WHO PUT THE DING-A-LING-DONG IN THE YEN?

Ever get that falling feeling?

Well, if you have then you understand what the Japanese yen's been going through the last few months, dropping about 20% of its value along the way.

With the G20 meeting the next two days in Moscow much of the foreign exchange attention will rivet on Japan and the yen.

Already the yen has captured headlines from hedge funds that have by all reports backed up their truck to haul their winnings away from shorting the yen. Perhaps the biggest investor was George Soros, famous for his previous shorting the UK pound
In 1992.

Given the Japanese government's alleged commitment to intervene if necessary to weaken one of the world's persistently strong currencies some are saying it was bound to happen. Others beg to differ.

One of those is economist Carl Weinberg. Weinberg heads High Frequency Economics, a well-known NewYork economic think tank and consulting firm.

Weinberg seems to think any real government intervention is just so much official "huffing and puffing," he noted in a recent interview. "We see no evidence of central bank intervention in the markets on behalf of governments."

Weinberg went on to say the G7 and G20 countries have to censure Japan by name otherwise they would "forfeit, forever, the option to censure China by name for currency manipulation." He predicted if the G20 don't call Japan out by name, shorting the yen again will be fair game, although he expected any sell-off to be limited.

The magic number for the yen, according to Weinberg, is around 94.20, a technical support level. The yen downturn that began in November should fizzle out there and then resume its appreciation, he said.

STRONG CURRENCY CONSEQUENCES

How many of you remember Laker Airlines?

It was run by a British fellow named Freddy Laker in the 1970s. Laker once offered one-year round trip tickets to Europe for $250.

Some at the time called him the "compassionate hip capitalists." Others referred to him as the "hippie backpacker's savior." But when Freddy and his airline got caught up in what essentially was a volatility crunch, ordering a bunch of new aircraft he couldn't pay for, most just called him broke.

President Nixon closed the gold window in 1973, but it wasn't until 1981 that the US dollar, freed from its gold shackles, was allowed to float or fluctuate freely. The key word here is fluctuate. Given a choice most of us opt for stability and consistency.

Recall those silly exam questions many of us took to get into college, the true or false ones like coffee is to cream as sand is to the sea. Well, volatility is to fluctuation as change is to life. And savvy, successful investors learn to understand and live with volatility. Unsuccessful ones don't.

The late Peter Bernstein in his wonderful book Against the Gods The Remarkable Story of Risk, discussed the sudden outburst of volatility and how fast it can happen. "During the 1970s and the 1980s," Bernstein wrote, "volatility seemed to be breaking out all over, even in places it had been either absent or muted."

As Bernstein recounts, "These unexpected outbreaks of volatility soon littered the corporate landscape with a growing number of carcasses, providing grim warnings to executives that a fundamental change was taking place." One of those carcasses turned out to be Laker Airlines.

Bernstein again: "For example, Laker Airlines, a fabulously successful upstart in transatlantic travel, ended up in bankruptcy after ordering new McDonnell-Douglas aircraft in response to soaring demand; with most of its revenue in pounds and with the foreign value of the dollar climbing higher and higher, Laker found it impossible to earn enough to pay off the dollar obligations on their DC-10s."

THE REAL DANGER

Two cardinal sins among the many that governments commit are propping up markets and keeping interest rates too low too long.

Japan is the latest example where the propping is under way with the second coming of Prime Minister Shinzo Abe and his goal of hogtying the Bank of Japan. Japan, an export-dependent nation, is currently the not-so proud owner of one of the strongest fiat currencies around.

To say that has weakened it exports is putting it mildly. The Land of the Rising Sun has been stuck in a de-leveraging death spiral for 20 years. A small island with an aging population and few natural resources, domestic demand remains in a major funk. Leveraging usually weakens a currency, not the other way around.

CLAIRVOYANT AARDVARKS

Ran into an old friend the other day. We hadn't seen each other for a while. I'm always interested in what he has to say.

Harry's a trader. A contrarian to the core. Years ago when we we first met, I asked what he traded. 

"Everything from bonds to wives," he said, with a slight chuckle.

