Thursday, March 01, 2007

Enough Excitement For The Day Already

The market has shown enough excitement in the first half hour of trading that we might as well call it a day already. The DOW plunged more than 200 points after the open, as investors worried about the unwinding of the yen carry trade.

After that initial plunge, the market quickly bottomed and came flying back-- and I mean flying. Just go to your favorite charting service and take a look at the intraday volatility, in just the first hour!

There are trillions of dollars of borrowed yen that speculators have shorted to invest in higher yielding assets around the globe. But as Japan's fiscal year end is near, there is a lot of window dressing being done to shore up positions before the reporting period.

This, in combination with the rise in the Yen, has exacerbated the pressure on the carry trade players to sell stocks around the world and buy back borrowed yen. But as we saw last year, this trend is a short-term phenomenon, and won't likely affect the markets for much longer.

There was also some inflation data (core PCE) that came in a little higher than expected. But despite the negative inflation data, bond yields continued to fall (they should have risen), with the 10-year falling to 4.50%.

Oil is also trading lower ($61.15), which is good as we don't need any additional pressure on the market. The volatility indexes also spiked this morning, indicating another peak in fear. Time to start buying a little.


At 7:38 AM, Blogger Kevin Shuller said...

I don't trust this bounce we are seeing. I think too many people are buying this bounce for this morning's lows to be the bottom. Correct me if I'm wrong, but if the Yen carry trade is unwinding, wouldn't we see the weak dollar plays, like gold, go screaming up? GG has been hit just as hard, if not harder, than anything else the past three days.

I don't think we're through this pain. I think we're close, we're just not there yet. I'm still waiting for the whoosh.


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