JAPAN STRATEGY UPDATE: ALL ABOARD!

Takeaway: We were wrong in calling for investors to tactically take profits Abenomics Trade on 11/27. Carry [trade] on…

On NOV 27, we published a note titled, “THREE COMPELLING REASONS WHY YOU SHOULD TAKE PROFITS IN THE ABENOMICS TRADE NOW” in which we called for a 3-6M correction in the Abenomics Trade (i.e. short JPY/long Japanese equities); while we don’t want to get caught up in overreacting to today’s FOMC decision to commence tapering, that is no longer a view we have any conviction in.

 

In the note specifically, we analyzed three catalysts in support of that now defunct thesis:

 

  1. The Fed will likely dominate headlines with surprising levels of dovish monetary policy amid a 3-6M monetary and fiscal policy vacuum in Japan.
  2. Sentiment towards Japanese equities amongst foreign speculators has reached euphoric levels.
  3. Speculators have recently adopted an overwhelmingly bearish position on the yen. Historically, the USD/JPY cross has faded hard from such aggressive swings in the net length of the futures and options market. Moreover, what’s bullish for the yen has been almost perfectly bearish for Japanese stocks.

 

Clearly, catalyst #1 – which was easily the most important of the three – has now been voided. As such, we are no longer as concerned as we were about the lopsided nature of consensus positioning – which has actually gotten worse (i.e. even more net short) since that note was published.

 

In the spirit of keeping score (timing is the most important factor in any investment thesis we present to subscribers), the USD/JPY cross has appreciated a solid +2.1% since then, while the Nikkei 225 Index has appreciated +0.9% since then (not inclusive of what is likely to be a huge melt-up overnight).

 

Thankfully we weren’t brash enough ignore the existing quantitative signals by making a call to buy the yen or short the Nikkei. Wrong is wrong, however. Now it’s time to move on and trade the market that we’re being presented with today.  

 

As such, while you’re likely to see a near-term correction in the USD/JPY cross as event-driven funds take profits, we now expect what we’ve been expecting since early in the fourth quarter of 2012: the USD/JPY cross is on its way to 125 (and counting) over the intermediate-to-long term.

 

Giddy-up – Kuroda’s just getting started (in recent statements, he’s actually been setting the table to incrementally ease monetary policy by mid-Spring of 2014). Meanwhile, it appears (for now at least) that the central planning law firm of Bernanke, Yellen, Dudley and Bullard LLP is running out of gas. That’s very bearish for the JPY in the context of the intermediate-to-longer-term monetary policy outlook in Japan.

 

Enjoy the rest of your evenings,

 

DD

 

Darius Dale

Associate: Macro Team

 

JAPAN STRATEGY UPDATE: ALL ABOARD! - USDJPY


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more