He's now on his fifth I think. But it's not his expertise as a wife picker I'm interested in though I think some might hold that against him. It's the old book-by-its-cover syndrome. Harry's has a good track record doing what few can really do, calling it correct and making money. And he's made some serious money.

We decided to have lunch over some Italian fare at a little strip-mall joint not far from LAX. Harry's a peripatetic soul. He likes to visit companies and countries. He calls it up close and in the flesh.

"What's your take on the bond market?" I asked, as he slid into the booth across from me and we ordered some tortellini with a bottle of Tuscan red to wash it down.

"Reminds me of my third wife."

"How's that?"

"We're in a state of if-we-don't-look-it-might-go away. She finally did too, took half my grubstake with her."

"That must've stung?"

"Every good trader has to know how to take a loss," he said, laughing at the memory.

"U.S. equities got that PT feeling to them," he said, taking a sip of wine.

"PT?"

"You been watching money flows? Money's been flowing lately into mutuals funds and ETF's faster than Bernanke can print the stuff. Most of it from retail crowd. While back they wanted no part of the action. Peak time."

"So what are you buying now?"

SURPRISE. SURPRISE

The bond market continues to conjure up a plethora of opinions. Some say it's a bubble, some say it isn't, sort of like the old childhood ditty many of us remember: She-loves-me, she-loves-not

.

I recall the tech bubble in 2002 not long before the gas came out of the balloon. At the Las Vegas Money Show thousands of visitors poured through the hundreds of exhibits daily, nearly all of them wearing tech blinders. Day trading was hotter than last year's sex symbol.

IT'S ALL IN THE WEIGHING

Since June of this year after several players on Mexico's national soccer team tested positive for a steroid, clenbuterol, Mexican officials have struggled with tracking down ranchers who supposedly spike livestock feed to make their cattle more attractive come market time.

Steers usually yield about 55% meat. On clenbuterol that yield jumps to around 62-65%. Cattle on the steroid for a month or two, according to some sources, can pack on 100 pounds or more of beef in each steer. If you can hear an old fashion cash register ringing somewhere in the background, you're getting the picture.

Problem here is one man's cash is another's poison, in more ways than one. Innocent people can get caught up like those soccer players who were later exonerated. Other unsuspecting, innocent souls just get sick from eating the contaminated beef, many winding up in the hospital.

The above is an excerpt from a story we penned in October, 2011. The point for here is, the cattle weighed more. In this case they were bloated by the steroids, something the ranchers sought, good thing perhaps for them and not so good for the unsuspecting. 

So it depends on who is controlling the scales. Here it was the ranchers. So keep that in mind as you read the following. It's from the June 4, 2008 issue of the Economic Policy Journal.  

INFLATION

With gas prices at the pump nearing $4 a gallon in So Cal (Some in LA are paying $5 a gallon.), drivers are getting fewer miles per tankful.

Bill Gross, the Pimco bond guru in his latest newsletter discussing monetary policy and the economic recovery, wrote:

Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four new dollars of new credit to generate $1 of real GDP. Over the last decade, it's taken $10, and since 2006, $20 to produce the same result.

Gasoline and GDP both start with the same letter in the alphabet, inflation.

PLATO'S TREE IS MISSING

It probably begs the question, but we'll ask it anyway.

 Why do politicians of whatever political philosophy never seem to understand what Malcolm Gladwell in his book of the same name,The Tipping Point, clearly noted: There
is a limit, as in people will alter their behavior?

The following is from a recent story in The New York Times about what's going on in Greece since the debt crisis began there where salaries and pensions have been cut, unemployment soared to nearly 27% and people are doing what people do when their pain threshold gets crossed or tipped, retrenching.

In raising the taxes, government officials hoped not just to increase revenue but also to equalize taxes on heating oil and diesel, to cut down on the illegal practice of selling cheaper heating oil as diesel fuel. But the effort, which many Greeks dismiss as a cruel stupidity, appears to have backfired in more than one way.

For one thing, the government seems to be losing money on the measure. Many Greeks......are simply not buying any heating oil this year. Sales in the last quarter of 2012 plunged 70 percent from a year earlier, according to official figures.

