Why Markets Have Gone Insane This Year

May 11, 2016 2:16 PM ETAAPL, FXE, FXY, TLT, BHC, YCS, BHC:CA64 Comments

Summary

  • A market where both fundamental research and technical analysis are utterly useless and everything goes the opposite of where it should is no place for me.
  • Despite having negative interest rates and the world’s worst fundamentals, the Japanese yen has been skyrocketing since the beginning of February.
  • There is something unprecedented going on, not with just the yen right now, but with all assets. So I am getting out of the way.

A market where both fundamental research and technical analysis are utterly useless and everything goes the opposite of where it should is no place for me.

Despite having negative interest rates and the world's worst fundamentals, the Japanese yen has been skyrocketing since the beginning of February.

The last time the yen (FXY), (YCS) moved this sharply was when President Richard Nixon took the US off the gold standard in 1972, and currencies floated for the first time. The yen immediately shot up 10%.

I remember it like it was yesterday.

There is something unprecedented going on, not with just the yen right now, but with all assets. So I am getting out of the way. If I don't understand what is happening with a position, I drop it like a hot potato.

This could be occurring because Japan's oil bill has been cut in half over the past year, shaving some $125 billion off its annual imports. That means less dollar buying and yen selling to settle the trade.

However, in looking for reasons to explain the madness about us I could be too logical and analytical here.

In my travels around the US two weeks ago, I discovered what might be a more pressing reason to cause all asset classes to go haywire.

I heard on the grapevine that there are at least a half-dozen large hedge funds with tens of billions of dollars in assets each that are going out of business.

Poor performance has led investors to demand redemptions en masse. That means unwinding possibly $100 billion worth of positions.

And every one of these positions was financed by short sales in the Japanese yen. The only way for them to get out of these positions and raise cash is to buy yen, a lot of them, to close

This article was written by

John Thomas is a 50-year veteran of the financial markets. He spent 10 years as a financial journalist, ten more years trading for a major investment bank, and another decade running the first dedicated international hedge funds. Seeing the incredible inefficiencies and severe mispricing offered by the popping of multiple bubbles during the Great Crash of 2008, and missing the adrenaline of the marketplace, he returned to active hedge fund management. With The Diary of a Mad Hedge Fund Trader, his goal is to broaden public understanding of the techniques and strategies employed by the most successful hedge funds so that they may more profitably manage their own money. He publishes a daily research newsletter, and offers one of the most successful trade mentoring services in the industry. He currently has followers in 134 countries. In his free time, John Thomas climbs mountains, does long distance backpacks, practices karate, performs aerobatics in antique aircraft, collects vintages wines, reads the Japanese classics, and engages in a wide variety of public service and philanthropic activities. His career has taken him up to 20,000 feet on Mount Everest, to the edge of space at 90,000 feet in the Cockpit of a MIG-25, and to the depths of a sunken Japanese fleet in the Truk Lagoon. Why they call him "Mad" he will never understand.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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