S&P 500 ran from 264.5 to 465, up 75%. Of course, the yen continued to weaken and strengthen over the ensuing 5 years as the S&P continued to more than triple in value by 2000. During that same period the Japanese Nikkei 225 fell from a peak of nearly 39,000 (12/1/1989) to a low of 13,406 (9/1/1998). Clearly, in the bright light of history, using strength or weakness in the yen or Japanese market as a 'canary,' would not have been a very profitable strategy. Ergo, beware of pundits bearing wet blankets. Their message could be hazardous to your investment fortunes.

Again, it seems to me the bears continue to have it both ways: Heads you lose, tails you lose.

What do you think?

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