So while the government has collected more than $63 million in new tax revenue, it appears to have lost far more — about $190 million, according to an association of Greek oil suppliers — in revenue from sales taxes on the oil.

Grade school math says that's more than three times what the government took in and they most likely pissed a bunch of Greeks off in the process. This is a story about heating oil, in case you didn't catch it, poor, middle class and no-so middle class people trying to heat their homes and stay warm in the winter.

Meanwhile, many Greeks are suffering from the cold. In one recent survey......nearly 80 percent of respondents in northern Greece said they could not afford to heat their homes properly.

The return to wood burning is also taking a toll on the environment. Illegal logging in national parks is on the rise, and there are reports of late-night thefts of trees and limbs from city parks in Athens, including the disappearance of the olive tree planted where Plato is said to have gone to study in the shade.

At the same time, the smoke from the burning of wood — and often just about anything else that will catch fire — has caused spikes in air pollution that worry health officials. On some nights, the smog is clearly visible above Thessaloniki, Greece's second-largest city, and in Athens, where particulate matter has been measured at three times the normal.

All this in what officials describe as not an unusually cold winter and, according to one official, so far there are no signs that the tax has discouraged illicit sales of heating oil.

Government officials, however, according to the story, say it's "too early to judge the new tax. The winter is not yet over." And Harry Theroharis, the Secretary General of the Ministry of Finance, called the situation a complex environment too complicated to blame the result solely on the new tax.

Meanwhile, though it's just hearsay. One recent cold night in Athens two elderly gentlemen involved in a heated discussion were spotted rubbing their hands together over a crackling bonfire. A passerby reportedly overheard one telling the other: "Aw, hell, it was an old tree anyway."

VIEW FROM HERE

Jobs, Jobs, Jobs
There's been much discussion about the recently released unemployment numbers and the so-called new discovered jobs from earlier months.

The key item here is new discovered jobs or upward revision. Though this is not new, quite often the numbers often get revised, up or down. That's the part you should be paying attention to, revisions as in suspect.

Supposedly they found more new jobs but overall unemployment went up to 7.8. With the so-called unemployment number set for the Fed to turn off the monetary printers at 6.5 you should be asking what's so magical in that figure?

The next thing you ought to be asking yourself as an investor is what's on the list of things the government does efficiently: balance the budget, control spending, run Amtrak and the postal service?

HIP-HIP HOORAY
Pay-to-delay may be on its way out with the impending departure next week of the Federal Trade Commission head Jon Leibowitz.
According to some, Leibowitz has been a big thorn in the side of big pharmaceuticals and their pay-to-delay deals with generic drug manufacturers.

Simply put, the big boys would agree to a settlement to pay up if the generics would delay production of the knock-off drugs and end any litigation. Leibowitz argued the delay cost consumers money and were anti-competitive.

Costing folks money--especially if its big pharmacy--will get you some attention. Next month the Supreme Court will review those agreements. However the court decides, they'll most likely be some hip-hip hooraying going on by one group or the other.

The Market And Boxing
In boxing there's an imaginary line separating the fighters. Once one of them crosses that line, it's on. The same applies to markets that get ahead of themselves, something many believe this current market has. Different traders have different numbers they're looking for to signal the start. But be assured there's one there and most likely it's much closer than retail investors think

PIMPING

PIMP ZONE

Pimps come in all sizes, shapes and colors. It's got to be right up there with the oldest professions, like lobbying. 

There are pimps on the left, pimps on the right, pimps in the media, pimps everywhere. It almost sounds like something from a Tennyson poem and we the folks are the noble 600.

What the pimps on the left like economist Paul Krugman and his Twitter crowd don't seem to want to get is there's a lack of confidence owing to a disease all politicos seem to have, left, right or abstaining, the acute absence of fiscal responsibility. A cynic might argue any responsibility. 

In musical terms it's a bad case of the economic blues not completely of our own doing.  And what they all miss is, to paraphrase that famous St. Louis economist Chuck Berry, sooner most likely rather than later, Beethoven is about to roll over and give Tchaikovsky the news.